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As filed with the Securities and Exchange Commission on November 8, 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. 41 [X]
and/or
Registration Statement under the Investment Company Act of 1940 [X]
Amendment No. 42
(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):
[ ] 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)
[X] on February 1, 2000 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.
----------
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NOTE:
This filing is only applicable to the Large Cap Value, All Cap,
Large Cap Growth and Investors Portfolios, new Portfolios of the
GCG Trust. There are other prospectuses and Statements of
Additional Information for the GCG Trust describing 23 other
portfolios. They were last updated by Amendment no. 40 to the
Registration Statement for the GCG Trust filed on May 3, 1999.
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THE GCG TRUST
PROSPECTUS
[FEBRUARY 1, 2000]
STOCK FUNDS
Investors Series
Large Cap Growth Series
Large Cap Value Series
All Cap 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.
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TABLE OF CONTENTS
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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."
PAGE
INTRODUCTION
Investing through your Variable
Contract 2
Why Reading this Prospectus is
Important 2
Types of Funds 2
General Risk Factors 3
PORTFOLIOS AT A GLANCE
Investors Portfolio 4
Large Cap Growth Portfolio 6
Large Cap Value Portfolio 8
All Cap Portfolio 10
MORE INFORMATION
A Word about Portfolio Diversity 12
Additional Information about the
Portfolios 12
Non-Principal Investments and
Strategies 12
Temporary Defensive Positions 12
Portfolio Turnover 12
Legal Counsel 12
Independent Auditors 12
Year 2000 13
DESCRIPTION OF THE PORTFOLIOS
Investors Portfolio 14
Large Cap Growth Portfolio 16
Large Cap Value Portfolio 18
All Cap Portfolio 20
OVERALL MANAGEMENT OF THE TRUST
The Adviser 23
Advisory Fee 24
SHARE PRICE 24
TAXES AND DISTRIBUTIONS 25
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.
1
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INTRODUCTION
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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 four 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.
All portfolios offered by The GCG
Trust are generally classified This prospectus describes the
among three major asset Investors Portfolio, All Cap
classes: stock, bond and money Portfolio, Large Cap Value
market. Portfolio, and Large Cap Growth
Portfolio. There are other
portfolios in the GCG Trust.
They are described in a separate
prospectus. Each of these
portfolios is a stock portfolio.
MONEY MARKET BOND STOCK
FUNDS FUNDS FUNDS
|----------------------------------------------------------|
| LOWER <---------- RISK/RETURN ----------> HIGHER |
|----------------------------------------------------------|
2
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INTRODUCTION (CONTINUED)
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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 political or market conditions
or disappointing earnings
It is important to keep in mind results.
one of the main axioms of
investing: The higher the risk of o CALL RISK. During periods of
losing money, the higher the falling interest rates, a bond
potential reward. The lower the issuer may "call," or repay,
risk, the lower the potential its high yielding bond before
reward. As you consider an the bond's maturity date.
investment in a portfolio, you Forced to invest the
should take into account your unanticipated proceeds at
personal tolerance for investment lower interest rates, a
risk. portfolio would experience a
decline in income.
OVERALL RISK:
o MANAGER RISK. A portfolio o MATURITY RISK. Interest rate
manager of a portfolio may do risk will affect the price of
a mediocre or poor job in a fixed income security more
selecting securities. if the security has a longer
maturity because changes in
interest rates are
increasingly difficult to
predict over longer periods of
time. Fixed income 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
3
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PORTFOLIOS AT A GLANCE
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INVESTORS PORTFOLIO
INVESTMENT
OBJECTIVE Seek long-term growth of capital. Current income
is a secondary objective
PRINCIPAL The Portfolio invests primarily in equity securities of
INVESTMENT U.S. companies. The Portfolio may also invest in other
STRATEGY equity securities. To a lesser degree, the Portfolio invests
in income producing securities such as debt securities.
The Portfolio Manager emphasizes individual security selection
while spreading the Portfolio's investment across industries,
which may help to reduce risk. The Portfolio Manager focuses
on established large capitalization companies, defined by the
Portfolio Manager as companies with over $5 billion in market
capitalization, seeking to identify those companies with solid
growth potential at reasonable values. The Portfolio Manager
employs fundamental analysis to analyze each company in detail,
ranking its management, strategy and competitive market position.
In selecting individual companies for investment, the Portfolio
Manager looks for the following:
o Long-term history of performance
o Competitive market position
o Competitive products and services
o Strong cash flow
o High return on equity
o Strong financial condition
o Experienced and effective management
o Global scope
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
INVESTORS
I USE LCV AC
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<<< xxXXXXxx >>>
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<<LOWER RISK HIGHER RISK>>
4
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PORTFOLIOS AT A GLANCE (CONTINUED)
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PRINCIPAL Any investment in the Portfolio 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
o Call Risk
o Income Risk
o Interest Rate Risk
o Credit Risk
o Maturity Risk
An investment in the Portfolio is subject to the following
additional principal risk described under "Description of the
Portfolios -- Investors Portfolio."
o Growth Investing Risk
An investment in the Portfolio will fluctuate depending on
its investment performance. Since the Investors Portfolio
became available to investors after January 1, 2000,
performance information for previous calender years
is not available.
You should read the Relative Risk Comparison, presented for
this portfolio, in conjunction with the one presented
in the GCG Trust prospectus dated May 1, 1999 as amended
June 30, 1999, August 17, 1999 and September 30, 1999,
which gives descriptions of the other portfolios offered
by the GCG Trust.
5
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PORTFOLIOS AT A GLANCE (CONTINUED)
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LARGE CAP GROWTH PORTFOLIO
Investment
Objective To achieve long-term growth of capital
Principal The Portfolio invests primarily in equity securities of
Investment U.S. issuers and securities whose principal markets are
Strategy in the United States, including American Depositary Receipts
("ADRs") and other registered foreign securities.
The Portfolio invests primarily in common stocks (or
securities convertible or exchangeable into common stocks)
of companies with market capitalization greater than
$1 billion at the time of purchase.
Principal Any investment in the Portfolio involves the possibility
Risk that you will lose or not make money. An investment in
the Portfolio is subject to the following principal risk
described under "Introduction-General Risk Factors":
o Manager Risk
o Market and Company Risks
An investment in the Portfolio is subject to the following
additional principal risk described under "Description of
the Portfolios-Large Cap Growth Portfolio":
o Growth Investing Risk
o Foreign Investment and Currency Risk
o Convertible Securities Risk
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
U.S. EQUITY
I LCG LCV AC
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<<< xxXXXXxx >>>
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<<LOWER RISK HIGHER RISK>>
6
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PORTFOLIOS AT A GLANCE (CONTINUED)
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The value of your shares in the Portfolio will fluctuate
depending on the Portfolio's investment performance. Since
the Large Cap Growth Portfolio became available to investors
after February 1, 2000, performance information on previous
years is not available.
You should review the Relative Risk Comparison presented for
this portfolio along with the one presented in the full
GCG Trust prospectus, which gives descriptions of other
portfolios offered by the GCG Trust.
7
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PORTFOLIOS AT A GLANCE (CONTINUED)
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LARGE CAP VALUE PORTFOLIO
Investment
Objective Seek long-term growth of capital and income
Principal The Portfolio Manager seeks to achieve the Portfolio's
Investment investment objective by investing, under normal market
Strategy conditions, primarily in equity and equity-related
securities of companies with market capitalization
greater than $1 billion at the time of purchase.
In selecting investments, greater consideration is
given to potential appreciation and future dividends
than to current income. The Portfolio may hold American
Depository Receipts and other U.S. registered securities
of foreign issuers which are denominated in U.S. dollars.
Principal Any investment in the Portfolio involves the possibility
Risks that 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 -- Large Cap Value Portfolio".
o Growth Investment Risk
o Mid-Cap Company Risk
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
LARGE-CAP
I LCG LCV AC
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<<LOWER RISK HIGHER RISK>>
8
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PORTFOLIOS AT A GLANCE (CONTINUED)
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An investment in the Portfolio will fluctuate depending
on its investment performance. Since the Large Cap Value
Portfolio became available to investors after January 1,
2000, performance information for previous calender years
is not available.
You should read the Relative Risk Comparison, presented for
this portfolio in conjunction with the one presented in the
GCG Trust prospectus dated May 1, 1999 as amended June 30,
1999, August 17, 1999 and September 30, 1999, which gives
descriptions of other portfolios offered by the Trust.
9
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PORTFOLIOS AT A GLANCE (CONTINUED)
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ALL-CAP PORTFOLIO
INVESTMENT Capital Appreciation through investment in securities which
OBJECTIVE the Portfolio Manager believes have above-average capital
appreciation potential
PRINCIPAL The Portfolio invests primarily in equity securities
INVESTMENT of U.S. companies of any size. The Portfolio Manager
STRATEGY emphasizes individual security selection while
spreading the Portfolio's investments across industries,
which may help to reduce risk. The Portfolio Manager seeks
to identify those companies which offer the greatest
potential for capital appreciation through careful fundamental
analysis of each company and its financial characteristics.
In selecting individual companies for investment, the Portfolio
Manager looks for the following:
o Share prices that appear to undervalue the company's
assets or do not adequately reflect factors such as
favorable industry trends, lack of investor recognition
or the short-term nature of earnings' declines
o Special situations such as existing or possible changes
in management, corporate policies, capitalization or
regulatory environment which may boost earnings or the
market price of the company's shares
o Growth potential due to technological advances, new
products or services, new methods of marketing or
production, changes in demand or other
o Significant new developments which may enhance future
earnings.
The Portfolio is non-diversified and, when compared with other
funds, may invest a larger portion of its assets in a particular
issuer. A non-diversified portfolio has greater exposure to the
risks of default or the poor earnings of any such issuer.
===RELATIVE RISK COMPARISON=================================================
Not intended to indicate
future risk or performance.
ALL-CAP
I LCG LCV AC
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<<LOWER RISK HIGHER RISK>>
10
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PORTFOLIOS AT A GLANCE (CONTINUED)
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PRINCIPAL Any investment in the Portfolio involves the possibility
RISKS that 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 -- All Cap Portfolio":
o Growth Investing Risk
o Small Company Risk
o Mid-cap Company Risk
o Undervalued Securities Risk
An investment in the Portfolio will fluctuate depending on its
investment performance. Since the All Cap Portfolio became
available to investors after January 1, 2000, performance
information for previous calender years is not available.
You should read the Relative Risk Comparison, presented with
this portfolio, in conjunction with the one presented in the
GCG Trust prospectus dated May 1, 1999 as amended June 30,
1999, August 17, 1999 and September 30, 1999, which gives
descriptions of the other portfolios offered by the GCG Trust.
11
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MORE INFORMATION
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A WORD Each portfolio in this prospectus, unless
ABOUT specifically noted in the portfolio's
PORTFOLIO investment strategy, 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 and
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, if available,
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. However, because the four Portfolios
included in this prospectus are new, none have
historic portfolio tunover rates available.
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.
LEGAL Sutherland Asbill & Brennan LLP, located at
COUNSEL 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004.
INDEPENDENT
AUDITORS Ernst & Young LLP, located at Two Commerce Square,
Suite 4000, 2001 Market Street, Philadelphia, PA 19103.
12
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MORE INFORMATION (CONTINUED)
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YEAR 2000 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, The Trust could be adversely
affected. 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.
13
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DESCRIPTION OF THE PORTFOLIOS
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INVESTORS PORTFOLIO
PORTFOLIO
MANAGER Salomon Brothers Asset Management, Inc.
INVESTMENT
OBJECTIVE Seek long-term growth of capital. Current income is a
secondary objective.
PRINCIPAL The Portfolio invests primarily in equity securities
INVESTMENT of U.S. companies. The Portfolio may also invest in other
STRATEGY equity securities. To a lesser degree, the Portfolio invests in
income producing securities such as debt securities.
The Portfolio Manager emphasizes individual security selection
while spreading the Portfolio's investments across industries,
which may help to reduce risk. The Portfolio Manager focuses on
established large capitalization companies, defined by the
Portfolio Manager as companies with over $5 billion in market
capitalization, seeking to identify those companies with solid
growth potential at reasonable values. The Portfolio Manager
employs fundamental analysis to analyze each company in detail,
ranking its management, strategy and competitive market position.
In selecting individual companies for investment, the Portfolio
Manager looks for the following:
o Long-term history of performance
o Competitive market position
o Competitive products and services
o Strong cash flow
o High return on equity
o Strong financial condition
o Experienced and effective management
o Global scope
Investment ideas are subjected to extensive, fundamental analysis,
focusing on four key criteria:
o Operating characteristics
o Financial character
o Quality of management
o Valuation
Only companies that pass the Portfolio Manager's strict, in-depth
research and debate are eligible for purchase. The Portfolio
Manager's bottom-up approach focuses on creating an information
advantage through a thorough understanding of company
fundamentals.
14
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
PRINCIPAL Any investment in the Portfolio is subject to the following
RISKS principal risks described under "Introduction -- General Risk
Factors":
o Manager Risk
o Market and Company Risk
o Call Risk
o Income Risk
o Interest Rate Risk
o Credit Risk
o Maturity 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 Manager may use. For such information, please refer
to the Statement of Additional Information.
MORE ON Salomon Brothers Asset Management, Inc. (SBAM) is a full-service,
THE global investment management organization and is wholly owned by
PORTFOLIO Salomon Smith Barney Holdings Inc., which is a subsidiary of
MANAGER Citigroup Inc. SBAM has been registered as a U.S. Investment
Advisor since 1989. As of September 30, 1999, SBAM manages over
$30 billion in assets, including a wide spectrum of equity and
fixed income products for both institutional and private investors,
including corporations, pension funds, public funds, central banks,
insurance companies, supranational organizations, endowments
and foundations. The headquarters of SBAM is located at 7 World
Trade Center New York City, NY 10048. Additionally, the firm
maintains investment management offices in Frankfurt, London,
Hong Kong and Tokyo.
Name Position and Recent Business Experience
---- ---------------------------------------
Ross Margolies Managing Director and Senior Portfolio Manager
Mr. Margolies has been working with insurance
companies throughout his career, including in
his previous positions at Lehman Brothers and
Prudential Securities. Prior to working for
SBAM, he served as Vice President in various
investment management positions for three years
at Guy Carpenter Corporation, one of the
world's largest reinsurance brokerage
companies. Mr. Margolies began his career at
SBAM management in 1994, also working in
various investment management positions.
John Cunningham Senior Portfolio Manager and Director
Mr. Cunningham joined SBAM in 1995 and has
ten years experience in the industry. Prior
to becoming a Portfolio Manager, Mr. Cunningham
was an investment banker in the Global power
group at Salomon Brothers Inc. Mr. Cunningham
has served in various investment management
positions during his tenure at SBAM.
15
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DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
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LARGE CAP GROWTH PORTFOLIO
Portfolio
Manager Capital Guardian Trust Company
Investment
Objective To achieve long-term growth of capital
Principal The Portfolio invests primarily in equity securities of U.S.
Investment issuers and securities whose principal markets are in the
Strategy United States, including American Depositary Receipts ("ADRs")
and other registered foreign securities.
The Portfolio invests primarily in common stocks (or securities
convertible or exchangeable into common stocks) of companies
with market capitalization greater than $1 billion at the time
of purchase.
The Portfolio may invest up to 10% of its total assets, at the
time of purchase, in securities of issuers domiciled outside
the United States.
When market or financial conditions warrant, the portfolio
may invest a substantial portion of its assets in high quality
debt securities, including short-term obligations for
temporary or defensive purposes. If such action is taken, it
will detract from achievement of the Portfolio's investment
objective during such periods.
Principal Any investment in the Portfolio involves the possibility
Risk that you will lose or not make money. An investment in the
Portfolio is subject to the following principal risk described
under "Introduction-General Risk Factors":
o Manager Risks
o Market and Company Risks
An investment in the Portfolio is subject to the following
additional principal risks described under "Description of
the Portfolios-Large Cap Growth Portfolio:
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 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 value 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 currency 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.
16
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
o Convertible Securities Risk. Convertible securities
enable the Portfolio to benefit from increases in the
market price of the underlying common stock and
provide higher yields than the underlying common
stocks, but generally offer lower yields than
nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates
both in relation to changes in interest rates and
changes in the value of the underlying common stock.
The value of your shares in the Portfolio will fluctuate
depending on the Portfolio's investment performance. Since
the Large Cap Growth Portfolio became available to investors
on February 1, 2000, performance information on previous
years is not available.
This prospectus does not describe all 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 on the Capital Guardian Trust Company ("Capital Guardian"), located at
Portfolio 333 South Hope Street, Los Angeles, CA 90071, began
Manager management of the Portfolio on [_______], 2000. Capital
Guardian is a wholly owned subsidiary of Capital Group
International, Inc. Capital Guardian has been providing
investment management services since 1968 and manages
over $98 billion in assets as of September 30, 1999.
The Portfolio is managed by a group of investment investment
professionals, each of whom has investment discretion over
a segment of the total Portfolio. The investment
professionals are led by the Portfolio Coordinator. The
size of each segment will vary over time and may be based
upon: (1) the level of conviction of specific investment
professionals as to their designated sectors; (2) industry
weights within the relevant benchmark for the Portfolio;
(3) the judgment of the Portfolio Coordinator in assessing
the level of conviction of investment professionals
compared to industry weights within the relevant benchmark.
Sectors may be overweighted relative to their benchmark
weighting if there is a substantial number of stocks that
are judged to be attractive based on the investment
professionals' research in that sector, or may be
underweighted if there are relatively fewer stocks viewed
to be attractive in the sector. The Portfolio Coordinator
also coordinates the cash holdings of the Portfolio.
17
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
LARGE CAP VALUE PORTFOLIO
Portfolio
Manager Capital Guardian Trust Company
Investment
Objective Seek long-term growth of capital and income
Principal The Portfolio Manager seeks to achieve the Portfolio's
Investment investment objective by investing, under normal market
Strategy conditions, primarily in equity and equity-related
securities of companies with market capitalization greater
than $1 billion at the time of purchase.
In selecting investments, greater consideration is given
to potential appreciation and future dividends than to current
income. The portfolio may hold American Depository Receipts
and other U.S. registered securities of foreign issuers which
are denominated in U.S. dollars.
PRINCIPAL Any investment in the Portfolio involves the possibility
RISKS that 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:
o GROWTH INVESTMENT 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 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 recourses and 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.
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 ON Capital Guardian Trust ("Capital Guardian"), located at
THE 333 South Hope Street, Los Angeles, CA 90071, began management
PORTFOLIO of the Portfolio on [_____________]. Capital Guardian
MANAGER is a wholly owned subsidiary of Capital Group International,
Inc. Capital Guardian has been providing investment management
services since 1968 and manages over $98 billion
in assets as of September 30, 1999.
18
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
The following persons at Capital Guardian are primarily
responsible for the day-to-day investment decisions of
the Portfolio:
Name Position and Recent Business Experience
---- ---------------------------------------
Donnalisa P. Barum Ms. Barum is a Senior Vice President and
Portfolio Manager. She joined the Capital
Guardian Organization in 1986 where she
served in various portfolio management
positions.
Michael R. Erickson Mr. Erickson is a Senior Vice President
and Portfolio Manager. He joined the
Capital Guardian organization in 1987
where he served in various investment
management capacities.
David Fisher Mr. Fisher is Chairman of the Board of
Capital Guardian Group International,
Inc. and Capital Guardian. He joined
the Gapital Guardian organization in
1969 where he served in various
portfolio management positions.
Theodore R. Samuels Mr. Samuels is a Senior Vice President
and Director for Capital Guardian, as
well as a Director of Capital
International Research, Inc. He joined
the Capital Guardian organization in 1981
where he served in various portfolio
management positions.
Eugene P. Stein Mr. Stein is Executive Vice President,
a Director, a portfolio manager, and
Chairman of the Investment Committee
for Capital Guardian. He joined the
Capital Guardian organization in 1972
where he served in various portfolio
manager positions.
19
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
ALL CAP PORTFOLIO
PORTFOLIO
MANAGER Salomon Brothers Asset Management, Inc.
INVESTMENT Capital Appreciation through investment in securities
OBJECTIVE which the Portfolio Manager believes have above-average
capital appreciation potential
PRINCIPAL
INVESTMENT The Portfolio invests primarily in equity securities of
STRATEGY U.S. companies.
The Portfolio Manager emphasizes individual security
selection while spreading the Portfolio's investments
across industries, which may help to reduce risk. The Portfolio
Manager seeks to identify those companies that offer the greatest
potential for capital appreciation through careful fundamental
analysis of each company and its financial characteristics. The
Portfolio Manager evaluates companies of all sizes.
In selecting individual companies for investment, the Portfolio
Manager looks for the following:
o Share prices that appear to undervalue the company's
assets or do not adequately reflect factors such as
favorable industry trends, lack of investor recognition
or the short-term nature of earnings declines
o Special situations such as existing or possible changes
in management, corporate policies, capitalization or
regulatory environment which may boost earnings or the
market price of the company's shares
o Growth potential due to technological advances, new
products or services, new methods of marketing or
production, changes in demand or other significant new
developments which may enhance future earnings
Equity investments may involve added risks. Investors could lose
money on their investment in the Portfolio.
The Portfolio is non-diversified and, when compared with other
funds, may invest a 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 may engage in active and frequent trading to
achieve its principal investment strategies. Frequent trading
increases transaction costs, which may affect the Portfolio's
performance.
PRINCIPAL Any investment in the Portfolio 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
20
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
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.
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 UNDERVALUED SECURITIES RISK. Prices of securities react
to the economic condition of the company that issued the
security. The Portfolio's 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.
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 Additional Information.
MORE ON Salomon Brothers Asset Management, Inc. (SBAM) is a full-
THE services, global investment management organization and
PORTFOLIO is a wholly-owned by Salomon Smith Barney Holdings Inc.,
MANAGER which is a subsidiary of Citigroup Inc. SBAM was registered
as a U.S. investment advisor in 1989. As of September 30,
1999, SBAM manages over $30 billion in assets, including a
wide spectrum of equity and fixed income products for both
institutional and private investors, including corporations,
pension funds, public funds, central banks, insurance
companies, supranational organizations, endowments and
foundations. The headquarters of SBAM is located at 7 World
Trade Center New York, NY 10048. Additionally, the firm
maintains investment management offices in Frankfurt, London,
Hong Kong and Tokyo.
21
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- -------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS (CONTINUED)
- -------------------------------------------------------------------------
Name Position and Recent Business Experience
---- ---------------------------------------
Ross Margolies Managing Director and Senior Portfolio Manager
Mr. Margolies has been working with insurance
companies throughout his career, including in
his previous positions at Lehman Brothers and
Prudential Securities. Prior to working for
SBAM, he served as Vice President in various
investment management positions for three years
at Guy Carpenter Corporation, one of the
world's largest reinsurance brokerage
companies. Mr. Margolies began his career at
SBAM management in 1994, also working in
various investment management positions.
Robert Donahue Director and Co-Portfolio Manager
Mr. Donahue has been employed by SBAM since 1987
and has managed various mutual funds and private
accounts during that time.
22
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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 indirect
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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ADVISORY The Trust pays DSI an advisory fee at the following
FEE annual rates (based on average daily net assets):
Investors Series and 1.00% of first $500 million;
All Cap Series .95% of next $250 million;
Combined: .90% of next $500 million;
.85% thereafter.
Large Cap Value 1.00% of first $500 million;
Series: .95% of next $250 million;
.90% of next $500 million;
.85% thereafter.
Large Cap Growth 1.00% of first $500 million;
Series: .95% of next $250 million;
.90% of next $500 million;
.85% thereafter.
Out of the advisory fee, DSI in turn pays, on a
monthly basis, the portfolio managers a Portfolio
Management fee for their 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.
24
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- -------------------------------------------------------------------------
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. 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,
offered in this prospectus, fluctuates in
response to changes in market conditions and
other factors.
The 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 of
Trustees. 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
25
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<PAGE>
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 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. 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 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) that 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.
26
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<TABLE>
<C> <C>
TO OBTAIN THE GCG TRUST
MORE INFORMATION TRUSTEES
A Statement of Additional Information, dated R. Brock Armstrong, Chair
February 1, 2000, has been filed with the
Securities and Exchange Commission, and is Barnett Chernow, Trustee
made a part of this prospectus by reference.
J. Michael Earley, Trustee
To obtain a free copy of the Statement of Additional
Information or to make inquiries about the portfolios, R. Barbara Gitenstein, Trustee
please write to our Customer Service Center at
P.O. Box 2700, West Chester, Pennsylvania 19380 Robert A. Grayson, Trustee
or call (800)366-0066, or access the SEC's website
(http://www.sec.gov). Elizabeth J. Newell, Trustee
Stanley B. Seidler, Trustee
Roger B. Vincent, Trustee
</TABLE>
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.
