As filed with the Securities and Exchange Commission on April 27, 1998.
Registration Nos. 33-37883
811-6231
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 11 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT No. 13 |X|
(Check appropriate box or boxes)
------------------------
GIAC FUNDS, INC.
Formerly
GBG FUNDS, INC.
formerly
BAILLIE GIFFORD INTERNATIONAL FUND, INC
(Exact Name of Registrant as Specified in Charter)
C/O THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
201 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10003
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (212) 598-8259
------------------------
Copy to:
Richard T. Potter, Jr., Esq. Cathy G. O'Kelly, Esq.
c/o The Guardian Insurance Vedder, Price, Kaufman & Kammholz
& Annuity Company, Inc 222 North LaSalle Street
201 Park Avenue South Chicago, Illinois 60601
New York, New York 10003
(Name and Address of Agent for Service)
------------------------
It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1998 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| on (date) pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on (date) 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.
------------------------
The Registrant has registered an indefinite number of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on March 26, 1998.
================================================================================
<PAGE>
BAILLIE GIFFORD INTERNATIONAL FUND
BAILLIE GIFFORD EMERGING MARKETS FUND
GUARDIAN SMALL CAP STOCK FUND
Cross Reference Sheet
(as required by Rule 495 under the Securities Act of 1933)
<TABLE>
<CAPTION>
Form N-1A Item No. Location in the Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund Prospectus
<S> <C> <C>
Part A
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary of the Prospectus
Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant............................. Investment Objective and Policies; Risk
Considerations; Special Investment
Techniques; Miscellaneous Information
Item 5. Management of the Fund........................................ Structure and Management of the Fund
Item 5A. Management's Discussion of Fund Performance................... Performance Results
Item 6. Capital Stock and Other Securities............................ Dividends, Distributions and Taxes;
Miscellaneous Information
Item 7. Purchase of Securities Being Offered.......................... Purchase and Redemption of Shares;
Calculation of Net Asset Value
Item 8. Redemption or Repurchase...................................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
<CAPTION>
Location in the Guardian Small Cap Stock Fund
Prospectus
<S> <C>
Part A
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary of the Prospectus
Item 3. Condensed Financial Information............................... N/A
Item 4. General Description of Registrant............................. Investment Objective and Policies; Risk Considerations;
Miscellaneous Information
Item 5. Management of the Fund........................................ Fund Management and the Investment Adviser
Item 5A. Management's Discussion of Fund Performance................... Performance Results
Item 6. Capital Stock and Other Securities............................ Dividends, Distributions and Taxes; Miscellaneous
Information
Item 7. Purchase of Securities Being Offered.......................... Purchase and Redemption of Shares; Calculation of Net
Asset Value
Item 8. Redemption or Repurchase...................................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
Part B
<CAPTION>
<S> <C> <C>
Item 10. Cover Page.................................................... Cover Page
Item 11. Table of Contents............................................. Table of Contents
Item 12. General Information and History............................... Not Applicable
Item 13. Investment Objectives and Policies............................ Investment Restrictions; Special
Investment Techniques - International Fund and
Emerging Markets Fund; Special Investment Techniques-
International Fund, Emerging Markets Fund and
Small Cap Stock Fund
Item 14. Management of the Registrant.................................. Fund Management
Item 15. Control Persons and Principal Holders of Securities........... GIAC and Other Fund Affiliates
Item 16. Investment Advisory and Other Services........................ Investment Manager, Sub-Investment
Manager and Distributor; Custodian
and Transfer Agent; Independent
Auditors and Financial Statements
Item 17. Brokerage Allocation and Other Practices...................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities............................ Fund Capitalization and Expenses
Item 19. Purchase, Redemption and Pricing of Securities Being Offered.. Not Applicable
Item 20. Tax Status.................................................... Taxes
Item 21. Underwriters.................................................. Investment Manager, Sub-Investment
Manager and Distributor
Item 22. Calculation of Performance Data............................... Performance Results
Item 23. Financial Statements.......................................... Independent Auditors and Financial
Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prospectus
May 1, 1998
BAILLIE GIFFORD INTERNATIONAL FUND
BAILLIE GIFFORD EMERGING MARKETS FUND
This Prospectus offers shares of the Baillie Gifford International Fund and the
Baillie Gifford Emerging Markets Fund (the "Funds"). The Funds are diversified
series fund portfolios of GIAC Funds, Inc. (the "Company") which is a
diversified open-end management investment company.
Baillie Gifford International Fund (the International Fund) invests primarily in
common stocks issued by companies domiciled outside the United States and
securities that are convertible into such common stocks.
Baillie Gifford Emerging Markets Fund (the Emerging Markets Fund) invests
primarily in common stocks issued by emerging market companies and securities
that are convertible into such common stocks.
Guardian Baillie Gifford Limited (the "Manager"), which serves as the investment
manager for the Funds, is a company formed through a joint venture between the
U.S. insurer, The Guardian Insurance & Annuity Company, Inc. ("GIAC"), and the
Scottish investment management firm, Baillie Gifford Overseas Limited.
Investment in the Funds is available only to purchasers or current owners of
certain variable annuity and variable life insurance contracts issued by GIAC.
Certain variable life insurance contracts issued by GIACmay only permit
investment in the International Fund.
This Prospectus sets forth important information which a GIAC contractowner
should know about the investment policies and operations of the Funds before
investing and should be retained for future reference. Additional information
about the Funds is contained in a Statement of Additional Information, dated May
1, 1998, which has been filed with the U.S. Securities and Exchange Commission.
A copy of the Statement of Additional Information can be obtained, without
charge, by calling 1-800-221-3253 or by writing to the Company, c/o GIAC, 201
Park Avenue South, New York, New York 10003. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
Contents
Section Page
Summary of the Prospectus 2
Financial Highlights 3
Investment Objective and Policies 5
Risk Considerations 7
Special Investment Techniques 9
Structure and Management of the Funds 11
Performance Results 13
Calculation of Net Asset Value 14
Purchase and Redemption of Shares 14
Dividends, Distributions and Taxes 15
Miscellaneous Information 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
1
<PAGE>
SUMMARY OF PROSPECTUS
The following summary presents important information concerning the Funds and is
qualified in its entirety by the more detailed information contained within this
Prospectus.
Investment Objectives and Policies
Each Fund is managed separately, and the risks and opportunities of each Fund
should be examined separately.
The International Fund -- The primary investment objective is to seek long-term
capital appreciation. Income is not a specific objective, although it is
anticipated that long-term capital appreciation will be accompanied by dividend
income. The International Fund ordinarily invests at least 80% of its net assets
in a diversified portfolio of common stocks issued by companies domiciled
outside of the U.S. and in securities that are convertible into such common
stocks.
The Emerging Markets Fund -- The primary investment objective is to seek
long-term capital appreciation. The Emerging Markets Fund will, under normal
conditions, invest at least 65% of its total assets in a portfolio of common
stocks issued by emerging market companies and in securities that are
convertible into such common stocks. The Fund defines an emerging market company
as an entity (i) organized under the laws of, and with a principal office in, an
emerging market country (as defined in "Investment Objectives and Policies"
below); (ii) that derives 50% or more of its total revenues from either goods or
services produced or performed in, or from sales made in emerging market
countries (and which may be located in a "gateway" country, as defined herein);
or (iii) for which the principal securities market is located in an emerging
market country.
Risk Considerations
There are risks involved in all investments of securities. The value a
shareholder receives upon redemption of shares may be greater or less than the
value of such shares when acquired. Foreign investments by the Funds involve
additional special risks and opportunity considerations not typically associated
with investing in securities issued by United States companies, such as less
publicly available issuer information, less government regulation of issuers or
securities markets and increased risk of political unrest and governmental
restrictions of issuers. Changes in foreign currency exchange rates may affect
the U.S. Dollar value of securities in a Fund's portfolio, net asset value,
returns and gains and losses realized on sales of securities, even though the
value of the securities in local currency terms may not have changed. Given the
particular risks associated with investing in developing countries, an
investment in The Emerging Markets Fund should be considered speculative.
Management of the Funds
The Manager serves as investment adviser for each of the Funds and is
responsible for the Funds' overall investment management. For its services, the
Manager receives a fee of 0.80% of the average daily net assets of The
International Fund and 1.00% of the average daily net assets of The Emerging
Markets Fund. Baillie Gifford Overseas Limited ("BG Overseas") serves as the
sub-manager to each of the Funds and manages the day-to-day operations of the
Funds' portfolios. One-half of the fees paid by the Funds to the Manager is
payable to BG Overseas for its services as sub-manager.
Purchase and Redemption of Shares
Fund shares are continuously offered at the net asset value per share next
determined after a proper purchase request is received by GIAC. Shares of the
Funds are only offered to GIAC in connection with the variable annuities and
variable life insurance contracts issued through its separate accounts. Owners
of variable contracts receive beneficial interests in the Funds by having
allocated premium payments or contract values for investment in the Funds.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide selected data, total returns and ratios of the
Funds and have been audited by Ernst & Young LLP, independent auditors. This
information is supplemented by the Company's audited financial statements and
accompanying notes for the year ended December 31, 1997 which appear in the
Company's 1997 Annual Report to Shareholders. This Annual Report also includes
further information on the Funds' 1997 performance and the unqualified report of
Ernst & Young LLP on the Funds' 1997 Financial Statements. The Company's 1997
Annual Report is incorporated by reference into the Statement of Additional
Information. Free copies of the Company's Statement of Additional Information
and the Company's 1997 Annual Report are available by calling the telephone
number, or writing to the address, appearing on the cover page of this
Prospectus.
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
The International Fund
------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37 $ 10.00
-------- -------- -------- -------- -------- ------- -------
Income from Investment Operations
Net investment income ............................ 0.15 0.15 0.16 0.15 0.23 0.09 0.04
Net realized and unrealized gain/(loss)
on investments and translations
of other assets and liabilities
denominated in foreign currencies ............... 1.91 2.21 1.49 (0.02) 3.54 (1.20) 2.52
Net increase/(decrease) from investment
operations ...................................... 2.06 2.36 1.65 0.13 3.77 (1.11) 2.56
-------- -------- -------- -------- -------- ------- -------
Dividends and Distributions to Shareholders from:
Net investment income ............................ (0.15) (0.14) (0.15) (0.13) (0.24) (0.10) (0.04)
Distributions in excess of net investment income . (0.15) (0.10) (0.12) -- -- -- --
Net realized gain on investments and foreign
currency related transactions ................... (0.75) (0.23) (0.70) -- -- -- (0.15)
Total Dividends and distributions ............ (1.05) (0.47) (0.97) (0.13) (0.24) (0.10) (0.19)
Net asset value, end of period ....................... $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37
======== ======== ======== ======== ======== ======= =======
Total return** ....................................... 11.93% 15.41% 11.23% 0.87% 34.04% (8.90%) 8.56%
======== ======== ======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000's omitted) ........ $534,711 $456,203 $317,287 $303,050 $186,795 $55,175 $36,012
Ratio of expenses to average
net assets ...................................... 0.97% 0.98% 0.99% 1.03% 1.11% 1.26% 1.67%(a)
Ratio of net investment income
to average net assets ........................... 0.74% 0.94% 0.97% 1.11% 1.75% 0.88% 0.61%(a)
Portfolio turnover rate .......................... 51% 38% 52% 27% 18% 44% 14%
Average rate of commissions paid (b) ............. $ 0.0214 $ 0.0364
</TABLE>
* Commencement of public offering of the Fund's shares.
** Total returns do not reflect the effects of charges deducted under the terms
of GIAC's variable contracts. Including such charges would reduce the total
returns for all periods shown.
(a) Ratios are annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
3
<PAGE>
<TABLE>
<CAPTION>
The Emerging Markets Fund
------------------------------------------------------------
Year Ended October 17, 1994*
December 31, to December 31,
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 10.54 $ 8.46 $ 8.68 $ 9.87
---------- ---------- -------- --------
Income from Investment Operations
Net investment income (loss) ........................ 0.09 0.07 0.07 (0.01)
Net realized and unrealized gain/(loss) on
investments and translations of other assets and
liabilities denominated in foreign currency ....... 0.12 2.01 (0.12) (1.17)
---------- ---------- -------- --------
Net increase/(decrease) from investment operations .. 0.21 2.08 (0.05) (1.18)
---------- ---------- -------- --------
Dividends and Distributions to Shareholders from
Net investment income ............................... (0.06) -- (0.07) (0.01)
Dividends in excess of net investment income ........ -- -- (0.10) --
Net realized gain on investments and foreign currency
related transactions .............................. (0.33) -- -- --
---------- ---------- -------- --------
In excess of net realized gain on investments ....... (0.19) -- -- --
---------- ---------- -------- --------
Total dividends and distributions ................. (0.58) -- (0.17) (0.01)
---------- ---------- -------- --------
Net asset value, end of period ............................ $ 10.17 $ 10.54 $ 8.46 $ 8.68
========== ========== ======== ========
Total return** ............................................ 1.97% 24.59% (0.60%) 11.93%
========== ========== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's omitted) ........... $ 87,014 $ 67,062 $ 34,218 $ 24,069
Ratio of expenses to average net assets ............. 1.40% 1.53% 1.67% 2.28%(a)
Ratio of net investment income to average net assets 0.76% 0.85% 0.89% 0.94%(a)
Portfolio turnover rate ............................. 64% 46% 52% --
Average rate of commissions paid (b) ................ $ 0.0003 $ 0.0313
</TABLE>
* Commencement of public offering of the Fund's shares.
** Total returns do not reflect the effects of charges deducted under the terms
of GIAC's variable contracts. Including such charges would reduce the total
returns for all periods shown.
(a) Ratios are annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The primary investment objective of each of the Funds is
long-term capital appreciation. Income is not a specific objective, although it
is anticipated that long-term capital appreciation will be accompanied by
dividend income, which may vary depending on the location of the investments. A
Fund's investment objective and certain investment restrictions are fundamental
policies which may not be changed without shareholder approval. Non-fundamental
investment techniques, policies and restrictions of a Fund may be changed by the
Company's Board of Directors (the "Board") without shareholder approval. There
is no assurance that the Funds will meet their respective investment objectives,
and the Funds cannot eliminate the risk of loss inherent in the ownership of
securities by following their investment objectives.
Each Fund's investment program is highlighted below, together with information
about special investment techniques which may be utilized to seek each Fund's
investment objective. Further details and information about each Fund's
investment restrictions are set forth in the Statement of Additional
Information.
Investment Policies of the Funds. The International Fund -- This Fund will
ordinarily invest at least 80% of its net assets in a diversified portfolio of
common stocks issued by companies domiciled outside of the U.S. and in
securities convertible into, exchangeable for, or which carry the right to
acquire such common stocks. It is anticipated that the vast majority of the
Fund's investments will normally be divided among four main areas -- Continental
Europe, the United Kingdom, Japan and the markets of the Far East (including
Australia and New Zealand).
The Emerging Markets Fund -- This Fund will, under normal conditions, invest at
least 65% of its total assets in a portfolio of common stocks issued by emerging
market companies and in securities which are convertible into, exchangeable for
or which carry the right to purchase such common stocks. The Fund defines an
emerging market company as an entity (i) organized under the laws of, and with a
principal office in, an emerging market country (as defined below); (ii) that
derives 50% or more of its total revenue from either goods or services produced
or performed in, or from sales made in emerging market countries (and which may
be located in a "gateway" country, as described below); or (iii) for which the
principal securities market is located in an emerging market country.
As defined by the Fund, an emerging market country includes any country whose
economy or markets are considered to be emerging or developing by the
International Finance Corporation and the World Bank, as well as countries which
are classified by the United Nations as developing. The Manager determines the
potential universe of emerging market countries for investment. The Fund
currently expects to invest in issuers located in some or all of the following
emerging market countries: Argentina, Brazil, Chile, China, Colombia, the Czech
Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico,
Pakistan, Peru, Philippines, Poland, Portugal, the Slovak Republic, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela, and
Zimbabwe. The list of countries in which the Fund will potentially invest will
vary from time to time, based upon the Manager's assessment of a particular
country's present suitability for investment. The Fund may also invest in
issuers located in countries which may be deemed by the Manager to be "gateways"
into emerging market countries, such as Hong Kong (which serves as a gateway to
China) and Austria (which serves as a gateway to Eastern European countries such
as Hungary and the Czech Republic).
In addition, the Emerging Markets Fund may ordinarily invest up to 35% of its
net assets in a combination of (i) debt securities of government or corporate
issuers in emerging market countries; (ii) debt and equity securities of issuers
in developed markets, and (iii) cash and money market instruments.
Emerging market debt securities are often rated below investment grade, or may
not be rated by rating agencies in the United States. Normally, the Emerging
Markets Fund will not invest more than 10% of its total assets in debt
securities that are not rated at least investment grade, or if unrated,
5
<PAGE>
determined to be of comparable quality by the Manager. The Emerging Markets Fund
is not required to sell automatically when the ratings assigned to any of its
holdings are reduced below investment grade. Investment in non-investment grade
debt securities (commonly known as "junk bonds") are considered predominantly
speculative with regard to the payment of interest and principal and therefore
carry greater risk, including the possibility of issuer default or bankruptcy.
Certain emerging market countries prohibit direct foreign investment in their
capital markets and limit investors in those markets, such as the Emerging
Markets Fund, to government-authorized investment companies. In accordance with
the Investment Company Act of 1940 (the "1940 Act"), The Emerging Markets Fund
may invest up to 10% of its total assets in securities of other investment
companies. Shares of these investment companies may at times be acquired at
market prices representing a premium over the actual net asset value of their
portfolio securities. If shares of another investment company are acquired,
shareholders of The Emerging Markets Fund would bear both their proportionate
share of the expenses of the Fund, and indirectly, a proportionate share of the
expenses of the other investment company as well.
Policies Applicable to Both Funds
Subject to monitoring by the Board, each of the Funds will apportion their
investments among various securities markets in several countries and will not
normally concentrate investments in any particular industry or country. Under
normal circumstances, at least 65% of each Fund's total assets will be invested
in countries which are domiciled in at least three different countries outside
the United States. However, there are no other limitations on the percentage of
portfolio assets which may be invested in securities of issuers of any one
country at any given time. The diversification of a Fund's assets on an
international basis should, in theory, decrease the degree to which events in
any one country can affect the entire portfolio. For liquidity purposes, both
Funds may also hold cash in U.S. dollars and foreign currencies and invest in
short-term securities, including repurchase agreements and domestic and foreign
money market instruments. In addition, both Funds may enter into forward
currency transactions or other currency instruments to attempt to minimize the
effects of changes in foreign exchange rates, and may enter into options or
financial futures transactions to hedge against market or currency risks. (More
information concerning such transactions may be found in the section entitled
"Special Investment Techniques" below).
In pursuing their investment objectives, both Funds will vary both their
geographic scope and the types of securities in which they invest based on
continuous evaluations of economic, market and political trends worldwide. To
determine how portfolio assets should be allocated, the Manager will consider
the conditions and growth potential of various economies and securities markets,
currency exchange rates, technological developments in the various countries,
and other pertinent financial, social, national and political information. The
Manager seeks to identify those issuers whose companies are best situated to be
able to make use of these factors and conditions to their economic advantage.
The International Fund will also attempt to apportion its holdings among
securities issued by companies at different stages of development, ranging from
large, well-established companies to smaller and newer companies. Securities
issued by smaller companies may be less liquid and subject to greater market
volatility and credit risk than those issued by larger companies.
The Funds may also invest in foreign issuers through sponsored American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs") or
similar investment vehicles. An ADR is a dollar-denominated security issued by a
U.S. bank or trust company which represents, and may be converted into, a
foreign security. An EDR is similar but is issued by a European bank. ADRs and
EDRs may be denominated in a currency different from the underlying securities
into which they may be converted. Typically, ADRs, in registered form, are
designed for issuance in U.S. securities markets and EDRs, in bearer form, are
designed for issuance in European securities markets.
6
<PAGE>
The Funds may significantly alter their portfolios as a temporary defensive
strategy if, in the judgment of the Manager, investments in international equity
securities are at risk because of current or anticipated political or economic
conditions. In such event, the Funds may, without any percentage limit, acquire
non-convertible preferred stock, debt obligations, securities issued by the U.S.
or foreign governments and domestic or foreign money market instruments. Any
such securities acquired by a Fund will be "investment grade" at the time of
acquisition.
The Emerging Markets Fund may also invest temporarily in cash (U.S. dollars,
foreign currency or multinational currency units) or, alternatively, in money
market instruments, pending investment of newly received proceeds from the
purchase of Fund shares or to meet ordinary daily cash needs.
If the U.S. government restricts any type of foreign investment which may be
made by or through the Funds, the Company's Board of Directors will promptly
take steps to determine whether significant changes in the Funds' portfolios are
appropriate.
RISK CONSIDERATIONS
Risk Considerations Concerning International Investing. Investments in foreign
equity securities present opportunities for both increased benefits and risks as
compared to investments in U.S. equity securities. In the past, the securities
markets in different countries have moved relatively independently from each
other due to differences in economic, financial, political and social factors.
The Funds invest in various companies and economies outside of the U.S., thereby
attempting to take advantage of these differences. This diversification is
intended to reduce the volatile effects that investment in any one country or
geographic area may have on the portfolio's performance. However, investing in
securities of foreign issuers involves certain risks and considerations not
typically associated with investing in securities of some U.S. issuers. These
risks may include less publicly available or less reliable information and less
governmental regulation and supervision of foreign stock exchanges, brokers and
issuers. Foreign issuers are not usually subject to uniform accounting, auditing
and financial reporting standards, practices and requirements. Securities of
foreign issuers are subject to the possibility of expropriation,
nationalization, confiscatory taxation, adverse changes in investment or
exchange control regulations, political instability and restrictions in the flow
of international capital. Securities of some foreign issuers are less liquid and
their prices more volatile than the securities of U.S. companies. In addition,
the time period for settlement of transactions in foreign securities may be
longer than the corresponding period for settlement of transactions in domestic
securities. It may also be more difficult to obtain and enforce judgments
against foreign entities.
The Funds are expected to incur operating expenses which are higher than those
of mutual funds investing exclusively in U.S. equity securities since expenses
such as brokerage commissions and custodial fees related to foreign investments
are often higher than those associated with investments in U.S. securities. In
addition, dividends and interest from foreign securities may be subject to
foreign withholding taxes. (See "Dividends, Distributions and Taxes".)
The securities held by the Funds will generally be denominated in currencies
other than the U.S. dollar. The U.S. dollar value of a security may tend to
decrease when the value of the U.S. dollar rises against the currency in which
that security is denominated and may tend to increase when the value of the U.S.
dollar falls against such currency. Accordingly, the U.S. dollar value of
securities held in a Fund's portfolio and the Fund's net asset value may
fluctuate in response to changes in currency exchange rates even though the
value of the securities in local currency terms may not have changed. Therefore,
changes in foreign exchange rates may affect the value of the securities held in
the Funds' portfolios either beneficially or adversely. Fluctuations in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, distributed to shareholders.
7
<PAGE>
If the U.S. government should impose any restrictions, through taxation or other
means, on any type of foreign investment which is made by the Funds, the Board
will promptly take steps to determine whether significant changes in the Funds'
portfolios are appropriate.
Particular Risk Considerations Concerning Emerging Markets. The following risks
are applicable to the Emerging Markets Fund and to the International Fund to the
extent that it invests in emerging markets. Investing in emerging markets, while
offering the potential of more rapid share price appreciation and long term
growth than may be available from investments in more developed markets, also
present a corresponding higher degree of risk. Thus, an investment in the
Emerging Markets Fund should be considered speculative.
Emerging markets may be more likely to be subject to political unrest and
economic instability. The result could be nationalization, expropriation or
confiscation of assets, or repatriation of investment capital. In the event of
such governmental actions, the Funds could lose the entire value of a particular
investment or group of investments made in a particular market.
Certain emerging market countries have experienced substantial and, in some
cases, rapidly fluctuating rates of inflation for a number of years. Inflation
has, and may continue to have, a debilitating effect on the underlying economies
of these countries. Many emerging market countries are heavily dependent on
international trade and are particularly adversely affected by the imposition of
trade barriers and other protectionist measures, as well as the depreciation or
devaluation of their currencies, relative to the U.S. dollar. Certain currencies
are not free floating against the U.S. dollar, may not be internationally
traded, or may not be freely converted into other currencies. A devaluation or
restriction in the currencies in which a Fund's portfolio securities investments
are made could have an adverse impact on the Fund.
The securities markets in emerging countries may be less developed, and offer
less liquidity and more volatility than the markets of more developed countries.
Such markets have different clearance and settlement procedures and there may be
occasions where settlements are unable to keep pace with the volume of
securities transactions, making it difficult to complete such transactions. The
inability of a Fund to dispose of a particular portfolio security due to
settlement problems may result in the loss of other attractive investment
opportunities or, alternatively, in losses to the Fund due to subsequent
declines in the value of the portfolio security. If the Fund has entered into a
contract to sell the security, settlement problems could result in potential
Fund liability to the purchaser of that security.
The political or economic turmoil within a particular country or market could
also give rise to the possibility that trading of securities within a particular
market could be terminated or severely curtailed, thereby preventing a Fund from
either pricing or transacting in certain portfolio securities. The 1940 Act
permits registered investment companies such as the Company, on behalf of the
Funds, to request that the U.S. Securities and Exchange Commission (the "SEC")
make the determination that an emergency exists, thereby permitting a Fund to
suspend redemptions of its shares during the emergency period. In the event that
such circumstances should arise, the Fund would consider applying to the SEC for
a determination that an emergency exists within the meaning of the 1940 Act.
