As filed with the Securities and Exchange Commission on May 3, 1999
Registration Nos. 33-23512, 811-5629
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Registration Statement under the Securities Act of 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 40 [X]
and/or
Registration Statement under the Investment Company Act of 1940 [X]
Amendment No. 41
(Check appropriate box or boxes)
THE GCG TRUST
(Exact Name of Registrant as Specified in Charter)
1475 Dunwoody Drive
West Chester, PA 19380
(Address of Principal Executive Offices)
[610-425-3400]
(Registrant's Telephone Number, including Area Code)
Marilyn Talman, Esq.
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380
(Name and Address of Agent for Service)
----------
Approximate Date of Proposed Public Offering
As soon as practical after the effective date of the Registration Statement
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on __________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on __________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on __________ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
----------
<PAGE>
PROSPECTUS #1
THE GCG TRUST
<PAGE>
THE GCG TRUST
PROSPECTUS
MAY 1, 1999
MONEY MARKET FUND
Liquid Asset Series
BOND FUNDS
Limited Maturity Bond Series
Global Fixed Income Series
BALANCED FUND
Total Return Series
STOCK FUNDS
DOMESTIC
Equity Income Series
Fully Managed Series
Rising Dividends Series
Growth & Income Series
Growth Series
Value Equity Series
Research Series
Mid-Cap Growth Series
All-Growth Series
Growth Opportunities Series
Strategic Equity Series
Capital Appreciation Series
Small Cap Series
Real Estate Series
Hard Assets Series
INTERNATIONAL/GLOBAL
Managed Global Series
Developing World Series
Emerging Markets Series
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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.
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION,
WE REFER TO THE GCG TRUST AS "THE GCG TRUST," AND TO A SERIES OF
THE GCG TRUST INDIVIDUALLY AS A "PORTFOLIO" AND COLLECTIVELY AS THE
"PORTFOLIOS."
<TABLE>
<S> <C> <S> <C>
PAGE PAGE
INTRODUCTION Equity Income 51
Investing through your Variable Fully Managed 51
Contract 1 Rising Dividends 52
Why Reading this Prospectus is Growth & Income 52
Important 1 Growth 53
Types of Funds 1 Value Equity 53
General Risk Factors 2 Research 54
Mid-Cap Growth 54
PORTFOLIOS AT A GLANCE All-Growth 55
Liquid Asset 3 Growth Opportunities 55
Limited Maturity Bond 5 Strategic Equity 56
Global Fixed Income 7 Capital Appreciation 56
Total Return 9 Small Cap 57
Equity Income 11 Real Estate 57
Fully Managed 13 Hard Assets 58
Rising Dividends 15 Managed Global 58
Growth & Income 17 Developing World 59
Growth 19 Emerging Markets 59
Value Equity 21
Research 23 DESCRIPTION OF THE PORTFOLIOS
Mid-Cap Growth 25 Liquid Asset 60
All-Growth 27 Limited Maturity Bond 62
Growth Opportunities 29 Global Fixed Income 64
Strategic Equity 31 Total Return 67
Capital Appreciation 33 Equity Income 71
Small Cap 35 Fully Managed 73
Real Estate 37 Rising Dividends 75
Hard Assets 39 Growth & Income 77
Managed Global 41 Growth 79
Developing World 43 Value Equity 81
Emerging Markets 45 Research 83
Mid-Cap Growth 85
MORE INFORMATION All-Growth 88
A Word about Portfolio Diversity 47 Growth Opportunities 90
Additional Information about the Strategic Equity 92
Portfolios 47 Capital Appreciation 94
Non-Principal Investments and Small Cap 96
Strategies 47 Real Estate 98
Temporary Defensive Positions 47 Hard Assets 100
Portfolio Turnover 47 Managed Global 103
Legal Counsel 47 Developing World 105
Independent Auditors 47 Emerging Markets 108
Year 2000 48
OVERALL MANAGEMENT OF THE TRUST
FINANCIAL HIGHLIGHTS The Adviser 111
Liquid Asset 49 Advisory Fee 112
Limited Maturity Bond 49
Global Fixed Income 50 SHARE PRICE 112
Total Return 50 TAXES AND DISTRIBUTIONS 114
</TABLE>
AN INVESTMENT IN ANY PORTFOLIO OF THE GCG TRUST IS NOT A BANK DEPOSIT
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY.
i
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
INTRODUCTION
- -------------------------------------------------------------------------
INVESTING THROUGH YOUR VARIABLE MONEY MARKET FUNDS. Money market
CONTRACT instruments (also known as cash
Shares of the portfolios of the investments) are debt securities
GCG Trust currently are sold to issued by governments,
segregated asset accounts corporations, banks, or other
("Separate Accounts") of insurance financial institutions.
companies as funding choices for
variable annuity contracts and BOND FUNDS. Bonds are debt
variable life insurance policies securities representing loans
("Variable Contracts"). Assets in from investors. A bond fund's
the Separate Account are invested share price - and therefore the
in shares of the portfolios based value of your investment - can
on your allocation instructions. rise or fall in value because
Not all portfolios described in of changing interest rates or
this prospectus may be available other factors.
under your Variable Contract. You
do not deal directly with the BALANCED FUNDS. A balanced fund
portfolios to purchase or redeem holds a mix of stocks, bonds,
shares. The accompanying Separate and sometimes, cash
Account prospectus describes your investments. A balanced fund
rights as a Variable Contract offers the convenience of
owner. We may sell shares of the investing in both stocks and
portfolios to qualified pension bonds through a single fund.
and retirement plans outside of
the separate account context. STOCK FUNDS. Stocks - which
represent shares of ownership
WHY READING THIS PROSPECTUS IS in a company - generally offer
IMPORTANT the greatest potential for long
This prospectus explains the term growth of principal. Many
investment objective, risks and stocks also provide regular
strategy of each of the portfolios dividends, which are generated
of the GCG Trust. Reading the by corporate profits. While
prospectus will help you to decide stocks have historically
whether a portfolio is the right provided the highest long-term
investment for you. We suggest returns, they have also
that you keep this prospectus and exhibited the greatest short-
the prospectus for the Separate term price fluctuations - so a
Account for future reference. stock fund has a higher risk of
losing value over the short
TYPES OF FUNDS term.
The portfolios are generally
classified among three major asset
classes: stock, bond and money
market.
MONEY MARKET BOND STOCK
FUNDS FUNDS FUNDS
|----------------------------------------------------------|
| LOWER <---------- RISK/RETURN ----------> HIGHER |
|----------------------------------------------------------|
1
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
INTRODUCTION (CONTINUED)
- -------------------------------------------------------------------------
GENERAL RISK FACTORS for shorter-
Investing in the portfolios, as term bonds, moderate for
with an investment in any intermediate-term bonds, and
security, involves risk factors high for longer-term bonds. A
and special considerations. A bond's duration measures its
portfolio's risk is defined sensitivity to changes in
primarily by its principal interest rates. The longer
investment strategies. An the duration, the greater the
investment in a portfolio is not bond's price movement will be
insured against loss of principal. as interest rates change.
As with any mutual fund, there can
be no assurance that a portfolio o CREDIT RISK. A bond issuer
will achieve its investment (debtor) may fail to repay
objective. Investing in shares of interest and principal in a
a portfolio should not be timely manner. The price of a
considered a complete investment security a portfolio holds may
program. The share value of each fall due to changing economic,
portfolio (except for the Liquid political or market conditions
Asset Portfolio) will rise and or disappointing earnings
fall. Although the Liquid Asset results.
Portfolio seeks to preserve the
value of your investment at $1.00 o CALL RISK. During periods of
per share, it is still possible to falling interest rates, a bond
lose money. issuer may "call," or repay,
It is important to keep in mind its high yielding bond before
one of the main axioms of the bond's maturity date.
investing: The higher the risk of Forced to invest the
losing money, the higher the unanticipated proceeds at
potential reward. The lower the lower interest rates, a
risk, the lower the potential portfolio would experience a
reward. As you consider an decline in income.
investment in a portfolio, you
should take into account your o MATURITY RISK. Interest rate
personal tolerance for investment risk will affect the price of
risk. a fixed income security more
if the security has a longer
OVERALL RISK: maturity because changes in
interest rates are
o MANAGER RISK. A portfolio increasingly difficult to
manager of a portfolio may do predict over longer periods of
a mediocre or poor job in time. Fixed income securities
selecting securities. with longer maturities will
therefore be more volatile
RISK RELATED TO STOCK INVESTING: than other fixed income
securities with shorter
o MARKET AND COMPANY RISK. The maturities. Conversely, fixed
price of a security held by a income securities with shorter
portfolio may fall due to maturities will be less
changing economic, political volatile but generally provide
or market conditions or lower returns than fixed
disappointing earnings income securities with longer
results. Stock prices in maturities. The average
general may decline over short maturity of a portfolio's
or even extended periods. The fixed income investments will
stock market tends to be affect the volatility of the
cyclical, with periods when portfolio's share price.
stock prices generally rise
and periods when stock prices Because of these and other risks
generally decline. Further, that may be particular to a
even though the stock market portfolio, your investment could
is cyclical in nature, returns lose or not make any money.
from a particular stock market
segment in which a portfolio
invests may still trail
returns from the overall stock
market.
RISKS RELATED TO BOND INVESTING:
o INCOME RISK. A portfolio's
income may fall due to falling
interest rates. Income risk
is generally the greatest for
short-term bonds, and the
least for long-term bonds.
Changes in interest rates will
affect bond prices as well as
bond income.
o INTEREST RATE RISK. This is the
risk that bond prices overall
will decline over short or
even extended periods due to
rising interest rates.
Interest rate risk is
generally modest
2
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE
- -------------------------------------------------------------------------
LIQUID ASSET PORTFOLIO
INVESTMENT
OBJECTIVE High level of current income consistent with
the preservation of capital and liquidity
PRINCIPAL The Portfolio Manager strives to maintain a
INVESTMENT stable $1 per share net asset value and its
STRATEGY investment strategy focuses on safety of
principal, liquidity and yield, in order of
importance, to achieve this goal. The
management team implements its strategy
through a four-step investment process
designed to ensure adherence to regulatory
requirements.
Step One: The Portfolio Manager
actively maintains a formal Approved
List of high quality companies.
Step Two: Securities of Approved
List issuers that meet maturity
guidelines and are rated in one of the
two highest ratings category (or
determined to be of comparable quality
by the Portfolio Manager) are eligible
for investment
Step Three: Eligible securities are
reviewed to ensure that an investment
in such securities would not cause the
Portfolio to exceed its
diversification limits.
Step Four: The Portfolio Manager
makes yield curve positioning
decisions based on liquidity
requirements, yield curve analysis and
market expectations of future interest
rates
Money market funds are highly regulated by
Rule 2a-7 of the Investment Company Act of
1940, which sets forth specific maturity,
quality and diversification guidelines. The
Portfolio must adhere to procedures adopted by
the Board of Trustees pursuant to Rule 2a-7
and to Rule 2a-7 itself. Some of these
limitations include:
o QUALITY. At least 95% of the Portfolio's
investments must be rated in the highest
short-term ratings category and the
Portfolio Manager must make an independent
determination that each investment
represents minimal credit risk to the
Portfolio.
o MATURITY. The average maturity of the
portfolio may not exceed 90 days and the
maturity of any individual security may
not exceed 397 days.
o DIVERSIFICATION. Generally, at the time
of purchase, no more than 5% of total
assets may be invested in the securities
of a single issuer and no more than 10% of
total assets may be subject to demand
features or guarantees from a single
institution.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
LIQUID ASSET
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<xXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
3
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INCOME RISK
o CREDIT RISK o INTEREST RATE RISK
AN INVESTMENT IN THE LIQUID ASSET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE PORTFOLIO
SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE PORTFOLIO.
PERFORMANCE The value of your shares in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. ING Investment Management LLC
or its affiliate has managed the Portfolio
since August 13, 1996. Prior to that date,
different firms managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
LIQUID ASSET -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
7.75% 5.66% 3.13% 2.64% 3.89% 5.51% 5.01% 5.07% 5.13%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN | | BEST QUARTER |
|-------------------------------------------------| |--------------------|
| 1 YEAR 5 YEAR 1/24/89 | | Quarter Ended |
| (INCEPTION)| | |
| Portfolio's Average | | 6/30/89... 2.19% |
| Annual Total Return 5.13% 4.88% 5.15% | | |
| | |--------------------|
| | | WORST QUARTER |
| | |--------------------|
| | | Quarter Ended |
| | | |
| | | 6/30/93... 0.63% |
| | | |
|-------------------------------------------------| |--------------------|
The Portfolio's 7-day yield as of December 31, 1998 was 4.64%. Call
toll free 1-800-366-0066 for the Portfolio's current 7-day yield.
4
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
LIMITED MATURITY BOND PORTFOLIO
INVESTMENT
OBJECTIVE Highest current income consistent with low
risk to principal and liquidity
As a secondary objective, the Portfolio 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.
PRINCIPAL The Portfolio invests primarily in a
INVESTMENT diversified portfolio of limited maturity debt
STRATEGY securities. At the time of purchase, the debt
securities generally will mature in seven
years or less. The average maturity of the
Portfolio generally will not exceed five
years, although, in periods of rapidly rising
interest rates the Portfolio Manager may
shorten maturities to one year or less.
To achieve the Portfolio's objective, the
Portfolio Manager:
o manages the Portfolio's maturities
o analyzes technical data in order to
determine which investment choices offer
the best value
o over-weights or under-weights the sectors
in which the Portfolio may invest relative
to the benchmark based on sector analysis
and market opportunities
o selects securities with positive credit
fundamentals, liquidity and relative value
within sectors
The Portfolio Manager selects debt instruments
from the following broad sectors:
o U.S. Treasury o U.S. Government
securities Agency securities
o corporate securities o mortgage-backed
securities
o asset-backed o money market
securities securities
Eligible security types include corporate
securities, U.S. treasury securities, U.S.
Government Agency securities, variable or
floating rate securities, mortgage-backed
securities, asset-backed securities, dollar-
denominated foreign securities, money market
securities, reverse repurchase agreements,
shares of other investment companies, futures,
options and options on futures, sovereign
debt, supranational organizations and real
estate investment trusts (REITS).
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
LIMITED MATURITY BOND
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
5
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that you will lose
RISKS money or not make money. An investment in the Portfolio is
subject to the following principal risks described under
"Introduction - General Risk Factors":
o MANAGER RISK o INTEREST RATE RISK
o CALL RISK o INCOME RISK
o CREDIT RISK
PERFORMANCE The value of your share in a portfolio will
The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. ING Investment Management LLC
or its affiliate has managed the Portfolio
since August 13, 1996. Prior to that date,
different firms managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
LIMITED MATURITY BOND -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
7.87% 11.27% 4.84% 6.20% -1.19% 11.72% 4.32% 6.67% 6.86%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 6/30/89... 4.93% |
| Portfolio's Average | | |
| Annual Total Return 6.86% 5.59% 6.80% | |--------------------|
| Merrill Lynch 1-5 Year | | WORST QUARTER |
| Corporate/Government | |--------------------|
| Bond Index 7.68% 6.28% 7.92% | | Quarter Ended |
| | | |
| | | 3/31/94...(1.04)% |
| | | |
|-------------------------------------------------| |--------------------|
The Merrill Lynch 1-5 Year Corporate/Government Bond Index is
comprised of intermediate-term U.S. government securities and
investment-grade corporate debt securities.
6
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
INVESTMENT
OBJECTIVE High total return
PRINCIPAL
INVESTMENT The Portfolio invests primarily in high-grade debt
STRATEGY securities, both foreign and domestic, and related
foreign currency transactions. The Portfolio
primarily invests in:
o obligations issued or guaranteed by foreign
national governments, or their agencies,
instrumentalities or political subdivisions
o U.S. Government securities
o debt securities issued or guaranteed by
supranational organizations, considered to be
"government securities"
o non-government foreign and domestic debt
securities, including corporate debt securities,
bank obligations, mortgage-backed or asset-backed
securities, and repurchase agreements
The Portfolio Manager allocates the Portfolio's
investments among those markets, companies and
currencies that offer the most attractive combination
of high income and principal stability.
In evaluating investments for the Portfolio, 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 Portfolio is non-diversified and, when compared
with other funds, may invest a greater portion of its
assets in a particular issuer. A non-diversified
portfolio has greater exposure to the risk of default
or the poor earnings of the issuer.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
GLOBAL FIXED INCOME
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
7
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that you will
RISKS lose money or not make money. An investment in the
Portfolio is subject to the following principal risks
described under "Introduction - General Risk Factors":
o MANAGER RISK o CREDIT RISK
o INCOME RISK o CALL RISK
o INTEREST RATE RISK
An investment in the Portfolio is subject to the
following additional principal risks described under
"Description of the Portfolios - Global Fixed Income
Portfolio":
o FOREIGN INVESTMENT AND CURRENCY RISK
o EMERGING MARKET RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Global Fixed Income
Portfolio became available to investors on
August 17, 1998, performance information on
previous full years is not available. Baring
International Investment Limited has managed
the Portfolio since its inception.
8
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
TOTAL RETURN PORTFOLIO
INVESTMENT Above-average income (compared to a portfolio
OBJECTIVE entirely invested in equity securities)
consistent with the prudent employment of
capital. A secondary goal is the reasonable
opportunity for growth of capital and income.
PRINCIPAL
INVESTMENT The Portfolio is a "balanced fund," and
STRATEGY invests in a combination of equity and fixed
income securities. The Portfolio normally
invests:
o at least 40%, but not more than 75%, of
its assets in common stocks and related
equity securities
o at least 25% of its assets in non-
convertible fixed income securities
EQUITY PORTION. The Portfolio Manager uses a
bottom-up, as opposed to a top-down,
investment style in managing the Portfolio.
This means that securities are selected based
on fundamental analysis performed by the
Portfolio Manager and its group of equity
research analysts and not selected based on
the industry in which they belong.
While the Portfolio may invest in all types of
equity securities, the Portfolio Manager
generally purchases equity securities of
companies that it believes are undervalued in
the market relative to their long-term
potential. The equity securities of these
companies may be undervalued because they are
temporarily out of favor in the market or the
market has overlooked them. The Portfolio
focuses on undervalued equity securities
issued by companies with relatively large
market capitalizations (i.e., market
capitalizations of $5 billion or more).
FIXED INCOME PORTION. The Portfolio invests
in securities that pay a fixed interest rate,
which include:
o U.S. government o corporate bonds
securities
o mortgage-backed and asset-backed
securities
In selecting fixed income investments for the
Portfolio, the Portfolio Manager assesses the
three-month outlook for various segments of
the fixed income markets.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
TOTAL RETURN
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
9
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
This three-month
"horizon" outlook is used as a tool in making
or adjusting the Portfolio's asset allocations
to various segments of the fixed income
markets.
The Portfolio may invest up to 20% of its
assets in U.S. Government securities, mortgage
pass-through securities, American Depositary
Receipts and foreign securities (including in
emerging or developing markets) and lower
rated fixed income securities.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money.
An investment in the Portfolio is subject to
the following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INTEREST RATE RISK
o INCOME RISK o CREDIT RISK
o CALL RISK o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
Total Return Portfolio":
o ALLOCATION RISK o UNDERVALUED SECURITIES RISK
o CONVERTIBLE o HIGH YIELD BOND RISK
SECURITIES RISK
o EMERGING MARKET o FOREIGN INVESTMENT AND
RISK CURRENCY RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Total Return Portfolio
became available to investors on August 17,
1998, performance information on previous full
years is not available. Massachusetts
Financial Services Company has managed the
Portfolio since its inception.
10
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
(FORMERLY, THE MULTIPLE ALLOCATION PORTFOLIO)
INVESTMENT
OBJECTIVE Substantial dividend income as well as long-
term growth of capital
PRINCIPAL The Portfolio normally invests at least 65% of
INVESTMENT its assets in the common stocks of well-
STRATEGY established companies paying above-average
dividends. The Portfolio Manager typically
employs a "value" approach in selecting
investments. The Portfolio Manager's in-house
research team seeks companies that appear to
be undervalued by various measures and may be
temporarily out of favor, but have good
prospects for capital appreciation and
dividend growth.
In selecting investments, the Portfolio
Manager generally looks for companies with the
following:
o an established operating history
o above-average dividend yield relative to
the S&P 500
o low price/earnings ratio relative to the
S&P 500
o a sound balance sheet and other positive
financial characteristics
o low stock price relative to a company's
underlying value as measured by assets,
cash flow or business franchises
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Equity Income Portfolio":
o VALUE INVESTING RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
EQUITY INCOME
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11
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. T. Rowe Price Associates,
Inc. has managed the Portfolio since March 1,
1999. Prior to that date, different firms
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
EQUITY INCOME -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
4.74% 20.02% 1.88% 11.13% -1.18% 18.93% 8.77% 17.44% 8.26%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 3/31/91... 8.42% |
| Portfolio's Average | | |
| Annual Total Return 8.26% 10.21% 9.75% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 24.05% 18.51% | |--------------------|
| Lehman Brothers Inter- | | Quarter Ended |
| mediate Government/ | | |
| Corporate Bond Index 8.44% 6.60% 8.47% | | 3/31/92...(4.00)% |
| 40% S&P/60% Lehman | | |
| Index 16.56% 13.58% 12.49% | |--------------------|
| |
|-------------------------------------------------|
The Standard & Poor's 500 Index is comprised
of 500 U.S. stocks. The Lehman Brothers
Intermediate Government/Corporate Bond Index
comprises of intermediate-term U.S. government
securities and investment-grade corporate debt
securities.
12
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
FULLY MANAGED PORTFOLIO
INVESTMENT Over the long term, a high total investment
OBJECTIVE return, consistent with the preservation of
capital and with prudent investment risk
PRINCIPAL The Portfolio invests primarily in the common
INVESTMENT stocks of established companies the Portfolio
STRATEGY Manager believes to have above-average
potential for capital growth. Common stocks
typically make up at least half of the
Portfolio's total assets. The Portfolio may
also invest in other securities, including
convertibles, warrants, preferred stocks,
corporate and government debt, foreign
securities, futures, and options, in keeping
with its objective.
The Portfolio's approach differs from that of
many other stock funds. The Portfolio Manager
works as hard to reduce risk as to maximize
gains and may realize gains rather than lose
them in market declines. In addition, the
Portfolio Manager searches for the best
risk/reward values among all types of
securities. The portion of the Portfolio
invested in a particular type of security,
such as common stocks, results largely from
case-by-case investment decisions, and the
size of the Portfolio's cash reserve may
reflect the Portfolio Manager's ability to
find companies that meet valuation criteria
rather than his market outlook.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INTEREST RATE RISK
o CALL RISK o INCOME RISK
o MARKET AND COMPANY o CREDIT RISK
RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Fully Managed Portfolio":
o VALUE INVESTING RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
FULLY MANAGED
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
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<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
13
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. T. Rowe Price Associates,
Inc. has managed the Portfolio since January
1, 1995. Prior to that date, a different firm
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
FULLY MANAGED -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
-3.18% 28.93% 6.23% 7.59% -7.27% 20.80% 16.36% 15.27% 5.98%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 3/31/91... 9.92% |
| Portfolio's Average | | |
| Annual Total Return 5.89% 9.73% 9.02% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 24.05% 18.51% | |--------------------|
| Lehman Brothers Inter- | | Quarter Ended |
| mediate Government/ | | |
| Corporate Bond Index 9.47% 7.30% 9.2% | | 9/30/90..(10.81)% |
| 60% S&P/40% Lehman | | |
| Index 20.62% 17.35% 14.81% | |--------------------|
| |
|-------------------------------------------------|
The Standard & Poor's 500 Index is comprised
of 500 U.S. stocks. The Lehman Brothers
Intermediate Government/Corporate Bond Index
comprises of intermediate-term U.S. government
securities and investment-grade corporate debt
securities.
14
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
RISING DIVIDENDS PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation. A secondary objective
is dividend income.
PRINCIPAL
INVESTMENT The Rising Dividends Portfolio invests in high-
STRATEGY quality equity securities, most of which meet
all of the following quality criteria:
o regular dividend increases during the last
10 years
o at least 35% of earnings reinvested
annually
o credit rating of "A" to "AAA" or
equivalent
In selecting equity securities, the Portfolio
Manager screens databases to create a universe
of companies that meet the preceding criteria.
The Portfolio Manager then fundamentally
analyzes the securities. This research
involves study of competitive industry
conditions, discussions with company
management, spreadsheet analysis, and
valuation projections. A proprietary computer
model compares expected rates of return for
each equity security in the universe. In
deciding whether to purchase a security, the
Portfolio Manager appraises a company's
fundamental strengths and relative
attractiveness based on its expected return.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Rising Dividends Portfolio":
o MANAGEMENT TECHNIQUE RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
RISING DIVIDENDS
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
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<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
15
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Kayne Anderson Investment
Management, LLC has managed the Portfolio
since its inception.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
RISING DIVIDENDS -- ANNUAL TOTAL RETURN
Year 1994 1995 1996 1997 1998
0.59% 31.06% 20.65% 29.82% 14.13%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 10/4/93 | | |
| (INCEPTION)| | 12/31/98... 17.29% |
| Portfolio's Average | | |
| Annual Total Return 14.13% 18.70% 18.47% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 24.05% 23.32% | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98..(14.88)% |
| | | |
|-------------------------------------------------| |--------------------|
The Standard & Poor's 500 Index is comprised
of 500 U.S. stocks.
16
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
GROWTH & INCOME PORTFOLIO
INVESTMENT
OBJECTIVE Long-term total return
PRINCIPAL
INVESTMENT The Portfolio invests primarily in common
STRATEGY stocks of companies where the potential for
change (earnings acceleration) appears
significant.
The Portfolio Manager applies a growth-
oriented investment philosophy defined by its:
o Early recognition of change
o Value is created through the dynamics of
changing economic, industry and company
fundamentals
o The Portfolio Manager's willingness to
invest on incomplete information
o Judgment about the future, not merely
extrapolation of the past
o Invest in one to two year relative
earnings strength at an early stage and at
a reasonable price
o COMMITMENT TO FUNDAMENTAL RESEARCH
o Twenty-one fundamental analysts covering
U.S. companies
o EMPHASIS ON STOCK SELECTION
o Emphasis on companies and industries where
the potential for change (earnings
acceleration) is significant
o Remain fully invested
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
GROWTH & INCOME
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
17
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Growth & Income Portfolio":
o GROWTH INVESTING RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Growth & Income
Portfolio became available to investors on
August 17, 1998, performance information on
previous full years is not available.
Alliance Capital Management L.P. has managed
the Portfolio since March 1, 1999. Prior to
that date, a different firm managed the
Portfolio.
18
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
GROWTH PORTFOLIO
(FORMERLY, THE VALUE + GROWTH PORTFOLIO)
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio invests primarily in common
INVESTMENT stocks of growth companies that have favorable
STRATEGY relationships between price/earnings ratios
and growth rates in
sectors offering the potential for above-
average returns.
The Portfolio invests primarily in common
stocks the Portfolio Manager believes will
appreciate in value. The Portfolio Manager
generally takes a "bottom up" approach to
selecting companies. In other words, it seeks
to identify individual companies with earnings
growth potential that may not be recognized by
the market at large. It makes this assessment
by looking at companies one at a time,
regardless of size, country of organization,
place of principal business activity, or other
similar selection criteria. Income is not a
significant consideration when choosing
investments for the Portfolio.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
Growth Portfolio":
o GROWTH INVESTING RISK
o SMALL COMPANY RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
o HIGH YIELD BOND RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
GROWTH
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
19
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Growth Portfolio became
available to investors on August 17, 1998,
performance information on previous full years
is not available. Janus Capital Corporation
has managed the Portfolio since March 1, 1999.
Prior to that date, a different firm managed
the Portfolio.
20
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation. Dividend income is a
secondary objective.
PRINCIPAL The Portfolio normally invests primarily in
INVESTMENT common stocks of domestic and foreign issuers
STRATEGY that meet quantitative standards relating to
financial soundness and high intrinsic value
relative to price.
In selecting equity securities, the Portfolio
Manager identifies stocks trading at a
significant discount to their underlying
intrinsic value that fall into at least one of
three basic categories:
o "Pure" value opportunities -- stocks that
appear attractive relative to the broader
market
o "Relative" value opportunities -- stocks
that trade at a discount to the valuation
parameters historically applied to them or
their peer group
o "Event-driven" value opportunities --
stocks whose underlying value may be
recognized as a result of a realized or
anticipated event
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Value Equity Portfolio":
o VALUE INVESTING RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
VALUE EQUITY
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
IN THIS PORTFOLIO AS COMPARED TO OTHER GCG TRUST PORTFOLIOS.]
21
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Eagle Asset Management, Inc.
has managed the Portfolio since its inception.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
VALUE EQUITY -- ANNUAL TOTAL RETURN
Year 1995 1996 1997 1998
35.21% 10.62% 27.28% 1.55%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 1/3/95 | | |
| (INCEPTION)| | 12/31/98... 17.34% |
| Portfolio's Average | | |
| Annual Total Return 1.55% 17.96% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 30.49% | |--------------------|
| Russell Midcap Index 10.09% 22.78% | | Quarter Ended |
| | | |
| | | 9/30/98..(13.99)% |
| | | |
|-------------------------------------------------| |--------------------|
The Standard & Poor's 500 Index is comprised
of 500 U.S. stocks. The Russell Midcap Index
consists of the 800 smallest companies in the
Russell 1000 Index, which contains the 1,000
largest companies in the U.S.
22
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
RESEARCH PORTFOLIO
INVESTMENT
OBJECTIVE Long-term growth of capital and future income
PRINCIPAL The Portfolio normally invests at least 80% of
INVESTMENT its total assets in common stocks and related
STRATEGY securities (such as preferred stock,
convertible securities and depositary
receipts). The Portfolio focuses on companies
that the Portfolio Manager believes have
favorable prospects for long-term growth,
attractive valuations based on current and
expected earnings or cash flow, dominant or
growing market share and superior management.
The Portfolio may invest in companies of any
size. The Portfolio's investments may also
include foreign securities, and securities
traded on securities exchanges or in the over-
the-counter markets.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to the
following additional principal risks described
under "Description of the Portfolios-Research
Portfolio":
o OTC INVESTMENT RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
RESEARCH
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
23
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Research Portfolio
became available to investors on August 17,
1998, performance information on previous full
years is not available. Massachusetts
Financial Services Company has managed the
Portfolio since its inception.
24
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
MID-CAP GROWTH PORTFOLIO
INVESTMENT
OBJECTIVE Long-term growth of capital
PRINCIPAL The Portfolio normally invests at least 65% of
INVESTMENT its assets in common stocks and related equity
STRATEGY securities (such as preferred stock,
convertible securities and depositary
receipts) of companies with medium market
capitalizations (or "mid-cap") which the
Portfolio Manager believes have above-average
growth potential.
The Portfolio Manager defines mid-cap
companies as companies with market
capitalizations equaling or exceeding $250
million but not exceeding the top range of the
Russell Midcap/tm/ Growth Index at the time of
the Portfolio's investment.
Growth companies are companies that the
Portfolio Manager considers well-run and
poised for growth. The Portfolio Manager
looks particularly for companies which
demonstrate:
o a strong franchise, strong cash flows and
a recurring revenue stream
o a solid industry position, where there is
potential for high profit margins and
substantial barriers to new entry in the
industry
o a strong management team with a clearly
defined strategy
o a catalyst that may accelerate growth
The Portfolio Manager uses a bottom-up, as
opposed to a top-down, investment style in
managing the Portfolio. This means that
securities are selected based on fundamental
analysis performed by the Portfolio Manager
and its group of equity research analysts and
generally not selected based on the industry
in which they belong.
The Portfolio is non-diversified and, when
compared with other funds, may invest a
greater portion of its assets in a particular
issuer. A non-diversified portfolio has
greater exposure to the risk of default or the
poor earnings of the issuer.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
MID-CAP GROWTH
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
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<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
25
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
Mid-Cap Growth Portfolio":
o MID-CAP COMPANY RISK
o OTC INVESTMENT RISK
o EMERGING MARKETS RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Mid-Cap Growth
Portfolio became available to investors on
August 17, 1998, performance information on
previous full years is not available.
Massachusetts Financial Services Company has
managed the Portfolio since its inception.
26
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
ALL-GROWTH PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio normally invests primarily in
INVESTMENT growth securities (such as common stocks) of
STRATEGY middle-range capitalization (or "mid-cap")
companies. Mid-cap companies in which the
Portfolio invests generally have market
capitalizations or annual revenues between
$500 million and $10 billion. Growth
securities in which the Portfolio invests are
primarily common stocks that the Portfolio
Manager believes have strong earnings growth
and capital appreciation potential.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction-General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
All-Growth Portfolio":
o MID-CAP COMPANY RISK
o GROWTH INVESTING RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
ALL-GROWTH
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
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<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
27
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Pilgrim Baxter & Associates
Ltd. has managed the firm since February 3,
1997. Prior to that date, different firms
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
ALL-GROWTH -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
-7.35% 36.48% -2.59% 6.56% -10.77% 22.42% -0.57% 5.87% 9.52%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 12/31/98... 25.89% |
| Portfolio's Average | | |
| Annual Total Return 9.52% 4.72 5.93% | |--------------------|
| | | WORST QUARTER |
| Russell Midcap Index 10.09% 17.75 16.15% | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98..(21.08)% |
| | | |
|-------------------------------------------------| |--------------------|
The Russell 1000 Index consists of the 800
smallest companies in the Russell 1000 Index,
which contains the 1,000 largest companies in
the U.S.
28
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
GROWTH OPPORTUNITIES PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL
INVESTMENT The Portfolio invests primarily in equity
STRATEGY securities of domestic companies generally
having total market capitalizations of $1
billion or more.
The Portfolio seeks growth at a reasonable
value by investing in companies with sound
fundamental value and potential. The
Portfolio selects its investments based on a
combination of quantitative screening
techniques and fundamental analysis.
The Portfolio Manager:
o Identifies a universe of investment
candidates by screening companies based on
changes in growth rates and valuation
ratios (such as price to sales, price to
earnings and price to cash flows)
o Identifies rapidly growing companies with
reasonable valuations and accelerating
growth rates, or with low valuations and
initial signs of growth
o Fundamentally analyzes these companies,
focusing on:
o balance sheets and income statements
o company visits and discussions with
management
o contacts with industry specialists and
industry analysts
o review of competitive environments
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
GROWTH OPPORTUNITIES
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
29
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
following additional principal risks described
under "Description of the Portfolios -- Growth
Opportunities":
o GROWTH INVESTING RISK
o MANAGEMENT TECHNIQUE RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Growth Opportunities
Portfolio became available to investors on
June 1, 1998, performance information on
previous full years is not available.
Montgomery Asset Management, LLC has managed
the Portfolio since its inception.
30
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
STRATEGIC EQUITY PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio invests principally in common
INVESTMENT stocks of medium- and small-sized growth
STRATEGY companies. The Portfolio Manager focuses on
companies it believes are likely to benefit
from new or innovative products, services or
processes as well as those that have
experienced above-average, long-term growth in
earnings and have excellent prospects for
future growth.
The Portfolio primarily comprises of
securities of two basic categories of
companies: (a) "core" companies, which the
Portfolio Manager considers to have
experienced above-average and consistent long-
term growth in earnings and to have excellent
prospects for outstanding future growth, and
(b) "earnings acceleration" companies that the
Portfolio Manager believes are currently
enjoying a dramatic increase in profits.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios
-- Strategic Equity Portfolio":
o GROWTH INVESTING RISK
o SMALL COMPANY RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
STRATEGIC EQUITY
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
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<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
31
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results.
A I M Capital Management, Inc. has managed the
Portfolio since March 1, 1999. Prior to that
date, a different firm managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
STRATEGIC EQUITY -- ANNUAL TOTAL RETURN
Year 1996 1997 1998
19.39% 23.16% 0.84%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 10/2/95 | | |
| (INCEPTION)| | 12/31/98... 15.31% |
| Portfolio's Average | | |
| Annual Total Return 0.84% 13.02% | |--------------------|
| Russell Midcap Index 10.09% 18.68% | | WORST QUARTER |
| Russell 2000 Index (2.55)% 8.17% | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98..(17.96)% |
| | | |
|-------------------------------------------------| |--------------------|
The Russell Midcap Index is consisted of the
800 smallest companies in the Russell 1000
Index, which contains the 1,000 largest
companies in the U.S. The Russell 2000 Index
represents the 2,000 smallest companies in the
Russell 3000 Index, which contains the 3,000
largest U.S. companies, based on total market
capitalization.
32
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
INVESTMENT
OBJECTIVE Long-term capital growth
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities the Portfolio Manager believes to
STRATEGY be undervalued relative to the Portfolio
Manager's appraisal of the current or
projected earnings of the companies issuing
the securities, or relative to current market
values of assets owned by the companies
issuing the securities or relative to the
equity markets generally.
The Portfolio Manager focuses on undervalued
equity securities of:
o out-of-favor cyclical growth companies
o established growth companies that are
undervalued compared to historical
relative valuation parameters
o companies where there is early but
tangible evidence of improving prospects
that are not yet reflected in the price of
the company's equity securities
o companies whose equity securities are
selling at prices that do not reflect the
current market value of their assets and
where there is reason to expect
realization of this potential in the form
of increased equity values
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
Capital Appreciation Portfolio":
o VALUE INVESTING RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
CAPITAL APPRECIATION
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
33
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. A I M Capital Management, Inc.
has managed the Portfolio since April 1, 1999.
Prior to that date, different firms managed the
Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
CAPITAL APPRECIATION -- ANNUAL TOTAL RETURN
Year 1993 1994 1995 1996 1997 1998
8.31% -1.59% 30.16% 20.26% 28.95% 12.68%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 5/4/92 | | |
| (INCEPTION)| | 6/30/97... 16.99% |
| Portfolio's Average | | |
| Annual Total Return 12.68% 17.48% 16.00% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 24.05% 20.49% | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98..(13.12)% |
| | | |
|-------------------------------------------------| |--------------------|
The Standard & Poor's 500 Index is comprised
of 500 U.S. stocks.
34
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
SMALL CAP PORTFOLIO
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities of small capitalization ("small-
STRATEGY cap") companies. The Portfolio Manager
considers small cap companies to be companies
that have total market capitalization within
the range of companies included in the
o Russell 2000 Growth Index
o Standard & Poor's Small Cap 600 Index
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Small Cap Portfolio":
o SMALL CAP COMPANY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
SMALL CAP
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
35
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Fred Alger Management, Inc.
has managed the Portfolio since its inception.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
SMALL CAP -- ANNUAL TOTAL RETURN
Year 1996 1997 1998
20.10% 10.32% 20.98%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 1/3/96 | | |
| (INCEPTION)| | 12/31/98... 28.34% |
| Portfolio's Average | | |
| Annual Total Return 20.98% 17.07% | |--------------------|
| Russell 2000 Index (2.55)% 11.58% | | WORST QUARTER |
| | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98..(19.52)% |
| | | |
|-------------------------------------------------| |--------------------|
The Russell 2000 Index represents the 2,000
smallest companies in the Russell 3000 Index,
which contains the 3,000 largest U.S.
companies, based on total market
capitalization.
36
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
REAL ESTATE PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation. Current income is a
secondary objective.
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities of companies in the real estate
STRATEGY industry that are listed on national exchanges
or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ").
The Portfolio Manager selects securities
generally for long-term investment.
The Portfolio invests the majority of its
assets in companies that have at least 50% of
their assets in, or that derive at least 50%
of their revenues from, the following sectors
of the real estate industry:
o ownership (including listed real estate
investment trusts)
o construction and development
o asset sales
o property management or sale
o other related real estate services
The Portfolio may invest more than 25% of its
assets in any of the above sectors.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios
-- Real Estate Portfolio":
o REAL ESTATE o INDUSTRY CONCENTRATION
RISK RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
REAL ESTATE
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
37
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The average annual total
returns below include reinvestment of
dividends and distributions. The accompanying
table shows the Portfolio's average annual
total return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. EII Realty Securities, Inc.
has managed the Portfolio since January 1,
1995. Prior to that date, a different firm
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
REAL ESTATE -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
-20.78% 34.06% 13.87% 17.27% 6.34% 16.59% 35.30% 22.79% (13.45%)
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 3/31/91... 23.44% |
| Portfolio's Average | | |
| Annual Total Return (13.45)% 12.26% 9.65% | |--------------------|
| Wilshire Real Estate | | WORST QUARTER |
| Securities Index (17.63)% 9.30% 4.59% | |--------------------|
| | | Quarter Ended |
| | | |
| | | 3/30/90..(15.18)% |
| | | |
|-------------------------------------------------| |--------------------|
The Wilshire Real Estate Securities Index
consists of real estate investment trusts
(REITs) and real estate operating companies
(REOCs).
38
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
HARD ASSETS PORTFOLIO
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL The Portfolio invests primarily in hard asset
INVESTMENT securities. Hard asset securities include
STRATEGY equity and debt 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.
Hard asset companies are companies that are
directly or indirectly engaged significantly
in the exploration, development, production or
distribution of one or more of the following:
o precious metals
o ferrous and non-ferrous metals
o gas, petroleum, petrochemicals or other
hydrocarbons
o forest products
o agricultural commodities
o other basic materials that can be priced
by a market
The Portfolio normally invests at least 5% of
its assets in each of the first five sectors
listed above, and up to 50% in any one of the
above sectors.
The Portfolio's investment strategy is based
on the belief that hard asset securities can
protect against eroding monetary values.
Recent history indicates that the policies of
many governments (particularly, budget
deficits and high rates of money supply
growth) have caused and will continue to cause
accelerated inflation, and that the prices of
many natural resources will continue to rise
faster than the rate of inflation. The
Portfolio Manager anticipates that inflation
and the price of certain natural resources
will continue on a upward trend.
The Portfolio normally invests at least 5% if
its assets in each of the first five sectors
listed above, and may invest up to 50% in any
one of the above sectors.
The Portfolio's investment strategy is based
on the belief that hard asset securities can
protect against eroding monetary values.
Recent history indicates that the policies of
may governments (particularly, budget deficits
and high rates of money supply growth) have
caused inflation and that the profitability of
many natural resources companies, will as a
result, improve.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
HARD ASSETS
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
39
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject
to the following principal risks
described under "Introduction -- General Risk
Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
In addition, an investment in the Portfolio is
subject to the following principal risks
described under "Description of the Portfolios
-- Hard Assets Portfolio":
o HARD ASSET RISK o INDUSTRY CONCENTRATION
RISK
o SECTOR CONCENTRATION o FOREIGN INVESTMENT AND
RISK CURRENCY RISK
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Baring International
Investment Limited has managed the Portfolio
since March 1, 1999. Prior to that date, a
different firm managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
HARD ASSETS -- ANNUAL TOTAL RETURN
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998
-13.84% 4.70% -9.81% 49.93% 2.53% 10.69% 33.17% 6.22% -29.58%
</TABLE>
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/24/89 | | |
| (INCEPTION)| | 12/31/93... 21.80% |
| Portfolio's Average | | |
| Annual Total Return (29.58)% 2.48% 5.11% | |--------------------|
| Standard & Poor's 500 | | WORST QUARTER |
| Index 28.58% 24.05% 18.51% | |--------------------|
| Russell 2000 Index (2.55)% 11.87% 12.54% | | Quarter Ended |
| | | |
| | | 9/30/98..(19.01)% |
| | | |
|-------------------------------------------------| |--------------------|
The Standard & Poor's Index is comprised of
500 U.S. stocks. The Russell 2000 Index
represents the 2,000 smallest companies in the
Russell 3000 Index, which contains the 3,000
largest U.S. companies, based on total market
capitalization.
40
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
MANAGED GLOBAL PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation. Current income is only
an incidental consideration.
PRINCIPAL The Portfolio invests primarily in common
INVESTMENT stocks traded in securities markets throughout
STRATEGY the world. The Portfolio generally invests at
least 65% of its assets in at least three
different countries, one of which may be the
United States.
The Portfolio may invest in any type of
company, large or small, with earnings showing
a relatively strong growth trend, or in a
company in which significant further growth is
not anticipated but whose securities are
thought to be undervalued. The Portfolio may
also invest in small and relatively less well
known companies.
The Portfolio is non-diversified and, when
compared with other funds, may invest a
greater portion of its assets in a particular
issuer. A non-diversified portfolio has
greater exposure to the risk of default or the
poor earnings of the issuer.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risk
described under "Description of the Portfolios --
Managed Global Portfolio":
o EMERGING MARKET RISK
o SMALL COMPANY RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
MANAGED GLOBAL
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
41
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Putnam Investment Management,
Inc. has managed the Portfolio since March 3,
1997. Prior to that date, different firms
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
MANAGED GLOBAL -- ANNUAL TOTAL RETURN
Year 1993 1994 1995 1996 1997 1998
6.59% -13.21% 7.56% 12.27% 12.17% 29.31%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/3/96 | | |
| (INCEPTION)| | 12/31/98... 22.27% |
| Portfolio's Average | | |
| Annual Total Return 29.31% 8.84% 8.12% | |--------------------|
| Morgan Stanley Capital | | WORST QUARTER |
| International All | |--------------------|
| Country World Free | | Quarter Ended |
| Index 21.97% 14.78% 16.40% | | |
| | | 9/30/98..(12.36)% |
| | | |
|-------------------------------------------------| |--------------------|
The Morgan Stanley Capital International All
Country World Free Index is comprised of
government and investment-grade corporate debt
securities with remaining maturities of one to
five years.
42
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
DEVELOPING WORLD PORTFOLIO
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Developing World Portfolio invests
INVESTMENT primarily in emerging market companies. The
STRATEGY Portfolio normally invests in at least six
different "emerging market countries" with no
more than 35% of its assets in any one
country. Emerging market countries are those
countries having economies and markets that
the World Bank or the United Nations considers
to be emerging or developing. A list of such
countries is set forth under "Description of
the Portfolios -- Developing World Portfolio."
The Portfolio Manager's investment process is
based on the evaluation of key investment
factors at both the macro and micro level.
Such factors include accelerating GDP growth
earnings surprise and favorable valuation
characteristics. The investment process is a
combination of top-down country allocation and
bottom-up stock selection. Structured
fundamental research supported by quantitative
analyses drives both the country and company
decision making.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios --
Developing World Portfolio":
o EMERGING MARKET RISK
o MANAGEMENT TECHNIQUE RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
DEVELOPING
WORLD
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXxx >>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
43
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. Since the Developing World
Portfolio became available to investors on
June 1, 1998, performance information on
previous full years is not available. Baring
International Investment Limited has managed
the Portfolio since March 1, 1999. Prior to
that date, a different firm managed the
Portfolio.
44
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities of companies in at least six
STRATEGY different emerging market countries. The
Portfolio's investment philosophy is to
capitalize on emerging capital markets in
developing nations and other nations in which
economic and political factors are likely to
produce above average growth rates.
Emerging market countries are those that are
identified as such in the Morgan Stanley
Capital International Emerging Markets Free
Index or the International Finance Corporation
Emerging Market Index, or by the Portfolio
Manager because they have a developing economy
or because their markets have begun a process
of change and are growing in size and/or
sophistication.
In selecting securities, the Portfolio Manager
looks for 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 on the medium-term outlook for
such companies. The Portfolio Manager
considers 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.
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
investment in the Portfolio is subject to the
following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to
the following additional principal risks
described under "Description of the Portfolios
-- Emerging Markets Portfolio":
o EMERGING MARKET o VALUE INVESTING
RISK RISK
o FOREIGN INVESTMENT AND CURRENCY RISK
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
EMERGING
MARKETS
LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM
<<<---------------------------------------------------------------------->>>
<<< xxXXXXx>>
<<<---------------------------------------------------------------------->>>
<<LOWER RISK HIGHER RISK>>
45
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will
fluctuate depending on its investment
performance. The following bar chart shows
the Portfolio's annual total return changes
from year-to-year. The accompanying table
shows the Portfolio's average annual total
return for 1 year, 5 years and since its
inception date as compared to the applicable
market index. The average annual total
returns include reinvestment of dividends and
distributions. This may help you weigh the
risk of investing in the Portfolio. Of course,
past performance does not necessarily indicate
future results. Putnam Investment Management,
Inc. has managed the Portfolio since March 3,
1997. Prior to that date, a different firm
managed the Portfolio.
The performance information does not include
insurance-related charges. Thus, you should
not compare the Portfolio's performance
directly with performance information of other
products without taking into account all
insurance-related charges and expenses payable
under your Variable Contract.
[Performance Bar Chart Follows:]
EMERGING MARKETS -- ANNUAL TOTAL RETURN
Year 1994 1995 1996 1997 1998
-15.18% -10.11% 7.28% -9.37% -24.09%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 1/3/96 | | |
| (INCEPTION)| | 9/30/94... 22.68% |
| Portfolio's Average | | |
| Annual Total Return (24.09)%(10.86%) (6.58)%| |--------------------|
| Morgan Stanley Capital | | WORST QUARTER |
| International Emerging | |--------------------|
| Markets Free Index (25.34)% (9.27)% (3.81)%| | Quarter Ended |
| | | |
| | | 9/30/98..(23.43)% |
| | | |
|-------------------------------------------------| |--------------------|
The Morgan Stanley Capital International
Emerging Markets Free Index is comprised of
equity securities in emerging markets.
46
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
MORE INFORMATION
- -------------------------------------------------------------------------
A WORD Each portfolio in this prospectus, unless
ABOUT specifically noted in the portfolio's
PORTFOLIO investment objective, is diversified, as
DIVERSITY defined in the Investment Company Act of 1940.
A diversified portfolio may not, as to 75% of
its total assets, invest more than 5% of its
total assets in any one issuer and may not
purchase more than 10% of the outstanding
voting securities of any one issuer (other
than U.S. Government securities). The
investment objective and certain of the
investment restrictions of each portfolio in
this prospectus are fundamental. This means
they may not be modified or changed without a
vote of the shareholders.
ADDITIONAL A Statement of Additional Information is made
INFORMATION a part of this prospectus. It identifies and
ABOUT THE discusses non-principal investment strategies
PORTFOLIOS associated risks of each portfolio, as well as
investment restrictions, secondary or
temporary investments and associated risks,a
description of how the bond rating system
works and other information that may be
helpful to you in your decision to invest.
You may obtain a copy without charge by
calling our Customer Service Center at 1-800-
344-6864, or visiting the Securities and
Exchange Commission's website
(http://www.sec.gov).
NON-PRINCIPAL This prospectus does not describe various
INVESTMENTS types of securities, strategies and practices
AND which are available to, but are not the
STRATEGIES principal focus of, a particular portfolio.
Such non-principal investment and strategies
are discussed in the Statement of Additional
Information.
TEMPORARY This prospectus does not describe temporary
DEFENSIVE defensive positions. A portfolio may depart
POSOTIONS from its principal investment strategies by
temporarily investing for defensive purposes
when adverse market, economic or political
conditions exist. While a portfolio invests
defensively, it may not be able to pursue its
investment objective. A portfolio's defensive
investment position may not be effective in
protecting its value. The types of defensive
positions in which a portfolio may engage are
identified and discussed, together with their
risks, in the Statement of Additional
Information.
PORTFOLIO Before investing in a portfolio, you should
TURNOVER review its portfolio turnover rate for an
indication of the potential effect of
transaction costs on the portfolio's future
returns. In general, the greater the volume
of buying and selling by the portfolio, the
greater the impact that brokerage commissions
and other transaction costs will have on its
return.
Portfolio turnover rate is calculated by
dividing the value of the lesser of purchases
or sales of portfolio securities for the year
by the monthly average of the value of
portfolio securities owned by the portfolio
during the year. Securities whose maturities
at the time of purchase were one year or less
are excluded. A 100% portfolio turnover rate
would occur, for example, if a portfolio sold
and replaced securities valued at 100% of its
total net assets within a one-year period.
The portfolio turnover rates for each
portfolio are presented in the Financial
Highlights.
LEGAL Sutherland Asbill & Brennan LLP, located at
COUNSEL 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004.
INDEPENDENT
AUDITORS Ernst & Young LLP, located at 200 Clarendon
Street, Boston, MA 02116.
47
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
MORE INFORMATION (CONTINUED)
- -------------------------------------------------------------------------
YEAR 2000 The Trust could be adversely affected if the
computer systems used by the Trust's
investment adviser, Directed Services, Inc.
("DSI"), and the Trust's other service
providers do not properly process and
calculate date-related information from and
after January 1, 2000. DSI, along with an
affiliate, Golden American, have studied their
computer software systems and hardware. Some
of these systems support certain trust
operations. DSI 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. DSI is in contact with the
Trust's portfolio managers and third party
vendors to ensure that their systems will be
substantially compliant by year 2000. If
these portfolio managers and third parties are
unable to transact business in the year 2000
and thereafter, the Trust's operations could
be adversely affected.
48
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------
The following financial highlights tables are intended to help you
understand each of the portfolio's financial performance for the past
5 years (or, if shorter, for the period of the portfolio's
operations). Certain information reflects financial results for a
single portfolio share. The total returns in the tables represent the
rate that an investor would have earned or lost on an investment in
the portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young
LLP, whose report, along with a portfolio's financial statements, are
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
LIQUID ASSET PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.050 0.050 0.049 0.054 0.040
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.050) (0.050) (0.049) (0.054) (0.040)
-------- ------- ------- ------- -------
Net asset value, end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= =======
Total return ............................ 5.13% 5.07% 5.01% 5.51% 3.89%
======== ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $211,730 $59,453 $39,096 $38,589 $46,122
Ratio of operating expenses to average
net assets ............................ 0.59% 0.61% 0.61% 0.61% 0.61%
Ratio of net investment income to
average net assets .................... 4.92% 4.99% 4.89% 5.39% 3.89%
</TABLE>
- ----------------
* Since August 13, 1996, ING Investment Management LLC or its affiliates
has managed the Liquid Asset Portfolio. Prior to that date, different
firms managed the Portfolio.
<TABLE>
<CAPTION>
LIMITED MATURITY BOND PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 10.31 $ 10.43 $ 11.15 $ 9.98 $ 10.62
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.24 0.60 0.59 0.60 0.51
Net realized and unrealized gain/(loss)
on investments and foreign
currencies ............................ 0.47 0.09 (0.13) 0.57 (0.64)
------- ------- ------- ------- -------
Total from investment operations ........ 0.71 0.69 0.46 1.17 (0.13)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.34) (0.81) (1.15) -- (0.51)
Distributions from capital gains ........ -- -- (0.03) -- --
------- ------- ------- ------- -------
Total distributions ..................... (0.34) (0.81) (1.18) -- (0.51)
------- ------- ------- ------- -------
Net asset value, end of period .......... $ 10.68 $ 10.31 $ 10.43 $ 11.15 $ 9.98
======= ======= ======= ======= =======
Total return ............................ 6.86% 6.67% 4.32% 11.72% (1.19%
======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $148,426 $53,839 $81,317 $90,081 $72,213
Ratio of operating expenses to average
net assets ............................ 0.60% 0.61% 0.61% 0.61% 0.60%
Ratio of net investment income to
average net assets .................... 5.15% 5.71% 5.33% 5.58% 4.73%
Portfolio turnover rate ................. 52% 81% 250% 302% 209%
</TABLE>
- ----------------
* Since August 13, 1996, ING Investment Management LLC or
its affiliates has managed the Limited Maturity Bond Portfolio.
Prior to that date, different firms managed the Portfolio.
# Per share numbers have been calculated using the monthly average
share method, which more appropriately represents the per share
data for the period.
49
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO*
- -------------------------------------------------------------------------------
YEAR ENDED
- -------------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................ $ 10.47
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................... 0.09
Net realized and unrealized gain on investments and foreign
currencies .................................................... 0.74
-------
Total from investment operations ................................ 0.83
-------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................ (0.09)
Dividends in excess of net investment income .................... (0.04)
Distributions from capital gains ................................ --
-------
Total distributions ............................................. (0.13)
-------
Net asset value, end of period .................................. $ 11.17
=======
Total return .................................................... 7.99%++
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $21,932
Ratio of operating expenses to average net assets ............... 1.74%+
Ratio of net investment loss to average net assets .............. 2.37%+
Portfolio turnover rate ......................................... 25%
- ----------------
* The Global Fixed Income Portfolio commenced operations on August 14,
1998.
+ 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.
TOTAL RETURN PORTFOLIO*
- -------------------------------------------------------------------------------
YEAR ENDED
- -------------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................ $ 14.88
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................... 0.17
Net realized and unrealized gain on investments and foreign
currencies .................................................... 0.86
--------
Total from investment operations ................................ 1.03
--------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................ (0.11)
--------
Net asset value, end of period .................................. $ 15.80
========
Total return .................................................... 6.90%++
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $453,093
Ratio of operating expenses to average net assets ............... 0.98%+
Ratio of net investment income to average net assets ............ 2.95%+
Portfolio turnover rate ......................................... 37%
- ----------------
* The Total Return Portfolio commenced operations on August 14, 1998.
+ 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.
50
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO*
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 13.09 $ 12.41 $ 12.52 $ 11.33 $ 11.89
-------- -------- -------- -------- --------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income .................. 0.49 0.57 0.56 0.58 0.42
Net realized and unrealized gain/
(loss) on investments and foreign
currencies ........................... 0.58 1.58 0.52 1.56 (0.56)
-------- -------- -------- -------- --------
Total from investment operations ....... 1.07 2.15 1.08 2.14 (0.14)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.50) (0.55) (0.58) (0.45) (0.42)
Distributions from capital gains ....... (0.99) (0.92) (0.61) (0.50) --
-------- -------- -------- -------- --------
Total distributions .................... (1.49) (1.47) (1.19) (0.95) (0.42)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 12.67 $ 13.09 $ 12.41 $ 12.52 $ 11.33
======== ======== ======== ======== ========
Total return ........................... 8.26% 17.44% 8.77% 18.93% (1.18)%
======== ======== ======== ======== ========
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ... $278,074 $264,599 $272,791 $307,691 $299,392
Ratio of operating expenses to average
net assets ........................... 0.98% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to
average net assets ................... 3.63% 3.88% 3.86% 4.42% 3.56%
Portfolio turnover rate ................ 61% 79% 158% 187% 291%
</TABLE>
- ------------------
* Since March 1, 1999, T. Rowe Price Associates, Inc. has managed the
Portfolio. Prior to that date, the Equity Income Portfolio was
named the Multiple Allocation Portfolio and was managed by different
firms.
<TABLE>
<CAPTION>
FULLY MANAGED PORTFOLIO*
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 15.73 $ 14.82 $ 13.79 $ 11.70 $ 12.99
-------- -------- -------- -------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.36 0.39 0.56 0.45 0.35
Net realized and unrealized gain/(loss)
on investments and foreign
currencies ............................ 0.55 1.86 1.69 1.98 (1.29)
-------- -------- -------- -------- -------
Total from investment operations ........ 0.91 2.25 2.25 2.43 (0.94)
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.36) (0.41) (0.56) (0.34) (0.35)
Distributions from capital gains ........ (1.05) (0.93) (0.66) -- --
-------- -------- -------- -------- -------
Total distributions ..................... (1.41) (1.34) (1.22) (0.34) (0.35)
-------- -------- -------- -------- -------
Net asset value, end of period .......... $ 15.23 $ 15.73 $ 14.82 $ 13.79 $ 11.70
======== ======== ======== ======== =======
Total return ............................ 5.89% 15.27% 16.36% 20.80% (7.27)%
======== ======== ======== ======== =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $246,196 $169,987 $136,660 $118,589 $99,854
Ratio of operating expenses to average
net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to
average net assets .................... 2.83% 2.67% 3.83% 3.41% 2.62%
Portfolio turnover rate ................. 44% 48% 45% 113% 66%
</TABLE>
- ----------------
* Since January 1, 1995, T. Rowe Price Associates, Inc. has managed the
Fully Managed Portfolio. Prior to that date, a different firm managed
the Portfolio.
51
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
RISING DIVIDENDS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96# 12/31/95 12/31/94
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 20.04 $ 15.81 $ 13.30 $ 10.22 $ 10.30
-------- -------- -------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.10 0.14 0.14 0.13 0.14
Net realized and unrealized gain/(loss)
on investments and foreign
currencies ............................ 2.74 4.57 2.61 3.04 (0.08)
-------- -------- -------- ------- -------
Total from investment operations ........ 2.84 4.71 2.75 3.17 0.06
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.10) (0.13) (0.13) (0.09) (0.14)
Distributions from capital gains ........ (0.77) (0.35) (0.11) -- --
-------- -------- -------- ------- -------
Total distributions ..................... (0.87) (0.48) (0.24) (0.09) (0.14)
-------- -------- -------- ------- -------
Net asset value, end of period .......... $ 22.01 $ 20.04 $ 15.81 $ 13.30 $ 10.22
======== ======== ======== ======= =======
Total return ............................ 14.13% 29.82% 20.65% 31.06% 0.59%
======== ======== ======== ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $574,843 $252,191 $126,239 $81,210 $50,712
Ratio of operating expenses to average
net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to
average net assets .................... 0.72% 0.96% 0.99% 1.24% 1.88%
Portfolio turnover rate ................. 34% 26% 15% 43% 26%
</TABLE>
- ------------------
# Per share numbers have been calculated using the monthly average
share method, which more appropriately represents the per share
data for the period.
GROWTH & INCOME PORTFOLIO(*)(**)
- -----------------------------------------------------------------------------
YEAR ENDED
- -----------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................ $ 14.24
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................... 0.09
Net realized and unrealized gain on investments and foreign
currencies .................................................... 1.36
--------
Total from investment operations ................................ 1.45
--------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................ (0.07)
--------
Net asset value, end of period .................................. $ 15.62
========
Total return .................................................... 10.19%++
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $298,839
Ratio of operating expenses to average net assets ............... 1.08%+
Ratio of net investment loss to average net assets .............. 1.86%+
Portfolio turnover rate ......................................... 92%
- ----------------
* Since March 1, 1999, Alliance Capital Management L.P. has managed
the Growth & Income Portfolio. Prior to March 1, 1999, a
different firm managed the Portfolio.
** The Growth & Income Portfolio commenced operations on August 14,
1998.
+ 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.
52
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
GROWTH PORTFOLIO(*)(**)
- -----------------------------------------------------------------------------
YEAR ENDED
- -----------------------------------------------------------------------------
12/31/98#
----------
Net asset value, beginning of period ............................ $ 13.63
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ............................................. (0.03)
Net realized and unrealized gain on investments and foreign
currencies .................................................... 2.02
--------
Total from investment operations ................................ 1.99
--------
Net asset value, end of period .................................. $ 15.62
========
Total return .................................................... 14.60%++
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $231,216
Ratio of operating expenses to average net assets ............... 1.09%+
Ratio of net investment loss to average net assets .............. (0.58)%+
Portfolio turnover rate ......................................... 88%
- ----------------
* Since March 1, 1999, Janus Capital Corporation has managed the Growth
Portfolio. Prior to that date, the Growth Protfolio was named the
Value + Growth Series and was managed by a different firm.
** The Growth Portfolio commenced operations on August 14, 1998.
+ 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>
<CAPTION>
VALUE EQUITY PORTFOLIO*
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95*
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 16.13 $ 13.92 $ 13.18 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .......................... 0.19 0.16 0.22 0.08
Net realized and unrealized gain on investments
and foreign currencies ....................... 0.06 3.63 1.18 3.44
-------- ------- ------- -------
Total from investment operations ............... 0.25 3.79 1.40 3.52
-------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ........... (0.18) (0.18) (0.19) (0.06)
Distributions from capital gains ............... (0.32) (1.40) (0.47) (0.28)
-------- ------- ------- -------
Total distributions ............................ (0.50) (1.58) (0.66) (0.34)
-------- ------- ------- -------
Net asset value, end of period ................. $ 15.88 $ 16.13 $ 13.92 $ 13.18
======== ======= ======= =======
Total return ................................... 1.55% 27.28% 10.62% 35.21%++
======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........... $129,784 $80,048 $44,620 $28,830
Ratio of operating expenses to average net
assets ....................................... 0.98% 0.99% 1.00% 1.01%+
Ratio of net investment income to average net
assets ....................................... 1.49% 1.31% 1.80% 1.53%+
Portfolio turnover rate ........................ 124% 128% 131% 86%
</TABLE>
- ----------------
* The Value Equity Portfolio commenced operations on January 3, 1995.
+ Annualized
++ Non-annualized
53
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
RESEARCH PORTFOLIO*
- ------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................ $ 17.75
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................... 0.02
Net realized and unrealized gain on investments and foreign
currencies .................................................... 2.56
--------
Total from investment operations ................................ 2.58
--------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................ (0.01)
Distributions in excess of net investment income ................ (0.01)
--------
Total distributions ............................................. (0.02)
--------
Net asset value, end of period .................................. $ 20.31
========
Total return .................................................... 14.54%++
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $613,771
Ratio of operating expenses to average net assets ............... 0.94%+
Ratio of net investment income to average net assets ............ 0.23%+
Portfolio turnover rate ......................................... 35%
- ----------------
* The Research Series commenced operations on August 14, 1998.
+ 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.
MID-CAP GROWTH PORTFOLIO*
- -------------------------------------------------------------------------------
YEAR ENDED
- -------------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................ $ 15.68
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................... 0.01
Net realized and unrealized gain on investments and foreign
currencies .................................................... 2.52
--------
Total from investment operations ................................ 2.53
--------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................ (0.01)
Distributions from capital gains ................................ (0.10)
--------
Total distributions ............................................. (0.11)
--------
Net asset value, end of period .................................. $ 18.10
========
Total return .................................................... 16.12%++
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................ $252,022
Ratio of operating expenses to average net assets ............... 0.95%+
Ratio of net investment income to average net assets ............ 0.15%+
Portfolio turnover rate ......................................... 55%
- ----------------
* The Mid-Cap Portfolio commenced operations on August 14, 1998.
+ 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.
54
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL-GROWTH PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 13.77 $ 13.39 $ 13.78 $ 11.86 $ 13.42
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ............ (0.07) (0.06) 0.14 0.18 0.11
Net realized and unrealized gain/(loss) on
investments and foreign currencies .... 1.38 0.84 (0.23) 2.47 (1.56)
------- ------- ------- ------- -------
Total from investment operations ........ 1.31 0.78 (0.09) 2.65 (1.45)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... -- (0.03) (0.14) (0.14) (0.11)
Distributions from capital gains ........ (0.09) (0.37) (0.16) (0.59) --
------- ------- ------- ------- -------
Total distributions ..................... (0.09) (0.40) (0.30) (0.73) (0.11)
------- ------- ------- ------- -------
Net asset value, end of period .......... $ 14.99 $ 13.77 $ 13.39 $ 13.78 $ 11.86
======= ======= ======= ======= =======
Total return ............................ 9.52% 5.87% (0.57)% 22.42% (10.77)%
======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $83,930 $73,856 $78,750 $93,198 $71,218
Ratio of operating expenses to average net
assets ................................ 0.99% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income/(loss) to
average net assets .................... (0.51)% (0.47)% 0.86% 1.42% 1.08%
Portfolio turnover rate ................. 229% 325% 118% 81% 196%
</TABLE>
- ----------------
* Since February 3, 1997, Pilgrim Baxter & Associates, Ltd. has
managed the All-Growth Portfolio. Prior to that date, different
firms managed the Portfolio.
GROWTH OPPORTUNITIES PORTFOLIO*
- -------------------------------------------------------------------------------
YEAR ENDED
- -------------------------------------------------------------------------------
12/31/98*#
----------
Net asset value, beginning of period ............................... $10.00
------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .............................................. 0.08
Net realized and unrealized loss on investments and
foreign currencies ............................................... (0.31)
------
Total from investment operations ................................... (0.23)
------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................... (0.06)
------
Net asset value, end of period ..................................... $ 9.71
======
Total return ....................................................... (2.28)%++
======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................... $9,091
Ratio of operating expenses to average net assets .................. 1.15%+
Ratio of net investment income to average net assets ............... 0.99%+
Portfolio turnover rate ............................................ 77%
- ----------------
* The Growth Opportunities Portfolio commenced operations on
February 18, 1998.
+ 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.
55
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC EQUITY PORTFOLIO/1/
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- -----------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96## 12/31/95*
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 13.63 $ 11.68 $ 10.01 $10.00
------- ------- ------- ------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .......................... 0.16 0.20 0.23 0.06
Net realized and unrealized gain/(loss) on
investments and
foreign currencies ........................... (0.07) 2.49 1.71 (0.03)#
------- ------- ------- ------
Total from investment operations ............... 0.09 2.69 1.94 0.03
------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income ........... (0.16) (0.19) (0.14) (0.02)
Distributions from capital gains ............... (0.59) (0.55) (0.13) --
Distributions in excess of capital gains ....... (0.15) -- -- --
------- ------- ------- ------
Total distributions ............................ (0.90) (0.74) (0.27) (0.02)
------- ------- ------- ------
Net asset value, end of period ................. $ 12.82 $ 13.63 $ 11.68 $10.01
======= ======= ======= ======
Total return ................................... 0.84% 23.16% 19.39% 0.33%++
======= ======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........... $73,261 $51,789 $30,423 $8,067
Ratio of operating expenses to average net
assets ....................................... 0.99% 0.99% 1.00% 1.00%+
Ratio of net investment income to average net
assets ....................................... 1.46% 1.88% 2.05% 4.04%+
Portfolio turnover rate ........................ 139% 105% 133% 29%
</TABLE>
- - --------------
1 Since March 1, 1999, A I M Capital Management, Inc. has managed the
Strategic Equity Portfolio. Prior to that date, a different firm
managed the Portfolio.
* The Strategic Equity Portfolio 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.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO*
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 17.65 $ 15.06 $ 13.51 $ 11.34 $ 11.76
-------- -------- -------- -------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.15 0.16 0.16 0.19 0.23
Net realized and unrealized gain/(loss)
on investments and foreign
currencies ............................ 2.07 4.19 2.57 3.22 (0.42)
-------- -------- -------- -------- -------
Total from investment operations ........ 2.22 4.35 2.73 3.41 (0.19)
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.15) (0.16) (0.17) (0.15) (0.23)
Distributions from capital gains ........ (1.63) (1.60) (1.01) (1.09) --
-------- -------- -------- -------- -------
Total distributions ..................... (1.78) (1.76) (1.18) (1.24) (0.23)
-------- -------- -------- -------- -------
Net asset value, end of period .......... $ 18.09 $ 17.65 $ 15.06 $ 13.51 $ 11.34
======== ======== ======== ======== =======
Total return ............................ 12.68% 28.95% 20.26% 30.16% (1.59)%
======== ======== ======== ======== =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $263,313 $193,986 $148,752 $122,227 $88,890
Ratio of operating expenses to average
net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to
average net assets .................... 0.95% 0.95% 1.12% 1.53% 1.96%
Portfolio turnover rate ................. 64% 51% 64% 98% 84%
</TABLE>
- ------------------
* Since April 1, 1999, A I M Capital Management, Inc. has managed the
Capital Appreciation Portfolio. Prior to that date, a different
firm managed the Portfolio.
56
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP PORTFOLIO*
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96*
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period .................... $ 13.25 $ 12.01 $ 10.00
-------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss ..................................... (0.03) (0.03) (0.01)
Net realized and unrealized gain on investments and
foreign currencies .................................... 2.81 1.27 2.02
-------- ------- -------
Total from investment operations ........................ 2.78 1.24 2.01
-------- ------- -------
Net asset value, end of period .......................... $ 16.03 $ 13.25 $ 12.01
======== ======= =======
Total return ............................................ 20.98% 10.32% 20.10%++
======== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .................... $147,696 $66,396 $34,365
Ratio of operating expenses to average net assets ....... 0.99% 0.99% 0.99%++
Ratio of net investment loss to average net assets ...... (0.32)% (0.34)% (0.08)%++
Portfolio turnover rate ................................. 133% 130% 117%
</TABLE>
- - --------------
* The Small Cap Portfolio commenced operations on January 3, 1996.
++ Non-annualized
<TABLE>
<CAPTION>
REAL ESTATE PORTFOLIO *
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 18.27 $ 15.98 $ 12.63 $ 11.29 $ 11.18
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.83 0.69 0.70 0.75 0.60
Net realized and unrealized gain/
(loss) on investments and foreign
currencies ............................ (3.34) 2.93 3.70 1.12 0.11#
------- ------- ------- ------- -------
Total from investment operations ........ (2.51) 3.62 4.40 1.87 0.71
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.66) (0.63) (0.77) (0.53) (0.60)
Distributions from capital gains ........ (1.52) (0.70) (0.28) -- --
------- ------- ------- ------- -------
Total distributions ..................... (2.18) (1.33) (1.05) (0.53) (0.60)
------- ------- ------- ------- -------
Net asset value, end of period .......... $ 13.58 $ 18.27 $ 15.98 $ 12.63 $ 11.29
======= ======= ======= ======= =======
Total return ............................ (13.45)% 22.79% 35.30% 16.59% 6.34%
======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $69,911 $75,530 $51,135 $34,975 $37,336
Ratio of operating expenses to average
net assets ............................ 0.99% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to
average net assets .................... 5.26% 4.49% 5.53% 5.79% 5.31%
Portfolio turnover rate ................. 29% 41% 31% 53% 64%
</TABLE>
- ----------------
* Since January 1, 1995, EII Realty Securities, Inc. has managed the
Real Estate Portfolio. Prior to that date, a different firm
managed the Portfolio.
# 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 portfolio shares.
57
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
HARD ASSETS PORTFOLIO*
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 15.05 $ 17.85 $ 15.04 $ 13.88 $ 13.89
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................... 0.26 0.14 0.05 0.15 0.13
Net realized and unrealized gain/(loss)
on investments and foreign
currencies ............................. (4.73) 0.99 4.92 1.34 0.23
------- ------- ------- ------- -------
Total from investment operations ........ (4.47) 1.13 4.97 1.49 0.36
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.26) (0.13) (0.07) (0.13) (0.13)
Distributions from capital gains ........ (0.72) (3.80) (2.09) (0.20) (0.24)
------- ------- ------- ------- -------
Total distributions ..................... (0.98) (3.93) (2.16) (0.33) (0.37)
------- ------- ------- ------- -------
Net asset value, end of period .......... $ 9.60 $ 15.05 $ 17.85 $ 15.04 $ 13.88
======= ======= ======= ======= =======
Total return ............................ (29.58)% 6.22% 33.17% 10.69% 2.53%
======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $30,530 $46,229 $43,903 $27,147 $32,879
Ratio of operating expenses to average net
assets ................................ 1.00% 0.99% 1.00% 1.01% 1.00%
Ratio of net investment income to average
net assets ............................ 1.99% 0.76% 0.34% 0.89% 1.01%
Portfolio turnover rate ................. 178% 124% 96% 24% 25%
</TABLE>
- ----------------
* Since March 1, 1999, Baring International Investment Limited has
managed the Hard Assets Portfolio. Prior to that date, a
different firm managed the Portfolio. Prior to January 23, 1997,
the Hard Assets Portfolio was named the Natural Resources Series.
<TABLE>
<CAPTION>
MANAGED GLOBAL PORTFOLIO *
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96**# 12/31/95# 12/31/94#
-------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 11.46 $ 11.13 $ 9.96 $ 9.26 $ 10.67
-------- -------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ............ (0.02) 0.02 0.04 0.05 0.07
Net realized and unrealized gain/
(loss) on investments and
foreign currencies .................... 3.37 1.33 1.18 0.65 (1.48)
-------- -------- ------- ------- -------
Total from investment operations ........ 3.35 1.35 1.22 0.70 (1.41)
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.05) (0.17) -- -- --
Dividends in excess of net investment
income ................................ 0.00## (0.07) -- -- --
Distributions from capital gains ........ (0.57) (0.78) (0.05) -- --
-------- -------- ------- ------- -------
Total distributions ..................... (0.62) (1.02) (0.05) -- --
-------- -------- ------- ------- -------
Net asset value, end of period .......... $ 14.19 $ 11.46 $ 11.13 $ 9.96 $ 9.26
======== ======== ======= ======= =======
Total return ............................ 29.31% 12.17% 12.27% 7.56% (13.21)%
======== ======== ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $134,078 $105,305 $86,376 $72,375 $86,209
Ratio of operating expenses to
average net assets .................... 1.26% 1.36% 1.26% 1.26% 1.31%
Decrease reflected in above expense
ratio due to expense limitations ...... -- -- -- 0.09% 0.09%
Ratio of net investment income to
average net assets .................... (0.17)% 0.06% 0.39% 0.51% 0.69%
Portfolio turnover rate ................. 173% 199% 141% 44% N/A
</TABLE>
- ----------------
* Since March 3, 1997, Putnam Investment Management, Inc. has managed
the Managed Global Portfolio. Prior to that date, a different
firms managed the Portfolio.
** On September 3, 1996, the Managed Global Portfolio was reorganized
into the GCG 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.
# Per share numbers have been calculated using the monthly average
share method, which more appropriately represents the per share
data for the period.
## Amount represents less than $0.01 per share.
58
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------
DEVELOPING WORLD PORTFOLIO(*)(**)
- ------------------------------------------------------------------------
YEAR ENDED
- ------------------------------------------------------------------------
12/31/98*##
-----------
Net asset value, beginning of period ............................. $ 10.00
-------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............................................ 0.04
Net realized and unrealized loss on investments and
foreign currencies ............................................. (2.67)
-------
Total from investment operations ................................. (2.63)
-------
LESS DISTRIBUTIONS:
Dividends from net investment income ............................. 0.00#
Dividends in excess of net investment income ..................... 0.00#
-------
Total distributions .............................................. 0.00#
-------
Net asset value, end of period ................................... $ 7.37
=======
Total return ..................................................... (26.27)%++
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............................. $ 8,797
Ratio of operating expenses to average net assets ................ 1.83%+
Ratio of net investment income to average net assets ............. 0.69%+
Portfolio turnover rate .......................................... 67%
- ----------------
* Since March 1, 1999, Baring International Investment limited has
managed the Developing World Portfolio. Prior to that date, a
different firm managed the Portfolio.
** The Developing World Portfolio commenced operations on February 18,
1998.
+ Annualized
++ Non-annualized
# Amount represents less than $0.01 per share.
## Per share numbers have been calculated using the monthly average
share method, which more appropriately represents the per share
data for the period.
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO*
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 8.80 $ 9.72 $ 9.06 $ 10.08 $ 12.44
------- ------- ------- ------- -------
INCOME/(LOSS) FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ............ 0.06 (0.01) 0.04 0.04 --
Net realized and unrealized gain/(loss) on
investments and foreign
currencies ............................ (2.18) (0.90) 0.62 (1.06) (1.89)
------- ------- ------- ------- -------
Total from investment operations ........ (2.12) (0.91) 0.66 (1.02) (1.89)
------- ------- ------- ------- -------
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 period .......... $ 6.68 $ 8.80 $ 9.72 $ 9.06 $ 10.08
======= ======= ======= ======= =======
Total return ............................ (24.09)% (9.37)% 7.28% (10.11)% (15.18)%
======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .... $26,028 $39,436 $51,510 $47,974 $65,224
Ratio of operating expenses to average net
assets ................................ 1.83% 1.80% 1.55% 1.53% 1.73%
Ratio of net investment income/(loss) to
average net assets .................... 0.83% (0.09)% 0.38% 0.40% 0.03%
Portfolio turnover rate ................. 108% 170% 136% 141% 106%
</TABLE>
- ----------------
* Since March 3, 1997, Putnam Investment Management, Inc. has managed
the Emerging Markets Portfolio. Prior to that date, a different
firm managed the Portfolio.
# Amount represents less than $0.01 per share.
59
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS
- -------------------------------------------------------------------------
LIQUID ASSET PORTFOLIO
PORTFOLIO
MANAGER ING Investment Management LLC
INVESTMENT
OBJECTIVE High level of current income consistent with the
preservation of capital and liquidity
PRINCIPAL The Portfolio Manager strives to maintain a
INVESTMENT stable $1 per share net asset value and its
STRATEGY investment strategy focuses on safety of
principal, liquidity and yield, in order of
importance, to achieve this goal. The Portfolio
Manager implements its strategy through a
four-step investment process also designed to
ensure adherence to regulatory requirements.
Step One: The Portfolio Manager actively
maintains a formal Approved List of high
quality companies
Step Two: Securities of Approved List issuers
that meet maturity guidelines and are
rated in one of the two highest ratings
category (or determined to be of
comparable quality by the Portfolio
Manager) are eligible for investment
Step Three: Eligible securities are reviewed
to ensure that an investment in such
securities would not cause the Portfolio
to exceed its diversification limits
Step Four: The Portfolio Manager makes yield
curve positioning decisions based on
liquidity requirements, yield curve
analysis and market expectations of
future interest rates
Money market funds are highly regulated by Rule
2a-7 of the Investment Company Act of 1940, which
sets forth specific maturity, quality and
diversification guidelines. The Portfolio must
adhere to procedures adopted by the Board of
Trustees pursuant to Rule 2a-7 and to Rule 2a-7
itself. Some of these limitations include:
o QUALITY. At least 95% of the Portfolio's
investments must be rated in the highest
short-term ratings category (or determined to
be of comparable quality by the Portfolio
Manager) and the Portfolio Manager must make
an independent determination that each
investment represents minimal credit risk to
the Portfolio.
o MATURITY. The average maturity of the
Portfolio's securities may not exceed 90 days
and the maturity of any individual security
may not exceed 397 days.
o DIVERSIFICATION. At the time of purchase, no
more than 5% of total assets may be invested
in the securities of a single issuer and no
more than 10% of total assets may be subject
to demand features or guarantees from a
single institution.
The Portfolio may invest in U.S.
dollar-denominated money market instruments
including:
o U.S. Treasury and U.S. Government Agency
securities
o fully collateralized repurchase agreements
o bank obligations, including certificates of
deposit, time deposits, and bankers'
acceptances
60
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
o commercial paper
o asset-backed securities
o variable or floating rate securities,
including variable rate demand obligations
o short-term corporate debt securities other
than commercial paper
o U.S. dollar-denominated foreign securities
o shares of other investment companies
Some of the securities purchased may be
considered illiquid and thus subject to a
restriction of 10% of total assets.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK
o INCOME RISK
o CREDIT RISK
o INTEREST RATE RISK
AN INVESTMENT IN THE LIQUID ASSET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND WE CANNOT ASSURE YOU THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE $1
SHARE PRICE.
MORE ING Investment Management LLC (or investment
ON THE advisers acquired by ING Investment Management LLC)
PORTFOLIO ("ING Investment") have managed the Portfolio since
MANAGER August, 1996. ING Investment Management is engaged
in the business of providing investment advice to
affiliated insurance and investment companies and
institutional clients possessing portfolios,
which, as of December 31, 1998, were valued at
approximately $27.6 billion. The address of ING
Investment is 5780 Powers Ferry Road, N.W., Suite
300, Atlanta, Georgia 30327. ING Investment is
a subsidiary of ING Groep N.V. and is affiliated
with Directed Services, Inc.
The Portfolio is managed by a team of three
investment professionals led by Ms. Jennifer J.
Thompson, CFA. Ms. Thompson has been employed by
ING Investment as an investment professional
since 1998 and has seven years investment
experience.
ING Investment also manages the Limited Maturity
Bond Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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LIMITED MATURITY BOND PORTFOLIO
PORTFOLIO
MANAGER ING Investment Management, LLC
INVESTMENT
OBJECTIVE Highest current income consistent with low risk
to principal and liquidity.
PRINCIPAL As a secondary objective, the Portfolio seeks to
INVESTMENT enhance its total return through capital
STRATEGY 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 invests primarily in a diversified
portfolio of limited maturity debt securities.
These short-to-intermediate-term debt securities
have remaining maturities of seven years or less.
The dollar-weighted average maturity of the
Portfolio generally will not exceed five years
and in periods of rapidly rising interest rates
may be shortened to one year or less.
The Portfolio Manager utilizes the following
decision making process to achieve the
Portfolio's objectives:
o Active Duration Management. The average
duration of the portfolio is actively managed
relative to the benchmark's average duration.
In rising rate environments, the average
duration will tend to be equal to or less
than the benchmark and in falling rate
environments, the average duration will be
longer than the benchmark.
o Yield Curve Analysis. The yield curve shape
is assessed to identify the risk/reward
trade-off of maturity decisions and market
expectations of future interest rates.
o Sector Selection. Sectors are overweighted
or underweighted relative to the benchmark
based on sector analysis and market
opportunities. Sectors are broadly defined
to include U.S. Treasury securities, U.S.
Government Agency securities, corporate
securities, mortgage-backed securities,
asset-backed securities and money market
securities. The Portfolio Manager may
further evaluate groupings within sectors
such as various industry groups within the
corporate securities sector (e.g., finance,
industrials, utilities, etc.).
o Security Selection. The Portfolio Manager
emphasizes individual securities with
positive credit fundamentals, liquidity and
relative value within their respective
sectors are emphasized.
The Portfolio invests in non-government
securities only if rated Baa3 or better by
Moody's or BBB- or better by Standard & Poor's
(S&P) or, if not rated by Moody's or S&P, if the
Portfolio Manager determines that they are of
comparable quality. Money market securities must
be rated tier one or tier two by Moody's (P-1 or
P-2) or S&P (A-1+, A-1 or A-2), or determined to
be of comparable quality by the Portfolio
Manager. For a description of bond ratings,
please refer to the Statement of Additional
Information.
Various security types are eligible for
investment including:
o corporate securities o mortgage-backed
securities
o asset-backed o variable and floating
securities rate securities
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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o U.S. treasury securities and U.S. Government
Agency securities
o money market securities such as commercial
paper, certificates of deposit and bankers'
acceptances
o repurchase agreements and reverse repurchase
agreements
o U.S. dollar-denominated foreign securities
o shares of other investment companies
o futures contracts, options and options on
futures contracts
o sovereign debt
o supranational organizations
o real estate investment trusts (REITS)
In addition, private placements of debt
securities (which are often restricted
securities) are eligible for purchase along with
other illiquid securities, subject to appropriate
limits.
The Portfolio may borrow up to 10% of the value
of its net assets. This amount may be increased
to 25% for temporary purposes.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INCOME RISK
o CREDIT RISK o INTEREST RATE RISK
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE ING Investment Management LLC ("ING Investment")
ON THE (or investment advisers acquired by ING
PORTFOLIO Investment Management) has managed the Portfolio
MANAGER since August 13, 1996. ING Investment Management
is engaged in the business of providing
investment advice to affiliated insurance and
investment companies and institutional clients
possessing portfolios, which, as of December 31,
1998, were valued at approximately $27.6 billion.
ING Investment is a subsidiary of ING Groep N.V.
and is affiliated with Directed Services, Inc.
The address of ING Investment is 5780 Powers
Ferry Road, N.W., Suite 300, Atlanta, Georgia
30327.
The Portfolio is managed by a team of three
investment professionals led by Ms. Jennifer J.
Thompson, CFA. Ms. Thompson has been employed by
ING Investment as an investment professional
since 1998 and has seven years investment
experience.
ING Investment also manages the Liquid Asset
Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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GLOBAL FIXED INCOME PORTFOLIO
PORTFOLIO
MANAGER Baring International Investment Limited
INVESTMENT
OBJECTIVE High total return
PRINCIPAL
INVESTMENT The Portfolio invests primarily in high-grade
STRATEGY fixed income securities, both foreign and
domestic. The Portfolio normally primarily
invests in:
o obligations issued or guaranteed by foreign
national governments, or their agencies,
instrumentalities or political subsidiaries
o U.S. Government securities
o debt securities issued or guaranteed by
supranational organizations, considered to be
"government securities"
o non-government foreign and domestic debt
securities, including corporate debt
securities, bank obligations, mortgage-backed
or asset-backed securities, and repurchase
agreements
The Portfolio may invest in securities issued in
any currency and may hold foreign currencies
normally in at least six different countries,
including the U.S., although the Portfolio may at
times invest all of its assets in a single
country. The Portfolio's assets will be invested
principally within, or in the currencies of:
o Australia o United States
o Canada o Scandinavia
o Japan o Western Europe
o New Zealand o European Community
When U.S. securities offer superior opportunities
for achieving the Portfolio's investment
objective, the Portfolio may invest substantially
all of its assets in securities of U.S. issuers
or securities denominated in U.S. dollars. The
Portfolio may also acquire securities and
currency in less developed and developing
countries.
The Portfolio 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 Portfolio may invest in debt securities with
varying maturities, which generally will not
exceed 10 years. The average maturity of the
Portfolio's 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. The
majority of the Portfolio's investments are rated
within the three highest rating categories of
Standard & Poor's (AAA, AA, A) or Moody's (Aaa,
Aa or A) or if unrated, considered by the
Portfolio Manager to be of equivalent quality.
For a description of bond ratings, please refer
to the Statement of Additional Information.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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The Portfolio Manager allocates the Portfolio's
investments among those markets, companies and
currencies that offer the most attractive
combination of high income and principal
stability. In evaluating investments for the
Portfolio, 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.
Frequency of portfolio turnover will not be a
limiting factor if the Portfolio Manager
considers it advantageous to purchase or sell
securities. The Portfolio Manager anticipates
that the portfolio turnover rate generally will
not exceed 300%. A higher rate of portfolio
turnover may result in correspondingly higher
portfolio transaction costs that would have to be
borne directly by the Portfolio and ultimately by
the shareholders.
The Portfolio is non-diversified and, when
compared with other funds, may invest a greater
portion of its assets in a particular issuer. A
non-diversified portfolio has greater exposure to
the risk of default or the poor earning of the
issuer.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o CREDIT RISK
o INCOME RISK o CALL RISK
o INTEREST RATE RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar Terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
o EMERGING MARKET RISK. 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 after investments in those
currencies by the Portfolio. Inflation and
rapid fluctuations in inflation rates
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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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 (may
be unable to transfer currency from a given
country); or creation of government monopolies.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Baring International Investment Limited ("Baring
ON THE International") has managed the Portfolio since
PORTFOLIO the Portfolio's inception. Baring International
MANAGER is a subsidiary of Baring Asset Management
Holdings Limited ("Baring"). Baring is the
parent of the world-wide group of investment
management companies that operate under the
collective name "Baring Asset Management" and is
owned by ING Groep N.V., a publicly traded
company based in the Netherlands with worldwide
insurance and banking subsidiaries. The address
of Baring International is 155 Bishopsgate,
London.
Baring Asset Management provides global
investment management services to U.S. investment
companies and maintains major investment offices
in Boston, London, Hong Kong and Tokyo. Baring's
predecessor corporation was founded in 1762.
Baring Asset Management provides advisory
services to institutional investors, offshore
investment companies, insurance companies and
private clients. As of December 31, 1998, Baring
Asset Management managed approximately $45.6
billion of assets.