ING VARIABLE ANNUITIES
G3059 [1/00] 811-5629
<PAGE>
<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
February 1, 2000
This Statement of Additional Information discusses the Investors
Portfolio, the Large Cap Value Portfolio, the Large Cap Growth
Portfolio and the All Cap Portfolio, four portfolios (the
"Portfolios") of The GCG Trust (the "Trust"). The Trust is an
open-end management investment company organized as a
Massachusetts business trust. The Portfolios' Manager is
Directed Services, Inc. ("DSI" or the
"Manager").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated February 1,
2000 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
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 [TO BE CORRECTED]
Page
INTRODUCTION 1
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES 1
U.S. Government Securities 1
Debt Securities 1
High Yield Bonds 2
Brady Bonds 3
Sovereign Debt 4
Mortgage-Backed Securities 5
GNMA Certificates 5
FNMA and FHLMC Mortgage-Backed Obligations 5
Collateralized Mortgage Obligations (CMOs) 6
Other Mortgage-Backed Securities 6
Asset-Backed Securities 7
Variable and Floating Rate Securities 8
Derivatives 8
Banking Industry and Savings Industry Obligations 8
Commercial Paper 10
Repurchase Agreements 10
Reverse Repurchase Agreements 11
Lending Portfolio Securities 11
Other Investment Companies 12
Short Sales 12
Short Sales Against the Box 12
Futures Contracts and Options on Futures Contracts 12
General Description of Futures Contracts 12
Interest Rate Futures Contracts 13
Options on Futures Contracts 13
Stock Index Futures Contracts 13
Investment in Gold and Other Precious Metals 14
Gold Futures Contracts 15
Limitations 16
Options on Securities and Securities Indexes 16
Purchasing Options on Securities 16
Risks of Options Transactions 16
Writing Covered Call and Secured Put Options 17
Options on Securities Indexes 18
Over-the-Counter Options 18
General 18
Risks Associated with Futures and Futures Options 19
When-Issued or Delayed Delivery Securities 20
Foreign Securities 20
Foreign Currency Transactions 22
Options on Foreign Currencies 23
Common Stock and Other Equity Securities 23
Convertible Securities 24
Currency Management 24
Hybrid Investments 24
Dollar Roll Transactions 26
Equity and Debt Securities Issued or Guaranteed by
Supranational Organizations 26
Exchange Rate Related Securities 26
Geographical and Industry Concentration 27
i
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Illiquid Securities 27
Restricted Securities 27
Lease Obligation Bonds 28
Borrowing 28
Hard Asset Securities 28
Real Estate Securities 28
Swaps 29
Zero-Coupon Bonds 29
Small Companies 30
Strategic Transactions 30
Lending of Portfolio Securities 31
Special Situations 31
Warrants 31
INVESTMENT OBJECTIVES AND ADDITIONAL
INVESTMENT STRATEGIES AND ASSOCIATED RISKS 32
INVESTMENT RESTRICTIONS 52
Fundamental Investment Restrictions
Non-Fundamental Investment Restrictions 58
MANAGEMENT OF THE TRUST 61
The Management Agreement 64
Portfolio Managers 66
Distribution of Trust Shares 68
PORTFOLIO TRANSACTIONS AND BROKERAGE 68
Investment Decisions 68
Brokerage and Research Services 69
NET ASSET VALUE 72
PERFORMANCE INFORMATION 73
TAXES 75
OTHER INFORMATION 77
Capitalization 77
Voting Rights 78
Purchase of Shares 78
Redemption of Shares 78
Exchanges 79
Custodian and Other Service Providers 79
Independent Auditors 79
Counsel 79
Registration Statement 79
Financial Statements 80
APPENDIX 1: DESCRIPTION OF BOND RATINGS A-1
ii
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INTRODUCTION
This Statement of Additional Information is designed to elaborate upon
information contained in the Prospectus 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 Prospectus 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 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. Terms not
defined herein will have the meanings given them in the Prospectus.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in U. S. government securities.
U.S. government securities are obligations of, or are guaranteed by,
the U.S. government, its agencies or instrumentalities. Treasury bills,
notes, and bonds are direct obligations of the U.S. Treasury. Securities
guaranteed by the U.S. government include: federal agency obligations
guaranteed as to principal and interest by the U.S. Treasury (such as
GNMA certificates, described in the section on "Mortgage-Backed
Securities," and Federal Housing Administration debentures). In
guaranteed securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. government, and thus they are of
the highest credit quality. Such direct obligations or guaranteed
securities are subject to variations in market value due to fluctuations
in interest rates, but, if held to maturity, the U.S. government is
obligated to or guarantees to pay them in full.
Securities issued by U.S. government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the
Treasury. However, they involve federal sponsorship in one way or
another: some are backed by specific types of collateral; some are
supported by the issuer's right to borrow from the Treasury; some are
supported by the discretionary authority of the Treasury to purchase
certain obligations of the issuer; others are supported only by the
credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal
Land Banks, Farmers Home Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
Student Loan Mortgage Association, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, and Federal Home Loan Banks.
Each Portfolio 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
Each Portfolio 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 a Portfolio's 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
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called for by an instrument. Bonds rated BBB or Baa, which are considered
medium-grade category bonds, do not have economic characteristics that
provide the high degree of security with respect to payment of principal
and interest associated with higher rated bonds, and generally have some
speculative characteristics. A bond will be placed in this rating category
where interest payments and principal security appear adequate for the
present, but economic characteristics that provide longer term protection
may be lacking. Any bond, and particularly those rated BBB or Baa, may be
susceptible to changing conditions, particularly to economic downturns,
which could lead to a weakened capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-
issued or firm-commitment basis; that is, the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment,
but delivery and payment for the securities normally take place after the
customary settlement time. The value of when-issued securities or
securities purchased on a firm-commitment basis may vary prior to and
after delivery depending on market conditions and changes in interest
rate levels. However, a 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 a
Portfolio 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 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
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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 a
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.
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
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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 a Portfolio may invest will not be
subject to restructuring arrangements or to requests for new credit,
which may cause a 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 a 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. 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.
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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.
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.
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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 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.
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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 "CARSSM" ("Certificates for Automobile ReceivablesSM") and Credit
Card Receivable Securities. The Market Manager Portfolio may not invest
in these securities.
CARSSM 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 CARSSM 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 CARSSM 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 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
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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 may 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 a
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 volatility. 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
Each Portfolio 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 of exchange, which are normally drawn by an importer or exporter
to pay for specific merchandise, and which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed-time deposits are bank
obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed-time
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deposits may be withdrawn on demand by the investor, but may be subject
to early withdrawal penalties which vary depending upon market conditions
and the remaining maturity of the obligation. There are no contractual
restrictions on the right to transfer a beneficial interest in a
fixed-time deposit to a third party, because there is no market for such
deposits. A 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.
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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 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
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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.
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
Each Portfolio 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 33% 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.
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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.
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 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.
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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 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:
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(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 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.
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GOLD FUTURES CONTRACTS. A gold futures contract is a standardized
contract which is traded on a regulated commodity futures exchange, and
which provides for the future delivery of a specified amount of gold at a
specified date, time, and price. When the 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.
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 gain, or if it is more, the Portfolio
realizes a loss. Conversely, if an offsetting sale price is more
than the original purchase price, the Portfolio realizes a gain,
or if it is less, the Portfolio realizes a loss. The transaction
costs must also be included in these calculations.
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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' appreciation up to a
fixed dollar amount.
RISKS OF OPTIONS TRANSACTIONS
The purchase and writing of options involves certain risks. During
the option period, the covered call writer has, in return for the premium
on the option, given up the opportunity to profit from a price increase
in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss
should the price of the underlying
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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
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price in a segregated account, or holds a put on the same underlying
security at an equal or greater exercise price. Prior to exercise
or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same 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.
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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.
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.
In most instances, 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
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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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
Each 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
Each Portfolio 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.
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
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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.
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,
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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 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
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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.
Each 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 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.
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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 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 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
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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 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).
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DOLLAR ROLL TRANSACTIONS
Each Portfolio 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
Each 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 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
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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.
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
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marketable or market quotations are not readily available, such lease
obligations will be subject to a Portfolio's limit on illiquid securities.
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 above, 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.
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.
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
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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
Each 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
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Manager would other wise have sold the 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
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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.
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, reizations,
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
Each Portfolio 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
INVESTORS PORTFOLIO
Investment Objective: Seek long-term growth of capital.
Current income is a secondary objective.
The Investors Portfolio from time to time may invest up to 5% of its
net assets in non-convertible debt securities rated below investment
grade by S&P and Moody's (with no minimum rating required), or comparable
unrated securities. There is no limit on the amount of Investors
Portfolio's assets that can be invested in convertible securities rated
below investment grade. For additional information on these high yield
debt securities, which involve a high degree of risk, see "Description
of Securities and Investment Techniques -- High Yield Bonds" in this
Statement of Additional Information.
The Investors Portfolio maintains a carefully selected portfolio of
securities diversified among industries and companies. The Portfolio may
invest up to 25% of its net assets in any one industry. The Portfolio
generally purchases marketable securities, primarily those traded on the
New York Stock Exchange ("NYSE") or other national securities exchanges,
but also purchases securities traded in the over-the-counter market. The
Portfolio will not invest more than 10% of the value of
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its total assets in illiquid securities, such as "restricted securities"
which are illiquid, and securities that are not readily marketable. As
more fully described below, the Portfolio may purchase certain Rule 144A
securities for which there is a secondary market of qualified institutional
buyers as contemplated by Rule 144A under the 1933 Act. The Portfolio's
holdings of Rule 144A securities which are liquid securities will not be
subject to the 10% limitation on investments in illiquid securities.
For further discussion of illiquid securities and their associated risks,
see "Description of Securities and Investment Techniques--Illiquid
Securities."
From time to time, the Investors Portfolio may lend portfolio
securities to brokers or dealers or other financial institutions. Such
loans will not exceed 33 1/3% of the Portfolio's total assets, taken at
value. For a discussion of the risks associated with lending portfolio
securities, see "Description of Securities and Investment Techniques--
Lending Portfolio Securities."
As indicated under "Investment Restrictions" the Investors Portfolio
may invest in repurchase agreements in an amount up to an aggregate of
25% of its total assets. For a description of repurchase agreements and
their associated risks, see "Description of Securities and Investment
Techniques--Repurchase Agreements." In addition, in order to meet
redemption requests or as a temporary measure, the Portfolio may borrow
up to an aggregate of 5% of its total assets taken at cost or value,
whichever is less. The Portfolio shall borrow only from banks.
As a hedge against either a decline in the value of securities
included in the Investors Portfolio's investments or against an increase
in the price of securities which it plans to purchase or in order to
preserve or maintain a return or spread on a particular investment or
portion of its portfolio or to achieve a particular return on cash
balances, or in order to increase income or gain, the Investors Portfolio
may use all of the various investment strategies referred to under
"Description of Securities and Investment Techniques--Derivatives." The
Portfolio's ability to pursue certain of these strategies may be limited
by applicable regulations of the SEC, the CFTC and the federal income tax
requirements applicable to regulated investment companies.
The foregoing investment policies, other than the Investors
Portfolio's investment objectives and the Portfolio's policies with
respect to repurchase agreements, borrowing of money and lending of
portfolio securities, are not fundamental policies and may be changed by
vote of the Board of Trustees without the approval of shareholders.
LARGE CAP GROWTH PORTFOLIO
Investment Objective: To achieve long-term growth of capital.
The Large Cap Growth Portfolio may invest in asset-backed securities.
Asset-backed securities, issued by trusts and special purpose corporations,
are collateralized by a poo1 of assets, such as credit card or automobile
loans, home equity loans or computer leases, and represent the
obligations of a number of different parties. Asset-backed securities
present certain risks For additional information on Asset-backed
securities and related risks, see "Description of Securities and
Investment Techniques--Asset-Backed Securities." in this Statement of
Additional Information. The Portfolio may also invest in Brady Bonds,
which are fixed income securities created through the exchange of
existing commercial bank loans to foreign entities. The Portfolio will
invest in Brady Bonds only if they are consistent with quality
specifications established from time to time by the Portfolio Manager.
For more information on Brady Bond, see "Description of Securities and
Investment Techniques--Brady Bonds." in this Statement of Additional
Information. The Portfolio may invest in convertible securities,
including both convertible debt and convertible preferred stock. Like
bonds, the value of convertible securities fluctuates in relation to
changes in interest rates and, in addition, fluctuates in relation to the
underlying common stock. For more information on convertible securities,
see "Description of Securities and Investment Techniques--Convertible
Securities" in this Statement of Additional Information.
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In addition, the Portfolio may also invest in depositary receipts,
which include American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs") and other types of depositary receipts. For purposes of
the Large Cap Growth Portfolio's investment policies, the Portfolio's
investment in depositary receipts will be deemed to be investments in the
underlying securities except as noted. For more information on depository
receipts, see "Description of Securities and Investment Techniques--
Depositary Receipts." in this Statement of Additional Information. The
Portfolio may also invest in one or more types of derivatives.
Derivatives include, but are not limited to, the following: asset-backed
securities, floaters and inverse floaters, hybrid instruments, mortgage-
backed securities, options and future transactions, stripped mortgage-
backed securities, structured notes and swaps. Further information about
these instruments and the risks involved in their use are contained under
the description of each of these instruments in this Statement of
Additional Information.
The Portfolio may also invest in the following types of foreign
currency transactions:
Forward Foreign Currency Exchange Transactions. The
Portfolio may enter into forward contracts for a variety of
purposes in connection with the management of the foreign
securities portion of its portfolio consistent with the
Portfolio's investment objective and program. However, the
Portfolio will not enter into a forward contract, or maintain
exposure to any such contract(s), if the amount of foreign
currency required to be delivered thereunder would exceed the
Portfolio's holdings of liquid, securities and currency
available for cover of the forward contract(s). In determining
the amount to be delivered under a contract, the Portfolio may
net offsetting positions;
Foreign Currency Futures Contracts. The Portfolio will write
options on foreign currency or on foreign currency futures
contracts only if they are "covered." A call on a foreign
currency or on a foreign currency futures contract written by
the Portfolio will be considered "covered" only if the
Portfolio owns short term debt securities with a value equal to
the face amount of the option contract and denominated in the
currency upon which the call is written; and
The Portfolio may also invest in other types of foreign
securities or engage in certain types of transactions related
to foreign securities.
The Portfolio will not engage in transactions in futures contracts and
related options for speculation. In addition, the Portfolio will not
purchase or sell futures contracts or related options unless either (1)
the futures contracts or options thereon are purchased for "bona fide
hedging" purposes (as that term is defined under the CFTC regulations) or
(2) if purchased for other purposes, the sum of the amounts of initial
margin deposits on the Portfolio's existing futures and premiums required
to establish non-hedging positions would not exceed 5% of the liquidation
value of the Portfolio's total assets. In instances involving the
purchase of futures contracts or the writing of put options thereon by a
Portfolio, an amount of cash and cash equivalents, equal to the cost of
such futures contracts or options written (less any related margin
deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts and options is
unleveraged. In instances involving the sale of futures contracts or the
writing of call options thereon by a Portfolio, the securities underlying
such futures contracts or options will at all times be maintained by the
Portfolio or, in the case of index futures and related options, the
Portfolio will own securities the price changes of which are, in the
opinion of its Adviser, expected to replicate substantially the movement
of the index upon which the futures contract or option is based.
The Portfolio may invest up to 15% of its respective net assets in
investments related to real estate, including real estate investment
trusts ("REITS").
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All securities loans will be made pursuant to agreements requiring the
loans to be continuously secured by collateral in cash or high grade debt
obligations at least equal at all times to the market value of the loaned
securities. The borrower pays to the Portfolio an amount equal to any
dividends or interest received on loaned securities. The Portfolio
retains all or a portion of the interest received on investment of cash
collateral or receive a fee from the borrower. Lending portfolio
securities involves risks of delay in recovery of the loaned securities
or in some cases loss of rights in the collateral should the borrower
fail financially.
Not more than 10% of a Portfolio's net assets (taken at current value)
may be held as collateral for short sales against the box at any one
time. The extent to which a Portfolio may make short sales may be limited
by Code requirements for qualification as a regulated investment company.
LARGE CAP VALUE PORTFOLIO
Investment Objective: Seek long-term growth of capital and income.
The Large Cap Value Portfolio may lend its securities so long as such
loans do not represent more than 33 1/3% of the Portfolio's total assets.
As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in the collateral should the borrower of the
securities fail financially. For additional information on the risks of
lending the Portfolio's securities, see "Description of Securities and
Investment Techniques--Lending Portfolio Securities" in this Statement of
Additional Information.
In order to help ensure the availability of suitable securities, The
Portfolio may purchase debt securities on a "when-issued" or on a
"forward delivery" basis. For a discussion of the risks associated with
"when issued" and "Forward delivery" securities, see "Description of
Securities and Investment Techniques--When Issued or Delayed Securities"
in this Statement of Additional Information.
The Portfolio may also enter into repurchase agreements. Securities
subject to repurchase agreements will be valued every business day and
additional collateral will be requested if necessary so that the value of
the collateral is at least equal to the value of the repurchased
obligation, including the interest accrued thereon. In addition, the
Portfolio may also enter into "reverse" repurchase agreements. Here too,
the portfolio will maintain in a segregated custodial account cash,
Treasury bills or other U.S. Government Securities having an aggregate
value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. For a discussion of the risks
associated with repurchase arrangements and reverse repurchase
agreements, see "Description of Securities and Investment Techniques--
Repurchase Agreements" and "Description of Securities and Investment
Techniques--Reverse Repurchase Agreements" in this Statement of Additional
Information.
The Portfolio may enter into mortgage dollar rolls. At the time
the Portfolio enters into a mortgage dollar roll, it will establish a
segregated account with its custodian bank in which it will maintain
cash, U.S. Government Securities or other liquid assets equal in value to
its obligations in respect of dollar rolls, and accordingly, such dollar
rolls will not be considered borrowings.
Subject to certain restrictions, the Portfolio may purchase warrants,
including warrants traded independently of the underlying securities. For
a discussion of the risks associated with warrants, see "Description of
Securities and Investment Techniques--Warrants" in this Statement of
Additional Information.
The Portfolio is precluded from investing in excess of 15% of its net
assets in securities that are not readily marketable. Also, the Portfolio
may be authorized to use a variety of investment strategies for hedging
purposes only, including hedging various market risks (such as interest
rates, currency exchange rates and broad or specific market movements)
and managing the effective maturity or duration of debt instruments held
by the portfolio. Hedging refers to protecting against possible changes
in the market value of securities a portfolio already owns or plans to
buy or
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protecting unrealized gains in the portfolio. Hedging and other
strategic transactions which may be used are described below:
(a) exchange-listed and over-the-counter put and call options on
securities, financial futures contracts and fixed-income
indices and other financial instruments,
(b) financial futures contracts (including stock index futures),
(c) interest rate transactions, and
(d) currency transactions.
These transactions are referred to in this Statement of Additional
Information under each transaction's respective title under "Description
of Securities and Investment Techniques".
The Portfolio may invest in investment grade fixed income securities
in the lowest rating category (rated "Baa" by Moody's or "BBB" by
Standard & Poor's and comparable unrated securities).
The Portfolio will not maintain open short positions in futures
contracts, call options written on futures contracts, and call options
written on securities indices if, in the aggregate, the current market
value of the open positions exceeds the current market value of that
portion of its securities portfolio being hedged by those futures and
options, plus or minus the unrealized gain or loss on those open
positions. The gain or loss on these open positions will be adjusted for
the historical volatility relationship between that portion of the
portfolio and the contracts (e.g., the Beta volatility factor).
For purposes of this limitation, to the extent the Portfolio has
written call options on specific securities in that portion of its
portfolio, the value of those securities will be deducted from the
current market value of that portion of the securities portfolio. If this
limitation should be exceeded at any time, the portfolio will take prompt
action to close out the appropriate number of open short positions to
bring its open futures and options positions within this limitation.
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Portfolio may invest all or a
portion of its assets in preferred stocks, bonds, cash and cash
equivalents. The Portfolio Manager's judgment regarding the current
investment outlook will determine the relative amounts to be invested in
these different asset classes.
The Portfolio is currently authorized to use hedging, futures, options
on futures, currency transactions, swaps, floors and collars referred
to in this Statement of Additional Information under "Description of
Securities and Investment Techniques". However, it is not presently
contemplated that any of these strategies will be used to a significant
degree by the portfolio.
ALL CAP PORTFOLIO
Investment Objective: Appreciation through investment in
securities which the Portfolio Manager believes
have above-average appreciation potential.
In seeking appreciation, the All Cap Portfolio may purchase
securities of seasoned issuers, relatively smaller and newer companies as
well as in new issuers, and may be subject to wide fluctuations in market
value. Portfolio securities may have limited marketability or may be
widely and publicly traded. The Portfolio will not concentrate its
investment in any particular industry.
To meet operating expenses, to serve as collateral in connection with
certain investment techniques and to meet anticipated redemption
requests, the Portfolio generally holds a portion of its assets in short-
term fixed income securities (government obligations or investment grade
debt securities) or cash or cash equivalents. As described below, short-
term investments may include
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repurchase agreements with banks or broker-dealers. When management deems
it appropriate, for temporary defensive purposes, the Portfolio may invest
without limitation in investment grade fixed-income securities or hold
assets in cash or cash equivalents. Investment grade debt securities are
debt securities rated BBB or better by S&P or Baa or better by Moody's,
or if rated by other rating agencies or if unrated, securities deemed by
the Portfolio Manager to be of comparable quality. See "Appendix 1:
Description of Bond Ratings. "Investments in such investment grade
fixed-income securities may also be made for the purpose of appreciation,
as in the case of purchases of bonds traded at a substantial discount or
when the Portfolio Manager believes interest rates may decline.
There is no limit on the amount of the Portfolio's assets that can be
invested in securities rated below investment grade. For additional
information on these high-yield debt securities, which may involve a high
degree of risk, see "Description of Securities and Investment Techniques--
High Yield Bonds" in this Statement of Additional Information.
The All Cap Portfolio may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to
the public. The Portfolio will not invest more than 10% of the value of
its total assets in illiquid securities, such as "restricted securities"
which are illiquid, and securities that are not readily marketable. For
further discussion of illiquid securities and their associated risks,
see "Description of Securities and Investment Techniques--Illiquid
Securities." The Portfolio may purchase Rule 144A securities. The
Portfolio's holding of Rule 144A securities which are liquid securities
will not be subject to the 10% limitation on investments in illiquid
securities.
As indicated in "Investment Restrictions," in this Statement
of Additional Information, the Portfolio may from time to time lend
portfolio securities to selected members of the NYSE. Such loans will
not exceed 10% of the Portfolio's total assets taken at value. For a
discussion of the risks associated with lending portfolio securities,
see "Description of Securities and Investment Techniques--Lending
Portfolio Securities."
As indicated under the title "Investment Restrictions," the Portfolio
may invest in repurchase agreements in an amount up to 25% of its
total assets. The Portfolio enters into repurchase agreements with
respect to securities in which it may otherwise invest. For a description
of repurchase agreements and their associated risks, see "Description of
Securities and Investment Techniques--Repurchase Agreements." In
addition, in order to meet redemptions or to take advantage of promising
investment opportunities without disturbing an established portfolio, the
Portfolio may borrow up to an aggregate of 15% of the value of its total
assets taken at the time of borrowing. In addition, the Portfolio may
borrow for temporary or emergency purposes an aggregate amount which may
not exceed 5% of the value of its total assets at the time of borrowing.
The Portfolio shall borrow only from banks. Borrowings may be unsecured,
or may be secured by not more than 15% of the value of the Portfolio's
total assets. As a matter of operating policy, however, the Portfolio
will not secure borrowings by more than 10% of the value of the
Portfolio's total assets. For a discussion of the risks associated with
borrowings, see "Description of Securities and Investment Techniques--
Borrowing."
As a hedge against either a decline in the value of the securities
included in the Portfolio's investments, or against an increase
in the price of the securities which it plans to purchase, or in order to
preserve or maintain a return or spread on a particular investment or
portion of its portfolio or to achieve a particular return on cash
balances, or in order to increase income or gain, the Portfolio
may use all of the investment strategies referred to under "Description
of Securities and Investment Techniques--Derivatives." The Portfolio's
ability to pursue certain of these strategies may be limited by
applicable regulations of the SEC, the CFTC and the federal income tax
requirements applicable to regulated investment companies.
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The foregoing investment policies (other than the policy of the
Portfolio with respect to the borrowing of money and the lending
of portfolio securities) are not fundamental policies and may be changed
by vote of the Board of Trustees without the approval of shareholders.
The Portfolio may sell portfolio securities in anticipation of an
adverse market movement. Other than for tax purposes, frequency of
portfolio turnover will not be a limiting factor if the Portfolio Manager
considers it advantageous to purchase or sell securities. The Portfolio
does not anticipate that its annual portfolio turnover rate will exceed
160%. A high rate of portfolio turnover involves correspondingly
greater transaction expenses than a lower rate, which expenses must be
borne by the Portfolio and to shareholders.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective should be read, together with
the investment restrictions set forth below. The restrictions list both
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.
INVESTORS PORTFOLIO
The Investors Portfolio may not:
(1) purchase any securities of another issuer (other than the
United States of America) if upon said purchase more than 5% of
its net assets would consist of securities of such issuer, or
purchase more than 15% of any class of securities of such issuer;
(2) borrow money, except (i) in order to meet redemption requests
or (ii) as a temporary measure for extraordinary or emergency
purposes and, in the case of both (i) and (ii), only from banks
and only in an aggregate amount not to exceed 5% of its total
assets taken at cost or value, whichever is less, or mortgage or
pledge any of its assets and except that for purposes of this
restriction, collateral arrangements with respect to the writing
of options on stocks and stock indices, the purchase and sale of
futures contracts and options on futures contracts, and forward
currency contracts are not deemed a pledge of assets or a
borrowing of money;
(3) lend its funds or other assets to any other person other than
through the purchase of liquid debt securities pursuant to the
Portfolio's investment policies, except that (a) the Portfolio may
lend its portfolio securities in an amount up to 33 1/3% of its
total assets, provided that the borrower may not be affiliated,
directly or indirectly, with the Portfolio and (b) the Portfolio
may enter into repurchase agreements in an amount up to an
aggregate of 25% of its total assets;
(4) invest in the securities of issuers which have been in
operation for less than three years if such purchase at the time
thereof would cause more than 5% of the net assets of the
Portfolio to be so invested;
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(5) purchase any securities on margin (except that the Portfolio
may make deposits in connection with transactions in options on
securities), make any so-called "short" sales of securities or
participate in any joint or joint and several trading accounts;
(6) act as underwriter of securities of other issuers;
(7) purchase the securities of another investment company or
investment trust except in the open market where no profit to a
sponsor or dealer, other than the customary broker's commission,
results from such purchase (but the aggregate of such investments
shall not be in excess of 10% of the net assets of the Portfolio),
or except when such purchase is part of a plan of merger or
consolidation;
(8) buy securities from, or sell securities to, any of its
officers, directors, employees, investment manager or distributor,
as principals;
(9) purchase or retain any securities of an issuer if one or more
persons affiliated with the Portfolio owns beneficially more than
1/2 of 1% of the outstanding securities of such issuer and such
affiliated persons so owning 1/2 of 1% together own beneficially
more than 5% of such securities;
(10) purchase real estate (not including investments in securities
issued by real estate investment trusts) or commodities or
commodity contracts, provided that the Portfolio may enter into
futures contracts, including futures contracts on interest rates,
stock indices and currencies, and options thereon, and may engage
in forward currency transactions and buy, sell and write options
on currencies;
The following restricitons are not fundamental. The Investors Porftolio
may not:
(1) Issue senior securities except as may be permitted by the
1940 Act.
(2) invest in warrants (other than warrants acquired by the
Investors Portfolio as part of a unit or attached to securities at
the time of purchase) if, as a result, the investments (valued at
the lower of cost or market) would exceed 5% of the value of the
Investors Portfolio's net assets or if, as a result, more than 2%
of the Investors Portfolio's net assets would be invested in
warrants that are not listed on AMEX or NYSE;
(3) invest in oil, gas and other mineral leases, provided,
however, that this shall not prohibit the Investors Portfolio from
purchasing publicly traded securities of companies engaging in
whole or in part in such activities; or
(4) purchase or sell real property (including limited partnership
interests) except to the extent described in investment
restriction number 10 above.