Prior to the receipt of the SEC's determination, portfolio securities in the
affected markets would be priced at fair value as determined in good faith by or
under the direction of the Board.
Portfolio Turnover Rate. Each Fund's portfolio turnover rate may vary
significantly from year to year. Although neither Fund intends to trade
securities for short term profit, there is no limitation on the length of time
securities must be held by a Fund prior to being sold. The annual portfolio
turnover rate of the Funds is not usually expected to exceed 75%. (An annual
portfolio turnover rate of 100% would occur if all of the investments held in a
Fund's portfolio were replaced in a one-year period.)
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SPECIAL INVESTMENT TECHNIQUES
This section describes the types of special investment techniques which both
Funds may utilize in an effort to achieve their investment objectives and also
describes the risks associated with such investment techniques. These techniques
and related risks are described in more detail in the Statement of Additional
Information.
Forward Foreign Currency Transactions. Forward foreign currency exchange
contracts are used to manage the risks associated with changes in exchange
rates. A forward foreign currency exchange contract is an agreement to exchange
a specified amount of U.S. dollars for foreign currencies at a specified future
date. The Manager generally uses currency exchange contracts to fix definite
prices for securities it has agreed to buy or sell. These contracts are also
used to hedge the Funds' investments against adverse exchange rate changes. The
profitable use of forward foreign currency transactions depends on the Manager's
ability to predict changes in exchange rates between the U.S. dollar and foreign
currencies. The Funds may incur either a gain or loss on these transactions,
which require skills that are different from those needed to select the Funds'
investments. While forward foreign currency transactions may help reduce losses
on securities denominated in foreign currencies, they may also reduce gains on
such securities depending on the actual changes in the subject currencies. The
Funds will not enter into forward foreign currency transactions for speculative
purposes.
Financial Futures Transactions. To attempt to hedge against fluctuations in
interest rates or securities prices, the Funds may purchase or sell interest
rate futures contracts and securities index futures contracts (collectively,
"financial futures contracts"). Interest rate futures contracts obligate the
long or short holder to take or make delivery of a specified quantity of a
financial instrument during a specified future period at a specified price.
Securities index futures contracts are similar in economic effect, but they are
based on a specific index of securities (rather than on specified securities)
and are settled in cash. The Funds may also purchase and write put and call
options on financial futures contracts as an attempt to hedge against market
risks.
There are special risks associated with entering into financial futures
contracts. There may be an imperfect correlation between the price movements of
financial futures contracts and the price movements of the securities in which a
Fund invests. There is also a risk that a Fund will be unable to close a futures
position when desired because there is no liquid secondary market for it.
The skills needed to use financial futures contracts effectively are different
from those needed to select a Fund's investments. If the Manager misjudges the
general direction of interest rates or markets, the Funds' overall performance
may be poorer than if no financial futures contracts had been entered into. It
is possible that a Fund could lose money on a financial futures contract and
also on the price of related securities, adversely affecting the Fund's
performance.
The risk of loss in trading financial futures contracts can be substantial due
to the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. A relatively small price movement in a financial
futures contract could have an immediate and substantial impact, which may be
favorable or unfavorable to a contractholder. It is possible for a price-related
loss to exceed the amount of a Fund's margin deposit.
Neither of the Funds will enter into financial futures contracts for speculative
purposes.
Options Transactions. The Funds may purchase or write (sell) options on
individual securities, securities indices and financial futures contracts to
attempt to: (1) reduce the overall risk of their investments; (2) manage foreign
currency exposure; (3) protect unrealized gains; or (4) facilitate the sale of
portfolio securities for investment purposes. The Funds use options as a
temporary substitute for purchasing or selling particular securities. The Funds
engage in options transactions as a hedging technique, and not for speculative
purposes. Using options as a successful hedge depends on the ability
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of the Funds' Manager to predict pertinent market movements. Incorrect
predictions may make engaging in such transactions riskier to the Funds than
trading in the securities which each Fund is authorized to buy and sell.
Basically, there are two types of options: call options and put options. The
purchaser of a call option acquires the right to buy a security at a fixed price
during a specified period. The writer (seller) of such an option is then
obligated to sell the security if the option is exercised, and bears the risk
that the security's market price will increase over the purchase price set by
the option. The purchaser of a put option acquires the right to sell a security
at a fixed price during a specified period. The writer of such an option is then
obligated to buy the security if the option is exercised, and bears the risk
that the security's market price will decline from the purchase price set by the
option. Options are typically purchased subject to a premium which can reduce
the risks retained by the option writer.
As the writer of a covered call option or the purchaser of a secured put option,
a Fund must own securities that can be used to cover or secure any such
outstanding options. Also, when a Fund writes a put option, it must segregate
either cash or liquid, high-grade debt securities that are marked to market
daily with the Fund's custodian. The value of such segregated assets must at
least equal the exercise price of the put option. Segregating assets may limit a
Fund's ability to pursue other investment opportunities while options are
outstanding. The cover for a call option that is related to a foreign currency
can be short-term debt securities having a value equal to the option's face that
are denominated in the same currency as the call.
Options transactions can be voluntarily terminated before the exercise or
expiration of the options only by entering into closing transactions. The
ability to close out an option depends, in part, upon the liquidity of the
option market. If a Fund cannot close an option when it wants, it may miss
alternative investment opportunities.
Options trade on U.S. or foreign securities exchanges and in the
over-the-counter ("OTC") market. Exchange listed options are three-party
contracts issued by a clearing corporation. They generally have standardized
prices, expiration dates and performance mechanics. In contrast, all the terms
of an OTC option, including price and expiration date, are set by negotiation
between the buyer and seller (e.g., a Fund and a securities dealer or other
financial institution). A Fund could lose any premium it paid for an OTC option,
as well as any anticipated benefits of the transaction, if its counterparty
fails to perform under the option's terms. To minimize this risk, the Funds'
Manager will consider the creditworthiness of any counterparties with whom the
Funds may engage in OTC options transactions. However, there can be no assurance
that a counterparty will remain financially stable while an OTC option is
outstanding.
Generally, the staff of the SEC currently requires OTC options and any assets
used to cover such options to be treated as illiquid assets because OTC options
may not be actively traded. Until the SEC staff revises this position, neither
Fund will engage in OTC option transactions if, as a result, more than the
permitted portion of its net assets is invested in illiquid securities. (See the
Statement of Additional Information.)
Through the writing or purchase of securities index options, the Funds can
achieve many of same objectives as through the use of options on individual
securities. An option on a securities index is similar to an option on a
particular security except that, rather than the right to take or make delivery
of a particular security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than (in the case of a call) or less than (in the case of a put) the
exercise price of the option. Price movements in securities which a Fund owns or
intends to purchase probably will not correlate perfectly with movements in the
level of a securities index and, therefore, that Fund bears the risk of a loss
on a securities index option which is not completely offset by
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movements in the price of such securities. Because securities index options are
settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on a specific stock, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding underlying securities. The Funds may, however, cover call
options written on a securities index by holding a mix of stocks which
substantially replicates the movement of the index or by holding a call option
on the securities index with an exercise price no higher than the call option
sold.
The risks associated with purchasing and writing put and call options on
financial futures contracts can be influenced by the market for financial
futures contracts. An increase in the market value of a financial futures
contract on which a Fund has written an option may cause the option to be
exercised. In this situation, the benefit to the Fund would be limited to the
value of the exercise price of the option and, if the Fund closes out the
option, the cost of entering into the offsetting transaction could exceed the
premium the Fund initially received for writing the option. In addition, the
Fund's ability to enter into an offsetting transaction depends upon the market's
demand for such financial futures contracts. If an option purchased by a Fund
expires unexercised, that Fund would realize a loss in the amount of the premium
paid for the option.
The Funds may write covered call options on up to 25% of net assets, may write
secured put options on up to 25% of net assets and may purchase put and call
options provided that no more than 5% of total assets may be invested in
premiums on such options.
Repurchase Agreements. In a repurchase agreement transaction, a Fund purchases a
debt security and obtains a simultaneous commitment from the seller (i.e., a
bank or securities dealer) to repurchase the debt security at an agreed time and
price, reflecting a market rate of interest. Repurchase agreements are fully
collateralized (including the interest earned thereon) by U.S. government
securities, bank obligations, cash or cash equivalents, and are marked-to-market
daily during their respective terms. Costs, delays or losses could result if the
seller becomes bankrupt or is otherwise unable to repurchase a security that is
subject to a repurchase agreement. To attempt to minimize this risk, the
Company's Board of Directors periodically receives and reviews information about
the creditworthiness of securities dealers and banks which enter into repurchase
agreements with the Funds.
No more than 10% of the International Fund's net assets or 15% of The Emerging
Markets Fund's net assets will be invested at any one time in repurchase
agreements of more than seven days' duration and in other investments which are
considered not readily marketable by the staff of the SEC or the Board.
Privatizations. Certain foreign governments have begun programs intended to
privatize all or part of their interests in government owned or controlled
enterprises ("privatizations"). Investment in these enterprises may represent
significant opportunities for capital appreciation and, as such, may be
attractive investments under appropriate circumstances. Participation in
privatizations by foreign investors such as the Funds may be limited by local
law or pursuant to terms which may be less advantageous than those offered to
local investors. There can be no assurance that foreign governments will
continue to sell enterprises currently owned or controlled or that privatization
programs will be successful.
STRUCTURE AND MANAGEMENT OF THE FUNDS
General Structure and Operations of the Company. The Company is a diversified
open-end management investment company which was incorporated in Maryland in
October 1990. The Company, which was known as "Baillie Gifford International
Fund, Inc.," prior to October 11, 1994, and "GBGFunds, Inc." prior to March 27,
1997, has been organized as a "series" investment company
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which enables the Company, if it so chooses, to create more than one distinct
portfolio of investments. At present, the Company consists of three portfolios
of investments, two of which are described in this Prospectus. The Board may
establish additional portfolios with different investment objectives in the
future.
The business and affairs of the Funds are supervised by the Company's Board
which currently holds regular meetings on a quarterly basis. The Board currently
consists of nine directors, five of whom are not "interested persons" as defined
in the 1940 Act. The investments of the Funds are managed on a daily basis by
the Manager and the sub-investment manager, as described below. (See the
Statement of Additional Information for the identity and business experience of
the directors and officers of the Company.)
The Manager: Guardian Baillie Gifford Limited. The Manager is an investment
management company registered as a corporation under the laws of Scotland. It
was formed in November 1990 through a joint venture between GIAC, a wholly owned
U.S. subsidiary of The Guardian Life Insurance Company of America, a U.S.
insurance company, and Baillie Gifford Overseas Limited ("BG Overseas"), a
company wholly owned by the Scottish investment management partnership, Baillie
Gifford & Co. GIAC owns 51% of the voting shares of the Manager and may be
deemed to be in control of the Manager. BG Overseas owns the remaining 49% of
such shares. The Manager is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940.
BG Overseas, the minority shareholder of the Manager, is an investment
management company incorporated in Scotland and is registered with the SEC as an
investment adviser under the Investment Advisers Act of 1940. BG Overseas,
located in Edinburgh, Scotland, was formed several years ago by Baillie Gifford
& Co., its parent, specifically to manage funds for institutional clients
situated outside of the United Kingdom. Baillie Gifford & Co. is one of the
largest independently owned investment management firms in the United Kingdom.
Baillie Gifford & Co. has provided independent investment management services to
institutional clients primarily located in the United Kingdom since 1909.
Subject to the authority and supervision of the Board, the Manager is
responsible for the overall investment management of the Funds' portfolios and
furnishes the Board with reports and recommendations about the Funds' investment
programs and performance. In addition, the Manager maintains certain books and
records as required by the 1940 Act and by any other applicable laws and
regulations. The Manager has, in turn, entered into a sub-investment management
agreement with BG Overseas appointing the latter as sub-investment manager and
delegating to BG Overseas much of the day-to-day management responsibilities for
the portfolios of the Funds (see below).
The Sub-Manager: Baillie Gifford Overseas Limited. Pursuant to its appointment
as sub-investment manager, BG Overseas manages the investment and reinvestment
of the assets of the Funds. The Manager continuously monitors and evaluates the
performance of BG Overseas.
Pursuant to the sub-investment management agreement between the Manager and BG
Overseas, BG Overseas selects, purchases and sells portfolio securities and
selects brokers for the execution of such transactions. (See the Statement of
Additional Information for additional information on the Manager and BG
Overseas.)
The Manager, BG Overseas and Baillie Gifford & Co. are located at 1 Rutland
Court, Edinburgh, EH3 8EY, Scotland. The Manager and BG Overseas provide
investment management and advisory services in the manner described to one other
Guardian-sponsored, U.S. registered mutual fund.
The International Fund is managed by R. Robin Menzies, a Vice President of the
Company, and the Emerging Markets Fund is managed by Edward H. Hocknell, a Vice
President of the Company. Each is primarily responsible for allocation decisions
regarding geographical diversification of their
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respective Fund's assets. The decisions to buy and sell securities for the Funds
are made with the help of several investment teams at BG Overseas which have
expertise in specific overseas securities markets. Mr. Menzies provides similar
services to The Guardian Baillie Gifford International Fund, a series of The
Park Avenue Portfolio, which is an open-end management investment company
offered directly to the public. He has served as a Director of BG Overseas and a
partner of Baillie Gifford & Co. for over thirteen years. Mr. Hocknell provides
similar services to the Guardian Baillie Gifford Emerging Markets Fund, a series
of The Park Avenue Portfolio. He has served as a Director of BG Overseas since
October 1992 and as a partnerof Baillie Gifford & Co. since May, 1998. From
September 1984 to September 1992 he was a portfolio manager of Baillie Gifford &
Co.
Management Fee. As compensation for its services to the Funds, the Manager is
entitled to a fee, payable monthly, at the annual rate of 0.80% of the average
daily net assets of The International Fund and 1.00% of the average daily net
assets of The Emerging Markets Fund. Although those management fees are greater
than that paid by most mutual funds, the Company's Board believes these fees are
justified by the international scope of the Funds' investment activities.
Additionally, the Fund believes these fees are appropriate in light of the fees
charged by other mutual funds which have investment objectives and policies
similar to those of the Funds. One-half of this fee is payable by the Manager to
BG Overseas as compensation for the services of BG Overseas as sub-investment
manager to the Funds. It is important to note that the sub-investment management
fees do not represent separate or additional charges or assessments against the
Company or the Funds.
Expenses of the Funds. The Funds assume all expenses of their operations and
business not specifically assumed or agreed to be paid by the Manager. Expenses
paid by the Funds will include, for example, costs relating to: custody; the
services of the Funds' transfer agent and dividend disbursing agent; portfolio
accounting services; shareholder communications; shareholder meetings;
calculation of net asset value; legal fees and expenses; accounting and auditing
fees and expenses; directors' fees and expenses; U.S. federal and state
registration fees; brokerage commissions; taxes; and bonding and insurance.
PERFORMANCE RESULTS
The Funds may, from time to time, provide performance information in
advertisements, sales literature or other materials furnished to existing or
prospective owners of GIAC's variable contracts. When performance information is
provided in advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all recurring and
non-recurring charges incurred by the Funds. All performance results are
historical and are not representative of future results.
Total return and average annual total return reflect the change in value of an
investment in the Fund over a specified period, assuming the reinvestment of all
capital gains distributions and income dividends. Average annual total returns
show the average change in value for each annual period within a specified
period. Total returns, which are not annualized, show the total percentage or
dollar change in value over a specified period.
Each Fund may also compare its performance to other investment vehicles or other
mutual funds which have similar investment objectives or programs. Also, the
Funds may quote information from securities indices or financial and industry or
general interest publications in its promotional materials. Additionally, the
Funds' promotional materials may contain references to types and characteristics
of certain securities; features of their respective portfolios; financial
markets; or historical, current or prospective economic trends. Topics of
general interest, such as personal financial planning, may also be discussed.
More information about the Funds' performance is contained in the Statement of
Additional Information and Annual Report. Free copies may be obtained by calling
1-800-221-3253 or by writing to Guardian Investor Services Corporation.
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The Funds' returns and net asset value will fluctuate. Shares are redeemed in
response to transfer instructions or surrender and withdrawal requests at the
then current net asset value per share which may be more or less than original
cost. Please refer to the Statement of Additional Information for more
information about the Funds' performance. Additional performance information
concerning the Funds appears in the Company's 1997 Annual Report to Shareholders
which is available at no charge by calling the telephone number, or writing to
the address appearing on the cover page of this Prospectus.
CALCULATION OF NET ASSET VALUE
The net asset value ("NAV") of each of the Funds is determined as of the earlier
of the close of trading on the New York Stock Exchange or 4:00 p.m., Eastern
time, on each day on which the New York Stock Exchange is open for business.
Each Fund's NAV is calculated by subtracting the Fund's liabilities, including
expenses which are accrued daily, from its total assets and dividing the result
by the total number of shares outstanding.
Each Fund values its assets on their current market value when market quotations
are readily available. As of such time, quotations of foreign securities in
foreign currencies are converted into the U.S. dollar equivalents at the
prevailing market rates as computed by State Street Bank and Trust Company,
custodian of the Funds' assets. If a market value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Company's Board of Directors. Short-term securities which mature in 60
days or less are valued by using the amortized cost method, unless the Board
determines that this does not represent fair value. All investments by the Funds
are valued daily in U.S. dollars based on the then prevailing exchange rate.
The value of a foreign security held by a Fund is determined based upon its sale
price on the foreign exchange or market on which it is traded and in the
currency of that market, as of the close of the appropriate exchange or, if
there have been no sales during the day, at the mean of the closing bid and
asked prices. Trading in securities on exchanges and over-the-counter markets in
Europe and the Far East is normally completed at various times prior to 4:00
p.m. Eastern time, the current time for the close of trading on the New York
Stock Exchange. Trading on foreign exchanges may not take place on every day the
New York Stock Exchange is open. Conversely, trading in various foreign markets
may take place on days when the New York Stock Exchange is not open and on other
days when the Funds' net asset values are not calculated. Consequently, the
calculation of the net asset value for a Fund may not occur contemporaneously
with the determination of the most current market prices of the securities
included in such calculation. In addition, the value of the net assets held by
either of the Funds may be significantly affected on days when shares are not
available for purchase or redemption.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are continuously offered to GIAC's separate accounts at the
then current NAV. GIAC then offers to its contractowners units in its separate
accounts which directly correspond to shares in the Funds. GIAC submits purchase
and redemption orders to the Company based on allocation instructions for
premium payments, transfer instructions, or surrender and withdrawal requests
which are furnished to GIAC by such contractowners. Contractowners can send such
instructions and requests to GIAC at P.O. Box 26210, Lehigh Valley, PA 18002 by
first class mail or 3900 Burgess Place, Bethlehem, PA 18017 by overnight or
express mail. Payment for redeemed shares will ordinarily be made within three
(3) business days after the Company receives a redemption order from GIAC. The
redemption price will be the NAV next determined after GIAC receives the
contractowner's instructions or request in proper form. The Company may suspend
the right of redemption or postpone the date of payment beyond three (3)
business days during any period when trading on the New York Stock Exchange is
restricted, or such Exchange is closed for other than
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weekends and holidays; when an emergency makes it not reasonably practicable for
the Funds to dispose of their assets or calculate their respective NAV; or as
permitted by the SEC.
The accompanying prospectus for a GIAC variable annuity or variable life
insurance policy describes the allocation, transfer and withdrawal provisions of
such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds have qualified and intend to remain qualified as regulated investment
companies under the Internal Revenue Code of 1986, as amended ("Code"), so that
neither Fund will be subject to federal income tax on net investment income and
net capital gains that are distributed to GIAC's separate accounts. GIAC
reinvests all such distributions in additional shares of the Funds at NAV. The
Funds typically distribute any net investment income twice each year and any net
capital gains once each year. The Company's Board of Directors can change this
policy. Contractowners who own units in a separate account which correspond to
shares in the Funds will be notified when distributions are made.
The Code and its related Treasury Department regulations require mutual funds
that are offered through insurance company separate accounts to meet certain
diversification requirements to preserve the tax-deferral benefits provided by
the variable contracts which are offered in connection with such separate
accounts. The Manager intends to diversify the Funds' investments in accordance
with those requirements. The prospectuses for GIAC's variable annuities and
variable life insurance policies describe the federal income tax treatment of
distributions from such contracts.
Investment income received from sources within foreign countries may be subject
to foreign income taxes. In this regard, withholding tax rates in countries with
which the U.S. does not have a tax treaty are often as high as 30% or more. The
U.S. has entered into tax treaties with many foreign countries which entitle
certain investors (such as the Funds) to a reduced rate of tax (generally
10-15%) or to certain exemptions from tax. Each Fund will operate so as to
qualify for such reduced tax rates or tax exemptions whenever possible. While
contractowners will bear the cost of any foreign tax withholding, they will not
be able to claim a foreign tax credit or deduction for taxes paid by the Fund.
The foregoing is only a summary of important federal tax law provisions that can
affect the Funds. Other federal, state, or local tax law provisions may also
affect each Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a GIAC variable contract to or
from this Fund should consult a qualified tax adviser.
MISCELLANEOUS INFORMATION
Voting Rights. Through its separate accounts, GIAC is the sole shareholder of
record of the Funds, so, under the 1940 Act, GIAC is deemed to be in control of
the Funds. Nevertheless, when a Fund shareholders' meeting occurs, GIAC solicits
and accepts voting instructions from its contractowners who have allocated or
transferred monies for an investment in the Funds as of the record date for the
meeting. GIAC then votes the Funds' shares that are attributable to its
contractowners' interests in the Funds in accordance with their instructions.
GIAC will vote shares for which no instructions are received in the same
proportion as it votes shares for which it does receive instructions. GIAC will
vote any shares that it is entitled to vote directly due to amounts it has
contributed or accumulated in its separate accounts in the manner described in
the prospectuses for its variable annuities and variable life insurance
policies.
Each share of the Funds is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the directors.
The Company is not required to hold annual shareholder meetings, but special
meetings may be called
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to, among other things, elect or remove directors, change fundamental policies
or approve an investment advisory agreement.
Availability of the Fund. The Funds are only available to owners of variable
annuities or variable life insurance policies issued by GIAC through its
separate accounts. Certain variable life insurance contracts issued by GIAC may
only permit investment in the International Fund. The Company does not currently
foresee any disadvantages to the contractowners arising from offering shares of
its Funds to variable annuity and variable life insurance policy separate
accounts simultaneously, and its Board monitors events for the existence of any
material irreconcilable conflict between or among contractowners. If a material
irreconcilable conflict arises, one or more separate accounts may withdraw their
investments in the Funds. This could possibly force the Funds to sell portfolio
securities at disadvantageous prices. GIAC will bear the expenses of
establishing separate portfolios for variable annuity and variable life
insurance separate accounts if such action becomes necessary; however, ongoing
expenses that are ultimately borne by contractowners will likely increase due to
the loss of the economies of scale benefits that can be provided to mutual funds
with substantial assets.
Year 2000. Like other mutual funds, financial and business organizations around
the world, the Funds could be adversely affected if the computer systems used by
the Funds internally, the systems of the Funds' service providers, and related
computer systems do not properly process and calculate date-related information
and data beginning on January 1, 2000. Many computer systems today cannot
distinguish the year 2000 from the year 1900 because of the way dates were
encoded and calculated in these systems. GISC and the Funds' other service
providers have been actively working to change their systems, if necessary, to
deal with this problem, and each expects that its respective systems will be
adapted before January 1, 2000. However, there can be no assurance that these
preparations will be successful.
Custodian, Transfer Agent and Dividend Paying Agent. State Street Bank and Trust
Company, located at 1776 Heritage Drive, North Quincy, Massachusetts 02171,
serves as the custodian of the assets of the Company. Foreign securities
acquired by the Company will be maintained in the sub-custody of either foreign
banks and trust companies that are members of State Street Bank's Global Custody
Network or foreign depositories used by such members. GIAC serves as the
Company's transfer agent and dividend paying agent.
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Prospectus
May 1, 1998
THE GUARDIAN SMALL CAP STOCK FUND
This Prospectus offers shares of The Guardian Small Cap Stock Fund (the "Fund").
The Fund is a diversified series fund portfolio of GIAC Funds, Inc. (the
"Company") which is a diversified open-end management investment company.
The Fund's primary investment objective is long-term growth of capital. The Fund
invests primarily in common stocks and convertible securities that are issued by
companies with small market capitalization. Current income is of lesser
importance; however it is expected that long-term growth of capital will be
accompanied by growth in income.
Guardian Investor Services Corporation ("GISC"), which serves as the investment
manager for the Fund, is a New York corporation and a wholly-owned subsidiary of
The Guardian Insurance & Annuity Company, Inc. ("GIAC").
Investment in the Fund is available only to purchasers or current owners of
certain variable annuity and variable life insurance contracts issued by GIAC.
This Prospectus sets forth important information which a GIAC contractowner
should know about the investment policies and operations of the Fund before
investing and should be retained for future reference. Additional information
about the Fund is contained in a Statement of Additional Information, dated May
1, 1998, which has been filed with the Securities and Exchange Commission. A
copy of the Statement of Additional Information can be obtained, without charge,
by calling 1-800-221-3253 or by writing to the Company, c/o GIAC, 201 Park
Avenue South, New York, New York 10003. The Statement of Additional Information
is hereby incorporated by reference into this Prospectus.