The following person at Baring International is
responsible for the day-to-day investment
decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Paul Thursby Investment Manager
Mr. Thursby has been an Investment Manager
with Baring International since 1991 and
has over 19 years of investment experience.
Baring International also manages the Hard Assets
Portfolio and the Developing World Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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TOTAL RETURN PORTFOLIO
PORTFOLIO
MANAGER Massachusetts Financial Services Company
INVESTMENT
OBJECTIVE Above-average income (compared to a portfolio
entirely invested in equity securities)
consistent with the prudent employment of
capital. A secondary goal is the reasonable
opportunity for growth of capital and income.
PRINCIPAL
INVESTMENT The Portfolio is a "balanced fund," and invests
STRATEGY in a combination of equity and fixedincome
securities. Under normal market conditions, the
Portfolio invests:
o at least 40%, but not more than 75%, of its
assets in common stocks and related
securities (referred to as equity securities)
such as preferred stock, bonds, warrants or
rights convertible into stock, and depositary
receipts for those securities
o at least 25% of its net assets in non-
convertible fixed income securities.
The Portfolio may vary the percentage of its
assets invested in any one type of security
(within the limits described above) based on the
Portfolio Manager's interpretation of economic
and money market conditions, fiscal and monetary
policy and underlying security values.
EQUITY PORTION. The Portfolio Manager uses a
bottom-up, as opposed to a top-down, investment
style in managing the Portfolio. This means that
securities are selected based on fundamental
analysis performed by the Portfolio Manager and
its group of equity research analysts and
generally not selected based on the industry in
which they belong.
While the Portfolio may invest in all types of
equity securities, the Portfolio Manager
generally purchases equity securities of
companies that the Portfolio Manager believes are
undervalued in the market relative to their long-
term potential. The Portfolio Manager deems
equity securities of companies to be undervalued
where:
o they are viewed by the Portfolio Manager as
being temporarily out of favor in the market
due to any of the following:
o a decline in the market
o poor economic conditions
o developments that have affected or may affect
the issuer of the securities
or the issuer's industry
o the market has overlooked them
Undervalued equity securities generally have low
price-to-book, price-to-sales and/or price-to-
earnings ratios. The Portfolio focuses on
undervalued equity securities issued by companies
with relatively large market capitalizations
(i.e., market capitalizations of $5 billion or
more).
As noted above, the Portfolio's investments in
equity securities include convertible securities.
A convertible security is a security that may be
converted within a specified
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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period of time into
a certain amount of common stock of the same or a
different issuer. A convertible security
generally provides:
o a fixed income stream
o the opportunity, through its conversion
feature, to participate in an increase in the
market price of the underlying common stock.
FIXED INCOME PORTION. The Portfolio invests in
securities that pay a fixed interest rate,
including:
o U.S. government securities, which are bonds
or other debt obligations issued by, or whose
principal and interest payments are
guaranteed by, the U.S. government or one of
its agencies or instrumentalities,
o mortgage-backed and asset-backed securities,
which represent interest in a pool of assets
such as mortgage loans, car loan receivables,
or credit card receivables. These
investments entitle the Portfolio to a share
of the principal and interest payments made
on the underlying mortgage, car loan, or
credit card. For example, if the Portfolio
invests in a pool that includes your mortgage
loan, a share of the principal and interest
payments on your mortgage would pass to the
Portfolio, and
o corporate bonds, which are bonds or other
debt obligations issued by corporations or
other similar entities.
In selecting fixed income investments for the
Portfolio, the Portfolio Manager considers the
views of its group of fixed income portfolio
managers and research analysts. This group
periodically assesses the three-month outlook for
various segments of the fixed income markets.
This three-month "horizon" outlook is used as a
tool in making or adjusting the Portfolio's asset
allocations to various segments of the fixed
income markets. In assessing the credit quality
of fixed-income securities, the Portfolio Manager
does not rely solely on the credit ratings
assigned by credit rating agencies, but rather
performs its own independent credit analysis.
The Portfolio may invest up to 20% of its assets
in U.S. government securities, mortgage pass-
through securities, American Depositary Receipts
and foreign securities (including in emerging or
developing markets) and lower rated fixed income
securities.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INTEREST RATE RISK
o INCOME RISK o CREDIT RISK
o CALL RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o ALLOCATION RISK. The Portfolio will allocate
its investments between equity and fixed
income securities, and among various segments
of the fixed income markets, based upon
judgements made by the Portfolio Manager.
The Portfolio could miss attractive
investment opportunities by underweighting
markets where there are
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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significant returns,
and could lose value by overweighting markets
where there are significant declines.
o CONVERTIBLE SECURITIES RISK. Convertible
securities, like fixed income securities,
tend to increase in value when interest rates
decline and decrease in value when interest
rates rise. The market value of a
convertible security also tends to increase
as the market value of the underlying stock
rises and decrease as the market value of the
underlying stock declines.
o EMERGING MARKET RISK. 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 after investments in those
currencies by the Portfolio. 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 (may
be unable to transfer currency from a given
country); or creation of government monopolies.
o UNDERVALUED SECURITIES RISK. Prices of
securities react to the economic condition of
the company that issued the security. The
Portfolio equity investments in an issuer may
rise and fall based on the issuer's actual
and anticipated earnings, changes in
management and the potential for takeovers
and acquisitions. The Portfolio Manager
invests in securities that are undervalued
based on its belief that the market value of
these securities will rise due to anticipated
events and investor perceptions. If these
events do not occur or are delayed, or if
investor perceptions about the securities do
not improve, the market price of these
securities may not rise or may fall.
o HIGH YIELD BOND RISK. High yield bonds
(commonly referred to "junk bonds") generally
provide greater income and increased
opportunity for capital appreciation than
investments in higher quality debt
securities, but they also typically have
greater potential price volatility and
principal and income risk. High yield bonds
are not considered investment grade.
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Massachusetts Financial Services Company ("MFS")
ON THE has managed the Portfolio since its inception.
PORTFOLIO MFS is America's oldest mutual fund organization.
MANAGER MFS and its predecessor organizations have
managed money since 1924 and founded the first
mutual fund in the United States. MFS is a
subsidiary of Sun Life Assurance Company of
Canada (U.S.) which in turn is an indirect
subsidiary of Sun Life Assurance Company of
Canada (referred to as "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.
As of December 31, 1998, MFS managed net assets
of approximately $98 billion (approximately $69.5
billion in equity securities and $20.5 billion in
fixed income securities) on behalf of
approximately 3.7 million investor accounts. The
address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
The Portfolio is managed by a management team
consisting of six members. David M. Calabro,
Senior Vice President, heads the management team
and manages the common stock portion of the
Portfolio. Mr. Calabro has been employed by MFS
since 1992.
MFS also manages the Mid-Cap Growth Portfolio and
the Research Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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EQUITY INCOME PORTFOLIO
(FORMERLY, THE MULTIPLE ALLOCATION PORTFOLIO)
PORTFOLIO
MANAGER T. Rowe Price Associates, Inc.
INVESTMENT
OBJECTIVE Substantial dividend income as well as long-term
growth of capital.
PRINCIPAL The Portfolio normally invests at least 65% of
INVESTMENT its assets in the common stocks of well-
STRATEGY established companies paying above-average
dividends. The Portfolio Manager typically
employs a "value" approach in selecting
investments. The Portfolio Manager's in-house
research team seeks companies that appear to be
undervalued by various measures and may be
temporarily out of favor, but have good prospects
for capital appreciation and dividend growth.
In selecting investments, the Portfolio Manager
generally looks for companies with the following:
o an established operating history.
o above-average dividend yield relative to the
S&P 500.
o low price/earnings ratio relative to the S&P
500.
o a sound balance sheet and other positive
financial characteristics.
o low stock price relative to a company's
underlying value as measured by assets, cash
flow or business franchises.
While most of the Portfolio's assets will be
invested in U.S. common stocks, it may also
invest in other securities, including foreign
securities, debt securities, futures and options,
in keeping with its objectives. The Portfolio
may also invest in shares of the Reserve
Investment Fund, an internally managed money
market fund of T. Rowe Price.
The Portfolio may sell securities for a variety
of reasons, such as to secure gains, limit
losses, or redeploy assets into more promising
opportunities.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following principal additional risk:
o VALUE INVESTING RISK. Undervalued stock may
not realize their perceived value for
extended periods of time. Value stocks may
respond differently to market and other
developments than other types of stocks.
Value stocks typically underperform when
other investing styles, such as growth
investing, are in favor.
MORE T. Rowe Price Associates, Inc. has managed the
ON THE Portfolio since March 1, 1999. Prior to that,
PORTFOLIO different firms at different times served as
MANAGER portfolio manager. T. Rowe Price was founded in
1937 by the late Thomas Rowe Price, Jr. As of
March 31, 1999, the firm and its affiliates
managed approximately $149 billion in assets.
The address of T. Rowe Price is 100 East Pratt
Street, Baltimore, Maryland 21202.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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The Portfolio is managed by an Investment
Advisory Committee consisting of six members.
Brian Rogers, as Committee Chair, has day-to-day
responsibility for managing the Portfolio and
works with the Committee in developing and
executing the Portfolio's investment program.
Mr. Rogers has been Chairman of the Committee
since its inception. He joined T. Rowe Price in
1982.
T. Rowe Price also manages the Fully Managed
Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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FULLY MANAGED PORTFOLIO
PORTFOLIO
MANAGER T. Rowe Price Associates, Inc.
INVESTMENT
OBJECTIVE Over the long-term, a high total investment
return, consistent with the preservation of
capital and with prudent investment risk.
PRINCIPAL The Portfolio invests primarily in the common
INVESTMENT stocks of established companies the Portfolio
STRATEGY Manager believes to have above-average potential
for capital growth. Common stocks typically
compose at least half of total assets. The
Portfolio may also invest in other securities,
including convertibles, warrants, preferred
stocks, corporate and government debt, foreign
securities, futures, and options, in keeping with
its objective.
The Portfolio's common stocks generally fall into
one of two categories:
o the larger category comprises long-term core
holdings whose purchase prices are considered
low in terms of company assets, earnings, or
other factors
o the smaller category comprises opportunistic
investments whose prices are expected by the
Portfolio Manager to rise in the short term
but not necessarily over the long term.
Since the Portfolio Manager attempts to
prevent losses as well as achieve gains, it
typically uses a value approach in selecting
investments. Its in-house research team
seeks to identify companies that seem
undervalued by various measures, such as
price/book value, and may be temporarily out
of favor, but have good prospects for capital
appreciation. The Portfolio Manager may
establish relatively large positions in
companies it finds particularly attractive
The Portfolio may sell securities for a variety
of reasons, such as to secure gains, limit
losses, or redeploy assets into more promising
opportunities.
The Portfolio's approach differs from that of
many other stock funds. The Portfolio Manager
works as hard to reduce risk as to maximize gains
and may realize gains rather than lose them in
market declines. In addition, the Portfolio
Manager searches for the best risk/reward values
among all types of securities. The portion of
the Portfolio invested in a particular type of
security, such as common stocks, results largely
from case-by-case investment decisions, and the
size of the Portfolio's cash reserve may reflect
the Portfolio Manager's ability to find companies
that meet valuation criteria rather than his
market outlook.
DEBT SECURITIES. Debt securities, including
convertible bonds, may often constitute between
25% and 50% of the Portfolio's overall portfolio.
The Portfolio may purchase debt securities of any
maturity. 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 15% of the
Portfolio's assets in debt securities that are
rated below investment-grade or, if not rated, of
equivalent quality. For a description of bond
ratings, please refer to the Statement of
Additional Information.
MONEY MARKET INSTRUMENTS. If there are remaining
assets available for investment, the Portfolio
Manager may invest the balance in any of the
following money market instruments with remaining
maturities not exceeding one year:
(1) shares of the Reserve Investment Fund, an
internally managed money market fund of
T. Rowe Price
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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(2) U.S. government obligations
(3) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and
other obligations of domestic banks that have
more than $1 billion in assets and are
members of the Federal Reserve System or are
examined by the Comptroller of the Currency
whose deposits are insured by the Federal
Deposit Insurance Corporation
(4) commercial paper rated at the date of purchase
in the two highest rating categories
(5) repurchase agreements
The Portfolio also may invest in short-term U.S.
dollar denominated obligations of foreign banks
if, at the time of purchase, such banks have more
than $1 billion in assets.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o INTEREST RATE RISK
o CALL RISK o INCOME RISK
o MARKET AND COMPANY o CREDIT RISK
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o VALUE INVESTING RISK. A particular risk of
the Portfolio's value or "contrarian"
approach is that some holdings may not
recover and provide the capital growth
anticipated. If the Portfolio has large
holdings in a relatively small number of
companies, disappointing performance by those
companies will have a more adverse impact on
the Portfolio than would be the case with a
more diversified fund.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE T. Rowe Price Associates, Inc. has managed the
ON THE Portfolio since January, 1995. T. Rowe Price was
PORTFOLIO founded in 1937 by the late Thomas Rowe Price, Jr.
MANAGER As of March 31, 1999, the firm and its affiliates
managed approximately $149 billion in assets. The
address of T. Rowe Price is 100 East Pratt Street,
Baltimore, Maryland 21202.
The Portfolio is managed by an Investment
Advisory Committee consisting of five members.
Richard P. Howard, the Committee Chair, has day-
to-day responsibility for managing the Portfolio
and works with the Committee in developing and
executing the Portfolio's investment program.
Mr. Howard has been Chairman of the Committee
since 1995. He joined T. Rowe Price in 1982 and
has been managing investments since 1989.
T. Rowe Price also manages the Equity Income
Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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RISING DIVIDENDS PORTFOLIO
PORTFOLIO
MANAGER Kayne Anderson Investment Management, LLC
INVESTMENT
OBJECTIVE Capital appreciation. A secondary objective is
dividend income.
PRINCIPAL
INVESTMENT The Portfolio invests in high-quality equity
STRATEGY securities, most of which meet all of the
following quality criteria:
o regular dividend increases during the last 10
years
o at least 35% of earnings reinvested annually
o credit rating of "A" to "AAA" or its
equivalent
There may from time to time be other high-quality
securities in the Portfolio which meet most, but
not all, of the criteria, but which the Portfolio
Manager deems a suitable investment. In addition
to common stocks, the Portfolio may invest in
securities convertible into common stocks, or
rights or warrants to subscribe for or purchase
common stocks.
In selecting equity securities, the Portfolio
Manager screens databases to create a universe of
companies that meet the preceding criteria. The
Portfolio Manager then fundamentally analyzes the
securities. This research involves study of
competitive industry conditions, discussions with
company management, spreadsheet analysis, and
valuation projections. A proprietary computer
model compares expected rates of return for each
equity security in the universe. In deciding
whether to purchase a security the Portfolio
Manager appraises a company's fundamental
strengths and relative attractiveness based on
its expected return.
The Portfolio generally holds at least 25 to 30
different securities. These securities are
diversified by industry. The security selection
discipline also avoid over-concentration in any
single sector or company.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o MANAGEMENT TECHNIQUE RISK. The Portfolio is
managed based on proprietary computer models
and techniques developed by the Portfolio
Manager. We cannot assure you that such
management techniques will correctly predict
market trends, or enable the Portfolio to
achieve its investment objective.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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MORE The Portfolio has been managed by Kayne Anderson
ON THE Investment Management, LLC or its predecessor
PORTFOLIO since the Portfolio's inception. Kayne Anderson
MANAGER 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. As of December 31, 1998, Kayne
Anderson managed portfolios amounting to
approximately $4 billion. The address of Kayne
Anderson is 1800 Avenue of the Stars, Suite 200,
Los Angeles, California 90067.
The following persons at Kayne Anderson are
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Allan M. Rudnick Chief Investment Officer and Portfolio
Manager
Mr. Rudnick has served as Chief
Investment Officer for Kayne Anderson
since 1989.
Paul Wayne Director of Research and Portfolio Manager
Mr. Wayne has been employed by Kayne
Anderson since 1992.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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GROWTH & INCOME PORTFOLIO
PORTFOLIO
MANAGER Alliance Capital Management L.P.
INVESTMENT
OBJECTIVE Long-term total return
PRINCIPAL
INVESTMENT The Portfolio invests primarily in common stocks
STRATEGY of companies where the potential for change
(earnings acceleration) is significant.
The Portfolio Manager applies a growth-oriented
investment philosophy defined by its:
o EARLY RECOGNITION OF CHANGE
o Value is created through the dynamics of
changing economic, industry and company
fundamentals
o The Portfolio Manager's willingness to invest
on incomplete information
o Judgment about the future, not merely
extrapolation of the past
o Invest in one to two year relative earnings
strength at an early stage and at a
reasonable price
o COMMITMENT TO FUNDAMENTAL RESEARCH
o Twenty-one fundamental analysts covering U.S.
companies
o EMPHASIS ON STOCK SELECTION
o Emphasis on companies and industries where
the potential for change (earnings
acceleration) is significant
o Remain fully invested
Although the Portfolio will focus on companies
with market capitalizations of up to $5 billion,
the Portfolio remains flexible and may invest in
securities of larger companies. The Portfolio
may also engage in short sales of securities it
expects to decline in price. The Portfolio may
invest a substantial portion of its assets in
securities issued by small, small Cap and mid-cap
companies. These companies may offer greater
opportunities for share price increase than
larger companies. Equity and debt securities in
which the Portfolio normally invests include
common and preferred stocks, convertible
securities, bonds, and notes.
The Portfolio may invest in:
o foreign securities (including in emerging or
developing markets)
o foreign currencies, options
o lower-quality, high yielding debt securities
(commonly called "junk bonds")
o "zero-coupon" bonds
o "payment-in-kind" bonds
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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At times the Portfolio 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 Portfolio would only overweight
its investments in a particular market sector if
the investment return available from such
overweighing in that sector justifies any
additional risk associated with heavily investing
in that sector.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
under "Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o GROWTH INVESTING RISK. Growth stocks may be
more volatile than other stocks because they
are more sensitive to investor perceptions of
the issuing company's growth potential.
Growth-oriented funds will typically
underperform when value investing is in
favor.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
Alliance Capital Management L.P. has managed the
Portfolio since March 1,1999.
MORE Alliance Capital Management Corporation, its
ON THE general partner, is an indirect subsidiary of The
PORTFOLIO Equitable Life Assurance Society of the United
MANAGER States. Alliance Capital is a professional
investment management firm that provides advisory
services to individual and institutional
investors. As of December 31, 1998, Alliance
Capital managed approximately $286.7 billion of
assets. The address of Alliance Capital is 1345
Avenue of the Americas, New York, New York 10105.
The following person at Alliance Capital is
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Kevin J. O' Brien Senior Vice President
Mr. O' Brien has been employed by Alliance
Capital since 1988.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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GROWTH PORTFOLIO
(FORMERLY, THE VALUE + GROWTH PORTFOLIO)
PORTFOLIO
MANAGER Janus Capital Corporation
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio invests primarily in common stocks
INVESTMENT of growth companies that have favorable
STRATEGY relationships between price/earnings ratios and
growth rates in sectors offering the potential
for above-average returns.
The Portfolio invests substantially in common
stocks the Portfolio Manager believes will
appreciate in value. The Portfolio Manager
generally takes a "bottom up" approach to
selecting companies. In other words, it seeks to
identify individual companies with earnings
growth potential that may not be recognized by
the market at large. It makes this assessment by
looking at companies one at a time, regardless of
size, country of organization, place of principal
business activity, or other similar selection
criteria. Income is not a significant
consideration when choosing investments for the
Portfolio.
The Portfolio may invest in companies of any size
and may invest a substantial portion of its
assets in securities issued by small and medium
size companies.
The Portfolio may also invest in:
o foreign securities (including in emerging or
developing markets)
o forward foreign currency contracts, futures
and options
o debt securities (including up to 35% in high-
yield/high-risk securities)
When the Portfolio Manager believes that market
conditions are unfavorable for profitable
investing, or it is otherwise unable to locate
attractive investment opportunities, the
Portfolio's cash or similar investments may
increase. In other words, the Portfolio does not
always stay fully invested in stocks and bonds.
Cash or similar investments generally are a
residual--they represent the assets that remain
after the Portfolio Manager has committed
available assets to desirable investment
opportunities. Frequency of portfolio turnover
will not be a limiting factor if the Portfolio
Manager considers it advantageous to purchase or
sell securities.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o GROWTH INVESTING RISK. Growth stocks may be
more volatile than other stocks because they
are more sensitive to investor perceptions of
the issuing company's growth potential.
Growth-oriented funds will typically
underperform when value investing is in
favor.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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o SMALL COMPANY RISK. Investing in securities
of small companies may involve greater risks
than investing in larger, more established
issuers. Smaller companies may have limited
product lines, markets or financial
resources. Their securities may trade less
frequently and in more limited volume than
the securities of larger, more established
companies. In addition, smaller companies
are typically subject to greater changes in
earnings and business prospects than are
larger companies. Consequently, the prices
of small company stocks tend to rise and fall
in value more than other stocks. Although
investing in small companies offers potential
for above-average returns, the companies may
not succeed, and the value of stock shares
could decline significantly.
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
o HIGH YIELD BOND RISK. High yield bonds
(commonly referred to "junk bonds") generally
provide greater income and increased
opportunity for capital appreciation than
investments in higher quality debt
securities, but they also typically have
greater potential price volatility and
principal and income risk. High yield bonds
are not considered investment grade.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Janus Capital Corporation has managed the
ON THE Portfolio since March 1, 1999. Janus Capital has
PORTFOLIO been an investment adviser since 1970, and
MANAGER provides advisory services to managed accounts
and investment companies. As of December 31,
1998, Janus Capital managed approximately $108
billion in assets. The address of Janus Capital
is 100 Fillmore Street, Denver, Colorado 80206.
The following person at Janus Capital is
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Warren M. Lammert Executive Vice President
Mr. Lammert has been employed by Janus
Capital since 1987 and has managed
various other mutual funds and private
accounts during that time.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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VALUE EQUITY PORTFOLIO
PORTFOLIO
MANAGER Eagle Asset Management, Inc.
INVESTMENT
OBJECTIVE Capital appreciation. Dividend income is a
secondary objective.
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities of domestic and foreign issuers that
STRATEGY meet quantitative standards relating to financial
soundness and high intrinsic value relative to
price. The principal strategies used to select
the investments include:
(i) A three-step process to identify possible
value opportunities:
o Screening the universe of equity securities
for five key variables: low price-to-book
ratios; low price-to-sales ratios; low price-
to earnings ratios; attractive relative
dividend yield; and relative price-to-
earnings ratios
o Performing in-depth fundamental research on
individual companies including their industry
outlook and trends, strategy, management
strength, and financial stability
o Using a discounted free cash flow model to
identify securities that are trading at a
significant discount to their estimated
intrinsic value
(ii) Identifying stocks trading at a significant
discount to their underlying intrinsic value and
which fall into at least one of three basic
categories:
o "Pure" value opportunities: stocks that
appear attractive relative to the broader
market
o "Relative" value opportunities: stocks that
trade at a discount to the valuation
parameters that the market has historically
applied to them or their peer group
o "Event-driven" value opportunities: stocks
whose underlying value may be recognized as a
result of a realized or anticipated event
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o VALUE INVESTING RISK. Undervalued stock may
not realize their perceived value for
extended periods of time. Value stocks may
respond differently to market and other
developments than other types of stocks.
Value stocks typically underperform when
other investing styles, such as growth
investing, are in favor.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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Eagle Asset Management, Inc. ("Eagle Asset") has
managed the Portfolio since its inception. Eagle
Asset is in the business of managing
institutional client accounts and individual
accounts on a discretionary basis. Eagle Asset
is a subsidiary of Raymond James Financial, Inc.,
a publicly traded company whose shares are listed
on the New York Stock Exchange. As of December
31, 1998, Eagle Asset had approximately $6
billion in client assets under management. The
address of Eagle Asset is 880 Carillon Parkway,
St. Petersburg, Florida 33716.
The following persons at Eagle Asset are
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Address
---- ------------------------------------
Louis Kirschbaum Senior Vice President
Mr. Kirschbaum assumed portfolio
management responsibilities for the
Portfolio in January 1999. Prior to
that, he managed various other
accounts for Eagle Asset. Mr.
Kirschbaum has 27 years of investment
experience and also has portfolio
management responsibilities for various
accounts invested in other portfolios
of Eagle Asset.
David M. Blount Senior Vice President
Mr. Blount assumed portfolio management
responsibilities for the Portfolio in
January, 1999. Prior to that, he managed
or provided research assistance for
various other accounts for Eagle Asset.
Mr. Blount has 16 years of investment
experience.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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RESEARCH PORTFOLIO
PORTFOLIO
MANAGER Massachusetts Financial Services Company
INVESTMENT
OBJECTIVE Long-term growth of capital and future income
PRINCIPAL The Portfolio normally invests at least 80% of
INVESTMENT its total assets in common stocks and related
STRATEGY securities (such as preferred stocks, convertible
securities and depositary receipts). The
Portfolio focuses on companies that the Portfolio
Manager believes have favorable prospects for
long-term growth, attractive valuations based on
current and expected earnings or cash flow,
dominant or growing market share and superior
management. The Portfolio may invest in
companies of any size. The Portfolio's
investments may include securities traded on
securities exchanges or in the over-the-counter
markets.
A committee of investment research analysts
selects portfolio securities for the Portfolio.
This committee includes investment analysts
employed by the Portfolio Manager and its
affiliate. The committee allocates the
Portfolio's assets among various industries.
Individual analysts then select what they view as
the securities best suited to achieve the
Portfolio's investment objective within their
assigned industry responsibility.
The Portfolio may invest in foreign equity
securities, and may have exposure to foreign
currencies through its investment in these
securities, its direct holdings of foreign
currencies or through its use of foreign currency
exchange contracts for the purchase or sale of a
fixed quantity of foreign currency at a future
date.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o OTC INVESTMENT RISK. Investing in securities
traded on the over-the-counter (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 that
are smaller or newer than those listed on the
New York or American Stock Exchange. For
example, these companies often have limited
product lines, markets, or financial
resources, may be dependent for management on
one or a few key persons, and can be more
susceptible to losses. Also, their securities
may be thinly traded (and therefore have to
be sold at a discount from current prices or
sold in small lots over an extended period of
time), may be followed by fewer investment
research analysts and may be subject to wider
price swings and thus may create a greater
risk of loss than securities of larger
capitalization or established companies.
Shares of the Portfolio, therefore, are
subject to greater fluctuation in value than
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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shares of a conservative equity fund or of a
growth fund that invests entirely in proven
growth stocks.
o FOREIGN INVESTMENT RISK. In many foreign
countries there is less publicly available
information about companies 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 Portfolio may
encounter difficulties or be unable to pursue
legal remedies or obtain judgments in foreign
courts.
The
values of foreign investments may be affected by
changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Massachusetts Financial Services Company ("MFS")
ON THE has managed the Portfolio since its inception.
PORTFOLIO MFS is America's oldest mutual fund organization.
MAMANGER MFS and its predecessor organizations have
managed money since 1924 and founded the first
mutual fund in the United States. MFS is a
subsidiary of Sun Life Assurance Company of
Canada (U.S.) which in turn is an indirect
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. As of
December 31, 1998, MFS managed net assets of
approximately $98 billion (approximately $69.5
billion in equity securities and $20.5 billion in
fixed income securities) on behalf of
approximately 3.7 million investor accounts. The
address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
The Portfolio is managed by a committee of
research analysts at MFS.
MFS also manages the Mid-Cap Growth Portfolio and
the Total Return Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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MID-CAP GROWTH PORTFOLIO
PORTFOLIO
MANAGER Massachusetts Financial Services Company
INVESTMENT
OBJECTIVE Long-term growth of capital
PRINCIPAL The Portfolio normally invests at least 65% of
INVESTMENT its total assets in common stocks and related
STRATEGY securities (such as preferred stocks, convertible
securities and depositary receipts) of companies
with medium market capitalizations (or "mid-cap")
which the Portfolio Manager believes have above-
average growth potential.
The Portfolio Manager defines mid-cap companies
as companies with market capitalizations equaling
or exceeding $250 million but not exceeding the
top range of the Russell Midcap Growth Index at
the time of the Portfolio's investment. The
Index is a widely recognized, unmanaged index of
mid-cap common stock prices. Companies whose
capitalization falls below $250 million or
exceeds the top of the Russell Midcap Growth
Index range after purchase continue to be
considered mid-cap companies for purposes of the
Portfolio's 65% investment policy. As of April
30, 1999, the top of the Russell Midcap Growth
Index was $47 billion. The Portfolio's
investments may include securities listed on a
securities exchange or traded in the over-the-
counter markets.
Growth companies are companies that the Portfolio
Manager considers well-run and poised for growth.
The Portfolio Manager looks particularly for
companies which demonstrate:
o a strong franchise, strong cash flows and a
recurring revenue stream
o a solid industry position, where there is
potential for high profit margins and
substantial barriers to new entry in the industry
o a strong management team with a clearly
defined strategy
o a catalyst that may accelerate growth
The Portfolio uses a bottom-up, as opposed to a
top-down, investment style in managing the
Portfolio. This means that securities are
selected based on fundamental analysis performed
by the Portfolio Manager and its group of equity
research analysts and not selected based on the
industry in which they belong.
The Portfolio may invest in foreign securities
(including emerging markets securities), and may
have exposure to foreign currencies through its
investment in these securities, its direct
holdings of foreign currencies or through its use
of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign
currency at a future date.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
The Portfolio is non-diversified and, when
compared with other funds, may invest a greater
portion of its assets in a particular issuer. A
non-diversified portfolio has greater exposure to
the risk of default or the poor earnings of the
issuer.
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PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o MID-CAP COMPANY RISK. Investment in
securities of mid-cap companies entails
greater risks than investments in larger,
more established companies. Mid-cap
companies tend to have more narrow product
lines, more limited financial resources and a
more limited trading market for their stocks,
as compared with larger companies. As a
result, their stock prices may decline
significantly as market conditions change.
o OTC INVESTMENT RISK. Investing in securities
traded on the over-the-counter ("OTC")
securities market can involve greater risk
than is customarily associated with investing
in securities traded on the New York or
American Stock Exchanges since OTC securities
are generally securities of companies which
are smaller or newer than those listed on the
New York or American Stock Exchange. For
example, these companies often have limited
product lines, markets, or financial
resources, may be dependent for management on
one or a few key persons, and can be more
susceptible to losses. Also, their securities
may be thinly traded (and therefore have to
be sold at a discount from current prices or
sold in small lots over an extended period of
time), may be followed by fewer investment
research analysts and may be subject to wider
price swings and thus may create a greater
risk of loss than securities of larger
capitalization or established companies.
Therefore, shares of the Portfolio 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.
o EMERGING MARKETS RISK. 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 after the Portfolio investments in
those currencies. 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 (may
be unable to transfer currency from a given
country); or creation of government monopolies.
o FOREIGN INVESTMENT AND CURRENCY RISK. In many
foreign countries there is less publicly
available information about companies 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.
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Further,
the Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Massachusetts Financial Services Company ("MFS")
ON THE has managed the Portfolio since its inception.
PORTOFLIO MFS is America's oldest mutual fund organization.
MANAGER MFS and its predecessor organizations have
managed money since 1924 and founded the first
mutual fund in the United States. MFS is a
subsidiary of Sun Life Assurance Company of
Canada (U.S.) which in turn is an indirect
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. As of
December 31, 1998, MFS managed net assets of
approximately $98 billion (approximately $69.5
billion in equity securities and $20.5 billion in
fixed income securities) on behalf of
approximately $3.7 million investor accounts.
The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
The following persons at MFS are primarily
responsible for the day-to-day investment
decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
John W. Ballen Senior VP--Investments & Chief Equity
Officer
Mr. Ballen has been employed by MFS
since 1984.
Mark Regan Vice President--Investments
Mr. Regan has been employed as a
portfolio manager by MFS since 1989.
MFS also manages the Research Portfolio and the
Total Return Portfolio.
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ALL-GROWTH PORTFOLIO
PORTFOLIO
MANAGER Pilgrim Baxter & Associates, Ltd.
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio normally invests primarily in
INVESTMENT growth securities (such as common stocks) of
STRATEGY middle-range capitalization (or "mid-cap")
companies. Mid-cap companies in which the
Portfolio invests generally have market
capitalizations or annual revenues between $500
million and $10 billion. Growth securities in
the Portfolio are primarily common stocks that
the Portfolio Manager believes have strong
earnings growth and capital appreciation
potential.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o MID-CAP COMPANY RISK. Investment in
securities of mid-cap companies entail
greater risks than investments in larger,
more established companies. Mid-cap
companies tend to have more narrow product
lines, more limited financial resources and a
more limited trading market for their stocks,
as compared with larger companies. As a
result, their stock prices may decline
significantly as market conditions change.
o GROWTH INVESTING RISK. Growth stocks may be
more volatile than other stocks because they
are more sensitive to investor perceptions of
the issuing company's growth potential.
Growth-oriented funds will typically
underperform when value investing is in
favor.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Pilgrim Baxter & Associates, Ltd. has managed the
ON THE Portfolio since February 1997. Pilgrim Baxter
PORTFOLIO provides advisory services to pension and profit
MANAGER sharing plans, charitable institutions,
corporations, trust and estates, and other
investment companies. As of December 31, 1998,
Pilgrim Baxter managed approximately $12 billion
of assets. Pilgrim Baxter is a subsidiary of
United Asset Management Corporation, a publicly
traded company. The address of Pilgrim Baxter is
825 Duportail Road, Wayne, Pennsylvania 19087.
The following person at Pilgrim Baxter is
primarily responsible for the day-to-day
investment decisions of the Portfolio:
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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Name Position and Recent Business Experience
---- ---------------------------------------
Jeffrey Wrona Investment Professional
Mr. Wrona has been an Inivestment
Professional with Pilgrim Baxter since
1997. Before joining Pilgrim Baxter, Mr.
Wrona worked as a Senior Portfolio Manager
at Munder Capital Management for seven years.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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GROWTH OPPORTUNITIES PORTFOLIO
PORTFOLIO
MANAGER Montgomery Asset Management, LLC
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL
INVESTMENT The Portfolio invests primarily in equity
STRATEGY securities of domestic companies generally having
total market capitalizations of $1 billion or
more.
The Portfolio may invest in other types of equity
securities and equity derivative securities. The
Portfolio also may invest up to 35% of its total
assets in highly rated debt securities.
The Portfolio seeks growth at a reasonable value
by investing in companies with sound fundamental
value and potential. The Portfolio selects its
investments based on a combination of
quantitative screening techniques and fundamental
analysis. The Portfolio Manager:
o identifies a universe of investment
candidates by screening companies based on
changes in growth rates and valuation ratios
(such as price to sales, price to earnings
and price to cash flows)
o identifies rapidly growing companies with
reasonable valuations and accelerating growth
rates, or with low valuations and initial
signs of growth
o fundamentally analyzes these companies,
focusing on:
o balance sheets and income statements
o company visits and discussions with
management
o contacts with industry specialists and
industry analysts
o review of the competitive environments
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o GROWTH INVESTING RISK. Growth stocks may be
more volatile than other stocks because they
are more sensitive to investor perceptions of
the issuing company's growth potential.
Growth-oriented funds will typically
underperform when value investing is in
favor.
o MANAGEMENT TECHNIQUE RISK. The Portfolio
selects its investments based on a
combination of quantitative screening
techniques and fundamental analysis. We
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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cannot assure you that such market timing
techniques will correctly predict market
trends, or enable the Portfolio to achieve
its investment objective.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Montgomery Asset Management, LLC ("Montgomery")
ON THE or its affiliates has managed the Portfolio since
PORTFOLIO its inception. Montgomery advises private
MANAGER accounts as well as mutual funds. As of December
31, 1997, Montgomery had $9.5 billion in assets
under management. Montgomery is a subsidiary of
Commerzbank AG. Commerzbank, 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 address of
Montgomery is 101 California Street, San
Francisco, CA 94111.
The following persons at Montgomery are primarily
responsible for the day-to-day investment
decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Roger W. Honour Senior Portfolio Manager and Principal
Mr. Honour has been with Montgomery since
June 1993. From 1992 through May 1993,
Mr. Honour spent one year as Vice
President and portfolio manager at
Twentieth Century Investors.
Kathryn M. Peters Portfolio Manager and Principal
Ms. Peters joined Montgomery in 1995.
From 1993 to 1995, Ms. Peters was an
associate in the investment banking
division of Donaldson, Lufkin & Jenrette.
From 1990 to 1990 she analyzed mezzanine
investments for Barclays de Zoete Wedd.
Andrew Pratt, CFA Portfolio Manager and Principal
Mr. Pratt 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.
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STRATEGIC EQUITY PORTFOLIO
PORTFOLIO
MANAGER A I M Capital Management, Inc.
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Portfolio invests principally in common
INVESTMENT stocks of medium- and small-sized growth
STRATEGY companies. The Portfolio Manager focuses on
companies it believes are likely to benefit from
new or innovative products, services or processes
as well as those that have experienced above-
average, long-term growth in earnings and have
excellent prospects for future growth. The
Portfolio Manager usually sells a particular
security when any of those factors materially
changes. As a result of the Portfolio's
investment strategy, the market prices of many of
the securities purchased and held by the
Portfolio may fluctuate widely. Any income
received from securities held by the Portfolio is
incidental.
The Portfolio comprises primarily of securities
of two basic categories of companies: (a) "core"
companies, which the Portfolio Manager considers
to have experienced above-average and consistent
long-term growth in earnings and to have
excellent prospects for outstanding future
growth, and (b) "earnings acceleration" companies
that the Portfolio Manager believes are currently
enjoying a dramatic increase in profits.
The Portfolio's strategy does not preclude
investment in large, seasoned companies that the
Portfolio Manager believes possess superior
potential returns similar to companies with
formative growth profiles. The Portfolio also
invests in established smaller companies (under
$500 million in market capitalization) which
offer exceptional value based upon substantially
above-average earnings growth potential relative
to market value.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o GROWTH INVESTING RISK. Growth stocks may be
more volatile than other stocks because they
are more sensitive to investor perceptions of
the issuing company's growth potential.
Growth-oriented funds will typically
underperform when value investing is in
favor.
o SMALL COMPANY RISK. Investing in securities
of small companies may involve greater risks
than investing in larger, more established
issuers. Smaller companies may have limited
product lines, markets or financial
resources. Their securities may trade less
frequently and in more limited volume than
the securities of larger, more established
companies. In addition, smaller companies
are typically subject to greater changes in
earnings and business prospects than are
larger companies. Consequently, the prices
of small company stocks tend to rise and fall
in value more than other stocks. Although
investing in small companies offers potential
for above-average returns, the companies may
not succeed, and the value of stock shares
could decline significantly.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgements in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE A I M Capital Management, Inc. ("A I M Capital")
ON THE has managed the Portfolio since March 1, 1999.
PORTFOLIO A I M Capital is an indirect subsidiary of
MANAGER AMVESCAP, one of the world's largest independent
investment companies. As of December 31, 1998,
A I M Capital and its immediate parent, A I M
Advisors, Inc., managed approximately $109
billion in assets. The address of A I M Capital
is 11 Greenway Plaza, Houston, Texas 77046.
The following persons at A I M Capital are
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Robert M. Kippes Senior Portfolio Manager
Mr. Kippes has been associated with A I M
Capital and/or its affiliates since
1989.
Charles D. Scavone Senior Portfolio Manager
Mr. Scavone has been associated with A I M
Capital and/or its affiliates since
1996. From 1994 to 1996, he was Associate
Portfolio Manager for Van Kamper Capital
Asset Management, Inc.
David P. Barnard Senior Portfolio Manager
Mr. Barnard has been associated with A I M
Capital since 1982.
Kenneth A. Zschappel Senior Portfolio Manager
Mr. Zschappel has been associated with
A I M Capital and/or its affiliates
since 1990.
A I M Capital also manages the Capital
Appreciation Portfolio.
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CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO
MANAGER A I M Capital Management Group, Inc.
INVESTMENT
OBJECTIVE Long-term capital growth
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities the Portfolio Manager believes to be
STRATEGY undervalued relative to the Portfolio Manager's
appraisal of the current or projected earnings of
the companies issuing the securities, or relative
to current market values of assets owned by the
companies issuing the securities or relative to
the equity markets generally.
The Portfolio also may invest in preferred stocks
and debt instruments that are consistent with its
investment objective. Although the Portfolio may
receive income from these investments, they will
be purchased for their potential for growth of
capital and not for their ability to generate
income. The Portfolio also may invest up to 25%
of its assets in foreign securities.
The Portfolio Manager focuses on undervalued
equity securities of:
o out-of-favor cyclical growth companies
o established growth companies that are
undervalued compared to historical relative
valuation parameters
o companies where there is early but tangible
evidence of improving prospects that are not
yet reflected in the price of the company's
equity securities
o companies whose equity securities are selling
at prices that do not reflect the current
market value of their assets and where there
is reason to expect realization of this
potential in the form of increased equity
values
The Portfolio Manager usually sells a particular
security when it believes the company no longer
fits into any of the above categories.
In anticipation of or in response to adverse
market conditions or for cash management
purposes, the Portfolio may hold all or a portion
of its assets in cash, money market securities,
bonds or other debt securities. As a result, the
Portfolio may not achieve its investment
objective.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o VALUE INVESTING RISK. Undervalued stock may
not realize their perceived value for
extended periods of time. Value stocks may
respond differently to market and other
developments than other types of stocks.
Value stocks typically underperform when
other investing styles, such as growth
investing, are in favor.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
A I M Management, Inc. ("A I M Capital") has
managed the Portfolio since April 1, 1999.
MORE A I M Capital is an indirect subsidiary of
ON THE AMVESCAP, one of the world's largest independent
PORTFOLIO investment companies. As of December 31, 1998,
MANAGER A I M Capital and its immediate parent, A I M
Advisors, Inc., managed approximately $109
billion in assets. The address of A I M Capital
is 11 Greenway Plaza, Houston, TX 77046.
The following persons at A I M Capital are
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Joel E. Dobberpuhl Senior Portfolio Manager
Mr. Dubberpuhl has been associated with
A I M Capital and/or its affiliate since
1990.
Robert A. Shelton Portfolio Manager
Mr. Shelton has been associated with A I M
Capital and/or its affiliates since
1995. Prior to 1995, he was a financial
analyst for CS First Boston.
Evan G. Harrel Senior Portfolio Manager
Mr. Harrel has been associated with A I M
Capital and/or its affiliates since
1998. From 1994 to 1998, he was Vice
President of Van Kamper American Asset
Management, Inc. and a portfolio manager
of various growth and equity funds.
A I M Capital also manages the Strategic Equity
Portfolio.
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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SMALL CAP PORTFOLIO
PORTFOLIO
MANAGER Fred Alger Management, Inc.
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL
INVESTMENT The Portfolio invests primarily in equity
STRATEGY securities of companies that have total market
capitalization within the range of companies
included in:
o Russell 2000 Growth Index
o Standard & Poor's Small Cap 600 Index
Both indexes are broad indexes of small
capitalization stocks. As of December 31, 1998,
the range of market capitalization companies in
the Russell Index was $4.42 million to $3.21
billion, the range of the market capitalization
companies in the S&P 600 Index was $18 million to
$3.34 billion, and the combined range was $4.42
million to $3.34 billion. The Portfolio may
invest up to 35% of its assets in companies
outside this combined range.
Equity securities in which the Portfolio may
invest include common or preferred stocks, or
securities convertible into or exchangeable for
equity securities, such as warrants and rights.
The Portfolio invests 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 because of 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.
The Portfolio may also hold up to 15% of its
assets in money market instruments and repurchase
agreements.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o SMALL CAP COMPANY RISK. Investing in
securities of small cap companies may involve
greater risks than investments in larger,
more established issuers. Smaller companies
may have limited product lines, markets or
financial resources. Their securities may
trade less frequently and in more limited
volume than the securities of larger, more
established companies. In addition, smaller
companies are typically subject to greater
changes in earnings and business prospects
than are larger companies. Consequently, the
prices of small company stocks tend to rise
and fall in value more than other stocks.
Although investing in small cap companies
offers potential for above-average returns,
the companies may not succeed and the value
of stock shares could decline significantly.
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This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Fred Alger Management, Inc. ("Fred Alger") has
ON THE managed the Portfolio since its inception. Fred
PORTFOLIO Alger has been in the business of providing
MANAGER investment advisory services since 1964. Fred
Alger is owned by Fred Alger & Company,
Incorporated, which in turn is owned by Alger
Associates, Inc., a financial services holding
company. As of December 31, 1998, Fred Alger
managed approximately $10.6 billion in assets.
The address of Fred Alger is One World Trade
Center, Suite 9333, New York, New York 10048.
The following persons at Fred Alger are primarily
responsible for making the day-to-day investment
decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
David D. Alger President
Mr. Alger has been employed by the
Portfolio Manager since 1971.
Seilai Khoo Senior Vice President
Ms. Khoo has been employed by the
Portfolio Manager since 1989.
Ronald Tartaro Senior Research Analyst
Mr. Tartaro has been employed by Fred
Alger Management, Inc. since 1990.
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REAL ESTATE PORTFOLIO
PORTFOLIO
MANAGER EII Realty Securities, Inc.
INVESTMENT
OBJECTIVE Capital appreciation. Current income is a
secondary objective.
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT securities of companies in the real estate
STRATEGY industry that are listed on national exchanges or
the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). The
Portfolio Manager selects securities generally
for long-term investment.
The Portfolio invests the majority of its assets
in companies that have at least 50% of their
assets in, or that derive at least 50% of their
revenues from, the following sectors of the real
estate industry:
o ownership (including listed real estate
investment trusts)
o construction and development
o asset sales
o property management or sale
o other related real estate services
The Portfolio may invest more than 25% of its
assets in any of the above sectors.
The Portfolio also may invest in:
o equity, debt, or convertible securities of
issuers whose products and services related
to the real estate industry
o financial institutions which issue or service
mortgages
o securities of companies unrelated to the real
estate industry but which have significant real
estate holdings believed to be undervalued
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o REAL ESTATE RISK. Although the Portfolio
will not invest in real estate directly, the
Portfolio may invest in real estate industry
companies, including real estate investment
trusts. As a result, the Portfolio may be
subject to certain risks associated with
direct ownership of real estate and the real
estate industry in general. 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, tenant credit
worthiness and ability to meet rent
obligations, increases in property taxes and
operating expenses, changes in zoning laws,
casualty or condemnation losses, limitations
on
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rents, changes in neighborhood values, the
appeal of properties to tenants, leveraging
of interests in real estate, and increase in
interest rates.
In addition, real estate investment trusts
(called "REITs") may be affected by any changes
in the value of the underlying property owned
by the REIT or by the quality of any credit
extended. REITs are dependent upon management
skills. Some REITs may not be highly
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.
o INDUSTRY CONCENTRATION RISK. Since the
Portfolio invests primarily in securities of
companies in the real estate industry, the
Portfolio may be subject to greater risks and
market fluctuations than other portfolios
that are more diversified by industry.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
EII Realty Securities, Inc. ("EII Realty") has
managed the Portfolio since January 1995.
MORE EII Realty and its parent company, European
ON THE Investors, Inc., have provided advisory services
PORTFOLIO to employee benefit plans, corporations, and high
MANAGER net worth individuals, both foreign and domestic,
since 1983. As of December 31, 1998, EII Realty
and its parent company managed approximately $1.8
billion in real estate securities assets. EII
Realty is a subsidiary of European Investors
Incorporated. The address of EII Realty is 667
Madison Avenue, 16th Floor, New York, New York
10021.
The following persons at EII Realty are primarily
responsible for the day-to-day investment
decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Richard J. Adler Managing Director
Mr. Adler has been a portfolio manager
or real estate securities analyst for
EII Realty and/or its affiliates for
the past ten years.
Cydney C. Donnell Managing Director
Ms. Donnell has been a portfolio manager
or real estate securities analyst for
EII Realty and/or its affiliates for
the past ten years.
David P. O'Connor Managing Director
Mr. O'Connor has been a portfolio manager
or real estate securities analyst for
EII Realty and/or its affiliates since
1994.
99
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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HARD ASSETS PORTFOLIO
PORTFOLIO
MANAGER Baring International Investment Limited
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL
INVESTMENT The Portfolio invests primarily in hard asset
securities.
Hard asset securities in which the Portfolio may
invest include equity securities of hard asset
companies and debt securities, including
structured notes, whose value is linked to the
price of a hard asset commodity or a commodity
index. Hard asset companies are companies that
are directly or indirectly engaged significantly
in the exploration, development, production or
distribution of one or more of the following:
o precious metals
o ferrous and non-ferrous metals
o gas, petroleum, petrochemicals or other
hydrocarbons
o forest products
o agricultural commodities
o other basic materials that can be priced by a
market
The Portfolio normally invests at least 5% of its
assets in each of the first five sectors listed
above, and may invest up to 50% in any one of the
above sectors.
The Portfolio's investment strategy is based on
the belief that hard asset securities can protect
against eroding monetary values. Recent history
indicates that the policies of many governments
(particularly, budget deficits and high rates of
money supply growth) have caused inflation and
that the profitability of many natural resources
companies will, as a result, improve.
The Portfolio may invest in:
o securities of foreign issuers, including up
to 35% in South Africa
o companies not engaged in natural
resources/hard asset activities
o investment-grade corporate debt
o U.S. government or foreign obligations
o money market instruments
o repurchase agreements
o 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
o derivatives
100
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
Equity securities in which the Portfolio invests
may be listed on the U.S. or foreign securities
exchanges or traded over-the-counter, and
include:
o common stock o direct equity
interests in trusts
o preferred stock o joint ventures
o rights o "partly paid" securities
o warrants o partnerships
o "when-issued" o restricted securities
securities
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o HARD ASSET RISK. The production and
marketing of hard assets may be affected by
actions and changes in governments.
Securities of 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.
o SECTOR CONCENTRATION RISK. Since the
Portfolio may invest up to 50% of its assets
in one particular hard asset sector, the
Portfolio may be subject to greater risks and
market fluctuations than other portfolios
that are more diversified by sector.
o INDUSTRY CONCENTRATION RISK. Since the
Portfolio invests primarily in securities of
companies engaged in natural resources/hard
asset activities and may concentrate in
securities of companies engaged in gold
operations, the Portfolio may be subject to
greater risks and market fluctuations than
other portfolios that are more diversified by
industry.
o FOREIGN INVESTMENT AND CURRENCY RISK. The
Portfolio may purchase securities in any
foreign country, developed or underdeveloped.
In many foreign countries, there is less
publicly available information about
companies 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 Portfolio may
encounter difficulties or be unable to pursue
legal remedies or obtain judgments in foreign
courts.
Since investment may be concentrated in South
Africa, 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 investment, may pose certain
risks to the Portfolio's
101
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
investments. If
aggravated by local or international developments,
such risk could have an adverse effect on
investment in South Africa, including the
Portfolio's investments and possibly, the
liquidity of the Portfolio and its ability to meet
shareholder redemption requests.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Baring International Investment Limited ("Baring
ON THE International") has managed the Portfolio since
PORTOFLIO March 1, 1999. Baring International is a
MANAGER subsidiary of Baring Asset Management Holdings
Limited ("Baring"). Baring is the parent of the
world-wide group of investment management
companies that operate under the collective name
"Baring Asset Management" and is owned by ING
Groep N.V., a publicly traded company based in
the Netherlands with worldwide insurance and
banking subsidiaries. The address of Baring
International is 155 Bishopsgate, London.
Baring Asset Management provides global
investment management services to U.S. investment
companies and maintains major investment offices
in Boston, London, Hong Kong and Tokyo. Baring's
predecessor corporation was founded in 1762.
Baring Asset Management provides advisory
services to institutional investors, offshore
investment companies, insurance companies and
private clients. As of December 31, 1998, Baring
Asset Management managed approximately $45.6
billion of assets.
The following person at Baring International is
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Mark Latham Investment Manager
Mr. Latham has been an investment
professional with Baring International
Investment Limited and its ING affiliates
since 1987 and has 17 years of investment
experience.
Baring International Investment also manages the
Developing World Portfolio and the Global Fixed Income
Portfolio.
102
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
MANAGED GLOBAL PORTFOLIO
PORTFOLIO
MANAGER Putnam Investment Management, Inc.
INVESTMENT
OBJECTIVE Capital appreciation. Current income is only an
incidental consideration.
PRINCIPAL The Portfolio invests primarily in common stocks
INVESTMENT traded in securities markets throughout the
STRATEGY world. The Portfolio may invest up to 100% of
its total assets in securities traded in
securities markets outside the United States.
The Portfolio generally invests at least 65% of
its total assets in at least three different
countries, one of which may be the United States.
In unusual market circumstances where the
Portfolio Manager believes that foreign investing
may be unduly risky, all of the Portfolio's
assets may be invested in the United States. The
Portfolio may hold a portion of its assets in
cash or money market instruments.
The Portfolio may invest in any type of company,
large or small, with earnings showing relatively
strong growth trend, or in a company in which
significant further growth is not anticipated but
whose securities are thought to be undervalued.
The Portfolio may also invest in small and
relatively less well known companies.
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY RISK
An investment in the Portfolio is subject to the
following additional principal risk:
o EMERGING MARKET RISK. 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 after investments in those
currencies by the Portfolio. 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 (may be unable to
transfer currency from a given country); or
creation of government monopolies.
103
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
o SMALL COMPANY RISK. Investing in securities
of small companies may involve greater risks
than investments in larger, more established
issuers. Smaller companies may have limited
product lines, markets or financial
resources. Their securities may trade less
frequently and in more limited volume than
the securities of larger, amore established
companies. In addition, smaller companies
are typically subject to greater changes in
earnings and business prospects than are
larger companies. Consequently, the prices
of small company stocks tend to rise and fall
in value more than other stocks. Although
investing in small companies offers potential
for above-average returns, the companies may
not "succeed, and the value of stock shares
could decline significantly.
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Putnam Investment Management, Inc. ("Putnam") has
ON THE managed the Portfolio since March, 1997. Putnam
PORTFOLIO has been managing mutual funds since 1937.
MANAGER Putnam is owned by Putnam Investments, Inc.,
which is owned by Marsh & McLennan Companies,
Inc., a publicly traded company. As of December
31, 1998, Putnam and its affiliates managed
approximately $297 billion of assets. The
address of Putnam is One Post Office Square,
Boston, Massachusetts 02109.
An investment committee at Putnam is responsible
for the day-to-day investment decisions of the
Portfolio.
Putnam also manages the Emerging Markets
Portfolio.
104
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
DEVELOPING WORLD PORTFOLIO
PORTFOLIO
MANAGER Baring International Investment Limited
INVESTMENT
OBJECTIVE Capital appreciation
PRINCIPAL The Developing World Portfolio invests primarily
INVESTMENT in the equity securities of emerging market
STRATEGY companies. The Portfolio normally invests in at
least six different "emerging market countries"
with no more than 35% of its assets in any one
country. Emerging market countries are those
countries having economies and markets that the
World Bank or the United Nations considers to be
emerging or developing. The Portfolio Manager
considers the following to be emerging market
countries:
LATIN AMERICA ASIA EUROPE MIDDLE EAST
Argentina Bangladesh Czech Republic Israel
Brazil China Greece Jordan
Chile India Hungary
Colombia Indonesia Poland AFRICA
Costa Rica Korea Russia Egypt
Jamaica Malaysia Turkey Ghana
Mexico Pakistan Croatia Ivory Coast
Peru Philippines Estonia Kenya
Trinidad and Sri Lanka Morocco
Tobago
Uruguay Taiwan Nigeria
Venezuela Thailand South Africa
Vietnam Tunisia
Hong Kong Zimbabwe
The Portfolio Manager when defining "emerging
markets" recognizes the IFC definition of an
emerging market as being those countries where
the GDP is less than U.S. $10,000 a year per
capita. In particular focuses on the constituent
countries of the Morgan Stanley Emerging Free
Index. However, there are countries, which
satisfy the emerging definition even though they
currently lie outside the Index.
The Portfolio's philosophy is based on the belief
that superior long-term results come from
identifying unrecognized growth investment
opportunities in countries and companies.
The Portfolio Manager's investment process seeks
to deliver superior risk adjusted returns by
evaluating key investment factors at both the
macro and micro level. Such factors include
accelerating GDP growth, earnings surprise and
favorable valuation characteristics. The
investment process is a combination of top-down
country allocation and bottom-up stock selection.
Structured fundamental research supported by
quantitative analysis drives both the country and
company decision making.
Equity securities in which the Portfolio invests
are primarily common stock but may also include
other types of equity and equity derivative
securities. The Portfolio may invest 10% in debt
securities, rated below investment-grade.
105
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<PAGE>
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment involves the possibility that
RISKS you will lose money or not make money. An
in the Portfolio is subject to the following
principal risks described under "Introduction --
General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o EMERGING MARKET RISK. 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 after investments in those
currencies by the Portfolio. 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 (may
be unable to transfer currency from a given
country); or creation of government monopolies.
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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 Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar Terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their relative
investments.
o MANAGEMENT TECHNIQUE RISK. The Portfolio
uses a proprietary, quantitative asset
allocation model in selecting securities. We
cannot assure you that such models will
correctly predict market trends, or enable
the Portfolio to achieve its investment
objective.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
106
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<PAGE>
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
Baring International Investment Limited ("Baring
International") has managed the Portfolio since
March 1, 1999. Baring International is a
subsidiary of Baring Asset Management Holdings
Limited ("Baring"). Baring is the parent of the
world-wide group of investment management
companies that operate under the collective name
"Baring Asset Management" and is owned by ING
Groep N.V., a publicly traded company based in
the Netherlands with worldwide insurance and
banking subsidiaries. The address of Baring
International is 155 Bishopsgate, London.
MORE Baring Asset Management provides global
ON THE investment management services to U.S. investment
PORTFOLIO companies and maintains major investment offices
MANAGER in Boston, London, Hong Kong and Tokyo. Baring's
predecessor corporation was founded in 1762.
Baring Asset Management provides advisory
services to institutional investors, offshore
investment companies, insurance companies and
private clients. As of December 31, 1998, Baring
Asset Management managed approximately $45.6
billion of assets.
The following person at Baring International is
primarily responsible for the day-to-day
investment decisions of the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Matt Linsey Investment Manager
Mr. Linsey has been an investment
professional with Baring International
and its ING affiliates since 1994
and has 15 years of investment experience.
Baring International also manages the Hard Assets
Portfolio and the Global Fixed Income Portfolio.
107
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<PAGE>
- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
PORTFOLIO
MANAGER Putnam Investment Management, Inc.
INVESTMENT
OBJECTIVE Long-term capital appreciation
PRINCIPAL The Portfolio invests primarily in equity
INVESTMENT emerging market countries. The Portfolio's
STRATEGY investment philosophy is to capitalize on
emerging capital markets in developing nations
and other nations in which economic and political
factors are likely to produce above average
growth rates.
Emerging market countries are those that are
identified as such in the Morgan Stanley Capital
International Emerging Markets Free Index or the
International Finance Corporation Emerging Market
Index, or by the Portfolio Manager because they
have a developing economy or because their
markets have begun a process of change and are
growing in size and/or sophistication.
Equity securities that the Portfolio may invest
include common stock and other securities with
equity characteristics (such as preferred stock,
rights and warrants, and convertible securities)
shares of investment companies.
The Portfolio Manager selects securities by
taking into account economic and political
factors that may include, among others:
o relative market valuation
o earnings momentum
o supply and demand
o prospects for relative growth among the
regions and its countries
o expected levels of inflation
o governmental policies influencing business
conditions
o outlook for currency relationships
o range of alternative opportunities available
to international investors
In selecting securities, the Portfolio Manager
looks for 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 on the
medium term outlook for such companies. The
Portfolio Manager considers 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.
If the Portfolio is not fully invested in
emerging market equity securities, the Portfolio
Manager may invest the remainder of the
Portfolio's assets (but not more than 35%) in:
o equity securities of issuers in developed
economies
108
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<PAGE>
- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
o 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
o bank deposits or bank obligations, including
certificates of deposit, time deposits, and
bankers' acceptances
o mortgage-backed securities of banks in
emerging market or industrialized countries,
including the United States
o instruments issued by international
development agencies
o high-quality money market instruments,
including commercial paper and other short-
term corporate debt obligations of issuers in
industrialized and emerging market countries
o debt securities that are rated below
investment-grade or, if not rated, of
equivalent quality up to 10% of assets
o borrowings up to 10% of assets (which the
Portfolio Manager may increase to 25% for
temporary purposes)
The Portfolio may engage in active and frequent
trading to achieve its principal investment
strategies. Frequent trading increases
transaction costs, which could detract from the
Portfolio's performance.
PRINCIPAL An investment in the Portfolio is subject to the
RISKS following principal risks described under
"Introduction -- General Risk Factors":
o MANAGER RISK o MARKET AND COMPANY
RISK
An investment in the Portfolio is subject to the
following additional principal risks:
o EMERGING MARKET RISK. 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 after investments in those
currencies by the Portfolio. 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 (may
be unable to transfer currency from a given
country); or creation of government monopolies.
o FOREIGN INVESTMENT AND CURRENCY RISK. In
many foreign countries there is less publicly
available information about companies 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
109
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
requirements may not be comparable to
those applicable to U.S. companies. Further,
the Portfolio may encounter difficulties or
be unable to pursue legal remedies or obtain
judgments in foreign courts.
The values of foreign investments may be affected
by changes in currency rates or exchange control
regulations. If the local currency gains
strength against the U.S. dollar, the value of
the foreign security increases in U.S. dollar
terms. Conversely, if the local currency weakens
against the U.S. dollar, the value of the foreign
security declines in U.S. dollar terms. U.S.
dollar-denominated securities of foreign issuers,
including depositary receipts, also are subject
to currency risk based on their related
investments.
o VALUE INVESTING RISK. Undervalued stock may
not realize their perceived value for
extended periods of time. Value stocks may
respond differently to market and other
developments than other types of stocks.
Value stocks typically underperform when
other investing styles, such as growth
investing, are in favor.
This prospectus does not describe all of the
risks of every technique, strategy or temporary
defensive position that the Portfolio may use.
For such information, please refer to the
Statement of Additional Information.
MORE Putnam Investment Management, Inc. ("Putnam") has
ON THE managed the Portfolio since March 1997. Prior to
PORTFOLIO that, different firms at different times managed
MANAGER the Portfolio. Putnam has been managing mutual
funds since 1937. Putnam is owned by Putnam
Investments, Inc, which is owned by Marsh &
McLennan Companies, Inc., a publicly traded
company. As of December 31, 1998, Putnam and its
affiliates managed approximately $297 billion of
assets. The address of Putnam is One Post Office
Square, Boston, Massachusetts 02109.
An investment committee at Putnam is responsible
for the day-to-day investment decisions of the
Portfolio.
Putnam Investment also manages the Managed Global
Portfolio.
110
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OVERALL MANAGEMENT OF THE TRUST
- -------------------------------------------------------------------------
THE Directed Services, Inc. ("DSI") is the overall
ADVISER adviser to the GCG Trust. DSI is a New York
corporation and is a wholly owned subsidiary of
ING. DSI is registered with the SEC as an
investment adviser and a broker-dealer. DSI is
the principal underwriter and distributor of the
Variable Contracts that Golden American Life
Insurance Company issues. The address of DSI is
1475 Dunwoody Drive, West Chester, Pennsylvania
19380.
DSI has overall responsibility for hiring
portfolio managers and for periodically
monitoring their performance. DSI considers
performance records in light of a portfolio's
investment objectives and policies. The GCG
Trust pays DSI for its services an advisory fee.
Out of this advisory fee, DSI in turn pays the
portfolio managers their respective portfolio
management fee.
In addition to advisory services, DSI provides
administrative and other services necessary for
the ordinary operation of the portfolios. DSI
procures and pays for the services and
information necessary to the proper conduct of
the portfolios' business, including custodial,
administrative, transfer agency, portfolio
accounting, dividend disbursing, auditing, and
ordinary legal services. DSI also acts as
liaison among the various service providers to
the portfolios, including the custodian,
portfolio accounting agent, portfolio managers,
and the insurance company or companies to which
the portfolios offer their shares. DSI also
ensures that the portfolios operate in compliance
with applicable legal requirements and monitors
the portfolio managers for compliance with
requirements under applicable law and with the
investment policies and restrictions of the
portfolios. 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 portfolio,
interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses,
such as litigation or indemnification expenses.
DSI has full investment discretion and makes all
determinations with respect to the investment of
a portfolio's assets and the purchase and sale of
portfolio securities for one or more portfolios.
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<PAGE>
The GCG Trust pays DSI an advisory fee, payable
monthly, based on the average daily net assets of
a portfolio (or the combined net assets of
portfolios).
ADVISORY FEE PAID IN 1998. For portfolios that
were in operation for the full 1998 year, the
Trust paid DSI in 1998 an advisory fee at the
following annual rates (based on the average
daily net assets of the portfolio):
|-------------------------------------------------------------|
| FEE PAID TO ADVISER |
| DURING 1998 |
| (as a percentage of average |
| PORTFOLIO net assets) |
|-------------------------------------------------------------|
| Liquid Asset 0.59% |
| Limited Maturity Bond 0.60% |
| Equity Income 0.98% |
| Fully Managed 0.98% |
| Rising Dividends 0.98% |
| Value Equity 0.98% |
| All-Growth 0.98% |
| Strategic Equity 0.98% |
| Capital Appreciation 0.98% |
| Small Cap 0.98% |
| Real Estate 0.98% |
| Hard Assets 0.98% |
| Managed Global 1.25% |
| Emerging Markets 1.75% |
| |
|-------------------------------------------------------------|
For portfolios that commenced operations in 1998
and did not operate for a full 1998 year, the
Trust pays DSI an advisory fee at the following
annual rates (based on average daily net assets):
|-------------------------------------------------------------|
| FEE (AS A PERCENTAGE OF AVERAGE |
| NET ASSETS OF A PORTFOLIO OR |
| COMBINED ASSETS OF THE INDICATED|
| PORTFOLIO GROUPS OF PORTFOLIOS) |
|-------------------------------------------------------------|
| Global Fixed Income 1.60% |
| Total Return, Research, 1.00% of first $250 million in |
| Mid-Cap Growth combined assets |
| 0.95% of next $400 million; |
| 0.90% of next $450 million; and |
| 0.85% of amounts in excess of |
| $1.1 billion |
| Growth & Income, Growth, 1.10% of first $250 million in |
| Mid-Cap Growth combined assets |
| Growth Opportunities 1.05% of next $400 million; |
| 1.00% of next $450 million; and |
| 0.95% of amount in excess of |
| $1.1 billion |
| Developing World 1.75% |
| |
|-------------------------------------------------------------|
Out of the advisory fee, DSI in turn pays, on a
monthly basis, the portfolio managers a portfolio
management fee for its services.
The GCG Trust is distinct in that the portfolios'
expense structure is simpler and more predictable
than that of most mutual funds. DSI PAYS MANY OF
THE ORDINARY EXPENSES FOR EACH PORTFOLIO,
INCLUDING CUSTODIAL, ADMINISTRATIVE, TRANSFER
AGENCY, PORTFOLIO ACCOUNTING, AUDITING, AND
ORDINARY LEGAL EXPENSES. MOST MUTUAL FUNDS PAY
FOR THESE EXPENSES DIRECTLY FROM THEIR OWN
ASSETS.
- -------------------------------------------------------------------------
SHARE PRICE
- -------------------------------------------------------------------------
A portfolio's share price (net asset value, or
"NAV"), is calculated each business day after the
close of trading (generally 4 p.m. Eastern time)
on the New York Stock Exchange.
112
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<PAGE>
Net asset value
per share is computed by adding up the total
value of the portfolio's investments and other
assets, subtracting its liabilities and then
dividing by the number of portfolio shares
outstanding.
The net asset values per share of each portfolio,
except the Liquid Asset Portfolio, fluctuates in
response to changes in market conditions and
other factors. The NAV of the shares of the
Liquid Asset Portfolio will not fluctuate in
response to changes in market conditions for so
long as the Portfolio is using the amortized cost
method of valuation. The Liquid Asset
Portfolio's securities are valued using the
amortized cost method of valuation. This
involves valuing a security at cost on the date
of purchase and thereafter assuming a constant
accretion of a discount or amortization of a
premium to maturity.
The other portfolios' securities are valued based
on market value. Market value is determined
based on the 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. If market quotations
are not available, securities are valued at their
fair value as determined in good faith by, or
under the direction of, the Board. 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 at close of business.
Securities traded in over-the-counter markets
outside the United States are valued at the last
available price in the over-the-counter market
before 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 portfolio writes a put or call option, the
amount of the premium is included in the
portfolio's 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 a portfolio pays
for an option is recorded as an asset, and
subsequently adjusted to market value. Futures
and options traded on commodities exchanges or
boards of trade are valued at their closing
settlement price on such exchange or board of
trade. Foreign securities quoted in foreign
currencies generally are valued at 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. The calculation of the
net asset value of a portfolio investing in
foreign securities may not take place
contemporaneously with the determination of the
prices of the securities included in the
calculation. Further, 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 GCG 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
portfolio's net asset value is determined may not
be reflected in the calculation of net asset
value of the portfolio unless DSI or the
portfolio manager, acting under authority
delegated by the Board of Trustees, deems that
the particular event would materially
113
<PAGE>
<PAGE>
affect net
asset value. In this event, the securities would
be valued at fair market value as determined in
good faith by DSI or the portfolio manager acting
under the direction of the Board.
- -------------------------------------------------------------------------
TAXES AND DISTRIBUTIONS
- -------------------------------------------------------------------------
The GCG Trust pays net investment income, if any,
on your shares of each portfolio annually, except
that net investment income of the Liquid Asset
Portfolio is declared as a dividend daily and
paid monthly and that the Limited Maturity Bond
Portfolio may declare a dividend monthly or
quarterly. Any net realized long-term capital
gains for any portfolio will be declared and paid
at least once annually. Net realized short-term
gains may be declared and paid more frequently.
We will automatically reinvest any distributions
made by any portfolio in additional shares of
that portfolio, unless the separate account of
your insurance company makes an election to
receive distributions in cash. Dividends or
distributions by a portfolio other than the
Liquid Asset Portfolio will reduce the per share
net asset value by the per share amount paid.
Each portfolio of the GCG Trust has qualified and
expect to continue to qualify as a regulated
investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended
("Code"). As qualified regulated investment
companies, the portfolios are generally not
subject to Federal income tax on the part of
their investment company taxable income
(including any net capital gains) which they
distribute to shareholders. It is each
portfolio's intention to distribute all such
income and gains.
Shares of each portfolio are offered to the
Separate Accounts of insurance companies. Under
the Code, an insurance company pays no tax with
respect to income of a qualifying Separate
Account when the income is properly allocable to
the value of eligible variable annuity or
variable life insurance contracts. Under current
tax law, your gains under your Contract are taxed
only when you take them out. Contract purchasers
should review the Contract prospectus for a
discussion of the tax treatment applicable to
holders of the Contracts.
The foregoing is only a summary of some of the
important Federal income tax considerations
generally affecting a portfolio and you. Please
refer to the Statement of Additional Information
for more information about the tax status of the
portfolios. You should consult with your tax
adviser for more detailed information regarding
taxes applicable to the Contracts.
114
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<PAGE>
<TABLE>
<C> <C>
TO OBTAIN THE GCG TRUST
MORE INFORMATION TRUSTEES
Two documents are available that offer R. Brock Armstrong, Chair
further information on the portfolios:
Barnett Chernow, Trustee
Annual/Semi-Annual Reports to Shareholders. The
GCG Trust's annual reports include a discussion J. Michael Earley, Trustee
of the market conditions and investment
strategies that significantly affected the R. Barbara Gitenstein, Trustee
portfolios' performance during the last fiscal
year. Robert A. Grayson, Trustee
Statement of Additional Information. A Statement Elizabeth J. Newell, Trustee
of Additional Information, dated May 1, 1999, has
been filed with the Securities and Exchange Stanley B. Seidler, Trustee
Commission, and is made a part of this prospectus
by reference. Roger B. Vincent, Trustee
</TABLE>
To obtain a free copy of these documents or to
make inquiries about the portfolios, please write
to our Customer Service Center at P.O. Box 2700,
West Chester, Pennsylvania 19380 or call (800)
366-0066, or access the SEC's website
(http://www.sec.gov).
Information about the GCG Trust can be reviewed
and copied at the SEC's Public Reference Room.
Information about its operation may be obtained
by calling 1-800-SEC-0330. You may obtain copies
of reports and other information about the GCG
Trust, for payment of a duplication fee, by
writing to Public Reference Section of the
Commission, Washington, D.C. 20549-6009.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock
company domiciled in Delaware
G3059 5/99 811-5629
<PAGE>
PROSPECTUS #2
MARKET MANAGER SERIES
<PAGE>
<PAGE>
THE GCG TRUST
PROSPECTUS
MAY 1, 1999
MARKET MANAGER SERIES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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.
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------
In this prospectus aand in the Statement of Additional
Information, we refer to The GCG Trust as "the GCG Trust"
and to the Market Manager Series as the "Market Manager
Portfolio or the "Portfolio."
PAGE
INTRODUCTION ..........................................
Investing Through Your Variable Contract .............
Why Reading This Prospectus is Important .............
THE PORTFOLIO AT A GLANCE .............................
FINANCIAL HIGHLIGHTS ..................................
DESCRIPTION OF THE PORTFOLIO ..........................
MANAGEMENT OF THE TRUST ...............................
The Adviser ..........................................
Portfolio Manager ....................................
Distributor ..........................................
Expenses .............................................
Portfolio Transactions ...............................
SHARE PRICE ...........................................
TAXES AND DISTRIBUTION ................................
MORE INFORMATION ......................................
Additional Investment Strategies .....................
Portfolio Turnover ...................................
Legal Counsel ........................................
Independent Auditors .................................
Year 2000 ............................................
AN INVESTMENT IN THE MARKET MANAGER PORTFOLIO OF THE GCG TRUST IS NOT
A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY.
i
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
INTRODUCTION
- -------------------------------------------------------------------------
INVESTING THROUGH YOUR VARIABLE CONTRACT
Shares of the Market Manager Portfolio of the GCG Trust currently are
sold to segregated asset accounts ("Separate Accounts") of insurance
companies as funding choices for variable annuity contracts ("Variable
Contracts"). Assets in the Separate Account are invested in shares of
the Portfolio based on your allocation instructions. You do not deal
directly with the Portfolio to purchase or redeem shares. The
accompanying Separate Account prospectus describes your rights as a
Variable Contract owner.
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the investment objective, risks and strategy
of the Portfolio. Reading the prospectus will help you to decide
whether the Portfolio is the right investment for you. We suggest
that you keep this prospectus and the prospectus for the Separate
Account for future reference.
1
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIO AT A GLANCE
- -------------------------------------------------------------------------
MARKET MANAGER PORTFOLIO
INVESTMENT Favorable equity market performance and at the same
OBJECTIVE time preserve capital (without taking into account
expenses) for investments in the Portfolio held until
the Target Maturity Date of March 6, 2001.
PRINCIPAL
INVESTMENT The Portfolio seeks to return the following to its
STRATEGY shareholders on the Target Maturity Date:
o the principal amount invested in the Portfolio
(without regard to expenses)
o a percentage of the price appreciation from the
Portfolio's 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.
The Portfolio allocates its assets among the following
two types of investments:
o over-the-counter call options of the S&P 500 and
other indexes of publicly traded common stocks of
large and mid-cap companies
o zero coupon bonds issued by the U.S. Government,
and its agencies and instrumentalities and by
private issuers which are rated A or better by
Moody's Investors Service, Inc. or Standard &
Poor's Corporation ("S&P)
The Portfolio is non-diversified and, when compared
with other funds, may invest a greater portion of its
assets in a particular issuer. A non-diversified
portfolio has greater exposure to the risk of default
or the poor earnings of the issuer.
The Portfolio will no longer accept investments in the
Portfolio as of March 3, 1995.
PRINCIPAL Any investment involves the possibility that you will
RISKS lose money or not make money. Investment in the Portfolio
is not insured against loss of principal. We cannot assure
that the Portfolio will achieve its investment objective.
Investing in shares of the Portfolio should not be
considered a complete investment program. The share value
of the Portfolio will rise and fall.
An investment in the Portfolio is subject to the
following principal risks described under "Description
of the Portfolio":
o MANAGER RISK o MARKET AND COMPANY RISK
Risks Related to Coupon Bond Investing:
o INTEREST RATE RISK o CREDIT RISK.
Risks Related to OTC Call Options:
o CREDITWORTHINESS OF DEALER
o INVESTMENT CONCENTRATION IN THE SECURITIES
INDUSTRY
Because of these risks, your investment could lose or
not make any money.
2
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
PORTFOLIO AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will fluctuate
depending on its investment performance. The following
bar chart shows the Portfolio's annual total return
changes from year-to-year. The accompanying table shows
the portfolio's average annual total return for 1 year and
since its inception date as compared to the applicable
market indices. The average annual total returns below
include reinvestment of dividends and distributions. This
may help you weigh the risk of investing in the Portfolio.
Of course, past performance does not necessarily indicate
future results. ING Investment Management LLC has managed
the Portfolio since January 2, 1998. From March 3, 1997 to
January 1, 1998, Equitable Investment Services, Inc.,
an affiliate of ING, managed the Portfolio. Prior to
that date, the Portfolio was managed by other portfolio
managers.
The performance information does not include insurance-
related charges. Thus, you should not compare the portfolio's
performance directly with performance information of other
products without taking into account all insurance-related
charges and expenses payable under your Variable Contract.
[[Performance Bar Chart Follows:]
MARKET MANAGER -- ANNUAL TOTAL RETURN
Year 1995 1996 1997 1998
24.33% 19.40% 33.82% 24.55
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 1/14/94 | | |
| (INCEPTION)| | 12/31/98....23.77% |
| Portfolio's Average | | |
| Annual Total Return 24.55% 24.60% | |--------------------|
| S&P 500 28.58% 28.94 | | WORST QUARTER |
| Russell Midcap 10.09% 21.21 | |--------------------|
| | | Quarter Ended |
| | | |
| | | 9/30/98...(12.19)%|
| | | |
|-------------------------------------------------| |--------------------|
The S&P 500 Index is comprised of 500 U.S. Stocks. The Russell
Midcap index consists of the 800 smallest companies in the
Russell 1000 Index, which contains the 1,000 largest companies
in the United States.
3
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------
The following financial highlights tables are intended to help you
understand the Portfolio's financial performance for the past 5 years.
Certain information reflects financial reqults for a single portfolio
share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report,
along with the Portfolio's financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
MARKET MANAGER PORTFOLIO **
- ---------------------------------------------------------------------------------------
YEAR ENDED
- ---------------------------------------------------------------------------------------
12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.47 $13.22 $12.03 $10.02 $10.00
------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income(Loss) 0.32 0.36 0.46 0.37 0.02
Net Realized and Unrealized
Gain(Loss) on Investments 3.69 4.11 1.89 2.06 0.02
------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.01 4.47 2.35 2.43 0.04
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (0.32) (0.36) (0.46) (0.37) (0.02)
Distributions from Capital Gains (0.54) (0.86) (0.70) (0.05) --
Distributions in Excess of Capital
Gains 0.00# -- -- -- --
------------------------------------------------
TOTAL DISTRIBUTIONS (0.86) (1.22) (1.16) (0.42) (0.02)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.62 $16.47 $13.22 $12.03 $10.02
=======================================================================================
TOTAL RETURN 24.55% 33.82% 19.40% 24.33% 0.44%++
=======================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in 000's) $8,139 $6,791 $5,585 $5,952 $2,754
Ratio of Operating Expenses to
Average Net Assets 1.01% 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 1.78% 2.19% 3.06% 3.42% 0.65%
Portfolio Turnover Rate -- -- -- 5.00% --
- ---------------------------------------------------------------------------------------
</TABLE>
* The Market Manager Portfolio commenced operations on November 14,
1994.
** On January 2, 1998, ING Investment Management LLC ("IIM") became
the Portfolio Manager of the Portfolio. From March 3, 1997 to
January 1, 1998, Equitable Investment Services, Inc., and
affiliate of IIM, was the Portfolio Manager of the Portoflio Prior
to March 3, 1997, the Portfolio had been advised by other Portfolio
Managers.
++ Non-annualized
# Amount represents less than $0.01 per share.
4
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIO
- -------------------------------------------------------------------------
MARKET MANAGER PORTFOLIO
PORTFOLIO
MANAGER ING Investment Management LLC
INVESTMENT Favorable equity market performance and at the same time
OBJECTIVE preserve capital (without taking into account expenses)
for investments in the Portfolio held until the Target
Maturity Date of March 6, 2001.
PRINCIPAL
INVESTMENT The Portfolio seeks to return the following to its
STRATEGY shareholders on the Target Maturity Date:
o the principal amount invested in the Portfolio
(without regard to expenses)
o a percentage of the price appreciation from the
Portfolio's 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 indices of publicly traded
common stocks of large and mid-cap companies.
There are two components of the Portfolio's investment
objective: (1) seeking favorable equity market
performance, and (2) seeking preservation of capital.
The Portfolio Manager allocates the assets of the
Portfolio among the investments described below:
o FAVORABLE EQUITY PERFORMANCE. The Portfolio seeks
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. An index of publicly
traded common stocks will generally 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.
The call options into which the Portfolio will enter
will be negotiated on behalf of the Portfolio by the
Portfolio Manager in an attempt to provide the
Portfolio with the right to receive a percentage of
the price appreciation on the stocks included in the
indices 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 indices does not include the value of dividends
paid by in the indices. 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 indices, and that these options would give the
Portfolio the right to receive approximately 110%-
118% of the price appreciation of a composite of
these indices from the Investment Start Date through
the Target Maturity Date, based upon the expected
weighting of the Portfolio's relative positions in
call options on these indices.
The Portfolio will initially invest on or about the
Investment Start Date between 25% and 45% of the
Portfolio's assets in call options on equity indices. If
at the option's maturity or when the Portfolio seeks to
close out the option there is no price appreciation on
the S&P 500 or another index with respect to which the
Portfolio holds a call option, the Portfolio will not
benefit from the investment and will lose its investment
in the option. The Portfolio will seek to enter into
call options that provide an absolute right for the
Portfolio to cause the issuing dealer to repurchase the
call at any time.
5
<PAGE>
<PAGE>
PRESERVATION OF CAPITAL. The Portfolio 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 Portfolio 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 Portfolio can be
expected to decrease as the Portfolio nears its Target
Maturity Date. The Portfolio may hold any or all of the
zero coupon bonds in which it invests until their
maturity date or until or close to the Portfolio's Target
Maturity Date, although, alternatively, the Portfolio 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 Portfolio's 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 Portfolio so that
if the Portfolio Manager is successful in its strategy,
an investor in the Portfolio 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 Portfolios. The purchaser
of a Variable Contract would pay the expenses 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
prospectus.
OFFERING PERIOD. The Commencement Date is November 14,
1994. The Portfolio was 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 Portfolio ceased issuing new shares at the end of
the Offering Period (other than shares of the Portfolio
issued in connection with reinvestment of the Portfolio's
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
Portfolio is March 6, 2001. On or about this date, the
Portfolio will be converted to cash (after deduction of
any unpaid Portfolio 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
Portfolio to choose their desired allocation. If no
instructions are given, liquidation proceeds will be
invested automatically in a series substantially similar
to the Portfolio, if any is being offered at the time,
and if not, to the Liquid Asset Series of the Trust.
PRINCIPAL Any investment involves the possibility that you will
RISKS lose money or not make money. Investment in the Portfolio
is not insured against loss of principal. We cannot assure
that the Portfolio will achieve its investment objective.
Investing in shares of the Portfolio should not be
considered a complete investment program. The Portfolio is
not intended for sharholders seeking short-term profits.
The share value of the Portfolio will rise and fall.
An investment in the Portfolio is subject to the
following principal risks:
o MANAGER RISK. The Portfolio Manager may do a
mediocre or poor job in selecting securities.
o MARKET AND COMPANY RISK. The price of a
security held by the Portfolio may fall due to
changing economic, political or
market conditions
6
<PAGE>
<PAGE>
or disappointing earnings results. Stock prices
in general will decline over short or even
extended periods. The stock market tends to be
cyclical, with periods when stock prices
generally rise and periods when stock prices
generally decline.
Risks Related to Coupon Bond Investing:
o INTEREST RATE RISK. The value of debt
instruments generally rises and falls inversely
with interest rate. Therefore, bond prices
overall will decline over short or even extended
periods due to rising interest rates. Further,
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.
o CREDIT RISK. A bond issuer (debtor) may fail
to repay interest and principal in a timely
manner. The price of a security held by a
portfolio may fall due to changing economic,
political or market conditions or disappointing
earnings results.
Risks Related to OTC Call Options:
o CREDITWORTHINESS OF DEALER. Under the terms
of the over-the-counter call options that will be
acquired by the Portfolio, the Portfolio must
look to the issuing dealer to repurchase the
option and for payment upon exercise. Thus, it
is likely that the Portfolio will be subject to
the creditworthiness of the dealers throughout
the Target Maturity Date. Nonperformance by a
dealer as a result of insolvency or otherwise may
result in material losses to the Portfolio.
o INVESTMENT CONCENTRATION IN THE SECURITIES INDUSTRY.
Since at least 25% of the Portfolio will be
invested in over-the-counter options, the
Portfolio might be deemed to have concentrated
its investments in issuers in the securities
industry. The concentration of the Portfolio's
assets in firms in the securities industry will
cause the Portfolio to have greater exposure to
risks associated with the securities industry in
general.
Because of these risks, your investment could lose or not
make any money.
MORE ON THE ING Investment Management LLC ("ING Investment") (or
PORTFOLIO investment advisors acquired by ING Investment Management)
MANAGER has managed the Portfolio since March, 1997. ING Investment
is engaged in the business of providing investment advice
to affiliated insurance and investment companies and
institutional clients possessing portfolios, which, as of
December 31, 1998, were valued at approximately $27.6
billion. The address of ING Investment is 5780 Powers
Ferry Road, N.W., Suite 300, Atlanta, Georgia 30327.
ING Investment is a subsidiary of ING Groep N.V. and is
affiliated with Directed Services, Inc.
The following person at ING Investment is primarily
responsible for the day-to-day investment decisions of the
Portfolio:
Name Name and Recent Business Experience
---- -----------------------------------
Robert F. Bowman Senior Portfolio Manager
Mr. Bowman has been employed by the
Portfolio Manager as a Managing Director
since January 2, 1998. Prior to that he
served as the Portfolio's portfolio
manager while working for Equitable
Investment Services, Inc. ("EISI"). He
joined EISI as Executive Vice President in
1986, and has over 18 years of direct
investment experience.
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MANAGEMENT OF THE TRUST
- -------------------------------------------------------------------------
THE ADVISER Directed Services, Inc. ("DSI") is the overall adviser to
the GCG Trust. The Trust is an open-end management
investment company organized as a Massachusetts business
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. DSI is the principal underwriter and
distributor of the Variable Contracts that Golden
American Life Insurance Company ("Golden American")
issues. Golden American is a stock life insurance
company organized under the laws of the State of Delaware
and a subsidiary of ING.
The Trust pays DSI, as adviser, for its services a
quarterly fee at the annual rate of 1.0% of the value of
the average daily net assets of the Portfolio. The Trust
pays DSI, adviser to the manager, for management services
a quarterly fee equal to an annual rate of 1.0% of the
average daily net assets of the Portfolio.
The Trust is distinct in that the expense structure of
the Portfolio is simpler and more predictable than most
mutual funds. Many of the ordinary expenses for the
Portfolio, including custodial, administrative, transfer
agency, portfolio accounting, auditing, and ordinary
legal expenses are paid by DSI, whereas most mutual funds
pay for these expenses directly from their own assets.
As adviser, 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 Portfolio in addition to
advisory services. DSI, as adviser, provides the overall
business management and administrative services necessary
for the Portfolio's operation and provides or procures
the services and information necessary to the proper
conduct of the business of the Portfolio. DSI is
responsible for providing or procuring, at its own
expense, the services reasonably necessary for the
ordinary operation of the Portfolio. DSI is also
responsible for ensuring that the Portfolio operate in
compliance with applicable legal requirements and for
monitoring the Portfolio Manager for compliance with
requirements under applicable law and the their
investment policies and restrictions of the Portfolio.
DSI does not bear the expense of brokerage fees and other
transaction expenses for securities or other asset,
taxes, if any, paid by the Portfolio, interest on
borrowing, fees and expenses of the independent trustees,
and extraordinary expenses, such as litigation or
indemnification expenses.
PORTFOLIO DSI and the Trust have retained an affiliate, ING
MANAGER Investment Management LLC ("ING Investment") to manage
the assets of the Portfolio. As Portfolio Manager, ING
Investment makes all determinations on the investment of
the Portfolio's assets consistent with the investment
objectives, policies, and restrictions of the
Portfolio. ING is compensated by DSI. DSI pays ING a
fee, payable monthly, based on the average daily net
assets of the Portfolio at the annual rate of 0.50%. See
"Description of the Portfolio -- More on the Portfolio
Manager."
DISTRIBUTOR DSI acts as distributor of shares of the Portfolio, in
addition to serving as manager to the Trust. As
distributor, DSI 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.
EXPENSES DSI, as manager, bears the expenses of the ordinary
operations of the Portfolio. The Trust bears the expense
of taxes (if any) paid by the Portfolio, the fees and
expense of its independent trustees, any extraordinary
expense, such as any litigation or
indemnification
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expenses, as well as other expenses as described under
"Management of the Trust." Any such Trust expenses
directly attributable to the Portfolio are charged to the
Portfolio; other expenses are allocated among all the
portfolios of the Trust. For the fiscal year ended
December 31, 1998, total Portfolio expenses (net of fee
waiver) were 1.01% of the Portfolio's net assets.
PORTFOLIO Shares of the Portfolio may be offered for purchase by
TRANSACTIONS separate accounts of Golden American to serve as an
investment medium for the Variable Contracts issued by
the insurer. Shares of the Portfolio 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 Periods (other than for
reinvestment of any dividends and distributions).
Shares of the Portfolio 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 Portfolio. Redemption proceeds normally
will be paid within seven days following receipt of
instructions in proper form. The Trust may suspend the
right of redemption or postpone the payment date 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 is restricted.
Shares of the Portfolio may be exchanged for shares of
any other portfolio of the Trust, other than The Fund For
Life, at any time. Exchanges of shares of other
portfolios of the Trust into the Portfolio will only be
permitted during the Offering Period. Exchanges are
treated as a redemption of shares of one portfolio and a
purchase of shares of one or more of the other portfolios
and are effected at the respective net asset values per
shares of each portfolio on the date of the exchange.