LARGE CAP GROWTH PORTFOLIO
The Large Cap Growth Portfolio may not:
(1) Borrow money except that:
(a) the portfolio may (i) borrow for non-leveraging, temporary
or emergency purposes and (ii) engage in reverse repurchase
agreements, make other investments or engage in other
transactions, which may involve a borrowing, in a manner
consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's
total assets (including the amount borrowed) less
liabilities (other than borrowings) or
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such other percentages permitted by law. The Portfolio
may from banks or other persons to the extent borrow
permitted by applicable law;
(b) as a matter of operating policy, the Portfolio will only
borrow for temporary or emergency purposes, provided such
amounts shall not exceed 5% of the Portfolio's total assets
at the time the borrowing is made;
(2) Purchase or sell physical commodities, except that it may (i)
enter into futures contracts and options thereon in accordance
with applicable law and (ii) purchase or sell physical commodities
if acquired as a result of ownership of securities or other
instruments. No Portfolio will consider stock index futures
contracts, currency contracts, hybrid investments, swaps or other
similar instruments to be commodities;
(3) Purchase the securities of any issuer if, as a result, more
than 25% of the value of the Portfolio's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry. The United States,
state or local governments, or related agencies or
instrumentalities are not considered an industry. Industries are
determined by reference to the classifications of industries set
forth in the Portfolio's semi-annual and annual reports;
(4) Make loans;
(5) Purchase a security if, as a result, with respect to 75% of
the value of the Portfolio's assets, more than 5% of the value of
the Portfolio's total assets would be invested in the securities
of a single issuer, except securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
(6) Purchase a security if, as a result, with respect to 75% of
the value of the Portfolio's total assets, more than 10% of the
outstanding voting securities of any issuer would be held by the
Portfolio (other than obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities);
(7) Purchase or sell real estate, except that the Portfolio may
purchase securities of issuers which deal in real estate,
securities which are directly or indirectly secured by
interests in real estate, and may acquire and dispose of
real estate or interest in real estate acquired through
the exercise of its rights as a holder of debt obligations
secured by real estate or interest therein;
(8) Issue senior securities except in compliance with the 1940
Act; or
(9) Underwrite securities issued by other persons, except to the
extent that the Portfolio may be deemed to be an underwriter
within the meaning of the Securities Act of 1933, as amended, in
connection with the purchase and sale of its portfolio securities
in the ordinary course of pursuing its investment objective,
policies and program.
The following restrictions are not fundamental:
The Large Cap Growth Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with
respect to positions in futures or options on futures which do
not represent bona fide hedging, the aggregate initial margin
and premium on such options would exceed 5% of the Portfolio's
total assets. As a matter of operating policy, the Portfolio
will not invest in commodities or commodity contracts including
futures contracts;
(2) Purchase: (a) illiquid securities, (b) securities restricted
as to resale (excluding securities determined by the Board of
Trustees to be readily marketable), and (c) repurchase
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agreements maturing in more than seven days if, as a result,
more than 15% of the Portfolio's net assets would be invested
in such securities. Securities purchased in accordance with
Rule 144A under the 1933 Act and determined to be liquid by
the Trust's Board are not subject to the limitations set forth
in this investment restriction;
(3) Purchase securities on margin, except that the Portfolio may:
(a) make use of any short-term credit necessary for clearance of
purchases and sales of portfolio securities and (b) make initial
or variation margin deposits in connection with futures contracts,
options, currencies, or other permissible investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness,
except as may be necessary in connection with permissible
borrowing s or investments; and then such mortgaging, pledging or
hypothecating may not exceed 331/3 % of the respective total
assets of the Portfolio, taken at the time of the permissible
borrowing or investment. The deposit or underlying securities and
other assets in escrow and collateral arrangements with respect to
margin accounts for future contracts, options, currencies or other
permissible investments are not deemed to be mortgages, pledges,
or hypothecations for these purposes;
(5) Purchase participation or other direct interests in or enter
into leases with respect to, oil, gas, or other mineral
exploration or development programs, except that the Portfolio may
invest in securities issued by companies that engage in oil, gas
or other mineral exploration or development activities or hold
mineral leases acquired as a result of its ownership of
securities;
(6) Invest in puts, calls, straddles, spreads, swaps or any
combination thereof, except to the extent permitted by the
Portfolio's prospectus and statement of additional information, as
may be amended from time to time; or
(7) Effect short sales of securities unless at all times when a
short position is open the Portfolio owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or to, the securities
sold short. Permissible futures contracts, options, or currency
transactions will not be deemed to constitute selling securities
short. As a matter of policy, the Portfolio will not effect short
sales of securities or property.
LARGE CAP VALUE PORTFOLIO
The Large Cap Value Portfolio may not:
(1) issue senior securities, except to the extent that the
borrowing of money in accordance with restrictions (4) may
constitute the issuance of a senior security. (For purposes of
this restriction, purchasing securities on a when-issued or
delayed delivery basis and engaging in hedging and other strategic
transactions will not be deemed to constitute the issuance of a
senior security.)
(2) invest more than 25% of the value of its total assets in
securities of issuers having their principal activities in any
particular industry, excluding U. S. Government securities and
obligations of domestic branches of U.S. banks and savings and
loan associations.
For purposes of this restriction, neither finance companies
as a group nor utility companies as a group are considered to be a
single industry. Such companies will be grouped instead according
to their services; for example, gas, electric and telephone
utilities will each be considered a separate industry. Also for
purposes of this restriction, foreign government issuers and
supranational issuers are not considered members of any industry.
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(3) purchase the securities of any issuer if the purchase would
cause more than 5% of the value of the portfolio's total assets to
be invested in the securities of any one issuer (excluding U. S.
Government securities) or cause more than 10% of the voting
securities of the issuer to be held by the portfolio, except that
up to 25% of the value of each portfolio's total assets may be
invested without regard to these restrictions.
(4) borrow money, except that the portfolio may borrow (i) for
temporary or emergency purposes (not for leveraging) up to 33 1/3%
of the value of the portfolio's total assets (including amounts
borrowed) less liabilities (other than borrowings) and (ii) in
connection with reverse repurchase agreements, mortgage dollar
rolls and other similar transactions.
(5) underwrite securities of other issuers except insofar as the
Portfolio may be considered an underwriter under the 1933 Act in
selling portfolio securities.
(6) purchase or sell real estate, except that the Portfolio may
invest in securities issued by companies which invest in real
estate or interests therein and may invest in mortgages and
mortgage-backed securities.
(7) purchase or sell commodities or commodity contracts, except
that the Portfolio may purchase and sell futures contracts on
financial instruments and indices and options on such futures
contracts and may purchase and sell futures contracts on foreign
currencies and options on such futures contracts.
(8) lend money to other persons, except by the purchase of
obligations in which the Portfolio is authorized to invest and by
entering into repurchase agreements. For purposes of this
restriction, collateral arrangements with respect to options,
forward currency and futures transactions will not be deemed to
involve the lending of money.
The following restrictions are not fundamental: The Large Cap Value Portfolio
may not:
(1) lend securities in excess of 33 1/3% of the value of its
total assets. For purposes of this restriction, collateral
arrangements with respect to options, forward currency and futures
transactions will not be deemed to involve loans of securities.
(2) knowingly invest more than 15% of the value of its net assets
in securities or other investments, including repurchase
agreements maturing in more than seven days but excluding master
demand notes, that are not readily marketable;
(3) sell securities short or purchase securities on margin,
except that it may obtain such short-term credits as may be
required to clear transactions. For purposes of this restriction,
collateral arrangements with respect to hedging and other
strategic transactions will not be deemed to involve the use of
margin.
(4) write or purchase options on securities, financial indices or
currencies, except to the extent the Portfolio is specifically
authorized to engage in hedging and other strategic transactions.
(5) purchase securities for the purpose of exercising control or
management.
(6) purchase securities of other investment companies if the
purchase would cause more than 10% of the value of the portfolio's
total assets to be invested in investment company securities,
provided that (i) no investment will be made in the securities of
any one investment company if immediately after such investment
more than 3% of the outstanding voting securities of such company
would be owned by the portfolio or more than 5% of the value of
the Portfolio's total assets would be invested in such company and
(ii) no restrictions shall apply to a purchase of investment
company securities in connection with a merger, consolidation or
reorganization;
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For purposes of this restriction, privately issued collateralized
mortgage obligations will not be treated as investment company
securities if issued by "Exemptive Issuers." Exemptive Issuers are
defined as unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue
redeemable securities as defined in Section 2(a) (32) of the 1940
Act, (c) operate under general exemptive orders exempting them
from all provisions of the 1940 Act, and (d) are not registered or
regulated under the 1940 Act as investment companies.
(7) pledge, hypothecate, mortgage or transfer (except as provided
in restriction (4)) as security for indebtedness any securities
held by the Portfolio, except in an amount of not more than 33
1/3% of the value of the Portfolio's total assets and then only to
secure borrowings permitted by restrictions (3) and (10). For
purposes of this restriction, collateral arrangements with respect
to hedging and other strategic transactions will not be deemed to
involve a pledge of assets.
If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the investment's
percentage of the value of a portfolio's total assets resulting
from a change in such values or assets will not constitute a
violation of the percentage restriction.
ALL CAP PORTFOLIO
The ALL CAP Portfolio may not:
(1) hold more than 25% of the value of its total assets in the
securities of any single company or in the securities of companies
in any one industry. As to 50% of the value of its total assets,
the Portfolio's investment in any one security, other than United
States Government obligations, will not exceed 5% of the value of
its total assets and as to this 50%, the Portfolio will not invest
in more than 15% of the outstanding voting securities of any one
issuer;
(2) borrow money or pledge or mortgage its assets, except as
described under "Description of Securities and Investment
Techniques" and except that for purposes of this restriction,
collateral arrangements with respect to the writing of options on
stocks and stock indices, the purchase and sale of futures
contracts and options on futures contracts, and forward currency
contracts are not deemed a pledge of assets or a borrowing of
money;
(3) underwrite securities, except in instances where the
Portfolio has acquired portfolio securities which it may not be
free to sell publicly without registration under the 1933 Act
("restricted securities"); in such registrations, the Portfolio
may technically be deemed an "underwriter" for purposes of the
1933 Act. No more than 10% of the value of Portfolio's total
assets may be invested in illiquid securities;
(4) make loans other than through (a) the lending of its
portfolio securities in accordance with the procedures described
under "Description of Securities and Investment Techniques--
Lending of Portfolio Securities" in this Statement of Additional
Information, or (b) entering into repurchase agreements in an
amount up to an aggregate of 25% of its total assets, but this
restriction shall not prevent the Portfolio from buying a portion
of an issue of bonds, debentures or other obligations which are
liquid, or from investing up to an aggregate of 10% (including
investments in other types of illiquid securities) of the value of
its total assets in portions of issues of bonds, debentures or
other obligations of a type privately placed with financial
institutions and which are illiquid;
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(5) invest more than 10% of the value of the Portfolio's total
assets in securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three
years, and equity securities which are not readily marketable;
(6) invest in companies for the purpose of exercising control or
management. (The Portfolio may on occasion be considered part of
a control group of a portfolio company by reason of the size or
manner of its investment, in which event the securities of such
portfolio company held by the Portfolio may not be publicly
saleable unless registered under the Securities Act of 1933 or
pursuant to an available exemption thereunder.);
(7) purchase securities on margin (except for such short-term
credits as are necessary for the clearance of transactions and
except that the Portfolio may make deposits in connection with
transactions in options on securities) or make short sales of
securities (except for sales "against the box", i.e., when a
security identical to one owned by the Portfolio, or which the
Portfolio has the right to acquire without payment of additional
consideration, is borrowed and sold short);
(8) purchase or sell real estate, interests in real estate,
interests in real estate investment trusts, or commodities or
commodity contracts; however, the Portfolio (a) may purchase
interests in real estate investment trusts or companies which
invest in or own real estate if the securities of such trusts or
companies are registered under the Securities Act of 1933 and are
readily marketable and (b) may enter into futures contracts,
including futures contracts on interest rates, stock indices and
currencies, and options thereon, and may engage in forward
currency contracts and buy, sell and write options on currencies;
(9) purchase more than 3% of the stock of another investment
company, or purchase stock of other investment companies equal to
more than 5% of the Portfolio's net assets in the case of any one
other investment company and 10% of such net assets in the case of
all other investment companies in the aggregate. Any such
purchase will be made only in the open market where no profit to a
sponsor or dealer results from the purchase, except for the
customary broker's commission. This restriction shall not apply to
investment company securities received or acquired by the
Portfolio pursuant to a merger or plan of reorganization. (The
return on such investments will be reduced by the operating
expenses, including investment advisory and administrative fees of
such investment Portfolios and will be further reduced by the
Portfolio's expenses, including management fees; that is, there
will be a layering of certain fees and expenses.);
(10) purchase or hold securities of an issuer if one or more
persons affiliated with the Portfolio or with Smith Barney Asset
Management owns beneficially more than 1/2 of 1% of the securities
of that issuer and such persons owning more than 1/2 of 1% of such
securities together own beneficially more than 5% of the
securities of such issuer;
(11) buy portfolio securities from, or sell portfolio securities
to, any of the Portfolio's officers, directors or employees of its
investment manager or distributor, or any of their officers or
directors, as principals;
(12) purchase or sell warrants; however, the Portfolio may invest
in debt or other securities which have warrants attached (not to
exceed 10% of the value of the Portfolio's total assets). Covered
options with respect to no more than 10% in value of the
Portfolio's total assets will be outstanding at any one time;
(13) invest in interest in oil, gas or other mineral exploration
or development programs, or
(14) Issue senior securities except as may be permitted by the
1940 Act.
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MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction
of the Board of Trustees 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.
Trustees and Executive Officers of the Trust, their business
addresses, and principal occupations during the past five years are:
NAME AND ADDRESS POSITION WITH BUSINESS AFFILIATIONS,
THE TRUST PRINCIPAL OCCUPATIONS
AND AGES
R. Brock Armstrong* Trustee, President and Chairman of
Equitable of Iowa President and the GCG Trust since
Companies; Chairman for February 1999. Director of
909 Locust Street, the Golden American Life
Des Moines, IA GCG Trust Insurance Company and
50309 President of Equitable
Life 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 and Group
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,
Operations, London Life
Insurance Co., Executive
Vice President, Life and
Health Operations, London
Insurance 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* Trustee President and Director,
Golden American Life and Vice Golden American Life
Insurance Company; President Insurance Company;
1475 Dunwoody Drive, President, Directed
West Chester, PA Services, Inc.; Executive
19380 Vice President and then
President, First Golden
American Life Insurance
Company of New York;
formerly, Senior Vice
President and Chief
Financial Officer,
Reliance Insurance
Company, August 1977 to
April 1998. Age 49.
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J. Michael Earley Trustee President, and Chief Executive
665 Locust Street Officer, Bankers Trust Company,
Des Moines, IA 50309 Des Moines, Iowa since July
1992; President and Chief
Executive Officer, Mid-
America Savings Bank,
Waterloo, Iowa from April,
1987 to June, 1992. Age
54.
R. Barbara Gitenstein Trustee President, The College of
Office of the New Jersey since January
President 1999; Trustee Provost,
The College of New Drake University from July
Jersey 1992 to December 1998;
200 Pennington Road Assistant Provost, State
Ewing, NJ University of New York
08628-0718 from August, 1991 to July,
1992; Associate Provost,
State University of New
York-Oswego from
January, 1989 to August,
1991. Age 51.
Robert A. Grayson Trustee Co-founder, Grayson
Grayson Associates Associates, Inc.; Adjunct
108 Loma Media Road Professor of Marketing,
Santa Barbara, CA New York University School
93103 of Business
Administration; former
Director, The Golden
Financial Group, Inc.;
former Senior Vice
President, David & Charles
Advertising. Age 72.
Myles R. Tashman Secretary Executive Vice President,
Golden American Life Secretary and General
Insurance Company Counsel, Golden American
1475 Dunwoody Drive, Life Insurance Company;
West Chester, PA Director, Executive Vice
19380 President, Secretary and
General Counsel, Directed
Services, Inc.; Director,
Executive Vice President,
Secretary and General
Counsel, First Golden
American Life Insurance
Company of New York;
formerly, Senior Vice
President and General
Counsel, United Pacific
Life Insurance Company
(1986-1993). Age 57.
Stanley B. Seidler Trustee President, Iowa
P.O. Box 1297 Periodicals, Inc. since
3301 McKinley Avenue 1990 and President, Excell
Des Moines, IA 50321 Marketing L.C. since 1994.
Age 71.
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Mary Bea Wilkinson Treasurer Senior Vice President &
Golden American Treasurer, First Golden
Insurance Company American Life Insurance
1475 Dunwoody Drive, Company of New York;
West Chester, PA Senior Vice President and
19380 Treasurer, Golden American
Life Insurance Co.; and
President and Treasurer,
Directed Services, Inc.
October 1993 to December
1996; Assistant Vice
President, CIGNA Insurance
Companies, August 1993 to
October 1993; various
positions with United
Pacific Life Insurance
Company, January 1987 to
July 1993, and was Vice
President and Controller
upon leaving. Age 43.
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 54.
Elizabeth J. Newell Trustee President and Chief
KRAGIE/NEWELL, Inc. Executive Officer of
2633 Fleur Drive KRAGIE/NEWELL, Inc.
Des Moines, IA 50321 Age 52.
* Interested Trustee
As of October 30, 1999, none of the Trustees directly owns shares of
the Portfolios. In addition, as of January 1, 2000, 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.
In addition, as of October 30, 1999, no contract owners owned contracts
entitling such persons to give voting instrucitons regarding more than
5% of the outstanding shares of any Portfolio in this Statement of
Additional Information.
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.
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<TABLE>
COMPENSATION TABLE
<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
</TABLE>
THE MANAGEMENT AGREEMENT
Directed Services, Inc. ("DSI" or the "Manager") serves as Manager to
the Portfolios 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
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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 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 continues in effect from year to year,
provided such continuance 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 with respect to the
portfolios in operation on that date, and was last approved by the
Board of Trustees, including the Trustees who are not parties to the
Management Agreement or interested persons of such parties, at a meeting
held on November 17, 1999. 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.
The Trust pays the Manager a monthly fee at the following annual rates,
based on average daily net assets of the Portfolios:
Investors Series and 1.00% of first $500 million;
All Cap Series .95% of next $250 million;
Combined: .90% of next $500 million;
.85% thereafter.
Large Cap Value 1.00% of first $500 million;
Series: .95% of next $250 million;
.90% of next $500 million;
.85% thereafter.
Large Cap Growth 1.00% of first $500 million;
Series: .95% of next $250 million;
.90% of next $500 million;
.85% thereafter.
The Trust and the Manager have entered into Portfolio Management Agreements
with each of the Portfolio Managers. Under these Agreements, the Portfolio
Manager of each Series has full investment discretion and makes all
determinations with respect to the investment of a Series' assets and the
purchase and sale of portfolio securities and other investments. The
Portfolio Management Agreements may be terminated without penalty by the
vote of the Board of Trustees or the shareholders of a Series, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any
party to a Portfolio Management Agreement and will terminate automatically
if assigned as that term is described in the Investment Company Act of 1940.
A description of each Portfolio Manager follows.
PORTFOLIO MANAGERS
The Trust, DSI, and Salomon Brothers Asset Management entered into
a Portfolio Management Agreement dated and effective as of
[_____________________,] with regard to the Investors and All-Cap
Portfolios. The Portfolio Management Agreement was approved by the
Trustees of the Trust at a meeting held on June 15, 1999 and by the
Portfolios' sole shareholder, Golden American Life Insurance Company
on the same date.
The Trust, DSI and Capital Guardian Trust Company entered into a
Portfolio Management Agreement dated and effective as of
[_________________,] with regard to the Large Cap Growth and Large
Cap Value Portfolios. The Portfolio Management Agreement was approved
by the Trustees of the Trust at a meeting held on June 15, 1999 and by
the Portfolios' sole shareholder, Golden American Life Insurance Company
on the same date.
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Pursuant to the separate Portfolio Management Agreements, the Manager
(and not the Trust) pays the 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.
The Manager pays the following with respect to the Investors
Portfolio:
Investors Series .45% of first $100 million;
.40% of next $100 million;
.35% of next $200 million;
.30% of next $350 million
.25% thereafter.
The Manager pays the following with respect to the All Cap Portfolio:
All Cap Series .50% of first $100 million
.45% of next $100 million
.40% of next $200 million
.35% thereafter.
The Manager pays the following with respect to the Large Cap Growth
Portfolio:
Large Cap Growth Series .65% of first 150 million;
.50% of next 150 million;
.40% of next 200 million;
.35% over 500 million.
The Manager pays the following with respect to the Large Cap Value
Portfolio:
Large Cap Value Series .65% of first 150 million;
.50% of next 150 million;
.40% of next 200 million;
.35% over 500 million.
DISTRIBUTION OF TRUST SHARES
DSI serves as the Portfolios' Distributor. DSI is not obligated to
sell a specific amount of the Portfolios' 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. The 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
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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 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
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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. Salomon Smith Barney, Inc. and Robinson-Huphrey
Company, LLC are registered broker-dealers and are affiliates of Salomon
Brothers Asset Management, Portfolio Manager to the All Cap and Investors
Portfolios. In addition, 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. Any of the above firms may retain compensation on
transactions effected for a Portfolio in accordance with these rules
and procedures.
The Manager, Directed Services, Inc., is an affiliate of the GCG
Trust.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, a 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.
PERFORMANCE INFORMATION
The Trust may, from time to time, include 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.
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
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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.
Each Portfolio may be categorized as to its market ization make-
up ("large cap," mid cap" or "small cap") with regard to the market
ization of the issuers whose securities it holds. A Portfolio
average or median market ization 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.
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.
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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
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 gains, then each Portfolio should have little or
no income taxable to it under the Code.
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
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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 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
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.
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.
54
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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-eight
Portfolios. The four Portfolios that are discussed in this Statement
of Additional Information and accompanying prospectus and the
twenty-four Portfolios that are described in additional prospectuses
and statements 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.
The All-Cap Portfolio is non-diversified. The Investors,
Large-Cap Value, and Large Cap Growth Portfolios are diversified.
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 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
55
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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, 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, which includes all the operational 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 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, another
portfolio offered by the GCG Trust, or any successor to such Portfolio.
CUSTODIAN AND OTHER SERVICE PROVIDERS
The Custodian for the Portfolios is Bank of New York, 1 Wall Street,
New York, New York 10286. First Data Investors Services Group of First
Data Corporation, 3200 Horizon Dr., P.O. Box 61503, King of Prussia, PA
19406-0903, provides administrative and portfolio accounting services for
all Portfolio.
56
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INDEPENDENT AUDITORS
Ernst & Young LLP, Two Commerce Square, Suite 400, 2001 Market
Street, Philadelphia, PA 19103, 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 All Cap, Large Cap Value, Large Cap Growth and Investors Portfolios
are new series to the GCG Trust. No financial statements exist for any
of these portfolios at this time.
57
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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.
A-1
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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 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.
A-2
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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-3
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PART C. OTHER INFORMATION
Item 23. Exhibits
Exhibits
(a) (1) Amended and Restated Agreement and Declaration of
Trust 3/19/96 (1)
(2) Amendment to the Restated Agreement and Declaration of
Trust adding the Managed Global Series 6/10/96 (2)
(3) Amendment to the Restated Agreement and Declaration of
Trust changing the name the Natural Resources Series
to the Hard Assets Series and adding the Mid-Cap
Growth Series 1/23/97
(4) Amendment to the Restated Agreement and Declaration of
Trust redesigning the Global Equity Series as the Managed
Global Series; terminating the Mid-Cap Growth Series-added
January 23, 1997; 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 1/12/98 (3)
(5) Amendment to the Restated Agreement and Declaration of
Trust adding Large Cap Value Series and the International
Equity Series, also to change the names of the Multiple
Allocation Series to the Equity Income Series and Value +
Growth Series to the Growth Series 2/16/99
(6) Amendment to the Restated Agreement and Declaration of
Trust changing the name of the Growth & Income Series
to the Capital Growth Series 6/30/99
(7) Amendment to the Restated Agreement and Declaration of
Trust adding the Investors Series, All Cap Series
and the Large Cap Growth Series 8/17/99
(b) By-laws (21)
(c) Instruments Defining Rights of Security Holders (22)
(d) (1) (A) Management Agreement for all Series except The
Fund For Life (4)
(B) Addendum to the Management Agreement, 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 1/2/98
(C) Addendum to the Management Agreement, adding
International Equity Series and the Large Cap
Value Series 2/16/99
(D) Addendum to the Management Agreement, adding
Investors Series, All Cap Series and the
Large Cap Growth Series 8/17/99
(E) Management Agreement for The Fund For Life (23)
(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 ING Investment
Management LLC, formerly Equitable Investment
Services, Inc. (8)
(E) Portfolio Management Agreement with EII
Realty Securities, Inc. (9)
(F) Portfolio Management Agreement with Kayne
Anderson Investment Management, LLC. (10)
(G) Addendum to the Kayne Anderson Investment Management, LLC
Agreement
(H) Portfolio Management Agreement with Fred Alger
Management, Inc. (11)
(I) Portfolio Management Agreement with Eagle
Asset Management, Inc. (12)
(J) Portfolio Management Agreement with
Massachusetts Financial Services Company (13)
(K) Portfolio Management Agreement with
Baring International Investment Limited (24)
(L) Portfolio Management Agreement with
A I M Capital Management, Inc. (25)
(M) Portfolio Management Agreement with
Janus Capital Corporation (26)
(N) Portfolio Management Agreement with
Alliance Capital Management L.P. (27)
(O) Schedule Pages for T. Rowe Price Associates, Inc. (28)
(P) Schedule Pages for EII Realty Securities, Inc. (29)
(Q) Portfolio Management Agreement with Salomon Smith
Barney Asset Management, Inc.