Contents
Section Page
Financial Highlights 2
Investment Objective and Policies 3
Risk Considerations 4
Fund Management and the Investment Adviser 5
Performance Results 5
Calculation of Net Asset Value 6
Purchase and Redemption of Shares 7
Dividends, Distributions and Taxes 7
Miscellaneous Information 7
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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FINANCIAL HIGHLIGHTS
The following table provides selected data, total returns and ratios of the Fund
and has been audited by Ernst & Young LLP, independent auditors. This
information is supplemented by the Company's audited financial statements and
accompanying notes for the year ended December 31, 1997 which appear in the
Company's 1997 Annual Report to Shareholders. This Annual Report also includes
further information on the Fund's 1997 performance and the unqualified report of
Ernst & Young LLP on the Fund's 1997 Financial Statements. The Company's 1997
Annual Report is incorporated by reference into the Statement of Additional
Information. Free copies of the Company's Statement of Additional Information
and the Company's 1997 Annual Report are available by calling the telephone
number, or writing to the address, appearing on the cover page of this
Prospectus.
Selected data for a share of capital stock outstanding throughout the periods
indicated:
April 2, 1997* to
December 31,
1997
------------
Net asset value, beginning of period ................... $10.00
------------
Income from investment operations
Net investment income/(loss) ......................... 0.03
Net realized and unrealized gain/(loss) on investments 3.80
------------
Net increase/(decrease) from investment operations ... 3.83
------------
Dividends and Distributions to Shareholders from:
Net investment income ................................ (0.03)
Net realized gain .................................... (0.17)
------------
Total dividends and distributions ...................... (0.20)
------------
Net asset value, end of period ......................... $13.63
============
Total return** ......................................... 38.32%
============
Ratios/supplemental data:
Net assets, end of period (000's omitted) .............. $87,749
Ratio of expenses to average net assets ................ 0.96%(a)
Ratio of net invest income to average net assets ....... 0.48%(a)
Portfolio turnover rate ................................ 22%
Average rate of commission paid ........................ $0.0296
* Commencement of operations.
** Total returns do not reflect the effects of charges deducted pursuant to the
terms of GIAC's variable contracts. Inclusion of such charges would reduce
the total returns for all periods shown.
(a) Annualized.
2
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INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The Fund's investment objective is long-term growth of
capital. Current income is not a specific objective, although it is anticipated
that long-term growth of capital will be accompanied by growth in income. The
Fund's investment objective and certain investment restrictions are fundamental
policies which may not be changed without shareholder approval. Non-fundamental
investment techniques, policies and restrictions of the Fund may be changed by
the Company's Board of Directors (the "Board") without shareholder approval.
There is no assurance that the Fund will meet its investment objective, and the
Fund cannot eliminate the risk of loss inherent in the ownership of securities
by following its investment objective.
Investment Policies. The Fund attempts to meet its objective by normally
investing at least 85% of the value of its assets in a diversified portfolio of
common stocks and convertible securities issued by smaller companies. Smaller
companies will be defined as companies whose total market capitalization places
them within the range of issuers included in the Russell 2000 Index. The Russell
Indexes are formulated to serve as a comprehensive representation of the
investible domestic equity market. These indexes, which are comprised solely of
common stocks issued by companies domiciled in the U.S. or its territories, are
value weighted. The Russell 2000 Index is a subset of the larger, Russell 3000
Index, which measures the performance of the 3,000 largest domestic companies,
based on total market capitalization. The Russell 2000 Index measures the
perfomance of the 2,000 smallest companies in the Russell 3000 Index. As of
December 31, 1997, the market capitalization of the companies included in the
Russell 2000 Index ranged between $20 million and $2.97 billion. Convertible
securities are bonds or preferred stock issues which may be converted at a
specified time and price into shares of common stock of the same or different
issuers. Convertible securities are typically senior to common stock in a
corporation's capital structure, so they may entail less risk than common
stocks. The Fund may acquire convertible securities without regard to their
ratings. See the Statement of Additional Information.
In selecting investments for the Fund, GISC, the Fund's investment adviser, will
consider the investment fundamentals and the risk/reward prospects for each
security. These evaluations are supplemented through the use of various
quantitative investment models, both proprietary and non-proprietary, to
identify those securities that represent good relative value in the marketplace
and have reasonable prospects for superior relative price performance. GISC
believes that this multi-faceted process will enhance investment performance and
will improve the consistency of portfolio results over time.
GISC can change the proportion of the Fund's assets which are invested in
particular companies and industries based on its evaluation of the outlook for
specific industries and companies and the economy.
The Fund typically invests its available cash in repurchase agreements. In a
repurchase agreement transaction, the Fund purchases a debt security and obtains
a simultaneous commitment from the seller (i.e., a bank or securities dealer) to
repurchase the debt security at an agreed time and price, reflecting a market
rate of interest. Repurchase agreements are fully collateralized (including the
interest earned thereon) by U.S. government securities, bank obligations, cash
or cash equivalents and are marked-to-market daily during their respective
terms. Costs, delays or losses could result if the seller becomes bankrupt or is
otherwise unable to repurchase a security that is subject to a repurchase
agreement. To attempt to minimize this risk, the Fund's Board of Directors
periodically receives and reviews information about the creditworthiness of
banks and securities dealers which enter into repurchase agreements with the
Fund. The Fund will not enter into a repurchase agreement which matures in more
than seven days if, as a result, more than 15% of its net assets would be
invested in illiquid securities.
3
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From time to time, the Fund may invest up to 10% of its net assets in securities
of U.S. or foreign companies which are issued or settled overseas in the form of
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or
other similar securities. An ADR is a dollar-denominated security issued by a
U.S. bank or trust company which represents, and may be converted into, a
foreign security. An EDR is similar but is issued by a European bank. ADRs and
EDRs may be denominated in a currency different from the underlying securities
into which they may be converted. Typically, ADRs, in registered form, are
designed for issuance in U.S. securities markets and EDRs, in bearer form, are
designed for issuance in European securities markets. All such investments will
be U.S. dollar denominated. In addition, the Fund may invest up to 5% of its net
assets in foreign securities. See the Statement of Additional Information. If
adverse market conditions necessitate a defensive posture, the Fund may
temporarily invest some or all of its assets in debt obligations, including U.S.
government securities, investment grade corporate bonds, commercial paper,
repurchase agreements and cash equivalents.
RISK CONSIDERATIONS
Investment in Smaller Companies. Small cap companies may present greater
opportunities for investment return, but may also involve greater risks. They
may have limited product lines, markets, or financial resources, or may depend
on a limited management group. The Fund may invest a substantial portion of its
assets in securities issued by small companies. Some of the small companies in
which the Fund may invest may be unseasoned. The Fund may invest up to 15% of
total assets in the securities of issuers which have less than three years of
continuous operations. While the markets in securities of small 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 the Fund 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.
Foreign Securities. The Fund may invest in securities of foreign issuers.
Securities issued or settled overseas present additional and different risks to
the Fund. Foreign companies and foreign financial institutions may not be
subject to accounting standards or governmental supervision comparable to their
U.S. counterparts, and there may be less public information about their
operations. Foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors. Foreign countries may impose
withholding taxes on interest income from investments in securities issued
there, or may enact confiscatory taxation provisions targeted to certain
investors. The time period for settling transactions in foreign securities may
be longer than the time period permitted for the settlement of domestic
securities transactions. In addition, as described in the Statement of
Additional Information, the market prices for foreign securities are not
determined at the same time of day as the net asset value for the Fund's shares.
It may be difficult to obtain and enforce judgments against foreign entities,
and the expenses of litigation are likely to exceed those which would be
incurred in the United States.
Portfolio Turnover Rate. The Fund's portfolio turnover rate may vary
significantly from year to year. Although the Fund does not intend to trade
securities for short term profit, there is no limitation on the length of time
securities must be held by the Fund prior to being sold. The annual portfolio
turnover rate of the Fund is not usually expected to exceed 75%. (An annual
portfolio turnover rate of 100% would occur if all of the investments held in a
Fund's portfolio were replaced in a one-year period.)
4
<PAGE>
FUND MANAGEMENT AND THE INVESTMENT ADVISER
General Structure and Operations of the Company. The Company is a diversified
open-end management investment company which was incorporated in Maryland in
October 1990. The Company, which was known as "Baillie Gifford International
Fund, Inc." prior to October 11, 1994 and "GBGFunds, Inc." prior to March 27,
1997, has been organized as a "series" investment company which enables the
Company, if it so chooses, to create more than one distinct portfolio of
investments. At present, the Company consists of three portfolios of
investments, only one of which is described in this Prospectus. The Board may
establish additional portfolios with different investment objectives in the
future.
The management and affairs of the Fund are supervised by the Company's Board of
Directors. The Board meets regularly to review the Fund's investments,
performance, expenses, and other business affairs. The Board elects the Fund's
officers. The Board has nine members. Five Directors are not "interested
persons" of the Fund, as that term is defined in the Investment Company Act of
1940 ("the 1940 Act"). The names and business experience of the Directors and
officers of the Fund are set forth in the Statement of Additional Information.
GISC serves as investment adviser and provides certain administrative services
and facilities necessary to conduct the ongoing business of the Fund. GISC
selects, buys and sells securities for the Fund; chooses brokers and dealers to
effect the transactions; and negotiates any brokerage commissions. The Fund pays
GISC an investment management fee for these services at an annual rate of 0.75%
of its average daily net assets. Although this management fee is greater than
that paid by most mutual funds, the Company's Board believes that the fee is
reasonable in light of the services to be provided and the fees charged by other
mutual funds with similar objectives and policies. All payments are due on a
quarterly basis. The Fund also assumes all expenses of its operations and
business not specifically assumed or agreed to be paid by GISC. Expenses paid by
the Fund will include, for example, costs relating to: custody; the services of
the Fund's transfer agent and dividend disbursing agent; portfolio accounting
services; shareholder communications; shareholder meetings; calculation of net
asset value; legal fees and expenses; accounting and auditing fees and expenses;
directors' fees and expenses; U.S. federal and state registration fees;
brokerage commissions; taxes; and bonding and insurance.
GISC is located at 201 Park Avenue South, New York, New York 10003. GISC is
wholly owned by GIAC, which is, in turn, wholly owned by The Guardian Life
Insurance Company of America ("Guardian Life"), a mutual life insurance company
organized in the State of New York in 1860. GISC is the investment adviser to
eight of the ten series funds comprising The Park Avenue Portfolio, which is an
open-end management investment company, and four other open-end management
investment companies. GISC is the manager of another open-end management
investment company and is the co-adviser of a separate account of GIAC. GISC is
also the principal underwriter and distributor of The Park Avenue Portfolio and
of variable annuities and variable life insurance policies issued by GIAC. See
the Statement of Additional Information.
Effective April 9, 1998, Mr Luxenberg has assumed sole responsibility for the
portfolio management of the Fund. Mr. Luxenberg has shared responsibility for
the management of the assets of the Fund since its inception in May 1997. Mr
Luxenberg, who is a Second Vice President, Equity Securities of The Guardian
Life Insurance Company of America ("Guardian Life"), has concurrently assumed
sole responsibility for management of The Guardian Park Avenue Small Cap Fund
and joint responsibility for the management of The Guardian Park Avenue Fund and
The Guardian Stock Fund, Inc. Mr. Luxenberg has been a securities analyst for
Guardian Life for the last twelve years.
PERFORMANCE RESULTS
The Fund may, from time to time, provide performance information in
advertisements, sales literature or other materials furnished to existing or
prospective owners of GIAC's variable contracts. When
5
<PAGE>
performance information is provided in advertisements, it will include the
effect of all charges deducted under the terms of the specified contract, as
well as all recurring and non-recurring charges incurred by the Fund. All
performance results are historical and are not representative of future results.
Total return and average annual total return reflect the change in value of an
investment in the Fund over a specified period, assuming the reinvestment of all
capital gains distributions and income dividends. Average annual total returns
show the average change in value for each annual period within a specified
period. Total returns, which are not annualized, show the total percentage or
dollar change in value over a specified period.
The Fund may also compare its performance to other investment vehicles or other
mutual funds which have similar investment objectives or programs. Also, the
Fund may quote information from securities indices or financial and industry or
general interest publications in its promotional materials. Additionally, the
Fund's promotional materials may contain references to types and characteristics
of certain securities; features of their respective portfolios; financial
markets; or historical, current or prospective economic trends. Topics of
general interest, such as personal financial planning, may also be discussed.
More information about the Fund's performance is contained in the Statement of
Additional Information. Free copies may be obtained by calling 1 800-221-3253 or
by writing to GISC.
The Fund's returns and net asset value will fluctuate. Shares are redeemed in
response to transfer instructions or surrender and withdrawal requests at the
then current net asset value per share which may be more or less than original
cost. Please refer to the Statement of Additional Information for more
information about the Funds' performance.
CALCULATION OF NET ASSET VALUE
The net asset value ("NAV") of the Fund is determined as of the earlier of the
close of trading on the New York Stock Exchange or 4:00 p.m., Eastern time, on
each day on which the New York Stock Exchange is open for business. Each Fund's
NAV is calculated by subtracting the Fund's liabilities, including expenses
which are accrued daily, from its total assets and dividing the result by the
total number of shares outstanding.
The Fund values its assets on their current market value when market quotations
are readily available. As of such time, quotations of foreign securities in
foreign currencies are converted into the U.S. dollar equivalents at the
prevailing market rates as computed by State Street Bank and Trust Company,
custodian of the Fund's assets. If a market value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Company's Board of Directors. Short-term securities which mature in 60
days or less are valued by using the amortized cost method, unless the Board
determines that this does not represent fair value. All investments by the Fund
are valued daily in U.S. dollars based on the then prevailing exchange rate.
The value of a foreign security held by the Fund is determined based upon its
sale price on the foreign exchange or market on which it is traded and in the
currency of that market, as of the close of the appropriate exchange or, if
there have been no sales during the day, at the mean of the closing bid and
asked prices. Trading in securities on exchanges and over-the-counter markets in
Europe and the Far East is normally completed at various times prior to 4:00
p.m. Eastern time, the current time for the close of trading on the New York
Stock Exchange. Trading on foreign exchanges may not take place on every day the
New York Stock Exchange is open. Conversely, trading in various foreign markets
may take place on days when the New York Stock Exchange is not open and on other
days when the Fund's net asset value is not calculated. Consequently, the
calculation of the net asset value for the Fund may not occur contemporaneously
with the determination of the most current market prices of the securities
included in such calculation. In addition, the value of the net assets held by
the Fund may be significantly affected on days when shares are not available for
purchase or redemption.
6
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are continuously offered to GIAC's separate accounts at the
then current NAV. GIAC then offers to its contractowners units in its separate
accounts which directly correspond to shares in the Fund. GIAC submits purchase
and redemption orders to the Company based on allocation instructions for
premium payments, transfer instructions, or surrender and withdrawal requests
which are furnished to GIAC by such contractowners. Contractowners can send such
instructions and requests to GIAC at P.O. Box 26210, Lehigh Valley, PA 18002 by
first class mail or 3900 Burgess Place, Bethlehem, PA 18017 by overnight or
express mail. Payment for redeemed shares will ordinarily be made within three
(3) business days after the Company receives a redemption order from GIAC. The
redemption price will be the NAV next determined after GIAC receives the
contractowner's instructions or request in proper form. The Company may suspend
the right of redemption or postpone the date of payment beyond three (3)
business days during any period when trading on the New York Stock Exchange is
restricted, or such Exchange is closed for other than weekends and holidays;
when an emergency makes it not reasonably practicable for the Fund to dispose of
its assets or calculate its NAV; or as permitted by the SEC.
The accompanying prospectus for a GIAC variable annuity or variable life
insurance policy describes the allocation, transfer and withdrawal provisions of
such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended ("Code"), so that the Fund will not be subject
to federal income tax on net investment income and net capital gains that are
distributed to GIAC's separate accounts. GIAC reinvests all such distributions
in additional shares of the Fund at NAV. The Fund typically distributes any net
investment income twice each year and any net capital gains once each year. The
Company's Board of Directors can change this policy. Contractowners who own
units in a separate account which correspond to shares in the Fund will be
notified when distributions are made.
The Code and its related Treasury Department regulations require mutual funds
that are offered through insurance company separate accounts to meet certain
diversification requirements to preserve the tax-deferral benefits provided by
the variable contracts which are offered in connection with such separate
accounts. GISC intends to diversify the Fund's investments in accordance with
those requirements. The prospectuses for GIAC's variable annuities and variable
life insurance policies describe the federal income tax treatment of
distributions from such contracts.
Investment income received from sources within foreign countries may be subject
to foreign income taxes. In this regard, withholding tax rates in countries with
which the U.S. does not have a tax treaty are often as high as 30% or more. The
U.S. has entered into tax treaties with many foreign countries which entitle
certain investors (such as the Fund) to a reduced rate of tax (generally 10-15%)
or to certain exemptions from tax. The Fund will operate so as to qualify for
such reduced tax rates or tax exemptions whenever possible. While contractowners
will bear the cost of any foreign tax withholding, they will not be able to
claim a foreign tax credit or deduction for taxes paid by the Fund.
The foregoing is only a summary of important federal tax law provisions that can
affect the Fund. Other federal, state, or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a GIAC variable contract to or
from this Fund should consult a qualified tax adviser.
MISCELLANEOUS INFORMATION
Voting Rights. Through its separate accounts, GIAC is the sole shareholder of
record of the Fund, so, under the 1940 Act, GIAC is deemed to be in control of
the Fund. Nevertheless, when a Fund
7
<PAGE>
shareholders' meeting occurs, GIAC solicits and accepts voting instructions from
its contractowners who have allocated or transferred monies for an investment in
the Fund as of the record date for the meeting. GIAC then votes the Fund's
shares that are attributable to its contractowners' interests in the Fund in
accordance with their instructions. GIAC will vote shares for which no
instructions are received in the same proportion as it votes shares for which it
does receive instructions. GIAC will vote any shares that it is entitled to vote
directly due to amounts it has contributed or accumulated in its separate
accounts in the manner described in the prospectuses for its variable annuities
and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the directors.
The Company is not required to hold annual shareholder meetings, but special
meetings may be called to, among other things, elect or remove directors, change
fundamental policies or approve an investment advisory agreement.
Availability of the Fund. The Fund is only available to owners of certain
variable annuities or variable life insurance policies issued by GIAC through
its separate accounts. The Company does not currently foresee any disadvantages
to the contractowners arising from offering shares of the Fund to variable
annuity and variable life insurance policy separate accounts simultaneously, and
its Board monitors events for the existence of any material irreconcilable
conflict between or among contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investments in the
Fund. This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. GIAC will bear the expenses of establishing separate
portfolios for variable annuity and variable life insurance separate accounts if
such action becomes necessary; however, ongoing expenses that are ultimately
borne by contractowners will likely increase due to the loss of the economies of
scale benefits that can be provided to mutual funds with substantial assets.
Year 2000. Like other mutual funds, financial and business organizations around
the world, the Funds could be adversely affected if the computer systems used by
the Funds internally, the systems of the Funds' service providers, and related
computer systems do not properly process and calculate date-related information
and data beginning on January 1, 2000. Many computer systems today cannot
distinguish the year 2000 from the year 1900 because of the way dates were
encoded and calculated in these systems. GISC and the Funds' other service
providers have been actively working to change their systems, if necessary, to
deal with this problem, and each expects that its respective systems will be
adapted before January 1, 2000. However, there can be no assurance that these
preparations will be successful.
Custodian, Transfer Agent and Dividend Paying Agent. State Street Bank and Trust
Company, located at 1776 Heritage Drive, North Quincy, Massachusetts 02171,
serves as the custodian of the assets of the Company. Foreign securities
acquired by the Company will be maintained in the sub-custody of either foreign
banks and trust companies that are members of State Street Bank's Global Custody
Network or foreign depositories used by such members. GIAC serves as the
Company's transfer agent and dividend paying agent.
8
<PAGE>
BAILLIE GIFFORD INTERNATIONAL FUND
BAILLIE GIFFORD EMERGING MARKETS FUND
THE GUARDIAN SMALL CAP STOCK FUND
------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
------------
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Prospectus of Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund and the Prospectus of The Guardian
Small Cap Stock Fund dated May 1, 1998. The Funds are diversified series funds
of GIAC Funds, Inc. (the "Company"). The series funds are referred to in this
Statement of Additional Information as the "Funds" and each separately as a
"Fund". A free copy of the Prospectus may be obtained by writing to the Fund,
c/o The Guardian Insurance & Annuity Company, Inc., 201 Park Avenue South, New
York, New York 10003 or by telephoning 1-800-221-3253. Please retain this
document for future reference.
TABLE OF CONTENTS
Page
----
Investment Restrictions .......................................... B-2
Investment Objective and Policies ................................ B-5
Special Investment Techniques - International Fund
and Emerging Markets Fund ...................................... B-5
Special Investment Techniques - International Fund,
Emerging Markets Fund and Small Cap Stock Fund ................. B-10
Portfolio Transactions and Brokerage ............................. B-10
Company Management. .............................................. B-12
Investment Advisers, Sub-Investment Adviser and Distributor ...... B-15
GIAC and Other Fund Affiliates ................................... B-18
Taxes ............................................................ B-18
Performance Results .............................................. B-19
Fund Capitalization and Expenses ................................. B-21
Purchase and Redemption of Shares ................................ B-21
Custodian and Transfer Agent ..................................... B-22
Legal Opinion .................................................... B-22
Independent Auditors and Financial Statements .................... B-22
<PAGE>
INVESTMENT RESTRICTIONS
The International Fund has adopted the following investment restrictions
which cannot be changed without the approval of the holders of a majority of the
outstanding shares of the Fund. As defined in the Investment Company Act of
1940, as amended (the "1940 Act"), the vote of a majority of the outstanding
voting securities of a Fund means the lesser of the vote of (a) 67% or more of
the shares of the Fund present at a meeting where more than 50% of the
outstanding voting shares are present in person or by proxy, or (b) more than
50% of the outstanding voting shares of the Fund. The investment restrictions of
the International Fund listed below have also been adopted by the Emerging
Markets Fund. Under the 1940 Act, certain investment restrictions for the
Emerging Markets Fund can only be changed with the approval of the holders of a
majority of the outstanding shares of the Fund. These restrictions are
designated by an asterisk. The other investment restrictions of the Emerging
Markets Fund are non-fundamental policies which can be changed with respect to
the Fund with the approval of a majority of the Board of Directors and without
shareholder approval. The Small Cap Stock Fund has also adopted certain
investment restrictions some of which can only be changed with the approval of
the holders of a majority of the outstanding shares of the Fund as indicated
below, and the remainder of which are non-fundamental. All percentage
restrictions on investments apply at the time of the making of the investment
and shall not be considered to violate the limitations unless, immediately after
or as a result of the investment, an excess or deficiency of the restrictions
occurs. A later increase or decrease beyond a specified limit that results from
a change in value or net assets shall not constitute a violation of the
applicable restriction.
The International Fund and the Emerging Markets Fund
The following investment restrictions provide that the International Fund
and the Emerging Markets Fund may not:
*1. Borrow money, except that the Fund may borrow from banks up to 20% of
the value of its total assets as a temporary measure for extraordinary or
emergency needs, for example, to enable the Fund to meet redemption requests or
to settle transactions on different stock markets where different settlement
dates apply which might otherwise require the sale of portfolio securities at a
time when it would not be in a Fund's best interests to do so. Up to 5% of the
Fund's total assets may be borrowed from non-banking institutions. The Fund may
not, however, borrow money for investment purposes.
*2. Mortgage, pledge or hypothecate more than 5% of the value of the
Fund's total assets, and then only to secure borrowings effected within the
above restriction. Neither the deposit in escrow of underlying securities in
connection with the writing of call options, nor the deposit in escrow of U.S.
Treasury bills in connection with the writing of put options, nor the deposit of
cash and cash equivalents in a segregated account with the Fund's custodian or
in a margin account with a broker in connection with futures transactions,
options transactions, nor the writing of call and put options in spread
transactions, is deemed to be a pledge.
*3. Make loans of money or portfolio securities, except through the
purchase of debt obligations and repurchase agreements in which the Fund may
invest consistent with its investment objective and policies.
*4. Purchase any securities if, immediately after such purchase, more than
25% of the value of a Fund's total assets would be invested in the securities of
issuers in the same industry. There is no limitation as to the Fund's
investments in obligations issued by U.S. branches of domestic banks or in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. For purposes of this restriction, the obligations of each
foreign government are deemed to constitute an industry.
*5. Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer. For purposes of this
restriction, all outstanding debt securities of an issuer are considered as one
class, and all preferred stock of an issuer is considered as one class. (This
restriction does not apply to obligations issued or guaranteed by the U.S. or
foreign governments, or their respective agencies or instrumentalities.)
6. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New York
Stock Exchange, American Stock Exchange, or one of the major foreign stock
exchanges, except that warrants attached to other securities in which the Funds
invest are not subject to these limitations.
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7. Invest more than 10% of the value of the net assets of the
International Fund or 15% of the net assets of the Emerging Markets Fund in
securities that are not readily marketable or which are restricted as to
disposition under the U.S. securities laws or otherwise. This restriction shall
not apply to securities purchased or sold pursuant to Rule 144A under the
Securities Act of 1933. This restriction will apply to repurchase agreements
maturing in more than seven days. This restriction will also apply to securities
received as a result of a corporate reorganization or similar transaction
affecting readily marketable securities already held in a Fund's portfolio. To
the extent that securities received under these circumstances, together with
other securities considered illiquid by the staff of the Securities and Exchange
Commission ("SEC") or by the Company's Board, exceed the applicable percentage
of the value of the Fund's total assets, the Fund will attempt to dispose of
them in an orderly fashion in order to reduce its holdings in such securities to
less than the applicable threshold.
*8. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under the
Securities Act of 1933 in selling its portfolio securities.