The Portfolio will be managed to achieve its investment
object as of the Target Maturity Date, and is intended
for investors who desire to maintain their holding in the
Portfolio for the duration of the Portfolio through the
Target Maturity Date. Variable Contract Owners who
withdraw their interest earlier may be subject to a
greater risk that the Portfolio will not achieve its
investment objective and to the risk that the assets in
which the Portfolio will invest have not yet reached
their full potential return.
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SHARE PRICE
- -------------------------------------------------------------------------
NET ASSET The net asset value per share of the Portfolio is
VALUE 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
Portfolio's outstanding shares.
The assets of the Portfolio 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.
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Other assets of the Portfolio 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.
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TAXES AND DISTRIBUTION
- -------------------------------------------------------------------------
The GCG Trust pays net investment income, if any, on your
shares of each Portfolio annually. Any net realized long-
term capital gains for the Portfolio will be declared and
paid at least once annually. Net realized short-term
gains may be declared and paid more frequently. We will
automatically reinvest any distributions made by the
Portfolio in additional shares of the Portfolio, unless
the separate account of your insurance company makes an
election to receive distributions in cash. Dividends or
distributions by the Portfolio will reduce the per share
net asset value by the per share amount paid.
The Portfolio has qualified and expect to continue to
qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). As a qualified regulated investment
company, the Portfolio is generally not subject to
Federal income tax on the part of their investment
company taxable income (including any net capital gains)
which they distribute to shareholders. It is the
Portfolio's intention to distribute all such income and
gains.
Shares of the Portfolio are offered to the Separate
Accounts of insurance companies. Under the Code, an
insurance company pays no tax with respect to income of a
qualifying Separate Account when the income is properly
allocable to the value of eligible variable annuity or
variable life insurance contracts. Under current tax
law, your gains under your Contract are taxed only when
you take them out. Contract purchasers should review the
Contract prospectus for a discussion of the tax treatment
applicable to holders of the Contracts.
The foregoing is only a summary of some of the important
Federal income tax considerations generally affecting the
Portfolio and you. Please refer to the Statement of
Additional Information for more information about the tax
status of the Portfolio. You are urged to consult with
your tax advisor for more detailed information regarding
taxes applicable to the Contracts and the holders
thereof.
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MORE INFORMATION
- -------------------------------------------------------------------------
ADDITIONAL The description of the Portfolio in this prospectus does
INVESTMENT not describe all of the non-principal investments,
STRATEGIES techniques and strategies the Portfolio may use to achieve
its investment objective. The Portfolio is not obligated
to use any of these techniques or strategies at any given
time or under any particular economic condition. For
further information on these investments, techniques and
strategies, please refer to the Statement of Additional
Information.
The Portfolio may take temporary defensive positions
inconsistent with its respective investment policies to
adjust its investment exposure during uncertain
periods, such as periods when the portfolio manager
determines that adverse market, economic, political or
other conditions exist. These positions generally
involve investing in a manner
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different than that in
which the portfolio invests under normal market
conditions. To the extent the Portfolio assumes a
temporary investment position, it may not achieve its
investment objective. For more detailed information on
the Portfolio's temporary defensive positions, please
refer to the Statement of Additional Information.
PORTFOLIO Before investing in the Portfolio, you should review its
TURNOVER portfolio turnover rate for an indication of the
potential effect of transaction costs on the
portfolio's future returns. In general, the
greater the volume of buying and selling by the
portfolio, the greater the impact that brokerage
commissions and other transaction costs will have on its
return.
Portfolio turnover rate is calculated by dividing the
value of the lesser of purchases or sales of portfolio
securities for the year by the monthly average of the
value of portfolio securities owned by the portfolio
during the year. Securities whose maturities at the time
of purchase were one year or less are excluded. A 100%
portfolio turnover rate would occur, for example, if a
portfolio sold and replaced securities valued at 100% of
its total net assets within a one-year period. The
portfolio turnover rate for the Portfolio is presented in
"Financial Highlights" in this prospectus.
LEGAL COUNSEL Sutherland Asbill & Brennan LLP, 1275 Pennsylvania
Avenue, N.W., Washington, D.C. 20004-2404 serves as
counsel to the GCG Trust.
INDEPENDENT Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-
AUDITORS 5072 serves as independent auditors of the GCG Trust.
YEAR 2000 Based on a study of its computer software systems and
hardware, DSI, in conjunction with an affiliate, 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 Adviser 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
Adviser is in contact with the GCG Trust's third party
vendors to ensure that their systems will be
substantially compliant by year 2000. To the extent
these third parties would be unable to transact business
in the year 2000 and thereafter, the GCG Trust's
operations could be adversely affected.
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<TABLE>
<S> <C> <C>
TO OBTAIN
MORE
INFORMATION THE GCG TRUST
Two documents are available that offer further TRUSTEES
information on the Portfolio:
R. Brock Armstrong, Chair
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS. The
annual report of the Trust include a discussion of Barnett Chernow, Trustee
the market conditions and investment strategies
that significantly affected the Portfolio's J. Michael Earley, Trustee
performance during the last fiscal year.
R. Barbara Gitenstein, Trustee
STATEMENT OF ADDITIONAL INFORMATION. The
Statement of Additional Information contains Robert A. Grayson, Trustee
additional information about the Portfolio. A
current Statement of Additional Information has Elizabeth J. Newell, Trustee
been filed with the Securities and Exchange
Commission, and is made a part of this prospectus Stanley B. Seidler, Trustee
by reference.
Roger B. Vincent, Trustee
To obtain a free copy of these documents or to
make inquiries about the Portfolio, please write
to our Customer Service Center at P.O. Box 2700,
West Chester, Pennsylvania 19380 or call (800)
366-0066, or access the SEC's website
(http://www.sec.gov).
Information about the GCG Trust can be reviewed
and copied at the SEC's Public Reference Room.
Information about its operation may be obtained by
calling 1-800-SEC-0330. You may obtain copies of
reports and other information about the GCG Trust,
for payment of a duplication fee, by writing to
Public Reference Section of the Commission,
Washington, D.C. 20549-6009.
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED
IN DELAWARE
811-5629
<PAGE>
SAI #1
THE GCG TRUST
<PAGE>
THE GCG TRUST
1475 Dunwoody Drive
West Chester, PA 19380
(800) 366-0066
Statement of Additional Information
The date of this Statement of Additional Information is
May 1, 1999
This Statement of Additional Information discusses twenty-three
portfolios (the "Portfolios") of The GCG Trust (the "Trust"), which
is an open-end management investment company. The Portfolios
described herein are as follows: the Equity Income Portfolio; the
Fully Managed Portfolio; the Limited Maturity Bond Portfolio; the
Hard Assets Portfolio; the Real Estate Portfolio; the All-Growth
Portfolio; the Capital Appreciation Portfolio; the Rising Dividends
Portfolio; the Emerging Markets Portfolio; the Value Equity
Portfolio; the Strategic Equity Portfolio; the Small Cap Portfolio;
the Managed Global Portfolio; the Liquid Asset Portfolio; the Mid-Cap
Growth Portfolio; the Research Portfolio; the Total Return Portfolio;
the Growth & Income Portfolio; the Growth Portfolio; the Global Fixed
Income Portfolio; the Growth Opportunities Portfolio; the Developing
World Portfolio and the Market Manager Portfolio. The Portfolios'
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, 1999 (which pertains to all Portfolios other than
the Market Manager Portfolio) and the Prospectus of the Market
Manager Portfolio dated May 1, 1999. 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. Shareholder Reports are available, without
charge, upon request.
MANAGER:
DIRECTED SERVICES, INC.
(800) 447-3644
TABLE OF CONTENTS
Page
INTRODUCTION 1
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES 1
U.S. Government Securities 1
Debt Securities 1
High Yield Bonds 2
Brady Bonds 3
Sovereign Debt 3
Mortgage-Backed Securities 4
GNMA Certificates 4
FNMA and FHLMC Mortgage-Backed Obligations 5
Collateralized Mortgage Obligations (CMOs) 5
Other Mortgage-Backed Securities 6
Asset-Backed Securities 6
Variable and Floating Rate Securities 7
Derivatives 7
Banking Industry and Savings Industry Obligations 7
Commercial Paper 8
Repurchase Agreements 9
Reverse Repurchase Agreements 10
Lending Portfolio Securities 10
Other Investment Companies 10
Short Sales 10
Short Sales Against the Box 10
Futures Contracts and Options on Futures Contracts 11
General Description of Futures Contracts 11
Interest Rate Futures Contracts 11
Options on Futures Contracts 11
Stock Index Futures Contracts 12
Investment in Gold and Other Precious Metals 13
Gold Futures Contracts 13
Limitations 14
Options on Securities and Securities Indexes 14
Purchasing Options on Securities 14
Risks of Options Transactions 15
Writing Covered Call and Secured Put Options 15
Options on Securities Indexes 16
Over-the-Counter Options 16
General 16
Risks Associated with Futures and Futures Options 17
When-Issued or Delayed Delivery Securities 18
Foreign Securities 18
Foreign Currency Transactions 19
Options on Foreign Currencies 20
Common Stock and Other Equity Securities 21
Convertible Securities 21
Currency Management 21
Hybrid Investments 21
Dollar Roll Transactions 23
Equity and Debt Securities Issued or Guaranteed by
Supranational Organizations 23
Exchange Rate Related Securities 23
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Geographical and Industry Concentration 24
Illiquid Securities 24
Restricted Securities 24
Lease Obligation Bonds 24
Borrowing 25
Hard Asset Securities 25
Real Estate Securities 25
Swaps 26
Zero-Coupon Bonds 26
Small Companies 26
Strategic Transactions 27
Lending of Portfolio Securities 27
Special Situations 28
Warrants 28
INVESTMENT OBJECTIVES AND ADDITIONAL
INVESTMENT STRATEGIES AND ASSOCIATED RISKS 28
Equity Income Portfolio 28
Fully Managed Portfolio 28
Limited Maturity Bond Portfolio 29
Hard Assets Portfolio 31
Real Estate Portfolio 33
All-Growth Portfolio 33
Rising Dividend Portfolio 34
Emerging Market Portfolio 34
Value Equity Portfolio 35
Strategic Equity Portfolio 36
Capital Appreciation Portfolio 36
Small Cap Portfolio 37
Managed Global Portfolio 38
Growth Opportunities Portfolio 39
Developing World Portfolio 39
Mid-Cap Growth Portfolio 40
Research Portfolio 41
Total Return Portfolio 41
Growth & Income Portfolio 42
Growth Portfolio 43
Global Fixed Income Portfolio 44
Liquid Asset Portfolio 44
Market Manager Portfolio 46
INVESTMENT RESTRICTIONS 46
Fundamental Investment Restrictions
For the Equity Income Portfolio, the Fully Managed
Portfolio, the Limited Maturity Bond Portfolio, the
Hard Assets Portfolio, the Real Estate Portfolio,
the All-Growth Portfolio, the Capital Appreciation
Portfolio, the Rising Dividends Portfolio, the
Emerging Markets Portfolio, the Value Equity
Portfolio, the Strategic Equity Portfolio, the
Small Cap Portfolio, the Managed Global Portfolio,
the Market Manager Portfolio and the Liquid Asset
Portfolio 47
For the Total Return Portfolio, Research Portfolio,
Mid-Cap Growth Portfolio and Global Fixed Income
Portfolio 48
For the Growth Portfolio 49
For the Growth & Income Portfolio 50
For the Growth Opportunities and Developing World
Portfolio 51
Non-Fundamental Investment Restrictions 52
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For the Rising Dividends Portfolio, Emerging
Markets Portfolio, Value Equity Portfolio,
Strategic Equity Portfolio, Small Cap Portfolio,
Managed Global Portfolio and Market Manager
Portfolio 52
For the Managed Global Portfolio 52
For the Total Return Portfolio, Research
Portfolio, Mid-Cap Growth Portfolio and Global
Fixed Income Portfolio 52
For the Growth Portfolio 53
For the Growth & Income Portfolio 53
For the Growth Opportunities and Developing
World Portfolio 54
MANAGEMENT OF THE TRUST 54
The Management Agreement 58
Portfolio Managers 60
Distribution of Trust Shares 62
Purchases and Redemptions 62
PORTFOLIO TRANSACTIONS AND BROKERAGE 62
Investment Decisions 62
Brokerage and Research Services 65
NET ASSET VALUE 65
PERFORMANCE INFORMATION 66
TAXES 68
OTHER INFORMATION 70
Capitalization 70
Voting Rights 70
Custodian and Other Service Providers 72
Purchase of Shares 70
Redemption of Shares 71
Exchages 71
Independent Auditors 72
Counsel 72
Registration Statement 72
Financial Statements 72
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 Portfolios,
including the discussion of certain securities and investment
techniques. The more detailed information contained herein is
intended for investors who have read the Prospectuses and are
interested in a more detailed explanation of certain aspects of some
of the Portfolio's securities and some investment techniques. Some
of the Portfolios' 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 Portfolios' Prospectuses. Terms not
defined herein will have the meanings given them in the 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 Portfolios 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
Certain Portfolios may invest in debt securities, as stated in the
Portfolios' investment objectives and policies in the relevant
Prospectus or in this Statement of Additional Information. Some
Portfolios 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") or 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 Portfolio will not
accrue any income on these securities prior to delivery. The
Portfolio 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 securities
depends, to a large extent, on the credit analysis performed or used
by the Portfolio's Manager.
HIGH YIELD BONDS
"High Yield Bonds" (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 Portfolio. Investment in such securities generally
provides greater income and increased opportunity for capital
appreciation than investments in higher quality securities, but it
also typically entails 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. 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 Portfolio 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
Portfolio 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 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 Portfolio 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 secondary trading market could adversely affect the price at which
the Portfolio could sell a high yield bond, and could adversely
affect and cause large fluctuations in the daily net asset value of
the Portfolio's 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 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 Portfolio may
invest will not be subject to restructuring arrangements or to
requests for new credit, which may cause the Portfolio to suffer a
loss of interest or principal on any of its holdings.
SOVEREIGN DEBT
Debt obligations known as "sovereign debt" are obligations of
governmental issuers in emerging market countries and industrialized
countries. Some Portfolios may invest in obligations issued or
guaranteed by a foreign government or its political subdivisions,
authorities, agencies, or instrumentalities, or by supranational
entities, which, at the time of investment, are rated A or better by
Standard & Poor's or Moody's or, if not rated by Standard & Poor's or
Moody's, determined by the Portfolio Manager to be of equivalent
quality.
Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. The issuer or governmental
authority that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or pay interest when due
in accordance with the terms of such obligations.
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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 Portfolio
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 a Portfolio may invest will not be subject to
similar restructuring arrangements or to requests for new credit,
which may adversely affect the Portfolio's 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 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.
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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 Portfolio 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 conventional (i.e.,
not insured or guaranteed by any government agency) purchases
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 portfolios (e.g., A, B, C, Z) of CMO bonds ("Bonds").
Proceeds of the Bond offering are used to purchase mortgages or
mortgage pass-through certificates ("Collateral"). The Collateral is
pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay
principal on the Bonds in the order A, B, C, Z. The portfolio A, B,
and C Bonds all bear current interest. Interest on the portfolio Z
Bond is accrued and added to the principal; a like amount is paid as
principal on the portfolio A, B, or C Bond currently being paid off.
When the portfolio A, B, and C Bonds are paid in full, interest and
principal on the portfolio Z Bond begin to be
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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 Portfolio' s
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 Portfolios may buy mortgage-backed securities without
insurance or guarantees, if the Portfolio Manager determines that the
securities meet a Portfolio's quality standards. Although the market
for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily
marketable. A Portfolio 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 Portfolio 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 Portfolio's 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 Portfolios.
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 Portfolio may not invest in these securities.
CARS/sm/ represent undivided fractional interests in a 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 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
Portfolio may invest in "Credit Card Receivable Securities." Credit
Card Receivable Securities are asset-backed securities backed by
receivables from revolving credit card agreements. Credit balances
on revolving credit card agreements ("Accounts") are generally paid
down more rapidly than are Automobile Contracts. Most of the Credit
Card Receivable Securities issued publicly to date have been Pass-
Through Certificates. In order to lengthen the maturity of Credit
Card Receivable Securities, most such securities provide for a fixed
period during which only interest payments on the underlying Accounts
are passed through to the security holder and principal payments
received on such Accounts are used to fund the transfer to the pool
of assets supporting the related Credit Card Receivable Securities of
additional credit card charges made on an Account. The initial fixed
period usually may be shortened upon the occurrence of
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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. 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.
DERIVATIVES
Certain Portfolios invest in derivatives, which are securities
and contracts whose value is based on performance of an underlying
financial asset, index or other investment. Examples of the
derivatives are CMOs, variable and floating rate securities, futures
contracts, options contracts, and forward currency exchange
contracts.
Derivative securities and contracts may be used as a direct
investment or as a hedge for a portfolio of investments. Hedging
involves using a security or contract to offset investment risk, and
can reduce the risk of a position held in an investment portfolio.
If the Portfolio Manager's judgement about fluctuations in securities
prices, interest rates or currency prices proves incorrect, or the
strategy does not correlate well with a Portfolio's volitility. In
addition, in the event that non-exchange traded derivatives are used,
they could result in a loss if the counter-party to the transaction
does not perform as promised.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
Certain Portfolios 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 Portfolios 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 Portfolios also may
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 this Statement of Additional
Information 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
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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 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 Portfolio 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
Portfolio, 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 Portfolios invest only in bank and S&L obligations
as specified in that Portfolio's investment policies. Other
Portfolios, except the Managed Global Portfolio, will not invest in
obligations issued by a commercial bank or S&L unless:
(i) the bank or S&L has total assets of at 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 Portfolio Manager, of an investment
quality comparable with other debt securities which may be
purchased by the Portfolio. 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 Portfolio 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 Portfolios may invest in commercial paper (including
variable amount master demand notes and extendable command notes
("ECN")), denominated in U.S. dollars, issued by U.S. corporations or
foreign
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corporations. Unless otherwise indicated in the investment
policies for a Portfolio, it 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 Portfolio may
invest.
Commercial paper obligations may include variable amount master
demand notes. These notes are obligations that permit investment of
fluctuating amounts at varying rates of interest pursuant to direct
arrangements between a Portfolio, 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 Portfolio 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
Portfolio may invest. Master demand notes are considered by the
Portfolio 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 Portfolios 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 Portfolio 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 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 their
value always equals or exceeds the agreed-upon repurchase price to be
paid to the Portfolio. 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 Portfolio enters into repurchase
agreements.
A Portfolio 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
Portfolio 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 Portfolio 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 Portfolio's limitation, either 10% or
15% of the net assets of the Portfolio, depending on the Portfolio,
on investing in illiquid securities. If the seller should become
bankrupt or default on its obligations to repurchase the securities,
a Portfolio 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 Portfolio 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 Portfolio and its agreement to repurchase the instrument at a
specified time and price. A Portfolio 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
Portfolio 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 Portfolio will limit its investments in
reverse repurchase agreements consistent with the borrowing limits
applicable to the Portfolio. See "Borrowing" for further information
on these limits. The use of reverse repurchase agreements by a
Portfolio creates leverage which increases a Portfolio's investment
risk. If the income and gains on securities purchased with the
proceeds of reverse repurchase agreements exceed the cost of the
agreements, the Portfolio's 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 Portfolios may lend portfolio securities to broker-dealers or
institutional investors for the purpose of realizing additional
income. A Portfolio will only enter into this type of 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 Portfolio. 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 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
Portfolio must maintain with the Portfolio 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 Portfolio lending such voting securities may call them if
important shareholder meetings are imminent. A Portfolio may only
lend portfolio securities to entities that are not affiliated with
either the Manager or a Portfolio Manager.
OTHER INVESTMENT COMPANIES
All Portfolios may invest in shares issued by other investment
companies. A Portfolio 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 Portfolio's total assets in the investment company, or (3) invest
more than 10% of the Portfolio's total assets in all investment
company holdings. As a shareholder in any investment company, a
Portfolio will bear its ratable share of the investment company's
expenses, including management fees in the case of a management
investment company. The Equity Income and Fully Managed Portfolios
may, however, invest in shares of the T. Rowe Price Money Market
Funds and the Growth Portfolio may invest in shares of Janus' Money
Market Funds. Other Portfolios may invest in shares issued by other
investment companies to the extent allowable by the 1940 Act.
SHORT SALES
A short sale is a transaction in which the Portfolio sells a
security it does not own in anticipation of a decline in market
price. A Portfolio may make short sales to offset a potential
decline in a long position or a group of long positions, or if the
Portfolio Manager believes that a decline in the price of a
particular security or group of securities is likely.
The Portfolio's obligation to replace the security borrowed in
connection with the short sale will be secured by collateral
deposited with a broker, consisting of cash or securities acceptable
to the broker. In addition, with
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respect to any short sale, other
than short sales against the box, the Portfolio 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
Portfolio's potential loss on a short sale, which may exceed the
entire amount of the collateral.
A Portfolio 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.
SHORT SALES AGAINST THE BOX
A short sale "against the box" is a short sale where, at the time
of the short sale, the Portfolio owns or has the immediate and
unconditional right, at no added cost, to obtain the identical
security. A Portfolio would enter into such a transaction to defer a
gain or loss for Federal income tax purposes on the security owned by
the Portfolio. Short sales against the box are not subject to the
percentage limitations on short sales described in the Prospectuses.
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
Portfolio has sold a futures contract, if the offsetting purchase
price is less than the original futures contract sale price, the
Portfolio realizes a gain; if it is more, the Portfolio realizes a
loss. Where a Portfolio has purchased a futures contract, if the
offsetting price is more than the original futures contract purchase
price, the Portfolio realizes a gain; if it is less, the Portfolio
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.
A Portfolio may purchase and sell interest rate futures as a hedge
against adverse changes in debt instruments and other interest rate
sensitive securities. As a hedging strategy a Portfolio might
employ, a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio or avoided by taking
delivery of the debt securities under the futures contract.
A Portfolio 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 Portfolio would be substantially offset by the
ability of the Portfolio to repurchase at a lower price the interest
rate futures contract previously sold. While the Portfolio could
sell the long-term debt security and invest in a short-term security,
ordinarily the Portfolio 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
Portfolio 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
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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 Portfolio.
The Portfolio 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 Portfolio 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 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 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 Portfolio 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 Portfolio 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 Portfolio is attempting to purchase equity
positions in issues which it had or was having difficulty
purchasing at prices considered by the 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.
INVESTMENT IN GOLD AND OTHER PRECIOUS METALS. Some Portfolios 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
Portfolio (with the exception of the Hard Assets Portfolio) intends
to manage its metal investments and/or futures contracts on metals so
that less than 10% of the gross income of the Portfolio 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
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a Portfolio 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.
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 Portfolio
purchases a gold futures contract it becomes obligated to take
delivery of and pay for the gold from the seller, and when the
Portfolio 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 Portfolio 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 Portfolio
will not engage in these contracts for speculation or for achieving
leverage. The Portfolio's 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
Portfolio 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 Portfolio might use futures
contracts to hedge against anticipated changes in interest rates that
might adversely affect either the value of the Portfolio's securities
or the price of the securities which the Portfolio intends to
purchase. The Portfolio's 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 Portfolio's exposure to
interest rate fluctuations, a Portfolio may be able to hedge its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options. See this Statement of
Additional Information for a discussion of other strategies involving
futures and futures options.
If a purchase or sale of a futures contract is made by a
Portfolio, it 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 Portfolio upon termination of the contract,
assuming all contractual obligations have been satisfied. Each
investing Portfolio expects to earn interest income on its initial
margin deposits.
A futures contract held by a Portfolio is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Portfolio 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
Portfolio but is settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired.
In computing daily net asset value, each Portfolio will mark-to-
market its open futures positions.
A Portfolio 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 Portfolio.
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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 Portfolio realizes a capital gain, or if it is more,
the Portfolio realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase price, the Portfolio
realizes a capital gain, or if it is less, the Portfolio realizes a
capital loss. The transaction costs must also be included in these
calculations.
LIMITATIONS. When purchasing a futures contract, a Portfolio 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 Portfolio 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 Portfolio. A call option is "in-the-
money" if the value of the futures contract that is the subject of
the option exceeds the exercise price.
A Portfolio 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 Portfolio and the
positions. For this purpose, to the extent the Portfolio 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 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 or 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 Portfolio 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 Portfolio would
enable it to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security. In
addition, the Portfolio would continue to receive interest income on
such security.
A Portfolio may purchase call options on securities to protect
against substantial increases in prices of securities the Portfolio
intends to purchase pending its ability to invest in such securities
in an orderly manner. A Portfolio 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.
A Portfolio may purchase long-term exchange traded equity options
called Long Term Equity Anticipation Securities ("LEAPS") and Buy
Write Option Unitary Derivatives ("BOUNDS"). LEAPs provide the
holder the opportunity to participate in the underlying securities'
appreciation in excess of a fixed dollar amount, BOUNDs provide a
holder the opportunity to retain dividends on the underlying
securities while potentially participating in underlying securities'
capital appreciation up to a fixed dollar amount.
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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 Portfolio 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 Portfolio 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
Portfolio seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options
markets, a Portfolio may be unable to close out a position. If a
Portfolio 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 Portfolio, 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 Portfolio's net asset value being more
sensitive to changes in the value of the underlying securities.
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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may write a call or put option only if the option is
"covered" or "secured" by the Portfolio holding a position in the
underlying securities. This means that so long as the Portfolio 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 Portfolio may maintain, in a
segregated account with the Trust's custodian, cash and/or securities
with a value sufficient to meet its obligation as writer of the
option. A put is secured if the Portfolio 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
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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 Portfolio.
OPTIONS ON SECURITIES INDEXES. A Portfolio may purchase or sell
call and put options on securities indexes for the same purposes as
it purchase or sells 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 Portfolio is required to maintain a segregated account
consisting of cash, cash equivalents or high grade obligations or the
Portfolio must purchase a like option of greater value that will
expire no earlier than the option sold. Purchased options may not
enable the Portfolio to hedge effectively against stock market risk
if they are not highly correlated with the value of the Portfolio's
securities. Moreover, the ability to hedge effectively depends upon
the ability to predict movements in the stock market.
OVER-THE-COUNTER OPTIONS. Certain Portfolios 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 Portfolio 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 Portfolio's
assets (the "SEC illiquidity ceiling"). Except as provided below, the
Portfolios 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 Portfolio have in
place with such primary dealers will provide that each Portfolio 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 Portfolio 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 Portfolio will treat all or a part of the
formula price as illiquid for purposes of the SEC illiquidity
ceiling. Certain Portfolio 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 Portfolio relies on the
party from whom it purchases an OTC Option to perform if the
Portfolio 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 Portfolio 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. 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 Portfolio
is recorded as an asset of the Portfolio and subsequently adjusted.
The premium received for an option written by a Portfolio is included
in the Portfolio's 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.
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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
Portfolio's transactions in futures may protect the Portfolio against
adverse movements in the general level of interest rates or other
economic conditions, such transactions could also preclude the
Portfolio 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
Portfolio and the hedging vehicle so that the Portfolio's 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 Portfolio 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 Portfolio from
liquidating an unfavorable position and the Portfolio would remain
obligated to meet margin requirements and continue to incur losses
until the position is closed.
Most Portfolios will only enter into futures contracts or futures
options which are standardized and traded on a U.S. exchange or board
of trade, or, in the case of futures options, for which an
established over-the-counter market exists. A Portfolio 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 Portfolio 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 Portfolio's
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 Portfolio
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.
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WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
All Portfolios except the Market Manager Portfolio may purchase
securities on a when issued or delayed delivery basis if the
Portfolio 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 Portfolio 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 Portfolio's other assets.
Although a Portfolio would generally purchase securities on a when-
issued basis or enter into forward commitments with the intention of
acquiring securities, the Portfolio may dispose of a when-issued or
delayed delivery security prior to settlement if the Portfolio
Manager deems it appropriate to do so. The Portfolio may realize
short-term profits or losses upon such sales.
FOREIGN SECURITIES
Some Portfolios 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 Portfolio may invest in foreign branches of commercial banks and
foreign banks. See the "Banking Industry and Savings Industry
Obligations" discussion in this Statement of Additional Information
for further description of these securities.
Except for the Hard Assets Portfolio, each Portfolio 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
Portfolio 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 Portfolio may invest up to 35%
of its net assets in securities of issuers located in South Africa. A
Portfolio's 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 Portfolios 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 Portfolio 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.
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As discussed above "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 Portfolio 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 Portfolio
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
Portfolio 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 Portfolio 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" and "Debt Securities--Sovereign Debt".
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 Portfolio 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.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxenbourg, the Netherlands, Portugal, and
Spain established a common European currency known as the "euro" and
each member's local currency became a denomination of the euro. It
is anticipated that each participating country will replace its local
currency with the euro on July 1, 2002. Any other European country
that is a member of the European Union and satisfies the criteria for
participation in the EMU may elect to participate in the EMU and may
supplement its existing currency with the euro. The anticipated
replacement of existing currencies with the euro on July 1, 2002
could market disruptions before or after July 1, 2002 and could
adversely affect the value of securities held by a Portfolio.
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 Portfolio 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 Portfolio will engage
in forward currency transactions in anticipation of or to protect
itself against fluctuations in currency exchange rates. A Portfolio
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 or
exposed to that currency which it anticipated purchasing.
A Portfolio may enter into forward foreign currency contracts in
two circumstances. When a Portfolio enters into a contract for the
purchase or sale of a security denominated in or exposed to a foreign
currency, the Portfolio 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 Portfolio will
be able to protect itself against a possible loss resulting from an
adverse change in
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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 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 Portfolio's securities
denominated in or exposed to 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
Portfolios will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts
would obligate the Portfolio to deliver an amount of foreign currency
in excess of the value of the Portfolio's securities or other assets
denominated in that currency.
At the maturity of a forward contract, a Portfolio 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 Portfolio 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 Portfolio is obligated to
deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio 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 Portfolio's 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
Portfolio 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
Portfolio 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 Portfolio seeks to close out a forward currency position, and
in such an event, a Portfolio might not be able to effect a closing
purchase transaction at any particular time. In addition, a
Portfolio 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 Portfolios with respect to such contracts, see
"Foreign Currency Transactions" in this Statement of Additional
Information.
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 Portfolio may enter
into closing sale transactions with respect to such options, exercise
them, or permit them to expire.
A Portfolio may employ hedging strategies with options on
currencies before the Portfolio purchases a foreign security
denominated in the hedged currency that the Portfolio anticipates
acquiring, during the period the
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Portfolio 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.
COMMON STOCK AND OTHER EQUITY SECURITIES
Common Stocks represent an equity (ownership) interest in a
corporation. This ownership interest generally gives a Portfolio the
right to vote on measures affecting the company's organization and
operations.
Certain of the Portfolios 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 Portfolio, the Adviser or Portfolio Manager will
generally invest the Portfolio's 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 Portfolio 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 Portfolio's flexibility to participate in higher yielding debt
markets outside of the United States may allow the Portfolios to
achieve higher yields than those generally obtained by domestic money
market funds and short-term bond investments. When a Portfolio
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 Portfolio's 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 Portfolio is
invested in foreign securities, a weakening in the U.S. dollar
relative to the foreign currencies underlying a Portfolio's
investments should help increase the net asset value of the
Portfolio. Conversely, a strengthening in the U.S. dollar versus the
foreign currencies in which a Portfolio's securities are denominated
will generally lower the net asset value of the Portfolio. The
Manager or relevant Portfolio Manager attempts to minimize exchange
rate risk through active Portfolio 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 Portfolio.
HYBRID INSTRUMENTS
Hybrid Instruments (a type of potentially high-risk derivative)
have been developed and combine the elements of futures contracts or
options with those of debt, preferred equity, or a depository
instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid
Instrument will be a debt security, preferred stock, depository
share, trust certificate, certificate of deposit, or other evidence
of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity,
redemption, or retirement, is determined by reference to prices,
changes in prices, or differences between prices, of securities,
currencies, intangibles, goods, articles, or commodities
(collectively "Underlying Assets") or by another objective index,
economic factor, or other
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measure, such as interest rates, currency
exchange rates, commodity indices, and securities indices
(collectively "Benchmarks"). Thus, Hybrid Instruments may take a
variety of forms, including, but not limited to, debt instruments
with interest or principal payments or redemption terms determined by
reference to the value of a currency or commodity or securities index
at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular
commodity.
Hybrid Instruments can be an efficient means of creating exposure
to a particular market, or segment of a market, with the objective of
enhancing total return. For example, a Portfolio may wish to take
advantage of expected declines in interest rates in several European
countries, but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated Hybrid Instrument whose redemption
price is linked to the average three-year interest rate in a
designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate
was lower than a specified level, and payoffs of less than par if
rates were above the specified level. Furthermore, the Portfolio
could limit the downside risk of the security by establishing a
minimum redemption price so that the principal paid at maturity could
not be below a predetermined minimum level if interest rates were to
rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the
Fund the desired European bond exposure while avoiding currency risk,
limiting downside market risk, and lowering transactions costs. Of
course, there is no guarantee that the strategy will be successful,
and the Portfolio could lose money if, for example, interest rates do
not move as anticipated or credit problems develop with the issuer of
the Hybrid Instrument.
The risks of investing in Hybrid Instruments reflect a combination
of the risks of investing in securities, options, futures and
currencies. Thus, an investment in a Hybrid Instrument may entail
significant risks that are not associated with a similar investment
in a traditional debt instrument that has a fixed principal amount,
is denominated in U.S. dollars, or bears interest either at a fixed
rate or a floating rate determined by reference to a common,
nationally published benchmark. The risks of a particular Hybrid
Instrument will, of course, depend upon the terms of the instrument,
but may include, without limitation, the possibility of significant
changes in the Benchmarks or the prices of Underlying Assets to which
the instrument is linked. Such risks generally depend upon factors
which are unrelated to the operations or credit quality of the issuer
of the Hybrid Instrument and which may not be readily foreseen by the
purchaser, such as economic and political events, the supply and
demand for the Underlying Assets, and interest rate movements. In
recent years, various Benchmarks and prices for Underlying Assets
have been highly volatile, and such volatility may be expected in the
future. Reference is also made to the discussion of futures, options,
and forward contracts herein for a discussion of the risks associated
with such investments.
Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular Hybrid Instrument, changes in a Benchmark
may be magnified by the terms of the Hybrid Instrument and have an
even more dramatic and substantial effect upon the value of the
Hybrid Instrument. Also, the prices of the Hybrid Instrument and the
Benchmark or Underlying Asset may not move in the same direction or
at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. Alternatively,
Hybrid Instruments may bear interest at above market rates but bear
an increased risk of principal loss (or gain). The latter scenario
may result if "leverage" is used to structure the Hybrid Instrument.
Leverage risk occurs when the Hybrid Instrument is structured so that
a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the Hybrid Instrument, thereby
magnifying the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the
instruments are often "customized" to meet the portfolio needs of a
particular investor, and therefore, the number of investors that are
willing and able to buy such instruments in the secondary market may
be smaller than that for more traditional debt securities. In
addition, because the purchase and sale of Hybrid Instruments could
take place in an over-the-counter market without the guarantee of a
central clearing organization or in a transaction between the Fund
and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party of issuer of the Hybrid Instrument would be an
additional risk
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factor which the Fund would have to consider and
monitor. Hybrid Instruments also may not be subject to regulation of
the Commodities Futures Trading Commission, which generally regulates
the trading of commodity futures by U.S. persons, the SEC, which
regulates the offer and sale of securities by and to U.S. persons, or
any other governmental regulatory authority.
The various risks discussed above, particularly the market risk of
such instruments, may in turn cause significant fluctuations in the
net asset value of the Portfolio. Accordingly, the Portfolio will
limit its investments in Hybrid Instruments to 10% of total assets.
However, because of their volatility, it is possible that the
Portfolio's investment in Hybrid Instruments will account for more
than 10% of the Fund's return (positive or negative).
DOLLAR ROLL TRANSACTIONS
Certain Portfolios seeking a high level of current income may
enter into dollar rolls or "covered rolls" in which the Portfolio
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 Portfolio forgoes principal and interest paid on the securities
sold at the beginning of the roll period. The Portfolio 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 Portfolio may or may not take
delivery of the securities the Portfolio has contracted to purchase.
The Portfolio 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 Portfolio will not treat such obligations as senior
securities for purposes of the Investment Company Act of 1940.
"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
Portfolio.
EQUITY AND DEBT SECURITIES ISSUED OR GUARANTEED BY
SUPRANATIONAL ORGANIZATIONS
Portfolios 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 Portfolios may invest in securities that are
indexed to certain specific foreign currency exchange rates. The
terms of such securities 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 Portfolio 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
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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 Portfolio invests at least 25% of its assets in Bank
Obligations, the Portfolio's investments may be subject to greater
risk than a Portfolio 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 this 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).
RESTRICTED SECURITIES
The Portfolio 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 Portfolio to the extent that
qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the investment Portfolio.
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 Portfolio may also invest
in restricted securities that may not be sold under Rule 144A, which
presents certain risks. As a result, the Portfolio 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 bond holders. 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
Portfolio's limit on illiquid securities.
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BORROWING
Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on a
Portfolio's 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
Portfolio's shares. A Portfolio 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 below,
except those Portfolios that are permitted to engage in short sales
of securities with respect to an additional 15% of the Portfolio's
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 a Portfolio's borrowing limitations to the extent
that a Portfolio establishes and maintains liquid assets in a
segregated account with the Trust's custodian equal to the
Portfolio's 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 Portfolio
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 1940. Act
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.
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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 Portfolio's 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 Portfolio 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
Portfolio's 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.
The discount of zero-coupon and deferred interest bonds
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 Portfolio 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
Portfolio securities to satisfy the Portfolio's distribution
obligations.
SMALL COMPANIES
Certain of the Portfolios 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 Portfolio 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 Portfolio to
dispose of such securities may be greatly limited, and a Portfolio
may have to continue to hold such securities during periods when the
Manager or a Portfolio Manager would otherwise have sold the
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security. It is possible that the Manager 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
Portfolio which it manages.
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for each of
the Portfolios as stated elsewhere in this Statement of Additional
Information certain of the Portfolios may, but are not required to,
utilize various investment strategies as described herein 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 Portfolio may purchase and
sell, to the extent not otherwise limited or restricted for such
Portfolios, 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, 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 Portfolios resulting from securities markets or
currency exchange rate fluctuations, to protect the Portfolio's
unrealized gains in the value of its Portfolio securities, to
facilitate the sale of such securities for investment purposes, to
manage the effective maturity or duration of the Portfolio, 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 Portfolio's 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 Portfolio 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 Portfolio 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 Portfolio management purposes.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the relevant
Portfolios may make secured loans of portfolio securities.
Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the
value of the securities lent marked to market on a daily basis. The
collateral received will consist of cash, U.S. government securities,
letters of credit or such other collateral as may be permitted under
the Portfolio's investment program. While the securities are being
lent, the Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well
as interest on the investment of the collateral or a fee from the
borrower. The Portfolio has a right to call each loan and obtain the
securities on five business day's notice or, in connection with
securities trading on foreign markets, within such longer period of
time which coincides with the normal settlement period for purchases
and sales of such securities in such foreign markets. The Fund will
not have the right to vote securities while they are being lent, but
it will call a loan in anticipation of any important vote. The risks
in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral
in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned
or even loss of rights in the collateral should the borrower of the
securities fail financially. Loans will not be made unless, in the
judgement of the Portfolio Manager, the consideration to be earned
from such loans would justify the risk.
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SPECIAL SITUATIONS
A special situation arises when, in the opinion of the Portfolio
Manager, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition
at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or
movements of the market as a whole. Developments creating special
situations might include, among others: liquidations,
reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs, and new management or management policies.
Investments in unseasoned companies and special situations often
involve much greater risk than in inherent in ordinary investment
securities.
WARRANTS
Certain Portfolios may, from time to time, invest in warrants.
Warrants are, in effect, longer-term call options. They give the
holder the right to purchase a given number of shares of a particular
company at specified prices within certain period of time. The
purchaser of a warrant expects that the market price of the security
will exceed the purchase price of the warrant plus the exercise price
of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks
the losses of the entire purchase price of the warrant. Warrants
generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold in unit form with other
qualification as a regulated investment company and a Portfolio's
intent to continue to qualify as such. The result of a hedging
program cannot be foreseen and may cause a Portfolio to suffer losses
which it would not otherwise sustain.
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 Portfolio
will lose its entire investment in such warrant.
INVESTMENT OBJECTIVES AND ADDITIONAL
INVESTMENT STRATEGIES AND ASSOCIATED RISKS
EQUITY INCOME PORTFOLIO
Investment Objective: Substantial dividend income as well as long-
term growth of capital.
In addition to the investment strategies discussed in the
prospectus, the Portfolio may invest in foreign securities,
convertible stocks and bonds, warrants and certain potentially high-
risk derivatives described in this Statement of Additional
Information whose investment characteristics are consistent with the
Portfolio's investment program.
The Portfolio may invest in common and preferred stocks,
convertible securities and warrants, foreign securities, fixed income
securities, high-yield, high-risk bonds, hybrid instruments and
certain types of illiquid investments as private placements.
The Portfolio will hold a certain portion of its assets in money
market reserves. The Portfolio 's reserve position can consist of
shares of one or more T. Rowe Price internal money market portfolios
as well as short-term, high-quality U.S. and foreign dollar-
denominated money market securities, including repurchase agreements.
For temporary, defensive purposes, the Portfolio may invest without
limitation in money market reserves. The reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and can serve as a short-term defense during periods of
unusual market volatility.
The Portfolio's emphasis on stocks of established, high dividend-
paying companies, as well as its possible exposure to fixed income
securities, could limit its potential for capital appreciation.
Sharply rising interest rates could also decrease the appeal of
stocks purchased by the Portfolio, further restraining total return.
In addition, the value approach includes the risks that 1) the market
will not recognize a security's intrinsic value for an
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unexpectedly
long time, and 2) a stock that is judged to be undervalued is
actually appropriately priced due to intractable or fundamental
problems that are not yet apparent.
FULLY MANAGED PORTFOLIO
Investment Objective: Over the long-term, a high total investment
return, consistent with the preservation of
capital and with prudent investment risk.
The Fully Managed Portfolio seeks, over the long term, to achieve
a high total investment return, consistent with the preservation of
capital and with prudent investment risk. The Portfolio Manager uses
a value approach, which means looking for companies whose stocks and
other securities appear to be undervalued or out of favor with
investors. This value emphasis may lead to a "contrarian" approach,
resulting in purchases of stocks or other securities shunned by
investors due to earnings setbacks, unfavorable industry or economic
conditions, or negative publicity. Such investments may be
attractive if their prices appear to be excessively discounted and
prospects for appreciation are considered favorable.
The Portfolio holds a certain portion of its assets in money
market reserves. The Portfolio's reserve position can consist of
shares of one or more T. Rowe Price internal money market portfolios
as well as short-term, high-quality U.S. and foreign dollar-
denominated money market securities, including repurchase agreements.
For temporary, defensive purposes, the Portfolio may invest without
limitation in money market reserves. The reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and can serve as a short-term defense during periods of
unusual market volatility.
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 Portfolio will not engage in short sales of securities other than
short sales "against the box." The Portfolio 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.
The Portfolio may invest in debt or preferred equity securities
and warrants. The Portfolio may also purchase foreign securities (up
to 25% total assets), debt securities, including junk bonds (up to
15% total assets) and hybrids (up to 10% total assets). In addition,
the Portfolio may purchase securities in private placements, subject
to a 15% net asset limit on illiquid securities. The total market
value of securities against which the Portfolio writes call or put
options may not exceed 25% of its total assets.
LIMITED MATURITY BOND PORTFOLIO
Investment Objective: Highest current income consistent with low
risk to principal and liquidity.
As discussed in the Prospectus, the Portfolio invests primarily in
short-to-intermediate term debt securities with actual remaining
maturities of seven years or less, and other debt securities with
special features (i.e., puts, variable floating coupon rates,
maturity extension arrangements, mortgage pass-throughs, etc.)
producing price characteristics similar to those of
short-to-intermediate term debt securities. The Portfolio will not
invest more than 25% of its total assets in a single industry. The
Portfolio will not invest more than 10% of its total assets in
foreign government securities.
The asset-backed securities in which the Portfolio may invest
include mortgage-backed U.S. government securities, mortgages pooled
by high quality financial institutions, and other asset-backed
securities representing pools of receivables unrelated to mortgage
loans. The Portfolio's investments in banking industry obligations
include certificates of deposit, time deposits, and bankers'
acceptances issued by commercial banks. The Portfolio's investments
in savings industry obligations include certificates of deposit and
time deposits issued by savings and loan associations. The
Portfolio's investments in commercial paper consist primarily of
unsecured
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notes with maturities of nine months or less issued to
finance short-term credit needs. The Portfolio's investments in
variable and floating rate securities have coupon rates which vary
with a designated money market index. The Portfolio will not invest
more than 10% of its total assets in foreign government securities.
The Portfolio may purchase securities on a when-issued and
delayed-delivery basis and may purchase or sell securities on a
forward commitment basis. When-issued or delayed-delivery
transactions arise when securities are purchased by the Portfolio
with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous price and yield to
the Portfolio at the time of entering into the transaction. A
forward commitment transaction is an agreement by the Portfolio to
purchase or sell securities at a specified future date. When the
Portfolio engages in these transactions, the Portfolio relies on the
buyer or seller, as the case may be, to consummate the sale. Failure
to do so may result in the Portfolio missing the opportunity to
obtain a price or yield considered to be advantageous. When-issued
and delayed-delivery transactions and forward commitment transactions
may be expected to occur a month or more before delivery is due.
However, no payment or delivery is made by a Portfolio until it
receives payment or delivery from the other party to the transaction.
A separate account containing only liquid assets, such as cash, U.S.
government securities, or other liquid assets equal to the value of
purchase commitments will be maintained until payment is made. Such
transactions have the effect of leverage on the Portfolio and may
contribute to volatility of a Portfolio's net asset value.
To increase current income, the Portfolio may lend its portfolio
securities in an amount up to 33% of its total assets to brokers,
dealers and financial institutions, provided certain conditions are
met, including the condition that each loan is secured continuously
by collateral maintained on a daily mark-to-market basis in an amount
at least equal to the current market value of the securities loaned.
These transactions involve a loan by the applicable Fund and are
subject to the same risks as repurchase agreements.
The Portfolio may enter into repurchase agreements with any bank
or broker-dealer which, in the opinion of the Board of Trustees,
presents a minimal risk of bankruptcy. Under a repurchase agreement,
the Portfolio acquires securities and obtain a simultaneous
commitment from the seller to repurchase the securities at a
specified time and at an agreed-upon yield. The agreements will be
fully collateralized and the value of the collateral, including
accrued interest, marked-to-market daily.
The Portfolio 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 Portfolio
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 Portfolio 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 Portfolio's dollar-weighted average maturity 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
Portfolio may invest in futures contracts, purchase and sell interest
rate futures contracts, and purchase and write options on such
futures contracts.
The Portfolio may invest in private placements of debt securities.
These investments may be considered to be restricted securities. The
Portfolio may invest up to 10% of its net assets in these and other
illiquid securities. The
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Portfolio 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 Statement of Additional Information entitled "Description of
Securities and Investment Techniques."
The Portfolio may write covered call options and purchase put
options, and purchase call and write put options to close out options
previously written by the Portfolio. The Portfolio may engage in
options transactions to reduce the effect of price fluctuations of
securities owned by the Portfolio (and involved in the options) on
the Portfolio's net asset value per share. This Portfolio 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 Portfolio will engage only in short
sales "against the box."
In addition to the limited maturity debt in which the Portfolio
invests, other investments may include other debt securities with
special features (e.g., puts, variable or floating coupon rates,
maturity extensions arrangements, mortgage pass-throughs, etc.)
producing price characteristics similar to those of short-to medium-
term debt securities. Generally, the Portfolio securities are
selected from as many as ten sectors of the fixed income market, each
representing a different type of fixed income investment.
HARD ASSETS PORTFOLIO
Investment Objective: Long-term capital appreciation.
The Hard Assets Portfolio provides a diversified portfolio with
protection against inflation or rapid economic activity. In economic
periods of rising inflation or when activity of companies within the
Hard Assets Portfolio tend to show rapid rises in earnings, it is
common to find that bonds and other equities perform poorly. As
such, the Hard Assets Portfolio may provide a source of
diversification to an overall portfolio. There can be no assurance
that an increased rate of return or reduced fluctuation of the
Portfolio will be achieved. Thus, an investment in the Portfolio's
shares should be considered part of an overall investment program
rather than a complete investment program.
The Portfolio may invest in securities of foreign issuers,
including up to 35% of its assets in securities of South African
issuers. The relative amount of the Portfolio's investment in foreign
issuers will change from time to time, and the Portfolio is subject
to certain guidelines for diversification of foreign security
investments. Investments by the Portfolio in securities of foreign
issuers may involve particular investment risks. See "Description of
Securities and Investment Techniques". The Portfolio normally
invests at least 65% of its total assets in Hard Asset Securities,
that is equity and debt securities of companies engaged in the
exploration, development, production, management and distribution of
assets such as gold and other precious metals, strategic metals, oil,
natural gas, coal and real estate investment trusts.
The Portfolio may invest over 25% of its assets in securities of
companies predominantly engaged in gold operations, although the
Portfolio will not invest in any such security or in gold bullion and
coins if, after such acquisition, more than 50% of the Portfolio's
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 Portfolio may also invest
directly in other commodities including petroleum and strategic
metals. The Portfolio may invest up to 35% of the value of its total
assets in non-hard asset securities.
Since a large percentage of the Portfolio's assets will be
invested in Hard Assets, the Portfolio might be deemed to have
concentrated in such investments. This may cause the Portfolio to
have greater exposure to risks associated with Hard Assets in
general.
During periods of less favorable economic and/or market
conditions, the Portfolio 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 Portfolio may engage in short sales, and may lend portfolio
securities. The Portfolio may not exceed a total of 25% of net assets
in short sales, but this amount is decreased by the amount the
Portfolio has borrowed.
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Short sales of unlisted securities may not
exceed 10% of net assets. The Portfolio 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 Portfolio may
purchase securities on margin. The Portfolio may borrow up to 10% of
the value of its net assets and for temporary purposes may increase
this amount to 25%. The Portfolio 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
Portfolio may purchase and sell interest rate, gold, and other
futures contracts. The Portfolio 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 Portfolio 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 Portfolio. 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 Portfolio seeks investment opportunities in the world's major
stock, bond and commodity markets. The Portfolio 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 with the exception of South Africa.
There is no limitation on the amount the Portfolio can invest in
emerging markets. The Portfolio 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 Portfolio 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 Portfolio may invest
in certain derivatives. Derivatives are instruments whose value is
"derived" from an underlying asset. Derivatives in which the
Portfolio 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 Portfolio 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 Portfolio 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 energy, base metal or agriculturals and their operations, the
Portfolio 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 Portfolio 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."
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REAL ESTATE PORTFOLIO
Investment Objective: Capital appreciation. Current income as a
secondary objective.
The Portfolio 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 Portfolio may invest more than
25% of its total assets in any of the foregoing sectors of the real
estate industry. The Portfolio's 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 Portfolio 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 Portfolio 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
Portfolio will engage only in short sales "against the box."
In addition to the common and preferred stocks described above,
the Portfolio 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 Portfolio 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 Portfolio 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." Since a large percentage of the Portfolio's assets
will be invested in the real estate industry, the Portfolio might be
deemed to have concentrated in this area. This may cause the
Portfolio to have greater exposure to risks associated with real
estate in general.
There are risks inherent in the Portfolio's investment policies.
These risks are discussed in "Description of Securities and
Investment Techniques."
ALL-GROWTH PORTFOLIO
Investment Objective: Capital appreciation.
While it has no present intention to do so, the Portfolio 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 Portfolio 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
Portfolio may invest in repurchase agreements. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio will borrow
only up to 10% (for temporary purposes 25%) of its total net assets.
In connection with permissible borrowings the Portfolio may transfer
as collateral securities owned by the Portfolio.
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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 Portfolio may from time to
time realize short-term gains and losses. the Portfolio 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 Portfolio, portfolio
turnover can be expected to be fairly high.
The Portfolio may invest 100% of its assets in cash or U.S. dollar
denominated high quality instruments for temporary defensive
purposes, to maintain liquidity or when economic or market conditions
are unfavorable for investing. While these investments are generally
designed to limit the Portfolio's losses, they can prevent the
Portfolio from achieving its investment objective.
RISING DIVIDEND PORTFOLIO
Investment Objective: Capital appreciation. A secondary objective
is dividend income.
In seeking its objectives, the Portfolio normally invests its net
assets in equity securities of companies determined to be of high
quality by the Portfolio Manager, including, but not limited to,
companies with substantial dividend increases.
The individual security selection is overlaid with a sector
allocation discipline to avoid over-concentration in any single
sector. It is anticipated that the Portfolio's portfolio will
generally contain a minimum of 25 to 30 issues. It is the policy of
the Portfolio that no equity security will be acquired if, after its
acquisition, more than 15% of the Portfolio's 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 Portfolio's 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
Portfolio's equity securities to assure they meet the quality
criteria which include; regular dividend increases and at least 35%
of earnings reinvested annually; and a credit rating of "A" to "AAA".
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. 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. Equity
securities are deemed to include common stocks, securities
convertible into common stocks, or rights or warrants to subscribe
for or purchase common stocks.
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 Portfolio
may invest any amount of its assets in short-term fixed income
securities or in cash or cash equivalents.
EMERGING MARKETS PORTFOLIO
Investment Objective: Long-term capital appreciation.
At least 65% of the Portfolio's 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.
For purposes of allocating the Portfolio's 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.
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The Emerging Markets Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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
Portfolio 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" and "Debt Securities--Sovereign Debt"
in this Statement of Additional Information.
For temporary defensive purposes, the Portfolio 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 Portfolio may
invest significantly in such securities after receipt of new monies.
Most of the foreign securities in which the Portfolio invests will
be denominated in foreign currencies. The Portfolio 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 Statement of Additional
Information.
The Emerging Markets Portfolio 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 index, foreign
securities and foreign currencies. The Portfolio may purchase and
sell interest rate, stock indexes and other financial instrument
futures contracts, and may purchase and write options on such futures
contracts. The Portfolio may engage in options transactions not only
on U.S. domestic markets but also exchanges and other markets outside
the United States. When deemed appropriate by the Portfolio Manager,
the Portfolio 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
Portfolio 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 Portfolio
may invest in up to 15% of its assets in illiquid securities. The
Portfolio may invest in warrants and restricted securities. The
Portfolio may make short sales "against the box." These investment
techniques are described under the heading "Description of Securities
and Investment Techniques" in this Statement of Additional
Information.
VALUE EQUITY PORTFOLIO
Investment Objective: Capital appreciation. Dividend income is a
secondary objective.
At least 65% of the Portfolio's assets normally will be invested
in equity securities. However, during adverse market conditions, as a
temporary investment posture, the Portfolio may invest significantly
in the debt securities and money market instruments.
The Portfolio may invest without limit in equity securities of
foreign issuers, including ADRs. However, it is expected that under
ordinary circumstances, the Portfolio 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 Statement of Additional Information.
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It is the policy of the Portfolio that no equity security will be
acquired, if, with respect to 75% of the Portfolio's total assets,
after its acquisition, more than 25% of the Portfolio's 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 Portfolio's 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 Portfolio 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 Portfolio's 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 Portfolio may also
invest in Standard & Poor's Depositary Receipts ("SPDR's"), which are
publicly traded interests in a unit investment trust that invests in
substantially all of the common stocks in the S&P 500 Index. SPDR's
are not subject to the Portfolio's policy that no more than 5% of the
Portfolio's total assets be invested in any one issuer. The
Portfolio may make short sales "against the box."
The Portfolio may also invest in restricted or illiquid
securities; however, the Portfolio Manager can not invest more than
15% of the Portfolio's assets in securities that, at the time of
investment, it believes to be illiquid. In pursuing its investment
objective or for hedging purposes, the Portfolio may, but is not
required to, utilize the following investment techniques: writing
"covered" listed put and call options with respect to 25% of its net
assets, may purchase protective puts up to 25% of its net assets and
may purchase calls and puts other than protective 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.
During unusual or adverse market conditions, the Portfolio may
invest significantly in U.S. Government and agency debt securities,
and in money market instruments such as certificates of deposit,
bankers' acceptances, high quality commercial paper, U.S. Treasury
bills, and repurchase agreements.
STRATEGIC EQUITY PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
Investment Objective
Strategic Equity: Capital appreciation.
Investment Objective
Capital Appreciation: Long-term capital growth.
Each Portfolio may invest, for temporary defensive purposes, all
or substantially all of its assets in investment grade (high quality)
corporate bonds, commercial paper, or U.S. Government obligations.
In addition, a portion of each Portfolio's assets may be held, from
time to time, in cash, repurchase agreements or other short-term debt
securities when such positions are deemed advisable in light of
economic or market conditions. Each Portfolio will invest in common
stocks, which fluctuate in price in response to many factors
including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity. Each Portfolio may also
invest in preferred stocks (which may be subject to optional or
mandatory redemption provisions) and convertible securities, without
regard to corporate bond ratings. Each Portfolio may invest in
corporate debt, which may be subject to call provisions that entitle
the issuer to repurchase such securities at a predetermined price
prior to their stated maturity. In the event that a security is
called during a period of declining interest rates, the portfolio may
be required to reinvest the proceeds in securities having a lower
yield. In addition, in the event that a security was purchased at a
premium over the call price, the portfolio will experience a capital
loss if the security is called. Adjustable rate corporate debt
securities may have interest rate caps and floors. The Portfolios
may invest in equity and/or debt securities issued by REITs. Such
investments will not exceed 25% of the total assets of each
Portfolio. To the extent that the Portfolios have the ability to
invest in REITs, each could conceivably own real estate directly as a
result of a default on securities it owns. The Portfolio, therefore,
may be subject to certain risks associated with the direct ownership
of real estate including difficulties in valuing and trading real
estate, declines in the value of real estate, risks related to
general and local economic
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conditions, and changes in zoning laws.
Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation, and the possibility of failing to
maintain exemption from the 1940 Act.
To the extent consistent with its respective investment objective,
each of the Portfolios may invest in foreign securities. The Capital
Appreciation Portfolio may invest up to 25% of its total assets in
foreign securities. The Strategic Equity Portfolio may invest up to
20% of its total assets in foreign securities.
For purposes of computing such limitation, American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other
securities representing underlying securities of foreign issuers are
treated as foreign securities. Each of the Portfolios may also
invest in foreign securities listed on recognized U.S. securities
exchanges or traded in the U.S. over-the-counter market. Each
Portfolio has the authority to deal in foreign exchange between
currencies of the different countries in which each will invest
either for the settlement of transactions or as a hedge against
possible variations in the foreign exchange rates between those
currencies. Each Portfolio will not speculate in foreign exchange,
nor commit a larger percentage of its total assets to foreign hedges
than the percentage of its assets that it could invest in foreign
securities.
The Strategic Equity Portfolio will not invest more than 15% of
its net assets in illiquid securities, including repurchase
agreements with maturities in excess of seven days. The Capital
Appreciation Portfolio will not invest more than 10% of its assets in
illiquid securities. The Portfolio may purchase privately placed
securities that are eligible for purchase and sale pursuant to Rule
144A under the Securities Act of 1933.
For the purpose of realizing additional income, the Portfolios may
each make secured loans of portfolio securities amounting to not more
than 33 1/3% of its total assets. Although it does not currently
intend to do so, the Strategic Equity Portfolio may invest in
"special situations, as described in this Statement of Additional
Information.
The Portfolio may also invest in U.S. Government Securities,
Repurchase Agreements, short sales and has the ability to use forward
contracts, futures contracts, options on securities, options on
indices, options on currencies and options on futures and in other
investment companies to the extent permitted by the 1940 Act, and
rules and regulation thereunder.
SMALL CAP PORTFOLIO
Investment Objective: Long-term capital appreciation.
The Portfolio 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.
In order to afford the Portfolio 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.
The Portfolio 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 Portfolio's 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 Portfolio may not exceed a
total of 25% of net assets in short sales, but this amount is
decreased by any amount the Portfolio has borrowed. The Portfolio
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.
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The Portfolio 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 Portfolio may transfer as collateral securities owned
by the Portfolio. The Portfolio may invest up to 15% of its net
assets in illiquid securities.
MANAGED GLOBAL PORTFOLIO
Investment Objective: Capital appreciation. Current income is
only an incidental consideration.
As discussed in the Prospectus, the Managed Global Portfolio may
invest in common stock traded in securities market around the world,
issued by any type of company, large or small. Investing in
securities of smaller, less well known companies may present greater
opportunities for capital appreciation, but may also involve greater
risks. The Portfolio may not acquire the securities of any issuer
if, as a result of such investment, more than 10% of the Portfolio's
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 Portfolio 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 Portfolio's 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 Portfolio's assets. In implementing these "defensive" strategies
the Portfolio may invest in some of the following securities.
The Portfolio may invest solely in equity securities traded
primarily in U.S. markets. Also the Portfolio may add preferred
stocks to the portfolio. The Portfolio may purchase mortgage- and
asset-backed securities.
The Portfolio may invest in the following debt instruments
(includes debt instruments convertible into equity): (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 Portfolio may be of any
maturity, at the discretion of the Portfolio Manager.
The Portfolio 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 Portfolio 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 and securities indexes. The Managed Global
Portfolio 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 Portfolio
may purchase and sell futures contracts, and may purchase and write
options on such futures contracts, including stock index futures
contracts. The Portfolio may enter into foreign currency contracts
and currency exchange contracts on a spot basis. When deemed
appropriate by the Portfolio Manager, the Portfolio 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 Portfolio 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 Portfolio may invest in restricted
securities and warrants. The Portfolio may not invest more than 15%
of its net assets in illiquid securities. The Portfolio may not
exceed a total of 25% of net assets in short sales, but this amount
is decreased by any amount the Portfolio has borrowed. The Portfolio
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 Portfolio may transfer as collateral
securities owned by the Portfolio.
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For more information about the Portfolio's 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 Portfolio. It is impossible to predict
when or for how long the Portfolio will use such alternative
strategies.
The Portfolio 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 Portfolio."
GROWTH OPPORTUNITIES PORTFOLIO
Investment Objective: Capital appreciation.
The Portfolio invests at least 65% of its total assets in equity
securities of domestic companies. Although such companies may be of
any size, the Portfolio targets companies having total market
capitalizations of $1 billion or more. The Portfolio Manager for the
Portfolio is Montgomery Asset Management, LLC.
The Portfolio also may invest up to 35% of its total assets in
highly rated debt securities. The Portfolio Manager does not expect
the Portfolio to be consistently totally invested in equity
securities. During periods that the Portfolio Manager deems
appropriate, the Portfolio may take a more defensive position and be
significantly invested in cash and cash equivalents.
The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may borrow up to one-third of its total net
assets, but will not purchase any securities while borrowings exceed
10%. The Portfolio 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 Portfolio
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 Portfolio may invest in forward currency contracts, but may not
invest more than one-third of its assets in such contracts. The
Portfolio may invest in futures, swaps, including equity swaps, and
options on futures. The Portfolio may invest up to 15% of its total
net assets in illiquid securities. See "Description of Securities
and Investment Techniques."
DEVELOPING WORLD PORTFOLIO
Investment Objective: Capital appreciation.
As discussed in the Prospectus, the Developing World Portfolio
invests primarily in the equity securities of emerging market
companies. The Portfolio also 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 Portfolio 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 Portfolio 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 5% of its total assets, and it will
not enter into options' transactions with respect to more than 25% of
its total assets. The Portfolio may borrow up to one third of its
total net assets, but will not purchase any securities while
borrowings exceed 10%. The Portfolio 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 Portfolio 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 Portfolio may invest in forward
currency
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contracts, but may not invest more than one-third of its
assets in such contracts. The Portfolio may invest in futures,
swaps, including equity swaps, and options on futures. The Portfolio
may invest up to 15% of its total net assets in illiquid securities.
See "Description of Securities and Investment Techniques."
MID-CAP GROWTH PORTFOLIO
Investment Objective: Long-term growth of capital.
The Portfolio seeks to achieve its objective by investing
primarily or at least 65% 0f it assets in equity securities of
companies with medium market capitalization which the Portfolio
Manager believes have above-average growth potential under normal
circumstances.
Shares of the Portfolio are subject to greater fluctuation in
value than shares of a conservative equity fund or of a growth fund
that invests entirely in proven growth stocks. Therefore, the
Portfolio is intended for long-term investors who understand and can
accept the risks entailed in seeking long-term growth of capital. The
Portfolio 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 Portfolio 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 Portfolio.
Debt securities of issuers in which the Portfolio 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 Portfolio may invest include securities in
the lower rating categories of recognized rating agencies (and
comparable unrated securities). Fixed income securities in which the
Portfolio 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. See "Description of
Securities and Investment Techniques--High Yield Bonds" for a
discussion of the risks involved in investing in lower-rated
securities.
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 Portfolio's 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 Portfolio may invest 20% of its net assets in foreign
securities. 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" for a discussion of the risks
involved in foreign investing.)
The Portfolio 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 Portfolio may also purchase illiquid or restricted securities
(such as private placements). The Portfolio's may not invest more
than 15% of its net assets in illiquid securities.
The Portfolio is classified as a "non-diversified" investment
company as described above under "Diversification." See
"Diversification" for risks associated with investing in a non-
diversified Portfolio.
While it is not generally the Portfolio's policy to invest or
trade for short-term profits, the Portfolio may dispose of a
portfolio 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. Portfolio 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
Portfolio turnover is not a limiting factor when a change in the
Portfolio is otherwise appropriate. Because the Portfolio is
expected to have a Portfolio turnover rate of over
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100%, transaction
costs incurred by the Portfolio and the realized capital gains and
losses of the Portfolio may be greater than that of a Portfolio with
a lesser turnover rate.
The Portfolio 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 Portfolio at a future date usually beyond customary settlement
time), purchase restricted securities, options on securities, options
on stock indexes, options on foreign currencies, futures contracts,
options on futures contracts and forward foreign currency exchange
contracts.
RESEARCH PORTFOLIO
Investment Objective: Long-term growth of capital and future
income.
The Portfolio invests in debt securities, and may invest up to 10%
of its net assets in lower rated debt securities (e.g., rated BA or
lower by Moody's or BB or lower by S&P or Fitch), or in securities
the Portfolio Manager believes to be of comparable quality.
It is not the Portfolio's 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 Portfolio's achievement of its
investment objective may be more dependent on the Portfolio Manager's
own credit analysis than in the case of a Portfolio investing in
primarily higher quality bonds. From time to time, the Portfolio's
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 Portfolio may enter into repurchase agreements, make loans of
its securities, invest in ADRs, invest up to 20% of its net assets in
foreign securities, 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. See "Description of Securities and Investment Techniques" and
the Statement of Additional Information for a discussion of the risks
involved with investing in the above listed securities transactions.
While it is not generally the Portfolio's policy to invest or
trade for short-term profits, the Portfolio may dispose of a
portfolio 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. Portfolio 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
Portfolio turnover is not a limiting factor when a change in the
Portfolio is otherwise appropriate.
TOTAL RETURN PORTFOLIO
Investment Objective: Above-average income (compared to a
portfolio entirely invested in equity
securities) consistent with the prudent
employment of capital. A secondary goal
is the reasonable opportunity for growth
of capital and income.
As discussed in the Prospectus, the Total Return Portfolio is a
"balanced fund that invests in a combination of equity and fixed
income securities. The Portfolio may invest in mortgage pass-through
securities, which 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 Portfolio may
invest in also include zero coupon bonds, deferred interest bonds and
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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 Portfolio 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 Portfolio may invest up to 20% of its net assets in foreign
securities (including investments 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 Investments" for a
discussion of the risks involved in foreign investing.)
In order to protect the value of the Portfolio's investments from
interest rate fluctuations, the Portfolio may enter into various
hedging transactions, such as interest rate swaps, and the purchase
or sale of interest rate caps, floors and collars.
The Portfolio may purchase "Rule 144A securities"; enter into
repurchase agreements; lend portfolio 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 Portfolio's policy to invest or
trade for short-term profits, the Portfolio may dispose of a
portfolio 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. Portfolio 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
Portfolio turnover is not a limiting factor when a change in the
Portfolio is otherwise appropriate. Because the Portfolio is expected
to have a Portfolio turnover rate of over 100%, transactions costs
incurred by the Portfolio and the realized capital gains and losses
of the Portfolio may be greater than that of a Portfolio with a
lesser turnover rate.
GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term total return.
As discussed in the Prospectus, the Growth & Income Portfolio
invests primarily in common stocks of companies where the potential
for change is significant. The Portfolio may at times invest a
substantial portion of its assets in securities traded in the over-
the-counter markets in foreign countries and not on any exchange,
which may affect the liquidity of the investment and expose the
Portfolio 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.
To hedge against changes in net asset value or to attempt to
realize a greater current return, the Portfolio may use the following
investment strategies and techniques. The Portfolio 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 Portfolio will not purchase futures or options on
futures or sell futures if, as a result, the sum of the initial
margin deposits on the Portfolio's existing futures positions and
premiums paid for outstanding options on futures contracts would
exceed 5% of the Portfolio's assets. (For options that are "in-the-
money" at the time of purchase, the amount by
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which the option is "in-
the-money" is excluded from this calculation.) The Portfolio may lend
portfolio securities to broker-dealers and may enter into repurchase
agreements.
At times, the Portfolio Manager may judge that market conditions
make pursuing the Portfolio's 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
Portfolio's assets. In implementing these "defensive" strategies, the
Portfolio may invest in U.S. Government securities, other high-
quality debt instruments, and other securities the Portfolio Manager
believes to be consistent with the Portfolio's best interests. The
Portfolio may invest in domestic or foreign securities
GROWTH PORTFOLIO
Investment Objective: Capital appreciation.
In addition to the Growth Portfolio's primary strategies discussed
in the Prospectus, the Portfolio may engage in several other
strategies. To hedge against changes in net asset value or to
attempt to increase its investment return, the Portfolio 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; 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.
To the extent that the Portfolio hold positions is futures
contracts and related options that do not fall within the definition
of bona fide hedging transactions, the aggregate initial margin and
premiums required to establish such positions will not exceed 5% of
the fair market value of the Portfolio's net assets, after taking
into account unrealized profits and unrealized losses on any such
contracts it has entered into.
When the Portfolio Manager believes that market conditions are not
favorable for profitable investing or when the Portfolio Manager is
otherwise unable to locate favorable investment opportunities, a
Portfolio's investments may be hedged to a greater degree and/or its
cash or similar investments may increase. In other words, the
Portfolio does not always stay fully invested in stocks and bonds.
Cash or similar investments are a residual -- they represent the
assets that remain after a portfolio manager has committed available
assets to desirable investment opportunities. Larger hedged
positions and/or larger cash positions may serve as a means of
preserving capital in unfavorable market conditions.
Securities that the Portfolio may invest in as a means of
receiving a return on idle cash include high-grade commercial paper,
certificates of deposit, repurchase agreements or other short-term
obligations. The Portfolio may also invest in money market funds
(including funds managed by the Portfolio Manager). When a Portfolio
is hedged or its investments in cash or similar investments increase,
it may not participate in stock or bond market advances or declines
to the same extent that it would if the Portfolio was not hedged or
remained more fully invested in stocks or bonds.
At times the Portfolio 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 Portfolio would only
concentrate its investments in a particular market sector if the
Portfolio's 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 Portfolio
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 Portfolio than if it had not
concentrated its assets in that sector.
The Portfolio may enter into repurchase agreements. These
transactions must be fully collateralized at all times, but involve
some risk to the Portfolio if the other party should default on its
obligations and the Portfolio is delayed or prevented from recovering
the collateral.
At times, the Portfolio Manager may judge that market conditions
make pursuing the Portfolio's 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
Portfolio's
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assets. In implementing these "defensive" strategies, the
Portfolio may invest in U.S. Government securities, other high-
quality debt instruments, and other securities the Portfolio Manager
believes to be consistent with the Portfolio's best interests.
During extremely unusual conditions, the Portfolio may take a
position of cash and cash equivalents.
The length of time a Portfolio has held a particular security is
not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in
the Portfolio's investments, particularly in periods of volatile
market movements. Such portfolio turnover generally involves some
expense to a Portfolio, 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 PORTFOLIO
Investment Objective: High total return
The investment objective of the Global Fixed Income Portfolio is
to provide high total return. The Portfolio 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.
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 Portfolio 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 Portfolio's 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 Portfolio is invested. In pursuing the
Portfolio's investment objective, however, the Portfolio Manager
actively manages the Portfolio in an effort to minimize the effect of
such factors on the Portfolio's net asset value per share. In
extremely unusual conditions the Portfolio may take a defensive
position of 100% U.S. cash.
LIQUID ASSET PORTFOLIO
Investment Objective: High level of current income consistent with
the preservation of capital and liquidity.
The Liquid Asset Portfolio seeks to achieve a high level of
current income consistent with the preservation of capital and
liquidity. The Portfolio is permitted to invest in asset-backed
securities, subject to the rating and quality requirements specified
with respect to the Portfolio. Through the use of trusts and special
purpose subsidiaries, various types of assets, primarily home equity
loans and automobile and credit card receivables, are being
securitized in pass-through structures similar to the mortgage pass-
through structures described above. Consistent with the Portfolio's
investment objectives, policies and quality standards, the Portfolio
may invest in these and other types of asset-backed securities which
may be developed in the future.
Asset-backed securities involve certain risks that are not posed
by mortgage-related securities, resulting mainly from the fact that
asset-backed securities do not usually contain the benefit of a
complete security interest in the related collateral. For example,
credit card receivables generally are unsecured and the debtors are
entitled to the protection of a number of state and Federal consumer
credit laws, some of which may reduce the ability to obtain full
payment. In the case of automobile receivables, due to various legal
and economic factors, proceeds from repossessed collateral may not
always be sufficient to support payments on these securities. The
risks
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associated with asset-backed securities are often reduced by
the addition of credit enhancements such as a letter of credit from a
bank, excess collateral or a third-party guarantee.
The Portfolio may invest in shares of other open-end management
investment companies, subject to the limitations of the 1940 Act and
subject to such investments being consistent with the overall
objective and policies of the Portfolio, provided that any such
purchases will be limited to short-term investments in shares of
unaffiliated investment companies, and will not, in the aggregate,
exceed 10% of the Portfolio's net assets. The purchase of securities
of other mutual funds results in duplication of expenses such that
investors indirectly bear a proportionate share of the expenses of
such mutual funds including operating costs and investment advisory
and administrative fees.
The Portfolio may also make limited investments in guaranteed
investment contracts ("GIC") issued by U.S. insurance companies. The
Portfolio will purchase a GIC only when the Manager has determined,
under guidelines established by the Board of Trustees, that the GIC
presents minimal credit risks to the Portfolio and is of comparable
quality to instruments that are rated high quality by certain
nationally recognized statistical rating organizations.
The Portfolio may purchase securities on a when-issued and
delayed-delivery basis and may purchase or sell securities on a
forward commitment basis. When-issued or delayed-delivery
transactions arise when securities are purchased by a Portfolio with
payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield to the
Portfolio at the time of entering into the transaction. A forward
commitment transaction is an agreement by a portfolio to purchase or
sell securities at a specified future date. When a portfolio engages
in these transactions, the Portfolio relies on the buyer or seller,
as the case may be, to consummate the sale. Failure to do so may
result in the Portfolio missing the opportunity to obtain a price or
yield considered to be advantageous. When-issued and delayed-
delivery transactions and forward commitment transactions may be
expected to occur a month or more before delivery is due. However,
no payment or delivery is made by a Portfolio until it receives
payment or delivery from the other party to the transaction. A
separate account containing only liquid assets, such as cash, U.S.
government securities, or other liquid assets equal to the value of
purchase commitments will be maintained until payment is made. Such
transactions have the effect of leverage on the Portfolio and may
contribute to volatility of a 's net asset value.
To increase current income, the Portfolio may lend its portfolio
securities in an amount up to 33% of each such Portfolio's total
assets to brokers, dealers and financial institutions, provided
certain conditions are met, including the condition that each loan is
secured continuously by collateral maintained on a daily mark-to-
market basis in an amount at least equal to the current market value
of the securities loaned. These transactions involve a loan by the
applicable Portfolio and are subject to the same risks as repurchase
agreements.
The Portfolio may enter into repurchase agreements with any bank
or broker-dealer which, in the opinion of the Board of Trustees,
presents a minimal risk of bankruptcy. Under a repurchase agreement,
the Portfolio acquire securities and obtain a simultaneous commitment
from the seller to repurchase the securities at a specified time and
at an agreed-upon yield. The agreements will be fully collateralized
and the value of the collateral, including accrued interest, marked-
to-market daily.
The Portfolio 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 Portfolio 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 rated 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 Portfolio is downgraded or
otherwise ceases to be of the quality that is eligible for the
Portfolio, 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
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mature within five business days), shall promptly reassess
whether such security presents minimal credit risk and determine
whether to retain the instrument.
The Portfolio shall engage only in short sales "against the box."
The Portfolio may also 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 Portfolio may transfer as collateral
securities owned by the Portfolio. See "Description of Securities and
Investment Techniques" for descriptions of these techniques.
MARKET MANAGER PORTFOLIO
Investment Objective: The Portfolio seeks 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.
The call options into which the Portfolio will enter will be
negotiated on behalf of the Portfolio by the Portfolio Manager in an
attempt to provide the Portfolio 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 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 Portfolio 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
Portfolio's relative positions in call options on these indexes.
The Portfolio 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).
This strategy for pursuit of preservation of capital does not take
into account expenses of the Portfolio so that if the Portfolio
Manager is successful in its strategy, an investor in the Portfolio
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 Portfolios.
The purchaser of a Variable Contract would pay the expenses 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 prospectus.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective should be read, together
with the investment restrictions set forth below. These are broken
into two sections for different groups of Portfolios into fundamental
and non-fundamental policies. Fundamental policies and restrictions
of each Portfolio may not be changed with respect to any Portfolio
without the approval of a majority of the outstanding voting shares
of that Portfolio. The vote of a majority of the outstanding voting
securities of a Portfolio 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 Portfolio are present or
represented by proxy; or (b) more than 50% of the outstanding voting
securities of such Portfolio. 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.
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FUNDAMENTAL INVESTMENT RESTRICTIONS
FOR THE EQUITY INCOME PORTFOLIO, THE FULLY MANAGED PORTFOLIO, THE
LIMITED MATURITY BOND PORTFOLIO, THE HARD ASSETS PORTFOLIO, THE REAL
ESTATE PORTFOLIO, THE ALL-GROWTH PORTFOLIO, THE CAPITAL APPRECIATION
PORTFOLIO, THE RISING DIVIDENDS PORTFOLIO, THE EMERGING MARKETS
PORTFOLIO, THE VALUE EQUITY PORTFOLIO, THE STRATEGIC EQUITY
PORTFOLIO, THE SMALL CAP PORTFOLIO, THE MANAGED GLOBAL PORTFOLIO, THE
MARKET MANAGER PORTFOLIO, AND THE LIQUID ASSET PORTFOLIO:
Under these restrictions, a Portfolio 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
Portfolio;
(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
Portfolio, to securities or obligations issued by U.S. banks,
(c) with respect to the Market Manager Portfolio, to options
on stock indexes issued by eligible broker-dealers or banks,
as described in the Market Manager Portfolio's Prospectus; (d)
with respect to the Managed Global Portfolio, 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 Portfolio, 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 Portfolio, 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 Portfolios 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
may, consistent with its investment objective and policies:
(a) invest in debt obligations, even though the purchase
of such obligations may be deemed to be the making of
loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with
applicable guidelines established by the Securities and
Exchange Commission and any guidelines established by the
Board of Trustees;
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(7) Issue senior securities, except insofar as a Portfolio
may be deemed to have issued a senior security by reason of
borrowing money in accordance with that Portfolio's 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 Portfolio may be deemed to be an underwriter
under the federal securities laws;
(9) With respect to the Equity Income, Fully Managed, Limited
Maturity Bond, Hard Assets, Real Estate, All-Growth, Capital
Appreciation and Liquid Asset Portfolio, make short sales of
securities, except short sales against the box, and except
that this restriction shall not apply to the, Hard Assets, All-
Growth or Capital Appreciation Portfolio, which may engage in
short sales within the limitations described in the Statement
of Additional Information;
(10) Borrow money or pledge, mortgage, or hypothecate its
assets, except that a Portfolio may: (a) borrow from banks,
but only if immediately after each borrowing and continuing
thereafter there is asset coverage of 300%; and (b) enter into
reverse repurchase agreements and transactions in options,
futures, options on futures, and forward currency contracts as
described in the Prospectus and in the Statement of Additional
Information. (The deposit of assets in escrow in connection
with the writing of covered put and call options and the
purchase of securities on a "when-issued" or delayed delivery
basis and collateral arrangements with respect to initial or
variation margin and other deposits for futures contracts,
options on futures contracts, and forward currency contracts
will not be deemed to be pledges of a Portfolio's assets);
(11) With respect to the Equity Income, Fully Managed, Limited
Maturity Bond, Hard Assets, Real Estate, All-Growth, Capital
Appreciation, and Liquid Asset Portfolio, 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 Portfolio, except for the All-Growth Portfolio, and
more than 15% of the total assets (10% for the Capital
Appreciation Portfolio) of the Portfolio, (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 Portfolio 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 Equity Income and Strategic Equity Portfolio may
engage in futures contracts on gold; and
(d) this restriction shall not apply to the Managed Global
and the Hard Assets Portfolio.
(13) With respect to all Portfolios except the Managed Global
Portfolio, 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 Portfolio may engage in
transactions in options, futures contracts, and options on
futures.
FOR THE TOTAL RETURN PORTFOLIO, RESEARCH PORTFOLIO, MID-CAP GROWTH
PORTFOLIO AND GLOBAL FIXED INCOME PORTFOLIO:
A Portfolio may not:
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(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 Portfolio 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
Portfolio or the Mid-Cap Growth Portfolio;
(2) invest more than 25% of the value of the Portfolio 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 Portfolio of the Trust is
required to maintain asset coverage (including borrowings) of
300% for all borrowings), except Global Fixed Income Portfolio
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
Portfolio 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 Portfolio reserve the freedom of
action to hold and to sell real estate or mineral leases,
commodities or commodity contracts acquired as a result of the
ownership of securities. The Mid-Cap Growth, Research and
Total Return Portfolio 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 Portfolio
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
Portfolio shares of beneficial interest except as permitted
under the Investment Company Act of 1940 or by order of the
SEC.
FOR THE GROWTH PORTFOLIO:
The Portfolio 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 Portfolio investment
policies and restrictions and by applicable law, except as
required in connection with otherwise permissible options,
futures and commodity activities as described elsewhere this
Statement;
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(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 Portfolio 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 Portfolio 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 extent that the Portfolio
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 Portfolio 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 Portfolio 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 PORTFOLIO:
The Portfolio may not:
(1) issue any class of securities which is senior to the
Portfolio shares of beneficial interest, except that the
Portfolio may borrow money to the extent contemplated by
Restriction 3 below;
(2) purchase securities on margin (but a Portfolio 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);
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(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 Portfolio
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 Portfolio 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 Portfolio total assets (taken at current value)
would then be invested in securities of a single issuer, or
(ii) more than 25% of the Portfolio 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 PORTFOLIO:
A Portfolio 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 than 5% of the total
assets of a Portfolio 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 Portfolio 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
Portfolio 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 Portfolio 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 Portfolio, 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
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(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 Portfolio 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 Portfolio 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 Portfolio's 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 PORTFOLIO, EMERGING MARKETS PORTFOLIO, VALUE
EQUITY PORTFOLIO, STRATEGIC EQUITY PORTFOLIO, SMALL CAP PORTFOLIO,
MANAGED GLOBAL PORTFOLIO AND MARKET MANAGER PORTFOLIO:
A Portfolio 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 Portfolio,
which may make short sales within the limitations described in
the Prospectus and elsewhere in this Statement of Additional
Information); and
(2) Invest in securities that are illiquid because they are
subject to legal or contractual restrictions on resale, in
repurchase agreements maturing in more than seven days, or
other securities which in the determination of the Portfolio
Manager are illiquid if, as a result of such investment, more
than 15% of the net assets of the Portfolio (taken at market
value at the time of such investment) would be invested in
such securities.
FOR THE MANAGED GLOBAL PORTFOLIO:
The Portfolio 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 Portfolio 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 PORTFOLIO, RESEARCH PORTFOLIO, MID-CAP GROWTH
PORTFOLIO AND GLOBAL FIXED INCOME PORTFOLIO:
A Portfolio may not:
(1) invest more than 10% (except 15% with respect to the
Global Fixed Income Portfolio, Mid-Cap Growth Portfolio and
Total Return Portfolio) of the net assets of a Portfolio
(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
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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 Portfolio 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 GROWTH PORTFOLIO:
The Portfolio may not invest, in the aggregate, more than 10% of
its net assets in illiquid securities.
FOR THE GROWTH & INCOME PORTFOLIO:
The Portfolio may not:
(1) invest in warrants (other than warrants acquired by the
Portfolio 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 Portfolio net assets, provided that not more than
2% of the Portfolio 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 Portfolio 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 Portfolio total assets would
be invested in such securities, or (ii) more than 5% of the
Portfolio 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 Portfolio 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;
(7) purchase any security if, as a result, the Portfolio
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 Portfolio 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;
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(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 Portfolio in respect of any
such transactions then outstanding would exceed 5% of its
total assets.
FOR THE GROWTH OPPORTUNITIES AND DEVELOPING WORLD PORTFOLIO:
A Portfolio 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
Portfolio.
(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 Portfolio's
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.
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 R. Brock Armstrong, Barnett
Chernow, 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 R. Brock Armstrong, Barnett
Chernow, Myles R. Tashman, and Mary Bea Wilkinson.
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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
R. Brock Armstrong Trustee, President and Chairman of the GCG
Golden American Life President and Trust since February 1999. Director
Insurance Cpompany; Chairman of Golden American Life Insurance Company
1475 Dunwoody Drive the GCG Trust and President of Equitable Life
West Chester, PA 19380 Insurance Company of Iowa since April,
1999. Director and Chairman of the Board
of First Golden American Life Insurance
Company of New York since December 1998,
Groupd Executive of ING Group since
October 1998. Senior Vice President,
Individual Insurance, The Prudential
Insurance Company of America, April 1997
- February 16, 1999; Executive Vice
President, Operation, London Life
Insurance Co., Executive Vice
President, Life and Health Operations,
London Insurance Group, Chairman,
Security First Group, Chairman,
Security First Group; 1994 to April
1997 Executive Vice President, U.S.
Insurance Operations, President and
Chief Executive Officer, Security
First Group, 1991 to 1994. Age 52.
Barnett Chernow Vice Executive Vice President,
Golden American Life President Golden American Life
Insurance Co. Trustee 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. Age 49.
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. Age 53.
R. Barbara Gitenstein Trustee President, The College of New Jersey
The College of New Jersey since January, 1999; Trustee Provost,
200 Pennington Road Drake Office of the President
Ewing, NJ 08628 University from July 1992 to December
1998. Age 50.
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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 71.
Myles R. Tashman Secretary Executive Vice President,
Golden American Life Secretary and General Counsel,
Insurance Co. Golden American Life Insurance
1475 Dunwoody Drive Company since 1993; Director,
West Chester, PA 19380 Gold American Life since 1998;
Executive Vice President, Secretary
and General Counsel, Directed
Services, Inc. since 1993;
Director, Executive Vice
President, Secretary and General
Counsel, First Golden American Life
Insurance Company of New York. 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 70.
Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer,
Golden American Life First Golden American Life Insurance
Insurance Co. Company of New York since 1996; Senior
1475 Dunwoody Drive Vice President and Treasurer, Golden
West Chester, PA 19803 American Life Insurance Co.;
and President and Treasurer,
Directed Services, Inc.
October 1993 to December
1996. Age 42.
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 53.
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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 March 31, 1998, none of the Trustees directly owns shares of
the Portfolio. In addition, as of March 31, 1998, 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 Portfolio 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,
1998, the Trust paid Trustees' Fees aggregating $151,000. The
following table shows 1998 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, $ 24,000 N/A N/A $ 24,000
Trustee
R. Barbara Gitenstein, $ 24,750 N/A N/A $ 24,750
Trustee
Robert A. Grayson $ 24,000 N/A N/A $ 24,000
Trustee
Stanley B. Seidler, $ 24,750 N/A N/A $ 24,750
Trustee
Elizabeth J. Newell $ 24,000 N/A N/A $ 24,000
Trustee
Roger B. Vincent $ 24,000 N/A N/A $ 24,000
Trustee
M. Norvell Young $ 6,000 N/A N/A $ 6,000
Trustee*
</TABLE>
---------------
* Mr. Young served as a Trustee until his death in February of 1998.
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 Portfolio as of March
31, 1998. The address for each record owner is c/o Golden American
Life Insurance Company, 1475 Dunwoody Drive, West Chester, PA 19380-
1478.
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NAME PORTFOLIO PERCENTAGE
- ---- --------- ----------
David & Anita Swann Market Manager 14.76%
Charitable Remainder
Trust
Darald Libby Market Manager 9.21%
Charitable Remainder
Unit Trust
George Berman Market Manager 8.21%
Charitable Remainder
Trust
Sanford Lugar Market Manager 6.58%
Ivan DeAnda Growth Opportunities 5.89%
In addition, as of December 31, 1998 the General Account of Golden
American owned 9.83% of the shares of the Emerging Markets Portfolio,
53.74% of the Growth Opportunities Portfolio; 41.91% of the
Developing World Portfolio.
THE MANAGEMENT AGREEMENT
Directed Services, Inc. ("DSI" or the "Manager") serves as Manager
to the Portfolio pursuant to a Management Agreement (the "Management
Agreement") between the Manager and the Trust. DSI's address is 1475
Dunwoody Drive, West Chester, PA 19380-1478. DSI is a New York
corporation that is a wholly owned subsidiary of Equitable of Iowa
Companies, Inc. ("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 Portfolios
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 Portfolios other
than the investment advisory services performed by the Portfolio
Managers. These services include, but are not limited to, (i)
coordinating for all Portfolios, at the Manager's expense, all
matters relating to the operation of the Portfolios, including any
necessary coordination among the Portfolio Managers, Custodian,
Dividend Disbursing Agent, Portfolio Accounting Agent (including
pricing and valuation of the Portfolio's portfolios), accountants,
attorneys, and other parties performing services or operational
functions for the Trust; (ii) providing the Trust and the Portfolio,
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 Portfolios 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
Portfolios required by applicable law; (v) preparing and filing and
arranging for the distribution of proxy materials and periodic
reports to shareholders of the Portfolios as required by applicable
law in connection with the Portfolios; (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 Portfolio; (vii) taking such other action with
respect to
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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
Portfolios contemplated in he 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
Portfolio.