(R) Portfolio Management Agreement with Capital Guardian
Trust Company
(3) Administrative Services Agreement for The Fund For Life (30)
(4) Administration and Fund Accounting Agreement among the Trust,
Directed Services, Inc., and First Data Corporation (31)
(e) Distribution Agreement (14)
(f) Not Applicable
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(g) (1) Form of Custodial Agreement with Bank of New York
(h) (1) (A) Transfer Agency and Service Agreement (32)
(B) Addendum to the Transfer Agency and Service
Agreement for The Fund For Life, Zero Target 2002
Series, and Capital Appreciation Series (16)
(2) (A) Organizational Agreement for Golden American
Life Insurance Company (33)
(B) Assignment Agreement for Organizational Agreement (34)
(C) Organizational Agreement for The Mutual
Benefit Life Insurance Company (35)
(D) Assignment Agreement for Organizational Agreement (36)
(E) Addendum to Organizational Agreement adding
Market Manager Series and Value Equity Series (17)
(F) Addendum to the Organizational Agreement adding
the Strategic Equity Series (37)
(G) Addendum to the Organizational Agreement adding
the Small Cap Series (18)
(H) Addendum to the Organizational Agreement adding
Managed Global Series (19)
(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 (15)
(J) Addendum to the Organizational Agreement adding
International Equity Series and the Large Cap
Value Series 2/16/99
(K) Addendum to the Organizational Agreement adding
Investors Series, All Cap Series and the
Large Cap Growth Series 6/15/99
(3) (A) Settlement Agreement for Golden American Life
Insurance Company (38)
(B) Assignment Agreement for Settlement Agreement (20)
(C) Settlement Agreement for The Mutual Benefit Life
Insurance Company (39)
(D) Assignment Agreement for Settlement Agreement (40)
(4) Indemnification Agreement (41)
(5) (A) Expense Reimbursement Agreement (42)
(B) Amendment No. 1 to the Expense Reimbursement Agreement (43)
(C) Amendment No. 2 to the Expense Reimbursement Agreement (44)
(D) Amendment No. 3 to the Expense Reimbursement Agreement (45)
(E) Amendment No. 4 to the Expense Reimbursement Agreement (46)
(i) Consent of Sutherland Asbill & Brennan LLP
(j) Not Applicable
(k) Not Applicable
(l) Initial Capital Agreement (47)
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
Other Exhibits
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Powers of Attorney (1)
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(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 (b)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)(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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) Incorporated by reference to Exhibit 9(b)(ix) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) Incorporated by reference to Exhibit 9(c)(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.
(21) Incorporated by reference to Exhibit (b) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(22) Incorporated by reference to Exhibit (c) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(23) Incorporated by reference to Exhibit (d)(1)(B) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(24) Incorporated by reference to Exhibit (d)(2)(K) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(25) Incorporated by reference to Exhibit (d)(2)(L) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(26) Incorporated by reference to Exhibit (d)(2)(M) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
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(27) Incorporated by reference to Exhibit (d)(2)(N) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(28) Incorporated by reference to Exhibit (d)(2)(O) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(29) Incorporated by reference to Exhibit (d)(2)(P) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(30) Incorporated by reference to Exhibit (d)(3) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(31) Incorporated by reference to Exhibit (d)(4) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(32) Incorporated by reference to Exhibit (h)(1)(A) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(33) Incorporated by reference to Exhibit (h)(2)(A) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(34) Incorporated by reference to Exhibit (h)(2)(B) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(35) 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.
(36) Incorporated by reference to Exhibit (h)(2)(D) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(37) Incorporated by reference to Exhibit (h)(2)(F) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(38) Incorporated by reference to Exhibit (h)(3)(A) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(39) Incorporated by reference to Exhibit (h)(3)(C) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(40) Incorporated by reference to Exhibit (h)(3)(D) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(41) Incorporated by reference to Exhibit (h)(4) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(42) Incorporated by reference to Exhibit (h)(5)(A) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(43) Incorporated by reference to Exhibit (h)(5)(B) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(44) Incorporated by reference to Exhibit (h)(5)(C) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(45) Incorporated by reference to Exhibit (h)(5)(D) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(46) Incorporated by reference to Exhibit (h)(5)(E) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
(47) Incorporated by reference to Exhibit (l)(1) of Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
The GCG Trust as filed on May 3, 1999 File No. 33-23512.
<PAGE>
<PAGE>
Item 24. Persons Controlled by or Under Control with Registrant.
As of the date of this Post-Effective Amendment, a separate
account of Security Equity Life Insurance Company; a separate
account of Equitable Life Insurance Company of Iowa; Golden
American Life Insurance Company and its separate account;
and First Golden American Life Insurance Company of New York
own all of the outstanding shares of the Registrant.
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 is 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 Incorporated by reference
to Post-Effective Amendment No. 40 to the Registration Statement
on Form N-1A of The GCG Trust as filed on May 3, 1999
File No. 33-23512.
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 Executive 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.
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.
Salomon Smith Barney Asset Management, Inc.
For information regarding Salomon Smith Barney Asset Management, Inc.,
reference is made to Form ADV of Salomon Smith Barney Asset Management, Inc.,
SEC File No. 801-32046, which is incorporated by reference.
Capital Guardian Trust Company
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF CAPITAL GUARDIAN TRUST
COMPANY IS SET FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE
DIRECTORS OR OFFICERS OF CAPITAL GUARDIAN IS OR HAS BEEN AT ANYTIME DURING THE
PAST TWO FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE, EXCEPT AS SET FORTH BELOW.
These persons may be contacted c/o Capital Guardian Trust Company, 333 South
Hope Street, Los Angeles, California 90071.
Donnalisa Barnum, Senior Vice President of Capital Guardian Trust Company. Vice
President, Capital International Limited.
Andrew F. Barth, Director of Capital Guardian Trust Company. Executive Vice
President and Research Manager, Capital Guardian Research Company.
Michael D. Beckman, Senior Vice President, Treasurer and Director of Capital
Guardian Trust Company. Director, Capital Guardian Trust Company of Nevada; and
Treasurer, Capital Guardian Research Company.
Elizabeth A. Burns, Senior Vice President of Capital Guardian Trust Company.
Larry P. Clemmensen, Director of Capital Guardian Trust Company and American
Funds Distributors, Inc. Chairman of the Board, American Funds Service Company;
Director and President, The Capital Group Companies, Inc.; Senior Vice
President and Director, Capital Research and Management Company; President and
Director, Capital Management Services, Inc.; Treasurer, Capital Strategy
Research, Inc.; and Senior Vice President, Capital Income Builder, Inc. and
Capital World Growth & Income Fund, Inc.
Roberta A. Conroy, Senior Vice President, Director and Counsel of Capital
Guardian Trust Company. Senior Vice President and Secretary, Capital
International, Inc. and Emerging Markets Growth Fund, Inc.; Assistant General
Counsel, The Capital Group Companies, Inc.; and Secretary. Capital Management
Services, Inc.
John B. Emerson, Senior Vice President of Capital Guardian Trust Company.
Deputy Assistant to the President for Intergovernmental Affairs and Deputy
Director of Presidential Personnel, The White House.
Michael E. Ericksen, Senior Vice President of Capital Guardian Trust Company.
Senior Vice President, Capital International, Limited.
David I. Fisher, Chairman and Director of The Capital Group Companies, Inc. and
Capital Guardian Trust Company. Vice Chairman and Director, Capital
International, Inc., Capital International K.K., Capital International Limited
and Emerging Markets Growth Fund, Inc.; President and Director, Capital Group
International, Inc. and Capital International Limited (Bermuda); Presidente du
Conseil, Capital International S.A.; and Director, Capital Group Research,
Inc., Capital Research International, EuroPacific Growth Fund and New
Perspective Fund.
William Flumenbaum, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Vice President, Capital Guardian Trust
Company, a Nevada Corporation; Director, Principal Gifts - UCLA Development;
Executive Director, UCLA Jonsson Cancer Center Foundation; and Deputy Director,
UCLA Health Science Development.
Richard N. Havas, Senior Vice President of Capital Guardian Trust Company,
Capital International Limited, Capital Research International and Capital
Guardian Canada, Inc.
Frederick M. Hughes, Jr., Senior Vice President of Capital Guardian Trust
Company.
William H. Hurt, Senior Vice President and Director of Capital Guardian Trust
Company. Chairman, Capital Guardian Trust Company of Nevada and Capital
Strategy Research, Inc.
Robert G. Kirby, Chairman Emeritus of Capital Guardian Trust Company. Senior
Partner, The Capital Group Partners L.P.
Nancy J. Kyle, Senior Vice President and Director of Capital Guardian Trust
Company. President, Capital Guardian Canada, Inc. and Vice President, Emerging
Markets Growth Fund, Inc.
Karin L. Larson, Director of Capital Guardian Trust Company and The Capital
Group Companies, Inc. President, Director and Director of Research, Capital
Guardian Research Company; Chairperson, President and Director, Capital Group
Research, Inc.; and President, Director and Director of International Research,
Capital Research International.
D. James Martin, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
John R. McIlwraith, Senior Vice President and Director of Capital Guardian
Trust Company. Senior Vice President and Director, Capital International
Limited.
James R. Mulally, Senior Vice President and Director of Capital Guardian Trust
Company. Senior Vice President, Capital International Limited; Director,
Capital Guardian Research Company; and Vice President, Capital Research
Company.
Shelby Notkin, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Trust Company of Nevada.
Mary M. O'Hern, Senior Vice President of Capital Guardian Trust Company and
Capital International Limited; Vice President, Capital International, Inc.
Jeffrey C. Paster, Senior Vice President of Capital Guardian Trust Company.
Robert V. Pennington, Senior Vice President of Capital Guardian Trust Company;
President, Capital Guardian Trust Company of Nevada.
Jason M. Pilalas, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
Robert Ronus, President and Director of Capital Guardian Trust Company.
Chairman and Director, Capital Guardian Canada, Inc., Capital Guardian Research
Company and Capital Research International; Director, The Capital Group
Companies, Inc., Capital Group International, Inc. and Capital International
Fund S.A.; Directeur, Capital International S.A.; and Senior Vice President,
Capital International Limited.
Theodore R. Samuels, Senior Vice President and Director of Capital Guardian
Trust Company. Director, Capital Guardian Research Company.
Lionel A. Sauvage, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Research Company; and Vice President, Capital
International Research, Inc.
John H. Seiter, Executive Vice President of Client Relations & Marketing and
Director of Capital Guardian Trust Company. Senior Vice President, Capital
Group International, Inc.; and Vice President, The Capital Group Companies,
Inc.
Robert L. Spare, Senior Vice President of Capital Guardian Trust Company.
Eugene P. Stein, Executive Vice President and Director of Capital Guardian
Trust Company. Director, Capital Guardian Research Company.
Bente L. Strong, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Publisher, Capital Publishing's The
American Benefactor Magazine.
Philip A. Swan, Senior Vice President of Capital Guardian Trust Company.
Shaw B. Wagener, Director of Capital Guardian Trust Company, Capital
International Asia Pacific Management Company, S.A., Capital International
Management Company, Capital International Emerging Countries Fund and Capital
International Latin American Fund. President and Director, Capital
International, Inc.; and Senior Vice President, Capital Group International,
Inc. and Emerging Markets Growth Fund, Inc.
Eugene M. Waldron, Senior Vice President of Capital Guardian Trust Company.
Vice President, Loomis, Sayles & Company.
N. Dexter Williams, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Senior Vice President, American Funds
Distributors, Inc.
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.
1475 Dunwoody Drive
West Chester, PA 19380
Myles R. Tashman Director, Executive Vice Secretary
Golden American Life President, Secretary and
Insurance Co. General Counsel
1475 Dunwoody Drive
West Chester, PA 19380
</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 1475 Dunwoody Drive, West Chester, Pennsylvania
19380-1478. 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 under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 41 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 November 8, 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. 41 to the Registration Statement on Form N-1A
(File No. 33-23512) has been duly signed below by the following persons on
behalf of The GCG Trust in the capacity indicated on November 8, 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
- ------ ------------ -------
(a)(3) Amendment to the Restated Agreement and Declaration
of Trust changing the name the Natural Resources
Series to the Hard Assets Series and adding the
Mid-Cap Growth Series EX99.a3
(a)(5) Amendment to the Restated Agreement and Declaration
of Trust adding the Large Cap Value & International
Equity Series EX99.a5
(a)(6) Amendment to the Restated Agreement and Declaration
of Trust changing the name of the Growth & Income
Series to the Capital Growth Series EX99.a6
(a)(7) Amendment to the Restated Agreement and Declaration
of Trust adding the Investors Series, All Cap
Series and the Large Cap Growth Series EX99.a7
(d)(1)(B) Addendum to the Management Agreement adding 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 EX99.d1b
(d)(1)(J) Addendum to the Management Agreement adding
International Equity Series and the Large Cap
Value Series EX99.d1j
(d)(1)(K) Addendum to the Management Agreement adding
Investors Series, All Cap Series and the
Large Cap Growth Series EX99.d1k
(d)(2)(G) Addendum to the Kayne Anderson Investment
Management, LLC Agreement EX99.d2g
(d)(2)(Q) Portfolio Management Agreement with
Salomon Smith Barney Asset Management, Inc. EX99.d2q
(d)(2)(R) Portfolio Management Agreement with
Capital Guardian Trust Company EX99.d2r
(g)(1) Form of Custodial Agreement with Bank of New York EX99.g1
(h)(2)(C) Addendum to the Organizational Agreement adding
International Equity Series and the Large Cap
Value Series EX99.h2c
(h)(2)(D) Addendum to the Organizational Agreement adding
Investors Series, All Cap Series and the
Large Cap Growth Series EX99.h2d
(i) Consent of Sutherland Asbill & Brennan LLP EX99.i
(1) Powers of Attorney EX99.n
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (a) (3)
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST OF
THE GCG TRUST
The undersigned, being a majority of the Trustees of The GCG Trust (the
"Trust"), hereby amend the Trust's Agreement and Declaration of Trust, which was
Amended and Restated on March 19, 1996 and further amended on June 10, 1996
("Declaration of Trust"), as follows:
1. Acting pursuant to Section 1.1 of the Declaration of Trust, under which the
names of the Trust and Series are designated, pursuant to Section 6.2,
heretofore been divided into twenty-seven separate series (each a "Series," and
collectively, the "Series"), the undersigned hereby amend Section 6.2 of the
Declaration of Trust to change the name of the "Natural Resource Series" to
the "Hard Assets Series."
2. Acting pursuant to Sections 6.2 and 11.4 of the Declaration of Trust, under
which the shares of beneficial interest of the Trust had, pursuant to Section
6.2, heretofore been divided into twenty-five separate series (each a "Series,"
and collectively, the "Series"), the undersigned hereby amend Section 6.2 of the
Declaration of Trust to establish and designate a new Series of the Trust, to be
known as the "Mid-Cap Growth Series."
(a) The Series shall be authorized to hold cash and invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective prospectus relating to
the Series and the Trust's registration statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended (the
"Act"). Each share of beneficial interest ("Share") of the Series shall be
redeemable as provided in the Declaration of Trust, and shall be entitled to one
vote (or fraction thereof in respect of a fractional Share), unless otherwise
required by law, on matters in which Shares of the Series shall be entitled to
vote, and shall represent a pro rata beneficial interest in the assets allocated
to the Series. The proceeds of sales of Shares of the Series, together with any
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to the Series, unless otherwise required by law. Each Share
of the Series shall be entitled to receive its pro rata share of net assets of
the Series upon liquidation of the Series, all as provided in the Declaration of
Trust. Upon redemption of a shareholder's Shares, or indemnification for
liabilities incurred by reason of a shareholder being or having been the
shareholder of the Series, such shareholder shall be paid solely out of the
property of the Series.
(b) Shareholders of the Series shall vote separately as a class on any matter
except, consistent with the Act and the rules thereunder, and the Trust's
registration statement thereunder, (i) the election of Trustees, (ii) any
amendment to the Declaration of Trust, unless the amendment affects fewer than
all classes, in which case shareholders of the affected classes shall vote
separately, and (iii) ratification of the selection of auditors. In each case of
such separate voting, the Trustees shall determine whether, for the matter to be
effectively acted upon within the meaning of Rule 18f-2 under the Act or any
successor rule as to the Series, the applicable percentage (as specified in the
Declaration of Trust, or the Act and the rules thereunder) of the Shares of the
Series alone must be voted in favor of the matter, or whether the favorable vote
of such applicable percentage of the Shares of each Series entitled to vote on
the matter is required.
(c) The assets and liabilities of the Trust shall be allocated among the
Series as set forth in Section 6.2 of the Declaration of Trust, except as
provided below:
(i) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Managed Global
Series may be amortized for such Series over the lesser of the life of
the Series or the five-year period beginning with the month that such
Series commences operations.
(ii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Managed Global
Series may be amortized for such Series over the lesser of the life of
the Series or the five-year period beginning with the month that such
Series commences operations.
(iii)Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Mid-Cap Series
may be amortized for such Series over the lesser of the life of the
Series or the five-year period beginning with the month that such
Series commences operations.
(iv) The liabilities, expenses, costs, charges or reserves of the Trust
(other than the management fee, distribution fee or the organizational
expenses paid by the Trust) which are not readily identifiable as
belonging to any particular Series shall be allocated among the Series
on the basis of their relative average daily net assets.
(v) The Trustees may from time to time in particular cases make specific
allocations of assets or liabilities among the Series.
(d) The Trustees (including any successor Trustees) shall have the right
at any time and from time to time to reallocate assets and expenses or to change
the designation of any Series now or hereafter created, or to otherwise change
the special and relative rights of any such Series provided that such change
shall not adversely affect the rights of shareholders of the Series.
This instrument may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the 23rd day of January, 1997.
------------------------------
Terry L. Kendall
------------------------------
Robert A. Grayson
------------------------------
John L. Murphy
------------------------------
M. Norvel Young
------------------------------
Roger B. Vincent
- 1
<PAGE>
PRESIDENT'S CERTIFICATE
The undersigned, being the duly elected, qualified and active President of
The GCG Trust (the "Trust"), hereby certifies, pursuant to Section 11.4 of the
Trust's Agreement and Declaration of Trust ("Declaration of Trust"), that the
amendment to the Declaration of Trust, dated January 23, 1997, has been duly
adopted in accordance with the provisions of the Declaration of Trust.
Dated: January 23, 1997
Terry L. Kendall
President
- 2 -
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (a) (5)
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST OF
THE GCG TRUST
The undersigned, being a majority of the Trustees of The GCG
Trust (the "Trust"), hereby amend the Trusts Agreement and
Declaration of Trust, which was Amended and Restated on March 19,
1996 and further amended on June 10, 1996, January 23, 1997, and
January 12, 1998 ("Declaration of Trust"), as follows:
1. Acting pursuant to Section 1.1 of the Declaration of Trust,
under which the names of the Trust and Series are designated,
pursuant to Section 6.2, heretofore been divided into thirty-five
separate series (each a "Series," and collectively, the "Series"),
the undersigned hereby amend Section 6.2 of the Declaration of
Trust to change the names of the "Multiple Allocation Series" to
the "Equity Income Series" and "Value + Growth Series" to the
"Growth Series."
2. Acting pursuant to Sections 6.2 and 11.4 of the Declaration of
Trust, under which the shares of beneficial interest of the Trust,
pursuant to Section 6.2, are divided into thirty-five separate
series (each a Series, and collectively, the Series), the undersigned
hereby amend Section 6.2 of the Declaration of Trust to establish
and designate two new Series of the Trust, to be known as the Large
Cap Value Series and the International Equity Series.
(a). Each Series shall be authorized to hold cash and invest
in securities, instruments and other property and use investment
techniques as from time to time described in the Trusts then
currently effective prospectus relating to the respective Series
and the Trusts registration statement under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as
amended (the "Act"). Each share of beneficial interest ("Share")
of each Series shall be redeemable as provided in the Declaration
of Trust, and shall be entitled to one vote (or fraction thereof
in respect of a fractional Share), unless otherwise required by
law, on matters in which Shares of the respective Series shall
be entitled to vote, and shall represent a pro rata beneficial
interest in the assets allocated to the respective Series. The
proceeds of sales of Shares of each Series, together with any
income and gain thereon, less any diminution or expenses
thereof, shall irrevocably belong to the respective Series,
unless otherwise required by law. Each Share of each Series
shall be entitled to receive its pro rata share of net assets of
the Series upon liquidation of the respective Series, all as
provided in the Declaration of Trust. Upon redemption of a
shareholders Shares, or indemnification for liabilities incurred
by reason of a shareholder being or having been the shareholder
of any Series, such shareholder shall be paid solely out of the
property of the respective Series.
(b). Shareholders of each Series shall vote separately as a class
on any matter except, consistent with the Act and the rules
thereunder, and the Trusts registration statement thereunder,
(i) the election of Trustees, (ii) any amendment to the Declaration
of Trust, unless the amendment affects fewer than all classes, in
which case shareholders of the affected classes shall vote
separately, and (iii) ratification of the selection of auditors.
In each case of such separate voting, the Trustees shall determine
whether, for the matter to be effectively acted upon within the
meaning of Rule 18f-2 under the Act or any successor rule as to each
Series, the applicable percentage (as specified in the Declaration
of Trust, or the Act and the rules thereunder) of the Shares of the
respective Series alone must be voted in favor of the matter, or
whether the favorable vote of such applicable percentage of the Shares
of each Series entitled to vote on the matter is required.
(c). The assets and liabilities of the Trust shall be allocated among
the Series as set forth in Section 6.2 of the Declaration of Trust,
except as provided below:
<PAGE>
<PAGE>
(i) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Managed Global Series may be amortized for such
Series over the lesser of the life of the Series or the
five-year period beginning with the month that such Series
commences operations.
(ii) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Mid-Cap Growth Series may be amortized for such
Series over the lesser of the life of the Series or the
five-year period beginning with the month that such Series
commences operations.
(iii) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Total Return Series may be amortized for such
Series over the lesser of the life of the Series or the
five-year period beginning with the month that such Series
commences operations.
(iv) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Research Series may be amortized for such
Series over the lesser of the life of the Series or the
five-year period beginning with the month that such Series
commences operations.
(v) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Growth & Income Series may be amortized for
such Series over the lesser of the life of the Series or
the five-year period beginning with the month that such
Series commences operations.
(vi) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Growth Series may be amortized for such Series
over the lesser of the life of the Series or the five-year
period beginning with the month that such Series commences
operations.
(vii) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Global Fixed Income Series may be amortized for
such Series over the lesser of the life of the Series or
the five-year period beginning with the month that such
Series commences operations.
(viii) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Growth Opportunities Series may be amortized for
such Series over the lesser of the life of the Series or
the five-year period beginning with the month that such
Series commences operations.
(ix) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Developing World Series may be amortized for
such Series over the lesser of the life of the Series or
the five-year period beginning with the month that such
Series commences operations.
(x) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated Large Cap Value Series may be amortized for
such Series over the lesser of the life of the Series or
the five-year period beginning with the month that such
Series commences operations.
(xi) Costs incurred by the Trust in connection with the
organization, registration and public offering of Shares
designated International Equity Series may be amortized
for such Series over the lesser of the life of the Series
or the five-year period beginning with the month that such
Series commences operations.
<PAGE>
<PAGE>
(xii) The liabilities, expenses, costs, charges or reserves
of the Trust (other than the management fee, distribution
fee or the organizational expenses paid by the Trust) which
are not readily identifiable as belonging to any particular
Series shall be allocated among the Series on the basis of
their relative average daily net assets.
(xiii) The Trustees may from time to time in particular
cases make specific allocations of assets or liabilities
among the Series.
(d). The Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses
or to change the designation of any Series now or hereafter created, or
to otherwise change the special and relative rights of any such Series
provided that such change shall not adversely affect the rights of
shareholders of the Series.
This instrument may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned have caused these presents to
be executed as of the 16th day of February, 1999.
/s/R. Brock Armstrong
------------------------------
R. Brock Armstrong
/s/Barnett Chernow
------------------------------
Barnett Chernow
/s/J. Michael Earley
------------------------------
J. Michael Earley
/s/R. Barbara Gitenstein
------------------------------
R. Barbara Gitenstein
/s/Robert A. Grayson
------------------------------
Robert A. Grayson
/s/Elizabeth J. Newell
------------------------------
Elizabeth J. Newell
/s/Stanley B. Siedler
------------------------------
Stanley B. Siedler
/s/Roger B. Vincent
------------------------------
Roger B. Vincent
<PAGE>
<PAGE>
PRESIDENT'S CERTIFICATE
The undersigned, being the duly elected, qualified and active
President of The GCG Trust (the "Trust"), hereby certifies, pursuant
to Section 11.4 of the Trust's Agreement and Declaration of Trust
("Declaration of Trust"), that the amendment to the Declaration of
Trust, dated February 16, 1999, has been duly adopted in accordance
with the provisions of the Declaration of Trust.