9. Purchase securities of other U.S. or foreign investment companies,
except that the Fund may make such a purchase (a) in the open market provided
that immediately thereafter (i) not more than 10% of the Fund's total assets
would be invested in such securities; (ii) not more than 5% of the Fund's total
assets would be invested in securities of any one investment company; and (iii)
not more than 3% of the total outstanding voting stock of any one investment
company would be owned by the Fund, or (b) as part of an offer of exchange,
reorganization or as a dividend.
10. Purchase securities on margin, sell securities short, maintain a short
position or participate on a joint or a joint and several basis in any trading
account in securities, except that the Funds may (i) obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities; (ii) purchase or sell futures contracts; and (iii) deposit or pay
initial or variation margin in connection with financial futures contracts or
related options transactions.
11. Purchase or sell put options, call options, or combinations thereof,
except that the Funds may (i) write covered call and secured put options and
enter into closing purchase transactions with respect to such options, (ii)
purchase put and call options, provided that the premiums on all outstanding
options do not exceed 5% of its total assets, and enter into closing sale
transactions with respect to such options; and (iii) engage in financial futures
contracts and related options transactions to seek to hedge against either a
decline in the value of securities included in the Fund's portfolio or an
increase in the price of securities which the Fund plans to purchase in the
future, or to increase the current return of its portfolio by writing covered
call or covered put options, as each is described under the "Special Investment
Techniques" sections of the Company's Prospectus and Statement of Additional
Information.
*12. Purchase or sell commodities or commodity contracts, except that the
Funds may enter into financial futures contracts, options contracts, options on
futures contracts and forward foreign currency exchange contracts as described
in the "Special Investment Techniques" sections of the Company's Prospectus and
Statement of Additional Information.
*13. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are secured by
interests in real estate, or securities that represent interests in real estate,
including real estate investment trusts).
14. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Funds may invest in the
securities of companies which invest in or sponsor such programs.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Company, the officers, directors and employees of the Company or of the
Company's investment manager or sub-investment manager who individually own more
than one half of 1% of the outstanding securities of such issuer together own
more than 5% of the securities of such issuer.
16. Purchase securities for the purpose of exercising control over another
company.
*17. Issue any "senior securities" as defined in the 1940 Act (except for
engaging in futures and options transactions as well as any other investment
techniques described in the Prospectus or Statement of Additional Information,
and except for borrowing subject to the restrictions set forth under Investment
Restriction 1, above).
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The Small Cap Stock Fund
The Fund has adopted the following investment restrictions which cannot be
changed without the approval of the holders of a majority of the outstanding
shares of the Fund. The following investment restrictions provide that the Small
Cap Stock Fund may not:
1. As to 75% of the Fund's total assets, purchase any security (other than
obligations of the U.S. Government, its agencies or instrumentalities and
investment companies) if as a result, more than 5% of the Fund's total assets
(taken at current value) would then be invested in the securities of a single
issuer.
2. Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks are each considered as one class.
3. Borrow money, except that the Fund may (i) borrow up to 5% of the value
of its total assets (not including the amount borrowed) for temporary or
emergency needs; and (ii) engage in reverse repurchase agreements or other
transactions which may involve a borrowing from banks or other persons, provided
that the aggregate amount involved in all such transactions shall not exceed 33%
of the value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law;
4. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets and then only to secure borrowings effected within the above restriction;
5. Make loans to other persons except for loans of portfolio securities
and except through the purchase of debt obligations and repurchase agreements in
which the Fund may invest, consistent with its investment objectives and
policies, provided that repurchase agreements maturing in more than seven days,
when taken together and at current value, may not exceed 15% of the Fund's net
assets;
6. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately after such
purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers in the same industry (there is no
limitation as to investments in obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities);
7. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of portfolio securities;
8. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations as well as readily marketable
interests such as real estate investment trusts and readily marketable
securities of companies which invest in real estate);
9. Write, purchase or sell puts, calls, or combinations thereof;
10. Purchase or sell commodities or commodity contracts;
11. Issue any senior securities except as permitted under the Investment
Company Act of 1940.
The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Directors without shareholder approval. The Fund may
not:
12. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New York or
American Stock Exchanges, except that warrants attached to other securities are
not subject to these limitations;
13. Purchase securities restricted as to resale if, as a result, (i) more
than 10% of the Fund's total assets would be invested in such securities, or
(ii) more than 5% of the Fund's total assets (excluding any securities eligible
for resale under Rule 144A under the Securities Act of 1933) would be invested
in such securities;
14. Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale, and (c) repurchase
agreements maturing in more than seven days, if, as a result, more than 15% of
the Fund's net assets (taken at current value) would then be invested in the
aggregate in securities described in (a), (b), and (c) above;
15. Invest in securities of other registered investment companies;
16. Purchase securities on margin or sell securities short, or participate
on a joint or a joint and several basis in any trading account in securities;
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<PAGE>
17. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in the
securities of companies which invest in or sponsor such programs;
18. Purchase or retain the securities of any issuer, if, to the knowledge
of the Fund, the officers, directors and employees of the Fund or of the Adviser
who individually own more than 1/2 of 1% of the outstanding securities of such
issuer together own more than 5% of the securities of such issuer; and
19. Purchase securities for the purpose of exercising control over another
company.
INVESTMENT OBJECTIVE AND POLICIES
As described in the Prospectus, each Fund is permitted to invest in
convertible securities. Convertible securities are bonds or preferred stock
issues, which may be converted at a stated price within a specified period of
time into a specific number of shares of common stock of the same or a different
issuer. Convertible securities also have characteristics similar to
non-convertible debt securities in that they ordinarily provide income with
generally higher yields than those of common stock of the same or a similar
issuer. However, convertible securities are usually subordinated to
non-convertible debt securities. Convertible securities carry the potential for
capital appreciation should the value of the underlying common stock increase,
but they are subject to a lesser risk of a decline in value, relative to the
underlying common stock, due to their fixed-income nature. Due to the conversion
feature, however, the interest rate or dividend rate on convertible securities
is generally less than would be the case if the securities were not convertible.
In evaluating a convertible security for a Fund, Guardian Baillie Gifford
Limited, the investment adviser of the International Fund and the Emerging
Markets Fund, or BG Overseas Limited, the sub-investment adviser of the
International Fund and the Emerging Markets Fund ("BG Overseas"), or Guardian
Investor Services Corporation, the investment adviser of the Small Cap Stock
Fund, looks primarily at the attractiveness of the underlying common stock and
at the fundamental business strengths of the issuer. Other factors considered
include the yield of the convertible security in relation to the yield of the
underlying common stock, the premium over investment value and the degree of
call protection.
SPECIAL INVESTMENT TECHNIQUES - INTERNATIONAL FUND AND EMERGING MARKETS FUND
The Prospectus for the International Fund and the Emerging Markets Fund
describes the investment objective of each of the Funds, as well as certain
investment policies and investment techniques which the Funds may employ in an
effort to achieve their respective investment objectives. The following
discussion supplements the section entitled "Special Investment Techniques"
contained in the International Fund and Emerging Markets Fund Prospectus. There
can be no assurance that these techniques will enable the Funds to achieve their
investment objectives.
Forward Foreign Currency Transactions. The foreign securities held by the
Funds will usually be denominated in foreign currencies and the Funds may
temporarily hold foreign currency in connection with such investments. As a
result, the value of the assets held by a Fund may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. The Funds may enter into forward foreign currency exchange
contracts ("forward currency contracts") in an effort to control some of the
uncertainties of foreign currency exchange rate fluctuations. A forward currency
contract is an agreement to purchase or sell a specific currency at a specified
future date and price agreed to by the parties at the time of entering into the
contract. The Funds will not engage in forward currency contracts for
speculation, but only as an attempt to hedge against changes in currency
exchange rates affecting the values of securities which a Fund holds or intends
to purchase. Thus, the Funds will not enter into a forward currency contract if
such contract would obligate that Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.
A Fund will normally be expected to use forward currency contracts to fix
the value of certain securities it has agreed to buy or sell. For example, when
a Fund enters into a contract to purchase or sell securities denominated in a
particular foreign currency, a Fund could effectively fix the maximum cost of
those securities by purchasing or selling a foreign currency contract, for a
fixed value of another currency, in the amount of foreign currency involved in
the underlying transaction. In this way, the Funds can protect the value of
securities in the underlying transaction
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<PAGE>
from an adverse change in the exchange rate between the currency of the
underlying securities in the transaction and the currency denominated in the
foreign currency contract, during the period between the date the security is
purchased or sold and the date on which payment is made or received.
The Funds may also use forward currency contracts to hedge the value, in
U.S. dollars, of securities it currently owns. For example, if a Fund held
securities denominated in a foreign currency and anticipated a substantial
decline (or increase) in the value of that currency against the U.S. dollar,
that Fund may enter into a foreign currency contract to sell (or purchase), for
a fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of all or a portion of the securities held which are denominated in such
foreign currency.
Upon the maturity of a forward currency transaction, a Fund may either
accept or make delivery of the currency specified in the contract or, at any
time prior to maturity, enter into a closing transaction which involves the
purchase or sale of an offsetting contract. An offsetting contract terminates
the Fund's contractual obligation to deliver the foreign currency pursuant to
the terms of the forward currency contract by obligating the Fund to purchase
the same amount of the foreign currency, on the same maturity date and with the
same currency trader, as specified in the forward currency contract. The Fund
realizes gains or losses as a result of entering into such an offsetting
contract to the extent the exchange rate between the currencies involved changed
between the time of the execution of the original forward currency contract and
the offsetting contract.
The use of forward currency contracts to protect the value of securities
against the decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities a Fund owns or intends to acquire,
but it does fix a future rate of exchange. Although such contracts minimize the
risk of loss resulting from a decline in the value of the hedged currency, they
also limit the potential for gain resulting from an increase in the value of the
hedged currency. The benefits of forward currency contracts to the Funds will
depend on the ability of the Funds' investment manager to accurately predict
future currency exchange rates.
Options on Securities. A Fund may write (sell) covered call options so
long as it owns securities which are acceptable for the purpose of covering the
outstanding options in the transaction, and may write secured put options, which
means that so long as the Funds are obligated as writers of a put option, they
will invest an amount not less than the exercise price of the put option in
eligible securities (i.e., cash or cash equivalents). These obligations reduce
the Funds' flexibility to pursue other investment opportunities while options
are outstanding. The Funds may also purchase put and call options. A call option
gives the purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the exercise price during or, in some cases at the end
of, the option period. The premium received for writing an option will reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the price volatility of
the underlying security, the option period, supply and demand and interest
rates.
During the option period, the covered call writer gives up the potential
for capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the writer
having to deliver the underlying security to the holder of the option at the
exercise price, which will likely be lower than the security's value. For the
secured put writer, substantial depreciation in the value of the underlying
security would result in the exercise of the option by the holder, thereby
obligating the writer to purchase the underlying security at the exercise price,
which will likely exceed the security's value.
If a covered call option expires unexercised, the writer realizes a gain
and the buyer a loss in the amount of the premium. If the covered call option
writer has to sell the underlying security because of the exercise of the call
option, the writer realizes a gain or loss from the sale of the underlying
security, with the proceeds being increased by the amount of the premium. If the
secured put option expires unexercised, the writer realizes a gain and the buyer
a loss in the amount of the premium. If the secured put writer has to buy the
underlying security because of the exercise of the put option, the secured put
writer incurs an unrealized loss to the extent that the current market value of
the underlying security is less than the exercise price of the put option.
However, this would be offset in whole or in part by gain from the premium
received and any interest income earned on the investment of the premium.
The Funds may write or purchase spread options, which are options for
which the exercise price may be a fixed monetary spread or yield spread between
the security underlying the option and another security that is used as a
benchmark. Spread options involve the same risks as are associated with
purchasing and selling options on
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securities generally, as described above. The writer (seller) of a spread option
which expires unexercised realizes a gain in the amount of the premium and any
interest earned on the investment of the premium. However, if the spread option
is exercised, the writer will forego the potential for capital appreciation or
incur an unrealized loss to the extent the market value of the underlying
security exceeds or is less than the exercise price of such spread option. The
purchaser of a spread option incurs costs equal to the amount of the premium
paid for such option if the spread option expires unexercised or the associated
transaction costs if the purchaser closes out the spread option position.
The Funds may also purchase options in combination with each other. For
example, a Fund may purchase a put option and a call option, each with the same
expiration date, on the same underlying security. A Fund will profit from the
combination position if an increase or decrease in the value of the underlying
security is sufficient for a Fund to profit from exercise of either the call
option or the put option. Combined option positions involve higher transaction
costs (because of the multiple positions taken) and may be more difficult to
open and close out than other option positions.
The exercise price of an option may be below, equal to, or above the
current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows a Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times the Funds
may seek to establish a position in securities upon which call options are
available. By purchasing a call option the Funds are able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because a Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
Stock Index Options. As part of its options transactions, the Funds may
also use options on stock indices. Through the writing and purchase of stock
index options, the Funds can achieve many of the same objectives as through the
use of options on individual securities. Stock index options are similar to
options on a particular stock except that, rather than the right to take or make
delivery of a security at a specified price, an option on a stock index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash (the "exercise settlement
amount") is equal to the difference between the closing price of the index and
the exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements are in cash and gain or loss depends on price movements
in the market generally (or in a particular industry or segment of the market)
rather than price movements in individual securities.
When a Fund writes an option on a stock index, it will be required to
cover the option or to segregate assets equal in value to 100% of the exercise
price in the case of a put, or the contract value in the case of a call. In
addition, where a Fund writes a call option on a stock index at a time when the
exercise price exceeds the contract value, the Fund will segregate, until the
option expires or is closed out, cash or cash equivalents equal in value to such
excess.
Options on stock indices involve risks similar to those risks relating to
transactions in financial futures contracts described below. Also, an option
purchased by a Fund may expire worthless, in which case that Fund would lose the
premium paid therefor.
Financial Futures Contracts. The Funds may enter into interest rate or
stock index futures contracts (collectively referred to as "financial futures
contracts") primarily to hedge (protect) against anticipated future changes in
interest rates or equity market conditions which otherwise might adversely
affect the value of securities which a Fund holds or intends to purchase. A
"sale" of a financial futures contract means the undertaking of a contractual
obligation to deliver the securities or the cash value called for by the
contract at a specified price during a specified delivery period. A "purchase"
of a financial futures contract means the undertaking of a contractual
obligation to acquire the securities at a specified price during a specified
delivery period. When a Fund enters into a financial futures contract, it is
required to deposit with its custodian on behalf of the broker a specified
amount of cash or eligible securities, called "initial margin." The initial
margin required for a financial futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker, are made on a daily basis as the market price of the financial
futures contract fluctuates. At the time of delivery, pursuant to the contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate than that specified in the
contract. With respect to stock index futures contracts, settlement is made by
means of a cash payment based on any fluctuation in the contract value since the
last adjustment in the variation margin was made.
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If a Fund owned long-term bonds and expected interest rates to rise, it
could sell interest rate futures contracts. If interest rates did increase, the
value of the bond in that Fund would decline, but this decline should be offset
in whole or in part by an increase in the value of the Fund's interest rate
futures contracts. If, on the other hand, long-term interest rates were expected
to decline, a Fund could hold short-term debt securities and benefit from the
income earned by holding such securities, while at the same time purchasing
financial futures contracts on long-term bonds. Thus, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them. The financial futures contracts and short-term debt
securities could then be liquidated and the cash proceeds used to buy long-term
bonds.
In some cases, securities called for by a financial futures contract may
not have been issued at the time the contract was written. There may also be an
imperfect correlation between the price movements of the financial futures
contracts and price movements of the securities which a Fund owns or intends to
purchase. The degree of difference in price movement between financial futures
contracts and the securities being hedged depends upon such things as
differences between the securities being hedged and the securities underlying
the financial futures contracts and variations in speculative market demand for
financial futures contracts and securities.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery of the security. The offsetting of a
contractual obligation is accomplished by purchasing (or selling as the case may
be) on a commodities or futures exchange an identical financial futures contract
calling for delivery in the same month. Such a transaction, if effected through
a member of an exchange, cancels the obligation to make or take delivery of the
securities. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. The Funds will incur brokerage fees when it purchases or sells financial
futures contracts, and will be required to maintain margin deposits.
Options on Financial Futures Contracts. The Funds may purchase and write
put and call options on financial futures contracts. An option on a financial
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a financial futures contract at a specified exercise
price at any time during the period of the option. Upon exercise, the writer of
the option delivers the financial futures contract to the holder at the exercise
price. The Funds would be required to deposit with the Company's custodian
initial margin and variation margin with respect to put and call options on
financial futures contracts it has written.
Foreign Currency Futures and Options on Foreign Currency Futures. The
Funds may purchase and sell futures contracts on foreign currencies, related
options thereon and options on foreign currencies as a hedge against possible
variation in foreign exchange rates. A futures contract on a foreign currency is
an agreement between two parties to buy and sell a specified amount of a
particular currency for a particular price on a future date. An option on a
foreign currency futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a foreign currency futures contract at
a specified price at any time during the period of the option. An option
transaction on a foreign currency provides the holder with ability to buy or
sell a particular currency at a fixed price on a future date, and is used to
hedge the currency exchange rate risk on non-U.S. dollar-denominated securities
owned by either or both of the Funds, anticipated to be purchased by a Fund, or
sold by a Fund but not yet delivered. Options on foreign currencies may be
traded on U.S. and foreign exchanges or in the over-the-counter market.
Foreign currency futures contracts and options on foreign currency futures
contracts are traded on boards of trade and futures exchanges. Buyers and
sellers of foreign currency futures contracts are subject to the same risks
which apply to the use of futures contracts generally. In addition, there are
risks associated with foreign currency futures contracts similar to those
associated with options on foreign currencies, described above. Moreover, the
ability to close out positions in options on foreign currency futures contracts
is subject to the continuing availability of a liquid secondary market. In order
to reduce this risk, the Funds will not purchase or sell options on foreign
currency options unless, in the opinion of the Funds' investment manager, a
sufficiently liquid secondary market exists so that the risks connected to such
options transactions are not greater than the risks associated with the
underlying foreign currency futures contract.
The Funds will only write covered options on foreign currency or foreign
currency futures contracts. A put on a foreign currency or foreign currency
futures contract written by a Fund will be considered covered if the Fund
segregates cash, U.S. government securities or other liquid high-grade debt
securities, equal to the average exercise price of the put. A call on a foreign
currency or on a foreign currency futures contract written by a Fund will be
considered covered if the Fund owns short-term debt securities with a value
equal to the face amount of the option contract denominated in the currency upon
which the call is written.
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The Funds will purchase options on foreign currencies in an attempt to
hedge against fluctuations in exchange rates. However, should exchange rates
move adversely to the Funds' position, the Funds may forfeit both the entire
price of the option plus the related transaction costs.
Special Considerations Relating to Futures Transactions. Financial futures
contracts entail certain risks. If the Manager's judgment about the general
direction of interest rates or markets is wrong, the Funds' overall performance
may be poorer than if no such contracts had been entered into.
There may also be an imperfect correlation between movements in prices of
financial futures contracts and portfolio securities being hedged. The degree of
difference in price movement between financial futures contracts and the
securities being hedged depends upon such things as differences between the
securities being hedged and the securities underlying the financial futures
contracts, and variations in speculative market demand for financial futures
contracts and securities. In addition, the market prices of futures contracts
may be affected by certain factors. If participants in the futures market elect
to close out their contracts through offsetting transactions rather than meet
margin requirements, distortions in the normal relationship between the
securities and futures markets could result. Price distortions could also result
if investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions, which would reduce the
liquidity of the futures market. In addition, because the margin requirements in
the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of market trends by the Funds' investment manager may still not result
in a successful hedging transaction. If this should occur, the Funds could lose
money on the financial futures contracts and also on the value of their
portfolio securities.
Engaging in foreign futures and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the National Futures Association ("NFA") nor any domestic
(U.S.) exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the exchange may be liquidated by a transaction on
the appropriate domestic market. Moreover, applicable laws or regulations will
vary depending on the foreign country in which the foreign futures or foreign
options transaction occurs. Therefore, entities (such as the Funds) which trade
foreign futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, Commodity Futures
Trading Commission ("CFTC") regulations, the rules of the NFA or those of a
domestic (U.S.) exchange. In particular, monies received from customers for
foreign futures or foreign options transactions may not be provided the same
protections as monies received in connection with transactions on U.S. futures
exchanges. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time the order for the
futures contract or option is placed and the time it is liquidated, offset or
exercised.
Applicable U.S. Regulatory Restrictions. To the extent required to comply
with the 1940 Act and the rules and interpretations thereunder, whenever one of
the Funds purchases a financial futures contract, writes a put option or enters
into a delayed-delivery purchase, that Fund will maintain in a segregated
account either cash or liquid high-grade securities equal to the value of the
contracts. This segregation of assets places a practical limit on the extent to
which the Funds may engage in financial futures contracts, write put options,
and enter into delayed-delivery transactions.
To the extent required to comply with CFTC Regulation 4.5 and thereby
avoid "commodity pool operator" status, the Funds will not enter into a
financial futures contract or purchase an option thereon if immediately
thereafter the aggregate initial margin deposits for financial futures contracts
held by a Fund plus premiums paid by it for open options on futures would exceed
5% of the liquidation value of the Fund's total assets, taking into account
unrealized profits and losses on such contracts. The Funds will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only in an attempt to hedge against changes in interest rates or market
conditions affecting the value of securities which a Fund holds or intends to
purchase. When financial futures contracts or options thereon are purchased to
protect against a price increase on securities intended to be purchased later,
it is anticipated that at least 75% of such intended purchases will be
completed. Whenever financial futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not
B-9
<PAGE>
exceed the sum of: (1) accrued profit on such contract held by the broker; (2)
cash or high quality money market instruments set aside in an identifiable
manner plus funds deposited on margin on the contract; and (3) cash proceeds
from existing investments due in 30 days.
Miscellaneous. Several foreign governments permit investments by
non-residents only through participation in certain investment companies
specifically organized to participate in such markets. Subject to the provisions
of the 1940 Act, the Funds may invest in the shares of other investment
companies.
Pursuant to exemptive relief granted to the Funds under the 1940 Act, a
portion of the equity and convertible securities which may be acquired by a Fund
may be issued by foreign companies that, in each of their most recent fiscal
years, derived more than 15% of their gross revenues from their activities as a
broker, a dealer, an underwriter or an investment adviser.
The International Fund may also invest a portion of its assets in unit
trusts organized in the United Kingdom (which are analogous to U.S. mutual
funds) and which invest in smaller foreign markets than those which the
International Fund would ordinarily invest in directly. The International Fund
believes investments in such unit trusts will enhance the geographical
diversification of the International Fund's assets while reducing the risks
associated with investing in certain smaller foreign markets. Investments by the
International Fund in such unit trusts will provide increased liquidity and
lower transaction costs than are normally associated with direct investments in
such markets. At the present time, the International Fund intends to limit its
investments in unit trusts, together with its investments in other investment
companies, to no more than 5% of its total assets.
SPECIAL INVESTMENT TECHNIQUES - INTERNATIONAL FUND,
EMERGING MARKETS FUND AND SMALL CAP STOCK FUND
When-Issued or Delayed-Delivery Securities. The Funds may purchase or sell
the securities held in their portfolios on a when-issued or delayed-delivery
basis. When-issued or delayed-delivery transactions involve a commitment by a
Fund to purchase or sell particular securities, with payment and delivery to
take place at a future date, in order to secure what is considered to be an
advantageous price or yield to a Fund at the time of entering into the
transaction. When a Fund enters into a delayed-delivery transaction, it becomes
obligated to purchase securities and it has all of the rights and risks
attendant to ownership of a security, although delivery and payment occur at a
later date. The value of fixed income securities to be delivered in the future
will fluctuate as interest rates vary. The Funds generally have the ability to
close out a purchase obligation on or before the settlement date rather than
purchase the security.
To engage in such transactions, the Funds must set aside, in a segregated
account, cash or liquid high-grade securities at least equal in value to their
commitments to purchase when-issued or delayed-delivery securities. In the case
of a sale of securities on a delayed-delivery basis, a Fund must hold the
subject portfolio securities in a segregated account while the commitment is
outstanding. These obligations to segregate cash or securities will limit a
Fund's ability to pursue other investment opportunities.
To the extent a Fund engages in when-issued or delayed-delivery
transactions, it will do so for the purpose of acquiring portfolio securities in
a manner which is consistent with its investment objective and policies and not
for the purpose of either investment leverage or interest rate change
speculation. The Funds will only make commitments to purchase securities on a
when-issued or delayed-delivery basis with the intention of actually acquiring
the securities, but the Funds reserve the right to sell these securities before
the settlement date if deemed advisable. It is not expected that the Small Cap
Stock Fund will make extensive use of these techniques.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Guardian Baillie Gifford Limited ("GBG") serves as investment adviser of
the International Fund and Emerging Markets Fund in accordance with agreements
between the Company and GBG. Pursuant to sub-investment management agreements
with GBG, BG Overseas serves as the sub-investment adviser to the International
and Emerging Markets Funds. Guardian Investor Services Corporation ("GISC")
serves as investment adviser of the Small Cap Stock Fund. (GBG, BG Overseas and
GISC are collectively referred to as the "Advisers"). GISC and, subject to the
monitoring of GBG, BG Overseas, are responsible for decisions relating to the
purchase and sale of securities for the Funds, the timing of such purchases and
sales, the selection of brokers and dealers to effect transactions and the
negotiation of any brokerage commissions. GISC and BG
B-10
<PAGE>
Overseas intend to effect portfolio transactions for the Funds through dealers,
underwriters, or brokers through whom they believe they will obtain the best
price and execution available. In connection with over-the-counter transactions,
GISC and BG Overseas will attempt to deal with a primary market maker except
where they believe better prices and execution are available elsewhere.