Pursuant to the Management Agreement, the Manager is authorized to
exercise full investment discretion and make all determinations with
respect to the day-to-day investment of a Portfolio's assets and the
purchase and sale of portfolio securities for one or more Portfolios
in the event that at any time no Portfolio Manager is engaged to
manage the assets of such Portfolio.
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 November 17, 1998. The Management
Agreement may be terminated without penalty by vote of the Trustees
or the shareholders of the Portfolio 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, 1998 were as follows: Equity Income Portfolio--
$2,628,164; Strategic Equity Portfolio--$614,438, Fully Managed
Portfolio--$2,036,662; Limited Maturity Bond Portfolio--$554,541;
Hard Assets Portfolio--$370,049; Real Estate Portfolio--$738,372; All-
Growth Portfolio--$723,616; Capital Appreciation Portfolio--
$2,170,004; Rising Dividends Portfolio--$3,933,978; Emerging Markets
Portfolio--$559,306; Liquid Asset Portfolio--$796,602; Value Equity
Portfolio--$1,033,315, Small Cap Portfolio--$922,032; Managed Global
Portfolio--$1,476,351, and the Market Manager Portfolio--$72,140.
The above amounts represent 0.98% as a percentage of average daily
net assets for the Equity Income, Strategic Equity, Fully Managed,
Hard Assets, Real Estate, All-Growth, Capital Appreciation, Rising
Dividends, Value Equity and the Small Cap Portfolios. The above
amounts represent 0.59% as a percentage of average daily net assets
for the Liquid Assets Portfolio, 0.60% for the Limited Maturity Bond
Portfolio, 1.25% for the Managed Global Portfolio, 0.89 % for the
Market Manager Portfolio, and 1.75% for the Emerging Markets
Portfolio.
For the period from August 17, 1998 (commencement of operations)
to December 31, 1998, the Mid-Cap Growth Portfolio paid Manager fees
of $708,271; the Research Portfolio paid Manager fees of $1,716,605;
the Growth Portfolio paid Manager fees of $725,286; the Total Return
Portfolio paid Manager fees of $1,372,818; the Growth & Income
Portfolio paid Manager fees of $994,126, the Global Fixed Income
Portfolio paid Manager fees of $118,137. For the period of June 1,
1998 (commencement of operations) to December 31, 1998 the Growth
Opportunities Portfolio paid Manager fees of $78,500, and the
Developing World Portfolio paid Manager fees of $94,921
The above Portfolios did not operate for a full year. The Trust
paid the Manager an advisory fee at the following annual rates (as a
percentage of average net assets of a portfolio or combined assets of
the indicated groups of portfolios): 1.60% for the Global Fixed
Income Portfolio; 1.00% of the first $250 million, 0.95% of next $400
million, 0.90% of next $450 million, and 0.85% of amounts in excess
of 1.1 billion (all of combined assets) for the Total Return,
Research and Mid Cap Growth Portfolios; 1.10% of first $250 million
1.05% of next $400
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million, 1.00% of next $450 million and 0.95% of
amounts in excess of 1.1 billion, each for the Growth & Income,
Growth and Growth Opportunities Portfolios; 1.75% for the Developing
World Portfolio.
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: Equity Income Portfolio--
$2,635,937; Strategic Equity Portfolio --$349,342; Fully Managed
Portfolio--$1,489,989; Limited Maturity Bond Portfolio--$454,759;
Hard Assets Portfolio--$462,391; Real Estate Portfolio--$610,484; All-
Growth Portfolio--$730,308; Capital Appreciation Portfolio--
$1,664,222; Rising Dividends Portfolio --$1,794,223; Emerging Markets
Portfolio--$845,128; Liquid Asset Portfolio--$289,064; Small Cap
Portfolio--$472,567; Value Equity Portfolio--$591,757; Managed Global
Portfolio--$1,238,851 and Market Manager Portfolio--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: Equity Income Portfolio--
$2,892,936; Strategic Equity Portfolio--$195,979; Fully Managed
Portfolio--$1,266,104; Limited Maturity Bond Portfolio--$497,345;
Hard Assets Portfolio--$362,600; Real Estate Portfolio--$371,844; All-
Growth Portfolio--$910,039; Capital Appreciation Portfolio--
$1,335,410; Rising Dividends Portfolio--$989,772; Emerging Markets
Portfolio--$791,005; Liquid Asset Portfolio--$240,479; Small Cap
Portfolio--$180,699 and Value Equity Portfolio--$379,126.
For the period from September 1, 1996 to December 31, 1996 the
Managed Global Portfolio paid the Manager fees of $349,038. For the
period from January 1 to August 30, 1996 and the fiscal year ended
December 31, 1995, the predecessor of the Managed Global Portfolio of
the Portfolio paid management fees of $211,615, and $293,930,
respectively.
PORTFOLIO MANAGERS
The Trust, DSI, and each Portfolio Manager entered into Portfolio
Management Agreements dated and effective as of October 24, 1997.
The Portfolio Management Agreements were approved by the Trustees of
the Trust at a meeting held on November 17, 1998 and were approved by
shareholders of each Portfolio of the Trust at a meeting held on
April 28, 1998.
Pursuant to the separate Portfolio Management Agreements, the
Manager (and not the Trust) pays each Portfolio Manager for its
services a monthly fee at annual rates which are expressed as
percentages of the average daily net assets of each Portfolio.
For the fiscal year ended December 31, 1998, the Manager (and not
the Trust) paid the Portfolio Managers the following amounts: Zweig
Advisors Inc.--$ 1,349,052 for the Equity Income Portfolio and--
$315,395 for the Strategic Equity Portfolio, T. Rowe Price
Associates, Inc.--$1,045,430 for the Fully Managed Portfolio; ING
Investment Management, LLC--$236197 for the Limited Maturity Bond
Portfolio, and $186,305 for the Liquid Asset Portfolio; Van Eck
Associates Corp.--$189,949 for the Hard Assets Portfolio; Chancellor
LGT Asset Management, Inc.--$1,113,876 for the Capital Appreciation
Portfolio; Kayne, Anderson Investment Management, L.P.--$2,019,334
for the Rising Dividends Portfolio; EII Realty Securities, Inc.--
$376,011 for the Real Estate Portfolio; Eagle Asset Management, Inc.-
- -$530,407 for the Value Equity Portfolio; and Pilgrim Baxter &
Associates--$408,580 for the All-Growth Portfolio; Robertson,
Stephens & Company Investment Management, L.P.---++$371,191 for the
Growth Portfolio and --$490,723 for the ++Growth & Income Portfolio;
Putnam Investment Management, Inc.--$319,604 for the Emerging Markets
Portfolio; and --$826,757 for the Managed Global Portfolio;
Massachusetts Financial Services Company--++$535,501 for the Total
Return; and --++$626,679 for the Research Portfolio; and --++$300,581
for the Mid-Cap Portfolio. Baring International Investment Limited--
++$33,226 for the Global Fixed Income Portfolio; Montgomery Asset
Management, LLC --+$36,739 for the Growth Opportunities Portfolio and
- --+$47,417 for the Developing World Portfolio; Fred Alger Management,
Inc.--$473,285 for the Small Cap Portfolio; and ING Investment
Management, LLC, .--$36,070 for the Market Manager Portfolio.
++For the period from August 17, 1998 (commencement of operations)
to December 31, 1998.
+For the period February 18, 1998 (commencement of operations) to
December 31, 1998
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Van Eck Associate Corp.; Zweig Advisor Inc; Chancellor LGT Asset
Management, L. P.; Pilgrim Baxter & Associates; Robertson, Stephens &
Company Investment Management, Putnam Investment Management, Inc.,
and Montgomery Asset Management, LLC. are no longer managers of the
GCG Trust Portfolios. A I M Capital Management, Inc. ("AIM") has been
the Portfolio Manager of the Capital Appreciation Portfolio since
April 1, 1999 and the Strategic Equity Portfolio since March 1, 1999.
The Manager pays AIM the following fees for each Portfolio: 0.50% for
the first $250 million, 0.45% for the next $250 million and 0.40% on
assets over $500 million.
Barings International Investment Limited ("Barings") has been the
Portfolio Manager of the Hard Assets and Developing World Portfolios
since March 1, 1998. The Manager pays Barings 0.90% of assets with
respect to the Developing World Portfolio and 0.40% with respect to
the Hard Assets Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe
Price") has been the Portfolio Manager of the Equity Income Portfolio
since March 1, 1999. The Manager pays T. Rowe Price 0.40% of assets
to serve as the Portfolio's manager. Alliance Capital Management
L.P. ("Alliance") has been the Portfolio Manger of the Growth &
Income Portfolio since April 1, 1999. The Manager pays Alliance
0.75% on the first $10 million, 0.625% on the next $10 million; 0.50%
on the next $20 million, 0.375% on the next $20 million and 0.25% of
net assets on amounts in excess of $60 million. Janus Capital
Corporation ("Janus") has been the Portfolio Manager of the Growth
Portfolio since March 1, 1999. The Manager pays Janus 0.55% on the
first $100 million, 0.50% on the next $400 million, and 0.45% on
amounts in excess of $500 million.
The above amounts represent .14% (of daily net assets) for the
Liquid Assets Portfolio, .25% for the Limited Bond Maturity Bond
Portfolio, .50% for the Equity Income, Fully Managed, Rising
Dividends, Value Equity, Strategic Equity, Capital Appreciation,
Small Cap, Real Estate and the Hard Assets Portfolios. The amounts
represent .55% of net assets for the All-Growth Portfolio, .70% for
the Managed Global Portfolio, 2.05% for the Market Manager Portfolio,
and 1.75% for the Emerging Markets Portfolio. The Preceding
Portfolios were in operation for the full year. For Portfolios that
commenced operation in 1998 and did not operate for a full year, the
Manager pays the following portfolio management fees (based on the
average daily net assets of a portfolio): .45% for the Managed
Global Portfolio, .37% for the Total Return Portfolio, .35% for the
Research Portfolio, .40% for the Mid Cap Growth Portfolio, .54% for
the Growth & Income Portfolio, .90% for the Developing World
Portfolio, and .50% for the Growth Opportunities Portfolio.
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 Equity Income Portfolio and
$200,373 for the Strategic Equity Portfolio; T. Rowe Price
Associates, Inc.--$757,091 for the Fully Managed Portfolio; Putnam
Investment Management, Inc.--$462,738 for the Emerging Markets
Portfolio and $664,883 for the Managed Global Portfolio; Van Eck
Associates Corp.--$234,949 for the Hard Assets Portfolio; Chancellor
LGT Asset Management Inc. --$845,622 for the Capital Appreciation
Portfolio; Kayne Anderson Investment Management, L.P.--$911,678 for
the Rising Dividends Portfolio; EII Realty Securities, Inc.--$310,198
for the Real Estate Portfolio; Eagle Asset Management, Inc.--$301,429
for the Value Equity Portfolio; and Pilgrim Baxter & Associated, Ltd.-
- - $396,195 for the All-Growth Portfolio; Equitable Investment
Services, Inc.--$84,766 for Liquid Assets Portfolio, $198,601 for
Limited Maturity Bond Portfolio and $31,614 for Market Manager
Portfolio; and Fred Alger Management, Inc.--$240,119 for Small Cap
Portfolio.
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 Equity Income Portfolio and $98,793
for the Strategic Equity Portfolio; T. Rowe Price Associates, Inc.--
$638,243 for the Fully Managed Portfolio; Bankers Trust Company--
$395,503 for the Emerging Markets Portfolio and $28,992 for the
Market Manager Portfolio; Van Eck Associates Corp.--$182,786 for the
Hard Assets Portfolio; Chancellor LGT Asset Management Inc. --
$673,180 for the Capital Appreciation Portfolio; Kayne Anderson
Investment Management, L.P.--$498,776 for the Rising Dividends
Portfolio; EII Realty Securities, Inc.--$187,447 for the Real Estate
Portfolio; Eagle Asset Management, Inc. ---$191,117 for the Value
Equity Portfolio; and Warburg, Pincus Counsellors, Inc.--$458,750 for
the All-Growth Portfolio.
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 Portfolio. For the
fiscal period
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January 1, 1996 to August 31, 1996, Warburg, Pincus
Counsellors, Inc. received $317,424 from the predecessor of the
Managed Global Portfolio. For the fiscal period of January 1, 1996
to August 12, 1996 the Manager paid Bankers Trust Company $44,413 for
the Liquid Asset Portfolio and $135,897 for the Limited Maturity Bond
Portfolio. 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 Portfolio and $79,768 for the Limited Maturity Bond
Portfolio.
DISTRIBUTION OF TRUST SHARES
DSI serves as the Portfolio's Distributor. DSI is not obligated to
sell a specific amount of the Portfolio's 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for each Portfolio are made by its Portfolio
Manager of each Portfolio. Each Portfolio Manager has investment
advisory clients other than the Portfolio. A particular security may
be bought or sold by a Portfolio Manager for 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 Portfolio may receive research
services from many broker-dealers with which the Portfolio Manager
places the Portfolio's 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 Portfolio), although not all of these
services are necessarily useful and of value in managing a Portfolio.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager for a Portfolio places all orders for the
purchase and sale of portfolio securities, options, and futures
contracts for a Portfolio 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
Portfolio 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 Portfolio usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings,
the price paid by the Portfolio includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions
involve
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the payment by the Portfolio 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
Portfolio may receive research services from many broker-dealers with
which the Portfolio Manager places the Portfolio's 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 Portfolio), although not all of these services are necessarily
useful and of value in managing a Portfolio. The advisory fee paid
by the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio on exchange transactions not exceed "usual and
customary brokerage commissions." The rules define "usual and
customary" commissions to include amounts which are "reasonable and
fair compared to the commission, fee or other remuneration received
or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." The Board
of Trustees has adopted procedures for evaluating the reasonableness
of commissions paid to broker-dealers that are affiliated with
Portfolio Managers or to Portfolio Managers that are broker-dealers
and will review these procedures periodically, Zweig Securities
Corp., Robertson Stephens Securities Corp., Raymond James &
Associates, Inc., and Fred Alger & Company, Incorporated Montgomery
Securities, Inc. are registered broker-dealers, and each is an
affiliate of a Portfolio Manager. Barings Securities Corporation,
Furman Selz Securities Corp. and ING Securities are also registered
broker-dealers and each is an affiliate of Directed Services, Inc.
the Manager to the CGC Trust. 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
Portfolio in accordance with these rules and procedures.
For the fiscal year ended December 31, 1998, the Equity Income
Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio,
Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid
Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio,
Real Estate Portfolio, Capital Appreciation Portfolio, Rising
Dividends Portfolio, Value Equity Portfolio, All-Growth Portfolio,
Small Cap Portfolio, Developing World Portfolio, Growth Opportunities
Portfolio, Mid-Cap Growth Portfolio, Global Fixed Income Portfolio,
Growth & Income Portfolio,
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Growth Portfolio, Research Portfolio,
Total Return Portfolio and Managed Global Portfolio paid brokerage
commissions of $263,419, $170,714, $202,689, $0, $190,071, $0, $0,
$282,693, $104,920, $365,400, $583,931, $490,592, $204,680, $266,848,
$36,384, $24,964, $200,333, $0, $612,148, $330,923, $468,656,
$189,846, $636,858, respectively. The Equity Income Portfolio paid
brokerage commissions of $568 (.22% of its total brokerage
commissions) to Barings Securities Corporation, $30,928 (11.74% of
its total brokerage commissions) to Zweig Securities Corp., $2484
(0.88% of its total brokerage commissions) to Raymond James &
Associates. The All-Growth Portfolio paid brokerage commissions of
$978 (0.48% of its total brokerage commissions) to Furman Selz
Securities Corp.. The Value Equity Portfolio paid brokerage
commissions of $1,032 (0.21 % of its total brokerage commissions) to
Furman Selz Securities Corp. and $12,768 (2.60% of its total
brokerage commissions) to Raymand James & Associates. The Capital
Appreciation Portfolio is paid $9,000 (2.97% of its brokerage
commissions) to Furman Selz. The Emerging Markets Portfolio paid
$5,638 (2.97% of its total brokerage commissions) to Barings
Securities Corporation and $611 (0.48% of its brokerage commissions)
to ING Securities. The Managed Global Portfolio paid $1,041 (0.16%
of its total commissions) to Barings Securities and $55 (0.01% of its
total commissions) to ING Securities. The Fully Managed Portfolio
paid $225 (0.11% of its total brokerage commissions) to Furman Selz
Securities. The Real Estate Portfolio paid $1,344 (1.28% of its
brokerage commissions) to Furman Selz Securities. The Strategic
Equity Portfolio paid $160 (0.09% of its total brokerage commissions)
to Zweig Securities Corp. The Growth & Income Portfolio paid $4.404
(0.72% of its total commissions) to Furman Selz Securities and
$70,671 (11.54% of its total brokerage commissions) to Robertson
Stephens Securities Corp. The Growth Opportunities Portfolio paid
$78 (0.31% of its total brokerage commissions) to Furman Selz
Securities. The Growth Portfolio paid $6,624 (2.00% of its total
brokerage commissions) to Furman Selz Securities and $4,963 (1.50% of
its total brokerage commissions) to Robertson Stephens Securities
Corp. The Small-Cap Portfolio paid $262,004 (98.18% of its total
brokerage commissions) to Fred Alger & Company.
For the fiscal year ended December 31, 1997, the Equity Income
Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio,
Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid
Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio,
Real Estate Portfolio, Capital Appreciation Portfolio, Rising
Dividends Portfolio, Value Equity Portfolio, Managed Global
Portfolio, All-Growth Portfolio and Small Cap Portfolio 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 Equity Income Portfolio
and Strategic Equity Portfolio 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 Portfolio paid
brokerage commissions of $13,239 (6.03% of its total brokerage
commissions) to Raymond James & Associates, Inc. The Hard Assets
Portfolio paid brokerage commissions of $900 (0.36% of its total
brokerage commissions) to Raymond James & Associates, Inc. The Small
Cap Portfolio 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 Equity Income
Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio,
Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid
Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio,
Real Estate Portfolio, Capital Appreciation Portfolio, Rising
Dividends Portfolio, Value Equity Portfolio, Managed Global
Portfolio, and All-Growth Portfolio 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 Equity Income Portfolio paid brokerage commissions of $42,834
(9.07% of its total brokerage commissions) to Zweig Securities. The
Value Equity Portfolio paid brokerage commissions of $2,550 (2.09% of
its total brokerage commissions) to Raymond James & Associates, Inc.
The Capital Appreciation Portfolio paid brokerage commissions of
$1,920 (1.02% of its total brokerage commissions) to Raymond James &
Associates, Inc. The Fully Managed Portfolio paid brokerage
commissions of $150 (0.12% of its total brokerage commissions) to
Raymond James & Associates, Inc. The Hard Assets Portfolio paid
brokerage commissions of $150 (0.11% of its total brokerage
commissions) to Raymond James & Associates, Inc. The Small Cap
Portfolio paid brokerage commissions of $33,058 (78.34% of its total
brokerage commissions) to Fred Alger. The Emerging Markets Portfolio
paid brokerage commissions of $64,131 and $2,113 (11.84% and 0.39% of
its total brokerage commissions) to Jardine
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Fleming and Robert
Fleming, respectively. The Managed Global Portfolio paid brokerage
commissions of $3,041 (1.59% of its total brokerage commissions) to
Jardine Fleming. The Strategic Equity Portfolio paid brokerage
commissions of $435 (0.79% of its total brokerage commissions) to
Zweig Securities.
Barings Securities Corporation is an affiliate of Barings
International Investment Limited, an affiliate of the Manager and
Portfolio Manager of the Hard Assets, Developing World and Global
Fixed Income Portfolios. Zweig Securities Corp. is an affiliate of
Zweig Advisors, Inc., the former Portfolio Manager to the Strategic
Equity and Equity Income (formerly, the Multiple Allocation Series)
Portfolios. Raymond James & Associates is an affiliate of Eagle
asset Management, Inc., Portfolio Manager of the Value Equity
Portfolio. Furman Selz Securities Corp. is an affiliate of the
Manager, as each is owned by ING Groep. Robertson, Stephens
Securities Corp. is an affiliate of Robertson, Stephens & Company
Investment Management, LP, the former Portfolio Manager of the Growth
Portfolio and the Growth & Income Portfolio. Fred Alger & Company is
an affiliate of Fred Alger Management, Inc., Portfolio Manager to the
Small Cap Portfolio.
Jardine Fleming Securities and Robert Fleming Securities are both
affiliates of T. Rowe Price Associates, Inc., Portfolio Manager to
the Fully Managed Portfolio since September, 1999 and to the Equity
Income Portfolio since March, 1999.
The Manager, Directed Services, Inc., is an affiliate of the GCG
Trust.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectuses, the
Portfolio'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.
The Liquid Asset Portfolio's 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 Portfolio would receive if it sold the instrument. During such
periods the yield to investors in the Portfolio 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 Portfolio 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 Portfolio's 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 Portfolio also is
required to maintain a dollar-weighted average portfolio maturity of
90 days or less, to limit its investments to instruments having
remaining maturities of 13 months or less (except securities held
subject to repurchase agreements having 13 months or less to
maturity) and to invest only in securities determined by the
Portfolio Manager under procedures established by the Board of
Trustees to be of high quality with minimal credit risks.
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PERFORMANCE INFORMATION
The Trust may, from time to time, include the current yield and
effective yield of its Liquid Asset Portfolio, the yield of the
remaining Portfolios, and the total return of all Portfolios in
advertisements or sales literature. In the case of Variable
Contracts, performance information for the Portfolio will not be
advertised or included in sales literature unless accompanied by
comparable performance information for a separate account to which
the Portfolio offer their shares.
Current yield for Liquid Asset Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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,
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 Portfolio will be
expressed in terms of the average annual compounded rate of return of
a hypothetical investment in the Portfolio over certain periods that
will include periods of one, five, and ten years (or, if less, up to
the life of the Portfolio), 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 Portfolio 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, 1998 and for the five- and one-year periods ended
December 31, 1998 the average annual total return for each Portfolio
was as follows: 9.75%, 10.21% and 8.26% for the Equity Income
Portfolio; 9.02%, 9.73%, and 9.02% for the Fully Managed Portfolio;
6.80%, 5.59%, and 6.86% for the Limited Maturity Bond Portfolio;
5.93%, 4.72%, and 9.52% for the All-Growth Portfolio; 9.65%, 12.26%,
and (13.45)% for the Real Estate Portfolio; 5.11%, 2.48%, and
(29.58)% for the Hard Assets Portfolio; and 5.15%, 4.88%, and 5.13%
for the Liquid Asset Portfolio. For the period of May 4, 1992
(inception of the Capital Appreciation Portfolio) to December 31,
1998 and for the five- and one-year period ended December 31, 1997,
the average total return for the Capital Appreciation Portfolio was
16.00%, 17.48%, and 12.68%. For the period of October 1, 1993
(inception of the Rising Dividends and Emerging Markets Portfolio) to
December 31, 1998 and for the five-year and one-year periods ended
December 31, 1998, the average total return
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for the Rising Dividends
Portfolio was 18.47% and 18.70% and 14.13% and the average annual
total return for the Emerging Markets Portfolio was (6.58)% and
(10.86)%. and (24.09). For the period of November 14, 1994
(inception of the Market Manager Portfolio) to December 31, 1997 and
for the one-year period ended December 31, 1998, the average total
return for the Market Manager Portfolio was 24.60% and 24.55%. For
the period of January 1, 1995 (inception of the Value Equity
Portfolio) to December 31, 1998 and for the one-year period ended
December 31, 1998, the average total return for the Value Equity
Portfolio was 17.96% and 1.55%. For the period of October 2, 1995
(inception of the Strategic Equity Portfolio) to December 31, 1998
and for the one-year period ended December 31, 1998, the average
total return for the Strategic Equity Portfolio was 13.02% and 0.84%.
For the period ended January 3, 1996 (inception for the Small Cap
Portfolio) to December 31, 1997, and for the one-year period ended
December 31, 1998 the total return for the Small Cap Portfolio was
17.07% and 20.98%.
The Managed Global Portfolio 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 Portfolio, a newly created Portfolio 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, 1998, the average
total return for the Managed Global Portfolio was 8.12%, 8.84% and
29.31%, respectively.
For the period of August 17, 1998 (commencement of operations) to
December 31, 1998, the total return (not annualized) was 16.12% for
the Mid-Cap Portfolio; 14.54% for the Research Portfolio; 14.60% for
the Growth Portfolio; 6.90% for the Total Return Portfolio; 10.19%
for the Growth & Income Portfolio; 7.99% for Global Fixed Income
Portfolio; For the period of February 18, 1998 (commencement of
operations) to December 31, 1998 the total return (not annualized)
was (2.28)% for the Growth Opportunities Portfolio; (26.27)% and for
the Developing World Portfolio.
Each Portfolio 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
Portfolio average or median market capitalization may also be cited.
Certain other statistical measurements may be used to provide
measures of a Portfolio's 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 Portfolio's
various securities and their earnings per share. Duration is a
weighted-average term-to-maturity of the bond's cash flows, the
weights being present value of each cash flow as a percentage of the
bond's full price.
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 Portfolio 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 Portfolio. Unmanaged indexes may assume the reinvestment of
dividends but generally do not reflect deductions for administrative
and management costs and expenses.
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Reports and promotional literature may also contain other
information including (i) the ranking of any Portfolio 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 Portfolio's
investment returns, or returns in general, which may by 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
Portfolio (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
Portfolio, 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 Portfolio is intended,
based upon each Portfolio's investment objectives.
In the case of Variable Contracts, quotations of yield or total
return for a Portfolio will not take into account charges and
deductions against any Separate Accounts to which the Portfolio
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 Portfolio
reflects only the performance of a hypothetical investment in the
Portfolio during the particular time period on which the calculations
are based. Performance information should be considered in light of
the Portfolio's 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.
TAXES
Shares of the Portfolios are offered only to the Separate Accounts
that fund Variable Contracts. See the respective prospectuses for
the Variable Contracts for a discussion of the special taxation of
insurance companies with respect to the Separate Accounts and of the
Variable Contracts and the holders thereof.
Each Portfolio has qualified, and expects to continue to qualify,
for treatment as a regulated investment company (?RIC?) under the
Internal Revenue Code of 1986, as amended (the ?Code?). In order to
qualify for that treatment, a Portfolio must distribute to its
shareholders for each taxable year at least 90% of its investment
company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain
foreign currency transactions) (?Distribution Requirement?) and must
meet several additional requirements. These requirements include the
following (1) the Portfolio must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with
respect to securities loans, and gains from the sale or other
disposition of securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived
with respect to its business of investing in securities or those
currencies (?Income Requirement?); (2) at the close of each quarter
of the Portfolio's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other securities
that, with respect to any one issuer, do not exceed 5% of the value
of the Portfolio's total assets and that do not represent more than
10% of the outstanding voting securities of the issuer; and (3) at
the close of each quarter of the Portfolio's taxable year, not more
than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer. If each Portfolio qualifies as a
regulated investment company and distributes to its shareholders
substantially all of its net income and net capital gains, then each
Portfolio should have little or no income taxable to it under the
Code.
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Each Portfolio must, and intends to also comply with, the
diversification requirements imposed by section 817(h) of the Code
and the regulations thereunder. These requirements, which are in
addition to the diversification requirements mentioned above, place
certain limitations on the proportion of each Portfolio's assets that
may be represented by any single investment (which includes all
securities of the same issuer). For purposes of section 817(h), all
securities of the same issuer, all interests in the same real
property project, and all interest in the same commodity are treated
as a single investment. In addition, each U.S. Government agency or
instrumentality is treated as a separate issuer, while the securities
of a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered
securities issued by the same issuer.
If a Portfolio fails to qualify as a regulated investment company,
the Portfolio will be subject to federal, and possibly state,
corporate taxes on its taxable income and gains (without any
deduction for its distributions to its shareholders) and
distributions to its shareholders will constitute ordinary income to
the extent of such Portfolio's available earnings and profits.
Owners of Variable Contracts which have invested in such a Portfolio
might be taxed currently on the investment earnings under their
contracts and thereby lose the benefit of tax deferral. In addition,
if a Portfolio failed to comply with the diversification requirements
of section 817(h) of the Code and the regulations thereunder, owners
of Variable Contracts which have invested in the Portfolio could be
taxed on the investment earnings under their contracts and thereby
lose the benefit of tax deferral. For additional information
concerning the consequences of failure to meet the requirements of
section 817(h), see the prospectuses for the Variable Contracts.
Generally, a RIC must distribute substantially all of its ordinary
income and capital gains in accordance with a calendar year
distribution requirement in order to avoid a nondeductible 4% excise
tax. However, the excise tax does not apply to certain Portfolios
whose only shareholders are segregated asset accounts of life
insurance companies held in connection with Variable Contracts. To
avoid the excise tax, each Portfolios that does not qualify for this
exemption intends to make its distributions in accordance with the
calendar year distribution requirement.
The use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the income
received in connection therewith by the Portfolios. Income from the
disposition of foreign currencies (except certain gains therefrom
that may be excluded by future regulations); and income from
transactions in options, futures, and forward contracts derived by a
Portfolio with respect to its business of investing in securities or
foreign currencies, are expected to qualify as permissible income
under the Income Requirement.
Foreign Investments -- Portfolios investing in foreign securities
or currencies include may be required to pay withholding, income or
other taxes to foreign governments or U.S. possession. Foreign tax
withholding from dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment yield of any Portfolio that
invests in foreign securities or currencies is reduced by these
foreign taxes. Owners of Variable Contracts investing in such
Portfolios bear the cost of any foreign taxes but will not be able to
claim a foreign tax credit or deduction for these foreign taxes. Tax
conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and foreign
countries generally do not impose taxes on capital gains in respect
of investments by foreign investors.
The Portfolios listed above may invest in securities of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests:
(1) at least 75% of its gross income is passive or (2) an average of
at least 50% of its assets produce, or are held for the production
of, passive income. A Portfolio investing in securities of PFICs may
be subject to U.S. Federal income taxes and interest charges, which
would reduce the investment yield of a Portfolio making such
investments. Owners of Variable Contracts investing in such
Portfolios would bear the cost of these taxes and interest charges.
In certain cases, a Portfolio may be eligible to make certain
elections with respect to securities of PFICs which could reduce
taxes and interest charges payable by the Portfolio. However, a
Portfolio's intention to qualify annually as a regulated investment
company may limit a Portfolio's elections with respect to PFIC
securities and no assurance can be given that such elections can or
will be made.
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The foregoing is only a general summary of some of the important
Federal income tax considerations generally affecting the Portfolios
and their shareholders. No attempt is made to present a complete
explanation of the Federal tax treatment of each Portfolio's
activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for the
Variable Contracts are not intended as a substitute for careful tax
planning. Accordingly, potential investors are urged to consult
their own tax advisors for more detailed information and for
information regarding any state, local, or foreign taxes applicable
to the Variable Contracts and the holders thereof.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under an
Agreement and Declaration of Trust dated August 3, 1988, an open-end
management investment company and currently consists of twenty-four
Portfolios. The twenty-three Portfolios that are discussed in this
Statement of Additional Information and accompanying prospectuses and
a Portfolio 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 Portfolios (with different
investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional Portfolios 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
Portfolio of the Trust, each shareholder is entitled to receive his
or her pro rata share of the net assets of that Portfolio. All of
the Trust's Portfolios are diversified with the exception of Global
Fixed Income and Mid-Cap Growth.
On January 31, 1992, the name of the Trust was changed to The GCG
Trust. Prior to that change, the name of the Trust was The Specialty
Managers Trust.
VOTING RIGHTS
Shareholders of the Portfolio are given certain voting rights.
Each share of each Portfolio 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 Portfolio, 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.
PURCHASE OF SHARES
Shares of a Portfolio 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 Portfolios serving as
investment mediums for variable contracts. Shares of the Portfolios
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
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investors arising from offering the Trust's shares to
separate accounts of unaffiliated insurers, separate accounts funding
both life insurance polices and annuity contracts in 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 sometime 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 or 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, in 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 Portfolio 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.
REDEMPTION OF SHARES
Shares of any Portfolio 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 Portfolio. 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 Portfolio to make payment wholly or partly in cash,
the Portfolio may pay the redemption price in whole or part by a
distribution in kind of securities from the portfolio of the
Portfolio, 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 Portfolio may be exchanged for shares of any of the
other Portfolios described in the Prospectus. Exchanges are treated
as a redemption of shares of one Portfolio and a purchase of shares
of one or more of the other Portfolios and are effected at the
respective net asset values per share of each Portfolio 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
Portfolios, and should refer to the Prospectus for the applicable
variable contract for information on allocation of premiums and on
transfers of contract value among divisions of the pertinent
insurance company separate account that invest in the Portfolio.
The Trust reserves the right to discontinue offering shares of one or
more Portfolios at any time. In the event that a Portfolio ceases
offering its shares, any investments allocated by an insurance
company to such Portfolio will be invested in the Liquid Asset
Portfolio or any successor to such Portfolio.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Portfolio 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 Portfolio.
71
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<PAGE>
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 December 31, 1998 for
all Portfolios (except the Fund for Life Portfolio), including notes
thereto, are incorporated by reference in this Statement of
Additional Information from the Trust's Annual Report dated as of
December 31, 1998.
72
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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.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND
INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations
will be designated Moody's Investment Grade or MIG. Such ratings
recognize the differences between short-term credit and long-term
risk. Short-term ratings on issues with demand features (variable
rate demand obligations) are differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payments relying on
external liquidity.
MIB 1/VMIG 1: This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market
for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection
are ample although not as large as in the preceding group.
DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations which have an
original maturity not exceeding nine months. Moody's makes no
representation that such obligations are exempt from registration
under the Securities Act of 1933, nor does it represent that any
specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following
A-1
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<PAGE>
designations, all
judged to be investment grade, indicate the relative repayment
ability of rated issuers of securities in which the Trust may invest:
PRIME-1: Issuers rates Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term promissory
obligations.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term promissory
obligations.
DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
a small degree.
A: Debt rated "A" has 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: Debt rated "BBB" is 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
to pay interest and repay principal for debt in this category than in
higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC: Debt rated in these categories is regarded as
having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. While such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI: The "CI" rating is reserved for income bonds on which no
interest is being paid.
D: Debt rated "D" is in default, and repayment of interest
and/or repayment of principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND
SHORT-TERM DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or
strong capacity to pay principal and interest. Those issued
determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory
capacity to pay principal and interest.
DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT
COMMERCIAL PAPER:
An S&P commercial paper rating is a current assessment of the
likelihood of timely repayment of debt having an original maturity of
no more than 365 days. The two rating categories for securities in
which the Trust may invest are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with
a plus (+) designation.
A-2: Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-2
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<PAGE>
PROSPECTUS #3
THE FUND FOR LIFE SERIES
<PAGE>
THE GCG TRUST
PROSPECTUS
MAY 1, 1999
THE FUND FOR LIFE SERIES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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.
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------
In this prospectus aand in the Statement of Additional
Information, we refer to The GCG Trust as "the GCG Trust"
and to the Fund For Life Series as the "Fund For Life
Portfolio" Portfolio or the "Portfolio."
PAGE
INTRODUCTION ..........................................
Investing Through Your Variable Contract .............
Why Reading This Prospectus is Important .............
THE PORTFOLIO AT A GLANCE .............................
FINANCIAL HIGHLIGHTS ..................................
DESCRIPTION OF THE PORTFOLIO ..........................
MANAGEMENT OF THE TRUST ...............................
The Adviser ..........................................
Portfolio Manager ....................................
Distributor ..........................................
Expenses .............................................
Portfolio Transactions ...............................
SHARE PRICE ...........................................
TAXES AND DISTRIBUTION ................................
MORE INFORMATION ......................................
Additional Investment Strategies .....................
Portfolio Turnover ...................................
Legal Counsel ........................................
Independent Auditors .................................
Year 2000 ............................................
AN INVESTMENT IN THE FUND FOR LIFE PORTFOLIO OF THE GCG TRUST IS NOT A
BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY.
i
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INTRODUCTION
- -------------------------------------------------------------------------
[Section is in two-column format.]
INVESTING THROUGH YOUR VARIABLE CONTRACT
Shares of the Fund For Life Portfolio of the GCG Trust currently are
sold to segregated asset accounts ("Separate Accounts") of insurance
companies as funding choices for variable annuity contracts ("Variable
Contracts"). Assets in the Separate Account are invested in shares of
the Portfolio based on your allocation instructions. You do not deal
directly with the Portfolio to purchase or redeem shares. The
accompanying Separate Account prospectus describes your rights as a
Variable Contract owner.
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the investment objective, risks and strategy
of the Portfolio. Reading the prospectus will help you to decide
whether the Portfolio is the right investment for you. We suggest
that you keep this prospectus and the prospectus for the Separate
Account for future reference.
1
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PORTFOLIO AT A GLANCE
- -------------------------------------------------------------------------
THE FUND FOR LIFE PORTFOLIO
INVESTMENT High total investment return (capital appreciation and
OBJECTIVE current income) consistent with prudent investment risk
and a balanced investment approach.
PRINCIPAL The Portfolio invests primarily in shares of other
INVESTMENT mutual funds. Under the Portfolio's allocation
STRATEGY strategy, investments are allocated between two asset
classes of mutual funds:
o 70% of the Portfolio's assets in mutual funds
investing primarily in equity securities
(including 10% in equity securities of foreign
issuers)
o 30% of the Portfolio's assets in mutual funds
investing primarily in debt securities rated at
least investment grade.
The Portfolio Manager believes that such asset
allocation strategy provides the majority of investment
return that would otherwise be obtained by investing
exclusively in common stocks, yet with significantly
lower volatility.
PRINCIPAL Any investment involves the possibility that you will
RISKS lose money or not make money. Investment in the Portfolio
is not insured against loss of principal. We cannot assure
that the Portfolio will achieve its investment objective.
Investing in shares of the Portfolio should not be
considered a complete investment program. The share value
of the Portfolio will rise and fall.
An investment in the Portfolio is subject to the
following principal risks described under "Description
of the Portfolio":
o MANAGER RISK
o LIQUIDITY RISK
o DIVERSITY RISK
Because the Portfolio invests in underlying mutual
funds, the Portfolio is subject to the risks associated
with the investment activities of the underlying mutual
funds. The following principal risks are described
under "Description of the Portfolio":
Principal risk associated with equity securities:
o MARKET AND COMPANY RISK
Principal risk associated with international
investments:
o FOREIGN INVESTMENT RISK
Principal risk associated with debt securities:
o INCOME RISK o INTEREST RATE RISK
o CREDIT RISK o CALL RISK
Because of these risks, your investment could lose or
not make any money.
2
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PORTFOLIO AT A GLANCE (CONTINUED)
- -------------------------------------------------------------------------
PERFORMANCE The value of your share in the Portfolio will fluctuate
depending on its investment performance. The following
bar chart shows the Portfolio's annual total return
changes from year-to-year. The accompanying table shows
the portfolio's average annual total return for 1 year,
5 year and since its inception date as compared to the
applicable market indices. The average annual total
returns below include reinvestment of dividends and
distributions. This may help you weigh the risk of
investing in the Portfolio. Of course, past performance
does not necessarily indicate future results. Directed
Services manages the Portfolio.
The performance information does not include insurance-
related charges. Thus, you should not compare the portfolio's
performance directly with performance information of other
products without taking into account all insurance-related
charges and expenses payable under your Variable Contract.
[[Performance Bar Chart Follows:]
FUND FOR LIFE -- ANNUAL TOTAL RETURN
Year 1994 1995 1996 1997 1998
-2.15% 18.79% 10.57% 14.58% 13.67%
|-------------------------------------------------| |--------------------|
| AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER |
| MARKET INDEX | |--------------------|
|-------------------------------------------------| | Quarter Ended |
| 1 YEAR 5 YEAR 3/1/93 | | |
| (INCEPTION)| | 6/30/97... 12.62% |
| Portfolio's Average | | |
| Annual Total Return 13.67% 10.85% 10.75% | |--------------------|
| Standard & Poor's | | WORST QUARTER |
| 500 Index 28.58% 24.05 21.81% | |--------------------|
| Lehman Aggregate Bond | | Quarter Ended |
| Index 8.69% 7.27% 7.23% | | |
| Morgan Stanley/Capital | | 9/30/98... (4.60)%|
| International | | |
| Pacific Index 2.69% (4.06)% 0.90% | |--------------------|
|-------------------------------------------------|
The S&P 500 Index is composed of 500 U.S. Stocks. The Lehman
Aggregate Bond Index is composed of the Lehman Brothers
Government/Corporate Index, the Mortgage-Backed Securities
Index, and the Asset-Backed Securities Index. The Morgan
Stanley/Capital International Pacific index measures the
performance of stock markets in Australia, Hong Kong, Japan,
New Zealand, Singapore and Malaysia.
3
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FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------
The following financial highlights tables are intended to help you
understand the Portfolio's financial performance for the past 5 years.
Cetain information reflects financial results for a single portfolio
share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along
with the Portfolio's financial statements, are included in the annual
report, which is available upon request.
<TABLE>
<CAPTION>
FUND FOR LIFE PORTFOLIO *
- ---------------------------------------------------------------------------------------
YEAR ENDED
- ---------------------------------------------------------------------------------------
12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25 $ 7.61 $10.95 $ 9.23 $10.51
------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income(Loss) 0.03 0.03 0.01 (0.24) 0.44
Net Realized and Unrealized
Gain(Loss) on Investments 0.88 1.09 0.88 1.98 (0.67)
------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.91 1.12 0.89 1.74 (0.23)
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income 0.09 0.13 0.00 0.02 0.44
Distributions from Capital Gains 0.62 1.35 4.23 0.00 0.61
------------------------------------------------
TOTAL DISTRIBUTIONS 0.71 1.48 4.23 0.02 1.05
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.45 $ 7.25 $ 7.61 $10.95 $ 9.23
=======================================================================================
TOTAL RETURN 13.67% 14.58% 10.57% 18.79% (2.15)%
=======================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (in 000's) $ 227 $ 202 $ 201 $ 333 $1,346
Ratio of Operating Expenses to
Average Net Assets 2.50% 2.50% 2.56% 4.25% 1.84%
Decrease Reflected in Above
Expense Ratio Due to
Expense Limitations 3.27% 12.06% 9.45% 0.68% --
Ratio of Net Investment Income
to Average Net Assets 0.40% 0.40% 0.10% (2.32%) 2.23%
Portfolio Turnover Rate 0.00% 8.94% 6.87% 5.68% 13.06%
- ---------------------------------------------------------------------------------------
</TABLE>
# Per share data numbers have been calculated using the average
share method.
4
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DESCRIPTION OF THE PORTFOLIO
- -------------------------------------------------------------------------
THE FUND FOR LIFE PORTFOLIO
PORTFOLIO
MANAGER Directed Services, Inc.
INVESTMENT High total investment return (capital appreciation and
OBJECTIVE current income) consistent with prudent investment risk
and a balanced investment approach.
PRINCIPAL The Portfolio invests primarily in other mutual funds.
INVESTMENT The Portfolio uses an allocation strategy that emphasizes
STRATEGY mutual funds that invest primarily in domestic equity
securities, while also allocating a portion of the
Portfolio's assets to mutual funds that invest in
international equity securities and a portion of the
Portfolio's assets to mutual funds that invest primarily
in debt securities rated at least investment grade. The
Portfolio invests only in mutual funds that are not
affiliated with the Portfolio or the Portfolio Manager.
Toward this end, the Portfolio allocates its assets among
the following three general classifications:
o EQUITY FUNDS. Approximately 60% of the Portfolio'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.
o INTERNATIONAL EQUITY FUNDS. Approximately 10% of
the Portfolio'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.
o INCOME FUNDS. Approximately 30% of the Portfolio'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.
The Portfolio normally maintains the allocation of its
assets among the three classifications indicated above,
but may vary the percentages to respond to market
conditions.
The Portfolio Manager believes that the allocation
strategy provides the majority of investment return that
would otherwise be obtained by investing exclusively in
common stocks, yet with significantly lower volatility.
The Portfolio Manager also believes that with the
increasing globalization of securities markets, investors
should have some exposure to foreign stock markets. The
Portfolio Manager selects mutual funds that have had the
best performance within their classification, as measured
over time periods deemed appropriate by the Portfolio
Manager. The Portfolio normally invests in 10-15 mutual
funds. The Portfolio generally may not purchase or
invest in securities of any investment company if, as a
result, the Portfolio and all of its affiliates, would
own more than 3% of the total outstanding stock of that
company.
5
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<PAGE>
The Portfolio 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
Portfolio itself is classified as diversified under the
Investment Company Act of 1940.
PRINCIPAL Any investment involves the possibility that you will
RISKS lose money or not make money. Investment in the Portfolio
is not insured against loss of principal. We cannot assure
that the Portfolio will achieve its investment objective.
Investing in shares of the Portfolio should not be
considered a complete investment program. The share value
of the Portfolio will rise and fall.
An investment in the Portfolio is subject to the
following principal risks:
o MANAGER RISK. The Portfolio Manager and the
investment advisers of the underlying mutual funds
may do a mediocre or poor job in selecting
securities.
o LIQUIDITY RISK. The 1940 Act provides than an
underlying mutual fund whose shares are purchased by
the Portfolio will be obligated to redeem shares held
by the Portfolio 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
Portfolio 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, exceed 15% of
the Portfolio's assets.
o DIVERSITY RISK. The Portfolio may invest in shares
of mutual funds that are both diversified and non-
diversified. 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.
Because the Portfolio invests in underlying mutual
funds, the Portfolio is subject to the following
principal risks associated with the investment activities
of the underlying mutual funds:
o PRINCIPAL RISK ASSOCIATED WITH EQUITY SECURITIES:
o MARKET AND COMPANY RISK. The price of a
security held by an underlying mutual fund may
fall due to changing economic, political or
market conditions or disappointing earnings
results. Stock prices in general will decline
over short or even extended periods. The stock
market tends to be cyclical, with periods when
stock prices generally rise and periods when
stock prices generally decline. Further, even
though the stock market is cyclical, returns from
a particular stock market segment in which the
mutual fund may invest may still trail returns
from the overall stock market.
o PRINCIPAL RISK ASSOCIATED WITH INTERNATIONAL
INVESTMENTS:
o FOREIGN INVESTMENT RISK. In many foreign
countries there is less publicly available
information about companies 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 underlying mutual fund may encounter
difficulties or be unable to pursue legal
remedies or obtain judgments in foreign courts.
The values of foreign investments may be
affected by changes in currency rates or
exchange control regulations. If the local
currency gains strength against the U.S. dollar,
the value of the foreign security increases in
U.S. dollar terms. Conversely, if the local
currency weakens against the U.S. dollar, the
value of the foreign security declines in U.S.
dollar terms U.S.
6
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<PAGE>
dollar-denominated securities
of foreign issuers, including depositary
receipts, also are subject to currency risk based
on their related investments.
o PRINCIPAL RISK ASSOCIATED WITH DEBT SECURITIES:
o INCOME RISK. The underlying mutual fund's
income may fall due to falling interest rates.
Income risk is generally the greatest for short-
term bonds, and the least for long-term bonds.
Changes in interest rates will affect bond prices
as well as bond income.
o INTEREST RATE RISK. This is the risk that
bond prices overall will decline over short or
even extended periods due to rising interest
rates. Interest rate risk is generally modest
for shorter-term bonds, moderate for intermediate-
term bonds, and high for longer-term bonds. A
bond's duration measures its sensitivity to
changes in interest rates. The longer the
duration, the greater the bond's price movement
will be as interest rates change.
o CREDIT RISK. A bond issuer (debtor) may fail
to repay interest and principal in a timely
manner. The price of a security held by a
portfolio may fall due to changing economic,
political or market conditions or disappointing
earnings results.
o CALL RISK. During periods of falling interest
rates, a bond issuer may "call," or repay, its
high yielding bond before the bond's maturity
date. Forced to invest the unanticipated
proceeds at lower interest rates, a portfolio
would experience a decline in income.
Because of these risks, your investment could lose or not
make any money.
MORE ON THE The Trust has retained Directed Services, Inc. ("DSI") as
PORTFOLIO Portfolio Manager to manage the assets of the Portfolio
MANAGER and to act as administrator to the Portfolio. DSI is a
subsidiary of ING Groep N.V. The address of DSI is 1475
Dunwoody Drive, West Chester, Pennsylvania 19380.
The following person at DSI is primarily responsible for
the day-to-day investment decisions of the Portfolio:
Name Name and Recent Business Experience
---- ------------------------------------
Christopher W. Smythe Vice President
Mr. Smythe has been employed as Vice
President at DSI for the past 2 years.
Prior to date, he was employed as
Assistant Vice President at PNC Bank.
DSI also serves as manager and administrator to the GCG
Trust and is the principal underwriter and distributor of
the Variable Contracts issued by Golden American Life
Insurance Company. For more information, please refer to
"Management of the Trust."
7
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MANAGEMENT OF THE TRUST
- -------------------------------------------------------------------------
THE ADVISER Directed Services, Inc. ("DSI") is the overall adviser to
the GCG Trust. The Trust is an open-end management
investment company organized as a Massachusetts business
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. DSI is the principal underwriter and
distributor of the Variable Contracts that Golden
American Life Insurance Company ("Golden American")
issues. Golden American is a stock life insurance
company organized under the laws of the State of Delaware
and a subsidiary of ING.
DSI performs the activities described above in this
Prospectus and below under the caption "Distributor."
The Trust pays DSI, as portfolio manager, for management
services a monthly fee at an annual rate of 0.10% of the
average daily net assets of the Portfolio. DSI is
currently waiving the management fee.
DSI also provides administrative services necessary for
the Trust's operation and furnishes or procures on behalf
of the Trust and the Portfolio the services and
information necessary to the proper conduct of the
Portfolio's business. As administrator, DSI also
liaisons among the various service providers to the
Portfolio. DSI is also responsible for ensuring that the
Portfolio is operated in compliance with applicable legal
requirements. The Trust pays DSI, as administrator, for
administrative services a monthly fee at an annual rate
of 0.20% of the average daily net assets of the
Portfolio. DSI is currently providing (non-advisory)
management and administrative services to the other
operational portfolios of the Trust.
DISTRIBUTOR DSI acts as distributor of shares of the Portfolio, in
addition to serving as manager and administrator. As
distributor, DSI 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.
EXPENSES Investors in the Portfolio bear not only a proportionate
share of the expenses of the Portfolio (including
operating costs and management fees) but also indirectly
similar expenses of the underlying mutual funds.
Shareholders also bear their proportionate share of any
sales charges incurred by the Portfolio related to the
purchase of shares of the mutual funds. In addition,
shareholders of the Portfolio may indirectly bear
expenses paid by a mutual fund related to the
distribution of its shares. For the fiscal year ended
December 31, 1998, total expenses paid by the Portfolio
were 2.50% of average net assets.
OTHER The Trust bears all costs of its operations other than
EXPENSES expenses specifically borne by DSI. See "Management of
the Trust" in the Statement of Additional Information.
Trust expenses directly attributable to the Portfolio
are charged to the Portfolio; other expenses are
allocated among all the portfolios of the Trust. The
Trust reimburses DSI for the Portfolio's organizational
expenses that DSI advanced.
PORTFOLIO DSI, as portfolio manager, places orders for the purchase
TRANSACTIONS and sale of no-load mutual funds for the Portfolio's
account directly with the mutual fund. Purchase and sale
orders of load mutual funds may be placed with DSI, as the
distributor, although other brokers or dealers may be
selected at the discretion of DSI. Purchase order for
certain money market instruments may be placed directly
with the issuer.
7
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DSI, as distributor, may also assist in the execution of
the Portfolio's 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.
The Portfolio has no restrictions on portfolio turnover,
although its annual turnover rate is not expected to
exceed 100%. A 100% annual portfolio turnover rate would
occur if each security in the Portfolio (other than
securities with less than one year remaining to maturity)
was replaced once during the year. If the Portfolio
purchases shares of load funds, a higher turnover rate
would result in correspondingly higher sales loads paid
by the Portfolio. There is no limit on the portfolio
turnover rates of the mutual funds in which the Portfolio
may invest.
- -------------------------------------------------------------------------
SHARE PRICE
- -------------------------------------------------------------------------
NET ASSET
VALUE The net asset value per share of the Portfolio 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 Portfolio's
outstanding shares.
The assets of the Portfolio 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 Portfolio 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.
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TAXES AND DISTRIBUTION
- -------------------------------------------------------------------------
The GCG Trust pays net investment income, if any, on your
shares of each Portfolio annually. Any net realized long-
term capital gains for the Portfolio will be declared and
paid at least once annually. Net realized short-term
gains may be declared and paid more frequently. We will
automatically reinvest any distributions made by the
Portfolio in additional shares of the Portfolio, unless
the separate account of your insurance company makes an
election to receive distributions in cash. Dividends or
distributions by the Portfolio will reduce the per share
net asset value by the per share amount paid.
The Portfolio has qualified and expect to continue to
qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as
amended
9
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<PAGE>
("Code"). As a qualified regulated investment
company, the Portfolio is generally not subject to
Federal income tax on the part of their investment
company taxable income (including any net capital gains)
which they distribute to shareholders. It is the
Portfolio's intention to distribute all such income and
gains.
Shares of the Portfolio are offered to the Separate
Accounts of insurance companies. Under the Code, an
insurance company pays no tax with respect to income of a
qualifying Separate Account when the income is properly
allocable to the value of eligible variable annuity or
variable life insurance contracts. Under current tax
law, your gains under your Contract are taxed only when
you take them out. Contract purchasers should review the
Contract prospectus for a discussion of the tax treatment
applicable to holders of the Contracts.
The foregoing is only a summary of some of the important
Federal income tax considerations generally affecting the
Portfolio and you. Please refer to the Statement of
Additional Information for more information about the tax
status of the Portfolio. You are urged to consult with
your tax advisor for more detailed information regarding
taxes applicable to the Contracts and the holders
thereof.
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MORE INFORMATION
- -------------------------------------------------------------------------
ADDITIONAL The description of the Portfolio in this prospectus does
INVESTMENT not describe all of the non-principal investments,
STRATEGIES techniques and strategies the Portfolio may use to achieve
its investment objective. The Portfolio is not obligated
to use any of these techniques or strategies at any given
time or under any particular economic condition. For
further information on these investments, techniques and
strategies, please refer to the Statement of Additional
Information.
The Portfolio may take temporary defensive positions
inconsistent with its respective investment policies to
adjust its investment exposure during uncertain
periods, such as periods when the portfolio manager
determines that adverse market, economic, political or
other conditions exist. These positions generally
involve investing in a manner different than that in
which the portfolio invests under normal market
conditions. To the extent the Portfolio assumes a
temporary investment position, it may not achieve its
investment objective. For more detailed information on
the Portfolio's temporary defensive positions, please
refer to the Statement of Additional Information.
PORTFOLIO Before investing in the Portfolio, you should review its
TURNOVER portfolio turnover rate for an indication of the
potential effect of transaction costs on the
portfolio's future returns. In general, the
greater the volume of buying and selling by the
portfolio, the greater the impact that brokerage
commissions and other transaction costs will have on its
return.
Portfolio turnover rate is calculated by dividing the
value of the lesser of purchases or sales of portfolio
securities for the year by the monthly average of the
value of portfolio securities owned by the portfolio
during the year. Securities whose maturities at the time
of purchase were one year or less are excluded. A 100%
portfolio turnover rate would occur, for example, if a
portfolio sold and replaced securities valued at 100% of
its total net assets within a one-year period. The
portfolio turnover rate for the Portfolio is presented in
"Financial Highlights" in this prospectus.
LEGAL COUNSEL Sutherland Asbill & Brennan LLP, 1275 Pennsylvania
Avenue, N.W., Washington, D.C. 20004-2404 serves as
counsel to the GCG Trust.
10
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<PAGE>
INDEPENDENT Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-
AUDITORS 5072 serves as independent auditors of the GCG Trust.
YEAR 2000 Based on a study of its computer software systems and
hardware, DSI, in conjunction with an affiliate, 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 Adviser 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
Adviser is in contact with the GCG Trust's third party
vendors to ensure that their systems will be
substantially compliant by year 2000. To the extent
these third parties would be unable to transact business
in the year 2000 and thereafter, the GCG Trust's
operations could be adversely affected.
11
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<TABLE>
<S> <C> <C>
TO OBTAIN
MORE
INFORMATION THE GCG TRUST
Two documents are available that offer further TRUSTEES
information on the Portfolio:
R. Brock Armstrong, Chair
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS. The
annual report of the Portfolio includes a Barnett Chernow, Trustee
discussion of the market conditions and investment
strategies that significantly affected the J. Michael Earley, Trustee
Portfolio's performance during the last fiscal
year. R. Barbara Gitenstein, Trustee
STATEMENT OF ADDITIONAL INFORMATION. The Robert A. Grayson, Trustee
Statement of Additional Information contains
additional information about the Portfolio. A Elizabeth J. Newell, Trustee
current Statement of Additional Information has
been filed with the Securities and Exchange Stanley B. Seidler, Trustee
Commission, and is made a part of this prospectus
by reference. Roger B. Vincent, Trustee
To obtain a free copy of these documents or to
make inquiries about the Portfolio, please write
to our Customer Service Center at P.O. Box 2700,
West Chester, Pennsylvania 19380 or call (800)
366-0066, or access the SEC's website
(http://www.sec.gov).
Information about the GCG Trust can be reviewed
and copied at the SEC's Public Reference Room.
Information about its operation may be obtained by
calling 1-800-SEC-0330. You may obtain copies of
reports and other information about the GCG Trust,
for payment of a duplication fee, by writing to
Public Reference Section of the Commission,
Washington, D.C. 20549-6009.
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED
IN DELAWARE
IN 29999 5/99 811-5629
<PAGE>
SAI #2
THE FUND FOR LIFE SERIES
<PAGE>
THE FUND FOR LIFE
1475 DUNWOODY DRIVE
WEST CHESTER, PA 19380
(800) 366-0066
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information describes The Fund
For Life (the "Fund"), one of the Portfolos 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, 1999, 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>
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
INVESTMENT POLICIES 1
U.S. Government Securities 2
Banking Industry Obligations 2
Commercial Paper 4
Corporate Debt Securities 4
Repurchase Agreements 5
Illiquid and Restricted Securities 5
Foreign Securities 6
Foreign Currency Transactions 6
Industry Concentration 7
Loans of Portfolio Securities 7
Short Sales 7
Options 7
Futures Contracts and Options
on Futures Contracts 8
Leverage through Borrowing 9
Warrants 9
INVESTMENT RESTRICTIONS 10
MANAGEMENT OF THE TRUST 12
The Management Agreement 16
The Administrative Services Agreement 17
Distribution of Trust Shares 18
Purchases and Redemptions 19
PORTFOLIO TRANSACTIONS 19
NET ASSET VALUE 21
ADVERTISING 21
TAXATION 22
Distributions 25
Other Taxes 25
OTHER INFORMATION 25
Capitalization 25
Voting Rights 26
Purchase of Shares 26
Custodian 26
Independent Auditors 27
Counsel 27
Registration Statement 27
FINANCIAL STATEMENTS 27
Appendix A: Description of Bond Ratings A-1
Appendix B: Securities and Investment Techniques
of Underlying Mutual Funds B-1
<PAGE>
<PAGE>
INTRODUCTION
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
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.
The Fund's investments other than mutual funds are more fully
described as follows:
1
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U.S. GOVERNMENT SECURITIES. 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.
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.
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.
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.
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 early withdrawal
2
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<PAGE>
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.
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.
3
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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.
Variable amount master demand 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 amountsborrowed.
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. See more
on "Master Demand Notes" under the same title in Appendix B.
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.
4
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<PAGE>
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.
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.
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.
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.
5
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<PAGE>
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.
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. See more on
"Foreign Currency Transactions" under the same title in Appendix B.
6
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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.
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.
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. See more on "Short Sales" under the same title in
Appendix B.
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,
7
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<PAGE>
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. See "Options Activities" under the same title
in Appendix B.
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."
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.
8
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<PAGE>
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. See "Futures Contracts" and "Options on Futures Contracts" in
Appendix B.
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.
In addition, 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.
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.
9
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<PAGE>
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;
(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;
10
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<PAGE>
(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%.
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.
11
<PAGE>
<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 Common-
wealth of Massachusetts and the Trust's Agreement and Declaration of Trust.
The Trustees are R. Brock Armstrong, Barnett Chernow, 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.
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
R. Brock Armstrong Trustee, President and Chairman of the GCG
Golden American Life President and Trust since February 1999. Director
Insurance Cpompany; Chairman of Golden American Life Insurance Company
1475 Dunwoody Drive the GCG Trust and President of Equitable Life
West Chester, PA 19380 Insurance Company of Iowa since April,
1999. Director and Chairman of the Board
of First Golden American Life Insurance
Company of New York since December 1998,
Groupd Executive of ING Group since
October 1998. Senior Vice President,
Individual Insurance, The Prudential
Insurance Company of America, April 1997
- February 16, 1999; Executive Vice
President, Operation, London Life
Insurance Co., Executive Vice
President, Life and Health Operations,
London Insurance Group, Chairman,
Security First Group, Chairman,
Security First Group; 1994 to April
1997 Executive Vice President, U.S.
Insurance Operations, President and
Chief Executive Officer, Security
First Group, 1991 to 1994. Age 52.
Barnett Chernow Vice Executive Vice President,
Golden American Life President Golden American Life
Insurance Co. Trustee 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. Age 49.
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. Age 53.
12
<PAGE>
<PAGE>
R. Barbara Gitenstein Trustee President, The College of New Jersey
The College of New Jersey since January, 1999; Trustee Provost,
200 Pennington Road Drake Office of the President
Ewing, NJ 08628 University from July 1992 to December
1998. Age 50.
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 71.
Myles R. Tashman Secretary Executive Vice President,
Golden American Life Secretary and General Counsel,
Insurance Co. Golden American Life Insurance
1475 Dunwoody Drive Company since 1993; Director,
West Chester, PA 19380 Gold American Life since 1998;
Executive Vice President, Secretary
and General Counsel, Directed
Services, Inc. since 1993;
Director, Executive Vice
President, Secretary and General
Counsel, First Golden American Life
Insurance Company of New York. 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 70.
13
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<PAGE>
Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer,
Golden American Life First Golden American Life Insurance
Insurance Co. Company of New York since 1996; Senior
1475 Dunwoody Drive Vice President and Treasurer, Golden
West Chester, PA 19803 American Life Insurance Co.;
and President and Treasurer,
Directed Services, Inc.
October 1993 to December
1996. Age 42.
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 53.
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 March 31, 1999, none of the Trustees directly owns shares of
the Portfolios. In addition, as of March 31, 1998, 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 Portfolios 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, 1998, the Trust paid Trustees' Fees
aggregating $151,500. The following table shows 1998 compensation by
Trustee.
14
<PAGE>
<PAGE>
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, $ 24,000 N/A N/A $ 24,000
Trustee
R. Barbara Gitenstein, $ 24,750 N/A N/A $ 24,750
Trustee
Robert A. Grayson $ 24,000 N/A N/A $ 24,000
Trustee
Stanley B. Seidler, $ 24,750 N/A N/A $ 24,750
Trustee
Elizabeth J. Newell $ 24,000 N/A N/A $ 24,000
Trustee
Roger B. Vincent $ 24,000 N/A N/A $ 24,000
Trustee
M. Norvell Young $ 6,000 N/A N/A $ 6,000
Trustee*
</TABLE>
---------------
* Mr. Young served as a Trustee until his death in February of 1998.
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 Portfolios as of March 31, 1999.
The address for each record owner is c/o Golden American Life Insurance
Company, 1475 Dunwoody Drive, West Chester, PA 19803.
NAME SERIES PERCENTAGE
Helen B. Yungman The Fund For Life 68.92%
Jerome S. Golden The Fund For Life 8.08%
Donald C. Nonell The Fund For Life 12.09%
Additionally, as of March 31, 1999, the General Account of Golden American
owned 8.01% of the shares of the Fund For Life.
15
<PAGE>
<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 0.25% of the average daily net assets of the Fund. Gross fees
payable to the Manager for the fiscal years ended December 31, 1998, 1997
and 1996 under the Management Agreement were $211, $258, and $830,
respectively. The 1997 an 1998 fees were waived by the Manager.
16
<PAGE>
<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 1475 Dunwoody Drive, West Chester, PA 19803. 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.
17
<PAGE>
<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 0.10%% of the Fund's average
daily assets. Gross fees payable to the Administrator under the
Administrative Services Agreement for the fiscal years ended
December 31, 1998, 1997 and 1996 were $922, $518, and $1,660,
respectively. The 1997 and 1998 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.
18
<PAGE>
<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.
19
<PAGE>
<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.
20
<PAGE>
<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,
1998, the five year period ended December 31, 1998, and the period
from the commencement of operations of the Fund on March 1, 1993 to
December 31, 1998, the total return of the Fund was 13.67%, 10,85%
and 10.75%, respectively.
21
<PAGE>
<PAGE>
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,
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.
22
<PAGE>
<PAGE>
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.
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
22
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<PAGE>
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.
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
23
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<PAGE>
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.
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.
24
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<PAGE>
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.
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.
25
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<PAGE>
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.
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.
Purchase of Shares
- ------------------
Shares of the Portfolio 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 Portfolio serving as investment
mediums for variable contracts. Shares of the Portfolio 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 polices and annuity contracts in 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 sometime 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 or 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, in 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 the Portfolio are sold at its 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.
Redemption of Shares
- --------------------
Shares of the Portfolio 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 Portfolio. 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 the Portfolio to make payment wholly or partly in
cash, the Portfolio may pay the redemption price in whole or part by
a distribution in kind of securities from the portfolio of the
Portfolio, 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 the Portfolio may be exchanged for shares of any of the
other Portfolios of the GCG Trust. Exchanges are treated as a
redemption of shares of one Portfolio and a purchase of shares of one
or more of the other Portfolios and are effected at the respective
net asset values per share of each Portfolio 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 Portfolio, and
should refer to the Prospectus for the applicable variable contract
for information on allocation of premiums and on transfers of
contract value among subaccounts of the pertinent insurance company
separate account that invest in the Portfolio.
The Trust reserves the right to discontinue offering shares of the
Portfolio at any time.
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.
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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 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, 1998, including notes thereto, are incorporated by
reference in this Statement of Additional Information from the
Fund's Annual Report dated as of December 31, 1998.
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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.
A-1
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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.
B-1
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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.
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.
B-2
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<PAGE>
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.
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.
B-3
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<PAGE>
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.
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.
B-4
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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.
B-5
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<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.
B-6
<PAGE>
****************
PART C
****************
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
Exhibits
(a) (1) Amended and Restated Agreement and Declaration of
Trust (1)
(2) Amendment to the Restated Agreement and Declaration of
Trust (adding the Managed Global Series) (2)
(3) 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) (3)
(b) By-laws
(c) Instruments Defining Rights of Security Holders
(d) (1) (A) Management Agreement (for all Series except The
Fund For Life)(3)
(B) Management Agreement (for The Fund For Life)
(2) Portfolio Management Agreements
(A) Portfolio Management Agreement with Pilgrim
Baxter & Associates, Ltd. (5)
(B) Portfolio Management Agreement with Putnam
Investment Management, Inc. (6)
(C) Portfolio Management Agreement with T. Rowe
Price Associates, Inc. (7)
(D) Portfolio Management Agreement with Van Eck
Associates Corporation (8)
(E) Portfolio Management Agreement with ING Investment
Management LLC, formerly Equitable Investment
Services, Inc. (9)
(F) Portfolio Management Agreement with EII
Realty Securities, Inc. (10)
(G) Portfolio Management Agreement with Kayne
Anderson Investment Management, LLC. (11)
(H) Portfolio Management Agreement with Fred Alger
Management, Inc. (12)
(I) Portfolio Management Agreement with Eagle
Asset Management, Inc. (13)
(J) Portfolio Management Agreement with
Massachusetts Financial Services Company and
Montgomery Asset Management, L.P. (14)
(K) Portfolio Management Agreement with
Baring International Investment Limited
(L) Portfolio Management Agreement with
A I M Capital Management, Inc.
(M) Portfolio Management Agreement with
Janus Capital Corporation
(N) Portfolio Management Agreement with
Alliance Capital Management L.P.
(O) Schedule Pages for T. Rowe Price Associates, Inc.
(P) Schedule Pages for EII Realty Securities, Inc.
(3) Administrative Services Agreement for The Fund For Life
(4) Administration and Fund Accounting Agreement among the
Trust, Directed Services, Inc., and First Data
Corporation.
(e) Distribution Agreement (15)
(f) Not Applicable
(g) (1) Custodian Agreement and Addenda
(2) Addendum to the Custodian Agreement (adding
Managed Global Series) (16)
(3) Addendum to the Custodian Agreement (adding
Mid-Cap Growth Series)(17)
(4) 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) (18)
(h) (1) (A) Transfer Agency and Service Agreement
(B) Addendum to the Transfer Agency and Service
Agreement for The Fund For Life, Zero Target 2002
Series, and Capital Appreciation Series (18)
(2) (A) Organizational Agreement for Golden American
Life Insurance Company
(B) Assignment Agreement for Organizational Agreement
(C) Organizational Agreement for The Mutual
Benefit Life Insurance Company (20)
(D) Assignment Agreement for Organizational Agreement
(E) Addendum to Organizational Agreement (adding
Market Manager Series and Value Equity Series) (21)
(F) Addendum to the Organizational Agreement (adding
the Strategic Equity Series)
(G) Addendum to the Organizational Agreement (adding
the Small Cap Series)(22)
(H) Addendum to the Organizational Agreement (adding
Managed Global Series) (23)
(I) 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 (24)
(3) (A) Settlement Agreement for Golden American Life
Insurance Company
(B) Assignment Agreement for Settlement Agreement (24)
(C) Settlement Agreement for The Mutual Benefit Life
Insurance Company
(D) Assignment Agreement for Settlement
Agreement
(4) Indemnification Agreement
(5) (A) Expense Reimbursement Agreement
(B) Amendment No. 1 to the Expense Reimbursement
Agreement
(C) Amendment No. 2 to the Expense Reimbursement
Agreement
(D) Amendment No. 3 to the Expense Reimbursement
Agreement
(E) Amendment No. 4 to the Expense Reimbursement
Agreement
(i) Consent of Sutherland Asbill & Brennan LLP
(j) Consent of Ernst & Young LLP, independent auditors
(k) Not Applicable
(l) (1) Initial Capital Agreement
(m) Not Applicable
(n) Financial Data Schedule
(o) Not Applicable
(p) Powers of Attorney
- -------------------------
(1) Incorporated by reference to Exhibit 1(a) of 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 Exhibit 1(b) of 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.
(3) Incorporated by reference to Exhibit 1(c) of 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.
(4) Incorporated by reference to Exhibit 5(a)(i) of 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.
(5) Incorporated by reference to Exhibit 5(b)(i) of 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.
(6) Incorporated by reference to Exhibit 5(b)(iii) of 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.
(7) Incorporated by reference to Exhibit 5(b)(iv) of 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.
(8) Incorporated by reference to Exhibit 5(b)(v) of 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.
(9) Incorporated by reference to Exhibit 5(b)(vi) of 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.
(10) Incorporated by reference to Exhibit 5(b)(viii) of 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.
(11) Incorporated by reference to Exhibit 5(b)(ix) of 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.
(12) Incorporated by reference to Exhibit 5(b)(x) of 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.
(13) Incorporated by reference to Exhibit 5(b)(xi) of 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.
(14) Incorporated by reference to Exhibit 5(b)(xii) of 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.
(15) Incorporated by reference to Exhibit 6 of 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.
(16) Incorporated by reference to Exhibit 8(a)(vi) of 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.
(17) Incorporated by reference to Exhibit 8(a)(vii) of 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.
(18) Incorporated by reference to Exhibit 8(a)(viii) of 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.
(19) Incorporated by reference to Exhibit 9(a)(ii) of 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.
(20) Incorporated by reference to Exhibit 9(b)(iii) of 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.
(21) Incorporated by reference to Exhibit 9(b)(v) of 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.
(22) Incorporated by reference to Exhibit 9(b)(vii) of 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.
(23) Incorporated by reference to Exhibit 9(b)(viii) of 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.
(24) Incorporated by reference to Exhibit 9(c)(i) of 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 24. 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, Golden
American Life Insurance Company and First Golden American Life
Insurance Company of New York 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, Golden American Life
Insurance Company and First Golden American Life Insurance Company
of New York 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 the relevant
company.
The subsidiaries of ING Groep N.V. are included as Exhibit 16.
Item 25. Indemnification.
Reference is made to Article V, Section 5.4 of the Registrant's
Agreement and Declaration of Trust, which is incorporated by
reference herein.
Pursuant to Indemnification Agreements between the Trust and each
Independent Trustee, the Trust indemnifies each Independent Trustee
against any liabilities resulting from the Independent Trustee's
serving in such capacity, provided that the Trustee has not
engaged in certain disabling conduct.
The Trust has a management agreement with Directed Services Inc.
("DSI"), and The Trust and DSI have various portfolio management
agreements with the portfolio managers (the "Agreements").
Generally, the Trust will indemnify DSI and the portfolio managers
under the Agreements for acts and omissions by DSI and/or the
portfolio managers. Also, DSI will indemnify the portfolio managers
under the Agreements for acts and omissions by the portfolio
managers. Neither DSI nor the portfolio managers are indemnified
for acts or omissions where DSI and/or the portfolio managers commit
willful misfeasance, bad faith, gross negligence and/or by reason
of reckless disregard.
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 26. Business and Other Connections of Investment Adviser.
Directed Services, Inc.
The Manager of all Series of the Trust is 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
1475 Dunwoody Drive, West Chester, Pennsylvania 19380. Most directors of
DSI are employees of either EIC or one of its affiliates or 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") and Locust Street Securities.
EIC's principal business address 909 Locust Street, Des Moines, Iowa 50306.
<TABLE>
<S> <C> <C>
Name Position With Adviser Other Affiliations
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
VESTAX Capital Corporation
1931 Georgetown Road
Hudson, OH 44236
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 Director and President of Golden American
Executive Vice President 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.
Stephen J. Preston Senior Vice President Executive Vice President and Chief Actuary
Golden American Life Insurance Company,
Inc. and First Golden American Life
Insurance Company of New York
Jodie Schult Treasurer Treasurer of Locust Street Securities, Inc.
Equitable of Iowa Companies
909 Locust Street
Des Moines, IA 50309
David L. Jacobson Senior Vice President Senior Vice President and Assistant
Secretary of Golden American Life Insurance
Company, Inc. and First Golden American
Life Insurance Company of New York
</TABLE>
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.
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.
A I M Capital Management, Inc.
For information regarding A I M Capital Management, Inc., reference is made
to Form ADV of A I M Capital Management, Inc., SEC File No. 801-15211, which
is incorporated by refereence.
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.
Janus Capital Corporation
For information regarding Janus Capital Corporation reference is made to
Form ADV of Janus Capital Corporation, SEC File No. 801-13991, which is
incorporated by reference.
Alliance Capital Management L.P.
For information regarding Alliance Capital Management L.P. reference is
made to Form ADV of Alliance Capital Management L.P., SEC File No. 801-32361,
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 27. 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.
<TABLE>
<S> <C> <C>
NAME and PRINCIPAL POSITIONS and OFFICES POSITIONS and OFFICES
BUSINESS ADDRESS with UNDERWRITER with FUND
Barnett Chernow Director and Executive Vice President
Golden American Life Vice President
Insurance Co.
1001 Jefferson Street
Wilmington, DE 19801
Myles R. Tashman Director, Executive Vice Secretary
Golden American Life President, Secretary and
Insurance Co. General Counsel
1001 Jefferson Street
Wilmington, DE 19801
</TABLE>
(c) Not Applicable (Underwriter Receives No Compensation)
Item 28. 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. After March 19, 1999 the new address is 1475
Dunwoody Drive, West Chester, Pennsylvania 19380. The Trust's books
of account are also kept at the offices of First Data Corp. 3200
Horizon Drive, P. O. Box 61503, King of Prussia, Pennsylvania
19406-0903.
Item 29. Management Services.
There are no management-related service contracts not discussed
in Part A or Part B.
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. 40 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 West Chester, and the Commonwealth of Pennsylvania, on May 3, 1999.
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. 40 to the Registration Statement on Form N-1A
(File No. 33-23512) has been duly signed below by the following persons on
behalf of The GCG Trust in the capacity indicated on May 3, 1999.
Signature Title
Chairman, President and
Trustee
- ----------------------
R. Brock Armstrong
Vice-President and
Trustee
- ----------------------
Barnett Chernow*
Trustee
- ----------------------
J. Michael Earley*
Trustee
- ----------------------
R. Barbara Gitenstein*
Trustee
- ----------------------
Robert A. Grayson*
Trustee
- ----------------------
Elizabeth J. Newell*
Trustee
- ----------------------
Stanley B. Seidler*
Trustee
- ----------------------
Roger B. Vincent*
*By: /s/ Marilyn Talman
-----------------------
Marilyn Talman
as Attorney-in-Fact
<PAGE>
<PAGE>
EXHIBIT INDEX
Number Exhibit Name Exhibit
(b) By-laws EX99.b
(c) Instruments Defining Rights of Security Holders EX99.c
(d)(1)(B) Management Agreement (for The Fund For Life) EX99.d1b
(d)(2)(K) Portfolio Management Agreement with EX99.d2k
Baring International Investment Limited
(d)(2)(L) Portfolio Management Agreement with EX99.d2l
A I M Capital Management, Inc.
(d)(2)(M) Portfolio Management Agreement with EX99.d2m
Janus Capital Corporation
(d)(2)(N) Portfolio Management Agreement with EX99.d2n
Alliance Capital Management L.P.
(d)(2)(O) Schedule Pages for T. Rowe Price Associates, Inc. EX99.d2o
(d)(2)(P) Schedule Pages for EII Realty Securities, Inc. EX99.d2p
(d)(3) Administrative Services Agreement for The Fund For Life EX99.d3
(d)(4) Administration and Fund Accounting Agreement among the EX99.d3a
Trust, Directed Services, Inc., and First Data
Corporation.
(g)(1) Custodian Agreement and Addenda EX99.g1
(h)(1)(A) Transfer Agency and Service Agreement EX99.h1a
(h)(2)(A) Organizational Agreement for Golden American EX99.h2a
Life Insurance Company
(h)(2)(B) Assignment Agreement for Organizational Agreement (19) EX99.h2b
(h)(2)(C) Organizational Agreement for The Mutual
Benefit Life Insurance Company (20) EX99.h2d
(h)(2)(D) Assignment Agreement for Organizational Agreement (21) EX99.h2e
(h)(2)(F) Addendum to the Organizational Agreement (adding EX99.h2f
the Strategic Equity Series)
(h)(2)(G) Addendum to the Organizational Agreement (adding EX99.h2g
the Small Cap Series)
(h)(3)(A) Settlement Agreement for Golden American Life EX99.h3a
Insurance Company
(h)(3)(C) Settlement Agreement for The Mutual Benefit Life EX99.h3c
Insurance Company
(h)(3)(D) Assignment Agreement for Settlement Agreement EX99.h3d
(h)(4) Indemnification Agreement EX99.h4
(h)(5)(A) Expense Reimbursement Agreement EX99.h5a
(h)(5)(B) Amendment No. 1 to the Expense Reimbursement EX99.h5b
Agreement
(h)(5)(C) Amendment No. 2 to the Expense Reimbursement EX99.h5c
Agreement
(h)(5)(D) Amendment No. 3 to the Expense Reimbursement EX99.h5d
Agreement
(h)(5)(E) Amendment No. 4 to the Expense Reimbursement EX99.h5e
Agreement
(i) Consent of Sutherland, Asbill & Brennan LLP EX99.i
(j) Consent of Ernst & Young LLP EX99.j
(l)(1) Initial Capital Agreement EX99.l1
(p) Powers of Attorney EX99.p
16 Subsidiaries of ING Groep N.V. EX99.16
27 Financail Data Schedules EX99.27
<PAGE>
<PAGE>
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
BY-LAWS
<PAGE>
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- SHAREHOLDER MEETINGS .............. 1
Section 1.1. Calling of Meetings ............. 1
Section 1.2. Notices ......................... 1
Section 1.3. Place of Meeting ................ 1
Section 1.4. Chairman ........................ 1
Section 1.5. Proxies; Voting ................. 1
Section 1.6. Closing of Transfer Books
and Fixing Record Dates ........ 2
Section 1.7. Inspectors of Election .......... 2
ARTICLE II -- TRUSTEES .......................... 3
Section 2.1. The Trustees .................... 3
Section 2.2. Regular and Special Meetings .... 3
Section 2.3. Notice .......................... 3
Section 2.4. Records ......................... 3
Section 2.5. Quorum and Vote ................. 4
Section 2.6. Telephone Meeting ............... 4
Section 2.7. Special Action .................. 4
Section 2.8. Action by Consent ............... 4
Section 2.9. Compensation of Trustees ........ 4
ARTICLE III -- OFFICERS .......................... 4
Section 3.1. Officers of the Trust ........... 4
Section 3.2. Election and Tenure ............. 5
Section 3.3. Removal of Officers ............. 5
Section 3.4. Bonds and Surety ................ 5
Section 3.5. Chairman, President and Vice
President ...................... 5
Section 3.6. Secretary ....................... 6
Section 3.7. Treasurer ....................... 6
Section 3.8. Other Officers and Duties ....... 7
ARTICLE IV -- POWER AND DUTIES OF THE EXECUTIVE
AND OTHER COMMITTEES .............. 7
Section 4.1. Executive and Other Committees .. 7
Section 4.2. Vacancies in Executive Committee. 7
Section 4.3. Executive Committee to Report to
Trustees ....................... 7
Section 4.4. Procedure of Executive Committee. 7
Section 4.5. Powers of Executive Committee ... 7
Section 4.6. Compensation .................... 8
Section 4.7. Informal Action by Executive
Committee or Other Committee ... 8
<PAGE>
<PAGE>
ARTICLE V -- SHARES OF BENEFICIAL INTEREST ..... 8
Section 5.1. Book Entry Shares ............... 8
Section 5.2. Transfer Agents, Registrars
and the Like ................... 8
Section 5.3. Transfer of Shares .............. 9
Section 5.4. Registered Shareholders ......... 9
ARTICLE VI -- AMENDMENT OF BY-LAWS .............. 9
ARTICLE VII -- INSPECTION OF BOOKS ............... 9
ARTICLE VIII -- AGREEMENTS, CHECKS, DRAFTS,
ENDORSEMENTS, ETC. ................ 10
Section 8.1. Agreements, Etc. ................ 10
Section 8.2. Checks, Drafts, Etc. ............ 10
Section 8.3. Endorsements, Assignments and
Transfers of Securities ........ 10
Section 8.4. Evidence of Authority ........... 10
ARTICLE IX -- SEAL .............................. 10
ARTICLE X -- FISCAL YEAR ....................... 11
ARTICLE XI -- WAIVERS OF NOTICE ................. 11
ARTICLE XII -- BOOKS AND RECORDS ................. 11
ii
<PAGE>
<PAGE>
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
BY-LAWS
These By-laws are made and adopted pursuant to Section 3.9 of
the Agreement and Declaration of Trust establishing WESTERN CAPITAL
SPECIALTY MANAGERS TRUST ("Trust") dated ____________________, 1999
as from time to time amended (hereinafter called the "Declaration").
All words and terms capitalized in these By-laws shall have the
meaning or meanings set forth for such words or terms in the
Declaration.
ARTICLE I
SHAREHOLDER MEETINGS
Section 1.1. Calling of Meetings. Meetings of the Shareholders
shall be held as provided in Section 10.2 of the Declaration at such
place within or without the Commonwealth of Massachusetts as the
Trustees designate.
Section 1.2. Notices. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given
by mail to each Shareholder at his registered address as recorded on
the register of the Trust, mailed at least 10 days and not more than
sixty (60) days before the meeting. Any adjourned meeting shall be
held as adjourned without further notice. No notice need be given to
any Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or
after the meeting by the Shareholder or his attorney, thereunto
authorized, is filed with the records of the meeting.
Section 1.3. Place of Meeting. Meetings of the Shareholders of
the Trust shall be held at such place within or without the
Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.
Section 1.4. Chairman. The Chairman, if any, shall act as
Chairman at all meetings of the Shareholders; in his absence, the
President shall act as Chairman, and in the absence of the Chairman
and the President, the Vice President; and in the absence of the Vice
President, the Trustee or Trustees present at each meeting may elect
a temporary Chairman for the meeting, who may be one of themselves.
Section 1.5. Proxies; Voting. Shareholders may vote either in
person or by duly executed proxy and, unless otherwise required by
applicable law, each full share represented at the meeting shall have
one vote, and each fractional share shall have a proportionate
fractional vote all as provided in Article X of the Declaration. No
proxy shall be valid after eleven (11)
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months from the date of its execution, unless a longer period is
expressly stated in such proxy.
Section 1.6. Closing of Transfer Books and Fixing Record Dates.
For the purpose of determining the Shareholders who are entitled to
notice of or to vote or act at any meeting, including any adjournment
thereof, or who are entitled to participate in any dividends, or for
any other proper purpose, the Trustees may from time to time close
the transfer books or fix a record date in the manner provided in
Section 10.4 of the Declaration. If the Trustees do not, prior to
any meeting of the Shareholders, so fix a record date or close the
transfer books, then an officer of the Trust shall determine a date
which shall be not more than 189 days prior to the date of the
meeting or the date upon which the dividend is declared, as the case
may be, and such date shall be the record date.
Section 1.7. Inspectors of Election. In advance of any meeting
of Shareholders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of
Election are not so appointed, the Chairman, if any, of the meeting
of Shareholders may, and on the request of any Shareholder or his
proxy shall, appoint Inspectors of Election of the meeting. The
number of Inspectors shall be either one or three. If appointed at
the meeting on the request of one or more Shareholders or proxies, a
majority of Shares present shall determine whether one or three
Inspectors are to be appointed, but failure to allow such
determination by the Shareholders shall not affect the validity of
the appointment of Inspectors of Election. In case any person
appointed as Inspector fails to appear or fails or refuses to act,
the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the
person acting as Chairman. The Inspectors of Election shall
ascertain and monitor the number of Shares outstanding, the Shares
represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote,
shall count and tabulate all votes or consents, determine the
results, and do such other acts as maybe proper to conduct the
election or vote with fairness to all Shareholders. If there are
three Inspectors of Election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or
certificate of all. On request of the Chairman, if any, of the
meeting, or of any Shareholder or his proxy, the Inspectors of
Election shall make a report in writing of any challenge or question
or matter determined by them and shall execute a certificate of any
facts found by them.
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ARTICLE II
TRUSTEES
Section 2.1. The Trustees. The Trustees shall be responsible
for the management of the Trust; they may retain such authority to
direct the business affairs of the Trust as they deem advisable, but,
subject to the Declaration and the provisions of applicable law, they
may delegate any of the various functions involved in the management
of the Trust to its officers and/or agents as they deem fit. The
term of office of each Trustee shall continue until the Trustee
resigns, is removed, retires, or is retired pursuant to Section 2.3
of the Declaration. Subject to the provisions of Sections 2.2 and
2.4 of the Declaration, all persons to serve as Trustees of the Trust
shall be elected at each meeting of the Shareholders of the Trust
called for that purpose.
Section 2.2. Regular and Special Meetings. Regular meetings of
the Trustees may be held without call or notice at such place or
places and times as the Trustees may determine from time to time.
Special Meetings of the Trustees shall be held upon the call of the
Chairman, if any, the President, the Vice President, or any two
Trustees, at such time, on such day, and at such place, as shall be
designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given b mail
or by telegram (which term shall include a cablegram) or delivered
personally or by courier. If notice is given by mail, it shall be
mailed not later than 24 hours preceding the meeting and if given by
telegram or personally, such telegram shall be sent or delivered not
later than 24 hours preceding the meeting, unless otherwise subject
to the provisions of the 1940 Act. Notice by telephone shall
constitute personal delivery for these purposes. Notice of a meeting
of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the
purpose of, any meeting of the Trustees need be stated in the notice
or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by unanimous consent. The attendance of
a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express
purpose of objecting to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Section 2.4. Records. The results of all actions taken at a
meeting of the Trustees, or by unanimous consent of the Trustees,
shall be recorded by the Secretary or Assistant Secretary.
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Section 2.5. Quorum and Vote. A majority of the Trustees shall
constitute a quorum for the transaction of business. The act of a
majority of the Trustees present at any meeting at which a quorum is
present shall be the act of the Trustees unless a greater proportion
is required by the Declaration or these By-laws or applicable law.
In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting need not be given.
Section 2.6. Telephone Meeting. Subject to compliance with the
provisions of the 1940 Act, the Trustees may meet by means of a
conference telephone or similar equipment by means of which all
persons participating in the meeting can hear each other.
Section 2.7. Special Action. When all the Trustees shall be
present at any meeting, however called or whenever held, or shall
assent to the holding of the meeting without notice, or after the
meeting shall sign a written assent thereto on the record of such
meeting, the acts of such meeting shall be valid as if such meeting
had been regularly held.
Section 2.8. Action by Consent. Subject to compliance with the
provisions of the 1940 Act, any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by a
majority of the Trustees then in office and filed with the records of
the Trustees' meetings. Such consent shall be treated as a vote of
the Trustees for all purposes.
Section 2.9. Compensation of Trustees. The Trustees may
receive a stated salary for their services as Trustees, and by
resolution of the Trustees a fixed fee and expense of attendance may
be allowed for attendance at each meeting. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in
any other capacity, as an officer, agent or otherwise, and receiving
compensation therefor.
ARTICLE III
OFFICERS
Section 3.1. Officers of the Trust. The officers of the Trust
may consist of a Chairman, if one shall be appointed by the Trustees,
and shall consist of a President, a Vice President, a Secretary, a
Treasurer and such other officers or assistant officers, as may be
elected by the Trustees. Any two or more of the offices may be held
by the same person, except that the same person may not be both
President and Vice President. The Chairman, the President and the
Vice President shall be Trustees, but no other officer of the Trust
need be a Trustee.