Dated: February 16, 1999 /s/R. Brock Armstrong
------------------------------
R. Brock Armstrong
President
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (a) (6)
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST OF
THE GCG TRUST
The undersigned, being a majority of the Trustees of The GCG
Trust (the "Trust"), hereby amend the Trust's Agreement and
Declaration of Trust, which was Amended and Restated on March 19,
1996 and further amended on June 10, 1996, January 23, 1997,
January 12, 1998, and February 16, 1999 ("Declaration of Trust"),
as follows:
Acting pursuant to Section 1.1 of the Declaration of Trust, under
which the names of the Trust and Series are designated, pursuant
to Section 6.2, heretofore having been divided into thirty-seven
separate series (each a "Series," and collectively, the "Series"),
the undersigned Trustees hereby amend Section 6.2 of the
Declaration of Trust to change the name of the "Growth & Income
Series" to the "Capital Growth Series."
This instrument may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned have caused these presents to
be executed as of the 30th day of June, 1999.
/s/R. Brock Armstrong
------------------------------
R. Brock Armstrong
/s/Barnett Chernow
------------------------------
Barnett Chernow
/s/J. Michael Earley
------------------------------
J. Michael Earley
/s/R. Barbara Gitenstein
------------------------------
R. Barbara Gitenstein
/s/Robert A. Grayson
------------------------------
Robert A. Grayson
/s/Elizabeth J. Newell
------------------------------
Elizabeth J. Newell
/s/Stanley B. Siedler
------------------------------
Stanley B. Siedler
/s/Roger B. Vincent
------------------------------
Roger B. Vincent
<PAGE>
<PAGE>
PRESIDENT'S CERTIFICATE
The undersigned, being the duly elected, qualified and active
President of The GCG Trust (the "Trust"), hereby certifies, pursuant
to Section 11.4 of the Trust's Agreement and Declaration of Trust
("Declaration of Trust"), that the amendment to the Declaration of
Trust, dated June 30, 1999, has been duly adopted in accordance
with the provisions of the Declaration of Trust.
Dated: June 30, 1999 /s/ R. Brock Armstrong
------------------------------
R. Brock Armstrong
President
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (a) (7)
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST OF
THE GCG TRUST
The undersigned, being a majority of the Trustees of The GCG
Trust (the "Trust"), hereby amend the Trusts Agreement and
Declaration of Trust, which was Amended and Restated on March 19,
1996 and further amended on June 10, 1996, January 23, 1997, January
12, 1998 and February 16, 1999 ("Declaration of Trust"), as follows:
1. Acting pursuant to Sections 6.2 and 11.4 of the Declaration of
Trust, under which the shares of beneficial interest of the Trust,
pursuant to Section 6.2, are divided into thirty-five separate series
(each a Series, and collectively, the Series), the undersigned hereby
amend Section 6.2 of the Declaration of Trust to establish and
designate three new Series of the Trust, to be known as the Investors
Series, All Cap Series, and the Large Cap Growth Series.
(a). Each Series shall be authorized to hold cash and invest in
securities, instruments and other property and use
investment techniques as from time to time described in the
Trusts then currently effective prospectus relating to the
respective Series and the Trusts registration statement
under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended (the "Act").
Each share of beneficial interest ("Share") of each Series
shall be redeemable as provided in the Declaration of
Trust, and shall be entitled to one vote (or fraction
thereof in respect of a fractional Share), unless otherwise
required by law, on matters in which Shares of the
respective Series shall be entitled to vote, and shall
represent a pro rata beneficial interest in the assets
allocated to the respective Series. The proceeds of sales
of Shares of each Series, together with any income and gain
thereon, less any diminution or expenses thereof, shall
irrevocably belong to the respective Series, unless
otherwise required by law. Each Share of each Series shall
be entitled to receive its pro rata share of net assets of
the Series upon liquidation of the respective Series, all
as provided in the Declaration of Trust. Upon redemption of
a shareholder's Shares, or indemnification for liabilities
incurred by reason of a shareholder being or having been
the shareholder of any Series, such shareholder shall be
paid solely out of the property of the respective Series.
(b). Shareholders of each Series shall vote separately as a
class on any matter except, consistent with the Act and the
rules thereunder, and the Trusts registration statement
thereunder, (i) the election of Trustees, (ii) any
amendment to the Declaration of Trust, unless the amendment
affects fewer than all classes, in which case shareholders
of the affected classes shall vote separately, and (iii)
ratification of the selection of auditors. In each case of
such separate voting, the Trustees shall determine whether,
for the matter to be effectively acted upon within the
meaning of Rule 18f-2 under the Act or any successor rule
as to each Series, the applicable percentage (as specified
in the Declaration of Trust, or the Act and the rules
thereunder) of the Shares of the respective Series alone
must be voted in favor of the matter, or whether the
favorable vote of such applicable percentage of the Shares
of each Series entitled to vote on the matter is required.
(c). The assets and liabilities of the Trust shall be allocated
among the Series as set forth in Section 6.2 of the
Declaration of Trust, except as provided below:
<PAGE>
<PAGE>
(i) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Managed Global
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(ii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Mid-Cap Growth
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(iii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Total Return
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(iv) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Research
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(v) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Growth &
Income Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations.
(vi) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Growth Series
may be amortized for such Series over the lesser of the life of the
Series or the five-year period beginning with the month that such
Series commences operations.
(vii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Global Fixed
Income Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations.
(viii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Growth
Opportunities Series may be amortized for such Series over the
lesser of the life of the Series or the five-year period beginning
with the month that such Series commences operations.
(ix) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Developing
World Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations.
(x) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Large Cap
Value Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations.
<PAGE>
<PAGE>
(xi) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated International
Equity Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations.
(xii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Investors
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(xiii) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated All Cap
Series may be amortized for such Series over the lesser of the life
of the Series or the five-year period beginning with the month that
such Series commences operations.
(xiv) Costs incurred by the Trust in connection with the organization,
registration and public offering of Shares designated Large Cap
Growth Series may be amortized for such Series over the lesser of
the life of the Series or the five-year period beginning with the
month that such Series commences operations
(xv) The liabilities, expenses, costs, charges or reserves of the Trust
(other than the management fee, distribution fee or the
organizational expenses paid by the Trust) which are not readily
identifiable as belonging to any particular Series shall be
allocated among the Series on the basis of their relative average
daily net assets.
(xvi) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Series.
(d). The Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any
Series now or hereafter created, or to otherwise change the
special and relative rights of any such Series provided
that such change shall not adversely affect the rights of
shareholders of the Series.
<PAGE>
<PAGE>
This instrument may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the 17th day of August, 1999.
/s/ R. Brock Armstrong
-------------------------------
R. Brock Armstrong
/s/ Barnett Chernow
-------------------------------
Barnett Chernow
/s/ Michael Earley
-------------------------------
J. Michael Earley
/s/ Barbara Gitenstein
-------------------------------
R. Barbara Gitenstein
/s/ Robert A. Grayson
-------------------------------
Robert A. Grayson
/s/ Elizabeth J. Newell
-------------------------------
Elizabeth J. Newell
/s/ Stanley B. Siedler
-------------------------------
Stanley B. Siedler
/s/ Roger B. Vincent
-------------------------------
Roger B. Vincent
<PAGE>
<PAGE>
PRESIDENTS CERTIFICATE
The undersigned, being the duly elected, qualified and
active President of The GCG Trust (the "Trust"), hereby
certifies, pursuant to Section 11.4 of the Trusts Agreement and
Declaration of Trust ("Declaration of Trust"), that the amendment
to the Declaration of Trust, dated August 17, 1999, has been duly
adopted in accordance with the provisions of the Declaration of
Trust.
Dated: August 17, 1999 /s/ R. Brock Armstrong
----------------------
R. Brock Armstrong
President
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (d)(1)(B)
ADDENDUM TO MANAGEMENT AGREEMENT
The Management Agreement (the "Agreement") between The GCG
Trust (the "Trust"), a Massachusetts business trust having its
principal place of business at 1001 Jefferson Street, 4th Floor,
Wilmington, DE 19801, and Directed Services, Inc. ("DSI" or the
"Manager"), a New York corporation having its principal place of
business at 1001 Jefferson Street, 4th Floor, Wilmington, DE
19801, dated October 24, 1997 is hereby amended by the addition
of the provisions set forth in this Addendum to the Agreement,
which is dated as of the 2nd day of January, 1998.
WITNESSETH:
WHEREAS, the Trust is authorized to issue an unlimited
number of shares of beneficial interest in separate series, each
such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple
series, may offer shares of additional series in the future, and
intends to offer shares of additional series in the future; and
WHEREAS, the Trust has established eight 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; and
WHEREAS, the Trust desires to appoint DSI as Manager for 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, under the provisions set forth in the Agreement and in
this Addendum to the Agreement; and
WHEREAS, the Manager is willing to accept such appointment.
NOW THEREFORE, in consideration of the mutual promises and
covenants contained in this Addendum, it is agreed between the
parties hereto as follows:
1. In addition to its responsibilities as
specified in the Agreement, the Trust hereby
appoints DSI to act as Manager with respect to the
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 and listed on Schedule A to the
Agreement, shall be Series under the Agreement as
provided in paragraph one (1), subject to the
terms and conditions as specified in the
Agreement, including paragraph nine (9),
"Compensation."
2. Schedule A to the Agreement shall be
replaced with a new Schedule A, a form of which is
attached hereto.
3. Schedule B to the Agreement
("Compensation for Services to Series") shall be
replaced with a new Schedule B, a form of which is
attached hereto.
This Addendum shall take effect as of the date of its
execution.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed on the date indicated.
THE GCG TRUST
/s/Marilyn Talman /s/Barnett Chernow
- --------------------------- By:--------------------------
Attest
Vice President & Assistant Secretary President & CEO
- ------------------------------------ --------------------------
Title Title
DIRECTED SERVICES, INC.
/s/Marilyn Talman /s/David L. Jacobson
- --------------------------- By:--------------------------
Attest
Vice President & Assistant Secretary SVP
- ------------------------------------ --------------------------
Title Title
<PAGE>
<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in the attached
Management Agreement, to which Directed Services, Inc. shall act
as Manager are as follows:
Multiple Allocation Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap 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>
<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the
"Manager") to the following Series of The GCG Trust (the
"Trust"), pursuant to the attached Management Agreement, the
Trust will pay the Manager a fee, payable monthly, based on the
average daily net assets of the Series at the following annual
rates of the average daily net assets of that Series.
Series Rate
Multiple Allocation, Fully 1.00% of first $750 million;
Managed, Natural Resources, 0.95% of next $1.250 billion;
Real Estate, All-Growth, 0.90% of next $1.5 billion; and
Capital Appreciation, Rising 0.85% of amount in excess of $3.5 billion
Dividends Series, Value
Equity, Strategic Equity
Series, and Small Cap Series:
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series:
0.55% of next $300 million; and
0.50% of amount in excess of $500 million
Emerging Markets Series: 1.75% of average daily net assets
Market Manager Series: 1.00% of average daily net assets
Managed Global Series: 1.25% of the first $500 million; and
1.05% on the amount in excess
Growth & Income Series: 0.95% of first $200 million; and
0.75% of amount in excess of $200 million
Value + Growth Series: 0.95% of first $500 million; and
0.75% of amount in excess of $500 million
Mid-Cap Growth, Total Return, 0.80% of first $300 million; and
and Research Series: 0.55% of amount in excess of $300 million
Global Fixed Income Series: 0.85% of first $200 million;
0.75% of next $300 million;
0.60% of next $500 million;
0.55% of amount in next of $1 billion; and
0.40% of amount over $2 billion
Growth Opportunities Series: 0.95% of first $200 million; and
0.75% of amount in excess of $200 million
Developing World Series: 1.25% of the first $500 million; and
1.05% on the amount in excess
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (d)(1)(C)
ADDENDUM TO MANAGEMENT AGREEMENT
The Management Agreement (the "Agreement") between The GCG Trust
(the "Trust"), a Massachusetts business trust having its principal place of
business at 1475 Dunwoody Drive, West Chester, PA 19380, and Directed
Services, Inc. ("DSI" or the "Manager"), a New York corporation having its
principal place of business at 1475 Dunwoody Drive, West Chester, PA 19380,
dated October 24, 1997 is hereby amended by the addition of the provisions
set forth in this Addendum to the Agreement, which is dated as of the 16th
day of February 1999.
WITNESSETH
----------
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest in separate series, each such series representing interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Trust has establihed two new series designated as the
International Equity Series and the Large Cap Value Series; and
WHEREAS, the Trust desires to appoint DSI as Manager for International
Equity Series and the Large Cap Value Series, under the provisions set forth
in the Agreement and in this Addendum to the agreemnt; and
WHEREAS, the Manager is willing to accept such appointment.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as
follows:
1. In addition to its responsibilities as specified in the
Agreement, the Trust hereby appoints DSI to act as Manager
with respect to the International Equity Series and Large
Cap Value Series which, together with all other Series
previously established and listed on Schedule A to the
Agreement, shall be Series under the Agreement as provided
in paragraph one (1), subject to the terms and conditions
as specified in the Agreement, including paragraph nine (9),
"Compensation".
2. Schedule A to the Agreement shall be replaced with a new
Schedule A, a form of which is attached hereto.
3. Schedule B to the Agreement ("Compensation for Services to
Series") shall be replaced with a new Schedule B, a form of
which is attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE GCG TRUST
/s/ Myles R. Tashman By: /s/ Barnett Chernow
- ------------------------ -------------------------
Attest Barnett Chernow
Secretary Title: Vice President
- ------------------------ -------------------------
Title
DIRECTED SERVICES, INC.
/s/ Myles R. Tashman By: /s/ Barnett Chernow
- ------------------------ -------------------------
Attest Barnett Chernow
Executive Vice President Title: Executive Vice President
- ------------------------ -------------------------
Title
<PAGE>
<PAGE>
SCHEDULE A
The Series of The GCG Trust, as described in the attached Management
Agreement, to which Directed Services, Inc. shall act as Manager are as
follows:
Equity Income Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Mid-Cap Growth Series
Total Return Series
Research Series
Capital Growth Series
Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
International Equity Series
Large Cap Value Series
<PAGE>
<PAGE>
SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Manager") to
the following Series of The GCG Trust (the "Trust"), pursuant to the attached
Management Agreement, the Trust will pay the Manager a fee, payable monthly
for each Series, 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
- ------ ----
Equity Income, Fully Managed, 1.00% of first $750 million;
Hard Assets, Real Estate, 0.95% of next $1.250 billion;
All-Growth, Capital Appreciation, 0.90% of next $1.5 billion; and
Rising Dividends, Value Equity, 0.85% of amount in excess of $3.5 billion
Strategic Equity, and Small
Cap Series:
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
Emerging Markets and 1.75% of average daily net assets
Developing World Series:
Market Manager Series: 1.00% of average daily net assets
Managed Global Series: 1.25% of the first $500 million; and
1.05% on the amount in excess
Capital Growth, Growth, 1.15% of first $250 million;
and Growth Opportunities Series: 1.10% of next $400 million;
1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
Mid-Cap Growth, Total Return, 1.00% of first $250 million
and Research Series: 0.95% of next $400 million
0.90% of next $450 million; and
0.85% of amount in excess of $1.1 billion
Global Fixed Income Series: 1.60%
1.00% of first $500 million
Large Cap Value Series: .95% of next $250 million
.90% of next $500 million
.85% thereafter
International Equity Series: [ ]
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (d)(1)(D)
ADDENDUM TO MANAGEMENT AGREEMENT
The Management Agreement (the "Agreement") between The GCG Trust
(the "Trust"), a Massachusetts business trust having its principal place of
business at 1475 Dunwoody Drive, West Chester, PA 19380, and Directed
Services, Inc. ("DSI" or the "Manager"), a New York corporation having its
principal place of business at 1475 Dunwoody Drive, West Chester, PA 19380,
dated October 24, 1997 is hereby amended by the addition of the provisions
set forth in this Addendum to the Agreement, which is dated as of the 17th
day of August 1999.
WITNESSETH
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WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest in separate series, each such series representing interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares in multiple series, may offer
shares of additional series in the future, and intends to offer shares of
additional series in the future; and
WHEREAS, the Trust has establihed three new series designated as the
Investors Series, All Cap Series and the Large Cap Growth Series; and
WHEREAS, the Trust desires to appoint DSI as Manager for Large Cap Growth
Series, Investors Series, and the All Cap Series, under the provisions set
forth in the Agreement and in this Addendum to the agreemnt; and
WHEREAS, the Manager is willing to accept such appointment.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as
follows:
1. In addition to its responsibilities as specified in the
Agreement, the Trust hereby appoints DSI to act as Manager
with respect to the Large Cap Growth Series, All Cap Series
and the Investors Series which, together with all other Series
previously established and listed on Schedule A to the
Agreement, shall be Series under the Agreement as provided
in paragraph one (1), subject to the terms and conditions
as specified in the Agreement, including paragraph nine (9),
"Compensation".
2. Schedule A to the Agreement shall be replaced with a new
Schedule A, a form of which is attached hereto.
3. Schedule B to the Agreement ("Compensation for Services to
Series") shall be replaced with a new Schedule B, a form of
which is attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE GCG TRUST
/s/ Myles R. Tashman By: /s/ Barnett Chernow
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Attest Barnett Chernow
Secretary Title: Vice President
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Title
DIRECTED SERVICES, INC.
/s/ Myles R. Tashman By: /s/ Barnett Chernow
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Attest Barnett Chernow
Executive Vice President Title: Executive Vice President
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Title
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SCHEDULE A
The Series of The GCG Trust, as described in the attached Management
Agreement, to which Directed Services, Inc. shall act as Manager are as
follows:
Equity Income Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Mid-Cap Growth Series
Total Return Series
Research Series
Capital Growth Series
Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
International Equity Series
Large Cap Value Series
All Cap Series
Investors Series
Large Cap Growth Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Directed Services, Inc. (the "Manager") to
the following Series of The GCG Trust (the "Trust"), pursuant to the attached
Management Agreement, the Trust will pay the Manager a fee, payable monthly
for each Series, 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
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Equity Income, Fully Managed, 1.00% of first $750 million;
Hard Assets, Real Estate, 0.95% of next $1.250 billion;
All-Growth, Capital Appreciation, 0.90% of next $1.5 billion; and
Rising Dividends, Value Equity, 0.85% of amount in excess of $3.5 billion
Strategic Equity, and Small
Cap Series:
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
Emerging Markets and 1.75% of average daily net assets
Developing World Series:
Market Manager Series: 1.00% of average daily net assets
Managed Global Series: 1.25% of the first $500 million; and
1.05% on the amount in excess
Capital Growth, Growth, 1.15% of first $250 million;
and Growth Opportunities Series: 1.10% of next $400 million;
1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
Mid-Cap Growth, Total Return, 1.00% of first $250 million
and Research Series: 0.95% of next $400 million
0.90% of next $450 million; and
0.85% of amount in excess of $1.1 billion
Global Fixed Income Series: 1.60%
Investors Series 1.00% of first $500 million;
and All Cap Series .95% of next $250 million;
Combined: .90% of next $500 million;
.85% thereafter
Large Cap Value Series: 1.00% of first $500 million
.95% of next $250 million
.90% of next $500 million
.85% thereafter
Large Cap Growth Series: 1.00% of first $500 million
.95% of next $250 million
.90% of next $500 million
.85% thereafter
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EXHIBIT (d)(2)(G)
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
DIRECTED SERVICES, INC.
THE GCG TRUST
AMENDMENT TO THE PORTFOLIO MANAGEMENT AGREEMENT
COMPENSATION FOR SERVICES TO SERIES
The following amends section 6. of the portfolio management
agreement among Kayne Anderson Investment Management LLC, Directed
Services, Inc., and The GCG Trust:
6. COMPENSATION For the services provided, the
Manager will pay the Portfolio Manager a fee, payable
monthly, based on the average daily net assets of the
Series at following annual rate:
0.50% on first $100 million; and
0.40% on the next $100 million; and
0.30% on the next $100 million; and
0.25% on the next $700 million; and
0.20% on assets in excess of $1 billion.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the 1st day of October 1999.
THE GCG TRUST
By: /s/ Barnett Chernow
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Vice President
-------------------------
Title
DIRECTED SERVICES, INC.
By: /s/ David L. Jacobson
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Senior Vice President
-------------------------
Title
KAYNE ANDERSON INVESTMENT
INVESTMENT MANAGEMENT, LLC
By: /s/ David Shladowsky
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General Counsel
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Title
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EXHIBIT (d)(2)(Q)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of January, 2000, among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
(the "Manager"), a New York corporation, and Salomon Brothers Asset
Management Inc. ("Portfolio Manager"), a Delaware corporation.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment
company;
WHEREAS, the Trust is authorized to issue separate series, each of
which will offer a separate class of shares of beneficial interest, each
series having its own investment objective or objectives, policies, and
limitations;
WHEREAS, the Trust currently offers shares in multiple series, may
offer shares of additional series in the future, and intends to offer
shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, effective as of October
24, 1997, a copy of which has been provided to the Portfolio Manager, the
Trust has retained the Manager to render advisory, management, and
administrative services to many of the Trust's series;
WHEREAS, the Trust and the Manager wish to retain the Portfolio
Manager to furnish investment advisory services to one or more of the
series of the Trust, and the Portfolio Manager is willing to furnish such
services to the Trust and the Manager;
NOW THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Trust, the
Manager, and the Portfolio Manager as follows:
1. APPOINTMENT. The Trust and the Manager hereby appoint Salomon
Brothers Asset management Inc. to act as Portfolio Manager to the Series
designated on Schedule A of this Agreement (each a "Series") for the
periods and on the terms set forth in this Agreement. The Portfolio
Manager accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
In the event the Trust designates one or more series other than the
Series with respect to which the Trust and the Manager wish to retain the
Portfolio Manager to render investment advisory services hereunder, they
shall 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
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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:
(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).
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(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.
(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.
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(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.
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Accordingly, the price to the Series in any transaction may
be less favorable than that available from another broker-dealer
if the difference is reasonably justified, in the judgment of the
Portfolio Manager in the exercise of its fiduciary obligations to the
Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction,
if the Portfolio Manager or its affiliate determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or
its affiliate's overall responsibilities with respect to the Series and
to their other clients as to which they exercise investment discretion.
To the extent consistent with these standards, the Portfolio Manager is
further authorized to allocate the orders placed by it on behalf of the
Series to the Portfolio Manager if it is registered as a broker-dealer
with the SEC, to its affiliated broker-dealer, or to such brokers and
dealers who also provide research or statistical material, or other
services to the Series, the Portfolio Manager, or an affiliate of the
Portfolio Manager. Such allocation shall be in such amounts and
proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Board of Trustees of the Trust indicating the broker-
dealers to which such allocations have been made and the basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has
reviewed the post-effective amendment to the Registration Statement for
the Trust filed with the 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;
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(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
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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
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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 or any of its affiliates (other than the
Manager), or that use any derivative of the name of the Portfolio Manager
any of its affiliates 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.
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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.
(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
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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.
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(d) The Portfolio Manager shall not be liable under Paragraph (b)
of this Section 15 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have
notified the Portfolio Manager in writing within a reasonable time after
the summons, notice, or other first legal process or notice giving
information of the nature of the claim shall have been served upon such
Manager Indemnified Person (or after such Manager Indemnified Person
shall have received notice of such service on any designated agent), but
failure to notify the Portfolio Manager of any such claim shall not
relieve the Portfolio Manager from any liability which it may have to the
Manager Indemnified Person against whom such action is brought otherwise
than on account of this Section 15. In case any such action is brought
against the Manager Indemnified Person, the Portfolio Manager will be
entitled to participate, at its own expense, in the defense thereof or,
after notice to the Manager Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Manager Indemnified Person. If
the Portfolio Manager assumes the defense of any such action and the
selection of counsel by the Portfolio Manager to represent both the
Portfolio Manager and the Manager Indemnified Person would result in a
conflict of interests and therefore, would not, in the reasonable
judgment of the Manager Indemnified Person, adequately represent the
interests of the Manager Indemnified Person, the Portfolio Manager will,
at its own expense, assume the defense with counsel to the Portfolio
Manager and, also at its own expense, with separate counsel to the
Manager Indemnified Person which counsel shall be satisfactory to the
Portfolio Manager and to the Manager Indemnified Person. The Manager
Indemnified Person shall bear the fees and expenses of any additional
counsel retained by it, and the Portfolio Manager shall not be liable to
the Manager Indemnified Person under this Agreement for any legal or
other expenses subsequently incurred by the Manager Indemnified Person
independently in connection with the defense thereof other than
reasonable costs of investigation. The Portfolio Manager shall not have
the right to compromise on or settle the litigation without the prior
written consent of the Manager Indemnified Person if the compromise or
settlement results, or may result in a finding of wrongdoing on the part
of the Manager Indemnified Person.
(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
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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).
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(b) It is understood that the name "Salomon Brothers Asset
Management Inc." or any derivative thereof or logo associated with that
name is the valuable property of the Portfolio Manager and its affiliates
and that the Trust and/or the Series have the right to use such name (or
derivative or logo) in offering materials of the Trust with the approval
of the Portfolio Manager and for so long as the Portfolio Manager is a
portfolio manager to the Trust and/or the Series. Upon termination of
this Agreement between the Trust, the Manager, and the Portfolio Manager,
the Trust shall 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
Commonwealth of Pennsylvania, 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) 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.
(d) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent of the Manager, or constituting the Manager as an
agent of the Portfolio Manager.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed as of the day and year first above written.
THE GCG TRUST
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
DIRECTED SERVICES, INC.