In allocating portfolio transactions to different brokers, consideration
is given to brokers which GISC and BG Overseas believe can obtain the best price
and execution of orders, and to brokers who furnish statistical data, research
and other factual information. GISC and BG Overseas are authorized to pay a
commission in excess of that which another broker may charge for effecting the
same transaction if they consider that the commissions paid for brokerage,
research services and other statistical data are appropriate and reasonable for
the services rendered. Research services provided by brokers through whom the
Funds effect securities transactions may be used by GISC or BG Overseas in
servicing all of its accounts, and not all such services may be used by GISC or
BG Overseas in connection with the Funds.
For the years ended December 31, 1995, 1996 and 1997, the International
Fund paid brokerage commissions of $692,400, $704,982, and $1,044,872,
respectively. For the years ended December 31, 1995, 1996, and 1997, the
Emerging Markets Fund paid brokerage commissions of $139,527, $209,894 and
$474,638, respectively. For the period from April 2, 1997 (commencement of Fund
operations) through December 31, 1997, the Small Cap Stock Fund paid brokerage
commissions of $120,152. Neither GBG, BG Overseas nor GISC will participate in
commissions paid by the Funds to other brokers or dealers and neither party will
knowingly accept any reciprocal business directly or indirectly as a result of
paying commissions to other brokers or dealers.
Portfolio turnover rates for the International Fund for the years ended
December 31, 1996 and 1997 were 38% and 51%, respectively. For the Emerging
Markets Fund, the rates were 46% and 64%, respectively. The Portfolio turnover
rate for the Small Cap Stock Fund for the year ended December 31, 1997 was 22%.
B-11
<PAGE>
COMPANY MANAGEMENT
The directors and officers of the Company are listed below, together with
information about their principal occupations during the past five years and
certain other current affiliations. The business address of each director and
officer is 201 Park Avenue South, New York, New York 10003 unless otherwise
noted below. The Guardian Fund Complex is comprised of (1) the Company, (2) The
Guardian Stock Fund, Inc., (3) The Guardian Bond Fund, Inc., (4) The Guardian
Cash Fund, Inc. and (5) The Park Avenue Portfolio (a series trust that issues
its shares in ten series).
Name, Address and Age Title Business History
- --------------------- ----- ----------------
Joseph D. Sargent* (60) Chairman of Chief Executive Officer, The
the Board Guardian Life Insurance
Company of America,
1/96-present. President and
Director 1/93-present.
Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian
Investor Services
Corporation, Guardian Asset
Management Corporation,
Guardian Baillie Gifford,
Ltd. and various mutual funds
within the Guardian Fund
Complex.
John C. Angle* (74) Director Retired. Former Chairman of
3800 South 42nd Street the Board and Chief Executive
Lincoln, Nebraska 68506 Officer, The Guardian Life
Insurance Company of America;
Director 1/78-present.
Director (Trustee) of
Guardian Investor Services
Corporation from 2/82-2/96
and The Guardian Insurance &
Annuity Company, Inc.
Director (Trustee) of various
mutual funds within the
Guardian Fund Complex.
Frank J. Fabozzi, Ph.D. (49) Director Adjunct Professor of Finance,
858 Tower View Circle School of Management -- Yale
New Hope, Pennsylvania 18938 University 2/94-present;
Visiting Professor of Finance
and Accounting, Sloan School
of Management --
Massachusetts Institute of
Technology prior thereto.
Editor, Journal of Portfolio
Management. Director
(Trustee) of various mutual
funds within the Guardian
Fund Complex. Director
(Trustee) of various
closed-end investment
companies sponsored by
Blackstone Financial
Management.
Arthur V. Ferrara* (67) Director Retired. Chairman of the
Board of Directors and Chief
Executive Officer, The
Guardian Life Insurance
Company of America
1/93-12/95; Director
1/81-present. Director
(Trustee) of Guardian
Investor Services
Corporation, Guardian Asset
Management Corporation, The
Guardian Insurance & Annuity
Company, Inc., Gabelli
Capital Asset Fund and
various mutual funds within
the Guardian Fund Complex.
Leo R. Futia* (78) Director Retired. Former Chairman of
18 Interlaken Road the Board and Chief Executive
Greenwich, Connecticut 06830 Officer, The Guardian Life
Insurance Company of America;
Director 5/70-present.
Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian
Investor Services
Corporation, and various
mutual funds within the
Guardian Fund Complex.
Director (Trustee) of various
mutual funds sponsored by
Value Line, Inc.
William W. Hewitt, Jr. (69) Director Retired. Former Executive
P.O. Box 2359 Vice President, Shearson
Princeton, New Jersey 08543 Lehman Brothers, Inc.
Director (Trustee) of various
mutual funds within the
Guardian Fund Complex and
various mutual funds
sponsored by Mitchell
Hutchins Asset Management,
Inc. and PaineWebber Inc.
- ----------
*"Interested person," as defined in the 1940 Act.
B-12
<PAGE>
Name, Address and Age Title Business History
- --------------------- ----- ----------------
Sidney I. Lirtzman, Ph.D. (66) Director Professor of Management
38 West 26th Street 9/67-present and Acting Dean,
New York, New York 10010 School of Business
2/95-present, City University
of New York -- Baruch
College. President, Fairfield
Consulting Associates, Inc.
Director (Trustee) of various
mutual funds within the
Guardian Fund Complex.
Carl W. Schafer (62) Director President, Atlantic
P.O. Box 1164 Foundation (charitable
Princeton, New Jersey 08542 foundation supporting mainly
oceanographic exploration and
research). Director of
Roadway Express (trucking),
Evans Systems, Inc. (a motor
fuels, convenience store and
diversified company), Hidden
Lake Gold Mines Ltd. (gold
mining), Electronic Clearing
House, Inc. (financial
transactions processing),
Wainoco Oil Corporation and
Nutraceutrix Inc.
(biotechnology). Chairman of
the Investment Advisory
Committee of the Howard
Hughes Medical Institute
1985-1992. Director (Trustee)
of various mutual funds
within the Guardian Fund
Complex. Director (Trustee)
of various mutual funds
sponsored by Mitchell
Hutchins Asset Management,
Inc. and PaineWebber, Inc.
Robert G. Smith, Ph.D. (65) Director President, Smith Affiliated
132 East 72nd Street Capital Corporation and
New York, New York 10021 Director (Trustee) of various
mutual funds within the
Guardian Fund Complex.
John M. Smith (61) President Executive Vice President,
Equity Products 1/95 to
present, The Guardian Life
Insurance Company of America;
Senior Vice President prior
thereto. Director, Guardian
Baillie Gifford Limited
11/90-present. Executive Vice
President and Director, The
Guardian Insurance & Annuity
Company, Inc. President and
Director, Guardian Investor
Services Corporation.
Director of Guardian Asset
Management Corporation.
President, GIAC Funds, Inc.
Officer of one mutual fund
within the Guardian Fund
Complex.
Frank J. Jones (59) Executive Executive Vice President and
Vice Chief Investment Officer, The
President Guardian Life Insurance
Company of America
1/94-present; Senior Vice
President and Chief
Investment Officer
8/91-12/93. Director,
Guardian Investor Services
Corporation and Guardian
Baillie Gifford Limited.
Executive Vice President,
Chief Investment Officer and
Director, The Guardian
Insurance and Annuity
Company, Inc. Director and
President, Guardian Asset
Management Corporation.
Officer of various mutual
funds within the Guardian
Fund complex.
R. Robin Menzies (44) Vice Partner, Baillie Gifford &
c/o Baillie Gifford Overseas President Co. 4/81-present. Director,
Limited Baillie Gifford Overseas
1 Rutland Court Limited 11/90-present.
Edinburgh, EH3 8EY, Director, Guardian Baillie
Scotland Gifford Limited
11/90-present. Officer of
various mutual funds within
the Guardian Fund Complex.
B-13
<PAGE>
Name, Address and Age Title Business History
- --------------------- ----- ----------------
Thomas R. Hickey, Jr. (45) Vice Vice President, Equity
President Operations, The Guardian Life
Insurance Company of America
3/92-present. Vice President,
Operations, The Guardian
Insurance & Annuity Company,
Inc., Senior Vice President,
Operations, Guardian Investor
Services Corporation and
various mutual funds within
the Guardian Fund Complex.
Edward H. Hocknell (37) Vice Director, Baillie Gifford
President Overseas Limited
10/92-present. Director,
Guardian Baillie Gifford
Limited 9/95-present.
Partner, Baille Gifford &
Co., 5/98-present. Officer of
one mutual fund within the
Guardian Fund Complex.
Frank L. Pepe (55) Treasurer Vice President and Equity
Controller, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity
Controller prior thereto.
Vice President and
Controller, The Guardian
Insurance & Annuity Company,
Inc. and Guardian Investor
Services Corporation. Officer
of various mutual funds
within the Guardian Fund
Complex.
Joseph A. Caruso (46) Secretary Vice President and Corporate
Secretary, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Corporate
Secretary, 1/95-1/96;
Corporate Secretary
10/92-12/94. Vice President
and Secretary, The Guardian
Insurance & Annuity Company,
Inc., and Guardian Investor
Services Corporation.
Secretary, Guardian Asset
Management Corporation and
various mutual funds within
the Guardian Fund Complex.
Richard T. Potter, Jr. (43) Counsel Vice President and Equity
Counsel, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Counsel
1/93-12/95. Vice President
and Counsel, The Guardian
Insurance & Annuity Company,
Inc. and Guardian Investor
Services Corporation.
Counsel, Guardian Asset
Management Corporation and
various mutual funds within
the Guardian Fund Complex.
Ann T. Kearney (46) Controller Second Vice President, Group
Pensions, The Guardian Life
Insurance Company of America
1/95-present. Assistant Vice
President and Equity
Controller 6/94-12/94;
Assistant Controller prior
thereto. Second Vice
President of The Guardian
Insurance & Annuity Company,
Inc. and Guardian Investor
Services Corporation.
Controller of various mutual
funds within the Guardian
Fund Complex.
B-14
<PAGE>
The Company pays directors who are not "interested persons" of the Company
(as defined in the 1940 Act) directors' fees of $350 per meeting and an annual
retainer of $500. Directors who are "interested persons," except Mr. Sargent,
receive the same fees, but they are paid by GISC. Mr. Sargent receives no
compensation for his service as a Director of the Company. All officers for the
Company are employees of The Guardian Life Insurance Company of America
("Guardian Life") or Directors of BG Overseas; they receive no compensation from
the Company.
Each Company Director is also a director of The Guardian Stock Fund, Inc.,
The Guardian Bond Fund, Inc. and The Guardian Cash Fund, Inc., and a trustee of
The Park Avenue Portfolio, a series trust consisting of The Guardian Park Avenue
Fund, The Guardian Cash Management Fund, The Guardian Investment Quality Bond
Fund, The Guardian Tax-Exempt Fund, The Guardian Baillie Gifford International
Fund, The Guardian Baillie Gifford Emerging Markets Fund, The Guardian Park
Avenue Small Cap Fund, The Guardian Asset Allocation Fund, The Guardian High
Yield Bond Fund, and The Guardian Park Avenue Tax-Efficient Fund. The Company
and the other Funds named in this paragraph are a "Fund Complex" for purposes of
the federal securities laws. The following table provides information about the
compensation paid by the Company and the Fund Complex to the Company's Directors
for the year ended December 31, 1997.
Compensation Table*
<TABLE>
<CAPTION>
Total Compensation
From The Company
Aggregate Accrued Pension or Estimated Annual And Other Members
Compensation Retirement Benefits Benefits Of The
Name and Title From the Company*** Paid by the Company Upon Retirement Fund Complex**
- -------------- ------------------- ------------------- --------------- --------------
<S> <C> <C> <C> <C>
Frank J. Fabozzi
Director $6,833 N/A N/A $42,667
William W. Hewitt, Jr.
Director 6,833 N/A N/A 42,667
Sidney I. Lirtzman
Director 6,833 N/A N/A 42,667
Carl W. Schafer
Director 6,833 N/A N/A 42,667
Robert G. Smith
Director 6,833 N/A N/A 42,667
</TABLE>
* Directors who are "interested persons" of the Company are not compensated
by the Company.
** Includes compensation paid to attend meetings of the Board's Audit
Committee.
All issued and outstanding shares of the Funds are legally owned by The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a wholly owned subsidiary
of Guardian Life, and are held either directly or for the benefit of
contractowners of the variable annuity and variable life insurance contracts
issued by GIAC.
The Company's officers and directors had an aggregate interest of less
than 1% in the Funds' outstanding shares as of March 31, 1998.
INVESTMENT ADVISERS, SUB-INVESTMENT ADVISER AND DISTRIBUTOR
The Adviser - International Fund and Emerging Markets Fund: Guardian
Baillie Gifford Limited. The Adviser, an investment management company
registered as a corporation under the laws of Scotland, was formed in November
1990 through a joint venture between GIAC and BG Overseas, a company wholly
owned by Baillie Gifford & Co. GIAC owns 51% of the voting shares of the Adviser
and may be deemed to be in control of the Adviser. BG Overseas owns the
remaining 49% of such shares. The Adviser is registered in the United States
with the SEC as an investment adviser under the Investment Advisers Act of 1940
and in the United Kingdom is regulated by the Investment Management Regulatory
Organization ("IMRO"). BG Overseas also serves as sub-investment adviser to the
Funds (see below).
Pursuant to Investment Management Agreements ("Management Agreements")
between the Adviser and the Company, and subject to the continuous monitoring
and supervision of the Company's Board of Directors, the Adviser is responsible
for the overall investment management of the Funds' portfolios. Under the terms
of the Management Agreements, the Adviser is responsible for all decisions to
buy and sell securities for the Funds, furnishes the Board with recommendations
with respect to the Funds' investment policies, provides the Board with regular
reports pertaining to the implementation and performance of such policies, and
maintains certain books and records as required by the 1940 Act and by any other
applicable laws and regulations. The Adviser
B-15
<PAGE>
has, in turn, entered into sub-investment management agreements with BG Overseas
appointing the latter as sub-investment adviser and delegating to BG Overseas
much of the day-to-day management responsibilities for the portfolios of the
Funds (see "The Sub-Adviser: Baillie Gifford Overseas Limited" below).
The Management Agreements were approved by the Company's Board of
Directors (including a majority of the directors who are not parties to the
Management Agreements or "interested persons" of the Company or of the Adviser)
and will continue in full force and effect from year to year, provided their
continuance is specifically approved at least annually by vote of the Company's
Board of Directors, including a majority of the directors who are not parties to
the Management Agreements or "interested persons" of the Company or of the
Adviser, cast in person at a meeting called for the purpose of voting on such
continuance.
The Management Agreements provide that the Funds shall pay the Adviser a
monthly fee at an annual rate of 0.80% of the average daily net assets of the
International Fund and 1.00% of the average daily net assets of the Emerging
Markets Fund for the services rendered, the facilities furnished and the
expenses assumed by the Adviser. A portion of this fee is payable by the Adviser
to BG Overseas as compensation for the services of BG Overseas as sub-investment
adviser to the Funds as more fully described below. For the years ended December
31, 1995, 1996 and 1997, the International Fund paid the Manager a total of
$2,430,879, $3,048,628 and $4,111,020 in fees, respectively. For the years ended
December 31, 1995, 1996, and 1997 the Emerging Markets Fund paid the Adviser a
total of $296,572, $513,410, and $968,350, respectively, in fees.
The Management Agreements provide that neither the Adviser, nor any of its
officers, directors, or employees shall be liable for any error of judgment or
mistake of law or for any loss suffered by the Funds in connection with the
matters to which the Management Agreements relate, except for loss resulting
from willful misfeasance or misconduct, willful default, bad faith, or gross
negligence in the performance of its or his/her duties on behalf of the Funds or
from reckless disregard by the Adviser or any such person of the duties of the
Adviser under the Management Agreements.
The Management Agreements may be terminated, without penalty, at any time
by either party upon 60 days' written notice and will terminate automatically
upon their assignment. In addition, either party may terminate the Management
Agreements immediately in any of the following situations: (1) the other party
commits any material breach of its obligations under the Agreement which, if
curable, is not remedied within 30 days; (2) the dissolution of the other party;
or (3) the termination or expiration of the joint venture agreement between GIAC
and BG Overseas.
In the event that the Management Agreements are terminated and unless they
are replaced by other agreements between GIAC and BG Overseas or their
affiliates, the continued use of the names "Baillie Gifford International Fund,"
or "Baillie Gifford Emerging Markets Fund" by the Company is subject to the
approval of both GIAC and BG Overseas.
The Sub-Investment Adviser - International Fund and Emerging Markets Fund:
Baillie Gifford Overseas Limited. BG Overseas acts as the sub-investment adviser
to the Company pursuant to sub-investment management agreements ("Sub-Management
Agreement") with the Adviser. BG Overseas is registered in the United States
with the SEC as an investment adviser under the Investment Advisers Act of 1940
and in the United Kingdom is regulated by IMRO. Pursuant to the Sub-Management
Agreements, BG Overseas manages the day-to-day operations of the Funds'
portfolios. In so doing, BG Overseas has full discretion to purchase and sell
portfolio securities, to select brokers for the execution of such purchases,
sales, and to negotiate brokerage commissions, if any, subject to monitoring by
the Adviser. The Adviser continually monitors and evaluates the performance of
BG Overseas.
The Sub-Management Agreements were approved by the Company's Board of
Directors (including a majority of directors who are not parties to the
Sub-Management Agreements or "interested persons" of the Company or the Adviser)
and will continue in full force and effect from year to year, provided their
continuance is specifically approved at least annually (1) by the Board of
Directors of the Adviser and (2) by the Board of Directors of the Company,
including approval by a vote of the majority of the directors who are not
parties to the Sub-Management Agreements or "interested persons" of the Company
or of the Adviser, cast in person at a meeting called for the purpose of voting
on such continuance.
The Sub-Management Agreements provide that the Adviser shall pay BG
Overseas a monthly fee at an annual rate of 0.40% of the average daily net
assets of the International Fund and 0.50% of the average daily net assets of
the Emerging Markets Fund for the services rendered, the facilities furnished
and the expenses assumed
B-16
<PAGE>
by BG Overseas. This sub-investment management fee is paid to BG Overseas out of
the management fee paid by the Funds to the Adviser. For the years ended
December 31, 1995, 1996 and 1997, the Adviser paid BG Overseas a total of
$1,215,440,$1,524,314 and $2,055,510 in fees, respectively, for services
provided for the International Fund. For the years ended December 31, 1995, 1996
and 1997, the Adviser paid BG Overseas $148,289, $256,705 and $484,175,
respectively, in fees for services provided to the Emerging Markets Fund.
The Sub-Management Agreements provide that neither BG Overseas, nor any of
its officers, directors or employees shall be liable for any error of judgment
or mistake of law or for any loss suffered by the Adviser or the Company in
connection with the matters to which the Sub-Management Agreements relate,
except for loss resulting from willful misfeasance or misconduct, willful
default, bad faith, or gross negligence in the performance of its or his/her
duties on behalf of the Adviser or the Company or from reckless disregard by BG
Overseas or any such person of the duties of BG Overseas under the
Sub-Management Agreements.
The Sub-Management Agreements may be terminated, without penalty, at any
time by either party upon 60 days' written notice and will terminate
automatically upon their assignment. In addition, either party may terminate the
Sub-Management Agreements immediately in any of the following situations: (1)
the other party commits any material breach of its obligations under the
Agreements which, if curable, is not remedied within 30 days; (2) the
dissolution of the other party; or (3) the termination or expiration of the
joint venture agreement between GIAC and BG Overseas.
The Adviser - Small Cap Stock Fund: Guardian Investor Services Corporation
("GISC"). GISC is the investment adviser for the Small Cap Stock Fund. GISC is
registered as an investment adviser under the Investment Advisers Act of 1940.
Under the investment advisory agreement between the Fund and GISC, GISC
furnishes investment advice and provides or pays for certain of the Fund's
administrative costs. Among the services and facilities provided or paid for by
GISC are: office space; clerical staff and recordkeeping; and the services of
all Fund personnel, including any fees and expenses of the Trustees who are
affiliated with The Guardian Life Insurance Company of America ("Guardian
Life"). All other costs and expenses are to be paid by the Funds which GISC
advises. However, GISC has agreed to reduce its advisory fee and, if necessary,
reimburse any of the Funds which it advises if a Fund's operating expenses
exceed the expense limitations imposed by state law. Excluded from such
operating expenses are: interest; taxes; brokerage commissions; distribution
fees and extraordinary expenses. For these services the investment advisory
agreement between the Fund and GISC provides that the Fund shall pay GISC 0.75%
per annum. For the period from April 2, 1997 (commencement of operations) to
December 31, 1997, the Small Cap Stock Fund paid $257,202 in fees.
The investment advisory agreement between the Fund and GISC will continue
in full force and effect for two years following the date of its execution, or
the date of execution of any written modification of this agreement in
connection with any other Funds established by the Company that are made subject
to the agreement and thereafter, if not terminated, from year to year so long as
its continuance is specifically approved at least annually by vote of a majority
of the Fund's outstanding voting shares, or by vote of the Fund's Board of
Directors, including a majority of the Fund's outstanding voting shares, or by
vote of the Fund's Board of Directors, including a majority of Directors who are
not parties to the agreement or "interested persons" of the Fund or of GISC,
cast in person at a meeting called for that purpose. The agreement will
terminate automatically upon its assignment, and may be terminated without
penalty at any time by either party upon 60 days' written notice.
If the investment advisory agreement is terminated and it is not replaced
by an agreement with another affiliate of Guardian Life, the Fund's continued
use of the name "The Guardian Small Cap Stock Fund" is subject to the approval
of Guardian Life, because Guardian Life maintains the exclusive ownership
interest of the service mark "The Guardian Small Cap Stock Fund".
A service agreement between GISC and Guardian Life provides that Guardian
Life will furnish the office space, clerical staff, services and facilities
which GISC needs to perform under the investment advisory agreement. GISC's
officers are salaried employees of Guardian Life; they receive no compensation
from GISC. GISC reimburses Guardian Life for its expenses under the service
agreement.
The investment advisory agreement provides that neither GISC nor any of
its personnel shall be liable for any error of judgment or mistake of law or for
any loss suffered by GISC or the Fund in connection with the matters to which
the investment advisory agreement relates, except for loss resulting from
willful misfeasance or misconduct, willful default, bad faith, or gross
negligence in the performance of its or his/her duties on behalf of GISC or the
Fund or from reckless disregard by GISC or any such person of the duties of GISC
under the investment advisory agreement.
B-17
<PAGE>
The Distributor: Guardian Investor Services Corporation. Guardian Investor
Services Corporation(R) ("GISC") serves as the distributor of shares of the
Funds. These shares are continuously offered at net asset value without any
sales charge. GISC is registered with the SEC as a broker-dealer under the
Securities Exchange Act of 1934 and acts as distributor of the variable annuity
and variable life insurance contracts issued by GIAC. GISC receives no
compensation from the Company or from purchasers of shares of the Funds for
acting as distributor.
GIAC AND OTHER FUND AFFILIATES
As of February 27, 1998, GIAC was the record owner of 24,048,137 shares of
the International Fund and 6,030,939 shares of the Emerging Markets Fund. The
Guardian Life Insurance Company of America ("Guardian Life") owned beneficially
5,326,140 shares of the International Fund and 2,157,625 shares of the Emerging
Markets Fund. Together, the aforementioned shares represent 100% of the
outstanding shares of each Fund. As described more fully in "Fund Capitalization
and Expenses" below, GIAC owns beneficially 1,015,884 (or 3.50%) of
International Fund shares and Guardian Life owns beneficially 5,326,140 shares
(or 18.1%) of the International Fund shares and 2,157,625 shares (or 26.30%) of
the Emerging Markets Fund shares. The balance of the Fund shares is owned on
behalf of the owners of variable annuity and variable life insurance contracts
issued by GIAC. Such shares have been allocated to one or more separate accounts
of GIAC which fund such contracts. As of February 27, 1998, GIAC was the record
owner of 7,400,069 shares of the small cap stock Fund and beneficial owner of
2,029,569 (27.4%) of the Small Cap Stock Fund together representing 100% of the
outstanding shares of the Fund. GIAC is a wholly owned subsidiary of Guardian
Life and has executive offices located at 201 Park Avenue South, New York, New
York 10003. In addition, GIAC owns 51% of the voting shares of GBG, adviser to
the International and Emerging Markets Funds (see above) and may be deemed to be
in control of GBG, and Guardian Life owns 100% of the voting shares of GISC.
As of March 31, 1997, 6.2% and 6.9% of the International Fund's shares
were attributable to variable annuity policies owned, respectively, by the
Trustees of The Guardian Employee Incentive Savings Plan Trust and The Guardian
Pension Trust both of 201 Park Avenue South, New York, New York.
TAXES
The International Fund, the Emerging Markets Fund and the Small Cap Stock
Fund qualify and intend to remain qualified to be taxed as regulated investment
companies under certain provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). So long as the Funds qualify as regulated investment
companies and comply with the provisions of the Code pertaining to regulated
investment companies which distribute substantially all of their net income
(both net ordinary income and net capital gains) to their shareholders, the
Funds will not incur a tax liability on that portion of their net ordinary
income and net realized capital gains which have been distributed to its
shareholders. Accordingly, the Funds intend to distribute all or substantially
all of their net investment income and net capital gains.