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Section 3.2. Election and Tenure. At the initial
organizational meeting and at least once a year thereafter the
Trustees shall elect the Chairman, if any, the President, the Vice
President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out
the business of the Trust. Such officers shall hold the office until
their successors have been duly elected and qualified. The Trustees
may fill any vacancy in office or add any additional officers at any
time.
Section 3.3. Removal of Officers. Any officer may be removed
at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract
of employment for a definite term with any officer and shall have no
effect upon any cause of action which any officer may have as a
result of removal in breach of a contract of employment. Any officer
may resign at any time by notice in writing signed by such officer
and delivered or mailed to the Chairman, if any, President, or Vice
President, and such resignation shall take effect immediately upon
receipt by the Chairman, if any, President, Vice President, or
Secretary, or at a later date according to the terms of such notice
in writing.
Section 3.4. Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his duties
in such amount and with such sureties as the Trustees may determine.
Section 3.5. Chairman, President and Vice President. The
Chairman, if any, shall, if present, preside at all meetings of the
Shareholders and of the Trustees and shall exercise and perform such
other powers and duties as may be from time to time assigned to him
by the Trustees. Subject to such supervisory powers, if any, as may
be given by the Trustees to the Chairman, if any, the President shall
be the chief executive officer of the Trust, and, subject to the
control of the Trustees, shall have general supervision, direction
and control of the business of the Trust and of its employees and
shall exercise such general powers of management as are usually
vested in the office of President of a corporation. In the absence
of the Chairman, if any, the President, and in his absence, the Vice
President, shall preside at all meetings of the Shareholders and of
the Trustees. The President and the Vice President shall be, ex
officio, members of all outstanding committees (except the Audit
Committee or any other Committee that consists only of Trustees who
are not interested persons of the Trust, its Investment Adviser,
Manager or any Portfolio Manager). Subject to direction of the
Trustees, the Chairman, if any, the President and the Vice President
shall each have power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and to employ and
discharge employees and agents of the Trust. Unless otherwise
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directed by the Trustees, the Chairman, if any, the President and the
Vice President shall each have full authority and power, on behalf of
all of the Trustees, to attend and to act and to vote, on behalf of
the Trust at any meetings of the business organizations in which the
Trust holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons. The
Chairman, if any, the President and the Vice President shall have
such further authorities and duties as the Trustees shall from time
to time determine.
Section 3.6. Secretary. The Secretary shall keep the minutes
of all meetings of, and record all votes of, Shareholders, Trustees
and the Executive Committee, if any. He shall be custodian of the
seal of the Trust, if any, and he (and any other person so authorized
by the Trustees) shall affix the seal or, if permitted, a facsimile
thereof, to any instrument executed by the Trust which would be
sealed by a Massachusetts corporation executing the same or a similar
instrument and shall attest to the seal and the signature or
signatures of the officer or officers executing such instrument on
behalf of the Trust. The Secretary shall also perform any other
duties commonly incident to such office in a Massachusetts business
corporation, and shall have such other authorities and duties as the
Trustees shall form time to time determine. Any of the duties of the
Secretary may be performed by an Assistant Secretary duly appointed
by the Trustees.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers
and documents of the Trust, and shall have and exercise under the
supervision of the Trustees and of the President all powers and
duties normally incident to his office. He may endorse for deposit
or collection all notes, checks and other instruments payable to the
Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustees shall designate. He shall be
responsible for such disbursement of the funds of the Trust as may be
ordered by the Trustees or the President. He shall keep accurate
account of the books of the Trust's transactions which shall be the
property of the Trust, and which together with all other property of
the Trust in his possession, shall be subject at all times to the
inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial
officer of the Trust. He shall have such other duties and
authorities as the Trustees shall from time to time determine.
Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager, portfolio
manager, or transfer agent to maintain bank accounts and deposit and
disburse funds of any Series of the Trust on behalf of such Series.
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Section 3.8. Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to
time determine to be necessary or desirable in order to conduct the
business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer
in the duties of his office. Each officer, employee and agent of the
Trust shall have such other duties and authority as may be conferred
upon him by the Trustees or delegated to him by the President or, in
his absence, the Vice President.
ARTICLE IV
POWER AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Executive and Other Committees. The Trustees may,
but shall not be required to, elect from their own number an
Executive Committee to consist of not less than two members, which
number shall include the President and Vice President, who shall, ex
officio, be members thereof. The Executive Committee shall be
elected by a resolution passed by a vote of at least a majority of
the Trustees then in office. The Trustees may also elect from their
own number other committees from time to time, the number composing
such committees and the powers conferred upon the same to be
determined by vote of the Trustees.
Section 4.2. Vacancies in Executive Committee. Vacancies
occurring in the Executive Committee from any cause shall be filled
by the Trustees by a resolution passed by the vote of at least a
majority of the Trustees then in office.
Section 4.3. Executive Committee to Report to Trustees. All
action by the Executive Committee shall be reported to the Trustees
at their meeting next succeeding such action.
Section 4.4. Procedure of Executive Committee. The Executive
Committee shall fix its own rules of procedures not inconsistent with
these By-laws or with any directions of the Trustees. It shall meet
at such times and places and upon such notice as shall be provided by
such rules or by resolution of the Trustees. The presence of a
majority shall constitute a quorum for the transaction of business,
and in every case an affirmative vote of a majority of all the
members of the Committee present shall be necessary for the taking of
any action.
Section 4.5. Powers of Executive Committee. During the
intervals between the meetings of the Trustees, the Executive
Committee, except as limited by the By-laws of the Trust or by
specific directions of the Trustees, shall possess and may
exercise all the powers of the Trustees in the management and
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direction of the business and conduct of the affairs of the Trust in
such manner as the Executive Committee shall deem for the best interests
of the Trust, and shall have power to authorize the seal of the Trust to
be affixed to all instruments and documents requiring same. Notwithstanding
the foregoing, the Executive Committee shall not have the power to elect
Trustees, increase or decrease the number of Trustees, elect or remove any
officer, declare dividends, issue shares or recommend to Shareholders any
action requiring Shareholder approval.
Section 4.6. Compensation. The members of any duly appointed
committee shall receive such compensation and/or fees as from time to
time may be fixed by the Trustees.
Section 4.7. Informal Action by Executive Committee or Other
Committee. Any action required or permitted to be taken at any
meeting of the Executive Committee or any other duly appointed
committee may be taken without a meeting if a consent in writing
setting forth such action is signed by all members of such committee
and such consent is filed with the records of the Trust.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Book Entry Shares. No certificates will be issued
to represent shares in the Trust unless the Trustees, in their
discretion, may so authorize. The Trust may issue certificates in
any fixed denomination of shares, or alternatively, may issue to all
investors certificates evidencing ownership of shares of beneficial
interest in the Trust which will not evidence ownership of a fixed
number of shares but will indicate on its face that it represents all
Trust shares of beneficial interest for which the investor is the
record owner as shown on the books of record of the Transfer Agent of
the Trust. The Trust shall maintain adequate records to determine
the holdings of each Shareholder of record, and such records shall be
deemed the equivalent of a certificate representing the shares for
all purposes.
Section 5.2. Transfer Agents, Registrars and the Like. As
provided in Section 6.7 of the Declaration, the Trustees shall have
authority to employ and compensate such transfer agents and
registrars with respect to the shares of the various Series of the
Trust as the Trustees shall deem necessary or desirable. In
addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the
reinvestment of dividends as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is
delegated to any of them by the Trustees.
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Section 5.3. Transfer of Shares. The shares of the Trust shall
be transferable on the books of the Trust only upon delivery to the
Trustees or a transfer agent of the Trust of proper documentation as
provided in Section 6.8 of the Declaration. The Trust, or its
transfer agents, shall be authorized to refuse any transfer unless
and until there is presented such evidence as may be reasonably
required to show that the requested transfer is proper.
Section 5.4. Registered Shareholders. The Trust may deem and
treat the holder of record of any share as the absolute owner thereof
for all purposes and shall not be required to take any notice of any
right or claim of right of any other person, unless otherwise
required by applicable law.
ARTICLE VI
AMENDMENT OF BY-LAWS
In accordance with Section 3.9 of the Declaration, the Trustees
shall have the power to alter, amend or repeal the By-laws or adopt
new By-laws at any time. Action by the Trustees with respect to the
By-laws shall be taken by an affirmative vote of a majority of the
Trustees. The Trustees shall in no event adopt By-laws which are in
conflict with the Declaration, and any apparent inconsistency shall
be construed in favor of the related provisions in the Declaration.
The Agreement and Declaration of Trust establishing WESTERN
CAPITAL SPECIALTY MANAGERS TRUST, dated __________, 1988, a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name WESTERN CAPITAL SPECIALTY
MANAGERS TRUST refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and
not Trustee, Shareholder, officer, employee or agent of WESTERN
CAPITAL SPECIALTY MANAGERS TRUST shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection
with the affairs of said WESTERN CAPITAL SPECIALTY MANAGERS TRUST but
the Trust estate only shall be liable.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions
and regulations, the accounts and books of the Trust or any of them
shall be open to the inspection of the Shareholders; and no
Shareholder shall have any right to inspect an account or
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book or document of the Trust except as conferred by law or authorized
by the Trustees or by resolution of the Shareholders.
ARTICLE VIII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 8.1. Agreements, Etc. The Trustees or the Executive
Committee may authorize any officer or officers, or agent or agents
of the Trust to enter into any agreement or execute and deliver any
instrument in the name of and on behalf of the Trust, and such
authority may be general or confined to specific instances; and,
unless so authorized by the Trustees or by the Executive Committee or
by these By-laws, no officer, agent or employee shall have any power
or authority to bind the Trust by any agreement or engagement or to
pledge its credit or to render it liable for any purpose or in any
amount.
Section 8.2. Checks, Drafts, Etc. All checks, drafts, or
orders for the payment of money, notes and other evidences of
indebtedness shall be signed by such officer or officers, employee or
employees, or agent or agents, as shall from time to time be
designated by the Trustees or the Executive Committee, if any, or as
may be specified in or pursuant to the agreement between the Trust
and any bank or trust company appointed as custodian depository
pursuant to the provisions of the Declaration.
Section 8.3. Endorsements, Assignments and Transfers of
Securities. All endorsements, assignments, stock powers or other
instruments of transfer of securities standing in the name of the
Trust or its nominees or directions for the transfer of securities
belonging to the Trust shall be made by such officer or officers,
employee or employees, or agent or agents as may be authorized by the
Trustees or the Executive Committee, if any.
Section 8.4. Evidence of Authority. Anyone dealing with the
Trust shall be fully justified in relying on a copy of a resolution
of the Trustees or of any committee thereof empowered to act in the
premises which is certified as true by the Secretary or an Assistant
Secretary under the seal of the Trust.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form, bearing the
inscription:
WESTERN CAPITAL SPECIALTY MANAGERS TRUST - 1988 - MASSACHUSETTS
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ARTICLE X
FISCAL YEAR
The fiscal year of the Trust shall be the period of twelve
months ending on December 31 of each calendar year.
ARTICLE XI
WAIVERS OF NOTICE
Whenever any notice whatsoever is required to be given under the
provisions of any statute of the Commonwealth of Massachusetts, or
under the provisions of the Declaration or these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to said
notice whether before or after the time stated therein, shall be
deemed equivalent thereto. A notice shall be deemed to have been
given if telegraphed, cabled or sent by wireless when it has been
delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or sent by
wireless. Any notice, if mailed, shall be deemed to be given at the
time when the same shall be deposited in the mail.
ARTICLE XII
BOOKS AND RECORDS
The books and records of the Trust, including the stock ledger
or ledgers, may be kept in or outside the Commonwealth of Massachusetts
at such office or agency of the Trust as may be from time to time
determined by the Trustees.
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Exhibit c
ARTICLE X
SHAREHOLDERS
SECTION 10.1 VOTING POWERS. The Shareholders shall have the power to
vote (i) for the election of Trustees as provided in Article II, Section 2.2;
(ii) for the removal of Trustees as provided in Article II, Section 2.3(d);
(iii) with respect to any investment adviser as provided in Article IV, Section
4.1; (iv) with respect to the merger, consolidation and sale of assets of the
Trust as provided in Article XI, Section 11.3; (v) with respect to the
amendment of this Declaration as provided in Article XI, Section 11.4; (vi) to
the same
extent as the Shareholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders
(provided, however, that a shareholder of a particular Series shall not be
entitled to a derivative or class action on behalf of any other Series (or
shareholders of any other Series) of the Trust); and (vii) with respect to such
additional matters relating to the Trust as may be required by law, by this
Declaration, or the By-laws of the Trust or any regulation of the Trust, by the
Commission or any State, or as the Trustees may consider desirable. Any matter
affecting a particular Series, including without limitation, matters affecting
the investment advisory arrangements or investment policies or restrictions of a
Series, if required by law, shall not be deemed to have been effectively acted
upon unless approved by the required vote of the Shareholders of such Series if
required by law. Unless otherwise required by law, each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action to be taken by Shareholders which is required or permitted by law, this
Declaration or any By-laws of the Trust.
SECTION 10.2 MEETINGS. Shareholder meetings shall be held as specified
in Article I of the By-laws and in Section 2.2 hereof at the principal office of
the Trust or at such other place as the Trustees may designate. No annual or
regular meetings of shareholders are required. Meetings of the Shareholders may
be called by the Trustees and shall be held at such times, on such day and at
such hour as the Trustees may from time to time determine, for the purposes
specified in Section 2.2 and for such other purposes as may be specified by the
Trustees.
SECTION 10.3 QUORUM AND REQUIRED VOTE. Except as otherwise provided by
law, the holders of thirty percent of the outstanding Shares of each Series
present in person or by proxy shall constitute a quorum for the transaction of
any business at any meeting of Shareholders. If a quorum, as above defined,
shall not be present for the purpose of any vote that may properly come before
the meeting, the Shareholders present in person or by proxy and entitled to vote
at such meeting on such matter holding a majority of the Shares present entitled
to vote on such matter may by vote adjourn the meeting from time to time to be
held at the same place without further notice than by announcement to be given
at the meeting until a quorum, as above defined, entitled to vote on such matter
shall be present, whereupon any such matter may be voted upon at the meeting as
though held when originally convened. Subject to any applicable requirement of
law, this Declaration or the By-laws, a plurality of the votes cast shall elect
a Trustee and all other matters shall be decided by a majority of the votes cast
entitled to vote thereon.
SECTION 10.4 RECORD DATE FOR MEETINGS. For the purpose of determining
the Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing the
transfer books the Trustees may fix a date not more than 180 days prior to the
date of any meeting of Shareholders or declaration of dividends or other action
as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by Section 9.2 hereof.
SECTION 10.5 PROXIES. Any vote by a Shareholder of the Trust may be
made in person or by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Trustees or their designee
prior to the time the vote is taken. Pursuant to a resolution of a majority of
the Trustees, proxies may be solicited in the name of one or more Trustees or
one or more officers of the Trust. Only Shareholders of record shall be
entitled to vote. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. A proxy with
respect to shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
SECTION 10.6 ADDITIONAL PROVISIONS. The By-laws may include further
provisions for Shareholders' votes, meetings and related matters.
SECTION 10.7 REPORTS. The Trustees shall cause to be prepared with
respect to each Series at least annually a report of operations containing a
balance sheet and statement of income and undistributed income of the applicable
Series of the Trust prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements. It is contemplated that separate reports may be prepared for the
various Series. Copies of such reports shall be mailed to all Shareholders of
record of the applicable Series within the time required by the 1940 Act. The
Trustees shall, in addition, furnish to the Shareholders at least semi-annually,
interim reports containing an unaudited balance sheet of the Series as of the
end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current fiscal year to the end of such period.
SECTION 10.8 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken by Shareholders may be taken without a meeting if a majority of
Shareholders of each Series entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
<PAGE>
EXHIBIT (d)(1)(b)
MANAGEMENT AGREEMENT
AGREEMENT made as of February 5, 1993, between The GCG Trust
(the "Trust"), a Massachusetts business trust, and Directed Services,
Inc. (the "Manager"), a New York corporation.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the
"Act"); and
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; and
WHEREAS, the Trust intends to offer shares in a series
designated The Fund For Life, and the Trust may offer shares of
additional series in the future; and
WHEREAS, the Trust wishes to retain the Manager to furnish
investment advisory services to The Fund For Life, and the Manager is
willing to furnish such services to the Trust.
NOW THEREFORE, in consideration of the premises and the promises
and mutual covenants herein contained, it is agreed between the Trust
and the Manager as follows:
1. Appointment. The Trust hereby appoints Directed Services, Inc.
to act as Manager to The Fund For Life (the "Series") for the periods
and on the terms set forth in this Agreement. The 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 wishes to
retain the Manager to render investment advisory services
hereunder, the Trust shall notify the Manager in writing. If
the Manager is willing to render such services, it shall
notify the Trust in writing, whereupon such series shall
become a Series hereunder, and be subject to this Agreement.
2. Management Duties. Subject to the supervision of the Trust's
Board of Trustees, the Manager will provide a continuous investment
program for the Series' portfolio and determine the composition of
the assets of the Series' portfolio, including determination of the
purchase, retention, or sale of the securities, cash, and other
investments contained in the
<PAGE>
portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Series' assets by
determining the securities and other investments that shall be
purchased, entered into, sold, closed, or exchanged for the Series,
when these transactions should be executed, and what portion of the
assets of the Series should be held in the various securities and
other investments in which it may invest, and the Manager is hereby
authorized to execute and perform such services on behalf of the
Series. The Manager will provide the services under this Agreement
in accordance with the Series' investment objective or objectives,
policies, and restrictions as stated in the Trust's Registration
Statement filed with the Securities and Exchange Commission ("SEC"),
as amended. The Manager further agrees as follows:
a. The Manager will (1) manage the Series so that it will qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code, (2) manage the Series so as to ensure compliance by the
Series with the diversification requirements of Section 817(h) of the
Internal Revenue Code and regulations issued thereunder, and (3) use
reasonable efforts to manage the Series so as to ensure compliance by
the Series with any other rules and regulations pertaining to
investment vehicles underlying variable annuity or variable life
insurance policies.
b. The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws
and regulations, with any applicable procedures adopted by the
Trust's Board of Trustees, and the provisions of the Registration
Statement of the Trust under the Securities Act of 1933 (the "1933
Act") and the 1940 Act, as supplemented or amended.
c. On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as of other
investment advisory clients of the Manager or any of its affiliates,
the Manager may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities
to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in a manner that is fair and
equitable in the judgment of the Manager in the exercise of its
fiduciary obligations to the Trust and to such other clients subject
to review by the Board of Trustees.
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<PAGE>
d. In connection with the purchase and sale of securities for the
Series, the Manager will arrange for the transmission to the
custodian and recordkeeping agent for the Trust on a daily basis,
such confirmation, trade tickets, and other documents and
information, including but not limited to Cusip, Sedol, or other
numbers that identify securities to be purchased or sold on behalf of
the Series, as may be reasonably necessary to enable the custodian
and recordkeeping agent to perform its administrative recordkeeping
responsibilities with respect to the Series. With respect to
portfolio securities, if any, to be purchased or sold through the
Depository Trust Company, the Manager will arrange for the automatic
transmission of the confirmation of such trades to the Trust's
custodian and recordkeeping agent.
e. The Manager will monitor on a daily basis the determination by
the custodian and recordkeeping agent for the Trust of the valuation
of the portfolio securities and other investments of the Series. The
Manager will assist the custodian and recordkeeping agent for the
Trust in determining or confirming, consistent with the procedures
and policies stated in the Registration Statement for Trust, the
value of any portfolio securities or other assets of the Series for
which the custodian and recordkeeping agent seeks assistance from or
identifies for review by the Manager.
f. The Manager will make available to the Trust, promptly upon
request, all the Series' investment records and ledgers maintained by
the Manager (which shall not include the records and ledgers
maintained by the custodian and recordkeeping agent for the Trust) as
are necessary to assist the Trust to comply with the requirements of
the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers
Act"), as well as other applicable laws. The Manager will furnish to
regulatory authorities having the requisite authority any information
or reports in connection with such services which may be requested in
order to ascertain whether the operations of the Trust are being
conducted in a manner consistent with applicable laws and
regulations.
g. The Manager will 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 may reasonably request.
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<PAGE>
h. In rendering the services required under this Agreement, the
Manager may, from time to time, employ or associate with itself such
person or persons as it believes necessary to assist it in carrying
out its obligations under this Agreement. However, the 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
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 or the 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 Series to the extent required by
the 1940 Act. The Manager shall be responsible for making reasonable
inquiries and for reasonably ensuring that any employee of the
Manager, any subadviser that the 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 Manager's knowledge, in any material
connection with the handling of Trust assets:
i. been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, involving
violations of Sections 1341, 1342, or 1343 of Title 18, United States
Code, or involving the purchase or sale of any security; or
ii. been found by any state regulatory authority, within the last
ten (10) years, to have violated or to have acknowledged violation of
any provision of any state insurance law involving fraud, deceit, or
knowing misrepresentation; or
iii. been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provision of federal or state
securities laws involving fraud, deceit, or knowing
misrepresentation.
3. Broker-Dealer Selection. The Manager is responsible for
decisions to buy and sell securities and other investments for the
Series' portfolio, broker-dealer selection, negotiation of brokerage
commission rates and obtaining discounts on sales loads of mutual
fund shares. The Manager's primary consideration in effecting a
security transaction will be to obtain the best execution for the
Series, taking into account the factors specified in the prospectus
and statement of additional information
- 4 -
<PAGE>
for the Series. Subject to
such policies as the Board of Trustees may determine and consistent
with Section 28(e) of the Securities Exchange Act of 1934, the
Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by the Agreement or otherwise solely by
reason of its having caused the Series to pay a broker-dealer for
effecting a portfolio investment transaction in excess of the amount
of commission another broker-dealer would have charged for effecting
that transaction, if the 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
Manager's overall responsibilities with respect to the Series and to
its other clients as to which it exercises investment discretion. To
the extent consistent with these standards, the Manager is further
authorized to allocate the orders placed by it on behalf of the
Series to the Manager if it is registered as a broker-dealer with the
SEC, to its affiliated broker-dealer, or to such brokers and dealers
who also provide research or statistical material or other services
to the Series, the Manager, or an affiliate of the Manager. Such
allocation shall be in such amounts and proportions as the Manager
shall determine consistent with the above standards, and the Manager
will report on said allocation regularly to the Board of Trustees of
the Trust indicating the broker-dealers to which such allocations
have been made and the basis therefor.
4. Disclosure About Manager. The Manager has reviewed the post-
effective amendment to the Registration Statement for the Trust to be
filed with the Securities and Exchange Commission that contains
disclosure about the Manager, and represents and warrants that, with
respect to the disclosure about the Manager or information relating,
directly or indirectly, to the manager, such Registration Statement
contains, as of the date hereof, no untrue statement or any material
fact and does not omit any statement of material fact which was
required to be stated therein or necessary to make the statements
contained therein not misleading. The Manager further represents and
warrants that it is a duly registered investment adviser under the
Advisers Act and a duly registered investment adviser in all states
in which the Manager is required to be registered.
5. Expenses. During the term of this Agreement, the 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 Trust shall be responsible for all the expenses
of its operations including, but not limited to:
a. Expenses of all audits by the Trust's independent public
accountants;
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<PAGE>
b. Expenses of the Series' transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
c. Expenses of the Series' custodial services including
recordkeeping services provided by the custodian;
d. Expenses of obtaining quotations for calculating the value of
the Series' net assets;
e. Expenses of obtaining Portfolio Activity Reports and Analyses of
International Management Reports (as appropriate) for the Series;
f. Expenses of maintaining the Trust's tax records;
g. Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of the Manager or an affiliate of the
Manager;
h. Taxes levied against the Trust;
i. Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
j. Costs, including the interest expense, of borrowing money;
k. Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and
reports of the Trust to its shareholders, the filing of reports with
regulatory bodies, the maintenance of the Trust's existence, and the
regulation of shares with federal and state securities or insurance
authorities;
l. The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for
sale;
m. Costs of printing stock certificates representing shares of the
Trust;
n. Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Manager or any affiliate thereof;
- 6 -
<PAGE>
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 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;
r. Organizational and offering expenses, and if applicable,
reimbursement (with interest) of underwriting discounts and
commissions.
6. Compensation. For the services provided, the Trust will pay the
Manager a fee, payable monthly, at the annual rate of .10% of the
average daily net assets of the Series.
7. Compliance. The Manager agrees that it shall immediately notify
the Trust (1) in the event that the SEC has censured the Manager;
placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or
has commenced proceedings or an investigation that may result in any
of these actions, (2) upon having a reasonable basis for believing
that the Series has ceased to qualify or might not qualify as a
regulated investment company under Subchapter M of the Internal
Revenue Code, (3) upon having a reasonable basis for believing that
the Series has ceased to comply with the diversification provisions
of Section 817(h) of the Internal Revenue Code or the Regulations
thereunder. The Manager further agrees to notify the Trust
immediately of any material fact known to the Manager respecting or
relating to the Manager that is not contained in the Registration
Statement or prospectus for the Trust, or any amendment or supplement
thereto, or of any statement contained therein that becomes untrue in
any material respect.
8. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the 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 request, although the Manager may, at its own
expense, make and retain a copy of such records. The Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under
the 1940 Act and to
- 7 -
<PAGE>
preserve the records required by Rule 204-2 under
the Advisers Act for the period specified in the Rule
9. Cooperation. Each party to this Agreement agrees to cooperate
with the other party and with all appropriate governmental
authorities having the requisite jurisdiction (including, but not
limited to, the Securities and Exchange Commission and state
insurance regulators) in connection with any investigation or inquiry
relating to this Agreement or the Trust.
10. Control. Notwithstanding any other provision of the Agreement,
it is understood and agreed that the Trust shall at all times retain
the ultimate responsibility for and control of all functions
performed pursuant to this Agreement and reserves the right to
direct, approve, or disapprove any action hereunder taken on its
behalf by the Manager.
11. Services Not Exclusive. It is understood that the services of
the Manager are not exclusive, and nothing in this Agreement shall
prevent the 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.
12. 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 Manager, any affiliated person of the Manager,
and each person, if any, who, within the meaning of Section 15 of the
1933 Act controls the Manager shall not be liable for, or subject to
any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under
this Agreement, except by reason if willful misfeasance, bad faith,
or gross negligence in the performance of the Manager's duties, or by
reason of reckless disregard of the Manager's obligations and duties
under this Agreement.
13. Duration and Termination. This Agreement shall become effective
on the date first indicated above. Unless terminated as provided
herein, the Agreement shall remain in full force and effect for two
(2) years from such date and continue on an annual basis thereafter
with respect to the Series; provided that such annual continuance is
specifically approved each year by (a) the vote of a majority of the
entire Board of Trustees of the Trust, or by the vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of
the Series, and (b) the vote of a majority of those Trustees who are
not parties to this Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party to this Agreement cast in
person
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<PAGE>
at a meeting called for the purpose of voting on such
approval. The 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 s 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 in
its entirety or for any Series hereunder: (a) by the Manager at any
time without penalty, upon sixty (60) days' written notice to 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 or each Series upon
sixty (60) days' written notice to the Manager. In the event of
termination for any reason, all records of the Series for which the
Agreement is terminated shall promptly be returned to the Trust, free
from any claim or retention of rights in such record by the Manager,
although the 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), 8,
9, 12, and 15 of this Agreement shall remain in effect, as well as
any applicable provision of this Paragraph numbered 13.
14. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective until approved by an affirmative vote of
(i) the holders of a majority of the outstanding voting securities of
the Series, and (ii) the Trustees of the Trust who are not interested
persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval
is required by applicable law.
15. Use of Name. It is understood that the name "Directed Services,
Inc." or any derivative thereof or logo associated with that name is
the valuable property of the Manager and its affiliates and that the
Trust and/or the Series have the right to use such name (or
derivative or logo) in offering
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<PAGE>
materials of the Trust with the
approval of the Manager and for so long as the Manager is an
investment adviser to the Trust and/or the Series. Upon termination
of this Agreement between the Trust and the Manager, the Trust shall
forthwith cease to use such name (or derivative or logo) unless
otherwise agreed by the Manager.
16. Agreement and Declaration of Trust. A copy of the Agreement and
Declaration of Trust for Trust is on file with the Secretary of the
Commonwealth of Massachusetts . The Agreement and Declaration of
Trust has been executed on behalf of the Trust by the 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.
17. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders
of the SEC thereunder. The term "affiliate" or "affiliated person"
as used in this Agreement shall mean "affiliated person" as defined
in Section 2(a)(3) of the 1940 Act.
b. The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
c. To the extent permitted under Section 13 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 severable.
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to
be executed.
THE GCG TRUST
------------------------- ----------------------------------
Attest: Title:
Title:
DIRECTED SERVICES, INC.
------------------------- ----------------------------------
Attest: Title:
Title:
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<PAGE>
EXHIBIT (d)(2)(K)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 24th day of October, 1997, among The
GCG Trust (the "Trust"), a Massachusetts business trust, Directed
Services, Inc. (the "Manager"), a New York corporation, and
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.
2. PORTFOLIO MANAGEMENT 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 Series should be
held in the various securities and other investments in which it
may invest, and the Portfolio Manager is hereby authorized to
execute and perform such services on behalf of each Series. 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 in 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
1
<PAGE>
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. The Manager will notify the
Portfolio Manager promptly if the Manager believes
that a Series is in violation of any requirement specified
in the first sentence of this paragraph. The Manager or the Trust
will notify the Portfolio Manager of any pertinent changes,
modifications to, or interpretations of Section 817(h) of the Internal
Revenue Code and regulations issued thereunder and of rules or
regulations pertaining to investment vehicles underlying variable
annuity or variable life insurance policies.
(b) The Portfolio Manager will perform its duties hereunder
pursuant to the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the
Trust's Board of Trustees (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, provided, however that the
Manager and the Board shall have the right to renew and amend,
from time the Portfolio Manager's manner of allocation, provided
further that any requested changes to such manner of allocation
shall be implemented on a prospective basis only.
(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
2
<PAGE>
responsibilities
with respect to the Series. With respect to portfolio securities
to be purchased or sold through the Depository Trust Company, the
Portfolio Manager will arrange for the automatic transmission of
the confirmation of such trades to the Trust's custodian and
portfolio accounting agent.
(e) The Portfolio Manager will assist the portfolio
accounting agent for the Trust in determining or confirming,
consistent with the procedures and policies stated in the
Registration Statement, 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:
(i) been convicted, in the last ten (10) years,
of any felony or misdemeanor arising out of conduct
involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities, involving
violations of Sections 1341, 1342, or 1343 of Title 18,
United States Code, or involving the purchase or sale
of any security; or
(ii) been found by any state regulatory
authority, within the last ten (10) years, to have
violated or to have acknowledged violation of any
provision of any state insurance law involving fraud,
deceit, or knowing misrepresentation; or
(iii) been found by any federal or state
regulatory authorities, within the last ten (10) years,
to have violated or to have acknowledged violation of
any provision of federal or state securities laws
involving fraud, deceit, or knowing misrepresentation.
(i) In using spot and forward foreign exchange contracts
for the Series as an investment the parties represent the
following:
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(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
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 the
Portfolio Manager's management or which benefit from the
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 such 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.
(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 indicating the broker-
dealers to which such allocations have been made and the basis
therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio
Manager has reviewed the post-effective amendment to the
Registration Statement for the Trust filed with the SEC that
contains disclosure
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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;
(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.
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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.
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
(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;
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(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 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 the Portfolio Manager of
its duties, or by reason of reckless disregard by the 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 Manager, any of its employees or
representatives, or any affiliate of or any person acting on
behalf of the Manager, or (2) may be based upon any untrue
statement or alleged untrue statement of a material fact supplied
by, or which is the responsibility of, the Manager and contained
in the Registration Statement or prospectus covering shares of
the Trust or a Series, or any amendment thereof or any supplement
thereto, or the omission or alleged omission to state therein a
material fact known or which should have been known to the
Manager and was required to be stated therein or necessary to
make the statements therein not misleading, unless such statement
or omission was made in reliance upon information furnished to
the Manager or the Trust or to any affiliated person of the
Manager by a Portfolio Manager Indemnified Person; provided
however, that in no case shall the indemnity in favor of the
Portfolio Manager Indemnified Person be deemed to protect such
person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or by
reason of its reckless disregard of obligations and duties under
this Agreement.
(b) Notwithstanding Section 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
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Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and
other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, the Code,
under any other statute, at common law or otherwise, arising out
of the Portfolio Manager's responsibilities as Portfolio Manager
of the Series which (1) may be based upon any 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, (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 4;
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
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
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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.
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
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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 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 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 conflict of
laws, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or
orders of the SEC thereunder. The term "affiliate" or
"affiliated person" as used in this Agreement shall mean
"affiliated person" as defined in Section 2(a)(3) of the 1940
Act.
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(b) The captions of this Agreement are included for
convenience only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
(c) To the extent permitted under Section 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 /s/Marilyn Talman By: Myles R. Tashman
----------------- ----------------
Title: Assistant Secretary Title: Secretary
------------------- --------------
DIRECTED SERVICES, INC.
Attest /s/Marilyn Talman By: David L. Jacobson
------------------ ------------------
Title: Vice President Title: Senior Vice President
--------------- ---------------------
BARING INTERNATIONAL INVESTMENT
LIMITED
Attest /s/ A.H. Routledge By: /s/ Mala S. Dhillon
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Title: Company Solicitor Title: Director
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AMENDED 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
Developing World Series
Hard Asset Series
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the 26th day February, 1999.
THE GCG TRUST
Attest /s/Marilyn Talman By: /s/Myles R. Tashman
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Title: Vice President Title: Secretary
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DIRECTED SERVICES, INC.
Attest /s/Marilyn Talman By: /s/Myles R. Tashman
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Title: Vice President Title: Executive Vice President
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and Assistant Secretary
BARING INTERNATIONAL
INVESTMENT LIMITED
Attest Michael T. Brown By: /s/Mala S. Dhillon
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Title: Vice President Title: Director
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AMENDED 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
Developing World Series 0.90%
Hard Asset Series 0.40%
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the 26th day February, 1999.
THE GCG TRUST
Attest /s/Marilyn Talman By: /s/Myles R. Tashman
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Title: Assistant Secretary Title: Secretary
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DIRECTED SERVICES, INC.
Attest /s/Marilyn Talman By: /s/Myles R. Tashman
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Title: Vice President Title: Executive Vice President
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and Assistant Secretary
BARING INTERNATIONAL
INVESTMENT LIMITED
Attest Michael T. Brown By: /s/Mala S. Dhillon
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Title: Vice President Title: Director
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EXHIBIT (d)(2)(L)
SUBADVISORY AGREEMENT
GCG TRUST
THIS AGREEMENT is made this 26th day of February, 1999, by
and between GCG Trust (the "Trust"), a Massachusetts business
trust, on behalf of the portfolios listed on Schedule A hereto
(the "Portfolios"), Directed Services, Inc. (the "Manager") a New
York corporation and AIM Capital Management, Inc. (the "Sub-
Adviser") a Delaware corporation.
WHEREAS, the Trust represents that it is registered under
the Investment Company Act of 1940, as amended (the A1940 Act")
as an open-end, diversified management investment company,
consisting of multiple series of investment portfolios;
WHEREAS, the Manager represents that it is registered under
the Investment Advisers Act of 1940, as amended (the "Advisers
Act") as an investment adviser and engages in the business of
acting as an investment adviser;
WHEREAS, the Sub-Adviser represents that it is registered
under the Advisers Act as an investment adviser and engages in
the business of acting as an investment adviser;
WHEREAS, the Trust represents that the Board of Trustees of
the Trust is authorized to classify or reclassify authorized but
unissued shares of the Trust, and as of the date of this
Agreement the Trust's Board of Trustees has authorized the
issuance of series of shares representing interests in investment
portfolios; and
WHEREAS, the Manager represents that it has entered into a
management agreement dated as of October 24, 1997 with the Trust
(the "Management Agreement"), pursuant to which the Manager shall
act as manager with respect to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the
receipt whereof is hereby acknowledged, the parties hereto agree
as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Trust desires to employ its capital relating to the
Portfolios by investing and reinvesting in investments of the
kind and in accordance with the investment objective(s), policies
and limitations specified in the prospectuses (the "Prospectus")
and the statements of additional information (the "Statement")
filed with the Securities and Exchange Commission as part of the
Trust's Registration Statement on Form N-1A, as amended or
supplemented from time to time, and in the manner and to the
extent as may from time to time be approved by the Board of
Trustees of the Trust (the "Board"). Copies of the Registration
Statement, Prospectus and the Statement have been or will be
provided to the Sub-Adviser. The Trust agrees promptly to
provide copies of all amendments and supplements to the current
Registration Statement, Prospectus and the Statement to the Sub-
Adviser on or before the effective date thereof on an on-going
basis. Until the Trust delivers any such amendment or supplement
to the Sub-Adviser, the Sub-Adviser shall be fully protected in
relying on the Prospectus and Statement as previously furnished
to the Sub-Adviser. The Trust employs the Manager as the manager
to the Portfolios pursuant to the Management Agreement, and the
Trust and the Manager desire to employ and hereby appoint the
Sub-Adviser to act as the sub-investment adviser to the
Portfolios. The Sub-Adviser accepts the appointment and agrees
to furnish the services for the compensation set forth below.
2. SERVICES AS SUB-ADVISER
Subject to the supervision, direction and approval of the
Board and the Manager, the Sub-Adviser shall conduct a continual
program of investment, evaluation and, if appropriate in the view
of the Sub-Adviser, sale and reinvestment of the Portfolios'
assets. The Sub-Adviser is authorized, in its sole discretion
and without prior consultation with the Manager, to: (a) manage
the Portfolios' assets in accordance with each Portfolio's
investment objective(s) and policies as stated in the
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<PAGE>
Prospectus
and the Statement; (b) make investment decisions for the
Portfolios; (c) place purchase and sale orders for portfolio
transactions on behalf of the Portfolios; and (d) employ
professional portfolio managers and securities analysts who
provide research services to the Portfolios.
In addition, (i) the Sub-Adviser shall furnish the Manager
daily information concerning portfolio transactions and quarterly
and annual reports concerning transactions and performance of the
Portfolios in such form as may be mutually agreed by the Manager
and the Sub-Adviser, and the Sub-Adviser agrees to review the
Portfolio and discuss the management thereof with the Manager and
the Board.
(ii) Unless the Manager gives the Sub-Adviser written
instructions to the contrary, the Sub-Adviser shall use its good
faith judgment in a manner which it reasonably believes best
serves the interests of the Portfolios' shareholders to vote or
abstain from voting all proxies solicited by or with respect to
the issuers of securities in which assets of the Portfolios may
be invested.
(iii) The Sub-Adviser shall maintain and preserve such
records related to the Portfolios' transactions as required under
the 1940 Act. The Manager shall maintain and preserve all books
and other records not related to the Portfolios= transactions as
required under the 1940 Act. The Sub-Adviser shall timely
furnish to the Manager all information relating to the Sub-
Adviser's services hereunder reasonably requested by the Manager
to keep and preserve the books and records of the Portfolios.
The Sub-Adviser agrees that all records which it maintains for
the Portfolios are the property of the Trust and the Sub-Adviser
will surrender promptly to the Trust copies of any of such
records.
(iv) The Sub-Adviser shall maintain compliance procedures
for the Portfolios that it reasonably believes are adequate to
ensure the Portfolios' compliance with (A) the 1940 Act and the
rules and regulations promulgated thereunder and (B) each
Portfolio's investment objective(s) and policies as stated in the
Prospectus and Statement. The Sub-Adviser shall maintain
compliance procedures that it reasonably believes are adequate to
ensure its compliance with the Advisers Act.
(v) The Sub-Adviser has adopted a written code of ethics
that it reasonably believes complies with the requirements of
Rule 17j-1 under the 1940 Act, which it will provide to the
Trust. The Sub-Adviser has policies and procedures regarding the
detection and prevention and the misuse of material, nonpublic
information by the Sub-Adviser and its employees as required by
the Insider Trading and Securities Fraud Enforcement Act of 1988.
3. BROKERAGE
The Sub-Adviser is responsible for decisions to buy and sell
securities for the Portfolios, broker-dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's
primary consideration in effecting a security transaction will be
executed at the most favorable price. In selecting a broker-
dealer to execute each particular transaction, the Sub-Adviser
will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of
the broker-dealer, the size of and difficulty in executing the
order; and the value of the expected contribution of the broker-
dealer to the investment performance of the Portfolio on a
continuing basis. Accordingly, the price to a Portfolio in any
transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Subject to such policies as the Board may from time to time
determine, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement
or otherwise solely by reason of its having caused a Portfolio to
pay a broker or dealer that provides brokerage and research
services to the Sub-Adviser an amount of commission for effecting
a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for
effecting that transaction, if the Sub-Adviser 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 or dealer, viewed in terms of either that particular
transaction of the Sub-Adviser's overall responsibilities with
respect to a particular Portfolio, and to the other clients of
the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion. The Sub-Adviser is further authorized to allocate
A - 2
<PAGE>
the orders placed by it on behalf of the Portfolios to such
brokers and dealers who also provide research or statistical
material, or other services to the Portfolios or to the
Sub-Adviser. Such allocation shall be in such amounts and
proportions as the Sub-Adviser shall determine and the Sub-
Adviser will report on said allocations regularly to the Board
indicating the brokers to whom such allocations have been made
and the basis therefor.
4. INFORMATION PROVIDED TO THE COMPANY AND THE MANAGER
The Sub-Adviser shall keep the Trust and the Manager
informed of developments materially affecting the Portfolios'
holdings, and shall, on its own initiative, furnish the Trust and
the Manager from time to time with whatever information the Sub-
Adviser believes is appropriate for this purpose.
5. COMPENSATION
In consideration of the services rendered pursuant to this
Agreement, the Manager will pay the Sub-Adviser an annual fee
calculated at the rate specified in Schedule B hereto. The fee
is calculated daily and paid monthly. The fee for the period
from the Effective Date (defined below) of the Agreement to the
end of the month during which the Effective Date occurs shall be
prorated according to the proportion that such period bears to the
full monthly period. Upon any termination of this Agreement before
the end of a month, the fee for such part of that month shall be
prorated according to the proportion that such period bears to the
full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to the Sub-Adviser, the value of each Portfolio's net assets
shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement.
6. EXPENSES
The Sub-Adviser shall bear all expenses incurred by it in
connection with the performance of its services under this
Agreement. Each Portfolio will bear certain other expenses to be
incurred in its operation, including, but not limited to,
investment advisory fees, sub-advisory fees (other than sub-
advisory fees paid pursuant to this Agreement) and administration
fees; fees for necessary professional and brokerage services;
costs relating to local administration of securities; fees for
any pricing service; the costs of regulatory compliance; and pro
rata costs associated with maintaining the Trust's legal
existence and shareholder relations. All other expenses not
specifically assumed by the Sub-Adviser hereunder or by the
Manager under the Management Agreement are borne by the
Portfolios or the Trust.
7. STANDARD OF CARE
The Sub-Adviser shall exercise its best judgment and shall
act in good faith in rendering the services listed in paragraphs
2 and 3 above. The Sub-Adviser, its officers, directors and
employees shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Portfolios, any
shareholder of the Portfolios or the Manager in connection with
the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport
to protect the Sub-Adviser against any liability to the Manager,
the Trust or to the shareholders of the Portfolios to which the
Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Adviser's
reckless disregard of its obligations and duties under this
Agreement.
8. TERM OF AGREEMENT
This Agreement shall become effective with respect to each
Portfolio as of March 1, 1999 (the "Effective Date") and shall
continue for an initial two-year term and shall continue
thereafter so long as such continuance is specifically approved
at least annually as required by the 1940 Act. This Agreement is
terminable with respect to any Portfolio, without penalty, on 60
days' written notice, by the Board or by vote of holders of a
majority (as defined in the 1940 Act and the rules thereunder) of
the outstanding voting securities of the Portfolio, or upon 60
days' written notice, by the Sub-Adviser. This Agreement will
also terminate automatically in the event of its assignment (the
term Aassignment@ having the meaning defined in Section 2(a)(4)
of the 1940 Act and the rules thereunder).
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<PAGE>
9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Trust understands that the Sub-Adviser now acts, will
continue to act and may act in the future as investment manager
or adviser to fiduciary and other managed accounts, and as
investment manager or adviser to other investment companies,
including any offshore entities, or accounts, and the Trust has
no objection to the Sub-Adviser's so acting, provided that
whenever the Portfolios and one or more other investment
companies or accounts managed or advised by the Sub-Adviser have
available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a
formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may
adversely affect the size of the position obtainable for the
Portfolios. In addition, the Trust understands that the persons
employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser's duties under this Agreement will not devote their
full time to such service and nothing contained in this Agreement
shall be deemed to limit or restrict the right of the Sub-Adviser
or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other businesses or to render services of
whatever kind or nature.
10. NOTICES
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other
parties at such address as such other parties may designate for
the receipt of such notice. Until further notice to the other
parties, it is agreed that the address of each party is as
follows:
(a) To the Trust:
Prior to March 19, 1999 After March 19, 1999
Myles R. Tashman Myles R. Tashman
GCG Trust
The GCG Trust The GCG Trust
1001 Jefferson Street 1463 Dunwoody Road
Suite 400 West Chester, PA 19380
Wilmington, DE 19801
(b) To the Manager:
Prior to March 19, 1999 After March 19, 1999
Myles R. Tashman Myles R. Tashman
Directed Services, Inc.
The GCG Trust The GCG Trust
1001 Jefferson Street 1463 Dunwoody Road
Suite 400 West Chester, PA 19380
Wilmington, DE 19801
(c) To the Sub-Adviser:
AIM Capital Management, Inc.
President
11 Greenway Plaza, Suite 1919
Houston, TX 77046
cc: General Counsel
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<PAGE>
11. REPRESENTATIONS
The Trust represents that a copy of the Agreement and
Declaration of Trust together with all amendments thereto, is on
file with the Secretary of the Commonwealth of Massachusetts.
Each of the parties hereto represents that the Agreement has
been duly authorized, executed and delivered by all required
action.
12. USE OF NAME
The Trust may use the names "AIM Capital Management,
Inc.", "AIM Capital Management", or "AIM Capital" (collectively
the AIM Names) only for so long as this Agreement or any
extension, renewal, or amendment hereof remains in effect. At
such times as this Agreement shall no longer be in effect, the
Trust shall cease to use such names or any other name indicating
that it is advised by or otherwise connected with the Sub-Adviser
and shall promptly change its name accordingly. The Trust
acknowledges that it has authority to use the AIM Names through
permission of the Sub-Adviser, and agrees that the Sub-Adviser
reserves to itself and any successor to its business the right to
grant the non-exclusive right to use the aformentioned names or
any similar names to any other corporation or entity, including
but not limited to any investment company of which the Sub-
Adviser or any subsidiary or affiliate thereof or any successor
to the business of any thereof shall be the investment adviser.
13. SEVERABILITY
If any provision of this Agreement is found to be
unenforceable, then this Agreement shall be deemed to be amended
by modifying such provision to the extent necessary to make it
legal and enforceable while preserving its intent. The remainder
of this Agreement shall not be affected by such modification.
14. QUESTIONS OF INTERPRETATION
Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from
a term or provision of the 1940 Act or the Advisers Act shall be
resolved by reference to such term or provision of the 1940 Act
or the Advisers Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling
decision of any such court, by rules, regulations or orders of
the Securities and Exchange Commission issued pursuant to said
Acts. In addition, where the effect of a requirement of the 1940
Act or the Advisers Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be
deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in triplicated by their respective officers
on the day and year first written above.
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GCG TRUST
Attest: /s/ Marilyn Talman By: /s/ Myles R. Tashman
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Name: Myles R. Tashman
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Title: Secretary
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DIRECTED SERVICES, INC.
Attest: /s/ Marilyn Talman By: /s/ Myles R. Tashman
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Name: Myles R. Tashman
----------------
Title: Secretary
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AIM CAPITAL MANAGEMENT, INC.
Attest: /s/ Nancy L. Martin By: /s/ Gary T. Crum
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Name: Gary T. Crum
------------
Title: President
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SCHEDULE A
Portfolios
Capital Appreciation Portfolio
Strategic Equity Portfolio
<PAGE>
SCHEDULE B
Fee Schedule
Pursuant to Section 5 of the Sub-Advisory Agreement among GCG
Trust, Directed Services, Inc. and AIM Capital Management,
Inc. (the ASub-Adviser@), the fees payable to the Sub-Adviser
shall be calculated by applying the following rates to the
average daily net assets of the Portfolios as indicated
below:
Portfolio Net Assets Annual Rate
Capital Appreciation Portofolio First $250 million 0.50%
Next $250 million 0.45%
Over $500 million 0.40%
Strategic Equity Portfolio First $250 million 0.50%
Next $250 million 0.45%
Over $500 million 0.40%
A - 7
EXHIBIT (d)(2)(M)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 26th day of February, 1999, among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
(the "Manager"), a New York corporation, and Janus Capital Corporation
("Portfolio Manager"), a Colorado corporation.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment
company;
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each
series having its own investment objective or objectives, policies, and
limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer
shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, effective as of October
24, 1997, a copy of which has been provided to the Portfolio Manager, the
Trust has retained the Manager to render advisory, management, and
administrative services to many of the Trust's series;
WHEREAS, the Trust and the Manager wish to retain the Portfolio
Manager to furnish investment advisory services to one or more of the
series of the Trust, and the Portfolio Manager is willing to furnish such
services to the Trust and the Manager;
NOW THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Trust, the
Manager, and the Portfolio Manager as follows:
1. APPOINTMENT. The Trust and the Manager hereby appoint Janus
Capital Corporation to act as Portfolio Manager to the Series designated
on Schedule A of this Agreement (each a "Series") for the periods and on
the terms set forth in this Agreement. The Portfolio Manager accepts
such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
In the event the Trust designates one or more series other than the
Series with respect to which the Trust and the Manager wish to retain the
Portfolio Manager to render investment advisory services hereunder, they
shall promptly notify the Portfolio Manager in writing. If the Portfolio
Manager is willing to render such services, it shall so notify the Trust
and Manager in writing, whereupon such series shall become a Series
hereunder, and be subject to this Agreement.
2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the
Trust's Board of Trustees and the Manager, the Portfolio Manager will
provide a continuous investment program for each Series' portfolio and
determine the composition of the assets of each Series' portfolio,
including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The
Portfolio Manager will provide investment research and conduct a
continuous program of evaluation, investment, sales, and reinvestment of
each Series' assets by determining the securities and other investments
that shall be purchased, entered into, sold, closed, or exchanged for the
Series, when these transactions should be executed, and what portion of
the assets of each Series should be held in the various securities and
other investments in which it may invest, and the Portfolio Manager is
hereby authorized to execute and perform such services on behalf of each
Series. To the extent permitted by the investment policies of the
Series, the Portfolio Manager shall make decisions for the Series as
to foreign currency matters and make determinations as to and execute
and perform foreign currency exchange contracts on behalf of the Series.
The Portfolio Manager will provide the services under this Agreement
in accordance with the Series' investment objective or objectives,
policies, and restrictions as stated in the Trust's Registration
Statement filed with the Securities and Exchange Commission (the "SEC"),
as from time to time amended, copies of which shall be sent to the
Portfolio Manager by the Manager upon filing with the SEC. Prior to
filing the Manager will provide an opportunity
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for the Portfolio Manager to review the Trust's
prospectus and statement of additional information. The Portfolio
Manager further agrees as follows:
(a) The Portfolio Manager will (1) manage each Series so that no
action or omission on the part of the Portfolio Manager will cause a
Series to fail to meet the requirements to qualify as a regulated
investment company specified in Section 851 of the Internal Revenue Code
(other than the requirements for the Trust to register under the 1940 Act
and to file with its tax return an election to be a regulated investment
company, both of which shall not be the responsibility of the Portfolio
Manager), (2) manage each Series so that no action or omission on the
part of the Portfolio Manager shall cause a Series to fail to comply with
the diversification requirements of Section 817(h) of the Internal
Revenue Code and regulations issued thereunder, and (3) use reasonable
efforts to manage the Series so that no action or omission on the part of
the Portfolio Manager shall cause a Series to fail to comply with any
other rules and regulations pertaining to investment vehicles underlying
variable annuity or variable life insurance policies. The Manager will
notify the Portfolio Manager promptly if the Manager believes that a
Series is in violation of any requirement specified in the first sentence
of this paragraph. The Manager or the Trust will notify the Portfolio
Manager of any pertinent changes, modifications to, or interpretations of
Section 817(h) of the Internal Revenue Code and regulations issued
thereunder and of rules or regulations pertaining to investment vehicles
underlying variable annuity or variable life insurance policies.
Portfolio Manager shall have no responsibility to monitor those
limitations or restrictions, including the 90%-source test, for which the
Portfolio Manager has not been provided sufficient information in
accordance with Section 2(j) of this Agreement or otherwise, provided
Portfolio Manager has notified Manager of its need for such information.
All such monitoring shall be the responsibility of the Manager.
(b) The Portfolio Manager will perform its duties hereunder
pursuant to the 1940 Act and all rules and regulations thereunder, all
other applicable federal and state laws and regulations, with any
applicable procedures adopted by the Trust's Board of Trustees of which
the Portfolio Manager has been notified in writing, and the provisions of
the Registration Statement of the Trust under the Securities Act of 1933
(the "1933 Act") and the 1940 Act, as supplemented or amended, of which
the Portfolio Manager has received a copy ("Registration Statement").
The Manager or the Trust will notify the Portfolio Manager of pertinent
provisions of applicable state insurance law with which the Portfolio
Manager must comply under this Paragraph 2(b).
(c) On occasions when the Portfolio Manager deems the purchase or
sale of a security to be in the best interest of a Series as well as of
other investment advisory clients of the Portfolio Manager or any of its
affiliates, the Portfolio Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate
the securities to be so sold or purchased with those of its other clients
where such aggregation is not inconsistent with the policies set forth in
the Registration Statement. In such event, allocation of the securities
so purchased or sold, as well as the expenses 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.
2
<PAGE>
(e) The Portfolio Manager will assist the portfolio accounting
agent for the Trust in determining or confirming, consistent with the
procedures and policies stated in the Registration Statement for the
Trust, the value of any portfolio securities or other assets of the
Series for which the portfolio accounting agent seeks assistance from or
identifies for review by the Portfolio Manager, and the parties agree
that the Portfolio Manager shall not bear responsibility or liability for
the determination or accuracy of the valuation of any portfolio
securities and other assets of the Series except to the extent that the
Portfolio Manager exercises judgment with respect to any such valuation.
The Portfolio Manager shall not otherwise be responsible for portfolio
accounting nor shall it be required to generate information derived from
portfolio accounting data.
(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:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement,
fraudulent conversion, or misappropriation of funds or securities,
involving violations of Sections 1341, 1342, or 1343 of Title 18,
United States Code, or involving the purchase or sale of any
security; or
(ii) been found by any state regulatory authority, within the last
ten (10) years, to have violated or to have acknowledged violation
of any provision of any state insurance law involving fraud, deceit,
or knowing misrepresentation; or
(iii) been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provision of federal or state
securities laws involving fraud, deceit, or knowing
misrepresentation.
(i) Portfolio Manager shall be responsible for the preparation and
filing of Schedule 13G and 13F on behalf of the Series. Portfolio
Manager shall not be responsible for preparing or filing of any other
reports required of the Series by any governmental or regulatory agency,
except as may be expressly agreed to in writing. This section shall not
be interpreted to
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relieve Portfolio Manager of its duty to file reports
of it as an investment adviser. Portfolio Manager shall vote proxies
received in connection with securities held by the Series.
(j) Manager shall timely furnish Portfolio Manager with such
information as may be reasonably necessary for or requested by Portfolio
Manager to perform its responsibilities.
(k) The Series assets shall be maintained in the custody of the
Trust's designated custodian. Any assets added to the Series shall be
delivered directly to such custodian. Portfolio Manager shall have no
liability for the acts or omissions of any custodian of the Series'
assets, except for Portfolio Manager's instructions given to any
custodian. Portfolio Manager shall have no responsibility, except for
Portfolio Manager's instructions to custodian, for custodian's compliance
with the segregation requirement of the 1940 Act or other applicable law.
Portfolio Manager shall be subject to a written code of ethics adopted by
it pursuant to Rule 17j-1(b) 0f the 1940 Act, which was adopted by the
Board of Trustees of the Trust as the code of ethics for the Series, and
shall not be subject to any other code of ethics, including Manager's
code of ethics, unless specifically adopted by Portfolio Manager.
3. BROKER-DEALER SELECTION. The Portfolio Manager is responsible
for decisions to buy and sell securities and other investments for each
Series' portfolio, broker-dealer selection, and negotiation of brokerage
commission rates. The Portfolio Manager's primary consideration in
effecting a security transaction will be to obtain the best execution for
the Series, taking into account the factors specified in the prospectus
and/or statement of additional information for the Trust, which include
price (including the applicable brokerage commission or dollar spread),
the size of the order, the nature of the market for the security, the
timing of the transaction, the reputation, the experience and financial
stability of the broker-dealer involved, the quality of the service, the
difficulty of execution, and the execution capabilities and operational
facilities of the firms involved, and the firm's risk in positioning a
block of securities. Accordingly, the price to the Series in any
transaction may be less favorable than that available from another broker-
dealer if the difference is reasonably justified, in the judgment of the
Portfolio Manager in the exercise of its fiduciary obligations to the
Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction,
if the Portfolio Manager or its affiliate determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or
its affiliate's overall responsibilities with respect to the Series and
to their other clients as to which they exercise investment discretion.
To the extent consistent with these standards, the Portfolio Manager is
further authorized to allocate the orders placed by it on behalf of the
Series to the Portfolio Manager if it is registered as a broker-dealer
with the SEC, to its affiliated broker-dealer, or to such brokers and
dealers who also provide research or statistical material, or other
services to the Series, the Portfolio Manager, or an affiliate of the
Portfolio Manager. Such allocation shall be in such amounts and
proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Board of Trustees of the Trust indicating the broker-
dealers to which such allocations have been made and the basis therefor.
Pursuant to the Procedures for Opening Brokerage and Other Accounts, the
Portfolio Manager is authorized to open brokerage and other
trading accounts on behalf of the Series in compliance with these
procedures.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has
reviewed the post-effective amendment to the Registration Statement for
the Trust filed with the SEC that contains disclosure about the Portfolio
Manager, and represents and warrants that, with respect to the disclosure
about or information relating, directly or indirectly, to the Portfolio
Manager, to the Portfolio Manager's knowledge, such Registration
Statement contains, as of the date hereof, no untrue statement of any
material fact and does not omit any statement of a material fact which
was required to be stated therein or necessary to make the statements
contained therein not misleading.
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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.
Manager represents and warrants that: (a) it has complied, in all
material respects, with all registrations required by, and will comply,
in all material respects, with all applicable rules and regulations of,
the SEC, and (b) it has authority under the Management Agreement and
applicable law to execute, deliver and perform this Agreement.
5. EXPENSES. During the term of this Agreement, the Portfolio
Manager will pay all expenses incurred by it and its staff and for their
activities in connection with its portfolio management duties under this
Agreement. The Manager or the Trust shall be responsible for all the
expenses of the Trust's operations including, but not limited to:
(a) Expenses of all audits by the Trust's independent public
accountants;
(b) Expenses of the Series' transfer agent, registrar, dividend
disbursing agent, and shareholder 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;
(i) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Series;
(j) Costs, including the interest expense, of borrowing money;
(k) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of
the Trust to its shareholders, the filing of reports with regulatory
bodies, the maintenance of the Trust's existence, and the regulation of
shares with federal and state securities or insurance authorities;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the
Trust;
(n) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate
thereof;
(o) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(p) Association membership dues;
(q) Extraordinary expenses of the Trust as may arise including
expenses incurred in connection with litigation, proceedings, and other
claims (unless the Portfolio Manager is responsible for such expenses
under Section 14 of this Agreement), and the legal obligations of the
Trust to indemnify its Trustees, officers, employees, shareholders,
distributors, and agents with respect thereto; and
(r) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the Manager will pay
the Portfolio Manager a fee, payable as described in Schedule B.
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7. SEED MONEY. The Manager agrees that the Portfolio Manager shall
not be responsible for providing money for the initial capitalization of
the Series.
8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall promptly notify the
Manager and the Trust (1) in the event that the SEC or other governmental
authority has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its
registration, if any, as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions,
(2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, or (3) upon having a
reasonable basis for believing that the Series has ceased to comply with
the diversification provisions of Section 817(h) of the Internal Revenue
Code or the regulations thereunder. The Portfolio Manager further agrees
to notify the Manager and the Trust promptly of any material fact known
to the Portfolio Manager respecting or relating to the Portfolio Manager
that is not contained in the Registration Statement or prospectus for the
Trust, or any amendment or supplement thereto, and is required to be
stated therein or necessary to make the statements therein not
misleading, or of any statement contained therein that becomes untrue in
any material respect.
(b) The Manager agrees that it shall immediately notify the
Portfolio Manager (1) in the event that the SEC has censured the Manager
or the Trust; placed limitations upon either of their activities,
functions, or operations; suspended or revoked the Manager's registration
as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions, (2) upon having a
reasonable basis for believing that the Series has ceased to qualify or
might not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code, or (3) upon having a reasonable basis for
believing that the Series has ceased to comply with the diversification
provisions of Section 817(h) of the Internal Revenue Code or the
Regulations thereunder.
9. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all
records which it maintains for the Series are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records
upon the Trust's or the Manager's request, although the Portfolio Manager
may, at its own expense, make and retain a copy of such records. The
Portfolio Manager further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by
Rule 31a-l under the 1940 Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in the Rule.
10. COOPERATION. Each party to this Agreement agrees to cooperate
with each other party and with all appropriate governmental authorities
having the requisite jurisdiction (including, but not limited to, the SEC
and state insurance regulators) in connection with any investigation or
inquiry relating to this Agreement or the Trust.
11. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER.
(a) During the term of this Agreement, the Trust and the Manager
agree to furnish to the Portfolio Manager at its principal offices prior
to use thereof copies of all Registration Statements and amendments
thereto, prospectuses, proxy statements, reports to shareholders, sales
literature or other material prepared for distribution to shareholders of
the Trust or any Series or to the public that refer or relate in any way
to the Portfolio Manager, Janus Capital Corporation or any of its
affiliates (other than the Manager), or that use any derivative of the
name Janus Capital Corporation or any logo associated therewith. The
Trust and the Manager agree that they will not use any such material
without the prior written consent of the Portfolio Manager, which consent
shall not be unreasonably withheld or delayed. The Series' name shall
not include the name Janus without prior written consent of the Portfolio
Manager. 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;
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(b) the Trust and the Manager will furnish to the Portfolio Manager
such information relating to either of them or the business affairs of
the Trust as the Portfolio Manager shall from time to time reasonably
request in order to discharge its obligations hereunder;
(c) the Manager and the Trust agree that neither the Trust, the
Manager, nor affiliated persons of the Trust or the Manager shall give
any information or make any representations or statements in connection
with the sale of shares of the Series concerning the Portfolio Manager or
the Series other than the information or representations contained in the
Registration Statement, prospectus, or statement of additional
information for the Trust, as they may be amended or supplemented from
time to time, or in reports or proxy statements for the Trust, or in
sales literature or other promotional material approved in advance by the
Portfolio Manager, except with the prior permission of the Portfolio
Manager.
12. CONTROL. It is understood and agreed that the Trust shall at
all times retain the ultimate responsibility for and control of all
functions performed pursuant to this Agreement and reserve the right to
direct, approve, or disapprove any action hereunder taken on its behalf
by the Portfolio Manager.
13. SERVICES NOT EXCLUSIVE. It is understood that the services of
the Portfolio Manager are not exclusive, and nothing in this Agreement
shall prevent the Portfolio Manager (or its affiliates) from providing
similar services to other clients, including investment companies
(whether or not their investment objectives and policies are similar to
those of the Series) or from engaging in other activities.
14. LIABILITY. Except as may otherwise be required by the 1940 Act
or the rules thereunder or other applicable law, the Trust and the
Manager agree that the Portfolio Manager, any affiliated person of the
Portfolio Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls the Portfolio Manager shall not be
liable for, or subject to any damages, expenses, or losses in connection
with, any act or omission connected with or arising out of any services
rendered under this Agreement, except by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio
Manager's obligations and duties under this Agreement.
15. INDEMNIFICATION.
(a) Notwithstanding Section 14 of this Agreement, the Manager
agrees to indemnify and hold harmless the Portfolio Manager, any
affiliated person of the Portfolio Manager (other than the Manager), and
each person, if any, who, within the meaning of Section 15 of the 1933
Act controls ("controlling person") the Portfolio Manager (all of such
persons being referred to as "Portfolio Manager Indemnified Persons")
against any and all losses, claims, damages, liabilities, or litigation
(including legal and other expenses) to which a Portfolio Manager
Indemnified Person may become subject under the 1933 Act, the 1940 Act,
the Advisers Act, the Internal Revenue Code, under any other statute, at
common law or otherwise, arising out of the Manager's responsibilities to
the Trust which (1) may be based upon any misfeasance, malfeasance, or
nonfeasance by the Manager, any of its employees or representatives or
any affiliate of or any person acting on behalf of the Manager or (2) may
be based upon any untrue statement or alleged untrue statement of a
material fact supplied by, or which is the responsibility of, the Manager
and contained in the Registration Statement or prospectus covering shares
of the Trust or a Series, or any amendment thereof or any supplement
thereto, or the omission or alleged omission to state therein a material
fact known or which should have been known to the Manager and was
required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance
upon information furnished to the Manager or the Trust or to any
affiliated person of the Manager by a Portfolio Manager Indemnified
Person; provided however, that in no case shall the indemnity in favor of
the Portfolio Manager Indemnified Person be deemed to protect such person
against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of
obligations and duties under this Agreement.
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(b) Notwithstanding Section 14 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager (other than the Portfolio Manager), and each
person, if any, who, within the meaning of Section 15 of the 1933 Act,
controls ("controlling person") the Manager (all of such persons being
referred to as "Manager Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and other
expenses) to which a Manager Indemnified Person may become subject under
the 1933 Act, 1940 Act, the Advisers Act, the Internal Revenue Code,
under any other statute, at common law or otherwise, arising out of the
Portfolio Manager's responsibilities as Portfolio Manager of the Series
which (1) may be based upon any misfeasance, malfeasance, or nonfeasance
by the Portfolio Manager, any of its employees or representatives, or any
affiliate of or any person acting on behalf of the Portfolio Manager, (2)
may be based upon a failure to comply with Section 2, Paragraph (a) of
this Agreement, or (3) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or prospectus covering the shares of the Trust or a Series, or
any amendment or supplement thereto, or the omission or alleged omission
to state therein a material fact known or which should have been known to
the Portfolio Manager and was required to be stated therein or necessary
to make the statements therein not misleading, if such a statement or
omission was made in reliance upon information furnished to the Manager,
the Trust, or any affiliated person of the Manager or Trust by the
Portfolio Manager or any affiliated person of the Portfolio Manager;
provided, however, that in no case shall the indemnity in favor of a
Manager Indemnified Person be deemed to protect such person against any
liability to which any such person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of
its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 15 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall
have notified the Manager in writing within a reasonable time after the
summons, notice, or other first legal process or notice giving
information of the nature of the claim shall have been served upon such
Portfolio Manager Indemnified Person (or after such Portfolio Manager
Indemnified Person shall have received notice of such service on any
designated agent), but failure to notify the Manager of any such claim
shall not relieve the Manager from any liability which it may have to the
Portfolio Manager Indemnified Person against whom such action is brought
otherwise than on account of this Section 15. In case any such action is
brought against the Portfolio Manager Indemnified Person, the Manager
will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Portfolio Manager Indemnified Person, to
assume the defense thereof, with counsel satisfactory to the Portfolio
Manager Indemnified Person. If the Manager assumes the defense of any
such action and the selection of counsel by the Manager to represent both
the Manager and the Portfolio Manager Indemnified Person would result in
a conflict of interests and therefore, would not, in the reasonable
judgment of the Portfolio Manager Indemnified Person, adequately
represent the interests of the Portfolio Manager Indemnified Person, the
Manager will, at its own expense, assume the defense with counsel to the
Manager and, also at its own expense, with separate counsel to the
Portfolio Manager Indemnified Person, which counsel shall be satisfactory
to the Manager and to the Portfolio Manager Indemnified Person. The
Portfolio Manager Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Manager shall not be
liable to the Portfolio Manager Indemnified Person under this Agreement
for any legal or other expenses subsequently incurred by the Portfolio
Manager Indemnified Person independently in connection with the defense
thereof other than reasonable costs of investigation. The Manager shall
not have the right to compromise on or settle the litigation without the
prior written consent of the Portfolio Manager Indemnified Person if the
compromise or settlement results, or may result in a finding of
wrongdoing on the part of the Portfolio Manager Indemnified Person.
(d) The Portfolio Manager shall not be liable under Paragraph (b)
of this Section 15 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified
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Person shall have
notified the Portfolio Manager in writing within a reasonable time after
the summons, notice, or other first legal process or notice giving
information of the nature of the claim shall have been served upon such
Manager Indemnified Person (or after such Manager Indemnified Person
shall have received notice of such service on any designated agent), but
failure to notify the Portfolio Manager of any such claim shall not
relieve the Portfolio Manager from any liability which it may have to the
Manager Indemnified Person against whom such action is brought otherwise
than on account of this Section 15. In case any such action is brought
against the Manager Indemnified Person, the Portfolio Manager will be
entitled to participate, at its own expense, in the defense thereof or,
after notice to the Manager Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Manager Indemnified Person. If
the Portfolio Manager assumes the defense of any such action and the
selection of counsel by the Portfolio Manager to represent both the
Portfolio Manager and the Manager
Indemnified Person would result in a conflict of interests and
therefore, would not, in the reasonable judgment of the Manager
Indemnified Person, adequately represent the interests of the Manager
Indemnified Person, the Portfolio Manager will, at its own expense,
assume the defense with counsel to the Portfolio Manager and, also
at its own expense, with separate counsel to the Manager Indemnified
Person which counsel shall be satisfactory to the Portfolio Manager
and to the Manager Indemnified Person. The Manager Indemnified Person
shall bear the fees and expenses of any additional counsel retained by
it, and the Portfolio Manager shall not be liable to the Manager
Indemnified Person under this Agreement for any legal or other expenses
subsequently incurred by the Manager Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The Portfolio Manager shall not have the right to compromise
on or settle the litigation without the prior written consent of the Manager
Indemnified Person if the compromise or settlement results, or may result
in a finding of wrongdoing on the part of the Manager Indemnified Person.
(e) The Manager shall not be liable under this Section 15 to
indemnify and hold harmless the Portfolio Manager and the Portfolio
Manager shall not be liable under this Section 15 to indemnify and hold
harmless the Manager with respect to any losses, claims, damages,
liabilities, or litigation that first become known to the party seeking
indemnification during any period that the Portfolio Manager is, within
the meaning of Section 15 of the 1933 Act, a controlling person of the
Manager.
16. DURATION AND TERMINATION. This Agreement shall become
effective on the date first indicated above. Unless terminated as
provided herein, the Agreement shall remain in full force and effect for
two (2) years from such date and continue on an annual basis thereafter
with respect to each Series; provided that such annual continuance is
specifically approved each year by (a) the vote of a majority of the
entire Board of Trustees of the Trust, or by the vote of a 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
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addition, this Agreement
shall terminate with respect to a Series in the event that it is not
initially approved by the vote of a majority of the outstanding voting
securities of that Series at a meeting of shareholders at which approval
of the Agreement shall be considered by shareholders of the Series. In
the event of termination for any reason, all records of each Series for
which the Agreement is terminated shall promptly be returned to the
Manager or the Trust, free from any claim or retention of rights in such
records by the Portfolio Manager, although the Portfolio Manager may,
at its own expense, make and retain a copy of such records. The
Agreement shall automatically terminate in the event of its assignment
(as such term is described in the 1940 Act). In the event this
Agreement is terminated or is not approved in the manner described
above, the Sections or Paragraphs numbered 2(f), 9, 10, 11, 14, 15,
and 18 of this Agreement shall remain in effect, as well as any
applicable provision of this Paragraph numbered 16.
17. AMENDMENTS. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective until approved by an affirmative vote of (i)
the holders of a majority of the outstanding voting securities of the
Series, and (ii) the Trustees of the Trust, including a majority of the
Trustees of the Trust who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting
on such approval, if such approval is required by applicable law.
18. USE OF NAME.
(a) It is understood that the name "Directed Services, Inc." or any
derivative thereof or logo associated with that name is the valuable
property of the Manager and/or its affiliates, and that the Portfolio
Manager has the right to use such name (or derivative or logo) only with
the approval of the Manager and only so long as the Manager is Manager to
the Trust and/or the Series. Upon termination of the Management
Agreement between the Trust and the Manager, the Portfolio Manager shall
as soon as is reasonably possible cease to use such name (or derivative
or logo).
(b) It is understood that the name "Janus" 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, only
as stated in Section 11, and only for so long as the Portfolio Manager is
a portfolio manager to the Trust and/or the Series. Upon termination of
this Agreement between the Trust, the Manager, and the Portfolio Manager,
the Trust shall as soon as is reasonably possible cease to use such name
(or derivative or logo).
19. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A
copy of the Amended and Restated Agreement and Declaration of Trust for
the Trust is on file with the Secretary of the Commonwealth of
Massachusetts. The Amended and Restated Agreement and Declaration of
Trust has been executed on behalf of the Trust by Trustees of the Trust
in their capacity as Trustees of the Trust and not individually. The
obligations of this Agreement shall be binding upon the assets and
property of the Trust and shall not be binding upon any Trustee, officer,
or shareholder of the Trust individually.
20. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the State of
Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of
the SEC thereunder. The term "affiliate" or "affiliated person" as used
in this Agreement shall mean "affiliated person" as defined in Section
2(a)(3) of the 1940 Act.
(b) The captions of this Agreement are included for convenience
only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) To the extent permitted under Section 16 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
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(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, and to this extent, the
provisions of this Agreement shall be deemed to be severable.
(e) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent of the Manager, or constituting the Manager as an
agent of the Portfolio Manager.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed as of the day and year first above written.
THE GCG TRUST
Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman
------------------ --------------------
Title: Assistant Secretary Title: Secretary
------------------- ---------
DIRECTED SERVICES, INC.
Attest /s/ Marilyn Talman By: /s/ David L. Jacobson
------------------- ---------------------
Title: Assistant Secretary Title: Senior Vice President
------------------- ---------------------
and Vice President
JANUS CAPITAL CORPORATION
Attest /s/ Verna Morris By: /s/ Bonnie Howe
---------------- ---------------
Title: Legal Secretary Title: Assistant Vice President
--------------- ------------------------
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the
attached Portfolio Management Agreement, to which Janus Capital
Corporation shall act as Portfolio Manager are as follows:
Growth Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by ("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 FEE
Growth Series 0.55% on first $100 million;
0.50% on next $400 million;
0.45% on amounts in excess of $500 million.
EXHIBIT (d)(2)(N)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 26th day of February, 1999, among The
GCG Trust (the "Trust"), a Massachusetts business trust, Directed
Services, Inc. (the "Manager"), a New York corporation, and
Alliance Capital Management L.P. ("Portfolio Manager"), a
Delaware limited partnership.
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end,
management investment company;
WHEREAS, the Trust is authorized to issue separate series,
each of which will offer a separate class of shares of beneficial
interest, each series having its own investment objective or
objectives, policies, and limitations;
WHEREAS, the Trust currently offers shares in multiple
series, may offer shares of additional series in the future, and
intends to offer shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, effective as of
October 24, 1997, a copy of which has been provided to the
Portfolio Manager, the Trust has retained the Manager to render
advisory, management, and administrative services to many of the
Trust's series;
WHEREAS, the Trust and the Manager wish to retain the
Portfolio Manager to furnish investment advisory services to one
or more of the series of the Trust, and the Portfolio Manager is
willing to furnish such services to the Trust and the Manager;
NOW THEREFORE, in consideration of the premises and the
promises and mutual covenants herein contained, it is agreed
between the Trust, the Manager, and the Portfolio Manager as
follows:
1. APPOINTMENT. The Trust and the Manager hereby
appoints Alliance Capital Management L.P. as Portfolio Manager to
the Series designated on Schedule A of this Agreement (each a
"Series") for the periods and on the terms set forth in this
Agreement. The Portfolio Manager accepts such appointment and
agrees to furnish the services herein set forth for the
compensation herein provided.
In the event the Trust designates one or more series
other than the Series with respect to which the Trust and the
Manager wish to retain the Portfolio Manager to render investment
advisory services hereunder, they shall promptly notify the
Portfolio Manager in writing. If the Portfolio Manager is
willing to render such services, it shall so notify the Trust and
Manager in writing, whereupon such series shall become a Series
hereunder, and be subject to this Agreement.
2. PORTFOLIO MANAGEMENT DUTIES. Subject to the
supervision of the Trust's Board of Trustees and the Manager, the
Portfolio Manager will provide a continuous investment program
for each Series' portfolio and determine the composition of the
assets of each Series' portfolio, including determination of the
purchase, retention, or sale of the securities, cash, and other
investments contained in the portfolio. The Portfolio Manager
will provide investment research and conduct a continuous program
of evaluation, investment, sales, and reinvestment of each
Series' assets by determining the securities and other
investments that shall be purchased, entered into, sold, closed,
or exchanged for the Series, when these transactions should be
executed, and what portion of the assets of each Series should be
held in the various securities and other investments in which it
may invest, and the Portfolio Manager is hereby authorized to
execute and perform such services on behalf of each Series. To
the extent permitted by the investment policies of the Series,
the Portfolio Manager shall make decisions for the Series as to
foreign currency matters and make determinations as to and
execute and perform foreign currency exchange contracts on behalf
of the Series. The Portfolio Manager will provide the services
under this Agreement in accordance with the Series' investment
objective or objectives, policies, and restrictions as stated in
the Trust's Registration Statement filed with the Securities
and Exchange Commission (the "SEC"), as from time to time
amended, copies of which shall be sent to the Portfolio Manager
by the Manager upon filing with the SEC. The Portfolio Manager
further agrees as follows:
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(a) The Portfolio Manager will (1) manage each Series
so that no action or omission on the part of the Portfolio
Manager will cause a Series to fail to meet the requirements to
qualify as a regulated investment company specified in Section
851 of the Internal Revenue Code (other than the requirements for
the Trust to register under the 1940 Act and to file with its tax
return an election to be a regulated investment company, both of
which shall not be the responsibility of the Portfolio Manager),
(2) manage each Series so that no action or omission on the part
of the Portfolio Manager shall cause a Series to fail to comply
with the diversification requirements of Section 817(h) of the
Internal Revenue Code and regulations issued thereunder, and (3)
use reasonable efforts to manage the Series so that no action or
omission on the part of the Portfolio Manager shall cause a
Series to fail to comply with any other rules and regulations
pertaining to investment vehicles underlying variable annuity or
variable life insurance policies. The Manager will notify the
Portfolio Manager promptly if the Manager believes that a Series
is in violation of any requirement specified in the first
sentence of this paragraph. The Manager or the Trust will notify
the Portfolio Manager of any pertinent changes, modifications to,
or interpretations of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder and of rules or regulations
pertaining to investment vehicles underlying variable annuity or
variable life insurance policies.
(b) The Portfolio Manager will perform its duties
hereunder pursuant to the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the
Trust's Board of Trustees of which the Portfolio Manager has been
notified in writing, and the provisions of the Registration
Statement of the Trust under the Securities Act of 1933 (the
"1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy ("Registration
Statement"). The Manager or the Trust will notify the Portfolio
Manager of pertinent provisions of applicable state insurance law
with which the Portfolio Manager must comply under this Paragraph
2(b).
(c) On occasions when the Portfolio Manager deems the
purchase or sale of a security to be in the best interest of a
Series as well as of other investment advisory clients of the
Portfolio Manager or any of its affiliates, the Portfolio Manager
may, to the extent permitted by applicable laws and regulations,
but shall not be obligated to, aggregate the securities to be so
sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in
the Registration Statement. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the
Portfolio Manager in the exercise of its fiduciary obligations to
the Trust and to such other clients, subject to review by the
Manager and the Board of Trustees.
(d) In connection with the purchase and sale of
securities for a Series, the Portfolio Manager will arrange for
the transmission to the custodian and portfolio accounting agent
for the Series on a daily basis, such confirmation, trade
tickets, and other documents and information, including, but not
limited to, Cusip, Sedol, or other numbers that identify
securities to be purchased or sold on behalf of the Series, as
may be reasonably necessary to enable the custodian and portfolio
accounting agent to perform its administrative and recordkeeping
responsibilities with respect to the Series. With respect to
portfolio securities to be purchased or sold through the
Depository Trust Company, the Portfolio Manager will arrange for
the automatic transmission of the confirmation of such trades to
the Trust's custodian and portfolio accounting agent.
(e) The Portfolio Manager will assist the portfolio
accounting agent for the Trust in determining or confirming,
consistent with the procedures and policies stated in the
Registration Statement for the Trust, the value of any portfolio
securities or other assets of the Series for which the portfolio
accounting agent seeks assistance from or identifies for review
by the Portfolio Manager, and the parties agree that the
Portfolio Manager shall not bear responsibility or liability for
the determination or accuracy of the valuation of any portfolio
securities and other assets of the Series except to the extent
that the Portfolio Manager exercises judgment with respect to any
such valuation.
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(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:
(i) been convicted, in the last ten (10) years,
of any felony or misdemeanor arising out of conduct
involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities, involving
violations of Sections 1341, 1342, or 1343 of Title 18,
United States Code, or involving the purchase or sale
of any security; or
(ii) been found by any state regulatory
authority, within the last ten (10) years, to have
violated or to have acknowledged violation of any
provision of any state insurance law involving fraud,
deceit, or knowing misrepresentation; or
(iii) been found by any federal or state
regulatory authorities, within the last ten (10) years,
to have violated or to have acknowledged violation of
any provision of federal or state securities laws
involving fraud, deceit, or knowing misrepresentation.
3. BROKER-DEALER SELECTION. The Portfolio Manager is
responsible for decisions to buy and sell securities and other
investments for each Series' portfolio, broker-dealer selection,
and negotiation of brokerage commission rates. The Portfolio
Manager's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series,
taking into account the factors specified in the prospectus
and/or statement of additional information for the Trust, which
include price (including the applicable brokerage commission
or dollar spread), the size of the order, the nature of the
market for the security, the timing of the transaction, the
reputation, the experience and financial stability of the
broker-dealer involved, the quality of the service, the
difficulty of execution, and the execution capabilities
and operational facilities of the firms involved, and the
firm's risk in positioning a block of securities.
Accordingly, the price to the Series in any transaction may
be less favorable than that available from another broker-
dealer if the difference is reasonably justified, in the
judgment of the Portfolio Manager in the exercise of its
fiduciary obligations to the Trust, by other aspects of the
portfolio execution services offered. Subject to such policies
as the Board of Trustees may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted
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unlawfully
or to have breached any duty created by this Agreement
or otherwise solely by reason of its having caused the Series to
pay a broker-dealer for effecting a portfolio investment
transaction in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction, if the
Portfolio Manager or its affiliate determines in good faith that
such amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such broker-
dealer, viewed in terms of either that particular transaction or
the Portfolio Manager's or its affiliate's overall
responsibilities with respect to the Series and to their other
clients as to which they exercise investment discretion. To the
extent consistent with these standards, the Portfolio Manager is
further authorized to allocate the orders placed by it on behalf
of the Series to the Portfolio Manager if it is registered as a
broker-dealer with the SEC, to its affiliated broker-dealer, or
to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the
Portfolio Manager, or an affiliate of the Portfolio Manager.
Such allocation shall be in such amounts and proportions as the
Portfolio Manager shall determine consistent with the above
standards, and the Portfolio Manager will report on said
allocation regularly to the Board of Trustees of the Trust
indicating the broker-dealers to which such allocations have been
made and the basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio
Manager has reviewed the post-effective amendment to the
Registration Statement for the Trust filed with the SEC that
contains disclosure about the Portfolio Manager, and represents
and warrants that, with respect to the disclosure about or
information relating, directly or indirectly, to the Portfolio
Manager, to the Portfolio Manager's knowledge, such Registration
Statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material
fact which was required to be stated therein or necessary to make
the statements contained therein not misleading. The Portfolio
Manager further represents and warrants that it is a duly
registered investment adviser under the Advisers Act, or
alternatively that it is not required to be a registered
investment adviser under the Advisers Act to perform the duties
described in this Agreement, and that it is a duly registered
investment adviser in all states in which the Portfolio Manager
is required to be registered.
5. EXPENSES. During the term of this Agreement, the
Portfolio Manager will pay all expenses incurred by it and its
staff and for their activities in connection with its portfolio
management duties under this Agreement. The Manager or the Trust
shall be responsible for all the expenses of the Trust's
operations including, but not limited to:
(a) Expenses of all audits by the Trust's independent
public accountants;
(b) Expenses of the Series' transfer agent, registrar,
dividend disbursing agent, and shareholder recordkeeping
services;
(c) Expenses of the Series' custodial services
including recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating
the value of each Series' net assets;
(e) Expenses of obtaining Portfolio Activity Reports
and Analyses of International Management Reports (as appropriate)
for each Series;
(f) Expenses of maintaining the Trust's tax records;
(g) Salaries and other compensation of any of the
Trust's executive officers and employees, if any, who are not
officers, directors, stockholders, or employees of the Portfolio
Manager or an affiliate of the Portfolio Manager;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with
the purchase and sale of portfolio securities for the Series;
(j) Costs, including the interest expense, of
borrowing money;
(k) Costs and/or fees incident to meetings of the
Trust's shareholders, the preparation and mailings of
prospectuses and reports of the Trust to its shareholders, the
filing of reports
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with regulatory bodies, the maintenance of the
Trust's existence, and the regulation of shares with federal and
state securities or insurance authorities;
(l) The Trust's legal fees, including the legal fees
related to the registration and continued qualification of the
Trust's shares for sale;
(m) Costs of printing stock certificates representing
shares of the Trust;
(n) Trustees' fees and expenses to trustees who are
not officers, employees, or stockholders of the Portfolio Manager
or any affiliate thereof;
(o) The Trust's pro rata portion of the fidelity bond
required by Section 17(g) of the 1940 Act, or other insurance
premiums;
(p) Association membership dues;
(q) Extraordinary expenses of the Trust as may arise
including expenses incurred in connection with litigation,
proceedings, and other claims (unless the Portfolio Manager is
responsible for such expenses under Section 14 of this
Agreement), and the legal obligations of the Trust to indemnify
its Trustees, officers, employees, shareholders, distributors,
and agents with respect thereto; and
(r) Organizational and offering expenses.
6. COMPENSATION. For the services provided, the
Manager will pay the Portfolio Manager a fee, payable as
described in Schedule B.
7. SEED MONEY. The Manager agrees that the Portfolio
Manager shall not be responsible for providing money for the
initial capitalization of the Series.
8. COMPLIANCE.
(a) The Portfolio Manager agrees that it shall
promptly notify the Manager and the Trust (1) in the event that
the SEC or other governmental authority has censured the
Portfolio Manager; placed limitations upon its activities,
functions or operations; suspended or revoked its registration,
if any, as an investment adviser; or has commenced proceedings or
an investigation that may result in any of these actions, (2)
upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, or (3)
upon having a reasonable basis for believing that the Series has
ceased to comply with the diversification provisions of Section
817(h) of the Internal Revenue Code or the regulations
thereunder. The Portfolio Manager further agrees to notify the
Manager and the Trust promptly of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager
that is not contained in the Registration Statement or prospectus
for the Trust, or any amendment or supplement thereto, and is
required to be stated therein or necessary to make the statements
therein not misleading, or of any statement contained therein
that becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately
notify the Portfolio Manager (1) in the event that the SEC has
censured the Manager or the Trust; placed limitations upon either
of their activities, functions, or operations; suspended or
revoked the Manager's registration as an investment adviser; or
has commenced proceedings or an investigation that may result in
any of these actions, (2) upon having a reasonable basis for
believing that the Series has ceased to qualify or might not
qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code, or (3) upon having a reasonable basis
for believing that the Series has ceased to comply with the
diversification provisions of Section 817(h) of the Internal
Revenue Code or the Regulations thereunder.
9. BOOKS AND RECORDS. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, the Portfolio
Manager hereby agrees that all records which it maintains for the
Series are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the
Trust's or the Manager's request, although the Portfolio Manager
may, at its own expense, make and retain a copy of such records.
The Portfolio Manager further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by
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Rule 31a-l(b)(2)(iii), (5), (6), (7), (9) and
(10) under the 1940 Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in the
Rule.
10. COOPERATION. Each party to this Agreement agrees
to cooperate with each other party and with all appropriate
governmental authorities having the requisite jurisdiction
(including, but not limited to, the SEC and state insurance
regulators) in connection with any investigation or inquiry
relating to this Agreement or the Trust.
11. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER.
(a) During the term of this Agreement, the Trust and
the Manager agree to furnish to the Portfolio Manager at its
principal offices prior to use thereof copies of all Registration
Statements and amendments thereto, prospectuses, proxy
statements, reports to shareholders, sales literature or other
material prepared for distribution to shareholders of the Trust
or any Series or to the public that refer or relate in any way to
the Portfolio Manager, Alliance Capital Management L.P. or any of
its affiliates (other than the Manager), or that use any
derivative of the name Alliance Capital Management L.P. 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. CONTROL. Notwithstanding any other provision of
the Agreement, it is understood and agreed that the Trust shall
at all times retain the ultimate responsibility for and control
of all functions performed pursuant to this Agreement and reserve
the right to direct, approve, or disapprove any action hereunder
taken on its behalf by the Portfolio Manager.
13. SERVICES NOT EXCLUSIVE. It is understood that the
services of the Portfolio Manager are not exclusive, and nothing
in this Agreement shall prevent the Portfolio Manager (or its
affiliates) from providing similar services to other clients,
including investment companies (whether or not their investment
objectives and policies are similar to those of the Series) or
from engaging in other activities.
14. LIABILITY. Except as may otherwise be required by
the 1940 Act or the rules thereunder or other applicable law, the
Trust and the Manager agree that the Portfolio Manager, any
affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act,
controls the Portfolio Manager shall not be liable for, or
subject to any damages, expenses, or losses in connection with,
any act or omission connected with or arising out of any services
rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
the Portfolio Manager's duties, or by reason of reckless
disregard of the Portfolio Manager's obligations and duties under
this Agreement.