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
SALOMON BROTHERS ASSET
MANAGEMENT INC.
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the
attached Portfolio Management Agreement, to which Salomon Brothers Asset
Management Inc. shall act as Portfolio Manager are as follows:
Investors Series
All Cap Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Salomon Brothers Asset Management Inc.
("Portfolio Manager") to the following Series of The GCG Trust, pursuant
to the attached Portfolio Management Agreement, the Manager will pay the
Portfolio Manager a fee, 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
- ------ ----
Investors Series: 0.50% on first $100 million;
0.45% on first $100 million;
0.40% on next $200 million; and
0.35% on assets in excess of $400 million.
All Cap Series: 0.45% on first $100 million;
0.40% on first $100 million;
0.35% on next $200 million;
0.30% on next $350 million; and
0.25% on assets in excess of $750 million.
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EXHIBIT (d)(2)(R)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of _________, 1999, among The GCG Trust
(the "Trust"), a Massachusetts business trust, Directed Services, Inc.
(the "Manager"), a New York corporation, and Capital Guardian Trust
Company ("Portfolio Manager"), a California 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 Capital
Guardian Trust Company 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.
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2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the
Trust's Board of Trustees and the Manager, the Portfolio Manager will
provide a continuous investment program for 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:
(a) The Portfolio Manager shall (1) perform in accordance with the
requirements of Subchapter M (to the extent reasonably related to the
scope of its duties as Portfolio Manager as contemplated under this
Agreement); and (2) comply with the diversification requirements of
Section 817(h) of the Internal Revenue Code and regulations issued
thereunder in managing each Series. 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 the following duties: (i)
manage the Series assets in accordance with the Series investment
objective(s) and policies as stated in the Prospectus and Statement of
Additional Information; (ii) make investment decisions for the Series;
and (iii) place purchase and sale orders for portfolio transactions on
behalf of the Series, 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).
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(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.
(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
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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
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Portfolio Manager in the exercise of its fiduciary obligations to the
Trust, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction,
if the Portfolio Manager or its affiliate determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or
its affiliate's overall responsibilities with respect to the Series and
to their other clients as to which they exercise investment discretion.
To the extent consistent with these standards, the Portfolio Manager is
further authorized to allocate the orders placed by it on behalf of the
Series to the Portfolio Manager if it is registered as a broker-dealer
with the SEC, to its affiliated broker-dealer, or to such brokers and
dealers who also provide research or statistical material, or other
services to the Series, the Portfolio Manager, or an affiliate of the
Portfolio Manager. Such allocation shall be in such amounts and
proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Board of Trustees of the Trust indicating the broker-
dealers to which such allocations have been made and the basis therefor.
4. DISCLOSURE ABOUT PORTFOLIO MANAGER. In order to assist the
Manager in reviewing and updating the Trust's Registration Statement
filed with the SEC, the Portfolio Manager shall upon request provide the
Manager with a description of its organization, the portfolio managers
assigned to manage the Series, the method, style and techniques by which
it intends to manage each Series, and any other relevant information
about the Portfolio Manager that the Manager may reasonably request. The
Portfolio Manager represents and warrants that such written information
provided shall be accurate and complete, but not necessarily tailored for
specific Registration Statement disclosure. Notwithstanding anything to
the contrary herein, it is understood that it is the responsibility of
the Manager and/or counsel to the Trust to meet all disclosure and other
requirements applicable to the Trust's Registration Statement. 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;
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(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;
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(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
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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, Capital Guardian Trust Company, or any of its
affiliates (other than the Manager), or that use any derivative of the
name "Capital Guardian Trust Company" or any affiliate listed on Schedule
C 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.
(d) The Manager hereby warrants and represents to the Portfolio
Manager that (a) it has obtained all applicable licenses, permits,
registrations and approvals that may be required in order to serve in its
designated capacities with respect to the Series, and shall continue to
keep current such licenses, permits, registrations and approvals for so
long as this Agreement is in effect; (b) it is not prohibited by the 1940
Act or other applicable laws and regulations from
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performing the services contemplated by this Agreement; (c) it will
immediately notify the Portfolio Manager of the occurrence of any
event that would disqualify it from serving in its designated capacities
with respect to the Series; and (d) this Agreement has been duly and
validly authorized, executed and delivered on behalf of the Manager
and is valid and binding Agreement of the Manager enforceable in
accordance with its terms.
(e) The Portfolio Manager hereby warrants and represents to the
Manager that (a) it has obtained all applicable licenses, permits,
registrations and approvals that may be required in order to serve in its
designated capacities with respect to the Series, and shall continue to
keep current such licenses, permits, registrations and approvals for so
long as this Agreement is in effect; (b) it is not prohibited by the 1940
Act or other applicable laws and regulations from performing the services
contemplated by this Agreement; (c) it will immediately notify the
Manager of the occurrence of any event that would disqualify it from
serving in its designated capacities with respect to the Series; and (d)
this Agreement has been duly and validly authorized, executed and
delivered on behalf of the Portfolio Manager and is valid and binding
Agreement of the Portfolio Manager enforceable in accordance with its
terms.
12. CONTROL. Notwithstanding any other provision of the Agreement,
it is understood and agreed that the Trust shall at all times retain the
ultimate responsibility for and control of all functions performed
pursuant to this Agreement and reserve the right to direct, approve, or
disapprove any action hereunder taken on its behalf by the Portfolio
Manager.
13. SERVICES NOT EXCLUSIVE. It is understood that the services of
the Portfolio Manager are not exclusive, and nothing in this Agreement
shall prevent the Portfolio Manager (or its affiliates) from providing
similar services to other clients, including investment companies
(whether or not their investment objectives and policies are similar to
those of the Series) or from engaging in other activities.
14. LIABILITY. Except as may otherwise be required by the 1940 Act
or the rules thereunder or other applicable law, the Trust and the
Manager agree that the Portfolio Manager, any affiliated person of the
Portfolio Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls the Portfolio Manager shall not be
liable for, or subject to any damages, expenses, or losses in connection
with, any act or omission connected with or arising out of any services
rendered under this Agreement, except by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio
Manager's obligations and duties under this Agreement.
15. INDEMNIFICATION.
(a) The Portfolio Manager shall indemnify and hold harmless the
Trust and the Manager (and its affiliated companies and their respective
officers, directors and employees) from any and all claims, losses,
liabilities or damages (including reasonable attorney's fees and other
related
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expenses) arising out of or in connection with the willful
misfeasance, bad faith, gross negligence, or reckless disregard of
obligations or duties hereunder of the Portfolio Manager.
(b) The Manager shall indemnify and hold harmless the Portfolio
Manager (and its affiliated companies and their respective officers,
directors and employees) from and against any and all claims, losses,
liabilities or damages (including reasonable attorney's fees and other
related expenses) arising out of any matter which does not require the
Portfolio Manager to provide an indemnity under the preceding paragraph,
including without limitation, any claim that is based upon any untrue and
alleged untrue statement contained in the Series' Prospectus or Statement
of Additional Information, any registration statement of the Trust or
Manager, any sales literature or materials for the sale or distribution
of the Series' shares, or any omission or alleged omission to state any
required statement or disclosure necessary to make the statements in any
such document not misleading.
(c) The Manager shall not be liable under this Section 15 with
respect to any claim made against the Portfolio Manager unless Portfolio
Manager 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
Portfolio Manager (or after such Portfolio Manager 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 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, the Manager
will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Portfolio Manager, to assume the defense
thereof, with counsel satisfactory to the Portfolio Manager. 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 would result in a conflict of interests and therefore, would not,
in the reasonable judgment of the Portfolio Manager, adequately represent
the interests of the Portfolio Manager, 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, which
counsel shall be satisfactory to the Manager and to the Portfolio
Manager. The Portfolio Manager shall bear the fees and expenses of any
additional counsel retained by it, and the Manager shall not be liable to
the Portfolio Manager under this Agreement for any legal or other
expenses subsequently incurred by the Portfolio Manager 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 if the compromise or settlement results, or may result in a
finding of wrongdoing on the part of the Portfolio Manager.
(d) The Portfolio Manager shall not be liable under this Section 15
with respect to any claim made against the Manager unless Manager 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
Manager (or after Manager 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
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which it may have to the Manager against whom such action is brought
otherwise than on account of this Section 15. In case any such action is
brought against the Manager, the Portfolio Manager will be entitled to
participate, at its own expense, in the defense thereof or, after notice
to the Manager, to assume the defense thereof, with counsel satisfactory
to the Manager. 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 would result in a conflict of
interests and therefore, would not, in the reasonable judgment of the
Manager, adequately represent the interests of the Manager, 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 which counsel shall be satisfactory to the Portfolio Manager
and to the Manager. The Manager shall bear the fees and expenses of any
additional counsel retained by it, and the Portfolio Manager shall not be
liable to the Manager under this Agreement for any legal or other
expenses subsequently incurred by the Manager 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 if the
compromise or settlement results, or may result in a finding of
wrongdoing on the part of the Manager.
(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)
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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
Section 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 "Capital Guardian Trust Company"
or any affiliate listed on Schedule C 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).
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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. NOTICES
All notices and other communications hereunder shall be in writing
(including telex or similar writing) and shall be deemed given if
delivered in person or by messenger, certified mail, cable, telegram or
telex or facsimile transmission or by a reputable overnight delivery
service which provides evidence of receipt to the parties at the
following addresses or telex or facsimile transmission numbers (or at
such other address or number for a party as shall be specified by like
notice):
(a) if to the Portfolio Manager, to:
Capital Guardian Trust Company
333 South Hope Street, 55th Floor
Los Angeles, California 90071
Facsimile transmission number: (213) 486-9218
Attention: Treasurer
(b) if to the Manager, to:
Myles R. Tashman
Directed Services, Inc.
1475 Dunwoody Drive
West Chester, PA 19380
Facsimile transmission number: (610) 425-3520
if to the Trust, to:
Myles R. Tashman
The GCG Trust
1475 Dunwoody Drive
West Chester, PA 19380
Facsimile transmission number: (610) 425-3520
Each such notice or other communication shall be effective (i) if given
by telex or facsimile transmission, when such telex or facsimile is
transmitted to the number specified in this section and the appropriate
answer back or confirmation is received, and (ii) if given by any other
means, when delivered at the address specified in this section.
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21. MISCELLANEOUS.
(a) This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, the Advisers Act or
rules or orders of the SEC thereunder. The term "affiliate" or
"affiliated person" as used in this Agreement shall mean "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The captions of this Agreement are included for convenience
only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) To the extent permitted under Section 16 of this Agreement,
this Agreement may only be assigned by any party with the prior written
consent of the other parties.
(d) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, and to this extent, the
provisions of this Agreement shall be deemed to be severable.
(e) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent of the Manager, or constituting the Manager as an
agent of the Portfolio Manager.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed as of the day and year first above written.
THE GCG TRUST
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
DIRECTED SERVICES, INC.
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
CAPITAL GUARDIAN TRUST
COMPANY
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
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SCHEDULE A
The Series of The GCG Trust, as described in Section 1 of the
attached Portfolio Management Agreement, to which Capital Guardian Trust
Company shall act as Portfolio Manager are as follows:
Large Cap Growth Series
Large Cap Value Series
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SCHEDULE B
COMPENSATION FOR SERVICES TO SERIES
For the services provided by Capital Guardian Trust Company
("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:
Large Cap Value Series: .50% of first $150 million
.45% of next $150 million
.35% of next $200 million
.30% thereafter
Large Cap Growth Series: .50% of first $150 million
.45% of next $150 million
.35% of next $200 million
.30% thereafter
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SCHEDULE B
CAPITAL GUARDIAN TRUST COMPANY'S AFFILIATES
1. AFD American Funds Distributors, Inc.
2. AFS American Funds Service Company
3. CGC Capital Group Companies, Inc.
4. CGII Capital Group International, Inc.
5. CGRI Capital Group Research, Inc.
6. CGCI Capital Guardian (Canada), Inc.
7. CGRC Capital Guardian Research Company
8. CGTC Capital Guardian Trust Company
9. CGTN Capital Guardian Trust Company, a Nevada Corporation
10. CIAC Capital International Advisory Company S.A.
11. CIACFMC Capital International All Countries Fund
Management Company S.A.
12. CIAPMC Capital International Asia Pacific Management
Company
13. CIEFMC Capital International Europe Fund Management
Company
14. CIGSMC Capital International Global Small Cap Fund
Management Company S.A.
15. CII Capital International, Inc.
16. CIKK Capital International K.K.
17. CIKFMC Capital International Kokusai Fund Management
Company S.A.
18. CIL Capital International Limited
19. CIL-B Capital International Limited (Bermuda)
20. CIMC Capital International Management Company S.A.
21. CIPSA Capital International Perspective S.A.
22. CIRI Capital International Research, Inc.
23. CISA Capital International S.A.
24. CMS Capital Management Services, Inc.
25. CRC Capital Research Company
26. CRMC Capital Research and Management Company
27. CSR Capital Strategy Research, Inc.
28. CIHACFMC CIHAC Fund Management Company S.A
29. -------- American Funds Group
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EXHIBIT (g)(1)
CUSTODY AGREEMENT
Agreement made as of this_____day of_________,1999, among and between
THE GCG TRUST, a Massachusetts business trust organized and existing under
the laws of the Commonwealth of Massachusetts, having its principal office
and place of business at ___________________________ (hereinafter called
the "Fund"), DIRECTED SERVICES, INC. (the "Advisor") and THE BANK OF NEW
YORK, a New York corporation authorized to do a banking business, having
its principal office and place of business at One Wall Street, New York,
New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Authorized Persons" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund,
duly authorized by the Board of Trustees of the Fund to execute any
Certificate, instruction, notice or other instrument on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian from time
to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities,
its successor or successors and its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with respect
to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise
and payment of the exercise price, as specified therein, to purchase
from the writer thereof the specified underlying Securities.
4. "Certificate" shall mean (a) any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is actually received by the Custodian
and signed on behalf of the Fund by any two Authorized Persons, and
(b) any Instructions.
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5. "Clearing Member" shall mean a registered broker-dealer which is
a clearing member under the rules of O.C.C. and a member of a
national securities exchange qualified to act as a custodian for an
investment company, or any broker-dealer reasonably believed by the
Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and pledged
to the Custodian as security for, and in consideration of, the
Custodian's issuance of (a) any Put Option guarantee letter or
similar document described in paragraph 8 of Article V herein, or (b)
any receipt described in Article V or VIII herein.
7. "Composite Currency Unit" shall mean the European Currency Unit
or any other composite unit consisting of the aggregate of specified
amounts of specified Currencies as such unit may be constituted from
time to time.
8. "Covered Call Option" shall mean an exchange traded option
entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer
thereof the specified underlying Securities (excluding Futures
Contracts) which are owned by the writer thereof and subject to
appropriate restrictions.
9. "Currency" shall mean money denominated in a lawful currency of
any country or the European Currency Unit.
10. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees.
The term "Depository" shall further mean and include any other person
authorized to act as a depository under the Investment Company Act of
1940, as amended, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits
therein by the Custodian.
11. "Financial Futures Contract" shall mean the firm commitment to
buy or sell fixed income securities including, without limitation,
U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds,
domestic bank certificates of deposit, and Eurodollar certificates of
deposit, during a specified month at an agreed upon price.
12. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
13. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
14. "FX Transaction" shall mean any transaction for the purchase by
one party of an agreed amount in one Currency against the sale by it
to the other party of an agreed amount in another Currency.
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15. "Instructions" shall mean instructions communications
transmitted by electronic or telecommunications media including
S.W.I.F.T., computer-to-computer interface, dedicated transmission
line, facsimile transmission signed by an Authorized Person and
tested telex.
16. "Margin Account" shall mean a segregated account in the name of
a broker, dealer, futures commission merchant, or a Clearing Member,
or in the name of the Fund for the benefit of a broker, dealer,
futures commission merchant, or Clearing Member, or otherwise, in
accordance with an agreement between the Fund, the Custodian and a
broker, dealer, futures commission merchant or a Clearing Member (a
"Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall
be deposited and withdrawn from time to time in connection with such
transactions as the Fund may from time to time determine. Securities
held in the Book-Entry System or the Depository shall be deemed to
have been deposited in, or withdrawn from, a Margin Account upon the
Custodian's effecting an appropriate entry in its books and records.
17. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations
issued or guaranteed as to interest and principal by the government
of the United States or agencies or instrumentalities thereof, any
tax, bond or revenue anticipation note issued by any state or
municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase
agreements with respect to the same and bank time deposits, where the
purchase and sale of such securities normally requires settlement in
federal funds on the same day as such purchase or sale.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
19. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.
20. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person.
21. "Put Option" shall mean an exchange traded option with respect
to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise
and tender of the specified underlying Securities, to sell such
Securities to the writer thereof for the exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement pursuant
to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
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23. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options,
Stock Index Futures Contracts, Stock Index Futures Contract Options,
Financial Futures Contracts, Financial Futures Contract Options,
Reverse Repurchase Agreements, common stocks and other securities
having characteristics similar to common stocks, preferred stocks,
debt obligations issued by state or municipal governments and by
public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial
development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase, sell or
subscribe for the same, or evidencing or representing any other
rights or interest therein, or any property or assets.
24. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement
as a segregated account, by recordation or otherwise, within the
custody account in which certain Securities and/or other assets of
the Fund specifically allocated to such Series shall be deposited and
withdrawn from time to time in accordance with Certificates received
by the Custodian in connection with such transactions as the Fund may
from time to time determine.
25. "Series" shall mean the various portfolios of the Fund listed on
Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of beneficial interest of the
Fund, each of which is, in the case of a Fund having Series,
allocated to a particular Series.
27. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the
difference between the value of a particular stock index at the close
of the last business day of the contract and the price at which the
futures contract is originally struck.
28. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of
cash determined by reference to the difference between the exercise
price and the value of the index on the date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund and the Advisor each hereby constitutes and appoints
the Custodian as custodian of the Securities and money at any time
owned by each Series of the Fund, listed on Appendix B attached
hereto, during the period of this Agreement.
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2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and
in Article VIII, the Fund will deliver or cause to be delivered to
the Custodian all Securities and all money owned by it, at any time
during the period of this Agreement, and shall specify with respect
to such Securities and money the Series to which the same are
specifically allocated. The Custodian shall segregate, keep and
maintain the assets of the Series separate and apart. The Custodian
will not be responsible for any Securities and money not actually
received by it. The Custodian will be entitled to reverse any
credits made on the Fund's behalf where such credits have been
previously made and money is not finally collected. The Fund shall
deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit A hereto,
approving, authorizing and instructing the Custodian on a continuous
and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated and to utilize the Book-Entry System
to the extent possible in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries
and returns of Securities collateral. Prior to a deposit of
Securities specifically allocated to a Series in the Depository, the
Fund shall deliver to the Custodian a certified resolution of the
Board of Trustees of the Fund, substantially in the form of Exhibit B
hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis until instructed to the contrary by a
Certificate actually received by the Custodian to deposit in the
Depository all Securities specifically allocated to such Series
eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with
its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities
collateral. Securities and money deposited in either the Book-Entry
System or the Depository will be represented in accounts which
include only assets held by the Custodian for customers, including,
but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically
allocated on the Custodian's books to the separate account for the
applicable Series. Prior to the Custodian's accepting, utilizing and
acting with respect to Clearing Member confirmations for Options and
transactions in Options for a Series as provided in this Agreement,
the Custodian shall have received a certified resolution of the
Fund's Board of Trustees, substantially in the form of Exhibit C
hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis, until instructed to the contrary by a
Certificate actually received by the
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Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in
the name of each Series, and shall credit to the separate account for
each Series all money received by it for the account of the Fund with
respect to such Series. Money credited to a separate account for a
Series shall be disbursed by the Custodian only
(a) as hereinafter provided;
(b) pursuant to Certificates setting forth the name and address of
the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to
be made; or
(c) in payment of such fees and in reimbursement of such expenses
and liabilities of the Custodian attributable to such Series as the
Custodian is entitled to received pursuant to its agreement with the
Fund.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per
Series basis, of all transfers to or from the account of the Fund for
a Series, either hereunder or with any co-custodian or sub-custodian
appointed in accordance with this Agreement during said day. Where
Securities are transferred to the account of the Fund for a Series,
the Custodian shall also by book-entry or otherwise identify as
belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its
nominee) or shown on the Custodian's account on the books of the
Book-Entry System or the Depository. At least monthly and from time
to time, the Custodian shall furnish the Fund with a detailed
statement, on a per Series basis, of the Securities and money held by
the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and
in Article VIII, all Securities held by the Custodian hereunder,
which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held hereunder may be
registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to
time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or
nominees. The Fund agrees to furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee or
in the name of the Book-Entry System or the Depository any Securities
which it may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold all
such Securities specifically allocated to a Series which are not held
in the Book-Entry System or in the Depository in a separate
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account in the name of such Series physically segregated at all times
from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian
by itself, or through the use of the Book-Entry System or the
Depository with respect to Securities held hereunder and therein
deposited, shall with respect to all Securities held for the Fund
hereunder in accordance with preceding paragraph 4:
(a) collect all income, dividends and distributions due or payable;
(b) give notice to the Fund and present payment and collect the
amount payable upon such Securities which are called, but only if
either (i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publications
listed in Appendix C annexed hereto, which may be amended at any time
by the Custodian without the prior notification or consent of the
Fund;
(c) present for payment and collect the amount payable upon all
Securities which mature;
(d) surrender Securities in temporary form for definitive
Securities;
(e) execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the
laws or regulations of any other taxing authority now or hereafter in
effect;
(f) hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of a Series, all rights and similar securities issued with
respect to any Securities held by the Custodian for such Series
hereunder; and
(g) deliver to the Fund all notices, proxies, proxy soliciting
materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of
calls, maturities of Securities and expiration of rights) relating to
Securities held pursuant to this Agreement which are actually
received by the Custodian, such proxies and other similar materials
to be executed by the registered owner (if Securities are registered
otherwise than in the name of the Fund), but without indicating the
manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the
Depository, shall:
(a) execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other
instruments whereby the
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authority of the Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be exercised;
(b) deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate in exchange for other Securities
or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege and receive and hold hereunder specifically
allocated to such Series any cash or other Securities received in
exchange;
(c) promptly deliver any Securities held by the Custodian hereunder
for the Series specified in such Certificate to any protective
committee, reorganization committee or other person specified in such
Certificate or as required by law in connection with the
reorganization, refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive and hold hereunder
specifically allocated to such Series such certificates of deposit,
interim receipts or other instruments or documents as may be issued
to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(e) present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article
which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any
instrument or certificate representing any Futures Contract, any
Option, or any Futures Contract Option until after it shall have
determined, or shall have received a Certificate from the Fund
stating, that any such instruments or certificates are available.
The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such
instrument or certificate. Prior to such availability, the
Custodian shall comply with Section 17(f) of the Investment Company
Act of 1940, as amended, in connection with the purchase, sale,
settlement, closing-out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such
purchase, sale, writing, settlement or closing-out upon its receipt
from a broker, dealer, or futures commission merchant of a statement
or confirmation reasonably believed by the Custodian to be in the
form customarily used by brokers, dealers, or futures commission
merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security
is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any
nominee
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of the Custodian) as custodian for the Fund, provided,
however, that notwithstanding the foregoing, payments to or
deliveries from the Margin Account, and payments with respect to
Securities to which a Margin Account relates, shall be made in
accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are
available, the Custodian shall, notwithstanding any provision in this
Agreement to the contrary, make payment for any Futures Contract,
Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian
of such instrument or such certificate, and deliver any Futures
Contract, Option or Futures Contract Option for which such
instruments or such certificates are available only against receipt
by the Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the Custodian
hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other
than a purchase of an Option, a Futures Contract, or a Futures
Contract Option, the Fund shall deliver to the Custodian (i) with
respect to each purchase of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each purchase of
Money Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name
of the issuer and the title of the Securities; (c) the number of
shares or the principal amount purchased and accrued interest, if
any; (d) the date of purchase and settlement; (e) the purchase price
per unit; (f) the total amount payable upon such purchase; (g) the
name of the person from whom or the broker through whom the purchase
was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay
to the broker specified in the Certificate out of the money held for
the account of such Series the total amount payable upon such
purchase, provided that the same conforms to the total amount payable
as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any
Reverse Repurchase Agreement, the Fund shall deliver to the Custodian
(i) with respect to each sale of Securities which are not Money
Market Securities, a Certificate, and (ii) with respect to each sale
of Money Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such sale: (a) the Series to which
such Securities were specifically allocated; (b) the name of the
issuer and the title of the Security; (c) the number of shares
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or principal amount sold, and accrued interest, if any; (d) the date
of sale; (e) the sale price per unit; (f) the total amount payable to
the Fund upon such sale; (g) the name of the broker through whom or
the person to whom the sale was made, and the name of the clearing
broker, if any; and (h) the name of the broker to whom the Securities
are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the
Certificate against payment of the total amount payable to the Fund
upon such sale, provided that the same conforms to the total amount
payable as set forth in such Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect
to each Option purchased: (a) the Series to which such Option is
specifically allocated; (b) the type of Option (put or call); (c) the
name of the issuer and the title and number of shares subject to such
Option or, in the case of a Stock Index Option, the stock index to
which such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the total amount payable by the
Fund in connection with such purchase; (h) the name of the Clearing
Member through whom such Option was purchased; and (i) the name of
the broker to whom payment is to be made. The Custodian shall pay,
upon receipt of a Clearing Member's statement confirming the purchase
of such Option held by such Clearing Member for the account of the
Custodian (or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of money held for the
account of the Series to which such Option is to be specifically
allocated, the total amount payable upon such purchase to the
Clearing Member through whom the purchase was made, provided that the
same conforms to the total amount payable as set forth in such
Certificate.