To qualify for treatment as a regulated investment company, a Fund must,
among other things, (i) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies or other income (including gains from options, futures, or forward
contracts) derived in connection with the pursuit of its investment objectives;
(ii) must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign currency
transactions); and (iii) must be diversified such that at the close of each
quarter of the Fund's taxable year (a) at least 50% of the value of its total
assets consists of cash and cash items, U.S. Government securities, securities
of other regulated investment companies, and other securities that, with respect
to any one issuer, do not exceed 5% of the value of the Fund's total assets and
that do not represent more than 10% of the outstanding voting securities of the
issuer and (b) not more than 25% of the value of the Fund's total assets are
invested in securities (other than U.S. Government securities or the securities
of other regulated investment companies) of any one issuer.
Options, forward contracts, futures contracts and foreign currency
transactions entered into by the Funds will be subject to special tax rules.
These rules may accelerate income to the Funds, defer Fund losses, cause
adjustments in the holding periods of Fund securities, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. As a result, these rules could affect the amount, timing and character
of Fund distributions.
B-18
<PAGE>
For U.S. federal income tax purposes, if the Company establishes
additional portfolios, each portfolio will be treated as a separate entity.
Income received by the Funds from sources within various foreign countries
will generally be subject to foreign income taxes withheld at the source. If the
United States has entered into a tax treaty with the country in which the payor
is a resident, foreign tax withholding from dividends and interest is typically
set at a rate between 10% and 15% and, if the United States has not entered into
a tax treaty with the country in which the payor is a resident, such withholding
may be as high as 30% to 35%. Taxes paid to foreign governments will reduce the
Funds' return on its investments. While contractowners will bear the cost of any
foreign tax withholding, they will not be able to claim a foreign tax credit or
deduction for taxes paid by the Funds.
The U.S. federal tax laws impose a four percent nondeductible excise tax
on each regulated investment company with respect to an amount, if any, by which
such company does not meet distribution requirements specified in such tax laws.
The Funds intend to comply with such distribution requirements and thus do not
expect to incur the four percent nondeductible excise tax.
Since the sole shareholder of the Funds will be GIAC, no discussion is set
forth herein as to the U.S. federal income tax consequences at the shareholder
level. For information concerning the U.S. federal income tax consequences to
purchasers of the GIAC contracts, see the Prospectus for such contract.
The discussion of "Taxes" in the Prospectuses, in conjunction with the
foregoing, is a general and abbreviated summary of the applicable provisions of
the Code and U.S. Treasury Regulations currently in effect as interpreted by
U.S. Courts and the Internal Revenue Service. These interpretations can change
at any time. The above discussion covers only U.S. federal income tax
considerations with respect to the Funds. No attempt has been made to describe
any U.S. state and local tax consequences.
PERFORMANCE RESULTS
As described in the Prospectus, the Funds' performance results may be
disclosed in the form of "average annual total return" and "cumulative total
return" figures.
The Funds use the following formula prescribed by the SEC to compute their
average annual total returns.
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1,000 from which no sales
load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 payment at
the end of the period represented by "n."
The average annual total return and cumulative total return for a Fund for
a specific period is calculated by first taking a hypothetical investment amount
($1,000 for the average annual total return calculation) ("initial investment")
in the Fund's shares on the first day of the period and computing the
"redeemable value" of that investment at the end of the period. The average
annual total return is determined by dividing the redeemable value by the
initial investment and this quotient is taken to the "nth" root ("n"
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Promotional materials relating
to the Funds' performance will always at least provide average annual total
returns for each of a short (one to four years), medium (five to nine years) and
long (ten years or more) period of time. The cumulative total return percentage
is determined by subtracting the initial investment from the redeemable value
and dividing the remainder by the initial investment and expressing the result
as a percentage. All average annual total return and cumulative total return
calculations will indicate the length of and the last day of the period used in
computing the return figures.
B-19
<PAGE>
The tables below show each Fund's returns for the periods noted. These
figures reflect the reinvestment of all capital gains distributions and income
dividends paid by each Fund, and the deduction of all Fund expenses. The actual
returns for owners of GIAC's variable contracts will be lower to reflect the
effects of charges deducted under the terms of the specific contracts.
<TABLE>
<CAPTION>
Small Cap
International Fund Emerging Markets Fund Stock Fund
Year Ended December 31, Total Return Total Return Total Return
----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
1991 ..................................... 8.56%* -- --
1992 ..................................... (8.90)% -- --
1993 ..................................... 34.04% -- --
1994 ..................................... 0.87% (11.97)%** --
1995 ..................................... 11.23% (0.60)% --
1996 ..................................... 15.41% 24.59% --
1997 ..................................... 11.93% 1.97% 14.69%***
<CAPTION>
Cumulative and Average Annual Total Returns
International Emerging Small Cap
Period Ended December 31, 1997 Fund* Markets Fund** ***Stock Fund***
------------------------------ ----- -------------- ----------------
<S> <C> <C> <C>
One-Year Total Return .................... 11.93% 1.97% 14.69%
Five-Year Average Annual Total Return .... 14.20% -- --
Five Year Cumulative Total Return ........ 94.27% -- --
Lifetime Cumulative Total Return ......... 92.13% 11.17% 14.69%
Average Annual Lifetime Total Return ... 9.93% 3.35% --
</TABLE>
- ----------
* Beginning February 8, 1991 (commencement of International Fund's
investment operations).
** Beginning October 17, 1994 (commencement of Emerging Markets Fund's
investment operations).
*** Beginning July 16, 1997 (commencement of public offering).
The following example shows the average annual total return performance of
each Fund for the periods indicated by showing the average annual percentage
change for each period and the ending redeemable value of a $1,000 investment.
The example takes into account all Fund expenses and assumes reinvestment of all
capital gains distributions and income dividends, but does not take into account
charges deducted under the terms of GIAC's variable contracts or federal income
taxes and tax penalties that may be incurred when distributions are made from
such variable contracts.
<TABLE>
<CAPTION>
Emerging Small Cap
International Fund Markets Fund Stock Fund
------------------ ------------ ----------
% Change ERV % Change ERV % Change ERV
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1997 ............... 11.93% $1,119.30 1.97% $1,019.70 14.69% $1,146.90
For the life of the Fund through December 31, 1997 . 92.13% $1,921.31 11.17% $1,111.66 14.69% $1,146.90
</TABLE>
All figures quoted take into account all nonrecurring charges incurred by
the Funds and assume reinvestment of all capital gains distributions or
dividends paid by the Funds, but do not take into account income taxes due on
Fund distributions or dividends or the effect of any charges deducted from the
variable contracts or at the separate account level. Including the effects of
such charges would reduce the performance figures.
The Funds intend to use non-standardized cumulative total return figures
and will indicate the length of and the last day of the period used in computing
such figures as well as a description of the method by which such performance
figures were calculated. However, non-standardized cumulative total return
figures will be accompanied by the SEC mandated total return figures.
The Funds may also compare their performance to that of other mutual funds
with similar investment objectives or programs and may quote information from
financial and industry or general interest publications in its promotional
materials. Additionally, the Funds' promotional materials may contain references
to types and characteristics of certain securities; features of their
portfolios; financial markets; or historical, current or prospective economic
trends. Topics of general interest, such as personal financial planning, may
also be discussed.
Performance calculations contained in reports by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, The WM Company,
Variable Annuity & Research Data Service or industry or financial publications
of general interest such as Business Week, Financial World, Forbes, Financial
Times, The Wall Street Journal, The New York Times, Barron's and Money which may
be quoted by the Funds are often based
B-20
<PAGE>
upon changes in net asset value with all dividends reinvested and may not
reflect the imposition of charges deducted under the terms of GIAC's variable
contracts.
The Funds' performance figures are based upon historical results and do
not project future performance. Factors affecting the Funds' performance include
general market conditions, rates of exchange, operating expenses, and investment
management fees. Shares of the Funds are redeemable at net asset value which may
be more or less than original cost.
FUND CAPITALIZATION AND EXPENSES
On January 22, 1991, GIAC purchased 10,000 shares of the International
Fund at a price of $10.00 per share for a total investment of $100,000. Over the
weeks following this initial investment, GIAC furnished an additional $9,900,000
in seed capital to the International Fund, purchasing 824,320 shares. On
September 13, 1994 Guardian Life purchased 2,000,000 shares of the Emerging
Markets Fund at a price of $10.00 per share for a total investment of
$20,000,000. Each of these investments were made to enable the Funds to commence
operations and to acquire a diversified portfolio of securities in accordance
with their respective investment objective and policies. The shares acquired by
GIAC and Guardian Life are being held for investment purposes and GIAC and
Guardian Life have no present intention of redeeming or selling such shares.
On April 2, 1997, GIAC purchased 2,000,000 shares of the Small Cap Fund at
a price of $10.00 per share for a total investment of $20,000,000. This
investment was made to enable the Small Cap Stock Fund to commence operations
and to acquire a diversified portfolio of securities in accordance with its
investment objective and policies. The shares acquired by GIAC are being held
for investment purposes and GIAC has no present intention of redeeming or
selling such shares.
The authorized stock of the Company consists of one billion
(1,000,000,000) shares having a par value of $0.10 each. Two hundred million
(200,000,000) of such shares have been designated as shares of the class which
are attributable to each of the Funds. To date a total of 600,000,000 shares
have been so designated. The Board may designate additional classes of Company
shares, and increase or decrease the number of shares in a class, provided that
the Board does not decrease the number of shares outstanding.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective class of stock and, upon
liquidation or dissolution, in the net assets of such class remaining after
satisfaction of outstanding liabilities.
The International Fund has incurred expenses in connection with its
organization in the amount of $39,110 which were advanced by GIAC and reimbursed
as of March 31, 1992. In connection with its organization and registration, the
Emerging Markets Fund incurred expenses in the amount of $2,536, which were
advanced by GIAC and which were repaid upon completion by the Fund of one year
of operations. These expenses included legal and auditing fees, registration
fees and preparation and printing costs of the registration statement and other
documents. These expenses are being amortized by the International Fund on a
straight-line basis over a five-year period which began in February 1991 for the
International Fund and in September 1994 for the Emerging Markets Fund, when
each of the Funds first became available to owners and prospective owners of
contracts issued by GIAC.
The Small Cap Stock Fund has incurred expenses in connection with its
organization in the amount of $984 which were advanced by GISC. These
organization expenses include, legal and auditing fees, registration fees and
preparation and printing costs of the registration statement and other
documents. These expenses will be amortized by the Small Cap Stock Fund on a
straight-line basis over a five-year period which began in April 2, 1997.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are continuously offered at the net asset value per
share next determined after a proper purchase request is deemed received by
GIAC. Shares of the Funds are only offered to GIAC in connection with the
variable annuity and variable life insurance contracts issued through its
separate accounts. GIAC submits purchase and redemption orders on behalf of its
contractowners to the Funds based on premium payments or transfer instructions
furnished to GIAC by such contractowners. Payment for shares redeemed will be
made within seven (7) days after the order for redemption is received by the
Funds from GIAC. The redemption price will be the net asset value per share next
determined following the time a proper request for redemption is deemed to have
been received. The right to redeem a Fund's shares may be suspended or the date
of payment postponed beyond seven (7) days during any period when (1) trading on
the New York Stock Exchange is restricted, as determined by
B-21
<PAGE>
the SEC, or the New York Stock Exchange is closed for other than weekends and
holidays; (2) an emergency exists, as determined by the SEC, as a result of
which disposal by a Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets; or (3) the SEC by order so permits for the
protection of contractowners.
See the accompanying Prospectus for the applicable GIAC contract for a
description of the procedures concerning allocations or transfers among
investment options of the separate account which supports the contract.
CUSTODIAN AND TRANSFER AGENT
The custodian for all securities and assets of the Company is State Street
Bank and Trust Company ("State Street Bank"), 1776 Heritage Drive, North Quincy,
Massachusetts 02171. Portfolio securities purchased for the Funds outside of the
U.S. are maintained in the custody of foreign banks and trust companies which
are members of State Street Bank's Global Custody Network and foreign
depositories (foreign sub-custodians). State Street Bank and each of the foreign
custodial institutions holding portfolio securities of the Funds has been
approved by the Board in accordance with regulations under the 1940 Act.
To the extent required by the 1940 Act and the regulations thereunder, the
Board reviews, at least annually, whether it is in the best interest of a Fund
and its shareholders to maintain Fund assets in each foreign custodial
institution used by a Fund. However, there can be no assurance that a Fund, and
the value of its shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the foreign
sub-custodians, difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or application of
foreign law to a Fund's foreign subcustodial arrangements. Accordingly, an
investor should recognize that the noninvestment risks associated with holding
assets abroad may be greater than those associated with investing in the U.S.
GIAC serves as the Company's transfer and dividend paying agent. In its
capacity as transfer agent and dividend paying agent, GIAC issues and redeems
shares of the Funds and distributes dividends to the GIAC separate accounts
which invest in the Funds' shares.
State Street Bank does not play a part in formulating the investment
policies of the Funds or in determining which portfolio securities are to be
purchased or sold by the Funds.
LEGAL OPINION
The legality of the shares described in the Prospectus has been passed
upon by Richard T. Potter, Jr., Vice President and Counsel of GIAC and Counsel
to the Company.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The independent auditors of the Company are Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019. Ernst & Young LLP audits and reports on the
financial statements of the Company which appear in the Company's Annual Report
to Shareholders for the year ended December 31, 1997. That Annual Report is
incorporated by reference in this Statement of Additional Information.
B-22
xxxxx
GIAC FUNDS, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) Financial Statements of each Fund - Incorporated by reference in Part B:
Schedule of Investments as of December 31, 1997 (Audited)
Statement of Assets and Liabilities as of December 31, 1997 (Audited)
Statement of Operations for the Year ended December 31, 1997 (Audited)
Statement of Changes in Net Assets for the Years ended December 31, 1997
and 1996 (Audited)
Financial Highlights for the years noted therein
Notes to Financial Statements
Reports of Ernst & Young LLP, Independent Auditors (included herein)
C-1
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
GIAC Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the GIAC Funds, Inc. (comprising, respectively,
the Baillie Gifford International Fund, Baillie Gifford Emerging Markets Fund
and The Guardian Small Cap Stock Fund), as of December 31, 1997, and the related
statements of operations, statements of changes in net assets, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the GIAC Funds, Inc. at December 31, 1997,
the results of their operations, the changes in their net assets, and the
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 9, 1998
C-2
<PAGE>
b) Exhibits
Number Description
------ -----------
1(a) -- Registrant's Articles of Incorporation as amended through
March 31, 1998
2 -- Registrant's By-Laws
3 -- Not Applicable
4 -- Not Applicable
5(a) -- Form of Investment Management Agreement between
Guardian Baillie Gifford Limited and Registrant for
Baillie Gifford International Fund
5(b) -- Form of Investment Management Agreement between
Guardian Baillie Gifford Limited and Registrant for
Baillie Gifford Emerging Markets Fund
5(c)(i) -- Form of Sub-Investment Management Agreement between
Guardian Baillie Gifford Limited and Baillie Gifford
International Fund
(ii) -- Form of Supplemental Sub-Investment Management
Agreement between Guardian Baillie Gifford Limited and
Baillie Gifford Overseas Limited for Baillie Gifford
International Fund
5(d) -- Form of Sub-Investment Management Agreement between
Guardian Baillie Gifford Limited and Baillie Gifford
Overseas Limited for Baillie Gifford Emerging Markets
Fund
5(e) -- Form of Investment Management Agreement between
Guardian Investor Services Corporation and Registrant
for Guardian Small-Cap Stock Fund(1)
6 -- Not Applicable
7 -- Not Applicable
8 -- Form of Custodian Agreement between State Street Bank
and Trust Company and Registrant
C-3
<PAGE>
8(b) -- Addendum to Custodian Agreement between State Street
Bank and Trust Company and Registrant
9 -- Form of Transfer Agency Agreement between State
Street Bank and Trust Company and Registrant
10(a) -- Opinion and Consent of Counsel
10(b) -- Consent of Counsel
11(a) -- Consent of Ernst & Young LLP
12 -- Not Applicable
13 -- Letter from The Guardian Insurance & Annuity Company,
Inc. with respect to providing the initial capital for
the Registrant
14 -- Not Applicable
15 -- Not Applicable
16 -- Schedule for Computation of Performance Quotations
17 -- Powers of Attorney executed by the Board of Directors
and certain principal officers of the Registrant
27 -- Financial Data Schedules
----------
(1) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement for the Registrant on Form N-1A as filed on April 30,
1997.
Item 25. Persons Controlled by or under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of February 27,
1998:
Percentage of
Voting Securities
State of Incorporation Owned
Name of Entity or Organization By Guardian Life
-------------- --------------- ----------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Reinsurance Services,Inc. Connecticut 100%
Managed Dental Care California 100%
Physicians Health Services, Inc. Delaware 14%
Private Healthcare Systems, Inc. Delaware 14%
Guardian Asset Management Delaware 100%
Corporation
The Guardian Tax-Exempt Bond Fund Massachusetts 87.4%
The Guardian Baillie Gifford
International Fund Massachusetts 25.5%
The Guardian Investment Quality
Bond Fund Massachusetts 44.7%
Baillie Gifford International Fund Maryland 18.1%
Baillie Gifford Emerging
Markets Fund Maryland 26.3%
The Guardian Asset
Allocation Fund Massachusetts 12.7%
Guardian Park Avenue Small Cap Fund Massachusetts 21.4%
Guardian Baillie Gifford Emerging
Markets Fund Massachusetts 78.4%
C-4
<PAGE>
The following list sets forth the persons directly controlled by
affiliates of Guardian Life and thereby indirectly controlled by Guardian Life
as of February 27, 1998:
<TABLE>
<CAPTION>
Approximate
Percentage of Voting
Securities Owned
Place of Incorporation by Guardian Life
Name of Entity or Organization and its Affiliates
-------------- --------------- ------------------
<S> <C> <C>
Guardian Investor Services New York 100%
Corporation
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GIAC Funds, Inc. (fka GBG Funds, Inc.) Maryland 100%
</TABLE>
Item 26. Number of Holders of Registrant's Securities
Number of Record Holders
Title of Class as of March 2, 1998
-------------- --------------------
International Stock Class 13
Emerging Markets Stock Class 9
Small Cap Stock Class 8
Item 27. Indemnification
Reference is made to Article EIGHTH, Section 2 of Registrant's By-Laws,
filed as Exhibit 2 to the Registration Statement on Form N-1A on November 19,
1990 and incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, 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 a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities 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 issue.
Item 28. Business and Other Connections of Registrant's Investment Adviser and
Sub-Investment Adviser
At present, Guardian Baillie Gifford Limited ("GBG"), the Registrant's
investment manager, is exclusively engaged in the business of acting as the
investment manager to the Registrant and one other series fund of The Park
Avenue Portfolio, a registered investment company underwritten and distributed
by Guardian Investor Services Corporation. GBG's principal business address is 1
Rutland Court, Edinburgh EH3 8EY, Scotland. A list of GBG's executive officers
and directors is set forth below, indicating the business, profession, vocation
or employment of a substantial nature in which each person has been engaged
during the past two fiscal years for his or her own account or in the capacity
of director, officer, partner, or trustee, aside from any affiliation with the
Registrant.
C-5
<PAGE>
Other Substantial Business,
Name Position(s) with GBG Profession, Vocation or Employment
---- -------------------- ----------------------------------
ARTHUR VINCENT FERRARA Director Retired. Former Chairman of the
Board and Chief Executive
Officer, The Guardian Life
Insurance Company of America
1/93-12/95; Director 1/81-present.
Director (Trustee) of Guardian
Investor Services Corporation,
The Guardian Insurance & Annuity
Company, Inc.,* Gabelli Capital
Asset Fund and various mutual
funds within the Guardian Fund
Complex.
GAVIN JOHN NORMAN GEMMELL Director Senior Partner: Baillie Gifford &
Co.** Chairman: Baillie Gifford
Overseas Limited** and Baillie
Gifford & Co. Limited** Director:
Toyo Trust Baillie Gifford**
EDWARD H. HOCKNELL Director Partner: Baillie Gifford & Co.**
Director: Baillie Gifford Overseas
Limited** Officer of: The Park
Avenue Portfolio*
ROWAN ROBIN MENZIES Director Partner: Baillie Gifford & Co.**
Director: Baillie Gifford
Overseas Limited** Officer of:
The Park Avenue Portfolio*
JOSEPH DUDLEY SARGENT Director President and Chief Executive
Officer and Director: The
Guardian Life Insurance Company
of America since January 1996;
President and Director prior
thereto* President, CEO and
Director: The Guardian Insurance
& Annuity Company, Inc.*
Director: Guardian Investor
Services Corporation and Guardian
Asset Management Corporation*
Director (Trustee) of various
Guardian-sponsored mutual funds
JOHN MATTHEW SMITH Director Executive Vice President, Equity
Products: The Guardian Life
Insurance Company of America
since January 1995; Senior Vice
President prior thereto*
Executive Vice President and
Director: The Guardian Insurance
& Annuity Company, Inc.*
President and Director: Guardian
Investor Services Corporation*
and Guardian Asset Management
Corporation* President: GBG
Funds, Inc.
MAXWELL C. B. WARD Director Chairman: Baillie Gifford
Overseas Limited**; Director
Baillie Gifford Overseas Limited,
prior thereto.
- ----------
* Principal business address is 201 Park Avenue South, New York, New York
10003.
** Principal business address is 1 Rutland Court, Edinburgh, EH3 8EY,
Scotland.
C-6
<PAGE>
Baillie Gifford Overseas Limited ("BGO") acts as the sub-investment manager
for the Registrant and one other Guardian-sponsored mutual fund and provides
investment management services to institutional clients outside of the United
Kingdom. BGO is wholly owned by Baillie Gifford & Co. which is an investment
management firm providing independent investment management services to
investment trusts, unit trusts, pension funds, charitable funds and other
institutional clients primarily located in the United Kingdom.
A list of BGO's directors is set forth below, indicating the business,
profession, vocation or employment of a substantial nature in which each person
has been engaged during the past two fiscal years for his or her own account or
in the capacity of director, officer, partner, or trustee, aside from any
affiliation with the Registrant. Except where otherwise noted, the principal
business address of each individual in his capacity as director of BGO is 1
Rutland Court, Edinburgh, EH3 8EY, Scotland.
Position Other Substantial
Name with BGO Business Affiliations*
---- -------- ----------------------
James K. Anderson Director Partner: Baillie Gifford & Co.
Director: Baillie Gifford & Co. Limited
Gavin J. N. Gemmell** Director Senior Partner: Baillie Gifford & Co.
Edward H. Hocknell** Director None
Gareth A. Howlett Director Director: Toyo Trust Baillie Gifford
Limited
J. Ross Lidstone Director Partner: Baillie Gifford & Co.
Gill E. Meekison Director Director: Baillie Gifford Savings
Management Limited
R. Robin Menzies** Director Partner: Baillie Gifford & Co.
Maxwell C. B. Ward** Chairman Partner: Baillie Gifford & Co.
- ----------
* Principal business address of each entity is 1 Rutland Court, Edinburgh,
EH3 8EY, Scotland.
** Director of GBG, the Registrant's investment manager.
Guardian Investor Services Corporation
Guardian Investor Services Corporation ("GISC") acts as the sole
investment adviser for The Guardian Small Cap Stock Fund. It also serves as
adviser to The Guardian Stock Fund, Inc., The Guardian Cash Fund, Inc., The
Guardian Bond Fund, Inc., and 8 of the 10 operational series funds which
comprise The Park Avenue Portfolio, namely: The Guardian Park Avenue Fund, The
Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt Fund, The
Guardian Cash Management Fund, The Guardian Asset Allocation Fund the Guardian
High yield Bond Fund, and the Guardian Park Avenue Tax-Efficient Fund. GISC
serves as the manager of The Gabelli Capital Asset Fund. GISC is also the
co-investment adviser for The Guardian Real Estate Account. GISC's principal
business address is 201 Park Avenue South, New York, New York 10003. In
addition, GISC is the distributor of variable annuities and variable life
insurance policies offered by The Guardian Insurance & Annuity Company, Inc.
("GIAC") through its separate accounts. These separate accounts, The
Guardian/Value Line Separate Account, The Guardian Separate Account A, The
Guardian Separate Account B, The Guardian Separate Account C, The Guardian
Separate Account D, The Guardian Separate Account K and The Guardian Separate
Account M, are all unit investment trusts registered under the Investment
Company Act of 1940, as amended.
A list of GISC's officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant. Except where otherwise noted, the principal
business address of each company is 201 Park Avenue South, New York, New York
10003.
C-7
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Joseph A. Caruso Secretary Vice President and Secretary, The
Guardian Life Insurance Company of
America 3/96 to present; Second
Vice President and Secretary, 1/95
to 2/96; Secretary prior thereto.
Vice President and Secretary: The
Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation; Secretary,
Guardian Asset Management
Corporation, various
Guardian-sponsored mutual funds.
- ----------
* Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-8
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Philip H. Dutter Director Independent Consultant (self-
employed). Director: The Guardian
Life Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Arthur Vincent Ferrara Director Retired. Former Chairman of the
Board and Chief Executive Officer,
The Guardian Life Insurance Company
of America 1/93-12/95; Director
1/81-present. Director (Trustee) of
Guardian Investor Services
Corporation, The Guardian Insurance
& Annuity Company, Inc.,* Gabelli
Capital Asset Fund and various
mutual funds within the Guardian
Fund Complex.
Leo R. Futia Director Retired. Former Chairman of the
Board and Chief Executive Officer,
The Guardian Life Insurance Company
of America; Director 5/70 -
present. Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation and various
mutual funds within the Guardian
Fund Complex. Director (Trustee) of
various mutual funds sponsored by
Value Line, Inc.