15. INDEMNIFICATION.
(a) Notwithstanding Section 14 of this Agreement, the
Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager (other
than the Manager), and each person, if any, who, within the
meaning of Section 15 of the 1933 Act controls ("controlling
person") the Portfolio Manager (all of such persons being
referred to as
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"Portfolio Manager Indemnified Persons") against
any and all losses, claims, damages, liabilities, or litigation
(including legal and other expenses) to which a Portfolio Manager
Indemnified Person may become subject under the 1933 Act, the
1940 Act, the Advisers Act, the Internal Revenue Code, under any
other statute, at common law or otherwise, arising out of the
Manager's responsibilities to the Trust which (1) may be based
upon any misfeasance, malfeasance, or nonfeasance by the Manager,
any of its employees or representatives or any affiliate of or
any person acting on behalf of the Manager or (2) may be based
upon any untrue statement or alleged untrue statement of a
material fact supplied by, or which is the responsibility of, the
Manager and contained in the Registration Statement or prospectus
covering shares of the Trust or a Series, or any amendment
thereof or any supplement thereto, or the omission or alleged
omission to state therein a material fact known or which should
have been known to the Manager and was required to be stated
therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in
reliance upon information furnished to the Manager or the
Trust or to any affiliated person of the Manager by a Portfolio
Manager Indemnified Person; provided however, that in no case shall
the indemnity in favor of the Portfolio Manager Indemnified Person
be deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
its duties, or by reason of its reckless disregard of obligations
and duties under this Agreement.
(b) Notwithstanding Section 14 of this Agreement, the
Portfolio Manager agrees to indemnify and hold harmless the
Manager, any affiliated person of the Manager (other than the
Portfolio Manager), and each person, if any, who, within the
meaning of Section 15 of the 1933 Act, controls ("controlling
person") the Manager (all of such persons being referred to as
"Manager Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and
other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, the
Internal Revenue Code, under any other statute, at common law or
otherwise, arising out of the Portfolio Manager's responsibili
ties as Portfolio Manager of the Series which (1) may be based
upon any misfeasance, malfeasance, or nonfeasance by the
Portfolio Manager, any of its employees or representatives, or
any affiliate of or any person acting on behalf of the Portfolio
Manager, (2) may be based upon a failure to comply with Section
2, Paragraph (a) of this Agreement, or (3) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or prospectus covering
the shares of the Trust or a Series, or any amendment or
supplement thereto, or the omission or alleged omission to state
therein a material fact known or which should have been known to
the Portfolio Manager and was required to be stated therein or
necessary to make the statements therein not misleading, if such
a statement or omission was made in reliance upon information
furnished to the Manager, the Trust, or any affiliated person of
the Manager or Trust by the Portfolio Manager or any affiliated
person of the Portfolio Manager; provided, however, that in no
case shall the indemnity in favor of a Manager Indemnified Person
be deemed to protect such person against any liability to which
any such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of
its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph
(a) of this Section 15 with respect to any claim made against a
Portfolio Manager Indemnified Person unless such Portfolio
Manager Indemnified Person shall have notified the Manager in
writing within a reasonable time after the summons, notice, or
other first legal process or notice giving information of the
nature of the claim shall have been served upon such Portfolio
Manager Indemnified Person (or after such Portfolio Manager
Indemnified Person shall have received notice of such service on
any designated agent), but failure to notify the Manager of any
such claim shall not relieve the Manager from any liability which
it may have to the Portfolio Manager Indemnified Person against
whom such action is brought otherwise than on account of this
Section 15. In case any such action is brought against the
Portfolio Manager Indemnified Person, the Manager will be
entitled to participate, at its own expense, in the defense
thereof or, after
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notice to the Portfolio Manager Indemnified
Person, to assume the defense thereof, with counsel satisfactory
to the Portfolio Manager Indemnified Person. If the Manager
assumes the defense of any such action and the selection of
counsel by the Manager to represent both the Manager and the
Portfolio Manager Indemnified Person would result in a conflict
of interests and therefore, would not, in the reasonable judgment
of the Portfolio Manager Indemnified Person, adequately represent
the interests of the Portfolio Manager Indemnified Person, the
Manager will, at its own expense, assume the defense with counsel
to the Manager and, also at its own expense, with separate
counsel to the Portfolio Manager Indemnified Person, which
counsel shall be satisfactory to the Manager and to the Portfolio
Manager Indemnified Person. The Portfolio Manager Indemnified
Person shall bear the fees and expenses of any additional counsel
retained by it, and the Manager shall not be liable to the
Portfolio Manager Indemnified Person under this Agreement for any
legal or other expenses subsequently incurred by the Portfolio
Manager Indemnified Person independently in connection with the
defense thereof other than reasonable costs of investigation.
The Manager shall not have the right to compromise on or settle
the litigation without the prior written consent of the Portfolio
Manager Indemnified Person if the compromise or
settlement results, or may result in a finding of wrongdoing on
the part of the Portfolio Manager Indemnified Person.
(d) The Portfolio Manager shall not be liable under
Paragraph (b) of this Section 15 with respect to any claim made
against a Manager Indemnified Person unless such Manager
Indemnified Person shall have notified the Portfolio Manager in
writing within a reasonable time after the summons, notice, or
other first legal process or notice giving information of the
nature of the claim shall have been served upon such Manager
Indemnified Person (or after such Manager Indemnified Person
shall have received notice of such service on any designated
agent), but failure to notify the Portfolio Manager of any such
claim shall not relieve the Portfolio Manager from any liability
which it may have to the Manager Indemnified Person against whom
such action is brought otherwise than on account of this Section
15. In case any such action is brought against the Manager
Indemnified Person, the Portfolio Manager will be entitled to
participate, at its own expense, in the defense thereof or, after
notice to the Manager Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Manager Indemnified
Person. If the Portfolio Manager assumes the defense of any such
action and the selection of counsel by the Portfolio Manager to
represent both the Portfolio Manager and the Manager Indemnified
Person would result in a conflict of interests and therefore,
would not, in the reasonable judgment of the Manager Indemnified
Person, adequately represent the interests of the Manager
Indemnified Person, the Portfolio Manager will, at its own
expense, assume the defense with counsel to the Portfolio Manager
and, also at its own expense, with separate counsel to the
Manager Indemnified Person which counsel shall be satisfactory to
the Portfolio Manager and to the Manager Indemnified Person. The
Manager Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Portfolio Manager
shall not be liable to the Manager Indemnified Person under this
Agreement for any legal or other expenses subsequently incurred
by the Manager Indemnified Person independently in connection
with the defense thereof other than reasonable costs of
investigation. The Portfolio Manager shall not have the right to
compromise on or settle the litigation without the prior written
consent of the Manager Indemnified Person if the compromise or
settlement results, or may result in a finding of wrongdoing on
the part of the Manager Indemnified Person.
(e) The Manager shall not be liable under this Section
15 to indemnify and hold harmless the Portfolio Manager and the
Portfolio Manager shall not be liable under this Section 15 to
indemnify and hold harmless the Manager with respect to any
losses, claims, damages, liabilities, or litigation that first
become known to the party seeking indemnification during any
period that the Portfolio Manager is, within the meaning of
Section 15 of the 1933 Act, a controlling person of the Manager.
16. DURATION AND TERMINATION. This Agreement shall
become effective on the date first indicated above. Unless
terminated as provided herein, the Agreement shall remain in full
force and effect for two (2) years from such date and continue on
an annual basis thereafter with respect to each
8
<PAGE>
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, 14, 15, and 18 of this
Agreement shall remain in effect, as well as any applicable
provision of this Paragraph numbered 16.
17. AMENDMENTS. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a
majority of the outstanding voting securities of the Series, and
(ii) the Trustees of the Trust, including a majority of the
Trustees of the Trust who are not interested persons of any party
to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required
by applicable law.
18. USE OF NAME.
(a) It is understood that the name "Directed Services,
Inc." or any derivative thereof or logo associated with that name
is the valuable property of the Manager and/or its affiliates,
and that the Portfolio Manager has the right to use such name (or
derivative or logo) only with the approval of the Manager and
only so long as the Manager is Manager to the Trust and/or the
Series. Upon termination of the Management Agreement between the
Trust and the Manager, the Portfolio Manager shall as soon as is
reasonably possible cease to use such name (or derivative or
logo).
(b) It is understood that the name "Alliance Capital
Management L.P." or any derivative thereof or logo associated
with that name is the valuable property of the Portfolio Manager
and its affiliates and that the Trust and/or the Series have the
right to use such name (or derivative or logo) in offering
materials of the Trust with the approval of the Portfolio Manager
and for so long as the Portfolio Manager is a portfolio manager
to the Trust and/or the Series. Upon termination of this
Agreement between the Trust, the Manager, and the Portfolio
Manager,
9
<PAGE>
the Trust shall as soon as is reasonably possible cease
to use such name (or derivative or logo).
19. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF
TRUST. A copy of the Amended and Restated Agreement and
Declaration of Trust for the Trust is on file with the Secretary
of the Commonwealth of Massachusetts. The Amended and Restated
Agreement and Declaration of Trust has been executed on behalf of
the Trust by Trustees of the Trust in their capacity as Trustees
of the Trust and not individually. The obligations of this
Agreement shall be binding upon the assets and property of the
Trust and shall not be binding upon any Trustee, officer, or
shareholder of the Trust individually.
20. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of
the State of Delaware, provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, the
Advisers Act or rules or orders of the SEC thereunder. The term
"affiliate" or "affiliated person" as used in this Agreement
shall mean "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(b) The captions of this Agreement are included for
convenience only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
(c) To the extent permitted under Section 16 of this
Agreement, this Agreement may only be assigned, as that term is
defined in the 1940 Act, by any party with the prior written
consent of the other parties. The Portfolio Manager hereby agrees
to notify the Manager and the Trust of any change in the
membership of its general partners within a reasonable time after
such change.
(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.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the day and year first above
written.
THE GCG TRUST
Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman
------------------- ---------------------
Title: Assistant Secretary Title: Secretary
------------------- ---------
DIRECTED SERVICES, INC.
Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman
------------------- ---------------------
Title: President and Assistant Title: Executive Vice
----------------------- -------------------
Secretary President
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation,
General Partner
Attest /s/ David M. Lesser By: /s/ Mark R. Maley
-------------------- --------------------
Title: Admistrative Officer Title: Assistant Secretary
--------------------- --------------------
11
<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the
attached Portfolio Management Agreement, to which Alliance Capital
Management L.P. shall act as Portfolio Manager are as follows:
Growth & Income Series
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Alliance Capital Management
L.P. 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:
Growth & Income Series 0.75% on first $10 million in assets;
0.625% on next $10 million;
0.50% on next $20 million;
0.375% on next $20 million; and
0.25% on amounts in excess of $60 million.
12
EXHIBIT (d)(2)(O)
AMENDED SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the
attached Portfolio Management Agreement, to which T. Rowe Price
Associates, Inc. shall act as Portfolio Manager is as follows:
Fully Managed Series
Equity Income Series
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the 26th day February, 1999.
THE GCG TRUST
Attest /s/Marilyn Talman By: /s/ Myles R. Tashman
----------------- ---------------------
Title: Assistant Secretary Title: Secretary
------------------- ---------
DIRECTED SERVICES, INC.
Attest /s/Marilyn Talman By: /s/ Myles R. Tashman
------------------ --------------------
Title: Vice President Title: Executive Vice President
----------------------- ------------------------
and Assistant Secretary
T. ROWE PRICE ASSOCIATES, INC.
Attest /s/ Catherine Berkenkemper By: /s/ Darrell Braman
-------------------------- ------------------
Title: Assistant Vice President Title: Vice President
------------------------ --------------
A-1
<PAGE>
AMENDED SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by T. Rowe Price Associates, Inc.
("Portfolio Manager") to the following Series of The GCG Trust, pursuant
to the attached Portfolio Management Agreement, the Manager will pay the
Portfolio Manager a fee, payable monthly, based on the average daily net
assets of the Series at the following annual rate of the average daily net
assets of the Series:
SERIES RATE
------ ----
Fully Managed Series 0.50%
Equity Income Series 0.40%
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the 26th day February, 1999.
THE GCG TRUST
Attest /s/Marilyn Talman By: /s/ Myles R. Tashman
----------------- --------------------
Title: Assistant Secretary Title: Secretary
------------------- ---------
DIRECTED SERVICES, INC.
Attest /s/Marilyn Talman By: /s/ Myles R. Tashman
------------------ --------------------
Title: Vice President Title: Executive Vice President
----------------------- ------------------------
and Assistant Secretary
T. ROWE PRICE ASSOCIATES, INC.
Attest /s/ Catherine Berkenkemper By: /s/ Darrell Braman
-------------------------- ------------------
Title: Assistant Vice President Title: Vice President
------------------------ --------------
B-1
EXHIBIT (d)(2)(O)
AMENDED SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by EII Realty Securities, Inc.
("Portfolio Manager") to the following Series of The GCG Trust,
pursuant to the attached Portfolio Management Agreement, the Manager
will pay the Portfolio Manager a fee, payable monthly, based on the
average daily net assets of the Series at the following annual rate
of the average daily net assets of the Series:
SERIES RATE
Real Estate Series 0.50% on first $70 million; and
0.40% on assets in excess of $70
million.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the 26th day February, 1999.
THE GCG TRUST
/s/Marily Talman By:/s/Myles R. Tashman
- -------------------------------- -------------------------------
Attest
Assistant Secretary Secretary
- -------------------------------- ----------------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marily Talman By:/s/Myles R. Tashman
- -------------------------------- -------------------------------
Attest
Vice President & Assistant Secretary
Secretary
- -------------------------------- ----------------------------------
Title Title
EII REALTY SECURITIES, INC.
/s/Lynn Marinaccio By:/s/Cydney C. Donnell
- -------------------------------- -------------------------------
Attest
Director of Client Services Managing Director
- -------------------------------- ----------------------------------
Title Title
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this _____ day of ____________________, 1991,
between The GCG Trust ("the Trust"), a Massachusetts business trust,
and Directed Services, Inc. (the "Administrator" or "DSI"), a New
York corporation (the "Agreement").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the
"1940 Act");and
WHEREAS, the Administrator is engaged in the business of
rendering consulting, administrative, and other services with respect
to financial services and products; and
WHEREAS, the Trust initially established seven series designated
as the Liquid Asset Series, the Limited Maturity Bond Series, the All-
Growth Series, the Natural Resources Series, the Real Estate Series,
the Fully Managed Series, and the Multiple Allocation Series
(collectively, the "Initial Series"), and the Trust has entered into
a Management Agreement with DSI under which DSI provides management
and administrative series to each of the Initial Series; and
WHEREAS, the Trust intends to offer shares in additional series
shown in the attached "Schedule A" (the Series), and the Trust may
offer shares of additional series in the future;
WHEREAS, the Trust desires to avail itself of the services of
the Administrator for the provision of administrative and other
services for the Series; and
WHEREAS, the Administrator is willing to render such services to
the Series;
NOW THEREFORE, in consideration of the premises, the promises
and mutual covenants herein contained, it is agreed between the
parties as follows:
1. Appointment. The Trust hereby appoints the Administrator to
provide administrative services, as described herein, with respect to
the Series designated on Schedule A of this Agreement (each a
"Series") subject to the direction of the Board of Trustees for the
period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
In the event the Trust establishes one or more series other than the
Series with respect to which it desires to retain the Administrator
to render administrative services hereunder, it shall notify the
Administrator in writing. If the Administrator is willing to render
such services it shall notify the Trust in writing, whereupon such
series shall become a Series hereunder.
2. Services of the Administrator. Subject to the general
supervision of the Board of Trustees of the Trust, the Administrator
shall provide the following administrative and other services with
respect to the Series;
(a) Coordinate all matters relating to the functions of the
Series' investment adviser, sub-adviser, if any, custodian,
transfer agent, dividend disbursing agent, recordkeeping agent
(including pricing and valuation of the Series' portfolios),
accountants, attorneys, and other parties performing services or
operational functions for the Series;
(b) Provide the Series, at the Administrator's expense, with the
services of the sufficient number of persons competent to perform
such administrative and clerical functions as are necessary to
provide effective supervision and administration of the Series;
(c) Maintain or supervise, as the case may be, the maintenance by
the investment adviser, sub-adviser, or third parties approved by
the Trust of such books and records of the Series as may be
required by applicable federal or state law;
(d) Prepare or supervise the preparation by third parties
approved by the Trust of all federal, state, and local tax returns
and reports of the Series required by applicable law;
(e) Prepare, file and arrange for the distribution of proxy
materials and periodic reports to shareholders of the Trust as
required by applicable law:
(f) Prepare and arrange for the filing of such registration
statements and other documents with the Securities and Exchange
Commission ("SEC") and other federal and state regulatory
authorities as may be required by applicable law;
-2-
<PAGE>
(g) Take such other action with respect to the Series, as may be
required by applicable law, including without limitation the rules
and regulations of the SEC and other regulatory agencies;
(h) Provide the Series at the Administrator's expense, with
adequate personnel, office space, communications facilities, and
other facilities necessary for its operations as contemplated in
this Agreement;
(i) Render to the Board of Trustees of the Trust such periodic
and special reports respecting the Series as the Board may
reasonably request; and
(j) Make available its officers and employees to the Board of
Trustees and officers of the Trust for consultation and
discussions regarding the administration of the Series.
3. Conformity with Applicable Law. The Administrator, in the
performance of its duties and obligations under this Agreement, shall
act in conformity with the Registration Statement of the Trust and
with the instructions and directions of the Board of Trustees of the
Trust and will conform to, and comply with, the requirements of the
1940 Act and all other applicable federal and state laws and
regulations.
4. Exclusivity. The services of the Administrator to the Series
under this Agreement are not to be deemed exclusive, and the
Administrator, or any affiliate thereof, shall be free to render
similar services to other investment companies and other clients
(whether or not their investment objectives and policies are similar
to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
5. Records. The Administrator agrees to maintain and to preserve
for the periods prescribed under the 1940 Act any such records as are
required to be maintained by the Adminstrator with respect to the
Series by the 1940 Act. The Administrator further agrees that all
records which it maintains for the Series are the property of the
Trust and it will promptly surrender any of such records upon
request.
6. Expenses. During the term of this Agreement, the Administrator
will pay all expenses incurred by it in connection with its
activities under this Agreement, except such expenses as
-3-
<PAGE>
are assumed
by the Trust or Series under this Agreement and such expenses as are
assumed by the investment adviser under an investment advisory
agreement or a sub-adviser under a sub-advisory agreement. The
Administrator further agrees to pay all salaries, fees and expenses
of any officer or director of the Trust who is an officer, director
or employee of the Administrator or any of its affiliates. The Trust
or Series, as appropriate, shall be responsible for all of the
expenses of its operations including, but not limited to, the
following expenses:
(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 investment adviser, sub-
adviser, if any, the Administrator or an affiliate thereof;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Trust;
(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
-4-
<PAGE>
Trust's existence, and the
registration 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 or
sale;
(m) Costs of printing stock certificates representing shares of
the Trust;
(n) Trustee' fees and expenses to trustees who are not officers,
employees, or stockholders of the investment adviser, sub-adviser,
the Administrator 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 as may arise, including expenses
incurred in connection with litigation, proceedings, and other claims
(unless the Administrator is responsible for such expenses under
Section 8 of this Agreement, the investment adviser is responsible
for such expenses under an investment advisory agreement with the
Trust, or the sub-adviser 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 and, if applicable,
reimbursement (with interest) of underwriting discounts and
commissions;
(s) Fees and expenses of data processing, recordkeeping, and
financial accounting services rendered to the Trust;
7. Compensation. For the services provided and the expenses borne
by the Administrator pursuant to Section 2 of this Agreement, the
Trust shall pay to the Administrator the fee stated in the attached
Schedule B.
8. Liability of the Administrator. Except as may otherwise be
required by the 1940 Act or the rules thereunder or other applicable
law, the Trust and the Administrator agree that the Administrator,
any affiliated person of the Administrator,
-5-
<PAGE>
and each person, if any,
who, within the meaning of Section 15 of the 1933 Act controls the
Administrator, shall not be liable for, or subject to any damages,
expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Administrator's duties, or by
reason of reckless disregard of the Administrator's obligations and
duties under this Agreement.
9. Continuation and Termination. This Agreement shall take effect
as of the date first written above, and shall continue in effect,
unless sooner terminated as provided herein, for two (2) years from
such date and shall continue from year to year thereafter with
respect to each Series so long as such continuance is specifically
approved at least annually (i ) by the vote of a majority of the
Board of Trustees of the Trust, and (ii) by the vote of a majority of
the Board of Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of the
Trust or the Administrator, cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated, in its entirety or with regard to
any Series hereunder, by the Trust at any time, without the payment
of any penalty, by vote of a majority of the Board of Trustees of the
Trust on sixty (60) days' written notice to the Administrator, or by
the Administrator at any time, without the payment of any penalty, on
sixty (60) days' written notice to the Trust.
10. Assignment. This Agreement may be assigned by either party only
upon the prior written consent of the other party.
11. Independent Contractor. The Administrator shall for all
purposes herein by deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Board
of Trustees of the Trust from time to time, have not authority to act
or represent the Trust in any way or otherwise be deemed its agent.
12. Notice. Notices of any kind to be given to the Administrator by
the Trust shall be in writing and shall be duly given if mailed or
delivered to the Administrator at 909 Third Avenue, New York, New
York 10022, or at such other address or to such individual as shall
be specified by the Administrator to the Trust. Notices of any kind
to be given to the Trust by the
-6-
<PAGE>
Administrator shall be in writing and
shall be duly given if mailed or delivered to 909 Third Avenue, New
York, New York 10022 or at such other address or to such individual
as shall be specified by the Trust to the Administrator.
13. Trust Obligation. A copy of the Trust's Agreement and
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and notice is hereby given that the
Agreement has been executed on behalf of the Trust by the Trustee of
the Trust in his or her capacity as Trustee and not individually.
The obligations of this Agreements shall only be binding upon the
assets and property of the Trust and shall not be binding upon any
trustee, officer, or shareholder of the Trust individually.
14. Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
15. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or any rules or
order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their afficers designated below
on the day and year first above written.
THE GCG TRUST
By:
- -------------------------------- -------------------------------
Attest Title
Title
DIRECTED SERVICES, INC.
By:
- -------------------------------- -------------------------------
Attest Title
Title
-8-
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION SERVICES AGREMEEMENT
The Series of The GCG Trust, as described in Section 1 of the
attached Administration Services Agremeement, to which Directed Services,
Inc. shall act as Administrator, are as follows:
The Masters Series
The Intermediate Bond Series
The Fund For Life Series
-9-
<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Administrator")
to the following Series of The GCG Trust, pursuant to the attached
Administrative Services Agreement, the Trust will pay the Administrator
a fee, accrued 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 FEE
The Masters Series .20%
The Intermediate Bond Series .20%
The Fund For Life Series .20%
-10-
<PAGE>
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of January 1, 1995,
among THE SHAREHOLDERS SERVICES GROUP, INC. a Massachusetts
corporation ("TSSG"), DIRECTED SERVICES, INC., a New York corporation
("DSI") and The GCG Trust, a Massachusetts business trust (the
"Trust").
WHEREAS, DSI has entered into a management agreement (the
"GoldenSelect Management Agreement"), dated October 1, 1993, with the
Trust on behalf of the Multiple Allocation Series, Fully Managed
Series, Limited Maturity Bond Series, Natural Resources Series, Real
Estate Series, All-Growth Series, Capital Appreciation Series, Rising
Dividends Series, Emerging Markets Series, Liquid Asset Series,
Market Manager Series, and Value Equity Series;
WHEREAS, the Trust is registered with the Securities and
Exchange Commission ("SEC") as an open-end management investment
company under the investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Trust currently offers shares of beneficial
interest in separate series and intends to offer shares of additional
series in the future;
WHEREAS, pursuant to the GoldenSelect Management Agreement, the
Trust has availed itself of the services of DSI for the provision of
advisory, management, administrative, and other services for the
Trust on behalf of the Multiple Allocation Series, Fully Managed
Series, Limited Maturity Bond Series, Natural Resources Series, Real
Estate Series, All-Growth Series, Capital Appreciation Series, Rising
Dividends Series, Emerging Markets Series, Liquid Asset Series,
Market Manager Series, and Value Equity Series;
WHEREAS, DSI and the Trust desire to retain TSSG to render
certain administrative and fund accounting services and TSSG is
willing to render such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto
as follows:
1. Appointment. DSI and the Trust hereby appoint TSSG as
Administrator and Accounting Services Agent to furnish administrative
services and fund accounting services on the terms set forth in this
Agreement with respect to series of the Trust identified on Schedule
A to this Agreement, such series together with all other series
subsequently established by the Trust for which the Trust, and/or DSI
desire to retain TSSG and for which TSSG is willing to do so being
herein collectively referred to as the "Series." TSSG agrees to
render the services herein set forth for the compensation herein
provided.
<PAGE>
2. Delivery of Documents. DSI has furnished TSSG with copies,
properly certified or authenticated by the Trust, of each of the
following:
(a) Resolutions of the Trust's Board of Trustee authorizing the
appointment of DSI as the Manager of the Trust and the Series
identified on Schedule A to provide advisory, management,
administration and other services with respect to the Series,
and to the extent applicable, authorizing DSI to retain service
providers, such as TSSG.
(b) The Trustee's Declaration of Trust filed with the Secretary of
State to the Commonwealth of Massachusetts on August 3, 1988,
and all amendments thereto (the "Declaration of Trust").
(c) The Trust's By-Laws and all amendments thereto (the "By-Laws");
(d) The Custody Agreement between Bankers Trust Company (the
"Custodian") and the Trust dated as of March 2, 1992 and as
amended October 1, 1993 and all amendments thereto (the
"Custody Agreement").
(e) The various Portfolio Management Agreements currently in effect
as of the date of this agreement between the Trust, DSI and the
various sub-advisers and all amendments thereto.
(f) The Trust's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1993 and
under the 1940 Act (File Nos. 33-23512 and 811-5629), as
declared effective by the Securities and Exchange Commission
("SEC") on October 3, 1994, relating to the Trust's shares of
beneficial interest, and all amendments thereto;
(g) The Trust's most recent prospectus (including all Series except
The Fund For Life and the Market Manager Series (the "Trust
Prospectus").
(h) The GoldenSelect Management Agreement, and all amendments
thereto.
DSI, as it deems appropriate, will furnish TSSG from time
to time with copies, properly certified or authenticated, of all
amendments of or supplements to the foregoing. Furthermore, DSI
will provide TSSG with any other documents that TSSG may
reasonably request and will notify TSSG as soon as possible of
any matter materially affecting the performance of TSSG of its
services under this Agreement.
3. Duties of Administrator and Accounting Services Agent. Subject
to the supervision and direction of DSI and the Board of Trustees of
the Trust, TSSG undertakes to perform the following specific
services set forth herein. TSSG also undertakes upon request to
perform the services described in Schedule C.
(a) Maintaining office facilities (which may be in the offices
of TSSG or a corporate affiliate);
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(b) Furnishing statistical and research, data processing
services, clerical services, and internal legal,
executive and administrative services and stationery and
office supplies in connection with the foregoing;
(c) Furnishing financial information and assisting DSI in the
preparation of materials for Board of Trustees meetings;
(d) Accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the
series as may be required by Section 31(a) of the 1940
Act and the rules thereunder);
(e) Internal auditing;
(f) Valuing the Series' assets and calculating the net asset
value of the shares of the Series at the close of trading on
the New York Stock Exchange daily and at such other times as
the Board of Trustees may reasonably request and reporting
such net asset value to such persons as may reasonably be
requested;
(g) Preparing reports, for DSI approval, to the Trust's
shareholders of record and the SEC including, but not
necessarily limited to, Annual Reports and Semi-Annual
Reports on Form N-SAR;
(h) Preparing and filing with DSI approval, various reports or
other documents required by federal, state and other
applicable laws and regulations and by stock exchanges on
which the shares of the fund are listed, other than those
filed or required to be filed by DSI;
(i) Preparing the Series' tax returns, including any supporting
schedules, necessary for the timely filing thereof;
(j) Developing compliance procedures for the Trust which will
include, among other matters, procedures in monitoring
compliance with the Series investment objectives, policies,
restrictions, tax matters and applicable laws and
regulations including, but not limited to, Section 817(h)
and Subchapter M of the Internal Revenue Code of 1986, as
amended. Preparation and analysis of applicable compliance
tests each month-end and notification of results to DSI to
assist in DSI's role as monitor of the Trust's compliance.
(k) Preparing and furnishing each Series (at its request) with
performance information (including yield and total return
information) calculated in accordance with applicable U.S.
securities laws and reporting to external databases such
information as may reasonably be requested.
In performing all services under this Agreement, TSSG shall act
in conformity with any documents and other information provided
by DSI to TSSG including but not limited to the Trust's Articles
and By-Laws; the 1940 Act and the Investment Advisers Act of
1940, as the same may be amended from time to time; and the
investment objective, investment policies and other practices
and policies set forth in the Registration Statement of the
Trust as such Registration Statement and practices and policies
may be amended from time to time and policies, procedures, and
guidelines
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adopted by the Board of Trustees. TSSG shall also
satisfactorily meet the performance standards as described in
Schedule E and incorporated herein, or else provide cause for
which DSI may seek termination as specified in Section 6(b) of
this Agreement.
4. Allocation of Expenses. TSSG shall bear all expenses in
connection with the performance of its services under this
Agreement.
(a) During the term of this Agreement, DSI will pay all expenses
incurred by it in connection with its activities under the
GoldenSelect management agreement and shall be responsible
for the expenses of rendering services to the Trust, as
provided therein. The Trust shall be responsible for the
expenses specified in the GoldenSelect management agreement.
TSSG shall not be responsible for any expenses for which
either DSI or the Trust is responsible, as
specified in the GoldenSelect management agreement.
(b) For the services to be provided by TSSG pursuant to this
Agreement, DSI will pay TSSG a fee at an annual rate equal
to a percentage of the aggregate value of the average daily
net assets of all the series identified on Schedule A.
These fees shall be computed and accrued daily and payable
monthly, on the basis shown on Schedule C to this Agreement.
(c) For each Series identified on Schedule A, the fee for the
period from the date at which TSSG becomes the
Administrator and Accounting Services Agent record for that
series, shall be prorated according to the proportion that
such period bears to the full monthly period. For
any additional series added to Schedule A after the date of
this Agreement, the fee due to TSSG shall be prorated in
accordance with this system. The proration period shall be
the period between the date the series is added to Schedule
A and the end of the month in which that date falls. Upon
any termination of this Agreement before
the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining
fees payable to TSSG, the value of the Trust's net assets
shall be computed at the times and in the manner specified
in the Registration Statement.
(d) DSI will compensate TSSG for its services rendered pursuant
to this Agreement in accordance with the fees set forth in
Schedule C. Such fees do not include out-of-pocket
disbursements of TSSG for which TSSG shall be entitled to
bill separately at its cost. Out-of-pocket disbursements
shall include the items specified in Schedule D,
annexed hereto and incorporated herein. The schedule may only
be modified by TSSG upon not less than thirty days' prior
written notice to DSI for out-of-pocket disbursements incurred
specifically for the administration of this contract on behalf
of DSI and which fall outside of TSSG's normal cost of
operations.
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5. Limitation of Liability.
(a) TSSG shall exercise reasonable care in connection with its
responsibilities under this Agreement. TSSG shall not be liable
for any error of judgment or for any loss suffered by DSI, Golden
American or The Trust in connection with the performance of its
obligations and duties under this Agreement, except a loss or
damages resulting from TSSG's misfeasance, malfeasance,
nonfeasance, or negligence in the performance of such obligations
and duties or by reason of its disregard thereof. TSSG shall
indemnify and hold harmless DSI, the Trust, and Golden American
for any damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand,
action or suit resulting from the misfeasance, malfeasance,
nonfeasance or negligence of TSSG in the performance of TSSG's
obligations or duties or by reason of its disregard thereof.
(b) DSI will indemnify TSSG against and hold it harmless from any
and all losses, claims, damages, liabilities or expenses
(including reasonable counsel and fees and expenses) resulting
from any claim, demand, action or suit not resulting from the
misfeasance, malfeasance, nonfeasance or negligence of TSSG or
the failure of TSSG to exercise reasonable care in the
performance of such obligations and duties or by reason of
its disregard thereof.
(c) The indemnifying party, on its own or upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to
the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless
(1) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interest between
them. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against such settlement or judgment.
6. Term and Termination
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of three (3) years (the
"Initial Term"), unless earlier terminated pursuant to the terms of
this Agreement, and shall continue from year-to-year thereafter with
respect to the Trust so long as such continuance is specifically
approved at least annually by vote of the majority of the Board of
Trustees.
(b) Any party may terminate this Agreement, upon cause, not less
than ninety (90) days or more than one hundred eighty (180) days
prior written notice to the other party.
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(c) Notwithstanding the provisions of Sections 6(a) and 6(b) hereof,
this Agreement shall be coterminus with the GoldenSelect Management
Agreement.
(d) In the event a termination notice is given by DSI, all expenses
associated with movement of records and materials and conversion
thereof will be borne at cost by DSI.
7. Amendment to this Agreement. No provision of this Agreement may
be changed, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement
of the change, discharge of termination is sought.
8. Miscellaneous.
(a) Any notice of other instrument authorized or required by this
Agreement to be given in writing to DSI or TSSG shall be sufficiently
given if addressed to the party and received by it at its office set
forth below or at such other place as it may from time to time
designate in writing.
To DSI:
Directed Services, Inc.
280 Park Avenue, 14 West
New York, New York 10017
Attention: Mary Bea Wilkinson
Bernard R. Beckerlegge, Esq.
To TSSG:
The Shareholder Services Group. Inc.
Exchange Place - 025-004B
Boston, Massachusetts 02109
Attention: Patricia L. Bickimer, Esq.
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the
written consent of the other party.
(e) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data
pertaining to the business of the Trust that are exchanged or
received pursuant to the performance
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of TSSG's duties under this
Agreement shall remain confidential and shall not be voluntarily
disclosed to any other person, except as specifically authorized by
the Trust or by DSI, or as may be required by law.
10. Trust Obligation. A copy of the Trust's Agreement and
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and notice is hereby given that the
Agreement has been executed on behalf of the Trust by an officer of
the Trust in his or her capacity as trustee and not individually.
The obligations of this Agreement shall only be binding on the assets
and property of the Trust and shall not be binding on any Trustee,
officer, or shareholder of the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed and delivered by their duly authorized
officers of the date first written above.
THE SHAREHOLDER SERVICES GROUP, INC.
By: /s/ Richard W. Ingram
----------------------------------
Name: Richard W. Ingram
Title: Vice President and Division
Manager
DIRECTED SERVICES, INC.
By: /s/ Mary Bea Wilkinson
----------------------------------
Name: Mary Bea Wilkinson
Title: Senior Vice President
THE GCG TRUST
By: /s/ Barnett Chernow
----------------------------------
Name: Barnett Chernow
Title: Vice President
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SCHEDULE A
SERIES OF THE GCG TRUST
Series Effective Date
Multiple Allocation Series January 1, 1994
Fully Managed Series January 1, 1994
Limited Maturity Bond January 1, 1994
Series
Natural Resources Series January 1, 1994
Real Estate Series January 1, 1994
All-Growth Series January 1, 1994
Liquid Asset Series January 1, 1994
Capital Appreciation Series January 1, 1994
Rising Dividends Series January 1, 1994
Emerging Markets Series January 16, 1994
Market Manager Series January 1, 1994
Value Equity Series January 1, 1994
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SCHEDULE B
FUND ACCOUNTING FUNCTIONS
o FINANCIAL ACCOUNTING AND RECORDKEEPING
o Maintenance of Fund's accounting records.
o Journalizing the investment, capital share and income and
expense activities.
o Maintaining individual ledgers and tax lots for investment
holdings.
o Posting to and preparing the Fund's Balance Sheet and Statement
of Operations.
o Determining the Fund's net income, capital gains and losses, and
foreign exchange gains and losses.
o Determining the Fund's dividend distribution.
o Computing the net asset value of the Fund and disseminating to
recipients designated by DSI.
o PRICING AND CORPORATE ACTIONS
o Obtaining security market quotes and exchange rates from
appropriate pricing services.
o Calculating the market value and the cost value of the
investment holdings.
o Determining the appreciation/depreciation of the Fund's
portfolio.
o Determining the applicable foreign exchange gains and losses on
the Fund's payables and receivables.
o Researching and recommending portfolio accounting and tax
treatment for unique security types.
o Transmitting or mailing various portfolio management reports to
the investment advisor of the Fund.
o DAILY INTERFACE WITH ADVISOR AND GLOBAL CUSTODIAN
o Coordinating with the Custodian to ensure that advisors receive
beginning local and U.S. currency balances available for investment
purposes.
o Verifying investment buy/sell trade tickets upon receipt from
the investment advisor.
o Reconciling investment transactions, holdings, and cash with the
custodian.
o Providing tax lot detail of the Fund's portfolio holdings.
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ADMINISTRATIVE FUNCTIONS
COMPLIANCE
o Monitoring compliance of the Fund with Subchapter M of the
Internal Revenue Code to determine its status as a Regulated
Investment Company.
o Monitoring compliance of the Fund with Section 817(h) of the
Internal Revenue Code.
o Assistance in developing corrective measures should such
measures be required, before the expiration of any 30 day window
period.
FINANCIAL REPORTING
o Preparing Annual and Semi-Annual Shareholders Reports including:
Schedule of Investments
Financial Statements
Supplementary Per Share Information
All required footnotes
o Prepare Monthly Financial Statement
o Quarterly presentation to Fund's Board of Directors
o Calculating and disseminating Fund performance data such as 7
and 30-day yields, total returns, expense ratios, and weighted
average maturity.
o Coordinating printing of shareholder reports and their filing
with the SEC.
o Communicating all relevant statistical information to the
applicable reporting service, including, but not limited to, Lipper,
Morningstar and ICI.
REGISTRATION AND REPORTING FOR COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940
o Assist in the preparation of the annual filing of the Fund's
Registration Statement N-1A, including providing all financial
related information.
o N-SAR Filings
Preparing Semi-Annual Reports with the SEC on Form N-SAR
File N-SAR electronically with the SEC via the EDGAR system
o Filing 24(e)-2 and (f)-2 notices with the SEC relating to the
registration of proceeds from Fund shares sold.
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o Attending all board meetings and making the required
presentations.
TAXES
o Preparation of Federal income tax return
o Preparation of any required state income/franchise tax returns
o Determining and recommending required amount of distribution
from ordinary income and capital gains to avoid Federal income tax.
o Monitoring custodian to ensure tax reclaims are collected on a
timely basis.
o SUPPORT SERVICES
o Acting as liaison with the Fund's independent public accountants
and providing account analyses, fiscal year summaries, and other
audit related schedules.
o Providing accounting and tax support for all aspects of a Fund's
operation including the effects of any change in the Fund's
structure.
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SCHEDULE C
TSSG COMPENSATION
A CHARGES (Excluding the Market Manager Series)
First $1 billion of net assets 6 Basis Points
Next $1 billion of net assets 5 Basis Points
Next $1 billion of net assets 4 Basis Points
Next $7 billion of net assets 1 Basis Point
Excess over $10 billion 0.8 Basis Point
In computing these charges, "net assets" shall mean the value of
the average daily net assets of all the series identified on Schedule
A and Separate Account D (excluding the Market Manager Series). DSI
will pay a percentage of the total charges equal to the portion of
total average daily net assets that the series identified on Schedule
A represent; and Separate Account D will pay percentages of the
total charges equal to their respective portions of the total average
daily net assets per their separate agreements. Net assets for
future series established for The GCG Trust and other regulated
investment companies administered by DSI or its affiliates will be
incorporated into Schedule A for purposes of calculating total
charges.
B CHARGES (For the Market Manager Series)
Market Manager will be priced at the lower of:
1) The additional charge that would be incurred if Market Managers
were included in Schedule A; or
2) Assets priced separately according to the following fee table:
First $500 million of net assets 4 Basis Points
Excess of $500 million of net assets 2 Basis Points
C OUT-OF POCKET EXPENSES
1) Securities valuation (pricing) services.
2) Travel to and from Board Meetings for individuals other than
Trust officers.
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SCHEDULE D
SIGNIFICANT EVENTS
One or more of the following significant events will allow DSI,
upon its discretion, to exercise without penalty, the ninety day
termination clause as referenced in Section 6(b) of this Agreement
within one year of occurrence of the event.
- Divestiture of a controlling interest by First Data Corporation
(FDC) in TSSG or its fund accounting operations.
- Acquisition of a controlling interest in FDC by any person or
entity.
- Reduction in FDC's debt-rating to below investment grade, two
consecutive years of operating losses, or any contingent legal action
or other event which threatens the solvency of FDC or TSSG.
- 30% reduction in the $41.8 billion asset base serviced by TSSG's
fund accounting operations due to a decline in clients serviced and
not a drop in market value of the asset base.
- Failure of FDC/TSSG to maintain adequate liability insurance as
represented in its response to the Request for Proposal for Golden
American Life Insurance Company, dated August 26, 1994.
PERFORMANCE STANDARDS
o Violation of one or more of the following performance standards
will allow DSI, upon notice, to exercise without penalty, the ninety
day termination clause as referenced in Section 6(b) of this
Agreement.
o Errors or delays not solely attributable to TSSG will not be
counted towards the measurement of performance.
o All percentages will be calculated on a semi-annual basis for
the six months ending June 30 and December 31.
A. Daily NAV Computations:
Completed by 6:00 PM more than 98% of the time
99.5% or better accuracy rate
No NAV errors solely attributable to TSSG shall go undetected
more than 48 hours.
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B. Daily Accounting: 99.5% or better accuracy rate:
Complete and accurate daily posting of capital stock activity.
Production of an accurate trial balance and supporting reports.
C. Financial Reporting and SEC Filings:
Completed within two business days of a schedule agreed to in
advance by TSSG and DSI, and free from any error or delays that
cause the Trust to miss any filing deadline.
Resolution of any management letter comments as provided by the
Trust's independent auditors in their evaluation of the system
of internal controls by the dates agreed to by TSSG and the
Fund's auditors.
D. Pricing:
Securities will be priced accurately according to the
requirements of the "1940 Act," as well as the policies set by
the Board of Trustees at least 99.5% of the time.
E. Taxes:
Distributions prepared and executed according to the
requirements of the 1986 Internal Revenue Code, as amended, and
related regulations, resulting in no income tax payable from
undistributed investment company taxable income.
All required federal and state returns prepared in compliance
with relevant laws, by their required filing dates, with
extensions, including reasonable time for DSI review.
F. Compliance:
Monthly preparation and analysis of tests that determine the
Series' compliance with Sec. IRS, and prospectus requirements
regarding the type, quantity and diversification of the Trust's
assets and income.
Prompt communication of test results to DSI, at least five
business days prior to the expiration of any quarterly window
period.
Identify new compliance issues that may affect the Trust no
later than the next monthly compliance report.
G. Performance Data:
Providing required performance data to outside services (i.e.,
Lipper, Morningstar) by their respective due dates.
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H. Other Services
Timely and accurate preparation of financial statements and
other reports for presentation to the Trust's Board or DSI's
management.
I. Historical Financial Records
Maintenance of historical financial records as required by the
"1940 Act" and Internal Revenue Code or other regulatory bodies.
15
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AMENDMENT NO. 1 TO THE
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
This Amendment No. 1 dated as of November 1, 1997, is entered
into by DIRECTED SERVICES, INC. ("DSI"), THE GCG TRUST (the "Trust")
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services
Group") (formerly known as The Shareholder Services Group, Inc.).
WHEREAS, DSI, the Trust and Investor Services Group entered into
an Administration and Fund Accounting Agreement dated as of January
1, 1995 (the "Agreement");
WHEREAS, DSI, the Trust and Investor Services Group wish to
amend the Agreement to amend certain provisions of the Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, hereby agree as follows:
I. All capitalized terms used and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
II. The Fee Schedule attached to the Agreement as Schedule C is
hereby deleted in full and replaced with the attached Schedule C.
III. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and
confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment
No. 1 as of the date and year first written above.
DIRECTED SERVICES, INC.
By: /s/ David L. Jacobson
---------------------------------
THE GCG TRUST
By: /s/ Terry L. Kendall
---------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:/s/ James Fox
---------------------------------
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SCHEDULE C
INVESTOR SERVICES GROUP COMPENSATION
A. CHARGES
Complex Average Net Assets
First $2 billion of average net assets 5.0 Basis Points
From $2 to $3 billion of average net assets 3.5 Basis Points
From $3 to $10 billion of average net assets 2.0 Basis Points
Excess over $10 billion of average net assets 1.0 Basis Points
Minimum Fee for the complex $1,000,000 per annum
(for each new Series generated, the minimum fee will increase by
$30,000 per annum)
A $3,000 fee will apply to each additional share class per annum
In computing these charges, "net assets" shall mean the value of
the average daily net assets of the "Complex." The "Complex" shall
be defined as all portfolios or series of The GCG Funds Trust, The
Market Manager Series and The Equi-Select Series Trust.
B. OUT-OF-POCKET EXPENSES
-Securities valuation (pricing) services
-Travel to and from Board Meetings outside the city of Boston
(subject to the prior approval of DSI)
-Postage for Board meeting materials and other materials to the
Trust's Board members and service providers (including overnight or
other courier services)
-Telephone and telecommunication charges (including fax) with
respect to communications with the Trust's Trustees, officers and
service providers
-Duplicating charges with respect to filings with Federal and
state authorities and Board meeting materials
-Courier services
-Forms and supplies for preparation of Board meeting and other
materials for the Trust
-Programming costs for special requests at a rate of $100 per
hour
-Any other unusual expenses in association with services such as
excessive duplicating charges
Exhibit (g)(1)
CUSTODIAN AGREEMENT
AGREEMENT dated as of March 2, 1992 between BANKERS TRUST
COMPANY (the "Custodian") and The GCG Trust (the "Customer").
1. Employment of Custodian. The Customer hereby employs the
Custodian as custodian of all assets of the Customer which are
delivered to and accepted by the Custodian or any of its
subcustodians (as that term is defined in Section 5) anywhere in the
world (the "Property") pursuant to the terms and conditions set forth
herein and, if applicable, to mutually acceptable operating
instructions (including any amendments and modifications thereto)
which upon agreement by the parties herto shall be deemed to be part
of and incorporated into this Agreement as it set forth in full
herein. Hereinafter, references to "this Agreement," "herein" or
words of similar effect shall refer to this Agreement and any
mutually acceptable operating instructions then in effect. Without
limitation, such Property shall include stocks and other equity
interests of every type, evidences of indebtedness, other instruments
representing same or rights or obligations to receive, purchase,
deliver or sell same and other non-cash investment property of the
Customer ("Securities") and cash from whatever source and in whatever
currency ("Cash"). The Custodian shall not be responsible for any
property of the Customer held or received by the Customer or others
and not delivered to the Custodian or any of its subcustodians.
2. Custody Account. The Custodian agrees to establish and maintain
a custody account in the name of the Customer (the "Account") for any
and all Property from time to time received and accepted by the
Custodian or any of its subcustodians for the account of the
Customer. The Customer acknowledges its responsibility as a
principal for all of its obligations to the Custodian arising under
or in connection with this Agreement, notwithstanding that it may be
acting on behalf of other persons and warrants its authority to
deposit in the Account any Property received therefor by the
Custodian or its subcustodian and to give, and authorize others to
give, instructions relative thereto. The Customer further agrees
that the Custodian shall not be subject to, nor shall its rights and
obligations under this Agreement or with respect to the Account be
affected by, any agreement between the Customer and any other person.
The Custodian shall hold, keep safe and protect as custodian
in the Account, on behalf of the Customer, all Property. All
transactions, including, but not limited to, foreign exchange
transactions, involving the Property shall be executed or
settled solely in accordance with Instructions (as that term
is defined in Section 10), except that until the Custodian
receives Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the
same become payable and credit the same to the Account;
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(b) present for payment all Securities held in the Account which are
called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon
presentation and hold the cash received in the Account pursuant to
this Agreement;
(c) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary securities
for those in definitive from and the exchange of warrants, or other
documents of entitlement to securities, for the Securities
themselves);
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split
is received for the Account and such rights entitlement or fractional
interest bears an expiration date, if after endeavoring to obtain
Instructions such Instructions are not received in time for the
Custodian to make timely action, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the Custodian to
make) such rights entitlement or fractional interest and credit the
Account with the net proceeds of such sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other certificates
as may be required to obtain the payment of income from the Property;
and
(f) pay for the Account, any and all taxes and levies in the nature
of taxes imposed on income on the Property by any governmental
authority. In the event there is insufficient Cash available in the
Account to pay such taxes and levies, the Custodian shall notify the
Customer of the amount of the shortfall and the Customer, at its
option, may deposit additional Cash in the Account or take steps to
have sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise.
The Custodian shall deliver subject to Section 12 below any
or all Property in the Account in accordance with Instructions
and in connection therewith, the Customer will accept delivery
of Securities of the same class and denomination in place of
those contained in the Account. Neither the Custodian nor any
subcustodian shall have any duty or responsibility to see to the
application of any Property withdrawn from the Account upon
Instructions.
Except as otherwise may be agreed upon by the parties hereto,
the Custodian shall not be required to comply with Instructions
to settle the purchase of any Securities for the Account unless
othere is sufficient Cash in the Account at the time or to settle
the sale of any Securities in the Account unless such Securities
are in deliverable form. Notwithstanding the foregoing,
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if the
purchase price of such Securities exceeds the amount of Cash in
the Account at the time of such purchase, the Custodian may, in
its sole discretion, advance the amount of the difference in
order to settle the purchase of such Securities. The amount of
any such advance shall be deemed a loan from the Custodian to
the Customer payable on demand and bearing interest accruing
from the date such loan is made to but not including the date
such loan is repaid at a rate per annum customarily charged by
the Custodian on similar loans.
3. Records, Ownership of Property and Statements. The ownership of
the Property whether Securities, Cash and/or other property, and
whether held by the Custodian or a subcustodian or in a securities
depository or clearing agency as hereinafter authorized, shall be
clearly recorded on the Custodian's books as belonging to the Account
and not for the Custodian's own interest. The Custodian shall keep
accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the Account. All accounts,
books and records of the Custodian relating thereto shall be open to
inspection and audit at all reasonable times during normal business
hours by any person designated by the Customer. All such accounts
shall be maintained and preserved in accordance with Section 31 of
the Investment Company Act of 1940 and Rules 31a-1 and 31a-2
thereunder. The Custodian will supply to the Customer from time to
time, as mutually agreed upon, a statement in respect to any Property
in the Account held by the Custodian or by a subcustodian. In the
absence of the filing in writing with the Custodian by the Customer
of exceptions or objections to any such statement within sixty (60)
days of the mailing thereof, the Customer shall be deemed to have
approved such statement and such statement shall be presumed to be
for all purposes correct with respect to all information set forth
therein absent manifest error or omissions.
4. Maintenance of Property Outside of the United States.
Securities in the Account may be held in a country or other
jurisdiction outside of the United States as may be specified from
time to time in Instructions; provided that such country or other
jurisdiction shall be one in which the principal trading market for
such Securities is located or in which such Securities are to be
presented for payment or are acquired for the Account. Cash in the
Account shall be credited to an account maintained with a
subcustodian in such amounts and in such countries or other
jurisdictions as shall be specified from time to time in
Instructions. Instructions received by the Custodian pursuant to the
provisions hereof to settle purchases and sales of Securities in a
jurisdiction specified therein shall be deemed to be Instructions
furnished by the Customer to the Custodian under this Section 4
authorizing the holding of such Securities and Cash in such
jurisdiction and shall further be deemed to be a representation by
the Customer that such jurisdiction has been authorized by the
Customer pursuant to Rule 17(f)-5 ("Rule 17(f)-5") under the
Investment Company Act of 1940 as a jurisdiction in which the
Customers' Securities and Cash may be held; it being understood that
the Custodian shall have no liability or responsibility for
determining whether such authorization has been proper under such
Rule 17(f)-5 or for the consequences of the settlement of
transactions pursuant to such Instructions in countries or with
subcustodians in countries which have not been approved by the
Customer pursuant to such Rule 17(f)-5.
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5. Subcustodians and Securities Depositories. The Custodian may,
subject to the provisions set forth below, employ, directly or
indirectly, one or more subcustodians to assist in the performance of
its obligations hereunder; provided, however, that the employment of
any such subcustodian (other than any such subcustodian which is a
securities depository or clearing agency) shall not relieve the
Custodian of its responsibilities or liabilities hereunder; provided
further, that with respect to a subcustodian which is a securities
depository or clearing agency the Custodian shall only be responsible
or liable for losses arising from such employment caused by the
Custodian's own failure to exercise reasonable care.
The Customer authorizes and instructs the Custodian to hold
the Property in the Account in custody accounts which have
been established by the Custodian with one of its branches, a
branch of another U.S. bank, a majority owned non U.S.
subsidiary of a U.S. bank or bank holding company acting as
custodian, a foreign bank or trust company acting as
custodian or a securities depository in which the Custodian
or subcustodian participates. The employment of any of the
foregoing shall be determined by the Custodian in its
discretion; provided that in each case in which a United
States third party agent is employed, such third party agent
complies with the provisions of Rule 17f-2 or Rule 17f-4
under the Investment Company Act of 1940 provided further,
that in each case in which a non United States third party
agent is employed, (i) such third-party agent is an "eligible
foreign custodian" within the meaning or Rule 17f-5 or such
third party agent is the subject of an order granted by the
United States Securities and Exchange Commission exempting
such agent or the subcustody arrangements with respect
thereto from all or part of the provisions of Rule 17f-5 and
(ii) such employment and the agreement between the Custodian
and such third party agent related thereto (other than the
agreement with any such third party agent which is a
securities depository in which another third party agent with
which the Custodian has an agreement approved by the Customer
as hereinafter provided participates) have been approved by
the Customer pursuant to Instructions pursuant to Rule 17(f)-
5; it being understood that the Custodian shall have no
liability or responsibility for determining whether such
approval has been proper under such Rule 17(f)-5.
Hereinafter, the term "subcustodian" will refer to any third-
party agent referred to in the first sentence of this
paragraph which has satisfied, where applicable, the
conditions set forth in the proviso in such sentence. The
Custodian agrees to cease the employment of any one or more
of such subcustodians upon receipt of Instructions requesting
that a particular subcustodian cease to be employed as such
due to the fact that such subcustodian no longer meets the
requirements of Rule 17f-5. Upon request of the Customer,
the Custodian shall deliver to the Customer annually at such
time as may be mutually agreeable to the parties hereto a
certificate stating: (i) the identify of each non United
States subcustodian then acting on behalf of the Custodian;
(ii) the countries in which each such non United States
subcustodian is then holding Cash and/or Securities in the
Account; and (iii) such other information relating to such
non United States subcustodian as may reasonably be requested
by the Customer to ensure compliance with Rule 17f-5.
6. Use of Subcustodian. With respect to Securities in the Account
which are maintained by the Custodian in the custody of a
subcustodian employed pursuant to Section 5:
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(a) The Custodian will identify on its books as belonging to the
Customer any Securities held by such subcustodian.
(b) In the event that a subcustodian permits any of the Securities
placed in its care to be held in a securities depository or clearing
agency, such subcustodian will be required by its agreement with the
Custodian to identify on its books such Securities as being held for
the account of the Custodian for its customers.
(c) Any Securities in the Account, except Securities held by a
subcustodian on a segregated basis on behalf of the Customer, held by
a subcustodian will be subject only to the instructions of the
Custodian or its agents unless specifically otherwise authorized by
the Custodian on a exception basis; and any Securities held in a
securities depository or clearing agency for the account of the
Custodian or a subcustodian will be subject only to the instructions
of the Custodian or such subcustodian, as the case may be.
(d) Securities deposited with a subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(e) Any agreement the Custodian shall enter into with a subcustodian
with respect to the holding of Securities shall require that (i) the
Securities are not subject to any right, charge, security interest,
lien or claim of any kind in favor of such subcustodian except a
claim for payment in accordance with such agreement for their safe
custody or administration and expenses related thereto, (ii)
beneficial ownership of such Securities be freely transferable
without the payment of money or value other than for safe custody or
administration and expenses related thereto, (iii) adequate records
will be maintained identifying the Property held pursuant to such
Agreement as belonging to the Customer and (iv) officers of or
auditors employed by, or other representatives of or designated by,
the Custodian, including the independent public accounts of or
designated by, the Customer be given access to the books and records
of such subcustodian relating to its actions under its agreement
pertaining to any Property held by it thereunder or confirmation of
or pertinent information contained in such books and records be
furnished to such persons designated by the Custodian.
7. Holding of Securities, Nominees, etc. Securities in the Account
which are held by the Custodian or any subcustodian may be held by
such entity in the name of the Customer, in its own name, in the name
of its nominee or in bearer form. Securities which are held by a
subcustodian or which are eligible for deposit in a securities
depository as provided above may be maintained with the depository in
an account for the Custodian's or subcustodian's customers. The
Custodian or subcustodian, as the case may be, may combine
certificates representing
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Securities held in the Account with
certificates of the same issue held by it as fiduciary or as a
custodian. In the event that any Securities in the name of the
Custodian or its nominee or held by one of its subcustodians
and registered in the name of such subcustodian or its nominee
called for partial redemption by the issuer of such Security, the
Custodian may, subject to the rules or regulations pertaining to
allocation of any securities depository in which such Securities
have been deposited, allot, or cause to be allotted, the called
portion to the respective beneficial holders of such class of
security in any manner the Custodian deems to be fair and equitable.
8. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any Securities in the Account, the
Custodian shall perform such services relative thereto as may be agreed
upon between the Custodian and the Customer. Neither the Custodian nor
its nominees or agents shall vote upon or in respect of any of the
Securities in the account, execute any form of proxy to vote thereon,
or give any consent or take any action (except as provided in Section 2)
with respect thereto except upon the receipt of Instructions relative
thereto.
9. Settlement Procedures. Settlement and payment for Securities
received for the accouint and delivery of Securities maintained for the
Account may be effected in accordance with the customary or established
securities traded or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or
to a dealer thereof (or an agent for such purchaser of dealer) against
a receipt with the expectation of receiving later payment for such
Securities from such purchaser or dealer, and in accordance with the
standard operating procedures of the Custodian in effect from time to
time for that jurisdiction or market.
10. Instruction. The term "Instructions" means instructions from
the Customer in respect of any of the Custodian's duties hereunder
which have been received by the Custodian at its address set forth
in Section 15 below in writing or by tested telex signed or given by
such one or more person or persons as the Customer shall have from
time to time authorized to give the particular class of Instructions
in question and whose name and (if applicable) signature and office
address have been filed with the Custodian, or upon receipt of such
other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian agrees to accept. The
Custodian shall have the right to assume in the absence of notice to
the contrary from the Customer that any person whose name is on file
with the Custodian pursuant to this Section 10 has been authorized
by the Customer to give the Instructions in question and that such
authorization has not been revokesd.
11. Standard of Care. The Custodian shall responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the
provisions of this Agreement. The Custodian will use reasonable care with
respect to safekeeping of Securities in the Account and in carrying out
its obligations under this Agreement. So long as and to the extent that it
has exercised reasonable care, the Custodian shall not be responsible for
the title, validity or genuineness of any Property or other property or
evidence of title thereto received by it or delivered by it pursuant to
this Agreement and shall
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be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom,
any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed or furnished by the proper
party or parties, including, without limitation, Instructions, and shall
be indemnified by the Customer for any losses, damages, costs and
expenses (including, without limitation, the fees and expenses of
counsel) incurred by the Custodian and arisong out of action taken or omitted
in good faith by Customer for any loss which shall occur directly as the
result of the failure of a subcustodian (other than any subcustodian which
is a securities depositary or clearing agency the actions or ommissions for
which the Custodian's liability and responsibility is set forth in the last
proviso of the first paragraph of Section 5) to exercise reasonable care
with respect to the safekeeping of such Securities. In the event of any
loss to the Customer by reason of the failure of the Custodian or its
subcustodian to utilize reasonable care, the Custodian shall be liable
to the Customer to the extent of the Customer's actual damages at the
time such loss was discovered without reference to any special conditions
or circumstances. In on event shall the Custodian be liable for any
consequential or special damages. The Custodian shall be entitled to rely,
and may act, on advice of counsel (who may be counsel for the Customer)
on all matters and shall be without liability for any action reasonably
taken of omitted purusant to such advice.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-
party foreign exchange transactions, shall be made at the risk of the
Customer. The Custodian shall have no liability for any loss occassioned
by delay in the actual receipt of notice by the Custodian or by its
subcustodian of any payment, redemption or other transaction regarding
Securities in the Account in respect of which the Custodian has agreed to
take action as provided in Section 2 hereof. The Custodian shall not be
liable for any loss resulting from, or caused by, or resulting from acts
of governmental authorities (whether de jure or de facto), including,
without limitation, nationalization, expropriation, and the imposition of
currency restrictions; acts of war, terrorism, insurrection or revolution;
strikes or work stoppages; the inability of a local clearing and settlement
system to settle transactions for reasons beyond the control of the
Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion,
fission or radioactivity, or other acts of God.
The provisions of this Section shall survive termination of this
Agreement.
12. Fees and Expense. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's out-of-pocket
or incidental expenses, including (but withou limitation) legal fees. The
Customer hereby agrees to hold the Custodian harmless from any liability or
loss resulting from any taxes or other governmental charges, and any
expense related thereto, which may be imposed, or assessed with respect to
any Property in the Account and also agrees to hold the Custodian, its
subcustodians, and their respective nominees harmless from any liability
as a record holder of Property in the Account. The Custodian is
authorized to charge any account of the Customer for such items. The
provisions of this Section shall survive the termination of this
Agreement.
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13. Amendment, Modifications, etc. No provisions of this Agreement may
be amended, modified or waived except in a writing signed by the parties
hereto.
14. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash
in the Account shall be paid. If notice of termination is given by the
Custodian, the Customer shall, within ninety (90) days following the giving
of such notice, deliver to the Custodian a written notice specifying the
names of the persons to whom the Custodian shall deliver the Securities in
the Account and to whom the Cash in the Account shall be paid. In either
case, the Custodian will deliver such Securities and Cash to the persons so
specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it under Section 12. In addition, the Custodian
may in its discretion withhold from such delivery such Cash and Securities
as may be necessary to settle transactions pending at the time of such
delivery. If within ninety (90) days following the giving of a notice of
termination by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to whom
the Custodian shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid, the Custodian, at its election, may
deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to
the provisions of this Agreement, or may continue to hold such Securities
and Cash until a written notice as aforesaid is delivered to the Custodian.
15. Notices. Except as otherwise provided in this Agreement, all
request, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
telex, telegram or cable, addressed, if to the Customer, to its address
set forth on the signature page hereof and, if to the Custodian, to: c/o
BTNY Services, Inc., 34 Exchange Place, Jersey City, New Jersey 07032,
Attention: Global Securities Services, (Telex No. 420066 Area 19),
Answerback: BANTRUS, or in with case to such other address as shall have
been furnished to the receiving party pursuant to the provisions hereof
and (b) shall be deemed effective when received, or, in the case of a
telex, when sent to the proper number and acknowledged by a proper
answerback.
16. Security for Payment. To secure payment of all fees and expenses
payable to Custodian hereunder, including, but not limited to amounts
payable pursuant to indemnification provisions and to the last paragraph
of Section 2, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations; provided
that, if the Account consists of more than one portfolio and the obligations
secured pursuant to this Section 16 can be allocated to a specific portfolio,
such security interest and right of setoff will be limited to Property held
for the account of such portfolio only. Should the Customer fail to pay
promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable portion thereof held for a
specific portfolio, as the case may be, and to dispose of Securities in the
Account of such applicable portion thereof as is necessary. In the event
Securities in the Account or such applicable portion thereof are
insufficient to discharge such obligations, the Customer hereby grants
Custodian a continuing security interest in and right of
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setoff against the
balance from time to time in any non-custodian account of the Customer (the
"Pledged Balances"), and Custodian may, at any time from time to time as
Custodian's sole option and without notice, appropriate and apply toward the
payment of such obligations, the Pledged Balances. If at any time Property
in the Account or such applicable porition thereof and the Pledged Balances
are insufficient to fully collateralize such obligations, Customer shall
provide to Custodian additional collateral in form and amount satisfactory
to Custodian and shall grant to Custodian a continuing security interest in
and right of setoff against such collateral. In any such case and without
limiting the foregoing, Custodian shall be entitled to take such other
action(s) or exercise such other options, powers and rights as Custodian now
or hereafter has as a secured creditor under the New York Uniform Commercial
Code or any other applicable law.
17. Governing Law and Successors and Assigns. This Agreement shall be
governed by the State of New York and shall not be assignable by either
party, but shall bind the successors in interest of the Customer and the
Custodian.
18. Publicity. Customer shall furnish to Custodian at its office referred
to in Section 15 above, prior to any distribution thereof, copies of any
material prepared for distribution to any persons who are not parties hereto
that refer in any way to Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in
writing within ten (10) business days of receipt thereof (or such other time
as may be mutually agreed) after receipt thereof. The provisions of this
Section shall survive the termination of this Agreement.
19. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting
in the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding brought in such a
court and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
20. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
By: /s/
----------------------------------
Title(s): CFO
----------------------------------
Address for record: 909 Third Ave (19th Fl)
----------------------------------
New York NY 10022
----------------------------------
BANKERS TRUST COMPANY
By: /s/Frank Parelli
----------------------------------
Title: Vice President
----------------------------------
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GCG TRUST AND EQUI-SELECT TRUST FEE SCHEDULE
DOMESTIC CUSTODY
HOLDINGS PRICE
Maintenance $80.00 per account
Dep. Bonds/Stock 1.50
Vault Bonds/Stock 3.00
Cedel Asset Value .0333
Euro CD Asset Value .0033
TRANSACTIONS PRICE
FBE Automated 10.00
FBE Manual 13.00
PTC Automated 16.00
PTC Manuel 25.00
DTC Automated 7.00
DTC Manual 11.00
DTC ID 5.00
Physical-Auto 18.00
Physical-Manual 23.00
Physical Govt. Auto 23.00
Physical Govt. Manual 30.00
Euro/CD Cedel 50.00
P&I Payments 8.00
Reorganization 38.00
Private Paydown 10.00
Private Placement Income 10.00
Money Movements In/Out 8.00
Polaris-Maintenance 25.00 per portfolio
GLOBAL CUSTODY
I MONTHLY MAINTENANCE $350.00 per account
II. ASSET AND TRANSACTION FEES
ANNUAL TRANSACTION
ASSET CHARGES CHARGES
UNITED STATES (Global Portfolio) .5BP (Same as
Domestic)
TIER I 2.5 BP $25
Cedel Euroclear
TIER II 3BP $25
Australia United Kingdom
Japan Switzerland
Italy
TIER III 5BP $25
Austria Belgium
Denmark France
Hong Kong Ireland
Mexico Netherlands
New Zealand Norway
Sweden
TIER IV 8 BP $25
Malaysia Philippines
Singapore Thailand
EMERGING MARKETS
MARKETS ANNUAL TRANSACTION
ASSET CHARGES CHARGES
Argentina 35BP $100
Bangladesh 40BP $150
Brazil 35BP $50
Chile 30BP $80
Columbia 35BP $100
Czech 20BP $70
Egypt 45BP $80
Finland 10BP $75
Ghana 50BP $150
Greece 35BP $120
Hungary 45BP $150
Israel 40BP $50
India 60BP 40BP
Jordan 30BP $100
Kenya 50BP $150
Morocco 30BP $130
Peru 50BP $100
Pakistan 30BP $150
Portugal 5BP $75
Slovakia 25BP $100
Poland 45BP $100
Russia 50BP $300
South Africa 3BP $50
South Korea 15BP $50
Sri Lanka 12 BP $60
Tunisia 45BP $50
Turkey 15BP $50
Venezuela 35BP $100
Zimbabwe 50BP $150
WIRES PRICE
US $15.00
Non-US $25.00
REIMBUSEMENTS (i.e., couriers, tapes, legal fees) At Cost
NOTES
o The standard Global Custody service includes: asset
safekeeping, trade settlement, income collection, corporate
action processing (including proxy voting) and tax reclaims.
o All income receipts and tax reclaim refunds are
credited to client accounts net of agents' collection fees
(where applicable)
o The client will be responsible for all out of pocket
expense associated with security execution and registration
in Russia. Additionally, due to the uncertainty of
transaction settlement efficiencies in the market,
contractual settlement of trades and posting of income will
not be offered.
o Third party FX transactions and other cash movements
with no associated security transaction (e.g. free
payments/receipts) are charged at $15 per U.S. wire and $25
per non U.S. wire. No fee is levied for FX transactions
executed with Bankers Trust.
o The above fees are inclusive of the provision and
installation of Bankers Trust proprietary software (Polaris,
Globe*View) software but the client is responsible for the
provision of a suitable PC, printer and modem, together with
all associated telecommunication charges.
o USD Balances will earn Fed Funds - 25 basis point
(Global and Domestic Portfolios) and Overdrafts will be
assessed at Prime + 1 basis point.
GCG TRUST AND EQUI-SELECT TRUST BANKERS TRUST COMPANY
/s/ /s/
- ------------------------------ ----------------------------------
Signature Signature
Secretary Thadeus Dudinowski, VP
- ------------------------------ ----------------------------------
Name Name
4/9/98 3/27/98
- ------------------------------ ----------------------------------
Date Date
<PAGE>
ADDENDUM TO CUSTODIAN AGREEMENT
The Custodian Agreement ("Agreement") between The GCG Trust (the"Trust"), a
Massachusetts business trust having its principal place of business at 1001
Jefferson Street, 4th Floor, Suite 400, Wilmington, DE 19803, and Bankers
Trust Company
(the "Custodian"), a New York banking corporation having its principal place
of business at One Bankers Trust Plaza, New York, New York 10006, dated March
2, 1992, and amended by Addenda among the Trust, Directed Services, Inc., and
the Custodian dated October 1, 1993, November 7, 1994 and December 29, 1995, is
hereby amended by the addition of the provisions set forth in this Addendum to
the Agreement, entered into by the Trust, Directed Services, Inc., and Bankers
Trust Company, which is made this 19th day of August, 1997.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate Series, each of which will
offer a separate class of shares of beneficial interest, each Series having its
own investment objective or objectives, policies, or limitations; and
WHEREAS, the Trust currently offers shares in multiple Series, may offer shares
of additional Series in the future, and intends to offer shares of additional
Series in the future; and
WHEREAS, pursuant to a Management Agreement, effective as of August 13, 1996,
the Trust has retained Directed Services, Inc. (the "Manager") to render advise
advisory, management, administrative, and other services necessary for the
ordinary operation of many of the Trust's Series; and
WHEREAS, the Trust has appointed Bankers Trust Company to serve as Custodian for
one or more Series of the Trust under the terms and conditions set forth in the
Custodian Agreement dated March 2, 1992; and
WHEREAS, the Trust, the Manager, and the Custodian have agreed to amend the
Custodian Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
in this Addendum, it is agreed between the parties hereto as follows:
In addition to its responsibilities as specified in the Agreement, the Trust
t hereby constitutes and appoints Bankers Trust Company as Custodian with
respect to the Mid-Cap Growth Series, Total Return Series, Research Series,
Growth & Income Series, Value + Growth Series, Global Fixed Income Series,
Growth Opportunities Series, and Developing World Series which, together with
all other Series
previously established by the Trust, shall be Series under the Agreement as
provided in Paragraph 1 of the Agreement and Appendix A thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
by their officers designated below on the date indicated above.
THE GCG TRUST
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
DIRECTED SERVICES, INC.
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
BANKERS TRUST COMPANY
.
___________________________ By:__________________________
Attest
___________________________ __________________________
Title Title
Exhibit (h)(1)(A)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
and
STATE STREET BANK AND TRUST COMPANY
ASA 05/86
Standard Series Trust
<PAGE>
TABLE OF CONTENTS
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Article 1 Terms of Appointment; Duties of the Bank. . . 2
Article 2 Fees and Expenses . . . . . . . . . . . . . . 5
Article 3 Representations and Warranties of the Bank. . 5
Article 4 Representations and Warranties of the Fund. . 6
Article 5 Indemnification. . . . . . . . . . . . . . . 7
Article 6 Covenants of the Fund and the Bank. . . . . . 9
Article 7 Termination of Agreement. . . . . . . . . . . 10
Article 8 Additional Funds. . . . . . . . . . . . . . . 11
Article 9 Assignment. . . . . . . . . . . . . . . . . . 11
Article 10 Amendment . . . . . . . . . . . . . . . . . . 11
Article 11 Massachusetts Law to Apply. . . . . . . . . . 12
Article 12 Merger of Agreement . . . . . . . . . . . . . 12
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TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the _______ day of ____, 198__, by and between
Western Capital Specialty Managers Trust a Massachusetts business trust,
having its principal office and place of business at 1925 Century Park
East, Suite 2350, Los Angeles, CA 90067 (the "Fund"), and STATE STREET
BANK AND TRUST COMPANY, a Massachusetts Trust Company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WITNESSETH
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate Portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in eight series,
The Liquid Asset Series, The Limited Maturity Bond Series, The All-Growth
Series, The Natural Resources Series, The Real Estate Series, The Fully
Managed Series, The Multiple Allocation Series, and The Fundamental Value
Series, (each such series together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance
with Article 8, being herein referred to, as a Portfolio, and
collectively to the "Portfolios";
WHEREAS, the Fund, on behalf of the Portfolios desires to appoint
the Bank as its transfer agent, dividend disbursing agent and agent in
connection with certain other activities, and the Bank desires to accept
such appointment;
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NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERM OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the Bank
to act as, and the Bank agrees to act as transfer agent for the
authorized and issued shares of beneficial interest of the Fund
representing interests in each of the respective Portfolios ("Shares"),
dividend disbursing agent and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the ("Shareholder") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 Than Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable, and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor
to the Custodian of the Fund authorized pursuant to the
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Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation therefor
to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio; and
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the forgoing.
(viii)Record the issuance of Shares and maintain pursuant to SEC Rule
17Ad-10(e) a record of the total number of Shares which are author-
ized, based upon data provided to it by the Fund, as issued and out-
standing. Bank shall also provide the Fund on a regular basis with
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the total number of Shares which are authorized and issued and out-
standing and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), the Bank shall: (i) perform all of the customary
services of a transfer agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account or similar plans
(including withdrawal program); including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all registered Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and
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(ii) Provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt for the blue sky
reporting to the Fund for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The responsibility
of the Bank for the Fund's blue sky State registration status is solely
limited to the initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions to the Fund
as provided above.
Procedures applicable to certain of these services may be
established from time to time by agreement between the Fund and the Bank.
Article 2 FEES AND EXPENSES
2.01 For performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios, to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.02 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios, to reimburse the Bank for out-
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of-pocket expenses or advances incurred by the Bank for the items set out
in the schedule attached hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Fund, will
be reimbursed by the Fund on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios, to pay all fees
and reimbursable expenses within five days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all Shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
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4.01 It is a business trust duly organized and existing and in good
standing under the laws of
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end and diversified investment company registered
under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 on behalf
of each of the Portfolios, is currently effective and will remain
effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares being offered
for sale.
Article 5 INDEMNIFICATION
5.0 The Bank shall not be responsible for, and the Fund shall on be-
half of the applicable Portfolio, indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith,
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negligence, or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records and documents which (i) are received by the Bank
or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepaid and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) Th reliance on, or the carrying out by the Bank or its agent or
subcontractors of any instructions or requests of the Fund on behalf of
the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer or sale of such
Shares in such state.
5.02 The Bank shall indemnify and hold the Fund harmless from
and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributed to any
action or failure or omission to act by the Bank as a result of the
Bank's lack of good faith , negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the Fund
for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
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Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio, for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT, data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of
authority of any person, until receipt of written notice thereof from the
Fund. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officer
of the Fund, and the proper countersignature of any former transfer agent
or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
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5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for
any act of failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other party's
prior written consent.
Article 6 COVENANTS OF THE FUND AND THE BANK
6.01 The Fund shall, on behalf of each of the Portfolios, promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
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any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section
and Rules, and will be surrendered to the Fund on and in accordance with
its request.
6.04 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as
to such inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
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Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund, on behalf of the applicable Portfolios. Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the
average of three (3) months' fees.
Article 8 ADDITIONAL FEES
8.01 In the event that the Fund establishes one or more series of
Shares in addition to The Liquid Asset Series, The Limited Maturity Bond Series,
The All-Growth Series, The Natural Resources Series, The Real Estate
Series, The Fully Managed Series, The Multiple Allocation Series, and The
Fundamental Value Series, with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall
so notify the Bank in writing, and if the Bank agrees in writing to
provide such services, such series of Shares shall become a Portfolio
hereunder.
Article 9 ASSIGNMENT
9.01 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other
party.
9.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
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Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Trustees of the Fund.
Article 11 MASSACHUSETTS LAW TO APPLY
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 12 MERGER OF AGREEMENT
12.01 This Agreement constitutes the entire agreement between the
parties hereto and supercedes any prior agreement with respect to the
subject hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
By:__________________________________________
Attest:______________________________________
STATE STREET BANK AND TRUST COMPANY
By:__________________________________________
Vice President
Attest:______________________________________
Assistant Secretsry
Exhibit (h)(2)(A)
1
ORGANIZATIONAL AGREEMENT AMONG
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
AND
WESTERN CAPITAL VARIABLE ADVISORS CORP.
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Agreement dated as of December 28, 1988 (the "Agreement"), by
and among Western Capital Specialty Managers Trust ("Trust"), Western
Capital Variable Advisors Corp. ("Western Capital") and Golden
American Life Insurance Company ("Golden American"), on its own
behalf and on behalf of any separate accounts of Golden American
shown on exhibit A hereto (the "Variable Accounts").
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940 ("ICA"),
as amended, and shares of the portfolios of the Trust are registered
under the Securities Act of 1933 ("Securities Act"), as amended, and
the Trust will initially consist of seven separate series; and
WHEREAS, shares of the series of the Trust shown on Exhibit B
("Series") will be sold to the Variable Accounts to fund benefits
under variable life insurance policies, which may include variable
life insurance policies classified as modified endowment contracts,
and variable annuity contracts (all of such life insurance policies
and annuity contracts referred to collectively as the "Policies") to
be issued by Golden American through the Variable Accounts after the
Trust's Registration Statement is declared effective by the
Securities and Exchange Commission (SEC"); and
WHEREAS, Western Capital will act as the Trust's Manager,
pursuant to a Management Agreement, a copy of which is attached
hereto as Exhibit C, to be entered into by Western Capital and the
Trust; and
WHEREAS, Western Capital is, and for the duration of this
Agreement, will remain if required by applicable law, duly registered
as an investment adviser under the Investment Advisers Act of 1940.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants hereinafter set forth, the parties hereby
agree as follows:
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1. Western Capital and the Trust will take all such actions as are
necessary to permit the sale of the shares of each Series to the
Variable Accounts including, but not limited to, organization of the
Trust as a Massachusetts business trust and registration of the Trust
under the ICA and registration of the shares of each Series under the
Securities Act. Western Capital and the Trust shall amend the
Registration Statement for the Trust from time to time as required in
order to effect the continuous offering of shares of each Series of
the Trust. The Trust's responsibility to make shares of the Series
available to the Variable Accounts shall be governed by the
Settlement Agreement among the Trust, the Variable Accounts and
Western Capital Financial Group.
2. Western Capital will pay, on behalf of the Trust, all expenses
of the Trust incurred on or prior to the commencement of operations
of the Trust, including, but not limited to, legal fees, auditing
fees, SEC registration fees, and organizational fees, that are
determined to be "organizational costs" of the Trust (the
"Organizational Costs").
3. Such Organizational Costs will be recovered by Western Capital
from the Trust over a period of not less than five years.
4. Golden American agrees that prior to the effective date of the
Registration Statement for the Trust, Golden American or an affiliate
shall invest $100,000 in the Trust subject to the understanding that
at such time Golden American or its affiliate has no current
intention of reselling the shares so acquired. All redemptions by
Golden American or its affiliate of any part of its investment in the
Trust will g\]be effected in accordance with any applicable legal
standards.
5. With respect to any of the Policies funded by the Variable
Accounts, Golden American agrees as follows:
a. That any prospectus offering a life insurance contract funded by
one of the Variable Accounts where it is reasonably probably that
such contract would be a "modified endowment contract," as that term
is defined in Section 7702A of the Internal Revenue Code of 1986, as
amended (the "Code"), will identify such a contract as a modified
endowment contract (or policy); and
b. That Golden American will take all necessary steps to ensure
that any contract described in its prospectus as a life insurance
contract (or policy), including life insurance policies classified as
modified
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3
endowment contract, and funded by one of the Variable
Accounts will qualify as a life insurance contract under Section 7702
of the Code, and Golden American will immediately notify the Trust
and Western Capital upon having a reasonable basis for believing that
the Policies have ceased to be so treated or that they might not be
so treated in the future; and
c. That Golden American will take all necessary steps to ensure
that any contract described in its prospectus as an annuity and
funded by one of the Variable Accounts will qualify as an annuity
under Section 72 of the Code.
6. Golden American will take all necessary steps to ensure that the
Policies will be registered under the Securities Act during the term
of this Agreement and that the Policies will be issued in compliance
with all applicable federal and state laws.
Golden American shall amend the Registration Statements respecting
the Policies from time to time as required to effect the
continuous offerings of the Policies. Golden American represents
and warrants that it is an insurance company duly organized and in
good standing under Minnesota law, that it has established each
Variable Account shown on Exhibit A as a duly organized, validly
existing segregated asset account, established by resolutions of
the Board of Directors of Golden American; and that the Variable
Accounts are, and will be during the term of this Agreement, duly
registered unit investment trusts under the ICA to serve as
segregated investment accounts for the Policies. Golden American
will pay all expenses in connection with organizing the Variable
Accounts, developing the Policies and preparing and filing with
the SEC Registration Statements for the Policies, obtaining
authorizations to offer the Policies in the various states and
other initial expenses associated with the Policies.
7. Golden American shall vote shares of each Series of the Trust
held in a Variable Account or a division thereof at regular and
special meetings of the Trust in accordance with instructions timely
received by Golden American (or its designated agent) from owners of
Policies funded by such Variable Account or division thereof having a
voting interest in the Series. Golden American shall vote shares of
a Series of the Trust held in a Variable Account or a division
thereof that are attributable to the Policies and owned beneficially
by Golden American, in the same proportion as the votes
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4
cast by
owners of the Policies funded by that Variable Account or division
thereof having a voting interest in the Series from whom instructions
have been timely received. Golden American shall vote shares of each
Series of the Trust held in its general account, if any, in the same
proportion as the votes cast with respect to the shares of the Series
held in all Variable Accounts of Golden American or divisions
thereof, in the aggregate. In the event of a shareholder meeting,
Golden American agrees to provide the Trust and/or Western Capital
with a list of the names and addresses of owners of the Policies
within five (5) days of receipt of a written request for such a list.
The party requesting such list shall bear the reasonable cost
incurred by Golden American in preparing and providing such list,
which shall be paid upon delivery of the list. Golden American
further agrees to provide notice to the Trust and to Western Capital
if Golden American or an affiliate has reason to know about a meeting
of owners of the Policies or shareholders of the Trust. In the event
that a vote of shareholders of the Trust is held prior to the sale of
any Policies, Golden American or its affiliate will vote shares of
the Trust acquired with its investment of $100,000 and any other
amounts invested for initial capitalization as instructed by Western
Capital.
8. Western Capital and the Trust will use reasonable efforts to
manage each Series of the Trust so that each such Series will qualify
as a "Regulated Investment Company" under Subchapter M of the Code
and will use reasonable efforts to maintain such qualification and
will notify Golden American immediately upon having a reasonable
basis for believing that the Trust (or any Series thereof) has ceased
to so qualify or might not so qualify in the future. Golden American
shall also notify the Trust and Western Capital immediately upon
having a reasonable basis for believing that the Trust (or any Series
thereof) has ceased to qualify as a Regulated Investment Company or
might not so qualify in the future, provided however, that Golden
American's agreement to notify Western Capital and the Trust with
respect to any matter contained in this paragraph will in no way
alleviate or relieve Western Capital's and the Trust's responsibility
under this Section 8.
9. Western Capital and the Trust will take all necessary steps to
ensure that the Trust (and each Series thereof) will comply with the
diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable
annuity contracts and any prospective amendments or other
modifications to
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5
Section 817 or regulations thereunder and will
notify Golden American immediately upon having a reasonable basis for
believing that the Trust (or any Series thereof) has ceased to
comply.
Golden American shall notify the Trust and Western Capital
immediately upon having a reasonable basis for believing the Trust
(or any Series thereof) has ceased to comply with the
diversification provisions of Section 817(h) of the Code or the
regulations issued thereunder and any prospective amendments or
other modifications to Section 817 or regulations thereunder,
provided however, that Golden American's agreement to notify
Western Capital and the Trust with respect to the above matter
contained in this Section 9 will in no way alleviate or relieve
Western Capital's and the Trust's responsibility under this
Section 9.
Western Capital or the Trust or both of them shall be entitled to
receive and act upon advice of counsel to Western Capital or the
Trust to meet the requirements specified in Section 8 and 9 and
shall be without liability for any action taken or thing done (or
for any omission to act) in reliance upon such advice. Golden
American shall promptly notify the Trust and Western Capital of
any pertinent changes, modifications to, or interpretations of
Section 817(h) of the Code and the regulations issued thereunder
and any successor thereto, or any prospective amendments or other
modifications to Section 817 or regulations thereunder.
For purposes of monitoring whether the Trust and the Variable
Accounts are eligible for the start-up period during which the
Variable Accounts shall be considered to be adequately diversified
under paragraph (c)(2)(i) of Tres. Reg. 1.817-5T (or any
successor thereto), Golden American shall monitor amounts
allocated to the Variable Accounts (or divisions thereof)
("Allocated Amounts") by owners of Policies funded by the Variable
Accounts (or divisions thereof) during the first year after any
amount received under one of the Policies is first allocated to
any Variable Account (or division thereof) ("First Year") to
ensure that no more than thirty (30) percent of the amount
allocated to any Variable Account (or division thereof), as of any
date during such year, is attributable to premium and investment
income that was received more than one year before such date (the
percentage of such Allocated Amount being referred to hereafter as
the "Old Money Percentage"). `For this purpose, premium income
and investment income shall be treated as received as provided in
Tres. Reg. 1.817-5(T) (or any successor thereto) or other
applicable law and determinations under this provision shall be
made consistent with Tres.
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6
Reg. 1.817-5T(c)(2) or any successor thereto.
Golden American will notify Western Capital immediately in the
event that the Old Money Percentage equals or exceeds twenty (20)
percent as of any date during the First Year, determined as
prescribed above; and in the event that the Old Money Percentage
equals or exceeds thirty (30) percent during the First Year, shall
notify Western Capital and the Trust immediately and advise such
parties that the Variable Accounts shall no longer be considered
adequately diversified during the First Year under paragraph
(c)(2)(i) of Regulation 1.817-5T. Golden American agrees that
Western Capital and the Trust shall not be liable for failure to
meet their responsibilities under this Section 9 during the First
Year if Golden American fails to comply with the monitoring and
notice responsibilities specified in this Section 9.
10. The Trust and Western Capital agree that separate accounts of
Golden American and of other insurance companies acceptable to the
Trust and Western Capital will have the right to purchase and sell
shares of the Series of the Trust. The Variable Accounts agree that
they will invest only in shares of the Trust.
11. Western Capital and the Trust will provide Golden American and
its auditors with any information it may reasonably request, and with
access to such books and records that relate to the ordinary
operating expenses of the Trust.
12. The Trust will not sell or permit the sale of shares of the
Trust to separate accounts of life insurance companies that are not
affiliates of Golden American without first obtaining an appropriate
exemptive order from the SEC, unless the rules under the ICA are
amended to permit "shared funding" without first obtaining individual
exemptive relief. With respect to serving as the common investment
vehicle for (1) both variable annuity contracts and variable life
insurance policies, or (2) for variable life insurance policies of
one insurer and variable life insurance policies and/or variable
annuity contracts of another insurer, the parties agree to comply
with any conditions imposed under any exemptive order issued by the
Securities and Exchange Commission, or as specified in Rule 6e-2 or
Rule 6e-3(T) under the ICA, or, if permanently adopted, Rule 6e-3, as
amended, whichever is applicable.
13. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including
without limitation, the SEC, the NASD and state insurance regulators)
and shall permit
<PAGE>
7
such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
Golden American agrees that neither it nor any of its affiliates
shall give any information or make any representations or
statements on behalf of the Trust or concerning the Trust in
connection with the offer or sale of the Policies other than the
information or representations contained in the Registration
Statement for the Trust's shares, as such Registration Statement
may be amended or supplemented from time to time, or in reports or
proxy statements for the Trust, or in sales literature or other
promotional material approved by the Trust or Western Capital,
except with the written permission of the Trust or Western
Capital.
Western Capital agrees that neither it nor any of its affiliates
shall give any information or make any representations or
statements on behalf of the Policies or concerning the Policies in
connection with their offer or sale, other than the information or
representations contained in the Registration Statement for the
Policies, as such Registration Statement may be amended or
supplemented from time to time, or in reports for the Policies or
in sales literature or other promotional material approved by
Golden American or its affiliates, except with the written
permission of Golden American or its affiliates.
14. Western Capital shall, at its own expense or, if appropriate,
the expense of the Trust, provide Golden American with at least three
complete copies of all registration statements, prospectuses,
statements of additional information, sales literature and other
promotional materials, applications for exemptions, requests for no-
action letters, and any and all amendments to the foregoing, that
relate to the Trust or its shares, promptly after the filing of such
document with SEC or other regulatory authorities or the submission
of such document to the SEC staff, whichever is applicable.
Golden American or its affiliate shall, at its own expense,
provide Western Capital with at least three complete copies of all
registration statements, prospectuses, sales literature and other
promotional materials, applications for exemptions, requests for
no-action letters, and any and all amendments to the foregoing,
that relate to the Policies, promptly after the filing of such
document with the SEC or other regulatory authorities or the
submission of such document to the SEC staff, whichever is
applicable.