2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to each such sale:
(a) the Series to which such Option was specifically allocated; (b)
the type of Option (put or call); (c) the name of the issuer and the
title and number of shares subject to such Option or, in the case of
a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e)
the sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the Clearing
Member through whom the sale was made. The Custodian shall consent
to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in preceding paragraph
1 of this Article with respect to such Option against payment to the
Custodian of the total amount payable to the Fund, provided that the
same conforms to the total amount payable as set forth in such
Certificate.
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3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to
such Call Option: (a) the Series to which such Call Option was
specifically allocated; (b) the name of the issuer and the title and
number of shares subject to the Call Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per
share; (f) the total amount to be paid by the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such
Call Option was exercised. The Custodian shall, upon receipt of the
Securities underlying the Call Option which was exercised, pay out of
the money held for the account of the Series to which such Call
Option was specifically allocated the total amount payable to the
Clearing Member through whom the Call Option was exercised, provided
that the same conforms to the total amount payable as set forth in
such Certificate.
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to
such Put Option: (a) the Series to which such Put Option was
specifically allocated; (b) the name of the issuer and the title and
number of shares subject to the Put Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per
share; (f) the total amount to be paid to the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such
Put Option was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or direct
the Depository to deliver the Securities specifically allocated to
such Series, provided the same conforms to the amount payable to the
Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund
shall deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) the Series to which such Stock Index
Option was specifically allocated; (b) the type of Stock Index Option
(put or call); (c) the number of Options being exercised; (d) the
stock index to which such Option relates; (e) the expiration date;
(f) the exercise price; (g) the total amount to be received by the
Fund in connection with such exercise; and (h) the Clearing Member
from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to such Covered Call Option: (a) the Series for which such
Covered Call Option was written; (b) the name of the issuer and the
title and number of shares for which the Covered Call Option was
written and which underlie the same; (c) the expiration date; (d) the
exercise price; (e) the premium to be received by the Fund; (f) the
date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The
Custodian shall deliver or cause to be delivered, in exchange for
receipt of the premium specified in the Certificate with respect to
such Covered Call Option, such receipts as are required in accordance
with the customs prevailing among Clearing
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Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as
may be required by such receipts. Notwithstanding the foregoing, the
Custodian has the right, upon prior written notification to the Fund,
at any time to refuse to issue any receipts for Securities in the
possession of the Custodian and not deposited with the Depository
underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described
in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate instructing the
Custodian to deliver, or to direct the Depository to deliver, the
Securities subject to such Covered Call Option and specifying: (a)
the Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares subject to the
Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to
the Fund upon such delivery. Upon the return and/or cancellation of
any receipts delivered pursuant to paragraph 6 of this Article, the
Custodian shall deliver, or direct the Depository to deliver, the
underlying Securities as specified in the Certificate against payment
of the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to
such Put Option: (a) the Series for which such Put Option was
written; (b) the name of the issuer and the title and number of
shares for which the Put Option is written and which underlie the
same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is
written; (g) the name of the Clearing Member through whom the premium
is to be received and to whom a Put Option guarantee letter is to be
delivered; (h) the amount of cash, and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; and (i) the
amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account
for such Series. The Custodian shall, after making the deposits into
the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the
Custodian on the date hereof, and deliver the same to the Clearing
Member specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing, the
Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of
the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to
the Custodian a Certificate specifying: (a) the Series to which such
Put Option was written; (b) the name of the issuer and title and
number of shares subject to the Put Option; (c) the Clearing Member
from whom the underlying Securities are to be received; (d) the total
amount payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of
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Securities specifically allocated to such Series to be withdrawn from
the Collateral Account for such Series and (f) the amount of cash and/or
the amount and kind of Securities, specifically allocated to such Series,
if any, to be withdrawn from the Senior Security Account. Upon the
return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the money held for the account of the
Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as
set forth in such Certificate against delivery of such Securities,
and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to such Stock Index Option: (a) the Series for which such
Stock Index Option was written; (b) whether such Stock Index Option
is a put or a call; (c) the number of options written; (d) the stock
index to which such Option relates; (e) the expiration date; (f) the
exercise price; (g) the Clearing Member through whom such Option was
written; (h) the premium to be received by the Fund; (i) the amount
of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior
Security Account for such Series; (j) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and
(k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has
been established. The Custodian shall, upon receipt of the premium
specified in the Certificate, make the deposits, if any, into the
Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically
agreed to issue, which are in accordance with the customs prevailing
among Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or (2) make
the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described
in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Stock Index Option: (a) the Series for which such
Stock Index Option was written; (b) such information as may be
necessary to identify the Stock Index Option being exercised; (c) the
Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and
whether such amount is to be paid by or to the Fund; (e) the amount
of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Margin Account; and (f) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the amount and
kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the
receipt, if any, delivered pursuant to the preceding paragraph of
this Article, the Custodian shall pay out of the money held for the
account of the Series to which such Stock Index Option was
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specifically allocated to the Clearing Member specified in the
Certificate the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase
Transaction" in order to liquidate its position as a writer of an
Option, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to the Option being purchased:
(a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer
and the title and number of shares subject to the Option, or, in the
case of a Stock Index Option, the stock index to which such Option
relates and the number of Options held; (d) the exercise price; (e)
the premium to be paid by the Fund; (f) the expiration date; (g) the
type of Option (put or call); (h) the date of such purchase; (i) the
name of the Clearing Member to whom the premium is to be paid; and
(j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin
Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation
of any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through the
Closing Purchase Transaction, the Custodian shall remove, or direct
the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing
Purchase Transaction with respect to any Option purchased or written
by the Fund and described in this Article, the Custodian shall delete
such Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein, and upon the return and/or
cancellation of any receipts issued by the Custodian, shall make such
withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a
Certificate received in connection with such expiration, exercise,
or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect
to such Futures Contract, (or with respect to any number of identical
Futures Contract(s)): (a) the Series for which the Futures Contract
is being entered; (b) the category of Futures Contract (the name of
the underlying stock index or financial instrument); (c) the number
of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on
such Futures Contract(s); (g)
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the amount of cash and/or the amount and kind of Securities, if any,
to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom
the Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker, dealer, or
futures commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Account in
accordance with the terms and conditions of the Margin Account Agreement.
The Custodian shall make payment out of the money specifically allocated
to such Series of the fee or commission, if any, specified in the Certificate
and deposit in the Senior Security Account for such Series the amount
of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to
be made by the Fund to a broker, dealer, or futures commission
merchant with respect to an outstanding Futures Contract, shall be
made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with
respect to an outstanding Futures Contract, shall be received and
dealt with by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such
Futures Contract, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the Futures Contract and the Series to
which the same relates; (b) with respect to a Stock Index Futures
Contract, the total cash settlement amount to be paid or received,
and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker,
dealer, or futures commission merchant to or from whom payment or
delivery is to be made or received; and (d) the amount of cash and/or
Securities to be withdrawn from the Senior Security Account for such
Series. The Custodian shall make the payment or delivery specified
in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article
III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset
a Futures Contract held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate specifying: (a) the items of
information required in a Certificate described in paragraph 1 of
this Article, and (b) the Futures Contract being offset. The
Custodian shall make payment out of the money specifically allocated
to such Series of the fee or commission, if any, specified in the
Certificate and delete the Futures Contract being offset from the
statements delivered to the Fund pursuant to paragraph 3 of Article
III herein, and make such withdrawals from the Senior Security
Account for such Series as may be specified in such Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made
by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
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5. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a
futures commission merchant upon receipt of a Certificate from the
Fund specifying: (a) the name of the futures commission merchant;
(b) the specific cash and Securities to be delivered; (c) the date of
such delivery; and (d) the date of the agreement between the Fund and
such futures commission merchant entered pursuant to Rule 17f-6 under
the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and
warranty by the Fund that the Rule 17f-6 agreement has been duly
authorized, executed and delivered by the Fund and the futures
commission merchant and complies with Rule 17f-6, and (y) an
agreement by the Fund that the Custodian shall not be liable for the
acts or omissions of any such futures commission merchant.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by
the Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option:
(a) the Series to which such Option is specifically allocated; (b)
the type of Futures Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the amount of premium to be
paid by the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was purchased;
and (i) the name of the broker, or futures commission merchant, to
whom payment is to be made. The Custodian shall pay out of the money
specifically allocated to such Series, the total amount to be paid
upon such purchase to the broker or futures commissions merchant
through whom the purchase was made, provided that the same conforms
to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) Series to which such Futures Contract Option was
specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information
as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale price;
(f) the date of settlement; (g) the total amount payable to the Fund
upon such sale; and (h) the name of the broker or futures commission
merchant through whom the sale was made. The Custodian shall consent
to the cancellation of the Futures Contract Option being closed
against payment to the Custodian of the total amount payable to the
Fund, provided the same conforms to the total amount payable as set
forth in such Certificate.
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3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option (put or call)
being exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the date of exercise; (e) the name of
the broker or futures commission merchant through whom the Futures
Contract Option is exercised; (f) the net total amount, if any,
payable by the Fund; (g) the amount, if any, to be received by the
Fund; and (h) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the money and Securities
specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in
the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series for which
such Futures Contract Option was written; (b) the type of Futures
Contract Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the
Fund; (g) the name of the broker or futures commission merchant
through whom the premium is to be received; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series. The
Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the money and Securities specifically
allocated to such Series the deposits into the Senior Security
Account, if any, as specified in the Certificate. The deposits, if
any, to be made to the Margin Account shall be made by the Custodian
in accordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the Fund which is
a call is exercised, the Fund shall promptly deliver to the Custodian
a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular
Futures Contract Option exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the name of the broker or
futures commission merchant through whom such Futures Contract Option
was exercised; (e) the net total amount, if any, payable to the Fund
upon such exercise; (f) the net total amount, if any, payable by the
Fund upon such exercise; and (g) the amount of cash and/or the amount
and kind of Securities to be deposited in the Senior Security Account
for such Series. The Custodian shall, upon its receipt of the net
total amount payable to the Fund, if any, specified in such
Certificate make the payments, if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by
the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
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6. Whenever a Futures Contract Option which is written by the Fund
and which is a put is exercised, the Fund shall promptly deliver to
the Custodian a Certificate specifying: (a) the Series to which such
Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract
underlying such Futures Contract Option; (d) the name of the broker
or futures commission merchant through whom such Futures Contract
Option is exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by
the Fund upon such exercise; and (g) the amount and kind of
Securities and/or cash to be withdrawn from or deposited in, the
Senior Security Account for such Series, if any. The Custodian
shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the money and
Securities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or withdrawals
from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described
in this Article in order to liquidate its position as a writer of
such Futures Contract Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Futures
Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing
transaction; (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures Option Contract; (d) the exercise price; (e)
the premium to be paid by the Fund; (f) the expiration date; (g) the
name of the broker or futures commission merchant to whom the premium
is to be paid; and (h) the amount of cash and/or the amount and kind
of Securities, if any, to be withdrawn from the Senior Security
Account for such Series. The Custodian shall effect the withdrawals
from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made
by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or
purchased by the Fund and described in this Article, the Custodian
shall (a) delete such Futures Contract Option from the statements
delivered to the Fund pursuant to paragraph 3 of Article III herein
and, (b) make such withdrawals from and/or in the case of an exercise
such deposits into the Senior Security Account as may be specified in
a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to
Article VI hereof.
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10. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a
futures commission merchant upon receipt of a Certificate from the
Fund specifying: (a) the name of the futures commission merchant;
(b) the specific cash and Securities to be delivered; (c) the date of
such delivery; and (d) the date of the agreement between the Fund and
such futures commission merchant entered pursuant to Rule 17f-6 under
the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and
warranty by the Fund that the Rule 17f-6 agreement has been duly
authorized, executed and delivered by the Fund and the futures
commission merchant and complies with Rule 17f-6, and (y) an
agreement by the Fund that the Custodian shall not be liable for the
acts or omissions of any such futures commission merchant.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the
Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b)
the name of the issuer and the title of the Security; (c) the number
of shares or principal amount sold, and accrued interest or
dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon
such sale, if any, (g) the amount of cash and/or the amount and kind
of Securities, if any, which are to be deposited in a Margin Account
and the name in which such Margin Account has been or is to be
established; (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in a Senior Security Account, and
(i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker
confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by
such broker for the account of the Custodian (or any nominee of the
Custodian) as custodian of the Fund, issue a receipt or make the
deposits into the Margin Account and the Senior Security Account
specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to each such closing-out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title
of the Security; (c) the number of shares or the principal amount,
and accrued interest or dividends, if any, required to effect such
closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the
net total amount payable to the Fund upon such closing-out; (g) the
net total amount payable to the broker upon such closing-out; (h) the
amount of cash and the amount and kind of Securities to be withdrawn,
if any, from the Margin Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account; and (j) the name of the broker through whom
the Fund is effecting
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such closing-out. The Custodian shall, upon receipt of the net total
amount payable to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect
to the short sale being closed-out, pay out of the money held for the
account of the Fund to the broker the net total amount payable to the broker,
and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder,
the Fund shall deliver to the Custodian a Certificate, or in the
event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions specifying: (a) the Series for
which the Reverse Repurchase Agreement is entered; (b) the total
amount payable to the Fund in connection with such Reverse Repurchase
Agreement and specifically allocated to such Series; (c) the broker
or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the
Fund to such broker or dealer; (e) the date of such Reverse
Repurchase Agreement; and (f) the amount of cash and/or the amount
and kind of Securities, if any, specifically allocated to such Series
to be deposited in a Senior Security Account for such Series in
connection with such Reverse Repurchase Agreement. The Custodian
shall, upon receipt of the total amount payable to the Fund specified
in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security
Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described
in preceding paragraph 1 of this Article, the Fund shall promptly
deliver a Certificate or, in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral
Instructions to the Custodian specifying: (a) the Reverse Repurchase
Agreement being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by
the Fund and specifically allocated to such Series in connection with
such termination; (d) the date of termination; (e) the name of the
broker or dealer with or through whom the Reverse Repurchase
Agreement is to be terminated; and (f) the amount of cash and/or the
amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by the
Fund specified in the Certificate or Oral Instructions, make the
payment to the broker or dealer, and the withdrawals, if any, from
the Senior Security Account, specified in such Certificate or Oral
Instructions.
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ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall
deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan: (a) the Series to which
the loaned Securities are specifically allocated; (b) the name of the
issuer and the title of the Securities, (c) the number of shares or
the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of
the Securities, including the amount of cash collateral and the
premium, if any, separately identified, and (f) the name of the
broker, dealer, or financial institution to which the loan was made.
The Custodian shall deliver the Securities thus designated to the
broker, dealer or financial institution to which the loan was made
upon receipt of the total amount designated as to be delivered
against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry
System or Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian
drawn on New York Clearing House funds and may deliver Securities in
accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the
Custodian a Certificate specifying with respect to each such loan
termination and return of Securities: (a) the Series to which the
loaned Securities are specifically allocated; (b) the name of the
issuer and the title of the Securities to be returned, (c) the number
of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any
offsetting credits as described in said Certificate), and (f) the
name of the broker, dealer, or financial institution from which the
Securities will be returned. The Custodian shall receive all
Securities returned from the broker, dealer, or financial institution
to which such Securities were loaned and upon receipt thereof shall
pay, out of the money held for the account of the Fund, the total
amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to,
or withdrawals from, a Senior Security Account as specified in a
Certificate received by the Custodian. Such Certificate shall
specify the Series for which such deposit or withdrawal is to be made
and the amount of cash and/or the amount and kind of Securities
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specifically allocated to such Series to be deposited in, or withdrawn
from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal amount of
any particular Securities to be deposited by the Custodian into, or
withdrawn from, a Senior Securities Account, the Custodian shall be
under no obligation to make any such deposit or withdrawal and shall
so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or
Clearing Member in whose name, or for whose benefit, the account was
established as specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be
dealt with in accordance with the terms and conditions of the Margin
Account Agreement.
4. The Custodian shall have a continuing lien and security interest
in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable
law, and upon notice to the Fund the Custodian may enforce its lien
and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or
similar document or any receipt issued hereunder by the Custodian.
In the event the Custodian should realize on any such property net
proceeds which are less than the Custodian's obligations under any
Put Option guarantee letter or similar document or any receipt, such
deficiency shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the
previous business day: (a) the name of the Margin Account; (b) the
amount and kind of Securities held therein; and (c) the amount of
money held therein. The Custodian shall make available upon request
to any broker, dealer, or futures commission merchant specified in
the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in
which cash and/or Securities are maintained in a Collateral Account
for any Series, the Custodian shall furnish the Fund with a statement
with respect to such Collateral Account specifying the amount of cash
and/or the amount and kind of Securities held therein. No later than
the close of business next succeeding the delivery to the Fund of
such statement, the Fund shall furnish to the Custodian a Certificate
specifying the then market value of the Securities described in such
statement. In the event such then market value is indicated to be
less than the Custodian's obligation with respect to any outstanding
Put Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the
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additional cash and/or Securities to be deposited in such Collateral
Account to eliminate such deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Trustees of the Fund, certified by the Secretary or
any Assistant Secretary, either (i) setting forth with respect to the
Series specified therein the date of the declaration of a dividend or
distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the
amount payable per Share of such Series to the shareholders of record
as of that date and the total amount payable to the Dividend Agent
and any sub-dividend agent or co-dividend agent of the Fund on the
payment date, or (ii) authorizing with respect to the Series
specified therein the declaration of dividends and distributions on a
daily basis and authorizing the Custodian to rely on Oral
Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total amount
payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall
pay out of the money held for the account of each Series the total
amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) the Series, the number of Shares sold, trade date, and price;
and
(b) the amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the name
of the Series for which such money was received.
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3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of
the money held for the account of such Series, all original issue or
other taxes required to be paid by the Fund in connection with such
issuance upon the receipt of a Certificate specifying the amount to
be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian
hereunder in connection with a redemption of any Shares, it shall
furnish to the Custodian a Certificate specifying:
(a) the number and Series of Shares redeemed; and
(b) the amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth
the Series and number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the
Custodian shall make payment to the Transfer Agent out of the money
held in the separate account in the name of the Series the total
amount specified in the Certificate issued pursuant to the foregoing
paragraph 4 of this Article.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the money
held by the Custodian in the separate account for such Series shall
be insufficient to pay the total amount payable upon a purchase of
Securities specifically allocated to such Series, as set forth in a
Certificate or Oral Instructions, or which results in an overdraft in
the separate account of such Series for some other reason, or if the
Fund is for any other reason indebted to the Custodian with respect
to a Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement (, but not
including a borrowing for investment or for temporary or emergency
purposes using Securities as collateral pursuant to a separate
agreement and subject to the provisions of paragraph 2 of this
Article), such overdraft or indebtedness shall be deemed to be a loan
made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum
(based on a 360-day year for the actual number of days involved)
equal to 1/2% over Custodian's prime commercial lending rate in
effect from time to time, such rate to be adjusted on the effective
date of any change in such prime commercial lending rate but in no
event to be less than 6% per annum. In addition, the Fund hereby
agrees that the Custodian shall have a continuing lien, security
interest, and security entitlement in and to any property which may
include investment property or any financial asset specifically
allocated to such Series at any time held by it for the benefit of
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such Series or in which the Fund may have an interest which is then
in the Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time, upon
notice to the Fund, to charge any such overdraft or indebtedness
together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on
which either it intends to enter a Reverse Repurchase Agreement
and/or otherwise borrow from a third party, or which next succeeds a
Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrowing, it
shall prior to 9 a.m., New York City time, advise the Custodian, in
writing, of each such borrowing, shall specify the Series to which
the same relates, and shall not incur any indebtedness not so
specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for
temporary or emergency purposes using Securities held by the
Custodian hereunder as collateral for such borrowings, a notice or
undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to
each such borrowing: (a) the Series to which such borrowing relates;
(b) the name of the bank, (c) the amount and terms of the borrowing,
which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Fund, or other loan agreement,
(d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the
total amount payable to the Fund on the borrowing date, (g) the
market value of Securities to be delivered as collateral for such
loan, including the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities, and (h)
a statement specifying whether such loan is for investment purposes
or for temporary or emergency purposes and that such loan is in
conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date
specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to
the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to
all rights therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to
collateralize further any transaction described in this paragraph.
The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall
receive from time to time such return of collateral as may be
tendered to it. In the event that the Fund fails to specify in a
Certificate the Series, the name of the issuer, the title and number
of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be
under any obligation to deliver any Securities.
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ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund
in order for the Fund to transmit Instructions to the Custodian (the
"Software"), the Custodian grants to such Fund a personal,
nontransferable and nonexclusive license to use the Software solely
for the purpose of transmitting Instructions to, and receiving
communications from, the Custodian in connection with its account(s).
The Fund shall use the Software solely for its own internal and
proper business purposes, and not in the operation of a service
bureau, and agrees not to sell, reproduce, lease or otherwise
provide, directly or indirectly, the Software or any portion thereof
to any third party without the prior written consent of the
Custodian. The Fund acknowledges that the Custodian and its
suppliers have title and exclusive proprietary rights to the
Software, including any trade secrets or other ideas, concepts, know
how, methodologies, or information incorporated therein and the
exclusive rights to any copyrights, trademarks and patents (including
registrations and applications for registration of either) or
statutory or legal protections available with respect thereof. The
Fund further acknowledges that all or a part of the Software may be
copyrighted or trademarked (or a registration or claim made therefor)
by the Custodian or its suppliers. The Fund shall not take any
action with respect to the Software inconsistent with the foregoing
acknowledgments, nor shall the Fund attempt to decompile, reverse
engineer or modify the Software. The Fund may not copy, sell, lease
or provide, directly or indirectly, any of the Software or any
portion thereof to any other person or entity without the Custodian's
prior written consent. The Fund may not remove any statutory
copyright notice, or other notice including the software or on any
media containing the Software. The Fund shall reproduce any such
notice on any reproduction of the Software and shall add statutory
copyright notice or other notice to the Software or media upon the
Bank's request. Custodian agrees to provide reasonable training,
instruction manuals and access to Custodian's "help desk" in
connection with the Fund's user support necessary to use of the
Software. At the Fund's request, Custodian agrees to permit
reasonable testing of the Software by the Fund.
2. The Fund shall obtain and maintain at its own cost and expense
all equipment and services, including but not limited to
communications services, necessary for it to utilize the Software and
transmit Instructions to the Custodian. The Custodian shall not be
responsible for the reliability, compatibility with the Software or
availability of any such equipment or services or the performance or
nonperformance by any nonparty to this Custody Agreement.
3. The Fund acknowledges that the Software, all data bases made
available to the Fund by utilizing the Software (other than data
bases relating solely to the assets of the Fund and transactions with
respect thereto), and any proprietary data, processes, information
and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the
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"Information"), are the exclusive and confidential
property of the Custodian. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses
with respect to its own confidential property and trade secrets and
shall neither make nor permit any disclosure without the prior
written consent of the Custodian. Upon termination of this Agreement
or the Software license granted hereunder for any reason, the Fund
shall return to the Custodian all copies of the Information which are
in its possession or under its control or which the Fund distributed
to third parties. The provisions of this Article shall not affect
the copyright status of any of the Information which may be
copyrighted and shall apply to all Information whether or not
copyrighted.
4. The Custodian reserves the right to modify, at its own expense,
the Software from time to time without prior notice and the Fund
shall install new releases of the Software as the Custodian may
direct. The Fund agrees not to modify or attempt to modify the
Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the
Fund or the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
5. THE CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO
WARRANTIES OR REPRESENTATIONS OF ANY KIND WITH REGARD TO THE SOFTWARE
OR THE METHOD(S) BY WHICH THE FUND MAY TRANSMIT INSTRUCTIONS TO THE
CUSTODIAN, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
6. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY
UNITED STATES LAW. THE FUND AGREES THAT IT WILL NOT UNDER ANY
CIRCUMSTANCES RESELL, DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE
DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER COUNTRY. IF
THE CUSTODIAN DELIVERS THE SOFTWARE TO THE FUND OUTSIDE THE UNITED
STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN
ACCORDANCE WITH EXPORT ADMINISTRATIVE REGULATIONS. DIVERSION
CONTRARY TO U.S. LAWS PROHIBITED. The Fund hereby authorizes
Custodian to report its name and address to government agencies to
which Custodian is required to provide such information by law.
7. Where the method for transmitting Instructions by the Fund
involves an automatic systems acknowledgment by the Custodian of its
receipt of such Instructions, then in the absence of such
acknowledgment the Custodian shall not be liable for any failure to
act pursuant to such Instructions, the Fund may not claim that such
Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
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8. (a) The Fund agrees that the Custodian shall have no
responsibility to ensure or determine that only persons duly
authorized by the Fund transmit such Instructions to the Custodian.
The Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable user and authorization codes, passwords
and authentication keys with extreme care, and irrevocably authorizes
the Custodian to act in accordance with and rely upon Instructions
received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and agrees
that it is fully informed of the protections and risks associated
with the various methods of transmitting Instructions to the
Custodian and that there may be more secure methods of transmitting
instructions to the Custodian than the method(s) selected by the
Fund. The Fund hereby agrees that the security procedures (if any)
to be followed in connection with the Fund's transmission of
Instructions provide to it a commercially reasonable degree of
protection in light of its particular needs and circumstances.
9. The Fund hereby represents, warrants and covenants to the
Custodian that this Agreement has been duly approved by a resolution
of its Board of Trustees, and that its transmission of Instructions
pursuant hereto shall at all times comply with the Investment Company
Act.
10. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24
hours after the earliest of (i) discovery thereof, (ii) the business
day on which discovery should have occurred through the exercise of
reasonable care and (iii) in the case of any error, the date of
actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a
business day. The Custodian shall promptly advise the Fund whenever
the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions,
and in any event on the business day next succeeding the business day
after the earliest of (i) discovery thereof, (ii) the business day on
which discovery would have occurred through the exercise of
reasonable care, and (iii) in the case of an error, the date on which
the Custodian should have discovered the error through the exercise
of reasonable care, it being understood that an error in Instructions
may not be discoverable by the Custodian notwithstanding reasonable
care.