Earl C. Harry Treasurer Treasurer: The Guardian Life
Insurance Company of America
11/96 - present; Assistant
Treasurer prior thereto.
Treasurer: The Guardian Insurance
& Annuity Company, Inc., and
Guardian Asset Management
Corporation.
- ----------
* Principal business address: 711 Third Avenue, New York, New York 10017.
C-9
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Thomas R. Hickey, Jr. Senior Vice Vice President, Equity Operations:
President, The Guardian Life Insurance Company
Operations of America. Vice President,
Operations: The Guardian
Insurance & Annuity Company, Inc.
Officer of various Guardian-
sponsored mutual funds.
Peter L. Hutchings Director Executive Vice President and Chief
Financial Officer: The Guardian
Life Insurance Company of America.
Director: Guardian Asset Management
Corporation. Director: The Guardian
Insurance & Annuity Company, Inc.
Ryan W. Johnson Vice President, Second Vice President, Equity
Equity Sales Sales: The Guardian Life Insurance
Company of America since 3/95;
Regional Sales Director, Western
Division, for Equity Products prior
thereto. Vice President, Equity
Sales, The Guardian Insurance &
Annuity Company, Inc.
Frank J. Jones Director Executive Vice President and Chief
Investment Officer: The Guardian
Life Insurance Company of America.
Director, Executive Vice President
and Chief Investment Officer: The
Guardian Insurance & Annuity
Company, Inc. Director: Guardian
Asset Management Corporation and
Guardian Baillie Gifford
Limited*.Officer of various
Guardian-sponsored mutual funds.
- ----------
*Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-10
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Frank L. Pepe Vice President & Vice President and Controller,
Controller Equity Products: The Guardian Life
Insurance Company of America since
1/96. Second Vice President and
Controller prior thereto. Vice
President and Controller: The
Guardian Insurance & Annuity
Company, Inc. Officer of various
Guardian-sponsored mutual funds.
C-11
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Richard T. Potter, Jr. Vice President Vice President and Equity Counsel:
and Counsel The Guardian Life Insurance Company
of America since 1/96; Second Vice
President and Equity Counsel prior
thereto. Vice President and
Counsel: The Guardian Insurance &
Annuity Company, Inc.; Counsel,
Guardian Asset Management
Corporation and various
Guardian-sponsored mutual funds.
Joseph D. Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America since
1/96; President and Director prior
thereto. President and Director:
The Guardian Insurance & Annuity
Company, Inc. Director (Trustee)
Guardian Asset Management
Corporation, Guardian Baillie
Gifford, Ltd.*, various Guardian-
sponsored mutual funds.
John M. Smith President & Executive Vice President: The
Director Guardian Life Insurance Company of
America 1/95 to present; Senior
Vice President, Equity Products
prior thereto. Executive Vice
President and Director: The
Guardian Insurance & Annuity
Company, Inc. Director: Guardian
Baillie Gifford Ltd.* and Guardian
Asset Management Corporation
President and Director: Guardian
Asset Management Corporation.
President: GIAC Funds, Inc.
William C. Warren Director Retired.
Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Director: Guardian Investor
Services Corporation
- ----------
*Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-12
<PAGE>
Item 29. Principal Underwriters
(a) Guardian Investor Services Corporation ("GISC") is the principal underwriter
and distributor of the Registrant's shares and is also the principal underwriter
and distributor of The Guardian Stock Fund, Inc., The Guardian Bond Fund, Inc.,
The Guardian Cash Fund, Inc., and The Park Avenue Portfolio, a series fund
consisting of the following portfolios: The Guardian Park Avenue Fund, The
Guardian Cash Management Fund, The Guardian Baillie Gifford International Fund,
The Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt Fund, The
Guardian Asset Allocation Fund, The Guardian Baillie Gifford Emerging Markets
Fund, The Guardian Park Avenue Small Cap Fund The Guardian High Yield Bond Fund
and The Guardian Park Avenue Tax-Efficient Fund. In addition, GISC is the
distributor of variable contracts offered by The Guardian Insurance & Annuity
Company, Inc. ("GIAC") through GIAC's separate accounts: The Guardian/Value Line
Separate Account, The Guardian Separate Account A, The Guardian Separate Account
B, The Guardian Separate Account C, The Guardian Separate Account D, The
Guardian Separate Account K, and The Guardian Separate Account M which are all
registered as unit investment trusts under the Investment Company Act of 1940,
as amended. These latter separate accounts buy and sell shares of The Guardian
Stock Fund, Inc., The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and
GIAC Funds, Inc. on behalf of GIAC's variable contractowners.
(b) The following is a list of the directors and officers of GISC and their
respective positions with the Registrant, if any. The principal business address
of each individual listed below is 201 Park Avenue South, New York, New York
10003.
C-13
<PAGE>
Position(s) Position(s)
Name with GISC with Registrant
---- --------- ---------------
John M. Smith President & Director President
Philip H. Dutter Director None
Arthur V. Ferrara Director Director
Leo R. Futia Director Director
Peter L. Hutchings Director None
Frank J. Jones Director None
Joseph D. Sargent Director Chairman of the
Board of Directors
William C. Warren Director None
Ryan W. Johnson Senior Vice President & National None
Sales Director
Thomas R. Hickey, Jr. Senior Vice President, Operations Vice President
Frank L. Pepe Vice President & Controller Treasurer
Donald P. Sullivan, Jr. Vice President Second Vice
President
Earl C. Harry Treasurer None
Richard T. Potter, Jr. Vice President and Counsel Counsel
Joseph A. Caruso Vice President and Secretary Secretary
Ann T. Kearney Second Vice President Controller
(c) Not Applicable.
Item 30. Location of Accounts and Records
Most of the accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained on behalf of the Registrant by the custodian and
transfer agent, State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171. Documents constituting the Registrant's corporate
records are maintained on behalf of the Registrant by The Guardian Insurance &
Annuity Company, Inc. at 201 Park Avenue South, New York, New York 10003.
Item 31. Management Services
Pursuant to an administrative and secretarial agreement between GBG and
Baillie Gifford & Co., the latter will furnish office space, clerical staff,
services and facilities required by GBG in connection with its obligations under
the Investment Management Agreement between GBG and the Registrant for an annual
fee of 10,000 (British Pounds) (approximately $20,000).
Item 32. Undertakings
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that Section.
Registrant hereby undertakes to furnish, upon request and without charge, a
copy of the Registrant's latest Annual Report to Shareholders to each person to
whom a copy of the Registrant's prospectus is delivered.
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, GIAC Funds, Inc. (formerly GBG
Funds, Inc. and formerly Baillie Gifford International Fund, Inc.) certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 27th
day of April, 1998.
GIAC FUNDS, INC.
By s/THOMAS R. HICKEY, JR.
--------------------------------
Thomas R. Hickey, Jr.
Vice President
C-15
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates reflected below.
s/JOHN M. SMITH* President April 27, 1998
- ------------------------- (Principal Executive
John M. Smith Officer)
s/FRANK L. PEPE* Treasurer
- ------------------------- (Principal Financial
Frank L. Pepe and Accounting Officer)
- ------------------------- Chairman of the Board of
Joseph D. Sargent Directors
s/JOHN C. ANGLE* Director
- -------------------------
John C. Angle
s/FRANK J. FABOZZI* Director
- -------------------------
Frank J. Fabozzi
s/ARTHUR V. FERRARA* Director
- -------------------------
Arthur V. Ferrara
s/LEO R. FUTIA* Director
- -------------------------
Leo R. Futia
s/WILLIAM W. HEWITT, JR.* Director
- -------------------------
William W. Hewitt, Jr.
s/SIDNEY I. LIRTZMAN* Director
- -------------------------
Sidney I. Lirtzman
- ------------------------- Director
Carl W. Schafer
s/ROBERT G. SMITH* Director
- -------------------------
Robert G. Smith
*By s/THOMAS R. HICKEY, JR. Vice President April 27, 1998
-------------------------
Thomas R. Hickey, Jr.
Pursuant to a Power of Attorney
C-16
<PAGE>
GIAC FUNDS, INC.
Exhibit Index
b) Exhibits
Number Description
------ -----------
1(a) -- Registrant's Articles of Incorporation as amended through
March 31, 1998
2 -- Registrant's By-Laws
3 -- Not Applicable
4 -- Not Applicable
5(a) -- Form of Investment Management Agreement between
Guardian Baillie Gifford Limited and Registrant for
Baillie Gifford International Fund
5(b) -- Form of Investment Management Agreement between
Guardian Baillie Gifford Limited and Registrant for
Baillie Gifford Emerging Markets Fund
5(c)(i) -- Form of Sub-Investment Management Agreement between
Guardian Baillie Gifford Limited and Baillie Gifford
International Fund
(ii) -- Form of Supplemental Sub-Investment Management
Agreement between Guardian Baillie Gifford Limited and
Baillie Gifford Overseas Limited for Baillie Gifford
International Fund
5(d) -- Form of Sub-Investment Management Agreement between
Guardian Baillie Gifford Limited and Baillie Gifford
Overseas Limited for Baillie Gifford Emerging Markets
Fund
5(e) -- Form of Investment Management Agreement between
Guardian Investor Services Corporation and Registrant
for Guardian Small-Cap Stock Fund(1)
6 -- Not Applicable
7 -- Not Applicable
8 -- Form of Custodian Agreement between State Street Bank
and Trust Company and Registrant
8(b) -- Addendum to Custodian Agreement between State Street
Bank and Trust Company and Registrant
9 -- Form of Transfer Agency Agreement between State
Street Bank and Trust Company and Registrant
10(a) -- Opinion and Consent of Counsel
10(b) -- Consent of Counsel
11(a) -- Consent of Ernst & Young LLP
12 -- Not Applicable
13 -- Letter from The Guardian Insurance & Annuity Company,
Inc. with respect to providing the initial capital for
the Registrant
14 -- Not Applicable
15 -- Not Applicable
16 -- Schedule for Computation of Performance Quotations
17 -- Powers of Attorney executed by the Board of Directors
and certain principal officers of the Registrant
27 -- Financial Data Schedules
----------
(1) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement for the Registrant on Form N-1A as filed on April 30,
1997.
C-17
ARTICLES OF INCORPORATION
OF
GUARDIAN INTERNATIONAL FUND, INC.
FIRST: The undersigned, John M. Smith, whose post office address is The
Guardian Insurance & Annuity Company. Inc., 201 Park Avenue South, New York, New
York 10003, being over eighteen (18) years of age and acting as incorporator,
hereby forms a corporation under the Maryland General Corporation Law.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
GUARDIAN INTERNATIONAL FUND, INC.
THIRD: The purposes for which the Corporation is formed are as follows:
(a) To operate as and carry on the business of an investment company
registered under the Investment Company Act of 1940. as amended (the "1940
Act"), and exercise all the powers necessary and appropriate to the conduct of
such operations;
(b) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and purchase or otherwise
acquire. hold for investment or otherwise, sell. assign. negotiate. transfer.
exchange or otherwise dispose of or turn to account or realize upon. securities
(which term "securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof be deemed to
include, but is not limited to, common and preferred stocks. warrants, bonds,
debentures. bills, time notes and all other evidences of indebtedness including
options thereon), negotiable or non-negotiable instruments, government
securities, and money market instruments including bank certificates of deposit.
finance paper. commercial paper. bankers acceptances and all kinds of repurchase
agreements of any corporation, company. trust, association, firm or other
business organization. domestic or foreign, however established, and of any
country, state, municipality or other political subdivision, or of any other
governmental or quasi-governmental agency or instrumentality created or issued
by any issuer (which term "issuer" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof be deemed to include
any persons,
1
<PAGE>
firms, associations, corporations, syndicates, combinations, organizations.
governments, or subdivisions thereof) and enter into domestic and foreign
currency and futures transactions, and to exercise as owner or holder of any
securities or other instruments, all rights, powers and privileges in respect
thereof and to do any and all acts and things for the preservation, protection,
improvement and enhancement in value of any or all such securities or other
instruments;
(c) To issue and sell shares of its own common stock in such amounts
and on such terms and conditions for such purposes and for such amount or kind
of consideration now or hereafter permitted by the Maryland General Corporation
law and by these Articles of Incorporation, as its Board of Directors may
determine, consistent with all applicable laws and regulations, including the
1940 Act;
(d) To redeem at the option of the holder, retire, purchase or
otherwise acquire. hold, dispose of, resell, transfer, reissue or cancel (all
without the vote or consent of the shareholders of the Corporation) shares of
its common stock, in any manner and to the extent now or hereafter permitted by
the Maryland General Corporation Law and by these Articles of Incorporation:
(e) To carry on any and all business, transactions and activities
permitted by the Maryland General Corporation Law which may be deemed desirable
by the Board of Directors of the Corporation, whether or not identical with or
related to the business described in the foregoing paragraphs of this Article,
as well as all activities and things necessary and incidental thereto. to the
full extent empowered by such laws;
(f) To carry on any of the foregoing businesses, transactions and
activities within and without the United States; and
(g) The foregoing businesses, transactions and activities shall,
except as otherwise expressly provided, be in no way limited or restricted by
reference to, or inference from, the terms of any other clause of this or any
other Article of these Articles of Incorporation, and shall each be regarded as
independent, and the enumeration of specific businesses, transactions or
activities shall not be construed to limit or restrict in any manner the meaning
of general terms of the general powers of the Corporation now or hereafter
conferred by the laws of the State of Maryland. nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed,
provided. however, that the
2
<PAGE>
Corporation shall not have power to carry on within the State of Maryland any
business whatsoever the carrying on of which would preclude it from being
classified as an ordinary business corporation under the laws of said State, nor
shall it carry on any business, or exercise any power. in any other state,
territory, district or country except to the extent that the same may lawfully
be carried on or exercised under the laws thereof
FOURTH: The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Incorporated. 32 South
Street. Baltimore, Maryland 21202. The principal office of the Corporation is
c/o The Guardian Insurance & Annuity Company. Inc., 201 Park Avenue South, New
York, New York 10003.
FIFTH: The resident agent of the Corporation in the State of Maryland is
The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
Said resident agent is a Maryland corporation.
SIXTH: The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of one or more classes of
common stock, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such limitations as may be set
forth in these Articles of Incorporation or in the By-Laws of the Corporation or
in the Maryland General Corporation Law.
No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the common stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation. or out of any shares of the common stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors, in its discretion, may determine.
The total amount of authorized capital stock of the Corporation
consists of one billion (1,000.000,000) shares having a par value of $.l0 each.
The aggregate par value of all classes of shares of the Corporation is
$100.000,000.
3
<PAGE>
One hundred million (100,000,000) of such shares may be issued as
the International Stock Class which is hereby established and designated;
subject, however, to the authority granted herein to the Board of Directors of
the Corporation to increase or decrease the number of such shares.
The Board of Directors of the Corporation is authorized, from time
to time, by resolution to classify or reclassify the balance of the authorized
shares into one or more classes that are or may be established or designated
from time to time. by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms and conditions of redemption of such stock, and to increase or decrease
the number of authorized shares of any class, but the number of shares of any
class shall not be reduced by the Board of Directors below the number of shares
thereof then outstanding, and the total number of authorized shares shall not be
increased above the number of shares authorized in the Corporation's Articles of
Incorporation except by the filing of record of the articles supplementary
required by Section 2-208.1 of the Maryland General Corporation Law with the
Maryland State Department of Assessments and Taxation.
Without limiting the generality of the foregoing, (i) the
Corporation may hold as treasury shares, reissue for such consideration and on
such terms as the Board of Directors may determine, or cancel, at its discretion
from time to time, any shares of any class reacquired by the Corporation: and
(ii) the dividends and distributions of investment income and capital gains with
respect to the stock of the Corporation and with respect to each class that may
hereafter be created shall be in such amount as may be declared from time to
time by the Board of Directors, and such dividends and distributions may vary
from class to class to such extent and for such purposes as the Board of
Directors may deem appropriate, including, but not limited to, the purpose of
complying with the requirements of regulatory authorities.
SEVENTH: The establishment and designation of any class of shares in
addition to that established and designated in ARTICLE SIXTH shall be effective
upon (i) the authorization of such classes by vote of a majority of the Board of
Directors, including the establishment and designation of the preferences,
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms
4
<PAGE>
and conditions of redemption of such class and (ii) the filing of record of the
articles supplementary required by Section 2-208 of the Maryland General
Corporation law with the State Department of Assessments and Taxation of
Maryland. At any time when there are no shares outstanding or subscribed for of
a particular class previously established and designated by the Board of
Directors, the class may be liquidated by similar means.
Upon the creation of any class of stock in addition to that class
established and designated in ARTICLE SIXTH, the shares of said classes and any
shares of any further classes that may from time to time be established and
designated by the Board of Directors (unless provided otherwise by the Board of
Directors with respect to such further classes at the time of establishing and
designating such further classes) shall have the following relative preferences,
rights, voting powers, restrictions. limitations as to dividends,
qualifications, and terms and conditions of redemption:
(a) Assets Belonging to a Class. All consideration received by the
Corporation for the issue of shares of a particular class, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payment derived
from any reinvestment of such proceeds, in whatever form the same may be,
together with any General Items (defined below) allocated to that class as
provided in the following sentence, are herein referred to as "assets belonging
to" that class. In the event that there are any assets, income, earnings,
profits, and proceeds thereof funds, or payments which are readily identifiable
as belonging to any particular class (collectively. "General Items"), such
General Items shall be allocated by or under the supervision of the Board of
Directors to and among any one or more of the classes established and designated
from time to time in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable, and any General Items so
allocated to a particular class shall belong to that class. Each such allocation
by the Board of Directors shall be conclusive and binding for all purposes.
(b) Liabilitites Belonging to a Class. The assets belong to each
particular class shall be charged with the liabilities of the Corporation in
respect of that class and all expenses, costs, charges and reserves attributable
to that class, and any general liabilities, expenses, costs, charges or
5
<PAGE>
reserves belonging to any particular class shall be allocated and charged by or
under the supervision of the Board of Directors to and among any one or more of
the classes established and designated from time to time in such manner and on
such bases as the Board of Directors, in its sole discretion, deems fair and
equitable. The liabilities, expenses, costs, charges and reserves allocated and
so charged to a class are herein referred to as "liabilities belonging to" that
class. Each allocation of liabilities, expenses, costs, charges and reserves by
the Board of Directors shall be conclusive and binding for all purposes.
(c) Income Belonging to a Class. The Board of Directors shall have
full discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the 1940 Act, to determine: (i) which items shall be treated
as income and which items as capital; and (ii) "income belonging to" a class,
which income shall include all income, earnings and profits derived from assets
belonging to that class, less any expenses, costs, charges or reserves belonging
to that class, for the relevant time period. Each such determination and
allocation shall be conclusive and binding.
(d) Dividends. Dividends and distributions on shares of a particular
class may be declared and paid with such frequency, in such form and in such
amount as the Board of Directors may from time to time determine. Dividends may
be declared daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities belonging to that
class.
All dividends on shares of a particular class shall be paid only out
of the income belonging to that class and capital gains distributions on shares
of a particular class shall be paid only out of the capital gains belonging to
that class. All dividends and distributions on shares of a particular class
shall be distributed pro rata to the holders of that class in proportion to the
number of shares of that class held by such holders at the date and time of
record established for the payment of such dividend or distribution program or
procedure; however, the Board of Directors may determine that no dividend or
distribution shall be payable on shares as to which the shareholder's purchase
order and/or payment have not been received by the time or times established by
the Board of Directors under such program or procedure.
6
<PAGE>
The Board of Directors shall have the power, in its sole discretion,
to distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder to avoid the imposition of any corporate income or excise
tax. However, nothing in the foregoing shall limit the authority of the Board of
Directors to make distributions greater than or less than the amount necessary
to qualify as a regulated investment company.
Dividends and distributions may be paid in cash, property or shares,
including authorized but unissued shares or treasury shares, or a combination of
any of the foregoing, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in shares will be paid at the current net asset
value thereof as defined in this ARTICLE SEVENTH.
(e) Liquidation. In the event of the liquidation of the Corporation
or of a particular class, the shareholders of each class that has been
established and designated and is being liquidated shall be entitled to receive,
as a class, when and as declared by the Board of Directors, the excess of the
assets belonging to that class over the liabilities belonging to that class. The
holders of shares of any class shall not be entitled thereby to any distribution
upon liquidation of any other class. The assets so distributable to the
shareholders of any particular class shall be distributed among such
shareholders in proportion to the number of shares of that class held by them
and recorded on the books of the Corporation. The liquidation of any particular
class in which there are shares then outstanding may be authorized by vote of a
majority of the Board of Directors then in office, subject to the approval of a
majority of the outstanding securities of that class, as defined in the 1940
Act. In the event that there are any general assets not belonging to any
particular class of stock and available for distribution, such distribution
shall be made to holders of stock of various classes in such proportion as the
Board of Directors determines to be fair and equitable, and such determination
by the Board of Directors shall be final.
7
<PAGE>
(f) Voting. On each matter submitted to a vote of the stockholders,
each holder of a share shall be entitled to one vote for each share standing in
his name on the books of the Corporation, irrespective of the class thereof, and
all shares of all classes shall vote as a single class ("Single Class Voting"):
provided, however, that (i) as to any matter with respect to which a separate
vote of any class is required by the 1940 Act or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class shall
apply in lieu of Single Class Voting as described above: (ii) in the event that
the separate vote requirements referred to in (i) above apply with respect to
one or more classes, then subject to (iii) below, the shares of all other
classes shall vote as a single class; and (iii) as to any matter which does not
affect the interests of a particular class, only the holders of shares of the
one or more affected classes shall be entitled to vote.
(g) Redemption by Stockholders. Each holder of shares of a
particular class shall have the right at such times and on such terms and
conditions as may be permitted by the Corporation to require the Corporation to
redeem all or any part of his or her shares of that class at a redemption price
per share equal to the net asset value per share of that class next determined
in accordance with this ARTICLE SEVENTH after the shares are properly tendered
for redemption. Payment of the redemption price shall be in cash; provided,
however, that if the Board of Directors determines, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Corporation may make payment wholly or partly in securities or
other assets belonging to the class of which the shares being redeemed are part
at the value of such securities or assets used in such determination of net
asset value.
Notwithstanding the foregoing, the Corporation may postpone payment
of the redemption price and may suspend the right of the holders of shares of
any class to require the Corporation to redeem shares of that class during any
period or at any time when and to the extent permissible under the 1940 Act.
(h) Net Asset Value Per Share. The net asset value per share of any
class shall be the quotient obtained by dividing the value of the net assets of
that class (being the value of the assets belonging to that class less the
liabilites belonging to that class) by the total number of shares of that class
outstanding.
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The Board of Directors may determine to maintain the net asset value
per share of any class at a designated constant dollar amount. In connection
therewith, the Board of Directors may adopt procedures not inconsistent with the
1940 Act for the continuing declarations of income attributable to that class as
dividends payable in additional shares of that class at the designated constant
dollar amount, and for the redemption of shares as necessary to maintain a
constant net asset value in the event of any losses attributable to that class.
(i) Equality. All shares of each particular class shall represent an
equal proportionate interest in the assets belonging to that class (subject to
the liabilities belonging to that class), and each share of any particular class
shall be equal to each other share of that class. The Board of Directors may
from time to time divide or combine the shares of any particular class into a
greater or lesser number of shares of that class without thereby changing the
proportionate beneficial interest in the assets belonging to that class or in
any way affecting the rights of shares of any other class.
(j) Conversion or Exchange Rights. Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the authority to
provide that holders of shares of any class shall have the right to convert or
exchange said shares into shares of one or more other classes of shares in
accordance with such requirements and procedures as may be established by the
Board of Directors.
(k) Fractional Shares. The Corporation may issue, sell, redeem,
repurchase, and otherwise deal in and with shares of its capital stock of all or
any classes in fractional denominations to the same extent as its whole shares,
and shares in fractional denominations shall be shares of capital stock of all
and any classes having proportionately to the respective fractions represented
thereby all the rights of whole shares of all or any class, including, without
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation, provided that
the issue of shares in fractional denominations or certificates therefor of all
or any class shall be limited to such transactions and be made upon such terms
as may be fixed by or under authority of the By-Laws.
9
<PAGE>
(1) Ownership Record. The Corporation may issue shares in open
account form without issuance or delivery of certificates therefor, in which
case the ownership of such shares shall be reflected exclusively by entry on the
books of the Corporation.
EIGHTH: The Corporation shall have five (5) Directors which number may be
increased or decreased, but to not less than three (3), pursuant to the By-Laws
of the Corporation. Arthur V. Ferrara, William W. Hewitt. Jr., Edward K. Kane,
Sidney I. Lirtzman and Robert G. Smith shall act as Directors until the first
annual meeting of stockholders and until their successors are duly chosen and
qualified.
The By-Laws of the Corporation may fix the number of Directors at a number
greater or less than named in these Articles of Incorporation and may authorize
the Board of Directors to increase or decrease the number of Directors fixed by
these Articles of Incorporation within the limits specified in the By-Laws.
NINTH: (a) From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment which
changes the terms of any of the outstanding stock, classification,
reclassification or otherwise), upon the vote of the holders of a majority of
the shares of capital stock of the Corporation at the time outstanding and
entitled to vote, and other provisions which might under the statutes of the
State of Maryland at the time in force be lawfully contained in Articles of
Incorporation, may be added or inserted upon such a vote and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article NINTH;
The term "these Articles of Incorporation" as used herein and in the
By-Laws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended and restated.