<PAGE>
8
15.
a. Subject to the limitations of subparagraphs (b) and (c) of this
Section 17 of this Agreement, Western Capital agrees to indemnify and
hold harmless Golden American and each of its directors, officers,
and employees and each person, if any who controls Golden American
within the meaning of Section 15 of the Securities Act (collectively,
the "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of Western Capital) or litigation expenses (including
legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities, or expenses (or actions in
respect thereof) or settlements are related to the operation of the
Trust, and: (i) arise as a result of any failure by Western Capital
to provide the services and furnish the materials under the terms of
this Agreement to which it is subject (including a failure to meet
its responsibilities under Sections 8 and 9 of this Agreement); or
(ii) arise out of or result from any material breach of any
representation or warranty made by Western Capital in this Agreement
or arise out of or result from any other material breach of this
Agreement by Western Capital.
b. Western Capital shall not be liable under Section 15(a) of this
Agreement with respect to any losses, claims, damages, liabilities,
or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties, or by reason of such Indemnified Party's reckless
disregard to obligations and duties under this Agreement or to Golden
American or the Variable Accounts, whichever is applicable.
c. Western Capital shall not be liable under Section 15(a) of this
Agreement with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified Western Capital in
writing within a reasonable time after the summons or other first
legal process giving the information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Western Capital of any such
<PAGE>
9
claim shall not relieve Western Capital from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of Section 15(a) of this Agreement. In
case any action is brought against the Indemnified Parties, Western
Capital will be entitled to participate, at its own expense, in the
defense thereof. Western Capital also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action, and, after notice to such party of Western Capital's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and Western Capital shall not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other
than reasonable costs of investigation.
d. Subject to the limitations of subparagraphs (e) and (f) of this
Section 15 of this Agreement, the Trust agrees to indemnify and hold
harmless Golden American and each of its directors, officers, and
employees and each person, if any, who controls Golden American
within the meaning of Section 15 of the Securities act (collectively,
the "Indemnified Parties") against any and all losses, claims
damages, liabilities (including amounts paid in settlement with the
written consent of the Trust) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities, or expenses (or actions in
respect thereof) or settlements are related to the operation of the
Trust, and: (i) arise as a result of any failure by the Trust to
provide the services and furnish the materials under the terms of
this Agreement to which it is subject (including a failure to meet
its responsibilities under Sections 8 and 9 of this Agreement); or
(ii) arise out of or result from any material breach of any
representation or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Trust.
e. The Trust shall not be liable under Section 15(d) of this
Agreement with respect to any losses, claims, damages, liabilities,
or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
<PAGE>
10
Party's duties, or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to Golden
American or the Variable Account, whichever is applicable.
f. The Trust shall not be liable under Section 15(d) of this
Agreement with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
have been served upon such Indemnified party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim
shall not relieve the Trust of any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than
on account of Section 15(d) of this Agreement. In case any such
action is brought against the Indemnified Parties, the Trust will be
entitled to participate at its own expense, in the defense thereof.
The Trust also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action, and, after
notice to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and shall not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
16.
a. Subject to the limitations of subsections (b) and (c) of this
Section 16, Golden American agrees to indemnify and hold harmless
Western Capital and the Trust and each of their trustees, directors,
officers, employees and each person, if any, who controls Western
Capital or the Trust within the meaning of Section 15 of the
Securities Act (collectively, the "Indemnified Parties") against any
and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Golden American) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages,
liabilities, or expenses (or actions in respect thereof)
<PAGE>
11
or settlements are related to the operation of any of the Variable
Accounts or the Trust and: (i) arise as a result of any failure by
Golden American or any of its affiliates to provide the services and
furnish the materials under the terms of this Agreement (including a
failure to meet its responsibilities under Sections 5 and 9 of this
Agreement); or (ii) arise out of or result from any material breach
by Golden American or any of its affiliates of any representation or
warranty made by Golden American in this Agreement or arise out of or
result from any other material breach of this Agreement by Golden or
any of its affiliates.
b. Golden American shall not be liable under this Section 16 with
respect to any losses, claims, damages, liabilities, or litigation
expenses to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to Western Capital or
the Trust, whichever is applicable.
c. Golden American shall not be liable under this Section 16 with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Golden American, in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent),
but failure to notify Golden American of any such claim shall not
relieve Golden American or its affiliates from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 16. In case any such
action is brought against the Indemnified Parties, Golden American
will be entitled to participate, at its own expense, in the defense
thereof. Golden American also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action, and, after notice to such party of Golden American's election
to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
Golden American shall not be liable to such
<PAGE>
12
party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
17. Each party to this Agreement agrees to promptly notify the other
parties of the commencement of any litigation or proceedings against
it or any of its officer, trustees, directors or employees in
connection with this Agreement, the issuance or sale of the Policies,
the operation of a Variable Account, or the sale or acquisition of
shares of the Trust.
18. This Agreement may be terminated without cause by any of the
parties upon giving one hundred and twenty (120) days' written notice
to the other parties, provided however, that if any party fails to
carry out its responsibilities enumerated under this Agreement in any
material respect, the other parties shall have the right to terminate
this Agreement immediately and further provided, in the event the
Trust is made available to separate accounts of insurance companies
other than Golden American, that if a majority of the disinterested
Trustees determine that an irreconcilable material conflict exists
among the interests of contract owners and policyowners of segregated
asset accounts or the interests of persons for which the Trustees are
required to monitor under the conditions referred to in Section 12 of
this Agreement, then any party shall have the right to terminate this
Agreement immediately. Upon termination of this Agreement, all
authorizations, rights and obligations under this Agreement, except
for the provisions contained in Sections 15 and 16 hereof, shall
cease.
19. Unless earlier terminated pursuant to Section 18 hereof, this
Agreement shall remain in effect for a one year period beginning on
its date of execution and will continue thereafter in effect from
year to year. Upon termination of this Agreement, all
authorizations, rights and obligations imposed on the parties under
this Agreement except for the indemnification provisions contained in
Sections 15 and 16 above shall cease. The parties further agree that
in the event of a termination of this Agreement, each party shall
cooperate with the other parties to ensure that existing policyowners
will not suffer any adverse consequences resulting from such
termination.
20. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New
York.
<PAGE>
13
21. This Agreement shall be subject to the provisions of the
Securities Act, the Securities Exchange Act of 1934 and the ICA and
the rules, regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may
grant and the terms hereof shall be interpreted and construed in
accordance therewith. The term "affiliate" as used in this Agreement
shall mean an "affiliated person" as defined in Section 2(a)(3) of
the Investment Company Act. This Agreement may not be assigned by
any party without the written consent of the other parties to this
Agreement.
22. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
23. Any notice shall be sufficiently given when sent by registered
or certified mail to the other parties at the address of such parties
set forth below or at such other address as such party may from time
to time specify in writing to the other parties:
To: Golden American Life Insurance Company
909 Third Avenue, 19th Floor
New York, NY 10022
To: Western Capital Specialty Managers Trust
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
With a copy to:
Jeffrey S. Puretz
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, DC 20005
To: Western Capital Variable Advisors Corp.
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
24. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are
entitled to under state or federal laws.
25. A copy of the Trust's Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts. The Declaration of
Trust has been executed on behalf of the Trust by certain Trustees in
their capacity as Trustees of the Trust and not individually. The
obligations of this Agreement shall
<PAGE>
14
be binding upon the assets and
property of the Trust and shall not be binding upon any Trustee,
Officer, employee or shareholder of the Trust individually.
<PAGE>
16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first
above written.
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
By: /s/ Charles F. Parisi
-----------------------------------------
Charles F. Parisi
President
Attest:/s/ William C. Richardson
-----------------------------------------
Name: William C. Richardson
Title: President
WESTERN CAPITAL VARIABLE ADVISORS CORP.
By: /s/ Charles F. Parisi
-----------------------------------------
Charles F. Parisi
President
Attest:/s/ William C. Richardson
-----------------------------------------
Name: William C. Richardson
Title: President
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: /s/ Fred H. Davidson
-----------------------------------------
Fred H. Davidson
President
Attest:/s/ Bernard R. Beckerlegge
-----------------------------------------
Name: Bernard R. Beckerlegge
Title: Secretary
GOLDEN AMERICAN LIFE INSURANCE COMPANY
On behalf of the Variable Accounts
By: /s/ Fred H. Davidson
-----------------------------------------
Fred H. Davidson
President
Attest:/s/ Bernard R. Beckerlegge
-----------------------------------------
Name: Bernard R. Beckerlegge
Title: Secretary
<PAGE>
EXHIBIT A
TO
ORGANIZATION AGREEMENT AMONG
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
AND
WESTERN CAPITAL VARIABLE ADVISORS CORP.
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
The Western Capital Specialty Managers Separate Account A
The Western Capital Specialty Managers Separate Account B
<PAGE>
EXHIBIT B
TO
ORGANIZATION AGREEMENT AMONG
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
AND
WESTERN CAPITAL VARIABLE ADVISORS CORP.
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Exhibit (h)(2)(B)
Assignment Agreement for Organizational Agreement
(for Golden American Life Insurance Company)
<PAGE>
ASSIGNMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among
Specialty Advisors Corp. ("SAC") (formerly Western Capital
Variable Advisors Corp.), a California corporation; Directed
Services, Inc. ("DSI"), a New York corporation; Golden American
Life Insurance Company ("Golden American"), a stock life
insurance company incorporated under the laws of the State of
Minnesota, on its own behalf and on behalf of any separate
accounts of Golden American shown on Exhibit A of the
Organizational Agreement, as defined below; and The Specialty
Managers Trust, a Massachusetts business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended ("Act"), and
the Trust issues shares in several different classes, each of
which is known as a "Series"; and
WHEREAS, the Trust, SAC, and Golden American entered into an
Organizational Agreement dated December 28, 1988 ("Organizational
Agreement"); and
WHEREAS, SAC has served as Manager to the Trust pursuant to
a Management Agreement between the Trust and SAC dated November
1, 1988; and
<PAGE>
WHEREAS, the Trust and SAC have terminated the Management
Agreement with SAC, effective at the close of business on March
20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve
as Manager to the Trust pursuant to a new Management Agreement
between the Trust and DSI dated March 20, 1991; and
WHEREAS, SAC, Golden American and the Trust desire to assign
SAC's interest in the Organizational Agreement to DSI and DSI
desires to be the assignee of SAC's interest.
NOW, THEREFORE, it is agreed as follows:
1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby
assigns to DSI all of its interest in the Organizational
Agreement.
2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees to
perform all of SAC's duties and obligations under the
Organizational Agreement and be subject to all of the terms and
conditions of said Agreement as if they applied to SAC. DSI
shall not be responsible for any claim or demand arising under
the Organizational Agreement from services rendered prior to the
effective date of this Assignment Agreement unless otherwise
agreed by DSI, and SAC shall not be responsible for any claim or
demand arising under the Organizational Agreement from services
- 2 -
<PAGE>
rendered after the effective date of this Assignment Agreement
unless otherwise agreed by SAC.
3. REPRESENTATION OF DSI. DSI represents and warrants
that it is registered as an investment adviser under the
Investment Advisers Act of 1940 and will remain registered as
long as required by applicable law.
4. CONSENT. The Trust and Golden American hereby consent
to this assignment by SAC of its rights under the Organizational
Agreement to DSI and the assumption by DSI of SAC's interest in
such Agreement and the duties and obligations thereunder, and
agree, subject to the terms and conditions of said Agreement, to
look to DSI for the performance of the duties and obligations
formerly owed by SAC under said Agreement.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed by their authorized officers
hereunto duly attested as of the date and year written above.
SPECIALTY ADVISORS CORP.
/s/Jeffery S. Puretz By: Charles F. Parisi
- --------------------- -------------------
Attest
Outside Counsel President
- --------------------- ----------------------
Title Title
DIRECTED SERVICES, INC.
/s/E. A. Nabi By: F. H. Davidson
- --------------------- -------------------
Attest
Exec. Vice Pres. Exec. Vice President
- --------------------- ----------------------
Title Title
- 4 -
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
/s/E. A. Nabi By: F. H. Davidson
- --------------------- -------------------
Attest
Exec. Vice Pres. President
- --------------------- ----------------------
Title Title
THE SPECIALTY MANGERS TRUST
/s/Jeffery S. Puretz By: F. H. Davidson
- --------------------- -------------------
Attest
Outside Counsel President
- --------------------- ----------------------
Title Title
- 5 -
EXHIBIT (h)(2)(c)
ORGANIZATINAL AGREEMENT FOR THE
MUTUAL BENEFIT LIFE INSURANCE COMPANY
<PAGE>
ORGANIZATIONAL AGREEMENT AMONG
THE SPECIALTY MANAGERS TRUST
AND
SPECIALTY ADVISORS CORP.
AND
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
Agreement dated as of May 21, 1990, (the "Agreement"),
by and among The Specialty Managers Trust ("Trust"), Variable
Advisors Corp. ("Advisors Corp.") and The Mutual Benefit Life
Insurance Company ("MBL"), on its own behalf and on behalf of
Mutual Benefit Variable Contract Account - 11 ("Account").
WHEREAS, MBL is a mutual life insurance company incorporated
under the laws of the State of New Jersey; and
WHEREAS, the Account is registered as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act") and
interests in the Policies, as hereinafter defined, are registered
under the Securities Act of 1933 ("1933 Act"); and
WHEREAS, the Trust is registered as an open-end management
investment company under the 1940 Act, and shares of the
portfolios of the Trust are registered under the 1933 Act, and
the Trust will initially consist of seven separate series and is
authorized to create additional series in the future; and
WHEREAS, shares of the series of the Trust shown on Exhibit
A ("Series") will be sold to the Account to fund benefits under
variable annuity contracts (collectively "Policies") to be issued
by MBL through the Account after the Trust's Registration
Statement is declared effective by the Securities and Exchange
Commission ("SEC"); and
WHEREAS, Advisors Corp. will act as the Trust's Manager,
pursuant to a Management Agreement, a copy of which is attached
hereto as Exhibit B, entered into by Advisors Corp. and the
Trust; and
WHEREAS, Advisors Corp. is, and for the duration of this
Agreement, will remain if required by applicable law, duly
registered as an investment adviser under the Investment
Advisers Act of 1940.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants hereinafter set forth, the parties
hereby agree as follows:
1. Advisors Corp. and the Trust will take all such actions
as are necessary to permit the sale, redemption and
exchange of the shares of each Series of the Trust for
the shares of any other Series of the Trust to the
Account including, but not limited to, organization of
the Trust, as a Massachusetts business Trust and
registration of the Trust under the 1940 Act and
registration of the shares of each Series under the 1933
Act. Advisors Corp. and the Trust shall amend the
Registration Statement for the Trust from time to time
as required in order to effect the continuous offering
of shares of each Series of the Trust. The Trust's
responsibility to make shares of the Series available to
the Account shall be governed by the Settlement
Agreement among the Trusts, the Account and Western
Capital Financial Group.
2. Advisors Corp. will pay, on behalf of the Trust, all
expenses of the Trust incurred on or prior to the
commencement of operations of the Trust, including, but
not limited to, legal fees, auditing fees, SEC
registration fees, and organizational fees, that are
determined to be "organization costs" of the Trust (the
"Organizational Costs").
3. Such Organizational Costs will be recovered by Advisors
Corp. from the Trust over a period not more than five
years.
4. The parties agrees that MBL shall not be required to
invest any "seed money" in the Trust.
5. With respect to any of the Policies funded by the
Account, MBL agrees that MBL will take all necessary
steps to ensure that any contract described in its
prospectus as an annuity and funded by the Account will
qualify as an annuity under Section 72 of the Internal
Revenue Code of 1986, as amended (the "Code").
6. MBL represents and warrants: (1) that it will take all
necessary steps to ensure that the Policies will be registered
under the 1933 Act during the term of this Agreement; (2) that
the Policies will be issued in compliance with all applicable
federal and state laws; (3) that it shall amend the Registration
Statement respecting the Policies from time to time as required
to effect the continuous offerings of the Policies; (4) that it
is an insurance company duly organized and in
<PAGE>
3
good standing under New Jersey law; (5) that it has
established the Account as a duly organized, validly
existing segregated asset account, established by
resolutions of its Board of Directors; and (6) that the
Account is, and will be during the term of this
Agreement, a duly registered unit investment trust under
the 1940 Act to serve as segregated investment account
for the Policies. MBL will pay all expenses in
connection with organizing the Account, developing the
Policies and preparing and filing with the SEC a
Registration Statement for the Policies, obtaining
authorizations to offer the Polices in the various
states and other initial expenses associated with the
Policies.
7. MBL shall vote shares of each Series of the Trust held
in the Account or a division thereof at regular and
special meetings of the Trust in accordance with
instructions timely received by MBL (or its designated
agent) from owners of Policies funded by the Account or
division thereof having a voting interest in the Series.
MBL shall vote shares of a Series of the Trust held in a
the Account or a division thereof that are attributable
to the Policies as to which no timely instructions are
received, as well as shares not attributable to the
Policies and owned beneficially by MBL in the same
proportion as the votes cast by owners of the Policies
funded by that Variable Account or division thereof
having a voting interest in the Series from whom
instructions have been timely received. MBL shall vote
shares of each Series of the Trust held in its general
account, if any, in the same proportion as the votes
cast with respect to shares of the Series held in all
the Variable Accounts of MBL or divisions thereof, in
the aggregate. In the event of a shareholder meeting,
MBL agrees to provide the Trust and/or Advisors Corp.
with a list of the names and addresses of owners of the
Policies within five (5) days of receipt of a written
request for such list. The party requesting such list
shall bear the reasonable cost incurred by MBL in
preparing and providing such list, which shall be paid
upon delivery of the list. MBL further agrees to
provide notice to the Trust and to Advisors Corp. if MBL
or an affiliate has reason to know about a meeting of
owners of the Policies or shareholders of the Trust.
The trust agrees to bear all costs associates with the
preparation of its proxy statement, and agrees to
reimburse MBL for costs, if any, incurred by MBL in
connection with the printing, mailing, and solicitation
of the proxies and proxy statements.
<PAGE>
4
8. Advisors Corp. and the Trust will use reasonable efforts
to manage each Series of the Trust so that each such
Series will qualify as a "Regulated Investment Company"
under Subchapter M of the Code and will use reasonable
efforts to maintain such qualification and will notify
MBL immediately upon having a reasonable basis for
believing that the Trust (or any Series thereof) has
ceased to so qualify or might not so qualify in the
future. MBL shall also notify the Trust and Advisors
Corp. immediately upon having a reasonable basis for
believing that the Trust (or any Series thereof) has
ceased to qualify as a Regulated Investment Company or
might not so qualify in the future, PROVIDED HOWEVER,
that MBL's agreement to notify Advisors Corp. and the
Trust with respect to any matter contained in this
paragraph will in no way alleviate or relieve Advisors
Corp.'s and the Trust's responsibility under this
Section 8.
9. Advisors Corp. and the Trust will take all necessary
steps to ensure that the Trust (and each Series thereof)
will comply with the diversification provisions of
Section 817(h) of the Code and the regulations issued
thereunder relating to the diversification requirements
for variable annuity contracts and any prospective
amendments or other modifications to Section 817 or
regulations thereunder and will notify MBL immediately
upon having a reasonable basis for believing that the
Trust (or any Series thereof) has ceased to comply.
MBL shall notify the Trust and Advisors Corp.
immediately upon having a reasonable basis for believing
that the Trust (or any Series thereof) has ceased to
comply with the diversification provisions of Section
817(h) of the Code or the regulations issued thereunder
and any prospective amendments or other modifications to
Section 817 or regulations thereunder, PROVIDED HOWEVER,
that MBL's agreement to notify Advisors Corp. and the
Trust with respect to the above matter contained in this
Section 9 will in no way alleviate or relieve Advisors
Corp.'s and the Trust's responsibility under this
Section 9.
MBL shall promptly notify the Trust and Advisors Corp.
of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Code and the
regulations issued thereunder and any successor thereto,
or any prospective amendments or other modifications to
Section 817 or regulations thereunder.
<PAGE>
5
For purposes of monitoring whether the Trust and the
Account are eligible for the start-up period during
which the Account shall be considered to be adequately
diversified under paragraph (c)(2)(i) of Tres. Reg.
1.817-5 (or any successor thereto), MBL shall monitor
amounts allocated to the Account or (divisions thereof)
("Allocated Amounts") by owners of Policies funded by
the Account (or divisions thereof) during the first year
after any amount received under one of the Policies is
first allocated to the Account (or division thereof)
("First Year") to ensure that no more than thirty (30)
percent of the amount allocated to the Account (or
division thereof), as of any date during such year, is
attributable to premium an investment income that was
received more than one year before such date (the
percentage of such Allocated Amount being referred to
hereafter as the "Old Money Percentage"). For this
purpose, premium income and investment income shall be
treated as received as provided in Tres. Reg. 1.817-5(T)
(or any successor thereto) or other applicable law and
determinations under this provision shall be made
consistent with Tres. Reg. 1.817-5(c)(2) or any
successor thereto.
MBL will notify Advisors Corp. immediately in the event
that the Old Money Percentage equals or exceeds twenty
(20) percent as of any date during the First Year,
determined as prescribed above; and in the event that
the Old Money Percentage equals or exceeds thirty (30)
percent during the First Year, shall notify Advisors
Corp. and the Trust immediately and advise such parties
that the Account shall no longer be considered
adequately diversified during the First Year under
paragraph (c)(2)(i) of Regulation 1.817-5. MBL agrees
that Advisors Corp. and the Trust shall not be liable
for failure to meet their responsibilities under this
Section 9 during the First Year if MBL fails to comply
with the monitoring and notice responsibilities
specified in this Section 9.
10. The Trust and Advisors Corp. agree that separate
accounts of MBL and of other insurance companies
acceptable to the Trust and Advisors Corp. will have the
right to purchase and sell shares of the Series of the
Trust.
11. Advisors Corp. and the Trust will provide MBL and its
auditors with any information it may reasonable request,
and with access to such books and records that relate to
the ordinary operating expenses of the Trust.
<PAGE>
6
12. The Trust will not sell or permit the sale of shares of the
Trust to separate accounts of life insurance companies that are
not affiliates of MBL without first obtaining an appropriate
exemptive order from the SEC, unless the rules under the 1940 Act
are amended to permit "shared funding" without first obtaining
individual exemptive relief. With respect to serving as the
common investment vehicle for (1) both variable annuity contracts
and variable life insurance policies, or (2) for variable life
insurance policies of one insurer and variable life insurance
policies and/or variable annuity contracts of another insurer,
the parties agree to comply with any conditions imposed under any
exemptive order issued by the Securities and Exchange Commission,
or as specified in Rule 6e-2 or Rule 6e-3(T) under the 1940 Act
or, if permanently adopted, Rule 6e-3, as amended, whichever is
applicable.
13. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities having jurisdiction
(including without limitation the SEC, the NASD and state
insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
MBL agrees that neither it nor any of its affiliates
shall give any information or make any representations
or statements on behalf of the Trust or concerning the
Trust in connection with the offer or sale of the
Policies other than the information or representations
contained in the Registration statement for the Trust's
shares, as such Registration Statement may be amended or
supplemented from time to time, or in reports or proxy
statements for the Trust, or in sales literature or
other promotional material approved by the Trust or
Advisors Corp., except with the written permission of
the Trust or Advisors Corp.
Advisors Corp. agrees that neither it nor any of its
affiliates shall give any information or make any
representations or statements on behalf of the Policies
or concerning the Policies in connection with their
offer or sale other than the information or
representations contained in the Registration Statement
for the Account, as such Registration Statement may be
amended or supplemented from time to time, or in reports
for the Polices or in sales literature or other
promotional material approved by MBL or its affiliates,
except with the written permission of MBL or its
affiliates.
<PAGE>
7
14. No later than 15 working days prior to filing with the SEC:
(a) any post-effective amendment to the Trust's registration
statement, (b) an application for exemption, (c) a request for a
no-action letter, or, (d) any special request or amendment, ((a),
(b), (c), and (d) collectively referred to as "Trust
document(s)"), the Trust shall forward a draft of the Trust
document, marked to show changes, to MBL for MBL's review. MBL
shall complete its review and send comments to the Trust within 5
working days of receipt of such draft. Following receipt of
such comments, the Trust shall promptly discuss the comments with
MBL, and will promptly transmit to MBL a draft of any further
changes to the Trust document via facsimile transmission,
messenger or overnight express mail, prior to filing with the
SEC.
No later than 15 working days prior to filing with the
SEC: (a) any post-effective amendment to the
registration statement of the Account, (b) an
application for exemption, (c) a request for a no-action
letter, or (d) any special request or amendment ((a),
(b), (c), and (d), collectively referred to as "MBL
document(s)"), MBL shall forward a draft of the MBL
document, marked to show changes, to the Trust for the
Trust's review. The Trust shall complete its review and
send comments to MBL within 5 working days of receipt of
such draft. Following receipt of such comments, MBL
shall promptly discuss the comments to the Trust a draft
of any further changes to the MBL document via facsimile
transmission, messenger, or overnight express mail,
prior to the filing with the SEC.
15. (a) Subject to the limitations of subparagraphs (b)and (c)
of this Section 17 of this Agreement, Advisors Corp.
agrees to indemnify and hold harmless MBL and each of
its directors, officers, and employees and each person,
if any, who controls MBL within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified
Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with
the written consent of Advisors Corp.) or litigation
expenses (including legal and other expenses) to which
the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) or settlements are related
to the operation of the Trust, and; (i) arise as a
result of any failure by Advisors Corp. to provide the
services and furnish the materials under the terms of
this Agreement to which it is subject (including a
failure to meet its responsibilities under Sections 8
<PAGE>
8
and 9 of this Agreement); or (ii) arise out of or result
from any material breach of any representation or
warranty made by Advisors Corp. in this Agreement or
arise out of or result from any other material breach of
this Agreement by Advisors Corp.
(b) Advisors Corp. shall not be liable under Section
15(a) of this Agreement with respect to any losses,
claims, damages, liabilities, or litigation expenses to
which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of
such Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to MBL or the
Account, whichever is applicable.
(c) Advisors Corp. shall not be liable under Section
15(a) of this Agreement with respect to any claim made
against an Indemnified Party unless such Indemnified
Party shall have notified Advisors Corp. in writing
within a reasonable time after the summons or other
first legal process giving the information of the nature
of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated
agent), but failure to notify Advisors Corp. of any such
claim shall not relieve Advisors Corp. from any
liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on
account of Section 15(a) of this Agreement. In case any
action is brought against the Indemnified Parties,
Advisors Corp. will be entitled to participate, at its
own expense, in the defense thereof. Advisors Corp. also
shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action,
and, after notice to such party Advisors Corp.'s
election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional
counsel retained by it, Advisors Corp. shall not be
liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party
independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) Subject to the limitations of subparagraphs (e) and (f) of
this Section 15 of this Agreement, the Trust agrees to indemnify
and hold harmless MBL and each of its directors, officers, and
employees and each person, if any, who controls MBL within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties") against any and all losses, claims,
damages,
<PAGE>
9
liabilities (including amounts paid in settlement
with the written consent of the Trust) or litigation
expenses (including legal and other expenses) to which
the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) or settlements are related
to the operation of the Trust, and; (i) arise as a
result of any failure of the Trust to provide the
services and furnish the materials under the terms of
this Agreement to which it is subject (including a
failure to meet its responsibilities under Sections 8
and 9 of this Agreement); or (ii) arise out of or result
from any material breach of any representation or
warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this
Agreement by the Trust.
(e) The Trust shall not be liable under Section 15(d)
of this Agreement with respect to any losses, claims,
damages, liabilities, or litigation expenses to which an
Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to MBL or the
Account, whichever is applicable.
(f) The Trust shall not be liable under Section 15(d)
of this Agreement with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall
have notified the Trust in writing within a reasonable
time after the summons or other first legal process
giving the information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of
such service on any designated agent), but failure to
notify the Trust of any such claim shall not relieve the
Trust from any liability which it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of Section 15(d) of this
Agreement. In case any action is brought against the
Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof.
The Trust also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in
the action, and, after notice to such party the Trust's
election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any
additional counsel retained by it, Advisors Corp. shall
not be liable to such party under this Agreement for any
<PAGE>
10
legal or other expenses subsequently incurred by
such party independently in connection with the defense
thereof other than reasonable costs of investigation.
16. (a) Subject to the limitations of subsections (b) and (c) of
this Section 16, MBL agrees to indemnify and hold
harmless Advisors Corp. and the Trust and each of its
trustees, directors, officers, and employees and each
person, if any, who controls Advisors Corp. or the Trust
within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties") against any
and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of
MBL) or litigation expenses (including legal and other
expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities, or
expenses (or actions in respect thereof) or settlements
are related to the operation of the Account or the
Trust, and: (i) arise as a result of any failure of MBL
or any of its affiliates to provide the services and
furnish the materials under the terms of this Agreement
(including a failure to meet its responsibilities under
Sections 5 and 9 of this Agreement); or (ii) arise out
of or result from any material breach by MBL or any of
its affiliates of any representation or warranty made by
MBL in this Agreement or arise out of or result from any
other material breach of this Agreement by MBL or any of
its affiliates.
(b) MBL shall not be liable under Section 16 of this
Agreement with respect to any losses, claims, damages,
liabilities, or litigation expenses to which an
Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties, or by reason of such
Indemnified Party's reckless disregard of obligations
and duties under this Agreement or to Advisors Corp. or
the Trust, whichever is applicable.
(c) MBL shall not be liable under Section 16 of this Agreement
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified MBL in writing
within a reasonable time after the summons or other first legal
process giving the information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify MBL of any such
claim shall not relieve MBL or its affiliates from any liability
which it may have to the
<PAGE>
11
Indemnified Party against whom such action is brought
otherwise than on account of Section 16. In case any
action is brought against the Indemnified Parties, MBL
will be entitled to participate, at its own expense, in
the defense thereof. MBL also shall be entitled to
assume the defense thereof, with counsel satisfactory to
the party named in the action, and, after notice to
such party MBL's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, MBL shall not
be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such
party independently in connection with the defense
thereof other than reasonable costs of investigation.
17. Each party to this Agreement agrees to promptly notify
the other parties of the commencement of any litigation
or proceedings against it or any of its officers,
trustees, directors or employees in connection with this
Agreement, the issuance or sale of the Policies, the
operation of the Account, or the sale or acquisition of
shares of the Trust.
18. This Agreement may be terminated without cause by any of the
parties upon giving one hundred and twenty (120) days' written
notice of the other parties, PROVIDED HOWEVER, that if any party
fails to carry out its responsibilities enumerated under this
Agreement in any material respect, the other parties shall have
the right to terminate this Agreement within sixty days of
notification to the party so failing to carry out its
responsibilities, and further provided, in the event the Trust is
made available to separate accounts of insurance companies other
than MBL, that if a majority of the disinterested Trustees
determine that an irreconcilable material conflict exists among
the interests of contract owners and policyowners of segregated
asset accounts or the interests of persons for which the Trustees
are required to monitor under the conditions referred to in
Section 12 of this Agreement, then any party shall have the right
to terminate this Agreement immediately. Upon termination of
this agreement, all authorizations, rights and obligations under
this Agreement, except for the provisions contained in Sections
15 and 16 hereof, shall cease.
This Agreement shall terminate upon the termination of
the "Variable Life and Annuity Agreement" between MBL
and the Golden Financial Group, Inc. ("GFG"), dated May
31, 1989, whereby GFG is to provide certain services to
MBL with regard to the design, regulatory approval and
administrations of the Policies.
<PAGE>
12
This Agreement shall also terminate:
(i) at the option of MBL upon the institution
of formal proceedings against the Trust,
Advisors Corp. or an affiliate by the NASD, the
SEC, or any state securities or insurance
department of any other regulatory body
provided that MBL determines in good faith, in
MBL's sole judgment, that such institution
will have a material adverse impact on the
Trust's, Advisors Corp.'s or the affiliate's
ability to perform its obligations under this
Agreement; or
(ii) at the option of the Trust or Advisors
Corp. upon the institution of formal
proceedings against MBL brought by the NASD,
the SEC, or any formal proceedings involving a
material matter brought by any state securities
or state insurance department or any other
regulatory body regarding MBL provided that the
Trust or Advisors Corp. determines in good
faith, in its sole judgment, that such
institution will have a material adverse impact
on MBL's ability to perform its obligations
under this Agreement; or
(iii) at the option of either the Trust,
Advisors Corp. or MBL, upon the filing of a
voluntary or involuntary petition in
bankruptcy, or any equivalent state court
proceeding, concerning any party, or upon
appointment of a receiver by a regulatory body
having appropriate jurisdiction over any party,
or upon the occurrence of any party's failing
to meet the minimum net capital requirements,
if any, applicable to it under appropriate
insurance or securities laws; or
(iv) at the option of the Trust, Advisors
Corp., or MBL if the Management Agreement
between the Trust and its Manager is
terminated, or the Organizational Agreement
among MBL, the Trust and the Trust's Manager
terminates, or the Settlement Agreement among
MBL, the Trust and Western Capital Financial
Group terminates.
19. Unless earlier terminated pursuant to Section 18 hereof,
this Agreement shall remain in effect for a one year
period beginning on its date of execution and will
continue thereafter in effect from year to year. Upon
termination of this Agreement, all authorizations,
<PAGE>
13
rights and obligations impose on the parties under this
Agreement except for the indemnification provisions
contained in Section 15 and 16 above shall cease. The
parties further agree that in the event of a termination
of this Agreement, each party shall cooperate with the
other parties to ensure that existing policyowners will
not suffer any adverse consequences resulting from such
termination.
20. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws
of the State of New York.
21. This Agreement shall be subject to the provisions of the
1933 Act, the Securities Exchange Act of 1934 and the
1940 Act and the rules, regulations and rulings
thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant and
the terms hereof shall be interpreted an construed in
accordance therewith. The term "affiliate" as used in
this Agreement shall mean an "affiliated person" as
defined in Section 2(a)(3) of the 1940 Act. This
Agreement may not be assigned by any party without the
written consent of the other parties to this Agreement.
22. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected
thereby.
23. Any notice shall be sufficiently given when sent by
registered or certified mail to the other parties at the
address of such parties set forth below or at such other
address as such party may from time to time specify in
writing to the other parties:
To: The Mutual Benefit Life Insurance Company
520 Broad Street
Newark, New Jersey 07102-3184
Attn: Frank D. Casciano
Vice President and Deputy General Counsel
To: The Specialty Managers Trust
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
with a copy to
Jeffrey S. Puretz
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
<PAGE>
14
To: Specialty Advisors Corp.
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
24. The rights remedies and obligations contained in this
Agreement are cumulative and are in addition to any and
all rights, remedies and obligations, at law or in
equity, which the parties hereto are entitled to under
state or federal laws.
25. A copy of the Trust's Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts.
The Declaration of Trust has been executed on behalf of
the Trust by certain Trustees in their capacity as
Trustees of the Trust and not individually. The
obligations of this Agreement shall be binding upon the
assets and property of the Trust and shall not be
binding upon any Trustee, Officer, employee or
shareholder of the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
THE SPECIALTY MANAGERS TRUST
By: /s/Charles F. Parisi
---------------------
Charles F. Parisi
President
Attest: /s/Randolph J. Leavenworth
-------------------------
Name: R.J. Leavenworth
Title: Vice President
SPECIALTY ADVISORS CORP.
By: /s/Charles F. Parisi
---------------------
Charles F. Parisi
President
Attest: /s/Randolph J. Leavenworth
-------------------------
Name: R.J. Leavenworth
Title: Vice President
<PAGE>
15
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
By: /s/Michael H. Berkowitz
------------------------
Michael H. Berkowitz
Senior Vice President
Attest: /s/Frank D. Casciano
--------------------------
Frank D. Casciano
Vice President and Deputy General Counsel
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
on behalf of the Account
By: /s/Michael H. Berkowitz
------------------------
Michael H. Berkowitz
Senior Vice President
Attest: /s/Frank D. Casciano
--------------------------
Frank D. Casciano
Vice President and Deputy General Counsel
<PAGE>
16
EXHIBIT A
TO
ORGANIZATIONAL AGREEMENT AMONG
THE SPECIALTY MANAGERS TRUST
and
VARIABLE ADVISORS CORP.
and
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Exhibit (h)(2)(d)
ASSIGNMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
(for the mutual benefit life insurance company)
<PAGE>
ASSIGNMENT AGREEMENT FOR
ORGANIZATIONAL AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among
Specialty Advisors Corp. ("SAC") (formerly Variable Advisors
Corp.), a California corporation; Directed Services, Inc.
("DSI"), a New York corporation; The Mutual Benefit Life
Insurance Company ("MBL"), a mutual life insurance company
incorporated under the laws of the State of New Jersey, on its
own behalf and on behalf of Mutual Benefit Variable Contract
Account-11; and The Specialty Managers Trust, a Massachusetts
business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended ("Act"), and
the Trust issues shares in several different classes, each of
which is known as a "Series"; and
WHEREAS, the Trust, SAC and MBL entered into an
Organizational Agreement dated May 21, 1990 ("Organizational
Agreement"); and
WHEREAS, SAC has served as Manager to the Trust pursuant to
a Management Agreement between the Trust and SAC dated November
1, 1988; and
WHEREAS, the Trust and SAC have terminated the Management
Agreement with SAC, effective at the close of business on March
20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve
as Manager to the Trust pursuant to a new Management Agreement
between the Trust and DSI dated March 20, 1991; and
WHEREAS, SAC, MBL and the Trust desire to assign SAC's
interest in the Organizational Agreement to DSI, and DSI desires
to be the assignee of SAC's interest.
NOW, THEREFORE, it is agreed as follows:
1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby
assigns to DSI all of its interest in the Organizational
Agreement.
<PAGE>
2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees
to perform all of SAC's duties and obligations under the
Organizational Agreement and be subject to all of the terms and
conditions of said Agreement as if they applied to SAC. DSI
shall not be responsible for any claim or demand arising under
the Organizational Agreement from services rendered prior to the
effective date of this Assignment Agreement unless otherwise
agreed by DSI, and SAC shall not be responsible for any claim or
demand arising under the Organizational Agreement from services
rendered after the effective date of this Assignment Agreement
unless otherwise agreed by SAC.
-2-
<PAGE>
3. REPRESENTATION OF DSI. DSI represents and warrants
that it is registered as an investment adviser under the
Investment Advisers Act of 1940 and will remain registered as
long as required by applicable law.
4. CONSENT. The Trust and MBL hereby consent to this
assignment by SAC of its rights under the Organizational
Agreement to DSI and the assumption by DSI of SAC's interest in
such Agreement and the duties and obligations thereunder, and
agree, subject to the terms and conditions of said Agreement, to
look to DSI for the performance of the duties and obligations
formerly owed by SAC under said Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this
Assignment Agreement to be executed by their duly authorized
officers hereunto duly attested as of the date and year written
above.
SPECIALTY ADVISORS CORP.
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
DIRECTED SERVICES, INC.
_______________________ By: _______________________________
Attest
_______________________ _______________________________
Title Title
-4-
<PAGE>
THE MUTUAL BENEFIT LIFE
INSURANCE COMPANY
/s/Jeffery S. Puretz By: /s/Frank D. Casciano
- -------------------------- --------------------------
Attest
Ass't Secretary Vice President and Deputy General Counsel
- -------------------------- --------------------------
Title Title
THE SPECIALTY MANAGERS TRUST
/s/Jeffery S. Puretz By: /s/F. H. Davidson
- -------------------------- --------------------------
Attest
Outside Counsel Vice President
- -------------------------- --------------------------
Title Title
-5-
EXHIBIT (h)(2)(f)
ADDENDUM TO ORGANIZATION AGREEMENT
<PAGE>
ADDENDUM TO ORGANZATIONAL AGREEMENT
The Organizational Agreement, made the 28th day of December,
1988 among The GCG Trust (the "Trust"), Directed Services, Inc.
("DSI"), and Golden American Life Insurance Company ("Golden
American") (the "Organizational Agreement"), as amended by the
Assignment Agreement to the Organizational Agreement dated March
20, 1991, and Addenda to the Organizational Agreement dated October
1, 1993, and November 7, 1993 is hereby amended by the addition of
the provisions set forth in this Addendum to the Organizational
Agreement, which is dated as of the 29th day of September, 1995.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series,
each of which will offer a separate class of shares of beneficial
interest, each series having its own investment objective or
objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple
series, may offer shares of additional series in the future, and
intends to offer shares of additional series in the future;
WHEREAS, the Trust has established a new series designated
as the Strategic Equity Series; and
WHEREAS, the Trust and Golden American desire that the
Strategic Equity Series be sold to the separate accounts of
Golden American to fund benefits under variable life insurance
policies and variable annuity contracts issued by Golden American.
NOW THEREFORE, in consideration of the mutual promises and
covenants contained in this Addendum, it is agreed between the
parties hereto as follows:
1. The Strategic Equity Series, together with all other Series
listed on Exhibit B to the Organizational Agreement, shall be
series under the Organizational Agreement.
2. Exhibit B to the Organizational Agreement shall be replaced
with a new Exhibit B, a copy of which is attached hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed as of the date indicated above.
THE GCG TRUST
/s/Graydon W. Wilcox By: /s/Mary Bea Wilkinson
- -------------------------- --------------------------
Attest
Asst. Treasurer Treasurer
- -------------------------- --------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Graydon W. Wilcox By: /s/David L. Jacobson
- -------------------------- --------------------------
Attest
Director-Mutual Fund Acctng Senior Vice President
- -------------------------- --------------------------
Title Title
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
/s/Graydon W. Wilcox By: /s/Todd A. McGrath
- -------------------------- --------------------------
Attest
Director-Mutual Fund Acctng Vice President
- -------------------------- --------------------------
Title Title
- 2 -
<PAGE>
EXHIBIT B
TO
ORGANIZATIONAL AGREEMENT AMONG
THE GCG TRUST
and
DIRECTED SERVICES, INC.
and
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
The Fund For Life
Emerging Markets Series
Rising Dividends Series
Market Manager Series
Value Equity Series
Strategic Equity Series
<PAGE>
EXHIBIT (h)(3)(A)
SETTLEMENT AGREEMENT
AMONG
WESTERN CAPITAL SPECIALTY MANAGERS TRUST,
WESTERN CAPITAL FINANCIAL GROUP
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
This Agreement is dated as of December 28, 1988, by and between
Western Capital Specialty Managers Trust, a Massachusetts business
trust (the "Trust"), Western Capital Financial Group ("Western
Capital"), a California corporation, and Golden American Life
Insurance Company ("Golden American") on its own behalf and on behalf
of any separate accounts of Golden American shown on Exhibit A (the
"Variable Accounts").
WHEREAS, the Variable Accounts are segregated asset accounts
established by resolution of the Board of Directors of Golden
American pursuant to the laws of the State of Minnesota to set aside
and invest assets attributable to variable life insurance policies
and variable annuity contracts ("Policies") to be issued by Golden
American; and
WHEREAS, the Variable Accounts are registered as unit investment
trusts under the Investment Company Act of 1940 ("Investment Company
Act"), as amended; and
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act and its shares
will be registered under the Securities Act of 1933 ("Securities
Act"), as amended, and will initially consist of seven portfolios;
and
WHEREAS, Western Capital, pursuant to a written agreement, is
the distributor for shares of the portfolios of the Trust and is
registered as a broker-dealer with the Securities and Exchange
Commission ("Commission") under the Securities Exchange Act of 1934
("Exchange Act"), as amended, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, Golden American intends to purchase shares in the
portfolios of the Trust shown on Exhibit B (hereinafter "Series") on
behalf of the Variable Accounts to serve as an investment medium for
the Policies,
<PAGE>
<PAGE> 2
and Western Capital is authorized to sell such shares
and agrees to make shares of the Series available to the Variable
Accounts.
NOW, THEREFORE, Western Capital, Golden American and the Trust,
in consideration of the premises and the mutual covenants and
promises hereinafter set forth, hereby agree as follows:
1. Subject to paragraph 3, Western Capital will sell shares of the
Series to the Variable Accounts and will execute such orders on days
that the Trust values its shares as described in its prospectus in
such amounts as shall be requested. Such sales will be made at the
"net asset value" next computed after an order to purchase shares is
received by the Trust, its transfer agent or its designee, and no
commission on such sales shall be due or payable to Western Capital.
The Variable Accounts shall not be under any obligation to purchase
shares of the Series at any time or in any amount other than for
which its has a bona fide order.
2. Solely for the purposes of paragraph 1, the Trust agrees that
Golden American shall be the designee of the Trust's transfer agent
for receipt of such orders from the Variable Accounts (but not the
General Account of Golden American), and receipt by such agent shall
constitute receipt by the Trust, provided that the Trust receives
notice of such order by 12:00 noon on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading or any day on which the Trust is
required to calculate its net asset value pursuant to the rules
promulgated by the Commission. The provisions of this paragraph 2
shall apply solely to orders based upon purchases of interests under
the Policies, and shall not apply to any other orders, including
those orders based upon investment by Golden American for its own
account.
3. Western Capital and the Trust agree to make shares of each
Series available for purchase by Golden American on behalf of the
Variable Accounts at the applicable net asset value per share on
those days on which the Trust calculates such net asset value per
share, pursuant to the rules promulgated by the Commission, and the
Trust shall use its reasonable efforts to calculate such net asset
value on each day the New York Stock Exchange is open for trading or
any day on which the Trust is required to calculate its net asset
value pursuant to the rules promulgated by the Commission; provided,
however, that the Board of Trustees of the Trust may refuse to sell
shares of the Series of the Trust to any person or suspend or
terminate the offering of shares of any Series if such action is
required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of such Trustees acting in good
faith and in
<PAGE>
<PAGE> 3
light of their fiduciary duties under applicable law, necessary
in the best interests of the shareholders of the Trust. The Trust
shall take such steps as may be necessary to provide a sufficient
number of shares to meet the orders of the Variable Account.
4. The parties agree that no shares of the Series will be sold
directly to the general public. Shares of the Trust will be
available only to general and separate accounts of life insurance
companies issuing variable life insurance policies and variable
annuity contracts for which the Trust serves as an investment
vehicle.
It is further agreed among the parties that the Policies
will be distributed to the public only by broker-dealers
that are registered under the Exchange Act as broker-
dealers and are members of the NASD ("retail broker-
dealers") and that enter into a written agreement ("Sales
Agreement") with Golden American or an affiliate of Golden
American and that any such Sales Agreement shall provide,
that as partial consideration for the right to offer to
sell the Policies for which the Trust serves as an
investment vehicle, and as a condition precedent to the
effectiveness of the Sales Agreement, the retail broker-
dealer shall enter into an agreement with Western Capital
in the form of the Participation Rights Agreement provided
in Schedule A or shall enter into an agreement that
contains all of the provisions contained in the agreement
in Schedule A.
5. The Trust will redeem, at Golden American's request, any full or
fractional shares tendered for redemption by the Variable Account at
the net asset value next computed after such request is received in
good order by the Trust, its transfer agent or its designee. No
Series shall change the terms and conditions for the redemption of
its shares as set forth in the most recent effective Registration
Statement for the Trust without the prior approval of the parties
hereto.
6. For purposes of paragraph 5, and solely for transactions caused
by redemptions of Policies underlying the Trust, the Trust agrees
that Golden American shall be the designee of the Trust's transfer
agent for receipt of such orders from the Variable Accounts and
receipt by such agent shall constitute receipt by the Trust, provided
that the Trust receives notice of such order by 12:00 noon New York
time on the next following Business Day. The provisions of this
paragraph 6 shall apply solely to tenders for redemptions based upon
redemptions of interests under the Policies, and shall not apply to
any other tenders or requests for redemptions, including those based
upon investment by Golden American for its own account.
<PAGE>
<PAGE> 4
7. All transactions involving the purchase of shares of the Series
shall be settled the same day the Trust executes an order for the
purchase of shares of the Series, as provided in Paragraph 1 of this
Agreement. Transactions involving the redemption of shares of the
Series shall ordinarily be settled the same day that the Trust
effects the redemption as provided in Paragraph 5 of this Agreement,
except that the Trust reserves the right to delay settlement upon
redemption, but in not event may such settlement be delayed longer
than the period as permitted under Section 22(e) of the Investment
Company Act. All funds used for purchase of redemption transactions
shall be in Federal Funds transmitted by wire transfer. Issuance and
transfer of shares of the Series will be by book entry only, unless
otherwise agreed by all parties. Stock certificates will not be
issued to Golden American or the Variable Accounts. Shares of the
Series ordered from the Trust will be recorded in appropriate ledgers
for the Variable Accounts.
8. The Trust shall instruct its recordkeeping agent that on each
day the net asset value of the shares of any Series is required to be
calculated pursuant to the requirements of the Investment Company
Act, the Trust shall provide The Golden Financial Group, Inc. (a New
York corporation acting on behalf of Golden American pursuant to an
Administrative Services Agreement) with the net asset value of such
shares of the Series by 5:30 p.m. New York time, or as soon
thereafter as practicable. The Trust shall also provide Directed
Services, Inc., a subsidiary of The Golden Financial Group, Inc. that
is also distributor for the Policies, daily with any and all
financial information that is deemed reasonably necessary for
Directed Services to comply with its responsibilities as distributor
for the Policies. This financial information shall also be provided
to Golden American or its designated agent, The Golden Financial
Group, Inc. by 5:30 p.m. New York time or as soon thereafter as
practicable on each day on which such net asset value is calculated,
unless circumstances make compliance with such schedule
impracticable, in which event the Trust or its agent will provide the
information as soon as reasonably practicable.
9. It is understood by the parties that this Agreement shall apply
to additional series created for the Trust unless a party to this
Agreement notifies the other parties of its obligation in accordance
with the notification provisions contained in paragraph 15.
10. (a) Golden American agrees to indemnify and hold harmless
Western Capital and the Trust and each of their Trustees, officers,
employees, and each person, if any, who controls Western Capital or
the Trust within the meaning of Section 15 of the Securities Act and
each person who is an affiliated person of Western Capital or the
Trust within the
<PAGE>
<PAGE> 5
meaning of Section 2(a)(3) of the Investment Company
Act of 1940 (collectively, the "Indemnified Parties" for purposes of
this paragraph 10) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of Golden American), or litigation expenses (including legal
and other expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), or settlements are related to the sale
or acquisition of the Policies or the Trusts' shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus for the Policies or contained in the Policies
or sales literature for the Policies (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to Golden American
or its affiliates by or on behalf of Western Capital, the Trust or an
affiliate of either, for use in the registration statement or
prospectus for the Policies or in the Policies or sales literature
(or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Policies or the Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, or sales literature of the Trust
not supplied by Golden American or persons under its control) or
wrongful conduct of Golden American, its officers, directors,
employees or persons under its control, with respect to the sale or
distribution of the Policies or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or
<PAGE>
<PAGE> 6
sales literature for the Trust or any amendment
thereof or supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Trust by or on behalf of Golden American, its
officers, directors, employees, or affiliated persons thereof; or
(iv) arise as a result of any failure by Golden American to provide
the services and to furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Golden American in this
Agreement or arise out of or result from any other material breach
of this Agreement by Golden American, as limited by and in
accordance with the provisions of subparagraphs (b) and (c) of
this paragraph 10.
(b) Golden American shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities,
or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the
Trust, whichever is applicable.
(c) Golden American shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure
to notify Golden American of any such claim shall not relieve Golden
American from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is
brought against the Indemnified Parties, Golden American shall be
entitled to participate, at its own expense, in the defense of such
action. Golden American also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the Action.
<PAGE>
<PAGE> 7
After notice from Golden American to such party of Golden American's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and Golden American will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify Golden American of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of Trust shares or the Policies
or the operation of the Trust.
11. (a) The Trust, and Western Capital, or both of them, as appropriate,
agree to indemnify and hold harmless Golden American and
each of its directors, officers, employees, and each person, if any,
who controls Golden American within the meaning of Section 15 of the
Securities Act and each person who is an affiliated person of Golden
American within the meaning of Section 2(a)(3) of the Investment
Company Act of 1940 (collectively, the "Indemnified Parties" for
purposes of this Paragraph 11) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of the Trust) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares and:
(i) arise out of or are based upon an untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus for the Trust or sales literature for the
Trust (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to
Western Capital or the Trust by or on behalf of Golden American or an
affiliate thereof for use in the registration statement or prospectus
for the Trust or in sales
<PAGE>
<PAGE> 8
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Policies or the Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, or sales literature for the
Policies not supplied by the Trust, Western Capital or persons under
their control) or wrongful conduct of the Trust or Western Capital,
their officers, directors, employees or persons under their control,
with respect to the sale of the Policies or Trust shares: or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature for the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon information
furnished to Golden American by or on behalf of the Trust or Western
Capital; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Western Capital
in this Agreement or arise out of or result from any other material
breach of this Agreement by the Trust or Western Capital, as limited
by and in accordance with the provisions of subparagraphs (b) and (c)
of this Paragraph 11.
(b) Neither the Trust nor Western Capital shall be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities, or litigation expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless
<PAGE>
<PAGE> 9
disregard of obligations and duties under this Agreement or to Golden
American or the Variable Accounts, whichever is applicable.
(c) Neither the Trust nor Western Capital shall be liable under this
indemnification provision with respect to any claim made against any
Indemnified Party unless such Indemnified Party shall have notified
Western Capital and/or the Trust, as appropriate, in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure
to notify the Trust or Western Capital of any such claim shall not
relieve the Trust or Western Capital from any liability which either
of them may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties,
the Trust and Western Capital will be entitled to participate, at
their expense, in the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust and/or
Western Capital to such party of the Trust's and/or Western Capital's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and Trust and Western Capital will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) Golden American agrees to promptly notify the Trust and Western
Capital of the commencement of any litigation or proceedings against
it or any of its officers or directors in connection with the
issuance or sale of the Policies or the operation of the Variable
Accounts.
12. Golden American shall provide the Trust and Western Capital with
copies of all written complaints received and responses thereto sent
by Golden American or its affiliates or agents that pertain to the
purchase or sale of the Policies or to the operation of the Trust.
Such copies shall be sent to the Trust and Western Capital
concurrently with the mailing of the response to any such complaint.
<PAGE>
<PAGE> 10
The Trust and Western Capital shall provide Golden American
with copies of all written complaints received by either of
them that pertain to the purchase or sale of the Policies
or to the operation of the Variable Accounts.
13. This Agreement may be terminated by any of the parties upon
giving one hundred twenty (120) days written notice to the other
parties provided, however, that if any party fails to carry out its
responsibilities enumerated under this Agreement in any material
respect, the other parties shall have the right to terminate this
Agreement immediately and if for any reason shares of the Series are
not available Golden American shall have the right to terminate this
Agreement immediately.
14. Unless earlier terminated pursuant to Paragraph 13 hereof, this
Agreement shall remain in effect for a one year period beginning on
the effective date of this Agreement and will continue thereafter in
effect from year to year. Upon termination of this Agreement, all
authorizations, rights and obligations imposed on the parties under
this Agreement except for the indemnification provisions contained
in Paragraphs 10 and 11 above shall cease. Notwithstanding the
foregoing, in the event of termination and unless otherwise agreed
to by the parties, transactions for existing policyowners will
continue to be executed under the terms of this Agreement.
15. Any notice shall be sufficiently given when sent by registered
or certified mail to the other parties at the address of such
parties as set forth below or at such other address as such party
may from time to time specify in writing to the other parties:
To: Western Capital Specialty Managers Trust
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
with a copy to:
Jeffrey S. Puretz, Dechert Price & Rhoads
1500 K Street, Washington, D.C. 20005
To: Western Capital Financial Group
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
To: Golden American Life Insurance Company
909 Third Avenue, 19th Floor
New York, NY 10022
<PAGE>
<PAGE> 11
16. This Agreement shall be construed with and the provisions hereof
interpreted under an in accordance with the laws of the State of New
York.
17. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Act and the Exchange Act and
the rules, regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof
shall be interpreted and construed in accordance therewith.
18. 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.
19. A copy of the Trust's Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts. The Declaration of
Trust has been executed on behalf of the Trust by the Trustees in
their capacity as Trustees of the Trust and not individually. The
obligations upon the Trust under this Agreement shall be binding
upon the assets and property of the Trust and shall not be binding
upon any Trustee, officer, employee or shareholder of the Trust
individually.
<PAGE>
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
WESTERN CAPITAL SPECIALTY MANAGERS TRUST
BY: /s/ Charles F. Parisi
------------------------
Charles F. Parisi
President
ATTEST: /s/ William C. Richardson
------------------------
NAME: William C. Richardson
TITLE: President
WESTERN CAPITAL FINANCIAL GROUP
BY: /s/ William C. Richardson
------------------------
William C. Richardson
President
ATTEST: /s/ Charles F. Parisi
------------------------
NAME: Charles F. Parisi
TITLE: President, "Trust"
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BY: /s/ Fred H. Davidson
------------------------
Fred H. Davidson
President
ATTEST: /s/ Bernard R. Beckenlegge
----------------------------
NAME: Bernard R. Beckenlegge
TITLE: Secretary
<PAGE>
<PAGE>
EXHIBIT A TO
SETTLEMENT AGREEMENT AMONG WESTERN CAPITAL SPECIALTY
MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP,
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THE WESTERN CAPITAL SPECIALTY MANAGERS SEPARATE ACCOUNT A
THE WESTERN CAPITAL SPECIALTY MANAGERS SEPARATE ACCOUNT B
<PAGE>
<PAGE>
EXHIBIT B TO
SETTLEMENT AGREEMENT AMONG
SETTLEMENT AGREEMENT AMONG WESTERN CAPITAL SPECIALTY
MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP,
AND
GOLDEN AMERICAN LIFE INSURANCE COMPANY
MULTIPLE ALLOCATION SERIES
FULLY MANAGER SERIES
LIMITED MATURITY BOND SERIES
NATURAL RESOURCES SERIES
REAL ESTATE SERIES
ALL-GROWTH SERIES
LIQUID ASSET SERIES
<PAGE>
<PAGE>
SCHEDULE A
PARTICIPATION RIGHTS AGREEMENT
This Agreement, dated as of __________, 1988, by and
between Western Capital Financial Group ("Western Capital"), a
California corporation registered as a broker-dealer under the
Securities Exchange Act of 1934 and registered as a broker-
dealer with the National Association of Securities Dealers, Inc.
("NASD"), and _________ ("General Agent"), also a broker-dealer
registered under the Securities Exchange Act of 1934 and a
member of the NASD.
WHEREAS, Western Capital is the distributor for the Western
Capital Specialty Managers Trust (the "Trust"), and
WHEREAS, the Trust as the investment vehicle for variable
life insurance policies and variable annuity contracts
("Policies") to be issued by Golden American Life Insurance
Company ("Golden American") through segregated asset accounts of
Golden American identified on Schedule A ("Variable Accounts");
and
WHEREAS, General Agent has entered or intends to enter into
a Sales Agreement with Directed Services, Inc. ("DSI"), an
affiliate of Golden American, under which General Agent will
solicit applications for the sale of the Policies, and
WHEREAS, a condition precedent to the effectiveness of the
Sales Agreement with DSI is that General Agent enter into this
agreement with Western Capital.
NOW THEREFORE, Western Capital and General Agent, in
consideration of these premises and of the mutual covenants and
promises hereinafter set forth, and in partial consideration for
the right of General Agent to solicit applications for sale of
the Policies under the Sales Agreement between DSI and General
Agent, the parties agree as follows:
1. Trust Prospectus. General Agent is authorized for the term of
this Agreement to distribute the prospectus and, upon request from an
investor, the statement of additional information for the Trust in
connection with the solicitation of applications for sales of the
Policies.
2. Unauthorized Representations. General Agent agrees that neither
it nor any of its directors, partners, officers, employees,
registered representatives, agents, or affiliated person will give
any information or make any representations
<PAGE>
<PAGE>
or statements, whether written or oral, on behalf of the Trust or
concerning the Trust or Trust shares in connection with the offer
or sale of the Policies other than information or representations
contained in the prospectus, statement of additional information,
or registration statement for the Trust shares, as they may be
supplemented or amended from time to time, or in reports or proxy
statements for the Trust, or in sales literature or other
promotional material or information supplied or approved by (1)
DSI and (2) the Trust, Western Capital or an affiliate of Western
Capital.
3. Sales Literature. General Agent agrees that neither it nor any
of its directors, partners, officers, employees, registered
representatives, agents, or affiliated persons shall use any sales
literature or other promotional material respecting the Policies or
the Trust unless such material has been approved in advance by (1)
DSI and (2) the Trust, Western Capital or an affiliate of Western
Capital.
4. Policy Owner Names. General Agent acknowledges that Section 9
of the Organizational Agreement among Golden American, the Variable
Accounts, the Trust and Western Capital Variable Advisors Corp.
("Western Advisory") provides, in pertinent part: "In the event of a
shareholder meeting, Golden American agrees to provide the Trust
and/or Western advisors with a list of the names and addresses of
owners of the Policies within five (5) days of receipt of a written
request for such list." General Agent agrees that DSI or Golden
American may release the names and addresses of owners of the
Policies under the terms of the Organizational Agreement and agrees
that Western Capital may receive such information.
Western Capital agrees to use such information only for
purposes relating to meetings of shareholders including
sending to the owners of the Policies notices of
shareholder meetings and soliciting proxies from Policy
owners in connection with shareholder meetings.
General Agent agrees that, notwithstanding any provision
in its Sales Agreement with DSI respecting the
confidentiality of such information, it will hold
harmless Golden American, DSI, Western Capital and the
Trust for the release by Golden American of such
information for such purposes.
<PAGE>
<PAGE>
5. Standard of Care. Western Capital and General Agent agree that
each party shall be held to a standard of reasonable care in
fulfilling its responsibilities under this Agreement.
6. Indemnification. General Agent agrees to indemnify and hold
harmless the Trust, Western Capital, and each of their directors,
Trustees, officers, employees, and affiliates, and each person, if
any, who controls Western Capital, Western Advisors or the Trust
within the meaning of Section 15 of the Securities Act of 1933
(collectively, the "Western Capital Indemnified Parties") against any
and all losses, claims, damages, liabilities, or expenses (including
legal and other expenses, litigation expenses, and amounts paid in
settlement) that arise out of or as a result of any unauthorized use
of the prospectus or statement of additional information for the
Trust or any sales literature or other promotional material
respecting the Trust or the Policies, or any verbal or written
misrepresentations, or any unlawful sales practices concerning the
Policies or the Trust shares by General Agent or any of its
directors, partners, officers, employees, registered representatives,
agents, or affiliated persons, provided, however, that General Agent
shall not be liable in any such case to the extent that such loss,
claim, damage, liability, or expense arises out of or is based upon
(1) an untrue statement or representation contained in the
registration statement, prospectus, or statement of additional
information of the Trust, as amended or supplemented from time to
time, in a proxy statement or periodic report of the Trust, or in
sales literature or other promotional material approved in advance by
the Trust, Western Capital, or an affiliate of Western Capital, (ii)
an omission or alleged omission in the registration statement,
prospectus, or statement of additional information of the Trust, as
amended or supplemented from time to time, in a proxy statement or
period report of the Trust, or in sales literature or other
promotional material approved in advance by the Trust, Western
Capital, or an affiliate of Western Capital, which was necessary, in
the context of all information contained in such document, to make
statements therein not misleading. This indemnity agreement will be
in addition to any liability which General Agent may otherwise have.
<PAGE>
<PAGE>
7. Agent's Report. For each application for a Policy solicited by
General Agent, General Agent agrees to complete an agent's report
addressing the suitability of the Policy for the applicant. General
Agent shall retain a copy of each such report, and shall provide
Western Capital with a copy of any such report upon reasonable
request from Western Capital.
8. Termination. This Agreement may be terminated at any time by
either party upon a material breach of any provision of this
Agreement by the other party. This Agreement may be terminated by
either party upon 60 days written notice to the other, but not before
the termination of the Sales Agreement between General Agent and DSI.
Upon termination of this Agreement, all authorization, rights and
obligations hereunder shall cease except (1) the indemnification
provisions set forth in paragraph 6; and (2) the confidentiality
provisions set forth in paragraph 4.
9. Miscellaneous. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws
of the State of California. The work "affiliate" shall mean an
affiliated person as defined in Section 2(a)(3) of the Investment
Company Act of 1940. This Agreement is assignable by either party
only upon the prior written consent of the other. Western Capital
and General Agent agree that Golden American and DSI shall be third
party beneficiaries under this Agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above
written.
Western Capital Financial Group
By: /s/ William C. Richardson
----------------------------
William C. Richardson
Title: President
Attest: /s/ Charles F. Parisi
----------------------
Charles F. Parisi
General Agent
By:
----------------------------
Title:
Attest:
---------------------
ACKNOWLEDGED:
GOLDEN AMERICAN LIFE INSURANCE COMPANY
/s/ Fred Davidson
---------------------
Fred Davidson
President
Attest: /s/ Bernard R. Beckerlegge
---------------------------
Bernard R. Beckerlegge
Secretary
Exhibit (h)(3)(C)
1
SETTLEMENT AGREEMENT
AMONG
THE SPECIALTY MANAGERS TRUST,
WESTERN CAPITAL FINANCIAL GROUP
AND
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
This Agreement is dated as of May 21, 1990, by and between The
Specialty Managers Trust, a Massachusetts business trust (the
"Trust"), Western Capital Financial Group ("Western Capital"), a
California corporation, and The Mutual Benefit Life Insurance Company
("MBL") on its own behalf and on behalf of Mutual Benefit Contract
Account - 11 (the "Account").
WHEREAS, MBL is a mutual life insurance company incorporated
under the laws of the State of New Jersey; and
WHEREAS, the Account is a segregated asset account established
by resolution of the Board of Directors of MBL to set aside and
invest assets attributable to annuity contracts ("Policies") to be
issued by MBL; and
WHEREAS, the Account is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"), as amended and
interests in the Policies, as hereinafter defined, are registered
under the Securities Act of 1933 ("1933 Act"), as amended; and
WHEREAS, the Trust is registered as an open-end management
investment company under the 1940 Act and its shares will be
registered under the 1933 Act; and
WHEREAS, Western Capital, pursuant to a written agreement, is
the distributor for shares of the portfolios of the Trust and is
registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 ("1934
Act"), as amended, and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, MBL intends to purchase shares in the portfolios of
the Trust shown on Exhibit A (hereinafter "Series") on behalf of the
Account to serve as an investment medium for the Policies, and
Western Capital is authorized to sell such shares and agrees to make
shares of the Series available to the Account.
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<PAGE> 2
NOW, THEREFORE, Western Capital, MBL and the Trust, in
consideration of the premises and the mutual covenants and
promises hereinafter set forth, hereby agree as follows:
1. Subject to paragraph 3, Western Capital will sell shares of the
Series to the Accounts and will execute such orders on days that
the Trust values its shares as described in its prospectus in such
amounts as shall be requested. Such sales will be made at the "net
asset value" next computed after an order to purchase shares is
received by the Trust, its transfer agent or its designee, and no
commission on such sales shall be due or payable to Western Capital.
The Accounts shall not be under any obligation to purchase shares of
the Series at any time or in any amount other than for which its has
a bona fide order.
2. Solely for the purposes of paragraph 1, the Trust agrees that
MBL shall be the designee of the Trust's transfer agent for receipt
of such orders from the Accounts (but not the General Account of
MBL), and receipt by such agent shall constitute receipt by the
Trust, provided that the Trust receives notice of such order by 12:00
noon on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading or
any day on which the Trust is required to calculate its net asset
value pursuant to the rules promulgated by the Commission. The
provisions of this paragraph 2 shall apply solely to orders based
upon purchases of interests under the Policies, and shall not apply
to any other orders, including those orders based upon investment by
MBL for its own account.
3. Western Capital and the Trust agree to make shares of each
Series available for purchase by MBL on behalf of the Accounts at
the applicable net asset value per share on those days on which the
Trust calculates such net asset value per share, pursuant to the
rules promulgated by the Commission, and the Trust shall use its
reasonable efforts to calculate such net asset value on each day the
New York Stock Exchange is open for trading or any day on which the
Trust is required to calculate its net asset value pursuant to the
rules promulgated by the Commission; provided, however, that the
Board of Trustees of the Trust may refuse to sell shares of the
Series of the Trust to any person or suspend or terminate the
offering of shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of such Trustees acting in good faith and in light of
their fiduciary duties under applicable law, necessary in the best
interests of the shareholders of the Trust. The Trust shall take
such steps as may be necessary to provide a sufficient number of
shares to meet the orders of the Account.
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<PAGE> 3
4. The parties agree that no shares of the Series will be sold
directly to the general public. Shares of the Trust Series
will be available only to general and separate accounts of life
insurance companies issuing variable life insurance policies
and variable annuity contracts for which the Trust serves as an
investment vehicle.
It is further agreed among the parties that the Policies
will be distributed to the public only by broker-dealers
that are registered under the 1934 Act as broker-dealers
and are members of the NASD ("retail broker-dealers") and
that enter into a written agreement ("Sales Agreement")
with Directed Services, Inc., two forms of which are
attached hereto as Exhibits B & C. The parties further
agree that all Sales Agreements will be in one of these two
such forms.
5. The Trust will, at MBL's request, (a) redeem any full or
fractional shares tendered for redemption by the Account, or (b)
exchange shares of one Series for shares of another Series, at the
net asset value next computed after such request is received in good
order by the Trust, its transfer agent or its designee. No Series
shall change the terms and conditions for the redemption of its
shares as set forth in the most recent effective Registration
Statement for the Trust without the prior approval of the parties
hereto.
6. For purposes of paragraph 5, and solely for transactions caused
by redemptions of Policies underlying the Trust, the Trust agrees
that MBL shall be the designee of the Trust's transfer agent for
receipt of such orders from the Accounts and receipt by such agent
shall constitute receipt by the Trust, provided that the Trust
receives notice of such order by 12:00 noon New York time on the
next following Business Day. The provisions of this paragraph 6
shall apply solely to tenders for redemptions based upon redemptions
of interests under the Policies, and shall not apply to any other
tenders or requests for redemptions, including those based upon
investment by MBL for its own account.
7. All transactions involving the purchase of shares of the Series
shall be settled the same day the Trust executes an order for the
purchase of shares of the Series, as provided in Paragraph 1 of this
Agreement. Transactions involving the redemption of shares of the
Series shall ordinarily be settled the same day that the Trust
effects the redemption as provided in Paragraph 5 of this Agreement,
except that the Trust reserves the right to delay settlement upon
redemption, but in not event may such settlement be delayed longer
than the period as permitted under Section 22(e) of the 1940 Act.
All funds used for purchase of redemption transactions shall be in
Federal Funds
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<PAGE> 4
transmitted by wire transfer. Issuance and transfer of shares of
the Series will be by book entry only, unless otherwise agreed by
all parties. Stock certificates will not be issued to MBL or the
Accounts. Shares of the Series ordered from the Trust will be
recorded in appropriate ledgers for the Account.
8. The Trust shall instruct its recordkeeping agent that on each
day the net asset value of the shares of any Series is required to
be calculated pursuant to the requirements of the Investment Company
Act, the Trust shall provide The Golden Financial Group, Inc. (a New
York corporation acting on behalf of MBL pursuant to an
Administrative Services Agreement) with the net asset value of such
shares of the Series by 5:30 p.m. New York time, or as soon
thereafter as practicable. The Trust shall also provide Directed
Services, Inc., a subsidiary of The Golden Financial Group, Inc. that
is also distributor for the Policies, daily with any and all
financial information that is deemed reasonably necessary for
Directed Services to comply with its responsibilities as distributor
for the Policies. This financial information shall also be provided
to MBL or its designated agent, The Golden Financial Group, Inc. by
5:30 p.m. New York time or as soon thereafter as practicable on each
day on which such net asset value is calculated, unless circumstances
make compliance with such schedule impracticable, in which event the
Trust or its agent will provide the information as soon as
reasonably practicable.
9. It is understood by the parties that this Agreement shall apply
to additional series created for the Trust unless agreed to by all
parties hereto.
10. (a) MBL agrees to indemnify and hold harmless Western Capital
and the Trust and each of their Trustees, officers, employees, and
each person, if any, who controls Western Capital or the Trust within
the meaning of Section 15 of the Securities Act and each person who
is an affiliated person of Western Capital or the Trust within the
meaning of Section 2(a)(3) of the Investment Company Act of 1940
(collectively, the "Indemnified Parties" for purposes of this
paragraph 10) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of MBL), or litigation expenses (including legal and other
expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof), or settlements are related to the sale or
acquisition of the Policies or the Trusts' shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus for the Account or
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<PAGE> 5
the Policies or contained in the Policies or sales literature for
the Policies (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to MBL or its
affiliates by or on behalf of Western Capital, the Trust or an
affiliate of either, for use in the registration statement or
prospectus for the Policies or in the Policies or sales literature
(or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Policies or the Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, or sales literature of the Trust
not supplied by MBL or persons under its control) or wrongful conduct
of MBL, its officers, directors, employees or persons under its
control, with respect to the sale or distribution of the Policies or
Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature for the Trust or any amendment
thereof or supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished
to the Trust by or on behalf of MBL, its officers, directors,
employees, or affiliated persons thereof; or
(iv) arise as a result of any failure by MBL to provide the services
and to furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty
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<PAGE> 6
made by MBL in this Agreement or arise out of or result from any
other material breach of this Agreement by MBL, as limited by
and in accordance with the provisions of subparagraphs (b) and
(c) of this paragraph 10.
(b) MBL shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities, or
litigation expenses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the
Trust, whichever is applicable.
(c) MBL shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure
to notify MBL of any such claim shall not relieve MBL from any
liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, MBL shall be entitled to
participate, at its own expense, in the defense of such action. MBL
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the Action. After notice from MBL
to such party of MBL's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and MBL will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify MBL of the
commencement of any litigation or proceedings against them in
connection with the issuance or sale of Trust shares or the Policies
or the operation of the Trust.
11. (a) The Trust, and Western Capital, or both of them, as
appropriate, agree to indemnify and hold harmless MBL and each of its
directors, officers, employees, and each person, if any, who controls
MBL within the meaning of Section 15 of the Securities Act and each
person who is an affiliated person of MBL within the meaning of
Section 2(a)(3) of the Investment Company Act of 1940 (collectively,
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<PAGE> 7
the "Indemnified Parties" for purposes of this Paragraph 11) against
any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Trust) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's
shares and:
(i) arise out of or are based upon an untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus for the Trust or sales literature for the
Trust (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to
Western Capital or the Trust by or on behalf of MBL or an affiliate
thereof for use in the registration statement or prospectus for the
Trust or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Policies or the
Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, or sales literature for the
Policies not supplied by the Trust, Western Capital or persons under
their control) or wrongful conduct of the Trust or Western Capital,
their officers, directors, employees or persons under their control,
with respect to the sale of the Policies or Trust shares: or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature for the Policies, or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated
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<PAGE> 8
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to MBL by or on behalf of the Trust or
Western Capital; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Western Capital
in this Agreement or arise out of or result from any other material
breach of this Agreement by the Trust or Western Capital, as limited
by and in accordance with the provisions of subparagraphs (b) and (c)
of this Paragraph 11.
(b) Neither the Trust nor Western Capital shall be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities, or litigation expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to MBL or the Accounts, whichever is
applicable.
(c) Neither the Trust nor Western Capital shall be liable under this
indemnification provision with respect to any claim made against any
Indemnified Party unless such Indemnified Party shall have notified
Western Capital and/or the Trust, as appropriate, in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure
to notify the Trust or Western Capital of any such claim shall not
relieve the Trust or Western Capital from any liability which either
of them may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties,
the Trust and Western Capital will be entitled to participate, at
their expense,
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<PAGE> 9
in the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust and/or
Western Capital to such party of the Trust's and/or Western Capital's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and Trust and Western Capital will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) MBL agrees to promptly notify the Trust and Western Capital of
the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale
of the Policies or the operation of the Account.
12. MBL shall provide the Trust and Western Capital with copies of
all written complaints received and responses thereto sent by MBL or
its affiliates or agents that pertain to the purchase or sale of the
Policies or to the operation of the Trust. Such copies shall be sent
to the Trust and Western Capital concurrently with the mailing of the
response to any such complaint.
The Trust and Western Capital shall provide MBL with copies
of all written complaints received by either of them that
pertain to the purchase or sale of the Policies or to the
operation of the Account.
13. This Agreement may be terminated at any time by mutual consent
of the parties, or without cause by any of the parties upon giving
one hundred twenty (120) days written notice to the other parties
provided, however, that if any party fails to carry out its
responsibilities enumerated under this Agreement in any material
respect, the other parties shall have the right to terminate this
Agreement within sixty days of notification to the party so failing
to carry out its responsibilities, and if for any reason shares of
the Series are not available MBL shall have the right to terminate
this Agreement immediately. This Agreement shall terminate upon the
termination of the "Variable Life and Annuity Agreement" between MBL
and GFG dated May 31, 1989, whereby GFG is to provide certain
services to MBL with regard to the design, regulatory approval and
administration of the Policies.
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<PAGE> 10
This Agreement shall also terminate:
(i) at the option of MBL upon the institution of formal proceedings
against the Trust, Western Capital or an affiliate by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body provided that MBL determines in good faith, in MBL's
sole judgment, that such institution will have a material adverse
impact on the Trust's, Western Capital's or the affiliate's ability
to perform its obligations under this Agreement; or
(ii) at the option of the Trust or Western Capital upon the
institution of formal proceedings against MBL brought by the NASD,
the SEC, or any formal proceedings involving a material matter
brought by any state securities or state insurance department or any
other regulatory body regarding MBL provided that the Trust or
Western Capital determines in good faith, in its sole judgment, that
such institution will have a material adverse impact on MBL's ability
to perform its obligations under this Agreement; or
(iii) at the option of either the Trust, Western Capital or MBL,
upon the filing of a voluntary or involuntary petition in bankruptcy,
or in any equivalent state court proceeding, concerning any party, or
upon appointment of a receiver by a regulatory body having
appropriate jurisdiction over any other party, or upon the occurrence
of any party's failing to meet the minimum net capital requirements,
if any, applicable to it under appropriate insurance or securities
laws; or
(iv) at the option of the Trust, Western Capital or MBL if the
Management Agreement between the Fund and its Manager is terminated,
or the Organizational Agreement among MBL, the Fund and the Fund's
Manager terminates.
14. Unless earlier terminated pursuant to Paragraph 13 hereof, this
Agreement shall remain in effect for a one year period beginning on
the effective date of this Agreement and will continue thereafter in
effect from year to year. Upon termination of this Agreement, all
authorizations, rights and obligations imposed on the parties under
this Agreement except for the indemnification provisions contained
in Paragraphs 10 and 11 above shall cease. Notwithstanding the
foregoing, in the event of termination and unless otherwise
agreed to by the parties, transactions for
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<PAGE> 11
existing policyowners will continue to be executed under the terms
of this Agreement.
15. Any notice shall be sufficiently given when sent by registered
or certified mail to the other parties at the address of such parties
as set forth below or at such other address as such party may from
time to time specify in writing to the other parties:
To: The Specialty Managers Trust
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
Attn: Charles F. Parisi
with a copy to:
Jeffrey S. Puretz, Dechert Price & Rhoads
1500 K Street, Washington, D.C. 20005
To: Western Capital Financial Group
1925 Century Park East, Suite 2350
Los Angeles, CA 90067
Attn: Charles F. Parisi
To: The Mutual Benefit Life Insurance Company
520 Broad Street
Newark, NJ 07102-3184
Attn: Michael H. Berkowitz, Senior Vice President
With a copy to:
Frank D. Casciano
Vice President and Deputy General Counsel
16. This Agreement shall be construed with and the provisions hereof
interpreted under an in accordance with the laws of the State of New
York.
17. This Agreement shall be subject to the provisions of the 1940
Act, the 1933 Act and the 1934 Act and the rules, regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the SEC may grant and the terms hereof shall
be interpreted and construed in accordance therewith.
18. 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.
19. A copy of the Trust's Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts. The Declaration of
Trust has been executed on behalf of the Trust by the Trustees in
their capacity as Trustees of the Trust and not
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<PAGE> 12
individually. The obligations upon the Trust under this Agreement
shall be binding upon the assets and property of the Trust and
shall not be binding upon any Trustee, officer, employee or
shareholder of the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
THE SPECIALTY MANAGERS TRUST
By: /s/ Charles F. Parisi
---------------------------
Charles F. Parisi
President
Attest: /s/ William C. Richardson
---------------------------
Name: William C. Richardson
Title:
WESTERN CAPITAL FINANCIAL GROUP
By: /s/ William C. Richardson
---------------------------
William C. Richardson
President
Attest: /s/ Charles F. Parisi
-----------------------
Name: Charles F. Parisi
Title:
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
By: The Mutual Benefit Life Insurance Company
By: /s/ Michael H. Berkowitz
---------------------------
Michael H. Berkowitz
Senior Vice President
Attest: /s/ Frank D. Casciano
-----------------------
Frank D. Casciano
Vice President and
Deputy General Counsel
<PAGE>
<PAGE> 13
EXHIBIT A TO
SETTLEMENT AGREEMENT AMONG
THE SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP,
and
THE MUTUAL BENEFIT LIFE INSURANCE COMPANY
Multiple Allocation Series
Fully Manager Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
EXHIBIT (h)(3)(D)
ASSIGNMENT AGREEMENT FOR
SETTLEMENT AGREEMENT
AGREEMENT, made this 20th day of March, 1991, by and among Western
Capital Financial Group ("Western Capital"), a California corporation;
Directed Services, Inc. ("DSI"), a New York corporation; The Mutual
Benefit Life Insurance Company ("MBL"), a mutual life insurance company
incorporated under the laws of the State of New Jersey, on its own behalf
and on behalf of Mutual Benefit Variable Contract Account-11; and The
Specialty Managers Trust, a Massachusetts business trust ("Trust").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end management investment company under the
Investment Company Act of 1940, as amended ("Act"); and
WHEREAS, the Trust, Western Capital, and MBL entered into a
Settlement Agreement dated May 21, 1990 ("Settlement Agreement"); and
WHEREAS, Western Capital has served as Distributor to the Trust
pursuant to a Distribution Agreement between the Trust and Western
Capital dated December 28, 1988; and
<PAGE>
<PAGE>
WHEREAS, the Trust and Western Capital have terminated the
Distribution Agreement with Western Capital, effective at the close of
business on March 20, 1991; and
WHEREAS, commencing March 21, 1991, DSI has agreed to serve as
Distributor to the Trust pursuant to a new Distribution Agreement between
the Trust and DSI dated March 20, 1991; and
WHEREAS, Western Capital, MBL and the Trust desire to assign Western
Capital's interest in the Settlement Agreement to DSI and DSI desires to
be the assignee of Western Capital's interest.
NOW, THEREFORE, it is agreed as follows:
1. Assignment. Effective as of March 21, 1991, Western Capital hereby
----------
assigns to DSI all of its interest in the Settlement Agreement.
2. Performance of Duties. DSI hereby assumes and agrees to perform all
---------------------
of Western Capital's duties and obligations under the Settlement
Agreement and be subject to all of the terms and conditions of said
Agreement as if they applied to Western Capital. DSI shall not be
responsible for any claim or demand arising under the Settlement
Agreement from services rendered prior to the effective date of
this Assignment Agreement unless otherwise agreed by DSI, and
2
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<PAGE>
Western Capital shall not be responsible for any claim or demand
arising under the Settlement Agreement from services rendered after
the effective date ofthis Assignment Agreement unless otherwise
agreed by Western Capital.
3. Representation of DSI. DSI represents and warrants that it is
---------------------
registered as a broker-dealer under the Securities Exchange Act of
1934, as amended, and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD").
4. Consent. The Trust and MBL hereby consent to this assignment by
-------
Western Capital of its rights under the Settlement Agreement to DSI
and the assumption by DSI of Western Capital's interest in such
Agreement and the duties and obligations thereunder, and agree,
subject to the terms and conditions of said Agreement, to look to DSI
for the performance of the duties and obligations formerly owed by
Western Capital under said Agreement.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their duly authorized officers hereunto
duly attested as of the date and year written above.
Western Capital Financial Group
R. J. Leavenworth BY: /s/ Andrew D. Westhem
- ------------------ -----------------------
Attest Andrew D. Westhem
Vice President President
- --------------- ----------
Title Title
Directed Services, Inc.
Bernard R. Beckerlegge BY: /s/ Fred H. Davidson
- ---------------------- ----------------------
Attest Fred H. Davidson
Secretary Executive Vice President
- --------------- -------------------------
Title Title
4
<PAGE>
<PAGE>
The Mutual Benefit Life
Insurance Company
William Weiss BY: /s/ Frank D. Casciano
- -------------- -----------------------
Attest Frank D. Casciano
Assistant Secretary V.P. Deputy General Counsel
- -------------------- ----------------------------
Title Title
The Specialty Managers Trust
Jeffrey S. Puretz BY: /s/ F.H. Davidson
- ----------------- ------------------
Attest F.H. Davidson
Outside Counsel Vice President
- ------------------- ---------------
Title Title
5
EXHIBIT (h)(4)
INDEMNIFICATION AGREEMENT
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made this 20th day of
March, 1991 between The Specialty Managers Trust (the "Trust"), a
Massachusetts business trust registered with the Securities and
Exchange Commission (the "SEC") as an open-end management
investment company, and Directed Services, Inc. ("DSI") (whose
name is scheduled to be changed to Golden Financial Group, Inc.
on or about May 1, 1991), a New York corporation.
WHEREAS, the Trust issues shares in several different
classes, each class known as a Series; and
WHEREAS, Specialty Advisors Corp. ("SAC"), a California
corporation was the sponsor of the Trust and, pursuant to a
Management Agreement between SAC and the Trust dated as of
November 1, 1988, served as the Manager of Trust from the Trust's
commencement of operations through March 20, 1991; and
WHEREAS, Golden American and Golden American's parent
company, The Mutual Benefit Life Insurance Company ("Mutual
Benefit"), through certain of their separate accounts, invest in
shares of the operating Series of the Trust; and
WHEREAS, Golden American and Mutual Benefit issue variable
annuity contracts and variable life insurance contracts (the
"Variable Contracts") that are funded by the separate accounts
that invest in the operating Series of the Trust; and
WHEREAS, as a result of a routine examination of the Trust
by the staff of the SEC in November of 1990 (the "SEC
Examination"), the SEC staff has advised SAC and the Trust that
the staff believes that there are several potential deficiencies
relating to the Trust or to SAC as investment adviser, and the
SEC staff has advised SAC that it may bring an enforcement action
against SAC relating to the potential deficiencies; and
WHEREAS, SAC is reviewing the potential deficiencies that
have been identified by the SEC staff; and
WHEREAS, by resolution adopted at a meeting on February 25,
1991, the Trust's Board of Trustees formed a Special Committee
("Special Committee") to consider and review issues raised as a
result of the SEC Examination and to conduct such inquires as the
Special Committee deems necessary and appropriate in furtherance
of its consideration and review of such issues; and
<PAGE>
WHEREAS, SAC and the Trust entered into a Mutual Consent to
Terminate the Management Agreement, pursuant to which the
Management Agreement between SAC and the Trust will be terminated
as of the close of business on March 20, 1991; and
WHEREAS, pursuant to a new Management Agreement between
Directed Services, Inc. and the Trust dated as of March 20, 1991,
(the "Management Agreement") Directed Services, Inc. ("DSI"), an
indirect subsidiary of Mutual Benefit, has agreed to serve as
Manager for the operating Series of the Trust commencing on March
21, 1991.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties do hereby agree as
follows:
1. GENERAL INDEMNIFICATION.
In partial consideration for the Trust offering shares of
its Series solely to separate accounts of Golden American
and Mutual Benefit, DSI agrees to hold harmless and
indemnify the Trust and the members of the Special Committee
from and against any and all claims, suits, damages, costs,
losses, expenses, liabilities, penalties, obligations of any
kind arising out of or resulting from the SEC Examination,
including, but not limited to, the following expenses:
(i) fees and expenses of legal counsel to the Trust with respect
to services rendered to the Trust;
(ii) fees and expenses of legal counsel to the Special Committee
with respect to services rendered to the Special Committee and
the members thereof;
(iii) fees and expenses of independent auditors of the Trust
with respect to services rendered to the Trust and the Special
Committee;
(iv) costs of any formal or informal proceedings brought by the
SEC with respect to the Trust or the members of the Special
Committee and any settlement thereof;
(v) costs of any formal or informal proceedings brought by any
other persons for claims that arise directly or indirectly as a
result of deficiencies or issues relating to the Trust
- 2 -
<PAGE>
and indemnified by the SEC staff in connection with the SEC
Examinations and any settlement thereof;
(vi) the costs associated with compensating owners of Variable
Contracts or making payments to the separate accounts for losses
suffered as a result of any incorrect calculations identified
as a result of the SEC Examination of the daily net asset value per
share of any of the operating Series of the Trust;
and
(vii) expenses associated with appointment of DSI to replace
SAC as Manager to the Trust's operating Series, including the
expenses associated with a special meeting of the Board of
Trustees to consider the Management Agreement with DSI and a
special meeting of shareholders to seek approval of the
Management Agreement.
DSI agrees that the Trust will not bear any of the above
mentioned expenses. The parties further agree that this
Agreement Trust shall not be construed to render DSI
responsible for expenses of SAC, arising from the SEC
Examination of the Trust.
2. DURATION.
This Agreement shall be effective as of the date indicated
above (although the expenses covered by this Agreement may
have arisen prior to such date) and continue in force for
three calendar years from such date, unless modified by a
written instrument executed by the parties hereto; provided
however, that DSI shall continue to be obligated after such
three-year period under the Agreement with respect to all
matters that have been the subject of a claim made for
indemnification during such period but which have not been
finally determined or resolved by the parties.
3. SUCCESSORS.
This Agreement shall be binding on and inure to the benefit
of the heirs, executors, administrators and assigns of the
respective parties hereto. This Agreement may not be
assigned by DSI without the written consent of the Trust
which may not be unreasonably withheld.
4. MODIFICATION.
This Agreement may be modified only by an instrument in
writing executed by the parties.
- 3 -
<PAGE>
5. GOVERNING LAW.
This Agreement shall be governed by the law of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below on
the date first above written.
THE SPECIALTY MANGERS TRUST
/s/Jeffery S. Peuretz By: F. H. Davidson
- --------------------- -------------------
Attest
Outside Counsel President
- --------------------- ----------------------
Title Title
DIRECTED SERVICES, INC.