11. Custodian will indemnify and hold harmless the Fund with respect
to any liability, damages, loss or claim incurred by or brought
against Fund by reason any claim or infringement against any patent,
copyright, license or other property right arising out or by reason
of the Fund's use of the Software in the form provided under this
Section. Custodian at its own expense will defend such action or
claim brought against Fund to the extent that it is based on a claim
that the Software in the form provided by Custodian infringes any
patents, copyrights, license or other property right, provided that
Custodian is provided with reasonable written notice of such claim,
provided that the Fund has not settled, compromised or confessed any
such claim without the Custodian's written
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consent, in which event Custodian shall have no liability or obligation
hereunder, and provided Fund cooperates with and assists Custodian in
the defense of such claim. Custodian shall have the right to control
the defense of all such claims, lawsuits and other proceedings. If,
as a result of any claim of infringement against any patent, copyright,
license or other property right, Custodian is enjoined from using the
Software, or if Custodian believes that the System is likely to become
thesubject of a claim of infringement, Custodian at its option may in
its sole discretion either (a) at its expenses procure the right for
the Fund to continue to use the Software, or (b), replace or modify
the Software so as to make it non-infringing, or (c) may discontinue
the license granted herein upon written notice to Fund.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-
custodian for each Series' Securities for which the primary market is
outside the United States ("Foreign Securities") and other assets,
the foreign banking institutions and foreign securities depositories
and clearing agencies designated on Schedule I hereto ("Foreign Sub-
Custodians"), each of which has been selected by the Custodian as
custodian and not as a foreign custody manager with reasonable care.
The Fund may designate any additional foreign sub-custodian with
which the Custodian has an agreement for such entity to act as the
Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon
receipt of a Certificate from the Fund, the Custodian shall cease the
employment of any one or more Foreign Sub-Custodians for maintaining
custody of the Fund's assets and such Foreign Sub-Custodian shall be
deemed deleted from Schedule I.
2. Each delivery of a Certificate to the Custodian in connection
with a transaction involving the use of a Foreign Sub-Custodian shall
constitute a representation and warranty by the Fund that its Board
of Trustees, or its third party foreign custody manager as defined in
Rule 17f-5 under the Investment Company Act of 1940, as amended, if
any, has determined that use of such Foreign Sub-Custodian satisfies
the requirements of such Investment Company Act of 1940 and such Rule
17f-5 thereunder.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each
Foreign Sub-Custodian. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims by the Fund or any Series against a Foreign Sub-
Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if
and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
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4. Upon request of the Fund, the Custodian will, consistent with
the terms of the applicable Foreign Sub-Custodian agreement, use
reasonable efforts to arrange for the independent accountants of the
Fund to be afforded access to the books and records of any Foreign
Sub-Custodian insofar as such books and records relate to the
performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and
other assets of each Series held by Foreign Sub-Custodians, including
but not limited to an identification of entities having possession of
each Series' Foreign Securities and other assets, and advices or
notifications of any transfers of Foreign Securities to or from each
custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the
Fund's Foreign Securities, including without limitation, notices of
corporate action, proxies and proxy solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any
Series and delivery of securities maintained for the account of such
Series may be effected in accordance with the customary or
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer.
8. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian the
sole responsibility and liability of the Custodian shall be to take
appropriate action at the Fund's expense to recover such loss or
damage from the Foreign Sub-Custodian. It is expressly understood
and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-
Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund
shall promptly deliver to the Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the
Series to which such FX Transaction is specifically allocated; (b)
the type and amount of Currency to be purchased by the Fund; (c) the
type and amount of Currency to be sold by the Fund; (d) the date on
which the
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Currency to be purchased is to be delivered; (e) the date
on which the Currency to be sold is to be delivered; and (f) the name
of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or
Oral Instructions, the Custodian shall deliver, or shall instruct a
Foreign Sub-Custodian to deliver, the Currency to be sold on the date
on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian
to receive, the Currency to be purchased on the date as set forth in
the Certificate.
2. Where the Currency to be sold is to be delivered on the same day
as the Currency to be purchased, as specified in the Certificate or
Oral Instructions, the Custodian or a Foreign Sub-Custodian may
arrange for such deliveries and receipts to be made in accordance
with the customs prevailing from time to time among brokers or
dealers in Currencies, and such receipt and delivery may not be
completed simultaneously. The Fund assumes all responsibility and
liability for all credit risks involved in connection with such
receipts and deliveries, which responsibility and liability shall
continue until the Currency to be received by the Fund has been
received in full.
3. Any FX Transaction effected by the Custodian in connection with
this Agreement may be entered with the Custodian, any office, branch
or subsidiary of The Bank of New York Company, Inc., or any Foreign
Sub-Custodian acting as principal or otherwise through customary
banking channels. The Fund may issue a standing Certificate with
respect to FX Transaction but the Custodian may establish rules or
limitations concerning any foreign exchange facility made available
to the Fund. The Fund shall bear all risks of investing in
Securities or holding Currency. Without limiting the foregoing, the
Fund shall bear the risks that rules or procedures imposed by a
Foreign Sub-Custodian or foreign depositories, exchange controls,
asset freezes or other laws, rules, regulations or orders shall
prohibit or impose burdens or costs on the transfer to, by or for the
account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home
jurisdiction or the conversion of cash from one Currency into another
currency. The Custodian shall not be obligated to substitute another
Currency for a Currency (including a Currency that is a component of
a Composite Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation, rule or
procedure. Neither the Custodian nor any Foreign Sub-Custodian shall
be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage, including counsel
fees, resulting from its action or
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omission to act or otherwise, either hereunder or under any Margin
Account Agreement, except for any such loss or damage arising out
of its own negligence, willful misconduct, or bad faith. In no
event shall the Custodian be liable to the Fund, the Advisor, or
any third party for special, indirect or consequential damages or
lost profits or loss of business, arising under or in connection
with this Agreement, even if previously informed of the possibility
of such damages and regardless of the form of action. The liability
of the Custodian hereunder shall be limited to the Fund, and shall not
extend to the Advisor, and such liability to the Fund shall be only to
the extent of direct money damages suffered by the Fund arising out of
the Custodian's own negligence, willful misconduct, or bad faith,
provided, however, that the Advisor shall be permitted to commence an
action in accordance with the terms of this Agreement on behalf of the
Fund to recover such direct money damages of the Fund. The Custodian may,
with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of
counsel to the Fund, or of its own counsel, at the expense of the
Fund, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or
opinion. The Custodian shall be liable to the Fund for any loss or
damage resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence or willful misconduct
on the part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable
for:
(a) the validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received
therefor;
(b) the legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;
(c) the legality of the declaration or payment of any dividend by
the Fund;
(d) the legality of any borrowing by the Fund using Securities as
collateral;
(e) the legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of
portfolio Securities of the Fund is adequate collateral for the Fund
against any loss it might sustain as a result of such loan. The
Custodian specifically, but not by way of limitation, shall not be
under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall
be the sole responsibility of the Fund. In
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addition, the Custodian shall be under no duty or obligation to see that
any broker, dealer or financial institution to which portfolio Securities
of the Fund are lent pursuant to Article X of this Agreement makes payment
to it of any dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termination of
such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not
paid and received when due; or
(f) the sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or
Collateral Account in connection with transactions by the Fund. In
addition, the Custodian shall be under no duty or obligation to see
that any broker, dealer, futures commission merchant or Clearing
Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such
broker, dealer, futures commission merchant or Clearing Member, to
see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount
the Fund is entitled to receive, or to notify the Fund of the
Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check,
draft, or other instrument for the payment of money, received by it
on behalf of the Fund until the Custodian actually receives and
collects such money directly or by the final crediting of the account
representing the Fund's interest at the Book-Entry System or the
Depository.
4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions,
exchange offers, tenders, interest rate changes or similar matters
relating to Securities held in the Depository, unless the Custodian
shall have actually received timely notice from the Depository. In
no event shall the Custodian have any responsibility or liability for
the failure of the Depository to collect, or for the late collection
or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be
redeemed, retired, called or otherwise become payable. However, upon
receipt of a Certificate from the Fund of an overdue amount on
Securities held in the Depository the Custodian shall make a claim
against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute
or defend any action, suit or proceeding in respect to any Securities
held by the Depository which in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the
Transfer Agent of the Fund nor to take any action to effect payment
or distribution by the Transfer Agent of the Fund of any amount paid
by the Custodian to the Transfer Agent of the Fund in accordance with
this Agreement.
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6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon
which such amount is payable are in default, or if payment is refused
after due demand or presentation, unless and until (i) it shall be
directed to take such action by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and
expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign Sub-
Custodians pursuant to Article XVI appoint one or more banking
institutions as Depository or Depositories, as Sub-Custodian or
Sub-Custodians, or as Co-Custodian or Co-Custodians including, but
not limited to, banking institutions located in foreign countries, of
Securities and money at any time owned by the Fund, upon such terms
and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed
institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by
it or by any Foreign Sub-Custodian, for the account of the Fund and
specifically allocated to a Series are such as properly may be held
by the Fund or such Series under the provisions of its then current
prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may
properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Advisor
agrees to pay to the Custodian all out-of-pocket expenses and such
compensation as may be agreed upon from time to time between the
Custodian and the Fund. In the event any such amounts are not paid
by the Advisor within 120 days of the date such amounts are due to be
paid, the Custodian may charge such compensation and any expenses
with respect to a Series incurred by the Custodian in the performance
of its duties pursuant to such agreement against any money
specifically allocated to such Series. Unless and until the Fund
instructs the Custodian by a Certificate to apportion any loss,
damage, liability or expense among the Series in a specified manner,
the Custodian shall also be entitled to charge against any money held
by it for the account of a Series such Series' pro rata share (based
on such Series, net asset value at the time of the charge to the
aggregate net asset value of all Series at that time) of the amount
of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions
of this Agreement provided the same have not been paid by the Advisor
with 120 days of the date such amounts are due to be paid. The
expenses for which the Custodian shall be entitled to reimbursement
hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in
settling outside of New York City transactions involving the purchase
and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and
reasonably believed by the
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<PAGE>
Custodian to be a Certificate. The Custodian shall be entitled to rely
upon any Oral Instructions actually received by the Custodian hereinabove
provided for. The Fund agrees to forward to the Custodian a Certificate
or facsimile thereof confirming such Oral Instructions in such manner so
that such Certificate or facsimile thereof is received by the Custodian,
whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral
Instructions are given to the Custodian. The Custodian shall notify
the Fund promptly if it receives instructions that are contrary to
Oral Instructions. The Fund agrees that the fact that such
confirming instructions are not received, or that contrary
instructions are received, by the Custodian shall in no way affect
the validity of the transactions or enforceability of the
transactions hereby authorized by the Fund. The Fund agrees that the
Custodian shall incur no liability to the Fund in acting upon Oral
Instructions given to the Custodian hereunder concerning such
transactions provided such instructions reasonably appear to have
been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably
believed by the Custodian to be given in accordance with the terms
and conditions of any Margin Account Agreement. Without limiting the
generality of the foregoing, the Custodian shall be under no duty to
inquire into, and shall not be liable for, the accuracy of any
statements or representations contained in any such instrument or
other notice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the
Investment Company Act of 1940, as amended, and other applicable
securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and
records during the Custodian's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the Custodian
its expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-film,
whichever the Custodian elects, any records included in any such
delivery which are maintained by the Custodian on a computer disc, or
are similarly maintained, and the Fund shall reimburse the Custodian
for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the
Book-Entry System, the Depository or O.C.C., and with such reports on
its own systems of internal accounting control as the Fund may
reasonably request from time to time.
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<PAGE>
<PAGE>
14. The Fund and the Advisor, jointly and severally, each agrees to
indemnify the Custodian against and save the Custodian harmless from
all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence,
willful misconduct, or bad faith.
15. Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Article XVI and
XVII the Custodian may deliver and receive Securities, and receipts
with respect to such Securities, and arrange for payments to be made
and received by the Custodian in accordance with the customs
prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities
against payment, delivery of such Securities and receipt of payment
therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in
connection with the Custodian's delivery of Securities pursuant to
instructions of the Fund, which responsibility and liability shall
continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Custodian.
ARTICLE XIX.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after
the date of giving of such notice. In the event such notice is given
by the Fund, it shall be accompanied by a copy of a resolution of the
Board of Trustees of the Fund, certified by the Secretary or any
Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall
be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination
date, deliver to the Custodian a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate
a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided
profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian and payment of all fees,
expenses and other amounts then due the Custodian on
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<PAGE>
that date deliver directly to the successor custodian all Securities
and money then owned by the Fund and held by it as Custodian.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall
upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities
(other than Securities held in the Book-Entry System which cannot be
delivered to the Fund) and money then owned by the Fund be deemed to
be its own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry
System which cannot be delivered to the Fund to hold such Securities
hereunder in accordance with this Agreement.
ARTICLE XX.
MISCELLANEOUS
1. The Custodian, the Advisor, and the Fund each agrees that any
non-public information obtained hereunder concerning the other
parties is confidential and may not be disclosed to any other person
without the consent of the affected party, except as may be required
by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would
irreparably damage the affected party and accordingly agree that each
of them is entitled, without bond or other security, to an injunction
or injunctions to prevent breaches of this provision.
Notwithstanding the foregoing, the Custodian shall have the right to
disclose the same to its internal and external auditors, accountants,
and counsel, to its regulators, and to any other person if it is
advised by its counsel that it may be liable for a failure to do so.
Where circumstances reasonably permit, the Custodian shall endeavor
to give notice of any such disclosure to the Fund.
2. Annexed hereto as Appendix A is a Certificate signed by two of
the present Authorized Persons of the Fund under its seal, setting
forth the names and the signatures of the present Authorized
Persons. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event
that other or additional Authorized Persons are elected or
appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of
this Agreement upon Oral Instructions or signatures of the Authorized
Persons as set forth in the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at 90 Washington Street, New York,
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<PAGE>
New York 10286, or at such other place as the Custodian may from time
to time designate in writing.
4. (a) The Custodian warrants to the Fund that it will use
commercially reasonable efforts to ensure that the computer software
and hardware systems ("Systems") that are owned by the Custodian and
used to provide services under this Agreement are 2000 Compliant or
will be made 2000 Compliant before December 31, 1999. With respect
to software that the Custodian licenses from third parties and uses
in providing the Services ("Third Party Software"), the Custodian
warrants that it has used or will use commercially reasonable efforts
to test the same by September 30, 1999 to certify, in accordance with
the Custodian's standard practices, that the Third Party Software is
2000 Compliant. If the Custodian cannot certify any Third Party
Software as 2000 Compliant, the Custodian will use commercially
reasonable efforts to replace such Third Party Software with software
that is warranted or certified by its vendor as 2000 Compliant, if
such replacement is available, compatible with the Custodian's
Systems an deemed by the Custodian as appropriate under the
circumstances. In the event that the Custodian uses third party
service providers to provide the Services or any portion thereof
("Third Party Services"), the Custodian warrants that it has in place
a program under which it will use commercially reasonable efforts to
contact such service providers and obtain from them assurances that
the Systems that they use in providing Services are 2000 Compliant.
As used herein, the term "2000 Compliant" means that the Systems will
function without material error caused by the introduction of dates
falling on or after January 1, 2000. Notwithstanding the foregoing,
the Fund acknowledges and agrees that the Custodian cannot and does
not warrant that the Systems, Third Party Software or Third Party
Services will continue to interface with the hardware, firmware,
software (including operating systems), records or data used by the
Fund or third parties, nor does the Custodian make any warranties
hereunder with respect to any public utility, communications service
provider, correspondent bank, securities or commodities exchange, or
funds transfer network.
(b) The Fund hereby makes to the Custodian the same
warranty with respect to the computer software and hardware systems
it owns and the services it obtains from third parties that the
Custodian has made in (a).
5. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund or the Advisor,
respectively, shall be sufficiently given if addressed to the Fund
and mailed or delivered to it at its office at the address for the
Fund or the Advisor, respectively, first above written, or at such
other place as the Fund or the Advisor may from time to time
designate in writing.
6. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same
formality as this Agreement and approved by a resolution of the Board
of Trustees of the Fund.
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<PAGE>
7. 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 by the
Fund without the written consent of the Custodian, or by the
Custodian without the written consent of the Fund, authorized or
approved by a resolution of the Fund's Board of Trustees.
8. This Agreement shall be construed in accordance with the laws of
the State of New York without giving effect to conflict of laws
principles thereof. Each party hereby consents to the jurisdiction
of a state or federal court situated in New York City, New York in
connection with any dispute arising hereunder and hereby waives its
right to trial by jury.
9. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
10. A copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Board
of Trustees of the Fund as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the
Trustees or shareholders individually but are binding only upon the
assets and property of the Fund; provided, however, that the
Declaration of Trust of the Fund provides that the assets of a
particular Series of the Fund shall under no circumstances be charged
with liabilities attributable to any other Series of the Fund and
that all persons extending credit to, or contracting with or having
any claim against a particular Series of the Fund shall look only to
the assets of that particular Series for payment of such credit,
contract or claim.
-39-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, thereunto duly
authorized and their respective seals to be hereunto affixed, as of
the day and year first above written.
THE GCG TRUST
[SEAL] By:
-----------------------
Attest:
- -----------------------
DIRECTED SERVICES, INC.
[SEAL] By:
-----------------------
Attest:
- -----------------------
THE BANK OF NEW YORK
[SEAL] By:
-----------------------
Name:
Title:
Attest:
- -----------------------
<PAGE>
<PAGE>
APPENDIX A
I,__________, President and I,__________,_____________ of
The GCG Trust, a Massachusetts business trust (the "Fund"), do hereby
certify that:
The following persons have been duly authorized in conformity
with the Fund's Declaration of Trust and By-Laws to execute any
Certificate, instruction, notice or other instrument on behalf of the
Fund, and the signatures set forth opposite their respective names
are their true and correct signatures:
Name Position Signature
____________________ ___________________ ____________________
<PAGE>
<PAGE>
APPENDIX B
SERIES
<PAGE>
<PAGE>
APPENDIX C
I, Christopher M. Teevan, a Vice President with THE BANK OF NEW
YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned,______________________,hereby certifies that he
or she is the duly elected and acting__________________of The GCG Trust,
a Massachusetts business trust (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of the
Fund at a meeting duly held on____________, 1999, at which a quorum was
at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of_____________________, 1999, (the "Custody Agreement")
is authorized and instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in the Custody Agreement,
all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the
Book-Entry System to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
The GCG Trust, as of the_________day of_______________, 1999.
______________________
[SEAL]
<PAGE>
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned,______________, hereby certifies that he or she
is the duly elected and acting___________of The GCG Trust, a Massachusetts
business trust (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on________________, 1999, at which a quorum was at all
times present and that such resolution has not been modified or rescinded
and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of__________________, 1999, (the"Custody Agreement") is
authorized and instructed on a continuous and ongoing basis until
such time as it receives a Certificate, as defined in the Custody
Agreement, to the contrary to deposit in the Depository, as defined
in the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically
allocated, and to utilize the Depository to the extent possible
in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases
and sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
The GCG Trust, as of the__________day of__________, 1999.
________________________
[SEAL]
<PAGE>
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned,___________________, hereby certifies that he or
she is the duly elected and acting_____________of The GCG Trust, a
Massachusetts business trust (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of the
Fund at a meeting duly held on_____________________, 1999, at which a
quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of_______________, 1999, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis until
such time as it receives a Certificate, as defined in the Custody
Agreement, to the contrary to deposit in the Participants Trust
Company as Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the
Participants Trust Company to the extent possible in connection
with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
The GCG Trust, as of the___________day of____________, 1999.
____________________________
[SEAL]
<PAGE>
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned,________________, hereby___________certifies that
he or she is the duly elected and acting______________of The GCG Trust,
a Massachusetts business trust (the "Fund"), and further certifies that
the following resolution was adopted by the Board of Trustees of the
Fund at a meeting duly held on_________________, 1999, at which a quorum
was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of_______________, 1999, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis until
such time as it receives a Certificate, as defined in the Custody
Agreement, to the contrary, to accept, utilize and act with respect
to Clearing Member confirmations for Options and transaction in
Options, regardless of the Series to which the same are specifically
allocated, as such terms are defined in the Custody Agreement,
as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
The GCG Trust, as of the___________day of_________, 1999.
____________________________
[SEAL]
<PAGE>
<PAGE>
EXHIBIT D
The undersigned,______________, hereby certifies that he or she
is the duly elected and acting_______________of The GCG Trust, a
Massachusetts business trust (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Trustees of the Fund
at a meeting duly held on________________, 1999, at which a quorum was at
all times present and that such resolutions have not been modified or
rescinded and are in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to the Custody Agreement between The Bank of New York and the
Fund dated as of______________, 1999 (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis to act
in accordance with, and to rely on Instructions (as defined in the
Custody Agreement).
RESOLVED, that the Fund shall establish access codes and
grant use of such access codes only to Authorized Persons of the
Fund as defined in the Custody Agreement, shall establish
internal safekeeping procedures to safeguard and protect the
confidentiality and availability of user and access codes,
passwords and authentication keys, and shall use Instructions
only in a manner that does not contravene the Investment Company
Act of 1940, as amended, or the rules and regulations
thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
The GCG Trust, as of the ____________day of___________, 1999.
_________________________
[SEAL]
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (h)(2)(J)
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, March 4, 1997 and August 19,
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 16th day of February 1999.
WITNESSETH:
-----------
WHEREAS, the Trust is authorized to issue separate series, each
of which will offer a separate class of shares of beneficial
interest, each series having its own investment objective or
objectives, policies, or limitations;
WHEREAS, the Trust currently offers shares in multiple series,
may offer shares of additional series in the future, and intends to
offer shares of additional series in the future;
WHEREAS, the Trust has established two new series designated as
the Large Cap Value Series and the International Equity Series; and
WHEREAS, the Trust and Golden American desire that the, the Large
Cap Value Series and the International 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 Large Cap Value Series and the International
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.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum
to be executed as of the date indicated above.
THE GCG TRUST
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
DIRECTED SERVICES, INC.
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
GOLDEN AMERICAN
LIFE INSURANCE COMPANY
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
<PAGE>
<PAGE>
EXHIBIT B
The Series of The GCG Trust, as described in the attached
Organizational Agreement, are as follows:
Equity Income Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Mid-Cap Growth Series
Total Return Series
Research Series
Capital Growth Series
Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
International Equity Series
Large Cap Value Series
<PAGE>
<PAGE>
<PAGE>
<PAGE>
EXHIBIT (h)(2)(K)
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, March 4, 1997, August 19,
1997 and February 16, 1999 is hereby amended by the addition of the
provisions set forth in this Addendum to the Organizational
Agreement, which is dated as of the 15th day of June 1999.
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 three new series designated
as the Investors Series, the All Cap Series and the Large Cap Growth
Series; and
WHEREAS, the Trust and Golden American desire that the All Cap
Series, the Large Cap Growth Series and the Investors 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 Investors Series, the All Cap Series and the
Large Cap Growth Series, together with all other Series listed on
Exhibit B to the Organizational Agreement, shall be series under
the Organizational Agreement.
2. Exhibit B to the Organizational Agreement shall be replaced
with a new Exhibit B, a copy of which is attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum
to be executed as of the date indicated above.
THE GCG TRUST
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
DIRECTED SERVICES, INC.
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
GOLDEN AMERICAN
LIFE INSURANCE COMPANY
Attest_____________________ By:___________________________
Title:_____________________ Title:________________________
<PAGE>
<PAGE>
EXHIBIT B
The Series of The GCG Trust, as described in the attached
Organizational Agreement, are as follows:
Equity Income Series
Fully Managed Series
Limited Maturity Bond Series
Hard Assets Series
Real Estate Series
All-Growth Series
Liquid Asset Series
Capital Appreciation Series
Rising Dividends Series
Emerging Markets Series
Market Manager Series
Value Equity Series
Strategic Equity Series
Small Cap Series
Mid-Cap Growth Series
Total Return Series
Research Series
Capital Growth Series
Growth Series
Global Fixed Income Series
Growth Opportunities Series
Developing World Series
International Equity Series
All Cap Fund Series
Investors Series
Large Cap Value Series
Large Cap Growth Series
<PAGE>
<PAGE>
<PAGE>
<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. 41
to the Registration Statement on Form N-1A for The GCG Trust (File Nos.
33-23512, 811-5629). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
----------------------
Stephen E. Roth
Washington, D.C.
November 8, 1999
<PAGE>
<PAGE>
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being duly
elected Directors and/or Officers 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
following The GCG Trust registration statements, and current amendments
to registration statements, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and affirming all that said attorneys-in-fact
and agents, or any of them, or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue thereof:
Post-Effective Amendment currently designated #41 to The GCG
Trust Registration Statement on Form N-1A (Nos. 033-23512; 811-5629)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ R. Brock Armstrong President, Chairman and October 25, 1999
- ---------------------- Trustee
R. Brock Armstrong
/s/ Barnett Chernow Vice President, Trustee October 19, 1999
- ----------------------
Barnett Chernow
/s/ Myles R. Tashman Secretary October 19, 1999
- ----------------------
Myles R. Tashman
/s/ Mary Bea Wilkinson Treasurer October 29, 1999
- ----------------------
Mary Bea Wilkinson
/s/ Elizabeth J. Newell Trustee October 20, 1999
- ----------------------
Elizabeth J. Newell
/s/ J. Michael Earley Trustee October 19, 1999
- ----------------------
J. Michael Earley
/s/ Barbara Gitenstein Trustee October 18, 1999
- ----------------------
R. Barbara Gitenstein
/s/ Robert A. Grayson Trustee October 19, 1999
- ----------------------
Robert A. Grayson
/s/ Stanley B. Seidler Trustee October 18, 1999
- ----------------------
Stanley B. Seidler
/s/ Roger B. Vincent Trustee October 18, 1999
- ----------------------
Roger B. Vincent
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