/s/E. A. Nabi By: F. H. Davidson
- --------------------- -------------------
Attest
Exec. Vice Pres. Exec. Vice President
- --------------------- ----------------------
Title Title
- 4 -
EXHIBIT (h)(5)(A)
EXPENSE REIMBURSEMENT AGREEMENT
<PAGE>
EXPENSE REIMBURSEMENT AGREEMENT
This Agreement is entered into effective as of the 20th day
of March, 1991, by and between The Specialty Managers Trust (the
"Trust"), a Massachusetts business trust, and Directed Services,
Inc. ("Manager"), a New York corporation, whose name is scheduled
to be changed to The Golden Financial Group, Inc. on or about May
1, 1991.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes,
each class known as a Series; and
WHEREAS, Golden American Life Insurance Company ("Golden
American") and The Mutual Benefit Life insurance Company ("MBL"),
through certain of their respective separate accounts, invest in
shares of the operating Series of the Trust; and
WHEREAS, the parties hereto wish to limit the ordinary
operating expenses of the Trust borne by owners of the variable
annuities and variable life insurance policies issued or to be
issued by Golden American or MBL (the "Policies"):
NOW, THEREFORE, the parties do hereby agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the
first day of May, 1991, and shall continue through the close of
business on December 31, 1991, unless earlier terminated by
mutual agreement of the parties, expressed in a writing signed by
all of the parties hereto.
2. REIMBURSEMENT OF EXPENSES OF THE SERIES OF THE TRUST. In
partial consideration for the Trust offering its shares solely to
separate accounts of Golden American and MBL, Manager hereby
agrees to pay the Trust the amount by which the ordinary
operating expenses of each of the Series exceeds the percentage
of the average daily net assets of each Series as set forth
below:
(i) Liquid Asset Series .80%
(ii) Limited Maturity Bond Series .90%
(iii) All Growth Series 1.50%
(iv) Natural Resources Series 1.50%
(v) Real Estate Series 1.50%
(vi) Multiple Allocation Series 1.50%
(vii) Fully Managed Series 1.50%
In no event shall the Manager, under this Reimbursement
Agreement, pay to the Trust any amount with respect to any
extraordinary expenses of the Trust.
3. FREQUENCY OF REIMBURSEMENTS. The amount of reimbursement,
if any, for each operating Series of the Trust shall be
determined monthly. Manager hereby agrees to pay the Trust any
amount due hereunder not later than the 15th day of the following
calendar month.
4. PROVISION OF FINANCIAL STATEMENTS. For such period as the
Manager is obligated to pay any of the ordinary operating
expenses of the Trust pursuant to the provisions of this
Agreement, Manager hereby agrees to provide the Board of Trustees
of the Trust on a quarterly basis the unaudited financial
statements of Manager and on an annual basis the audited
financial statements of the Manager.
5. ASSIGNMENT AND MODIFICATION. This Agreement may be modified
or assigned only by a writing signed by all of the parties.
<PAGE>
Page Two
6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: /s/F.H. Davidson
-----------------------
THE SPECIALTY MANAGERS TRUST
By: /s/
-----------------------
Exhibit (h)(5)(B)
EXPENSE REIMBURSEMENT AGREEMENT
AMENDMENT NO. 1
This Amendment No. 1 to Expense Reimbursement Agreement
("Agreement") is entered into effect as of the 31st day of December
1991, by and between The Specialty Managers Trust (the "Trust"), a
Massachusetts business trust whose name is scheduled to be changed to
The GCG Trust on or about January 31, 1992, and Directed Services,
Inc. ("Manager"), a New York corporation.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes, each
class known as a series; and
WHEREAS, MB Variable Life Insurance Company, currently
conducting business in certain jurisdictions as Golden American Life
Insurance Company ("Golden American") and the Mutual Benefit Life
Insurance Company in Rehabilitation, successor to The Mutual Benefit
Life Insurance Company ("MBL"), through certain of their respective
separate accounts, invest in shares of the operating Series of the
Trust; and
WHEREAS, the parties hereto wish to limit the ordinary operating
expenses of the Trust borne by owners of the variable annuities and
variable life insurance policies issued or to be issued by Golden
American or MBL (the "Policies"); and
WHEREAS, the parties have previously entered into the Agreement
effective as of the 20th day of March, 1991, which Agreement
continues through the close of business on December 31, 1991; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Term of Agreement. The Agreement shall continue in full force
and effect and upon the same terms and conditions as originally set
forth through the close of business on April 30, 1992, except as set
forth in Section 2 hereof.
2. Reimbursement of Expenses of the Series of the Trust.
Commencing February 17, 1992, and continuing through the close of
business on April 30, 1992, Manager hereby agrees to pay the Trust
the amount by which the ordinary operating expenses of each of the
Series exceeds the percentage of the average daily net assets of each
Series as set forth below:
(i) Liquid Asset Series .80%
(ii) Limited Maturity Bond Series .90%
(iii) All Growth Series 1.50%
(iv) Natural Resources Series 1.50%
(v) Real Estate Series 1.50%
(vi) Multiple Allocation Series 1.20%
(vii) Fully Managed Series 1.20%
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: /s/ Bernard R. Beckerlegge
-----------------------------------------
THE SPECIALTY MANAGERS TRUST
By: /s/ Fred H. Davidson
-----------------------------------------
Exhibit (h)(5)(C)
EXPENSE REIMBURSEMENT AGREEMENT
AMENDMENT NO. 2
This Amendment No. 2 to Expense Reimbursement Agreement
("Agreement") is entered into effect as of the 1st day of May 1992,
by and between The GCG Trust (formerly The Specialty Managers Trust)
(the "Trust"), a Massachusetts business trust, and Directed Services,
Inc. ("Manager"), a New York corporation.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes, each
class known as a series; and
WHEREAS, Golden American Life Insurance Company (formerly MB
Variable Life Insurance Company) ("Golden American") and the Mutual
Benefit Life Insurance Company in Rehabilitation, successor to The
Mutual Benefit Life Insurance Company ("MBL"), through certain of
their respective separate accounts, invest in shares of the operating
Series of the Trust; and
WHEREAS, the parties hereto wish to limit the ordinary operating
expenses of the Trust borne by owners of the variable annuities and
variable life insurance policies issued or to be issued by Golden
American or MBL (the "Policies"); and
WHEREAS, the parties have previously entered into the Agreement
effective as of the 20th day of March, 1991, as last amended on
December 31, 1991; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Term of Agreement. The Agreement shall continue in full force
and effect and upon the same terms and conditions as originally set
forth through the close of business on December 31, 1992, except as
set forth in Section 2 hereof.
2. Reimbursement of Expenses of the Series of the Trust.
Commencing May 1, 1992, and continuing through the close of business
on December 31, 1992, Manager hereby agrees to pay the Trust the
amount by which the ordinary operating expenses of each of the Series
exceeds the percentage of the average daily net assets of each Series
as set forth below:
(i) Liquid Asset Series .75%
(ii) Limited Maturity Bond Series .75%
(iii) All Growth Series 1.50%
(iv) Natural Resources Series 1.50%
(v) Real Estate Series 1.50%
(vi) Multiple Allocation Series 1.20%
(vii) Fully Managed Series 1.20%
(viii) Capital Appreciation Series 1.20%
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: /s/ Bernard R. Beckerlegge
-----------------------------------------
THE SPECIALTY MANAGERS TRUST
By: /s/ Fred H. Davidson
-----------------------------------------
Exhibit (h)(5)(D)
EXPENSE REIMBURSEMENT AGREEMENT
AMENDMENT NO. 3
This Amendment No. 3 to Expense Reimbursement Agreement
("Agreement") is entered into effect as of the 1st day of November
1992, by and between The GCG Trust (formerly The Specialty Managers
Trust) (the "Trust"), a Massachusetts business trust, and Directed
Services, Inc. ("Manager"), a New York corporation.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes, each
class known as a series; and
WHEREAS, Golden American Life Insurance Company (formerly MB
Variable Life Insurance Company) ("Golden American"), through certain
of its respective separate accounts, invest in shares of the
operating Series of the Trust; and
WHEREAS, the parties hereto wish to limit the ordinary operating
expenses of the Trust borne by owners of the variable annuities and
variable life insurance policies issued or to be issued by Golden
American (the "Policies"); and
WHEREAS, the parties have previously entered into the Agreement
effective as of the 20th day of March, 1991, as last amended on May
1, 1992; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Term of Agreement. The Agreement shall continue in full force
and effect and upon the same terms and conditions as originally set
forth through the close of business on December 31, 1993, except as
set forth in Section 2 hereof.
2. Reimbursement of Expenses of the Series of the Trust.
Commencing November 1, 1992, and continuing through the close of
business on December 31, 1993, Manager hereby agrees to pay the Trust
the amount by which the ordinary operating expenses of each of the
Series exceeds the percentage of the average daily net assets of each
Series as set forth below:
(i) Liquid Asset Series .60%
(ii) Limited Maturity Bond Series .60%
(iii) All Growth Series 1.00%
(iv) Natural Resources Series 1.00%
(v) Real Estate Series 1.00%
(vi) Multiple Allocation Series 1.00%
(vii) Fully Managed Series 1.00%
(viii) Capital Appreciation Series 1.00%
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: /s/ Bernard R. Beckerlegge
-----------------------------------------
THE SPECIALTY MANAGERS TRUST
By: /s/ Fred H. Davidson
-----------------------------------------
Exhibit (h)(5)(E)
EXPENSE REIMBURSEMENT AGREEMENT
AMENDMENT NO. 4
This Amendment No. 4 to Expense Reimbursement Agreement
("Agreement") is entered into effect as of the 22nd day of March,
1993, by and between The GCG (the "Trust"), a Massachusetts business
trust, and Directed Services, Inc. ("Manager"), a New York
corporation.
WHEREAS, the Trust is an open-end diversified management
investment company issuing shares in several different classes, each
class known as a series; and
WHEREAS, Golden American Life Insurance Company ("Golden
American"), through certain of its respective separate accounts,
invest in shares of the operating Series of the Trust; and
WHEREAS, the parties hereto wish to limit the ordinary operating
expenses of the Trust borne by owners of the variable annuities and
variable life insurance policies issued or to be issued by Golden
American (the "Policies"); and
WHEREAS, the parties have previously entered into the Agreement
effective as of the 20th day of March, 1991, as last amended on
November 1, 1992; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Term of Agreement. The Agreement shall continue in full force
and effect and upon the same terms and conditions as originally set
forth through the close of business on December 31, 1993, except as
set forth in Section 2 hereof.
2. Reimbursement of Expenses of the Series of the Trust.
Commencing March 22, 1993, and continuing through the close of
business on December 31, 1993, Manager hereby agrees to pay the Trust
the amount by which the ordinary operating expenses of each of the
Series exceeds the percentage of the average daily net assets of each
Series as set forth below:
(i) Liquid Asset Series .60%
(ii) Limited Maturity Bond Series .60%
(iii) All Growth Series 1.00%
(iv) Natural Resources Series 1.00%
(v) Real Estate Series 1.00%
(vi) Multiple Allocation Series 1.00%
(vii) Fully Managed Series 1.00%
(viii) Capital Appreciation Series 1.00%
(ix) The Fund for Life Series .50%
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
DIRECTED SERVICES, INC.
By: /s/ Bernard R. Beckerlegge
-----------------------------------------
THE SPECIALTY MANAGERS TRUST
By: /s/ Fred H. Davidson
-----------------------------------------
ADDENDUM TO ORGANIZATIONAL AGREEMENT
The Organizational Agreement, made the 28th day of December, 1988 among The GCG
Trust (the "Trust"), Directed Services, Inc. ("DSI"), and Golden American Life
Insurance Company ("Golden American") (the "Organizational Agreement"), as
amended by the Assignment Agreement to the Organizational Agreement dated March
20, 1991 and Addenda to the Organizational Agreement dated October 1, 1993,
November 7, 1994, December 29, 1995 and March 4, 1997 is hereby amended by the
addition of the provisions set forth in this Addendum to the Organizational
Agreement, which is dated as of the 19th day of August, 1997.
WITNESSETH:
WHEREAS, the Trust is authorized to issue separate series, each of which will
offer a separate class of shares of beneficial interest, each series having its
own investment objective or objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple series, may offer shares
of additional series in the future, and intends to offer shares of additional
series in the future;
WHEREAS, the Trust has established a new series designated as the Mid-Cap Growth
Series; Total Return Series, Research Series, Growth & Income Series, Value &
Growth Series, Global Fixed Income Series, Growth Opportunities Series, and
Developing World Series
WHEREAS, the Trust and Golden American desire that the Mid-Cap Growth Series be
sold to the separate accounts of Golden American to fund benefits under variable
life insurance policies and variable annuity contracts issued by Golden
American;
NOW THEREFORE, in consideration of the mutual promises and covenants contained
in this Addendum, it is agreed between the parties hereto as follows:
1. The Mid-Cap Growth Series, Total Return Series, Research Series, Growth &
Income Series, Value + Growth Series, Global Fixed Income Series, Growth
Opportunities Series, and Developing World Series together with all other
Series listed on Exhibit B to the Organizational Agreement, shall be series
under the Organizational Agreement.
2. Exhibit B to the Organizational Agreement shall be replaced with a new
Exhibit B, a copy of which is attached hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
as of the date indicated above.
THE GCG TRUST
___________________________ By:__________________________
Attest
___________________________ ______________________________
Title Title
DIRECTED SERVICES, INC.
___________________________ By:__________________________
Attest
___________________________ ______________________________
Title Title
GOLDEN AMERICAN
LIFE INSURANCE COMPANY
___________________________ By:__________________________
Attest
___________________________ _______________________________
Title Title
EXHIBIT B
The Series of The GCG Trust, as described in the attached Organizational
Agreement, are as follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Natural Resources Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
The Fund For Life Series
Emerging Markets Series
Rising Dividends Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Managed Global Series
Mid-Cap Growth Series
Total Return Series
Research Series
Growth & Income Series
Value & Growth Series
Global & Fixed Income Series
Growth Opportunities Series
Developing World Series
<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. 40
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/ David S. Goldstein
----------------------
David S. Goldstein
Washington, D.C.
April 29, 1999
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Independent
Auditors" and "Financial Highlights" in each Prospectus and "Independent
Auditors" in each Statement of Additional Information included in Post-
Effective Amendment No. 40 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 26, 1999 for The GCG Trust and March 8, 1999 for the Fund For
Life Series of The GCG Trust on the financial statements included in the
1998 Annual Report for The GCG Trust and in the 1998 Annual Financial
Statements for the Fund For Life Series of The GCG Trust, respectively.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 1999
.
<PAGE>
Exhibit l(1)
INITIAL CAPITAL AGREEMENT
_______________, 1988
Western Capital Specialty
Managers Trust
1925 Century Bank East
Los Angeles, CA 90067
Dear Sirs:
It is our understanding that Western Capital Specialty Managers
Trust (the "Trust") proposes to issue and sell shares of beneficial
interest (the "Shares") pursuant to a registration statement on Form N-1A
file with the Securities and Exchange Commission. In order to provide
the Trust with a net worth of at least $100,000 as required by Section 14
of the Investment Company Act of 1940, as amended, we hereby offer to
purchase _____ Shares at a price of $_____ per Share for an aggregate
purchase price of $_____ ("Initial Capital").
We represent and warrant to the Trust that the Shares are being
acquired by us for investment and not with a view to the resale or
further distribution thereof and that we have no present intention to
redeem or dispose of any of the Shares. We hereby agree that Shares
representing the Initial Capital will not be redeemed unless the
unredeemed portion of the Initial Capital exceeds the amount of any then
unamortized organization expenses of the Trust.
Please confirm that the foregoing correctly sets forth our agreement
with the Trust.
Very truly yours,
Golden American Life Insurance Company
By:_____________________
Title:
Confirmed, as of the date first
above mentioned
WESTERN CAPITAL SPECIALTY
MANAGERS TRUST
By:_____________________
Title:
<PAGE> EXHIBIT (16)
ING Bank N.V.
Alegron Belegging B.V.
ING Bank Ukraine
ING Baring Securities (Romania) S.A.
Amsterdam Exchanges N.V.
Argencontrol
Artolis B.V.
Assurantiebedrijf ING Bank N.V.
Assurantiekantdoor Honig & Hageman BV
Noordster V.O.F.
Volmachtbedrijf ING Bank B.V.
Atlas Investeringsgroep N.V.
Atlas Investors Partnership III C.V.
B.V. Gemeenschappelijk Bezit Aandelen Necigef
Bank Brussels Lambert S.A.
ING Bank (Belgium) N.V./S.A.
Bancard Company S.A.
Cooperation Liquidation Terme Bourse S.C.
Europay Belgium S.C.
Institut De Reescompte S.C.
Societe Belge D' Investissement International S.C.
Society for Worldwide Interbank Financial Telecommunication S.C.
Visa Belgium SC
Bank Mendes Gans NV
B.V. Deelnemings En Financieringsmaatschappij "Nova Zembla"
B.V. Trust En Administratiekantoor Van Bank Mendes Gans N.V.
Bank Mendes Gans Effectenbewaarbedrijf N.V.
Brenko B.V.
Cabel B.V.
Handamar N.V.
Handamar Corporation
Intervest B.V.
Intervest PPM B.V.
Bank Slaski S.A. W Katowicach
*Rodkowoeropejskie Centrum Ratingu I Analiz S.A.
Bankowe Przedsi*Biorstwo Telekom. Telebank S.A.
BSK Konsulting SP Z.O.O.
BSK Leasing S.A.
Centralna Tabela Ofert S.A.
Dom Maklerski BSK S.A.
Gie*Da Papierow Warto*Clowych S.A.
ING BSK Asset Management S.A.
Krajowa Izba Rozliczeniowa S.A.
Biuro Informacji Kredytowe S.A.
Mi*Dzvnarodowa Szko*A Bankowo*Ci I Finansow SP Z.O.O.
Society for Worldwide Interbank Financial Telecommunication S.C.
Banque Baring Brothers (Suisse) S.A.
Benelux Investment Fund B.V.
Berliner Handels - Und Frankfurter Bank A.G.
Buenos Aires Equity Investments N.V.
Emprendimiento Recoleta S.A. (ERSA)
BPEP Holdings Limited
Baring Asia (GP) Limited
Baring European Fund Managers Limited
Baring Latin America GP Limited
Baring Latin America Partners Limited
Baring Private Equity Partners (Asia) PTE. Limited
Baring Private Equity Partners (China) Limited
ING Barings Private Equity (China) Limited
ING BPE (China) Advisers Limited
Baring Private Equity Partners (India) Limited
Baring Private Equity Partners GMBH
Baring Private Equity Partners Limited
Baring Venture Partners GMBH
Baring Venture Partners S.A
BHB Management Limited
BPEP General Partner I Limited
BPEP General Partner II Limited
BPEP Management (UK) Limited
BPEP Nominees Limited
Quartz Capital Partners Limited
Transtech Limited
BCEE Advisers Limited
BCEF Advisers Limited
BHR Management Limited
BI Advisers Limited
Blac Holdings Inc.
Blac Corp. Incorperated
BPEP Management Limited
Baring Mexico (GP) Limited
Baring Private Equity Partners Espana S.A.
Baring Private Equity Partners Mexico S.C.
BVP Mexico S.A.
Cavendish Nominees Limited
BPEP Participations Limited
Baring Vostok Capital Partners Limited
Baring Vostok Fund Managers Limited
ESD Managers Limited
Easdaq S.A.
International Private Equity Services Limited
Polytechnos Venture Partners GMBH
BVP Holdings Limited
Baring Capricorn Ventures Limited
Baring Communications Equity Limited
BCEA Advisers Limited
BCEA Management PTE. Limited
Capricorn Venture Fund N.V.
Procuritas Partners KB
PAB Partner AB
BVP Management Limited
Capricorn Venture Partners N.V.
Czech Venture Partners S.R.O.
CI European Limited
SCGF Advisers Limited
BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis B'
BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis'
Amsterdamse Poort III B.V.
Bijlmerplein Leasing BV
Foppingadreef Leasing B.V.
BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis A'
BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis C'
Grondpoort III B.V.
C.V. Exploitatiemaatschappij Tunnel Onder De Noord
Cardona B.V.
Cedel International S.A.
Centrum Cocarde B.V.
Cene Bankiers N.V.
Administratie & Trustkantoor Beleggingsfonds Protestants Nederland BV
Amsterdam Exchanges N.V.
Arma Beheer B.V.
Beheer Administratie en Beleggingsmaatschappij Kant B.V.
Bewaarbedrijf Cene Bankiers B.V.
BV Algemene Beleggingsmaatschappij Cene Bankiers N.V.
Beheermaatschappij Jansen Groenekan B.V.
Copar B.V.
Fidele Management B.V.
Flexibel Beheer Utrecht B.V.
Hercules Beheer B.V.
Langosta B.V.
Mercurius Beheer B.V.
Nivo Investments B.V.
Remazon B.V.
Cene Bankiers Holdings N.V.
Cene Asset Management N.V.
Cene Management N.V.
Tawny Owl Investment Company N.V.
Cene Verzekeringen B.V.
N.V. Instituut Voor Ziekenhuisfinanciering
Utrechtse Participatiemaatschappij B.V.
Cofiton B.V.
Sterling Developments B.V.
Brooks Equities Inc.
Location 3 Ltd.
SDC Properties Inc.
Tripolis Vastgoed B.V.
Tripolis A C.V.
Tripolis B C.V.
Tripolis C C.V.
Combdring B.V.
Compensadora Electronica S.A.
Computer Centrum Twente B.V.
Corporacion Financiera ING (Colombia) S.A.
Credit Commercial De France S.A.
Depositary Company ING Bank B.V.
Destara B.V.
ING Bank Ukraine
ING Baring Securities (Romania) S.A.
Effectenbeursvennootschap Van Brussel C.V.
Effectenbewaarbedrijf ING Bank N.V.
Euroclear Clearance System Public Limited Company
European Investment Fund (Center 757)
European Investment Fund (Center 920)
Extra Clearing B.V.
Amsterdam Exchanges N.V.
Extra Clearing GMBH
YVOF Floorbrokers B.V.
Easdaq S.A.
Financial Advisory & Consultancy Services B.V.
Owen Stanley Financial S.A.
Financial Facilities Management B.V.
Finemij B.V.
Gabela Belegging B.V.
Hamgia Beheer B.V.
ING Bank Urkraine
ING Baring Securities (Romania)S.A.
Ingvest III B.V.
Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay)
Interbank On-Line System Limited
International Bankers S.A.
Interpay Nederland B.V.
Interunion Bank (Antilles) N.V.
Interadvies N.V.
Administratiekantoor De Leuve BV
Crediet Service Bank B.V.
Incassobureau Fiditon BV
NV Nationale Volksbank
Arenda B.V.
Spaarfondsen Beheer B.V.
Spaarfondsen Bewaar B.V.
Welvaert Financieringen NV
Welstand B.V.
Internationale Nederlanden (U.S.) Funding Corporation
ING (U.S.) Financial Holdings Corporation
ING (U.S.) Capital Financial Holdings LLC
ING (U.S.) Capital LLC
ING (U.S.) Capital Management Company LLC
ING (U.S.) Investment Corporation
Alliance Precision Plastics Corporation
Nitrogen Products, Inc.
ING Furman Selz Asset Management LLC
FSIP LLC
Taurus Partners, L.P.
The Corner Fund, L.P.
Fairway Capital Partners, L.P.
Anvers, L.P.
Anvers II, L.P.
Artemis Partners, L.P.
Furman Selz Capital Management LLC
Delta Asset Management
NorthStar Asset Management
ING Capital Advisors, LLC
ING Capital Advisors Portfolio Management Corp.
ING Capital Senior Secured High Income Fund, L.P.
ING Emerging Markets Investors LLC
ING Emerging Partners L.P.
ING Equity Holdings, Inc.
ING Equity Partners L.P.
ING Realty Services, Inc.
ING (U.S.) Financial Services Corporation
ING Baring Grupo Financiero (Mexico) S.A. De C.V.
ING Inmobiliaria (Mexico) S.A. de C.V.
ING Bank (Mexico) S.A.
ING Baring (Mexico), S.A. de C.V., Casa de Bolsa
ING Baring (U.S.) Financial Holdings LLC
ING Baring (U.S.) Capital Markets, LLC
ING Baring (U.S.) Capital LLC
ING (U.S.) Latin American Capital LLC
Internationale Nederlanden (U.S.) Real Estate Finance, Inc.
1996 Olympic Corporation
California Acquisition Partners I
Coast Atlantic, Inc.
Highridge ING Atlantic L.P.
Apache Investments, Inc.
Kokopelli Associates, Ltd.
Blue Sky Properties Inc.
Montague Court, LLC
Calprop Portfolio, Inc.
The Center at San Marcos Corporation
Crow's Nest Corporation
Genesee Corporation
Algerine Inc.
Genreo Corporation
Northern Springs Portfolio, Inc
Laketon Corporation
Lucre Lake Corporation
ING Real Estate Investors, Inc.
Little Muddy Creek Corporation
FN Realty Advisors, Inc.
Mountain AMD L.P.
First Ohio Service Corporation
5850 Corporation
Colrad Development Corp.
Evergreen Valley Development
LFS Capital Corporation
Lisle Center, Inc.
Spectrum Holdings, Inc.
Cardinal Mortgage Corporation
E.N. One, Inc.
Fairfield Village Mortgage Corporation
Lincoln Ventures Corporation
Pathway Lands Incorporated
Amarak II Investments Corporation
Pimco Corporation
Baloo Corporation
Can II, LLC
Cap II Foreclosure Corporation
Penn Mar Associates, LLC
Calprop II Portfolio, Inc.
Clear River Associates, Inc.
Amarak Investments Corporation
Great Lakes Management, Inc.
Canadian Ventures I L.P.
Falcon Gate, Inc.
Long Ears Corporation
Pleasantlake Corporation
S G Investors Corporation
Southgate Plaza, LLC
Ventura Ridge Associates, Inc.
Triangle Development Corporation
39 Vestry LLC
Tech Air Corporation
ING Barings Real Estate Acquisition Company
Pentagon Parkway Corporation
Artis Realty Advisors, Inc.
Coconut Corp.
Promontory Point, Inc.
Promontory Point Partnership
Seagate Development Corporation
Able Gateway Plaza, LLC
Mountain Creek Investors, Inc.
Mountain Creek Company, LLC
Telluride Mountain Village Ventures, LLC
Nashpike Corporation
Velocity One Inc.
B&I Associates, LLC
Brookhollow Associates, L.P.
Courtyard Plaza Associates, L.P.
Glen Harbor Associates, LLC
Hightree Associates, LLC
Lakebridge Partners, L.P.
Kent Hospitality Associates, L.P.
Northern Springs Limited Partnership
Ventura Hospitality Partners, L.P.
40 East Associates, L.P.
Springfield Corporate Center, LLC
Fountain Park Partners, L.P.
Westmoreland Associates, L.P.
Green Neck, LLC
Mallard Cove Investors, LLC
Calshops, LLC
BHI-Dover VII, L.P.
BHI-Dover VIII, L.P.
BHI-Dover X, L.P.
BHI-Dover XI, L.P.
Brickyard Investors, L.P.
Eastgate Hospitality Partners, L.P.
Festival Pasadena Associates, L.P.
Golden Bear Homes I, L.P.
Golden Bear Homes II, L.P.
Golden Bear Homes III, L.P.
Golden Bear Homes IV, L.P.
SPA Partners, L.P.
Miami Bay Hospitality Associates, L.P.
Royal River Partners, L.P.
Wildewood Holdings, LLC
Madramp, LLC
201 Madison, LLC
RTC Commercial Assets Trust, NP3-3
Boulders Phoenician Limited Partnership
CPR Investments, Inc.
Phoenician Investments, L.P.
Wisconsin Option Inc.
Hammer & Nails, Inc.
RIB Residential LLC
RBG Residential Investors, LLC
RBG XXXV Corp.
Centerline/RBG XXXV, L.P.
RB Florida Partners, L.P.
Center VII Corporation
Center VIII Corporation
Center X Corporation
Fountain Park Corporation
Royal Falls Corporation
Woodward Investors Corporation
Woodward First National LLC
Qualco, Inc.
Quality Fifth Avenue Hotel Associates, LLc
Fifth Avenue Hospitality Associates, LLC
Baldco, Inc.
Sleepy Lake Corporation
High Flyer Corporation
Airport One Investors, LLC
Lower Westside Development Corp.
359 West 11th Street, LLC
Velocity Two, Inc.
Baldwin Hospitality, LLC
Sleepy Lake Partners, L.P.
ING Merger Inc.
Furman Selz Trust Company
Furman Selz (Ireland) LLC
Furman Selz Financial Services Unlimited
Furman Selz Advisors LLC
Furman Selz Capital LLC
Furman Selz Management (BVI) Ltd.
Furman Selz Investments LLC
Furman Selz Investors, L.P.
Furman Selz SBIC Investments LLC
Furman Selz SBIC, L.P.
ING Baring Furman Selz LLC
Furman Selz Investment II
Furman Selz Investors II, L.P.
Furman Selz Parallel Fund
Artisan Investment Management LLC
Michelangelo Partners, L.P.
Total Resources LLC
Furman Selz Resources LLC
Furman Selz Financial Services LLC
Furman Selz Merchant Capital LLC
Furman Selz Ventures, L.P.
Karnak Partners, L.P.
Saugatuck Partners, L.P.
Crestwood Capital Partners, L.P.
Crestwood Capital Partners II, L.P.
Bridgewood Capital Partners, L.P.
ING TT&S (U.S.) Holdings Corporation
ING TT&S (U.S.) Securities, Inc.
ING (U.S.) Securities, Futures & Options Inc.
ING TT&S (U.S.) Capital Corporation
Furman Selz Proprietary, Inc.
ING (U.S.) Capital Investors Holdings, Inc.
ING (U.S.) Capital Securities, Inc.
Brecco, Inc.
FSIC LLC
Mutual Fund Funding 1994-1
Pacifica Funds Distributor, Inc.
Furman Selz Residential Funding LLC
FS Trust Company
ING Bank (Chile) S.A.
Edibank S.A.
Sociedad Interbancaria De Depositos De Valores S.A.
ING Bank (Eurasia)
ING Bank (Hungary) Rt.
Giro Elszamolasforgalmi Rt.
ING Duna Ingatlanhasznositc KFT
ING Bank (Luxembourg) S.A.
CMF Advisory S.A.H.
Euromix Advisory S.A.H.
ING Bank Luxfund Management S.A.
ING International Advisory S.A.H.
ING International II Advisory S.A.H.
ING Bank (Schweiz) A.G.
Kredietbank S.A. Luxembourgeoise
ING Bank (Uruguay) S.A.
Bolsa Electronica De Valores Del Uruguay S.A.
Compania Uruguaya De Medios De Procesamiento S.A.
Red. De Intercomunicacion De Alta Seguridad S.R.L.
ING Bank of Canada
ING Bank Corporate Investments B.V.
Entero B.V.
Eruca Belegging B.V.
ING Bank Mezzaninefonds B.V.
ING Bank Participatie PPM B.V.
MKB Beleggingen B.V.
MKB Vliehors II B.V.
Wijkertunnel Beheer II B.V.
Wijkertunnel Beheer II Management B.V.
MKB Vliehors III B.V.
Small Business Publishing B.V.
N&M Holding N.V.
ING Bank Dutch Fund N.V.
ING Bank Fondsen Beheer B.V.
ING Bank Geldmarkt Fonds N.V.
ING Bank Global Custody UK Nominees Limited
ING Bank Global Fund N.V.
ING Bank Guldem Fonds N.V.
ING Bank I.T. Fund N.V.
ING Bank Luxfund Management S.A.
ING Bank Middutch Fund N.V.
ING Bank Obligatie Fonds N.V.
ING Bank Rentegroei Fonds N.V.
ING Bank Spaardividend Fonds N.V.
ING Bank Vastgoed Fonds B.V.
ING Bank Verre Oosten Fonds N.V.
ING Baring Capital Markets (C.R.), A.S.
ING Baring Financial Products
ING Baring Holding Nederland B.V.
Atlas Capital (Thailand) Limited ("Atlas")
ING Baring Securities (Thailand) Limited
ING Baring Holdings Limited
Baring Asset Management Holdings Ltd.
Baring Asset Management Ltd.
Baring International Investment Limited
Baring International Investment Management Holdings Ltd.
Baring Asset Management Inc.
Baring International Investment (Canada) Limited
Baring International Investment Management Limited
Baring Asset Management Holdings Inc.
Baring Asset Management UK Holdings Limited
Baring Asset Management (Asia) Holdings Limited
Austin Assets Limited
Baring Asset Management (Asia) Limited
Baring Asset Management (Australia) Limited
Baring Asset Management (Japan) Limited
Baring International Fund Managers (Bermuda) Limited
Baring International Fund Managers Limited
Baring International Investment (Far East) Limited
Baring Pacific Investments Limited
Baring Asset Management (C.I.) Limited
Baring International Fund Managers (Ireland) Ltd.
Baring Investment Services Inc.
Baring Mutual Fund Management S.A.
European and Asian Fund Management S.A.
Baring Investment Management Ltd.
Baring Quantative Management Ltd.
Baring Global Fund Managers Limited
Baring Private Asset Management Ltd.
Baring Fund Managers Limited
Baring Managed Funds Services Ltd.
Baring Private Investment Management Ltd.
Baring Trust Company Ltd.
Baring Trustees (Guernsey) Limited
Arnold Limited
International Metal Trading Limited
Barings (Isle of Man) Limited
Control Management Limited
Doyle Administration Limited
International Metal Trading Limited
ING Trust (Jersey) Ltd
Saline Nominees Limited
Truchot Limited
Vivian Limited
Barings (Guernsey) Limited
Barfield Nominees Limited
Barings Ireland Limited
Guernsey International Fund Managers Limited
Arnold Limited
International Metal Trading Limited
Control Management Limited
Doyle Administration Limited
International Metal Trading Limited
International Fund Managers (Ireland) Ltd.
International Securitisation Managers (Ireland) Ltd
Saline Nominees Limited
Truchot Limited
Vivian Limited
International Fund Managers UK Ltd.
Ravensbourne Registration Services Ltd.
Barings Investment Services Limited
Baring Brothers Holdings Limited
Baring (U.S.) Holdings Limited
Abbotstone Investment Company Limited
Baring Brothers Limited
Baring Brothers (Finance) Limited
Baring Brothers Argentina S.A.
Baring Brothers International Limited
Barings C.F. Holdings Limited
B.B.A.H. Pty Limited
Baring Brothers Burrows & Co. Limited
Baring Brothers Burrows Securities Limited
SAIPH Pty Limited
BBHP Pty Limited
Baring Brothers (Deutschland) GMBH
Baring Brothers International GMBH
Baring Brothers (Espana) S.A.
Barings Brothers (Italia) SRL
Baring Properties (London Wall) Limited
Baring Properties Limited
Outwich Finance Limited
Outwich Limited
Baring Warrants PLC
Barings France S.A.
Barings Nominees Limited
Bishopscourt Holdings Limited
Bishipscourt Leasing (Holdings) Limited
Bishopscourt Asset Leasing Limited
Bishopscourt Equipment Leasing Limited
Bishopscourt Industrial Finance Limited
Bishopscourt Limited
Bishopscourt Securities Limited
BVC Nominees Limited
Cotton Nominees Limited
ING Baring International Advisers Limited
ING Baring Services (Eastern Europe) Limited
ING Baring Services Limited
The Mortgage Acceptance Corporation (Holdings) Limited
The Mortgage Acceptance Corporation Limited
Yealme Securities Limited
ING Baring Financial Products
ING Baring Securities Holdings Limited
ING Baring Securities Limited
ING Baring Securities (Andean Pact) Ltda
ING Barings Peru S.A.
ING Baring Securities Services Limited
Baring Securities (Property Services) Ltd
BS Property Services (Japan) Limited
ING Baring Data Limited
INGB Dormant Holding Company Limited
Baring Securities (London) Limited
Baring Securities (OTC Options) Limited
ING Baring Management Services PTE Ltd
ING Baring Research Limited
ING Baring Securities (Overseas) Ltd.
ING Baring Securities Management Services (Hong Kong) Ltd
Maketravel Limited
INGB Securities (International) Holdings Limited
Baring Securities (Financial Services) Limited
Barsec (International) Limited
Baring Nominees (Australia) Pty Ltd
Baring Research S.A. De C.V.
Baring Securities (Australia) Limited
Baring Securities (France) S.A.
Baring Securities Pakistan (Private) Limited
Barings Mauritius Limited
ING Barings India Private Limited
ING Baring Securities (India) Pvt. Ltd.
Celtec Holdings S.A.
ING Baring Corretora De Valores Mobiliarios S.A.
Corinvest Limited
Epcorp Limited
Galax Limited
Dropny B.V.
ING Baring Chile Limitada
ING Baring International PTE Ltd
ING Baring Operational Services (Taiwan) Limited
ING Baring Securities (Andean Pact) Ltda
ING Baring Securities (Hong Kong) Ltd
ING Baring Far East Nominees Limited
ING Baring Securities (Philippines) Inc.
ING Baring Securities (Singapore) PTE Ltd
ING Baring Nominees (Singapore) PTE Ltd
ING Baring Research (Malaysia) SDN. Bhd.
ING Baring Securities (Taiwan) Limited (SICE)
ING Baring Securities, Argentina S.A.
ING Baring South Africa Limited
ING Barings Southern Africa (Proprietary) Ltd
Anodyne Nominees (Proprietary) Limited
ING Barings Peru S.A.
ING Futures & Options (Hong Kong) Limited
ING UK Capital Limited
Lokmaipattana Co. Limited
PT ING Baring Securities Indonesia
INGB Securities Client Services Limited
Aliwall Limited
Barings Securities Nominees Limited
Brunera Limited
Cereus Limited
Dianthus Limited
Eranthis Limited
Francoa Limited
Grassmere Limited
Leacroft Limited
Mountbatten Limited
ING Baring Securities (Japan) Limited
ING Baring Securities (Thailand) Limited
ING Baring Investment (Eurasia) Zao
ING Baring Securities (Hungary) Rt.
ING Baring Securities (Poland) Holding B.V.
ING Baring Securities (Romania) S.A.
ING Baring Securities (Slovakia), S.R.O.
Proctor & Gamble S.R.O.
ING Barings Ecuador Casa De Valores S.A.
ING BSK Asset Management S.A.
ING Capital Markets (Hong Kong) Limited
ING Compania De Inversiones Y Servicios Limitada
Bolsa Electronica De Chile, Bolsa De Valores S.A.
CISL Aruba A.E.C.
ING Consultants Co., Ltd.
ING Derivatives (London) Limited
Belgian Futures & Options Exchange
London Clearing House Limited
Liffe (Holdings) PLC
The International Petroleum Exchange of London Limited
ING Empreendimentos E Participacaos Ltda.
Guilder Corretora De Valores Mobiliarios S/A
ING Guilder Distribuidora De Titulos E Valores Mobiliarios S/A
ING Investment Management Ltda.
ING Servicos Ltda.
ING Finance (Ireland) Ltd
ING Forex Corporation
ING Futures & Options (Singapore) PTE Ltd
ING Inversiones, Ltda.
Corporacion Financiera ING (Colombia) S.A.
ING Investment Management Holdings (Antilles) N.V.
ING Lease Holding N.V.
CW Lease Belgium NV
CW Finance N.V.
CW Lease Luxembourg S.A.
Dealer Lease Service Belgium N.V.
CW Lease Nederland BV
Autolease OSS B.V.
CW Finance N.V.
CW Lease Belgium NV
CW Finance N.V.
CW Lease Luxembourg S.A.
Dealer Lease Service Belgium N.V.
CW Lease France S.N.C.
CW Lease Luxembourg S.A.
Dealer Lease Service Belgium N.V.
Gothia Estate II B.V.
Westment II B.V.
International Driver Service B.V.
Schade Herstel Bedrijf B.V.
ING Aircraft Lease B.V.
Fokker Brasil B.V.
ING Lease (Belgium) N.V.
Real Estate Lease SPC 1 N.V.
Savin Lease N.V.
ING Lease (Espana) EFC, SA
ING Lease (France) S.A.
ING Lease (France) S.N.C.
ING Lease (Italia) SPA
ING Lease (Nederland) B.V.
Blauwe IRM B.V.
Graphic Lease B.V.
Groen Lease B.V.
GIL 1997 (Windkracht) B.V.
ING Lease Vastgoed B.V.
Newco-One Corp.
Ship Lease International B.V.
ZIL '96 B.V.
ING Lease (Polska)
ING Lease Holding (Deutschland) GMBH
CW Lease Deutschland GMBH
CW Lease Berlin GMBH
ING Lease Deutschland GMBH
IFSC Beteiligungsgesellschaft GMBH
ING Lease (Berlin) GMBH
ING Lease Kran und Schwertransport GMBH
ING Leasing Besitzgesellschaft MBH
ING Leasing Geschaeftsfuhrungsgesellschaft MBH
ING Leasing Gesellschaft Fur Beteiligungen MBH
ING Leasing GMBH & Co. Golf KG
ING Leasing GMBH & Co. Juliett KG
ING Leasing Treuhandsgeselschaft GMBH
ING Leasing Verwaltungsgesellschaft GMBH
Uta Finanz und Leasing GMBH
ING Lease Holdings (UK) Limited
CW Lease UK Ltd
CW Finance Ltd.
Leasing Principals Limited
ING Lease (UK) Limited
ING Farm Finance Limited
ING Farm Finance (June) Limited
ING Farm Finance (March) Limited
ING Farm Finance (September) Limited
ING Lease (UK) Nine Limited
ING Lease (UK) Six Limited
ING Lease (UK) Three Limited
MKL Rentals Limited
ING Lease Interfinance B.V.
CW Lease France S.N.C.
ING Lease (Italia) SPA
Real Estate Lease SPC 1 N.V.
Runoto Belgium N.V.
Diamond Lease
ING Lease International Equipment Finance B.V.
ING Aviation Lease B.V.
Air Finance Holland B.V.
Aviation Service Holland B.V.
ING Lease (Far East 2) B.V.
ING Lease (Far East) N.V.
ING Lease (Ireland) B.V.
ING Lease (France) S.N.C.
ING Lease Structured Finance B.V.
Esbelto B.V.
Green Assets B.V.
Hirando B.V.
Hokabe Lease B.V.
ING Bank Geldmarkt Fonds Beheer B.V.
ING Lease Milieu B.V.
Quadralock 2 B.V.
SFING Europe B.V.
Tropelia B.V.
Virgula B.V.
ING Lease International Equipment Management B.V.
Air Finance Amsterdam B.V.
Air Holland Leasing II B.V.
ING (Holland Aircraft Lease) B.V.
ING Lease Aircraft B.V.
ING Lease Delaware, Inc.
Noord Lease B.V.
Postbank-Lease B.V.
Renting De Equipos E Inmuebles SA
Runoto Leasing BV
Runoto Belgium N.V.
Diamond Lease
ING Mercantile Mutual Bank Limited
ING Merchant Bank (Singapore) Limited
Export Credit Insurance Corporation of Singapore Ltd
ING Asset Management (Singapore) Ltd
ING Nominees (Singapore) PTE Ltd
ING Participation Dalrybbank B.V.
ING Private Banking Beheer B.V.
ING Bank Vastgoed Management B.V.
ING Securities (Eurasia) Zao
ING Servicios, C.A.
ING Sociedad De Bolsa (Argentina), S.A.
Mercado De Valores De Buenos Aires S.A.
ING Sviluppo Sim S.P.A.
ING Trust B.V.
Ingress N.V.
ING Management (Hong Kong) Ltd
ING Nominees (Hong Kong) Ltd
ING Trust (Antilles) NV
Formid Management N.V.
ING (Antilles) Portfolio Management N.V.
Monna NV
Jet NV
Simbad N.V.
ING Trust (Aruba) N.V.
ING Trust (BVI) Ltd.
ING Trust (Luxembourg) S.A.
ING Trust (Nederland) B.V.
ING Bank (Eurasia)
ING Bank (Luxembourg) S.A.
CMF Advisory S.A.H.
Euromix Advisory S.A.H.
ING Bank Luxfund Management S.A.
ING International Advisory S.A.H.
ING International II Advisory S.A.H.
ING Baring Securities (Romania) S.A.
ING Holdings Empreendimentos Participacao Ltda.
Guilder Corretora De Valores Mobiliarios S/A
Management Services ING Bank B.V.
ING Bank (Eurasia)
ING Baring Investment (Eurasia) Zao
ING Securities (Eurasia) Zao
Muteka BV
ING Trust (Suisse) AG
Trust Maatschappij ING Bank B.V.
Anorga B.V.
Corpovea B.V.
N.V. Balmore Vastgoed U.S.A.
Den Hamer Beheer B.V.
Diagonac B.V.
Henry F. Holding B.V.
ING Aconto N.V.
N.V. Balmore Vastgoed U.S.A.
Mijcene B.V.
Vitigudino B.V.
N.V. Balmore Vastgoed U.S.A.
N.V. Balmore Vastgoed U.S.A.
Paramito B.V.
Rescit I BV
Storeria B.V.
Tuvor B.V.
Vitigudino B.V.
N.V. Balmore Vastgoed U.S.A.
Vitigudino B.V.
N.V. Balmore Vastgoed U.S.A.
Westward Capital II B.V.
ING Valores (Venezuela) C.A.
ING Vastgoed B B.V.
ING Real Estate (BHS) B.V.
ING Real Estate International Development B.V.
Holland Park Sp. Zoo
ING Real Estate Iberica SL
ING Real Estate International Development (Liege) B.V.
ING Real Estate Sp. Zoo
ING Real Estate Vasco Da Gama B.V.
London & Amsterdam Properties Ltd
London and Amsterdam Development Ltd.
London & Amsterdam Properties Ltd
MBO Camargo SA
Inmolor SA
MBO La Farga SA
Hospitalet Center, SL
MBO Morisson Ltd
Warsaw I B.V.
1300 Connecticut Avenue Joint Venture Ltd
ING Real Estate International Investment II B.V.
ING Real Estate International Investment III B.V.
ING Vastgoed Financiering N.V.
Bedrijfsgebouw MBO - Riho C.V.
Groeneveld MBO C.V.
M.B.O. Vastgoed Lease B.V.
Lindenburgh C.V.
Maria Hove C.V.
MBO Brova C.V.
MBO North America Finance B.V.
Residential Financial Development LLC
ING Vastgoed Fondsen B.V.
Winkelfonds Nederland Management B.V.
ING Vastgoed Ontwikkeling B.V.
Amsterdamse Poort Holding IV B.V.
Amsterdamse Poort IV B.V.
Grondpoort IV B.V.
Amsterdamse Poort II B.V.
BV Bedrijvenpark G.P.
CV Bedrijvenpark G.P.
Grondpoort II B.V.
Gulogulo B.V.
Antibes Holding B.V.
ING Vastgoed Arena B.V.
Muller Bouwparticipatie B.V.
V.O.F. Winkelcentrum Markt Noorderpromenade Drachten
MBO - Ruijters B.V.
Holding 'T Loon B.V.
Vastgoed 'T Loon B.V.
Wolfstreet Holding B.V.
Wolfstreet B.V.
Wolfstreet Grond B.V.
MBO Brinkstraat Holding B.V.
MBO Brinkstraat B.V.
MBO Brinkstraat Grond B.V.
MBO Catharijnesingel Holding B.V.
MBO Catharijnesingel B.V.
MBO Catharijnesingel Grond B.V.
MBO De Centrale Holding B.V.
MBO De Centrale B.V.
MBO De Centrale Grond B.V.
MBO Dommelstaete Holding B.V.
MBO Dommestaete B.V.
MBO Emmasingel Holding B.V.
MBO Emmasingel B.V.
MBO Emmasingel Grond B.V.
MBO Guyotplein Holding B.V.
MBO Guyotplein B.V.
MBO Guyotplein Grond B.V.
MBO Kousteensedijk Holding B.V.
MBO Kousteensedijk B.V.
MBO Kousteensedijk Grond B.V.
MBO Kruseman Van Eltenweg Holding B.V.
MBO Kruseman Van Eltenweg B.V.
MBO Kruseman Van Eltenweg Grond B.V.
MBO Marienburg B.V.
Marienburg V.O.F.
MBO Martinetsingel Holding B.V.
MBO Martinetsingel B.V.
MBO Martinetsingel Grond B.V.
MBO Oranjerie Holding B.V.
MBO Oranjerie B.V.
MBO Oranjerie Grond B.V.
MBO Pleintoren Holding b.V.
MBO Pleintoren BV
MBO Pleintoren Grond BV
MBO Via Catarina B.V.
Via Catarina "Empredimentos Imobiliarios" SA
MBO Walburg Holding B.V.
MBO Walburg B.V.
MBO Walburg Grond B.V.
MBO Willem II Singel Holding B.V.
MBO Willem II Singel B.V.
MBO Willem II Singel Grond B.V.
Q-Park Bovenmaas I B.V.
Q-Park N.V.
Q-Park Nederland B.V.
Q-Park Exploitatie B.V.
Q-Park De Bijenkorf B.V.
Q-Park Beheer B.V.
Q-Park Brabant B.V.
Q-Park Reserve I B.V.
Q-Park Byzantium B.V.
Q-Park City Holding B.V.
Q-Park City B.V.
Q-Park Schouwburg B.V.
Q-Park De Klomp B.V.
Q-Park Raadhuis B.V.
Q-Park Reserve II B.V.
Stadsherstel Historisch Rotterdam N.V.
Supermarkt Krouwel B.V.
V.O.F. Winkelcentrum Markt Noorderpromenade Drachten
Vastgoed De Brink Holding B.V.
Vastgoed De Brink B.V.
Wilhelminahof MBO B.V.
Zuidplein Beheer BV
ING Verwaltung (Deutschland) GMBH A.G.
Allgemeine Deutsche Direktbank AG
BNL Beteiligungsgeselschaft Neue Laender GMBH & Co. KG
Liquiditats-Konsortialbank GMBH
ING-North East Asia Bank
INIB N.V.
Locura Belegging B.V.
Luteola B.V.
Melifluo B.V.
Middenbank Curacao N.V.
Advisory Company Luxembourg
Altasec N.V.
Corporacion Financiera ING (Colombia) S.A.
Aralco N.V.
Atlas Venture Fund I, L.P.
Banco Latino-Americano De Exportaciones S.A.
Cayman Islands Funds N.V.
Corporacion Financiera ING (Colombia) S.A.
Datasegur S.R.L.
Fiseco N.V.
Granity Shipping N.V.
Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay)
ING Bank (Chile) S.A.
Edibank S.A.
Sociedad Interbancaria De Depositor De Valores S.A.
ING Barings Ecuador Casa De Valores S.A.
ING Compania De Inversiones Y Servicios Limitada
Bolsa Electronica De Chile, Bolsa De Valores S.A.
CISL Aruba A.E.C.
ING Inversiones, Ltda.
Corporacion Financiera ING (Colombia) S.A.
ING Sociedad De Bolsa (Argentina), S.A.
Mercado De Valores De Buenos Aires S.A.
Kamadora Investments N.V.
Corporacion Financiera ING (Colombia) S.A.
Lerac Investment S.A.
Red Rose Investments N.V.
Unilarse
Zermatt N.V.
Miopia B.V.
Multiaccess B.V.
MKB Adviseurs B.V.
MKB Card B.V.
MKB Investments BV
De Springelberg B.V.
Het Dijkhuis B.V.
Palino B.V.
Tiberia B.V.
MKB Punt B.V.
Business Compass Holding B.V.
N.V. Instituut Voor Ziekenhuisfinanciering
Nationale-Nederlanden Financiele Diensten B.V.
B.V. Financieringsmaatschappij Vola
B.V. Kredietmaatschappij Vola
Dealer Cash Plan B.V.
Cash Plan B.V.
Finantel B.V.
Sentax Assurantie B.V.
G. J. Van Geet Beheer B.V.
Alegro Krediet B.V.
Gelderse Discount Maatschappij B.V.
Sentax Beheer B.V.
Finam Krediet B.V.
Sentax Lease B.V.
Vola Geldleningen B.V.
Nederlandse Bouwbank N.V.
Nederlandse Financieringsmaatschappij Voor Ontwikkelingslanden N.V.
Nedermex Limited N.V.
Netherlands Caribbean Bank N.V.
Nethworks Integrated Project Consultancy B.V.
Nofegol Beheer B.V.
NCM Holding N.V.
NMB Equity Participaitons N.V.
NMB-Heller Holding N.V.
Handlowy-Heller SA
Heller GMBH
Heller Bank A.G.
International Credit Service S.A.S.
Heller Finanz GMBH
Info-Und Beratungsunternehmen GMBH
NMB-Heller Ltd.
NMB-Heller N.V.
Agpo Participatiemaatschappij B.V.
Felix Tigris B.V.
Inter Credit B.V.
International Credit Service S.A.S.
International Credit Service S.A.S.
NMB-Heller Zweigniederlassung Neuss
Zamenbrink B.V.
Zamenterp B.V.
OB Heller AS
Okalia N.V.
Olivacea B.V.
Ontwikkelingsmaatschappij Noordrand B.V.
Orcinus B.V.
Oscar Smit's Bank N.V.
Bouwmaatschappij Mecklenburgplein B.V.
Kenau B.V.
P.T. ING Indonesia Bank
Parmola B.V.
Paronyme B.V.
Pendola B.V.
Perotis B.V.
Policy Extra Holdings Limited
Postbank N.V.
Amsterdam Exchanges N.V.
Interpartes Incasso B.V.
Postbank Aandelenfonds N.V.
Postbank Beleggingsfonds N.V.
Postbank Beleggingsfondsen Beheer B.V..
Postbank Beleggingsfondsen Bewaar B.V.
Postbank Chipper Beheer B.V.
Postbank Euro Aandelen Fonds N.V.
Postbank Groen N.V.
Postbank I.T. Fonds N.V.
Postbank Interfinance B.V.
Postbank Nederlandfonds N.V.
Postbank Obligatie Fonds N.V.
Postbank Obligatiefonds Beheer B.V.
Postbank Vastgoedfonds N.V.
Postbank Vermogensgroeifonds N.V.
Postbank Wereldmerkenfonds N.V.
Postkantoren B.V.
Prena Belegging B.V.
T Oye Deventer B.V.
A. Van Der Molen Herenmode B.V.
A. Van Der Pol Beleggingsmaatschappij Amsterdam B.V.
A. Van Venrooy Beleggingen B.V.
A. Van Weringh Beleggingen B.V.
A.C.M. Nienhuis Houdstermaatschappij B.V.
B.V. Raadgevend Bureau Nienhuis Consultans
A.H. Blok Holding B.V.
A.H.M. Habets Beheer B.V.
A.J. Vos Makelaardij Onroerende Goederen B.V.
Abades B.V.
Abrocoma B.V.
Ad Barnhard Holding B.V.
Albranis B.V.
Almenzor B.V.
Altimira B.V.
Ambito N.V.
Aralar B.V.
Atitlan B.V.
B.V. Beheersmaatschappij Nuyt En Heikens
B.V. Odripi
B.V. Varen ABC
B.V. Vulca Beleggingsmaatschappij
Barbatus B.V.
Barbuda B.V.
Bebida B.V.
Beheermaatschappij Van Der Reijnst B.V.
Beheermaatschappij Van Het Beleggingsfonds Van De 7 B.V.
Beheermaatschappij Darius B.V.
Beheermaatschappij Stouwe B.V.
Beheermaatschappij Van Putten B.V.
Beheersmaatschappij Elma Schrijen B.V.
Beheersmaatschappij K.G. Tjia B.V.
Beheersmaatschappij Luco Zuidlaren B.V.
Beheersmij A.J. Konst B.V.
Belagua B.V.
Bergara B.V.
Bermillio B.V.
Betulina B.V.
Bidasoa B.V.
Biporus B.V.
Blarina B.V.
Brasas B.V.
Bravura B.V.
Bremer-Van Mierlo Belegginsgmaatschappij B.V.
Bustia B.V.
C. J. Buyzen Beheer B.V.
C. J. H. - En J. J. Heimeriks Holding B.V.
Calando Belegging B.V.
Camilo B.V.
Castroverde B.V.
Catoneria B.V.
Cermanita B.V.
Cicania B.V.
Clacri B.V.
Colocar B.V.
OCB Beheer B.V.
Concolor B.V.
Cortada B.V.
Cotranco B.V.
Crescentes Prins B.V.
Cumbras B.V.
Cupula B.V.
D'Eijk B.V.
De Groninger Lederwaren Industrie B.V.
Delta Nederland Beheer B.V.
Dorsalis B.V.
Dr. De Grood Beheer B.V.
DKP Beheer B.V.
Dick Kooiman Publication/Productions B.V.
DSBV-Enserink B.V.
DSBV-Ploeger B.V.
E. Romar Beheer B.V.
Omnium B.V.
Empluma B.V.
Entorno B.V.
Epic Investments B.V.
Ernsatus B.V.
Esvice B.V.
Exel Beheer B.V.
Exploitatie En Beleggingsmaatschappij Alja Eindhoven B.V.
F. R. Hoffschlag Beleggingen B.V.
Familiale Investerings Maatschappij F.I.M.
Farlita B.V.
Flantua Beheer B.V.
Fregenda B.V.
Funjob Investments B.V.
G. Laterveer Beheer B.V.
Garlito B.V.
Gebrema Beheer B.V.
Gekrabeheer B.V.
Germs Beleggingen B.V.
Glabana B.V.
Golpejas B.V.
H. Van Duinen Beheer B.V.
H. Mekenkamp Holding B.V.
Mekenkamp Beheer B.V.
H. Weterings Holding B.V.
H. D. En L.B. Meijer Beheer B.V.
H. G. Van Der Most Beheer B.V.
Handelsonderneming E. Spee B.V.
Hepec Beheer B.V.
Hilschip BV
Hispidus B.V.
Hof En Frieling Beheer B.V.
Hof & Frieling Onroerend Goed B.V.
Holding Hoveling Beheer B.v.
Holding J.W.G. Huijbregts B.V.
Holding Schildersbedrijf West-Friesland B.V.
Holding Schuiling B.V.
Holding Th. A. Wellink B.V.
Hotel-Restaurant Boerhave B.V.
Huaco B.V.
Humada B.V.
Ignaro B.V.
Imbricata B.V.
Incoloro B.V.
Indonea B.V.
Allshoes Schoengroothandel B.V.
ING Bank Spaardividend Fonds Beheer B.V.
J & A Holding B.V.
J. B. Van Den Brink Beleggingsmaatschappij B.V.
J. G. Mekenkamp Holding B.V.
Mekenkamp Beheer B.V.
J. H. Moes Holding B.V.
J. P. Korenwinder Beheer B.V.
J. W. Th. M. Kohlen Beheer B.V.
Jemaas Beheer B.V.
Jongert Beheer B.V.
K & M Beheer B.V.
Kalliope B.V.
Bacolac B.V.
Kapellenberg B.V.
Kijkgroep B.V.
Koehorst Promotion Beheer B.V.
KBM Maarssen B.V.
L. Martens Beheer B.V.
La Douce Vie Network B.V.
Lagotis B.V.
Larino B.V.
Latourette B.V.
Leaver B.V.
Ledanca B.V.
Lektura Tiel Beheer B.V.
Licorera B.V.
Liecene B.V.
Lin Beheer B.V.
Lomajoma Holdings B.V.
Lorkendreef Beheer N.V.
Lustroso B.V.
M. B. Van Der Vlerk B.V.
Madrigal B.V.
Marres B.V.
Masegoso B.V.
Matthew Holding B.V.
Mazairac Belegging B.V.
Minnaar Holding B.V.
Mirabilis B.V.
Molenwiede B.V.
Muguet B.V.
Multicover B.V.
Pulido B.V.
Mustang B.V.
Olseria B.V.
Arend Broekhuis B.V.
P. Nienhuis Houdstermaatschappij
P. J. Heinrici Beheer B.V.
Pastrana B.V.
Pedralva B.V.
Pemac B.V.
Penuria B.V.
Perola Belegging B.V.
Pertusa B.V.
Peter Trompalphen Aan Den Rijn Beheer B.V.
Phobos Beleggingen
Pinicola B.V.
Pluijmen Holding B.V.
Portelas B.V.
Postigo B.V.
Prestamo B.V.
Pruis Elburg Beheer B.V.
Puebla B.V.
Pulido B.V.
Rayhold Management En Deelneming B.V.
Rescoldo B.V.
Ressel B.v.
Retrasos B.V.
Rodeba Deurne B.v.
Roelcene B.V.
Rowanda B.V.
Rudlolf & Peter Herenmode En Confectie B.V.
Sabra Holding B.V.
Valpacos B.V.
Sacobel Beheer B.V.
Schnieders Beheer B.V.
Simonis Beheer B.V.
Simonis Beleggingsmaatschappij B.V.
Sipororo B.V.
Spaleta B.V.
Spatgens Beheer B.V.
Stampida B.V.
Stamveld B.V.
Steendam Beleggingsmaatschappij Drachten B.V.
Storm Beheer B.V.
Beheermaatschappij Baarlo B.V.
Strokkur B.V.
Sunrise Investments B.V.
Sustento B.V.
Svalbard Beheer B.V.
T. A. Lie Beheer B.V.
T. M. D. Beheer B.V.
Beheermaatschappij Baarlo B.V.
Tadavia B.V.
Beleggings - En Beheer Maatschappij Solina B.V.
Refina B.V.
Talboom Beheer B.V.
Tapirus B.V.
Tarsius B.V.
Technisch Advies Bureau Jaba B.V.
Ter Linden En Heijer Holding B.V.
Tessara Zaanlandia B.V.
Thecoar B.V.
Theo Kentie Holding B.V.
Theo Kentie Design B.V.
Traslado B.V.
Trasgo B.V.
Treetop B.V.
Trituris B.V.
Truckstar Holding B.V.
Tucupido B.V.
Tricor B.V.
U. Ringsma Beheer B.V.
Unitres Holding B.V.
Vaanhold & Van Zon Holding B.V.
Van Den Heuvel Beheer B.V.
Van Loon Beheer B.V.
Van Roij Holding B.V.
Van Zwamen Holding B.V.
Vebe Olst B.V.
Vegem Beheer B.V.
Venidero B.V.
Vette Consultants B.V.
Vicar B.V.
Vidriales B.V.
W. Van Den Berg B.V.
W. N. Van Twist Holding B.V.
Wabemij B.V.
Wiancini B.V.
Rentista B.V.
Reoco Limited
Rutilus B.V.
RL & T (International) N.V.
Securo De Depositos S.A.
Siam City Asset Management Co., Ltd
Slivast B.V.
Societe Financiere Du Libans. A.L.
Society for Worldwide Interbank Financial Telecommunication S.C.
Stichting Administratiekantoor ING Bank Global Custody
Tablero B.V.
Tolinea B.V.
Tripudio B.V.
Tunnel Onder De Noord B.V.
C. V. Exploitatiemaatschappij Tunnel Onder De Noord
Unidanmark A/S
Verenigde Bankbedrijven N. V.
Westland Utrecht Hypotheekbank N.V.
Amstgeld Management AG
Amstgeld N.V.
Amstgeld Trust AG
Bouw En Exploitatiemaatschappij Deska XXIII B.V.
Charterhouse Vermogensbeheer B.V.
Hypothecair Belang Gaasperdam I N.V.
Assorti Beheer Amsterdam B.V.
Muidergracht Onroerend Goed B.V.
Amstel Gaasperdam B. V.
Bouw-, Exploitatie En Administratie Maatschappij Amer IV B.V.
N.V. Zeker Vast Gaasperdam
Rijn Gaasperdam B.V.
Juza Onroerend Goed B.V.
Hazo Immobilia B.V.
Kort Ambacht Maatschappij Tot Exploitatie Van Onroerende Goederen B.V.
Utrechtse Financierings Bank N.V.
Utrechtse Hypotheekbank N.V.
Algemeene Waarborgmaatschappij N.V.
Hypotheekbank Voor Nederland II N.V.
Hypotheekbank Voor Nederland N.V.
Standard Hypotheekbank N.V.
ING Bank Hypotheken N.V.
Nationale Hypotheekbank N.V.
Hollandsche Hypotheekbank N.V.
Zuid Nederlandsche Hypotheekbank N.V.
Vermogensplanning N.B.I. B.V.
W.U.H. Finanz A.G.
Westland/Utrecht Leasing B.V.
Berchem Onroerend Goed B.V.
Berkelse Poort B.V.
Beuke Poort B.V.
Brasemer Poort B.V.
Bruine Poort B.V.
Denne Poort B.V.
Doetichem Immobilia B.V.
Dommelse Poort B.V.
Drechtse Poort B.V.
Eike Poort B.V.
Esse Poort B.V.
Frabu Immobilia B.V.
Friese Poort B.V.
Gelderse Poort B.V.
Gele Poort B.V.
Grijze Poort B.V.
Groninger Poort B.V.
Helo Immobilia B.V.
Holendrecht Gemeenschappelijk Beheer B.V.
Holendrecht Parking B.V.
Hollandse Poort B.V.
Iepe Poort B.V.
Kager Poort B.V.
Kilse Poort B.V.
Lekse Poort B.V.
Limburgse Waterpoort B.V.
Lingese Poort B.V.
Markse Poort B.V.
Oranje Poort B.V.
Paarse Poort B.V.
Reggese Poort B.V.
Roerse Poort B.V.
Schepa Immobilia B.V.
Sparre Poort B.V.
Spoolde B.V.
Spuise Poort B.V.
Thames Poort B.V.
Utrechtse Poort B.V.
Vechtse Poort B.V.
Vliestse Poort B.V.
Westland/Utrecht Bouwonderneming Wubo VI B.V.
Westland/Utrecht Bouwonderonderneming Wubo IV B.V.
Wilge Poort B.V.
Zeeuwse Poort B.V.
Westland/Utrecht Verzekeringen B.V.
Westlandsche Hypotheekbank N.V.
Algemeene Hypotheekbank N.V.
Hypotheekbank Maatschappij Voor Hypothecaire Crediet N.V.
Groningsche Hypotheekbank N.V.
Vaderlandsche Hypotheekbank N.V.
Zeeuwsche Hypotheekbank N.V.
Zuid-Hollandsche Hypotheekbank N.V.
Zugut B.V.
ING Verzekeringen N.V.
ING Insurance International B.V.
Nationale-Nederlanden Intervest II B.V.
ING North America Real Estate Holdings Inc.
ING Financial Services International (Asia) Ltd.
Nationale-Nederlanden Intervest XIII B.V.
Nationale-Nederlanden Intertrust B.V.
N.N. US Realty Corp
B.V. Nederlandsche Flatbouwmaatschappij
NN Korea
ING Continental Europe Holdings B.V.
De Vaderlandsche N.V.
Nationale Omnium N.V.
De Vaderlandsche Spaarbank N.V.
RVS Financial Services N.V.
Fiducre N.V.
Sodefina S.A.
SA De Vaderlandsche Luxemburg
Immo "De Hertoghe" NV
Westland/Utrecht Hypotheekmaatschappij N.V.
Intermediair Services N.V.
RVS Verzekeringen N.V.
Gefinac N.V.
Proodos General Insurances S.A.
NN Mutual Fund Management Co.
The Seven Provinces International B.V.
Nationale-Nederlanden Magyarorszagi Biztosito Rt
NN Mutual Fund Services and Consulting Ltd.
ING Management Services s.r.o.
Prumy Penzijni fond a.s.
Nationale-Nederlanden Polska S.A.
Nationale-Nederlanden Poist'ovna S.A.
ING Management Services Slovensko spol s.r.o.
Nationale-Nederlanden Agencia de Valores S.A.
NN Romania Asigurari de Viata S.A.
Sviluppo Finanziaria
ING Investment Management Italy
NN Vida Compania de Seguros y Raeseguros S.A.
NN Generales Compania e Seguros y Raeseguros
Nationale-Nederlanden Pojistovna
ING Latin American Holdings
ING Insurance Chile Holdings Limitada
ING Seguros de Vida S.A.
NNOFIC
Nationale-Nederlanden (UK) Ltd.
NN (UK General) Ltd.
The Orion Insurance
ING Australia Limited
Mercantile Mutual Holdings Ltd.
Mercantile Mutual Funds Management
Mercantile Mutual Global Ltd.
Athelas
Mercantile Mutual Insurance (Australia) Ltd.
M.A.F.G. Ltd.
Mercantile Equities Ltd.
Greater Pacific (Leasing) Ltd.
Amfas Australia Pty Ltd.
Australian General Insurance Co. Ltd.
"The Seven Provinces" Insurance Underwriters
MM Investment Management Ltd.
The Mercantile Mutual Life Insurance Co. Ltd.
MML Properties Pty Ltd.
Mercantile Mutual Deposits Ltd.
Union Investment Co. Ltd.
Mercantile Mutual Securities Ltd.
Tazak Pty Ltd.
Mercantile Mutual Custodians Pty. Ltd.
Mercantile Mutual Casualty Insurance Ltd.
Australian Brokers Holdings Ltd.
Australian Brokers Ltd.
Australian Community Insurance Ltd.
Mercantile Mutual Insurance (Workers Compensation) Ltd.
Mercantile Mutual Insurance (N.S.W. Workers Compensation) Ltd.
Prosafe Investments Ltd.
Dinafore Pty Ltd.
Tongkang Pty Ltd.
MM Investment Management
ING Canada Holdings Inc.
AFP Financial Services
ING Canada Inc.
The Halifax Insurance Company
Western Union Insurance Company
Wellington Insurance Company
La Compagnie d'Assurances Belair
The Commerce Group Insurance La Compagnie d'Assurances
NN Life Insurance Company of Canada
NN Funds Limited
NN Capital Management
NN Maple Leaf
ING America Insurance Holdings Inc.
Equitable of Iowa Companies
Directed Services, Inc.
Equitable Investment Services, Inc.
Equitable Life Insurance Company of Iowa
Equitable American Insurance Company
Equitable Creative Services, Ltd.
Equitable Companies
CLC, Ltd.
Equitable American Marketing Services, Inc.
Equitable Marketing Services, Inc.
Younkers Insurance & Investments, Ltd.
USG Annuity & Life Company
USGL Service Corporation
Equitable of Iowa Companies Capital Trust
Equitable of Iowa Companies Capital Trust II
Equitable of Iowa Securities Network, Inc.
Golden American Life Insurance Company
First Golden American Life Insurance Company of New York
Locust Street Securities, Inc.
IFG Network Securities
Shiloh Farming Company
Tower Locust, Ltd.
ING America Life Corporation
Georgia US Capital Inc.
Life Insurance Company of Georgia
Springstreet Associates, Inc.
Southland Life Insurance Co.
Security Life of Denver Insurance Company
First ING Life of New York
First Secured Mortgage Deposit Corp.
ING American Equities, Inc.
Midwestern United Life Insurance Company
Wilderness Associates
Afore Bital ING, S.A. de C.V.
Columbine Life Insurance Co.
ING Fund Services Co., Inc.
ING Investment Management, Inc.
ING Investment Management LLC
ING Mutual Funds Management LLC
ING Funds Distributor Inc.
ING Funds Services LLC
ING North America Insurance Corporation
ING Seguros Sociedad Anonima de Capital Variable
Lion Custom Investments Inc.
Lion Custom Investments II Inc.
MIA Office Americas, Inc.
Multi-Financial Group, Inc.
Multi-Financial Securities Corporation
Multi-Financial Securities Corporation Massachusetts
Multi-Financial Securities Corporation of Ohio
Multi-Financial Securities Corporation of Texas
Orange Investment Enterprises Inc.
Security Life Assignment Corp.
ING Seguros S.A. de C.V.
United Protective Company
Security Life of Denver International Ltd.
SLR Management (Bermuda) Ltd.
VESTAX Capital Corporation, Inc.
VESTAX Securities Corp.
VTX Agency Inc.
PMG Agency, Inc.
VTX Agency of Michigan, Inc.
ING US P&C Corporation
Diversified Settlements, Inc.
Peerless Insurance Company
The Netherlands Insurance Company
America First Insurance Company
Alabama First Insurance Company
Excelsior Insurance Company
Indiana Insurance
Consolidated Insurance Company
Cooling-Grumme-Mumford Company, Inc.
Blue Cross Medical Consultancy (Singapore) Pte. Ltd.
ING Indonesia Insurance P.T.
ING Life Insurance Japan
Nederlandse Reassurantie Groep Holding N.V.
Nederlandse Reassurantie Groep N.V.
NRG London Levensherverzekering
Algemene Levensherverzekering Maatschappij N.V.
Vereenigde Assurantie Bedrijven "Nederland" N.V.
Reassurantie Holding Nederland N.V.
Internationale Reassurantie Maatschappij Nederland N.V.
Reassurantie Maatschappij Nederland N.V.
Ruckversicherungs-Clearing A.G.
Reinsurers Marketing B.V.
N.V. Beleggingsmaatschappij NRG
Reassurantie Beleggingen N.V.
NRG Woningbouw B.V.
BMA Beleggingsmaatschappij "Alliance" B.V.
"Traviata" Onroerend Goed B.V.
The Victory Reinsurance Corporation of the Netherlands N.V.
NRG Victory Holdings Ltd.
NRG London Reinsurance Company Ltd.
NRG Fenchurch Insurance Company Ltd.
NRG Victory Australia Holdings Ltd.
NRG Victory Australia Ltd.
NRG Victory Reinsurance Corporation Ltd.
The Victory Health Reinsurance Corporation Ltd.
NRG Victory Management Ltd.
European Life Marketing & Actuarial Consultancy Ltd.
European Life Marketing & Actuarial Consultancy 92 Ltd.
Medical Expenses Development and Insurance Consultancy Services Ltd.
NRG Victory Management Services Ltd.
General Reinsurance Syndicate Ltd.
General Reinsurance Syndicate Ltd. (Trustee)
London Reinsurance Comp. Ltd.
NRG Victory Life and Health Services Ltd.
NRG Victory Canada Management Ltd.
NRG Victory Management (Hong Kong) Ltd.
NRG America Holding Company
Philadelphia Reinsurance Corporation
NRG America Life Reassurance Corporation
NRG American Management Corporation
Market Run Off Services Ltd.
NRG Antillean Holding N.V.
NRG Antillean Reinsurance Company N.V.
NRG Victory International Ltd.
NRG Victory Management (Bermuda) Ltd.
SRO Run-Off Ltd. Bermuda
ING Life Insurance Co. (Phillippines)
ING Penta Life Insurance Indonesia P.T.
ING Insurance Consultants (HK) Ltd.
ING Reinsurance International Holding Co. Ltd.
ING Reinsurance International
Nationale-Nederlanden Nederland B.V.
Nationale-Nederlanden Schadeverzekering Maatschappij N.V.
H. van Veeren B.V.
Nationale-Nederlanden Greek General Insurance Company S.A.
Nationale-Nederlanden Levensverzekering Maatschappij N.V.
B.V. Beleggingsmaatschappij Berendaal
Consortium Scheveninggen B.V.
RVS Beroeps-en Bedrijfsfinanciering B.V.
De Bossche Poort B.V.
ING Vastgoed V B.V.
ING Vastgoed Belegging B.V.
B.V. Beleggingsmaatschappij Vinkendaal
Muggenburg Beheer B.V.
Muggenburg C.V.
ING REI Investment U.K. B.V.
Nationale-Nederlanden Real Estate Ltd.
ING Vastgoed Beheer Maatschappij I B.V.
ING Vastgoed Bewaar Maatschappij I B.V.
Nationale-Nederlanden Intervest 52 B.V.
Bouwfonds Nationale-Nederlanden B.V.
Nationale-Nederlanden Bouwfonds 1975 B.V.
Bouwfonds AVG B.V.
Bouwfonds Nemavo B.V.
Bouwfonds Anklaar-Apeldoorn 1967 B.V.
Bouwfonds Bilthoven 1969 B.V.
Bouwfonds Roveso B.V.
RVS Bouwfonds B.V.
Bouwfonds Utrecht 1967 B.V.
Amersfoort Premiewoningen B.V.
Bouwfonds Valken Staete B.V.
Nationale-Nederlanden Bouwfonds 1976 B.V.
ING Real Estate International Investment I B.V.
ING REI Investment U.K. B.V.
ING Vastgoed Fondsbelegging BV
Jetta Vastgoed B.V.
B.V. Algemene Beleggingsmaatschappij "Lapeg"
ING Insurance Argentina
Nationale-Nederlanden Greek Life Insurance Company S.A.
RVS Levensverzekering N.V.
RVS Schadeverzekering N.V.
Tiel Utrecht Levensverzekering N.V.
Tiel Utrecht Schadeverzekering N.V.
Utrechtsche Algemeene Brandverzekering Maatschappij N.V.
Assurantiekantoor A Brugmans B.V.
Algemene Zeeuwse Verzekering Maatschappij N.V.
Apollonia Levensverzekering N.V.
N.V. Nationale Borg-Maatschappij
N.V. Belegging- en Beheer Maatschappij Keizersgracht
Antilliaanse Borg-Maatschappij N.V.
Amfas Exploitatie Maatschappij B.V.
AVG Exploitatie en Beheer B.V.
Amfas Hypotheken N.V.
Noordwester Hypotheken N.V.
Amfinex II B.V.
Westermij B.V.
Amfico B.V.
AVG Exploitatie I B.V.
ING Bewaar Maatschappij IV B.V.
S.C.P. AVG Investissement
Assurantiemaatschappij "De Zeven Provincien" N.V.
"Transatlantica" Herverzekering Maatschappij N.V.
"The Seven Provinces" Insurance Underwriters Ltd.
Ramus Insurance Ltd.
Tiel Utrecht Verzekerd Sparen N.V.
B.V. Algemene Beleggings Maatschappij Reigerdaal
Oostermij B.V.
Nationale-Nederlanden Pensioendiensten B.V.
Nationale-Nederlanden Zorgvezekering N.V.
B.V. Algemene Beleggingsmaatschappij "Kievietsdaal"
NeSBIC-Postbank B.V.
Nitido B.V.
Podocarpus Beheer B.V.
Parcom Ventures B.V.
Parcom Beheer BV
Parcom CV
Parcom Services BV
Postbank Schadeverzekering N.V.
Maatschappij tot Exploitatie van Onroerende Goederen "Gevers Deynootplein" BV
Maatschappij tot Exploitatie van Onroerende Goederen "Kurhaus" B.V.
Postbank Levensverzekering N.V.
RVS Beleggingen N.V.
Netherlands Life Insurance Company Ltd.
AO Artsen-Verzekeringen N.V.
Grabenstrasse Staete B.V.
ING Life Insurance International N.V.
Nationale-Nederlanden Internationale Schadeverzekering N.V.
Fatum Vermogensbeheer
N.V. Surinaamse Verzekeringsagenturen Maatschappij
Seguros Norman Moron N.V.
N.V. Arubaanse Verzekeringsagenturen Maatschappij
Nationale-Nederlanden Herverzekering Maatschappij N.V.
AVG Exploitatie IX B.V.
Jahnstrasze Gebaude B.V.
Maatschappij tot Exploitatie van Onroerende Goederen "Palace" B.V.
Nationale-Nederlanden Interfinance B.V.
Maatschappij tot Exploitatie van Onroerende Goederen "Grand Hotel" B.V.
N.V. Haagsche Herverzekering Maatschappij van 1836
Baring Central European Investments B.V.
Baring Asian Flagship Investments B.V.
ING Fund Management B.V.
Wijkertunnel Beheer I B.V.
Nationale-Nederlanden Beleggingsrekening N.V.
Nationale-Nederlanden CSFR Real Estate v.o.s.
ING Bewaar Maattschappij I B.V
ING Vastgoed B.V.
ING Real Estate (Asia) PTE Ltd.
ING Real Estate North America Corporation
Nationale-Nederlanden Intervest XII B.V.
B.V. Algemene Beleggingsmaatschappij Van Markenlaan
Kantoorgebouw Johan de Wittlaan B.V.
Nationale-Nederlanden Holdinvest B.V.
Nationale-Nederlanden International Investment Advisors B.V.
B.V. Algemene Beleggingsmaatschappij Fazantendaal
Maatschappij Stadhouderslaan B.V.
DESKA LII B.V.
J.H. Alta en Co. B.V.
Westland/Utrecht Projektontwikkeling B.V.
Bouwonderneming Amer LII B.V.
ING Real Estate Colombo B.V.
Loeffpleingarage B.V.
B.V. Maatschappij tot Exploitatie van Onroerende Goederen Smeetsland
B.V. Vastgoedmaatschappij "Combuta"
B.V. Vastgoed Maatschappij "Promes"
Beheer- en Exploitatiemaatschappij "De Vestingwachter" B.V.
Nationale-Nederlanden Hypotheekbank N.V.
N.V. Arnhemsche Hypotheekbank voor Nederland
Nationale-Nederlanden Financiering Maatschappij B.V.
B.V. Betaalzegelbedrijf "De Voorzorg" J. van Ouwel
Nationale-Nederlanden Finance Corporation (Curacao) I.L.
Nationale-Nederlanden Vermogensbeheer B.V.
NeSBIC Nationale-Nederlanden B.V.
BOZ B.V.
ABV Staete B.V.
B.V. "De Administratie" Maatschappij tot Exploitatie van Onroerende Goederen
Amersfoort-Staete B.V.
Arnhem Staete B.V.
Belart Staete B.V.
Belart S.A.
N.V. Square Montgomery
Steenstaete S.A.
Berkel-Staete I B.V.
Berkel-Staete II B.V.
Blijenhoek Staete B.V.
S.N.C. Blijenhoek Staete et Cie
SNC Peau Bearn
Brussel Staete B.V.
Grote Markt Staete B.V.
Hoogoorddreef I B.V.
SNC Haven
Trompenburg Parking B.V.
Lena Vastgoed B.V.
S.A. du 59 Avenue d'lena
SNC le Murier
Kleber Vastgoed B.V.
S.A. du 42 Avenue Kleber
B.V. De Oude Aa-Stroom
Portefeuille Staete B.V.
S.C.I. 1e Portefeuille
S.C.I. le Michelet
S.C.I. Roissy Bureaux International
S.C.I. Square d'Asnieres
SNC Le Dome
B.V. Amiloh
ING Vastgoed N.V.
Immo Management Service S.A.
S.A. Regent-Bruxelles
Nationale-Nederlanden/Immobilier S.A.R.L.
Immogerance S.A.R.L.
Nationale-Nederlanden Intervest IV B.V.
SAS Espace Daumesnil
Nationale-Nederlanden V B.V.
Nationale-Nederlanden VII B.V.
ING Real Estate Espace Daumesnil B.V.
ING Real Estate Parking Daumesnil Viaduc B.V.
SAS Parking Daumesnil Viaduc
Cadran Invest S.A.
ING Bewaar Maatschappij II B.V.
ING Bewaar Maatschappij III B.V.
ING REI Investment Spain B.V.
ING Inmeubles S.A.
ING Bewaar Maatschappij V B.V.
ING Asset Management B.V.
Postbank Verzekeringen Beheer Maatschappij B.V.
Postbank Verzekeringen Bewaar Maatschappij B.V.
ING Vastergoed B.V.
Nationale-Nederlanden Intervest IX B.V.
Nationale-Nederlanden CSFR Intervest S.R.O.
ING Real Estate Praha Housing a.s.
Nationale-Nederlanden Praha Real Estate V.O.S.
Nationale-Nederlanden Intervest XI B.V.
Nationale-Nederlanden Hungary Real Estate KFT
ING Investment Management (Hungary) Rt.
ING Investment Management (Asia Pacific) Limited
ING Investment Management (Czech Republic) S.A.
IIM India (India) Private Ltd.
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<NAME> GCG Trust Multiple Allocation Series
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<NAME> GCG Trust Fully Managed Series
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<NUMBER> 03
<NAME> GCG Trust Ltd Maturity Bond Series
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<NAME> GCG Trust Hard Assets Series
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<NUMBER> 05
<NAME> GCG Trust Real Estate Series
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<NAME> GCG Trust All-Growth Series
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<NUMBER> 07
<NAME> GCG Trust Liquid Asset Series
<S> <C>
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<S> <C>
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<NUMBER> 08
<NAME> GCG Trust Capital Apprec Series
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 09
<NAME> GCG Trust Fund For Life Series
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GCG Trust Rising Dividends Series
<S> <C>
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
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<NUMBER> 11
<NAME> GCG Trust Emerging Markets Series
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<TABLE> <S> <C>
<S> <C>
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<NUMBER> 12
<NAME> GCG Trust Market Manager Series
<S> <C>
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GCG Trust Value Equity Series
<S> <C>
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> GCG Strategic Equity Series
<S> <C>
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<NUMBER> 15
<NAME> GCG Small Cap Series
<S> <C>
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</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-31-1998
<PERIOD-START> JAN-1-1998
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<NET-INVESTMENT-INCOME> (200950)
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<DISTRIBUTIONS-OF-INCOME> (436006)
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> GCG Trust Growth Opportunities Series
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> FEB-18-1998
<PERIOD-END> DEC-31-1998
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<ACCUMULATED-NET-GAINS> (619958)
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<NUMBER-OF-SHARES-REDEEMED> (596918)
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<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 1.15
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> GCG Trust Developing World Series
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> FEB-18-1998
<PERIOD-END> DEC-31-1998
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<OTHER-ITEMS-ASSETS> 1125770
<TOTAL-ASSETS> 8796980
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<TOTAL-LIABILITIES> 12
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<PAID-IN-CAPITAL-COMMON> 10362689
<SHARES-COMMON-STOCK> 1193535
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<ACCUMULATED-NET-GAINS> (1216827)
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<ACCUM-APPREC-OR-DEPREC> (634752)
<NET-ASSETS> 8796968
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<NUMBER-OF-SHARES-REDEEMED> (372859)
<SHARES-REINVESTED> 484
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<GROSS-ADVISORY-FEES> 94921
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<GROSS-EXPENSE> 98910
<AVERAGE-NET-ASSETS> 6259044
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> (2.67)
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<PER-SHARE-NAV-END> 7.37
<EXPENSE-RATIO> 1.83
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> GCG Trust Growth & Income Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 12427785
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<OTHER-ITEMS-ASSETS> 20767206
<TOTAL-ASSETS> 311054777
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<ACCUMULATED-NII-CURRENT> 406306
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<ACCUM-APPREC-OR-DEPREC> 38911569
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<NUMBER-OF-SHARES-REDEEMED> (815498)
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<PER-SHARE-DISTRIBUTIONS> (0.07)
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<PER-SHARE-NAV-END> 15.62
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> GCG Trust Research Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
<PERIOD-END> DEC-31-1998
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<ACCUMULATED-NET-GAINS> (7371953)
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<DISTRIBUTIONS-OF-INCOME> (424921)
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<NUMBER-OF-SHARES-REDEEMED> (989817)
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<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 20.31
<EXPENSE-RATIO> 0.94
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> GCG Trust Total Return Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 426381137
<INVESTMENTS-AT-VALUE> 450527770
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<ASSETS-OTHER> 8222
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 454954114
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<PAID-IN-CAPITAL-COMMON> 428847791
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<ACCUMULATED-NII-CURRENT> 1240197
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<ACCUMULATED-NET-GAINS> (1140503)
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<DIVIDEND-INCOME> 1563307
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<NUMBER-OF-SHARES-REDEEMED> (334518)
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<GROSS-EXPENSE> 1426092
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<PER-SHARE-NAV-BEGIN> 14.88
<PER-SHARE-NII> .17
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<PER-SHARE-DIVIDEND> (0.11)
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<PER-SHARE-NAV-END> 15.80
<EXPENSE-RATIO> .98
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> GCG Trust Value & Growth Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 179954843
<INVESTMENTS-AT-VALUE> 224738105
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 231273238
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<OTHER-ITEMS-LIABILITIES> 56857
<TOTAL-LIABILITIES> 56857
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<PAID-IN-CAPITAL-COMMON> 201010672
<SHARES-COMMON-STOCK> 14800154
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<ACCUMULATED-NET-GAINS> (14577553)
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<ACCUM-APPREC-OR-DEPREC> 44783262
<NET-ASSETS> 231216381
<DIVIDEND-INCOME> 252224
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<EXPENSES-NET> 737073
<NET-INVESTMENT-INCOME> (397445)
<REALIZED-GAINS-CURRENT> (14577553)
<APPREC-INCREASE-CURRENT> 44783262
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<NUMBER-OF-SHARES-REDEEMED> (1053015)
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<GROSS-ADVISORY-FEES> 728286
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<GROSS-EXPENSE> 737073
<AVERAGE-NET-ASSETS> 177916853
<PER-SHARE-NAV-BEGIN> 13.63
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.02
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<PER-SHARE-NAV-END> 15.62
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> GCG Trust Global Fixed Income Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
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<INVESTMENTS-AT-COST> 19216118
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<OTHER-ITEMS-LIABILITIES> 13934
<TOTAL-LIABILITIES> 13934
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<REALIZED-GAINS-CURRENT> (93077)
<APPREC-INCREASE-CURRENT> 1162504
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<DISTRIBUTIONS-OF-INCOME> 257551
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<GROSS-ADVISORY-FEES> 118137
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<GROSS-EXPENSE> 127583
<AVERAGE-NET-ASSETS> 19446067
<PER-SHARE-NAV-BEGIN> 10.47
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<PER-SHARE-DISTRIBUTIONS> (0.13)
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<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 24
<NAME> GCG Trust Mid Cap Growth Series
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-14-1998
<PERIOD-END> DEC-31-1998
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<TOTAL-ASSETS> 254729662
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<PAID-IN-CAPITAL-COMMON> 219861145
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<ACCUM-APPREC-OR-DEPREC> 26339672
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<DIVIDEND-INCOME> 113428
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<OTHER-INCOME> (13)
<EXPENSES-NET> 717804
<NET-INVESTMENT-INCOME> 114842
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<DISTRIBUTIONS-OF-INCOME> (71134)
<DISTRIBUTIONS-OF-GAINS> (1362260)
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<GROSS-ADVISORY-FEES> 708271
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<GROSS-EXPENSE> 717804
<AVERAGE-NET-ASSETS> 197720596
<PER-SHARE-NAV-BEGIN> 15.68
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.52
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</TABLE>
<PAGE>
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 there with, 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
------------------------
Stanley B. Seidler /s/Stanley B. Seidler August 26, 1997
------------------------
Roger B. Vincent /s/Roger B. Vincent August 19, 1997
------------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned,
being a duly elected Trustee and/or Officer of The GCG Trust (the "Trust"),
constitute and appoint 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
the Trust's 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.
SIGNATURE TITLE DATE
/s/ Barnett Chernow Vice-President February 24, 1999
- ---------------------- Trustee
Barnett Chernow
/s/ Myles R. Tashman Secretary February 24, 1999
- ----------------------
Myles R. Tashman
/s/ Elizabeth J. Newell Trustee February 24, 1999
- -----------------------
Elizabeth J. Newell