(b) The original By-Laws of the Corporation shall be adopted by the
initial Board of Directors named herein. Thereafter the Board of Directors shall
have the power to make, alter or repeal the By-Laws, except as the By-Laws from
time to time in effect may require shareholder action for adoption, alteration
or repeal of particular By-Law provisions.
10
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TENTH: The directors or officers of the Corporation shall not be liable
for money damages to the Corporation or to the Corporation's stockholders in
their capacity as a director or officer, except (i) to the extent that it is
proved that the person actually received an improper benefit or profit in money.
property. or services, for the amount of the benefit or profit in money,
property, or services actually received; (ii) to the extent that the liability
of the director or officer arose by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office; or (iii) to the extent that judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. If the Maryland General Corporation Law is
amended after the date hereof to authorize corporate action further eliminating
or limiting the personal liability of directors or officers, then the liability
of a director or officer of the Corporation, as the case may be, shall be
eliminated or limited to the fullest extent permitted by the Maryland General
Corporation Law, as so amended. Any repeal or modification of this Article by
the shareholders of the Corporation shall not adversely affect any right or
protection of a director or officer existing at the time of such repeal or
modification. Notwithstanding the foregoing, no director or officer of the
Corporation shall be relieved from any liabilities or expenses arising by reason
of "disabling conduct," whether or not there is an adjudication of liability.
"Disabling conduct" means willful malfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
The UNDERSIGNED, being the incorporator herein for the purpose of forming
a corporation pursuant to the Maryland General Corporation Law, does make these
Articles of Incorporation, hereby declaring and certifying that the facts herein
stated are true and, accordingly, have hereunto set my hand and acknowledge the
same to be my act on this 24th day of October, 1990.
/s/ JOHN M. SMITH
-------------------------------
John M. Smith
ATTEST:
/s/ THOMAS R. HICKEY, JR.
- -------------------------------
Thomas R. Hickey, Jr.
11
<PAGE>
ARTICLES SUPPLEMENTARY
OF
BAILLIE GIFFORD INTERNATIONAL FUND, INC.
Baillie Gifford International Fund, Inc., a Maryland corporation having
its principal office in Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting of the
Board of Directors held on June 23, 1994, adopted a resolution classifying (i)
One Hundred Million (100,000,000) shares of unclassified common stock as
International Stock Class Common Stock and (ii) Two Hundred Million
(200,000,000) shares of unclassified common stock as Emerging Markets Class
common stock, in each case by setting or changing before the issuance of such
shares, the preferences. conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption thereof as hereinafter set forth.
SECOND: The shares of Emerging Markets Class common stock as so classified
by the Board of Directors of the Corporation shall have the preferences,
conversion and other rights, voting powers, restriction, limitations as to
dividends, qualifications and terms and conditions of redemption as set forth in
Article SEVENTH of the Articles of Incorporation of the Corporation and shall be
subject to all provisions of the Articles of Incorporation relating to stock of
the Corporation generally.
THIRD: The shares of International Stock Class common stock as so
classified by the Board of Directors shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the International Stock
Class as heretofore set forth in the Articles of Incorporation of the
Corporation.
FOURTH: The shares aforesaid have been duly reclassified by the Board of
Directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation.
<PAGE>
IN WITNESS WHEREOF, Baillie Gifford International Fund, Inc. has caused
these Articles Supplementary to be signed on this 28th day of June, 1994 in its
name and on its behalf by its duly authorized officers, who acknowledge that
these Articles Supplementary are the act of the Corporation and that to the best
of their knowledge, information and belief all matters and facts set forth
herein relating to the authorization and approval of the Articles Supplementary
are true in all material respects and that this statement is made under
penalties of perjury.
Baillie Gifford International Fund. Inc.
By:
------------------------------------------
President
ATTEST:
- ------------------------
Secretary
<PAGE>
ARTICLES OF AMENDMENT
OF
BAILLIE GIFFORD INTERNATIONAL FUND, INC.
Baillie Gifford International Fund. Inc., a Maryland corporation having its
principal office in Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are amended by
striking out Article Second and inserting in lieu thereof the following:
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
GBG FUNDS, INC.
SECOND: The foregoing amendment to the charter of the Corporation was
approved unanimously by the Board of Directors of the Corporation; the charter
amendment is limited to a change expressly permitted by Section 2-605 of Title
II of Subtitle 6 of the Maryland General Corporation Law to be made without
action by the stockholders and the Corporation is registered as an open-end
company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, Baillie Gifford International Fund, Inc. has caused
these Articles of Amendment to be signed on this 10th day of October, 1994 in
its name and on its behalf by its duly authorized officers, who acknowledge that
these Articles of Amendment are the act of the Corporation and that, to the best
of their knowledge, information and belief, all matters and facts set forth
herein relating to the authorization and approval of the Articles of Amendment
are true in all material respects and that this statement is made under
penalties of perjury.
Baillie Gifford International Fund, Inc.
By:
-------------------------------------------
President
ATTEST:
- -----------------------------
Secretary
<PAGE>
ARTICLES OF AMENDMENT
OF
GBG FUNDS, INC.
GBG Funds, Inc., a Maryland corporation having its principal office in
Maryland in Baltimore City (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are amended by
striking out Article Second and inserting in lieu thereof the following:
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
GIAC FUNDS, INC.
SECOND: The foregoing amendment to the charter of the Corporation was approved
unanimously by the Board of Directors of the Corporation; the charter amendment
is limited to a change expressly permitted by Section 2-605 of Title 2 of
Subtitle 6 of the Maryland General Corporation Law to be made without action by
the stockholders and the Corporation is registered as an open-end company under
the Investment Company Act of 1940.
IN WITNESS WHEREOF, GBG Funds, Inc. has caused these Articles of Amendment to be
signed on this 2nd day of April, 1997 in its name and on its behalf by its duly
authorized officers, who acknowledge that these Articles of Amendment are the
act of the Corporation and that, to the best of their knowledge, information and
belief, all matters and facts set forth herein relating to the authorization and
approval of the Articles of Amendment are true in all material respects and that
this statement is made under penalties of perjury.
GBG Funds, Inc.
By:
-------------------------------------
John M. Smith
President
ATTEST:
- ----------------------------
Joseph A. Caruso
Secretary
<PAGE>
ARTICLES SUPPLEMENTARY
OF
GIAC FUNDS, INC.
GIAC Funds, Inc., a Maryland corporation having its principal office in
Maryland in Baltimore City (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting of the
Board of Directors held on December 19, 1996, adopted a resolution classifying
Two Hundred Million (200,000,000) shares of unclassified common stock as Small
Cap Stock Class common stock, in each case by setting or changing before the
issuance of such shares, the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption thereof as hereinafter set forth.
SECOND: The shares of Small Cap Stock Class common stock as so classified
by the Board of Directors of the Corporation shall have the preferences,
conversion and other rights, voting powers, restriction, limitations as to
dividends, qualifications and terms and conditions of redemption as set forth in
Article SEVENTH of the Articles of Incorporation of the Corporation and shall be
subject to all provisions of the Articles of Incorporation relating to stock of
the Corporation generally.
THIRD: The shares aforesaid have been duly reclassified by the Board of
Directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation.
<PAGE>
IN WITNESS WHEREOF, GIAC Funds, Inc. has caused these Articles
Supplementary to be signed on this 2nd day of April, 1997 in its name and on its
behalf by its duly authorized officers, who acknowledge that these Articles
Supplementary are the act of the Corporation and that to the best of their
knowledge, information and belief, all matters and facts set forth herein
relating to the authorization and approval of the Articles Supplementary are
true in all material respects and that this statement is made under penalties of
perjury.
GIAC Funds, Inc.
By:
-----------------------------------
John M. Smith
President
ATTEST:
- --------------------------------
Joseph A. Caruso
Secretary
Guardian International Fund, Inc.
* * * * *
BY-LAWS
* * * * *
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders of
Guardian International Fund, Inc. ("Corporation") for the election of directors
and for the transaction of any other business which may properly be considered
at the annual meeting, shall be held at such time as the Directors may
determine. Each annual meeting of stockholders shall be held at such hour and on
such day and at such place within or without the State of Maryland as may be
fixed by the Board of Directors.
Notwithstanding the previous paragraph, the Corporation shall not be
required to hold an annual meeting of stockholders in any year in which none of
the following items is required to be acted upon by stockholders pursuant to the
Investment Company Act of 1940: (1) election of directors; (2) approval of the
investment advisory agreement; (3) ratification of the selection of independent
auditors; and (4) approval of a distribution agreement.
Section 2. Special Meetings of Stockholders. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board of Directors, if any, or by the President or by a majority of the Board of
Directors of either the Corporation or the Corporation's investment adviser, and
shall be called by the Secretary upon receipt of a request in writing signed by
stockholders holding not less than twenty-five percent (25%) of the entire
capital stock issued and outstanding and entitled to vote at such meeting. Such
request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on thereat.
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<PAGE>
Unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter voted on at any special meeting of the
stockholders during the preceeding twelve (12) month period.
Section 3. Notice of Meetings of Stockholders. The Secretary of the
Corporation shall give written or printed notice of each stockholders meeting
not less than ten (10) days and not more than ninety (90) days prior to such
meeting. Notice of each such meeting shall be given to each stockholder entitled
to vote at the meeting. The notice shall state the time and place of the meeting
and, if the meeting is a special meeting, the general nature of the business
proposed to be transacted. Notice is deemed given to a stockholder when it is
left at his or her residence or usual place of business or mailed to his or her
address as it appears upon the books of the Corporation.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who is present at the meeting in
person or by proxy or to any stockholder who signs a waiver of notice, either
before or after the meeting, which is filed with the records of the meeting.
Section 4. Closing of Transfer Books; Record Dates. The Board of
Directors may set a record date or direct that the stock transfer books of the
Corporation be closed for the purpose of making any proper determination with
respect to stockholders including which stockholders are entitled to (i) notice
of a stockholder meeting; (ii) vote at such meeting; (iii) receive a dividend;
or (iv) be allotted other rights.
A record date shall not be prior to the close of business on the day
such record date is fixed. A record date shall not be more than ninety (90) days
before the date on which the action requiring the determination will be taken.
With respect to stockholder meetings, the record date or the closing of the
transfer books shall be at least ten (10) days prior to the date of the meeting.
The transfer books of the Corporation may not be closed for a period exceeding
twenty (20) days.
The record date for determining the stockholders entitled to receive
payment of a dividend or an allotment of any rights shall be the close of
business on the day the resolution of the Board of Directors declaring such
dividend or allotment of rights is adopted or as soon thereafter as practicable,
but such payment or allotment may not be made more than sixty (60) days
following the date such resolution is adopted.
2
<PAGE>
Section 5. Quorum for, and Adjournment of, Meetings. The presence in
person or by proxy of the holders of record of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat shall constitute a quorum at all meetings of the stockholders. If at any
meeting of the stockholders there shall be less than a quorum present, the
stockholders present at such meeting may, without further notice, adjourn such
meeting from time to time to a date not more than one hundred twenty (120) days
after the original record date until a quorum shall attend, but no business
shall be transacted at any such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
When a quorum is present at any meeting, the vote of holders of a
majority of the stock having the right to vote thereat, present in person or
represented by proxy, shall determine any question brought before such meeting
unless the question is one upon which a different vote is required by specific
statutory provision, the Articles of Incorporation or these By-Laws, in which
case such express provision shall control.
At any meeting of the stockholders every stockholder having the
right to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing, subscribed by such stockholder and bearing a date not
more than eleven (11) months prior to said meeting, which instrument shall be
filed with the Secretary of the meeting before being voted. Each stockholder
shall have one vote or fraction thereof for each share or fraction thereofheld.
Unless otherwise specifically limited by their terms, such proxies shall entitle
the holders thereof to vote at any adjournment of such meeting. A proxy with
respect to shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to the exercise of the proxy the
Company receives a specific written notice to the contrary from any one of them.
At all meetings of stockholders, unless the voting is conducted by inspectors,
all questions relating to the qualifications of voters, the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
3
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. Tenure of Office. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors. All
powers of the Corporation may be exercised by or under the authority of the
Board of Directors except as conferred on or reserved to the stockholders by
law, by the Articles of Incorporation or by these By-Laws. Each director shall
hold office until the annual meeting of stockholders of the Corporation next
succeeding his or her election or until his or her successor is duly elected and
qualified. Directors need not be stockholders.
Section 2. Number of Directors. The Board of Directors shall consist
of at least three (3) directors. Each "interested director" of the Fund (as
defined in the Investment Company Act of 1940) must also be an officer of
Guardian Insurance & Annuity Company, Inc. during the period of his or her
tenure as a director of the Corporation. The Board of Directors, by the vote of
a majority of the entire Board, may increase the number of directors to a number
not exceeding eleven (11), and may elect directors to fill the vacancies created
by any such increase in the number of Directors until the next annual meeting of
stockholders or until their successors are duly elected and qualified. Vacancies
occurring other than by reason of any such increase shall be filled as provided
by the Maryland General Corporation Law. The Board of Directors, by the vote of
a majority of the entire Board, may likewise decrease the number of directors to
a number not less than three. However, any such action by the Board of Directors
may not affect the tenure of office of any director.
Section 3. Chairman of the Board. The Chairman of the Board, if
there be one, shall preside at all meetings of stockholders and of the Board of
Directors, and shall have such other powers and duties as may be delegated to
him or her by the Board of Directors.
Section 4. Place of Meeting. The directors may hold their meetings,
have one or more offices, and keep the books of the Corporation outside the
State of Maryland, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine and, in addition, in
the case of meetings, as shall be specified or fixed in the respective notices
or waivers of notice thereof.
4
<PAGE>
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice, if any, as the
Directors may from time to time determine.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be held from time to time upon the call of the Chairman of the
Board of Directors, if any, the President, or two or more of the Directors, by
oral, telegraphic, facsimile or written notice duly served on or sent or mailed
to each director not less than twenty-four (24) hours before such meeting. No
notice need be given to any director who attends such meeting in person without
protesting prior thereto or at its commencement the lack of notice to him or her
or to any director who waives such notice in writing, and such waiver is
executed and filed with the records of the meeting either before or after the
holding thereof. Such notice or waiver of notice need not state the purpose or
purposes of such meeting.
Section 7. Quorum. One-third, but no fewer than two, of the
directors then in office shall constitute a quorum for the transaction of
business. If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained. The act of the majority of the
directors present at the meeting at which there is a quorum shall be the act of
the directors, except as may be otherwise specifically provided by statute, by
the Articles of Incorporation or by these By-Laws.
Section 8. Executive Committee. The Board of Directors may, by
the affirmative vote of a majority of the entire Board, appoint from among its
members an Executive Committee to consist of two or more directors as the Board
may from time to time determine. The Board of Directors by such affirmative vote
shall have the power at any time to change the members of such Committee and may
fill vacancies in the Committee by election from the directors. When the Board
of Directors is not in session, the Executive Committee shall have and may
exercise any or all of the powers of the Board of Directors in the management of
the business and affairs of the Corporation (including the power to authorize
the seal of the Corporation to be affixed to all papers which may require it),
except the power
5
<PAGE>
to increase or decrease the size of and fill vacancies on the Board and except
such other actions which are otherwise prohibited to be delegated by law. The
Executive Committee may fix its own rules of procedures, and may meet when and
as provided by such rules or by resolution of the Board of Directors, but in
every case the presence of a majority shall be necessary to constitute a quorum.
In the absence of any member of the Executive Committee, the members thereof
present at any meeting whether or not they constitute a quorum, may appoint a
member of the Board of Directors to act in the place of such absent member.
Section 9. Audit Committee. The Board of Directors shall appoint an
Audit Committee consisting of three (3) directors who are not deemed to be
"interested persons" [as defined in the the Investment Company Act of 1940 as
amended (the "1940 Act")] whose primary concern shall be to act as a liaison
with the Corporation's public accountants. Such Committee shall also oversee and
review such other audit matters as they deem necessary.
Section 10. Other Committees. The Board of Directors, by the
affirmative vote of a majority of the entire Board, may appoint other committees
which shall in each case consist of such number of members (not less than two)
and shall have and may exercise such powers as the Board may determine in the
resolution appointing them. A majority of all members of any such committee may
determine its action, and fix the time and place of its meetings, unless the
Board of Directors shall otherwise provide. The Board of Directors shall have
power at any time to change the members and powers of any such committee, to
fill vacancies, and to discharge any such committee.
Section 11. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by each member of the Board or of such committee and is filed with the
minutes of the proceedings of the Board or of such Committee.
Section 12. Meetings by Telephonic Communication. Members of the
Board of Directors or a committee of the Board may participate in a meeting by
means of a conference telephone or similar
6
<PAGE>
communications equipment if all persons participating in the meeting can hear
each other at the same time and participation in the meeting in this manner
shall be deemed to constitute presence in person at such meeting.
Section 13. Compensation of Directors. No directors shall receive
any stated salary or fees from the Corporation for his or her services if such
Director is, otherwise than by reason of being such Director, employed by the
Corporation or any investment adviser or investment manager of the Corporation.
Except as provided in the preceding sentence, Directors shall be entitled such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
Section 14. Contracts and Transactions Involving Directors. No
contract or transaction between the Corporation and one or more of its directors
or officers, or any partnership, association, or other organization in which one
or more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board or committee thereof which authorizes the contract or transaction, or
solely because his, her, or their votes are counted for such purpose, if: (1)
the material facts as to his, her, or their interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee and the Board or committee in good faith authorizes the contract or
transaction by a vote sufficient for such purpose without counting the vote of
the interested director or directors, even if the vote of the disinterested
directors constitute less than a quorum; or (2) the material facts as to his,
her, or their interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of stockholders; or
(3) the contract or transaction is fair as to the Corporation as of the time it
is authorized, approved or ratified by the Board of Directors, a committee
thereof, or the stockholders.
7
<PAGE>
Directors who are deemed to be "interested persons" (as defined in
the 1940 Act) may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. These shall include a
President, a Secretary and a Treasurer, and may include a Chairman of the Board
of Directors and one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors). The Chairman of the Board of Directors,
if any, shall be selected from among the Directors. The Board of Directors may
also in its discretion appoint Assistant Secretaries, Assistant Treasurers, and
other officers, agents and employees, who shall have such authority and perform
such duties as the Board, the Chairman, the Executive Committee or the President
may determine or, if not expressed, then such duties as are customary to the
office. The Board of Directors may fill any vacancy which may occur in any
office.
Section 2. Term of Office. The term of office of all officers shall
be one year and until their respective successors are chosen and qualify,
subject, however, to any provisions for removal contained in the Articles of
Incorporation. Any officer may be removed from office at any time with or
without cause by the vote of a majority of the entire Board of Directors.
Section 3. Holding More than One Office. Any two offices, except
those of President and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law or these By-Laws to be executed,
acknowledged or verified by more than one officer. In the absence of the
Chairman of the Board (or if there be none), the President shall preside at all
meetings of the stockholders and of the Board of Directors.
8
<PAGE>
Section 4. Powers and Duties. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices, as
well as such powers and duties as may from time to time be conferred by the
Board of Directors or the Executive Committee or the President.
Section 5. Fidelity Bond. The Corporation may secure the fidelity of
any or all of its officers, agents, or employees by bond.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his or her duly authorized attorney or legal representative, upon surrender
and cancelling of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature of the Corporation or its agents
as may reasonably be required. In the case of shares not represented by
certificates, the same or similar requirements may be imposed by the Board of
Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them, respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may determine the conditions upon which a new certificate of stock of
the Corporation may be issued in place of a certificate which is alleged to have
been lost, stolen or destroyed, and may, at their discretion, require the
9
<PAGE>
owner of such certificate or his or her legal representative to give bond, with
sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims arising
as a result of the issuance of a new certificate.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in
such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
Unless otherwise determined by the Board of Directors, the fiscal
year of the Corporation shall end on the 31st day of December in each year.
ARTICLE VII
EXECUTION OF INSTRUMENTS
Section 1. Checks, Notes, Drafts and Similar Instruments.
Checks, notes, drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such officer or officers
or person or persons as the Board of Directors by resolution shall from time to
time designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, pledged, hypothecated, transferred or
otherwise disposed of pursuant to authorization by the Board and when so
authorized may be transferred from the name of the Corporation by the signature
of the President or a Vice-President or the Treasurer or such other officer as
may be designated by the Board.
10
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 1. Books of the Corporation. The books of the Corporation
may be kept (subject to any provisions of law) inside or outside the state of
Maryland at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
Section 2. Indemnification. (a) Every person who is or was a
Director, officer or employee of the Corporation or of any other corporation
which he or she served at the request of this Corporation and in which this
Corporation owns or owned shares of capital stock or of which it is or was a
creditor, shall have a right to be indemnified by this Corporation to the full
extent permitted by applicable law, against all liability, judgments, fines,
penalties, settlements and reasonable expenses incurred by him or her in
connection with or resulting from any threatened or actual claim, action, suit
or proceeding, whether criminal, civil or administrative, in which he or she may
become involved as a party or otherwise by reason of his or her being or having
been a Director, officer or employee, except as provided in Section 2(a) and
2(b) of this Article.
(b) Disabling Conduct. No such Director, officer or employee shall
be indemnified for any liabilities or expenses arising by reason of such
person's "disabling conduct," whether or not there is an adjudication of
liability. "Disabling conduct" means willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
office.
Whether any such liability arose out of disabling conduct shall be
determined: (a) by a final decision on the merits (including, but not limited
to, a dismissal for insufficient evidence of any disabling conduct) by a court
or other body before which the proceeding was brought, that the person to be
indemnified was not liable by reason of disabling conduct; or (b) in the absence
of such decision, by a reasonable determination, based upon a review of the
facts, that such person was not liable by reason of disabling conduct, (i) by
the vote of a majority of a quorum of Directors who are neither interested
persons of the Corporation nor parties to the action, suit, or proceeding in
question ("disinterested, non-party Directors"), or (ii) by independent legal
counsel in a written opinion if a majority of a quorum of
11
<PAGE>
disinterested, non-party Directors so directs or if such quorum is not
obtainable, or (iii) by majority vote of the shareholders, or (iv) by any other
reasonable and fair means not inconsistent with any of the above.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that any liability or
expense arose by reason of disabling conduct.
(c) Expenses Prior to Determination. The Corporation shall pay or
reimburse, from time to time, all reasonable expenses incurred by a present or
former Director, officer or employee of the Corporation in connection with any
threatened, pending or completed action, suit, or proceeding (whether civil,
criminal, administrative or investigative) in which such present or former
Director, officer or employee is a party and may therefore be entitled to
indemnification, in advance of the final disposition of the proceeding, to the
fullest extent permitted by, and in accordance with the applicable requirements
of, the 1940 Act and the Maryland General Corporation Law.
(d) Provisions Not Exclusive. The indemnification provided by this
ARTICLE VIII shall not be deemed exclusive of any rights to which those seeking
indemnification may be entitled under any law, agreement, vote of shareholders,
or otherwise.
(e) General. No indemnification provided by this Article shall be
inconsistent with the 1940 Act or the Maryland General Corporation Law.
Any indemnification provided by this Article shall continue
thereafter as to a person who has ceased to be a Director, officer or employee,
and shall inure to the benefit of the heirs, executors and administrators of
such person.
Section 3. Investment Advisory Contract. Any investment advisory or
investment management contract to which the Corporation is a party shall not be
amended without the affirmative vote or the written consent of the holders of a
majority of all the shares of the capital stock of the Corporation (as defined
in the 1940 Act) at the time outstanding and entitled to vote.
12
<PAGE>
Section 4. Custodianship. All cash and securities owned by the
Corporation shall be held by a bank or trust company of good standing, having
capital, surplus and undivided profits aggregating not less than two million
dollars ($2,000,000); provided such a bank or trust company can be found ready
and willing to act. Upon the resignation or inability to serve of any such bank
or trust company, the Corporation shall (i) use its best efforts to obtain a
qualified successor, (ii) require the cash and securities of the Corporation
held by such bank or trust company to be delivered directly to the successor,
and (iii) in the event that no qualified successor can be found, submit to the
holders of the shares of the capital stock of the Corporation at the time
outstanding and entitled to vote, before permitting delivery of such cash and
securities to anyone other than a qualified successor, the question whether the
Corporation shall be dissolved and liquidated or shall function without a
qualified bank or trust company to hold such cash and securities. Upon such
resignation or inability to serve, such bank or trust company may deliver any
assets of the Corporation held by it to a qualified bank or trust company
selected by it, such assets to be held subject to the terms of the agreement
which govered such retiring bank or trust company, pending action by the
Corporation as set forth in this Section 3. Nothing herein contained, however,
shall prevent the termination of any agreement between the Corporation and any
such bank or trust company by the Corporation at the discretion of the Board of
Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by a majority vote of the stockholders or by
majority vote of the entire Board of Directors, however, any such alteration,
amendment, addition or repeal of the By-Laws by action of the Board of Directors
may be altered or repealed by the stockholders. Section 2 of Article VIII may be
altered, amended or repealed only by the stockholders.
13
Exhibit 5(a)
<PAGE>
AGREEMENT
between
Baillie Gifford
International Fund, Inc.,
an open end investment
company, having its
principal place of
business at 201 Park
Avenue South, New York,
New York 10003, U.S.A.
(hereinafter called "the
Company") OF THE ONE PART
and
GUARDIAN BAILLIE GIFFORD
LIMITED, a company
incorporated under the
Companies Acts and having
its registered office at 6
Glenfinlas Street,
Edinburgh, Scotland
(hereinafter called "the
Manager") OF THE OTHER
PART
W H E R E A S:
(A) The Company proposes to engage in business as an open-end management
investment company and to register as such under the U.S. Investment
Company Act of 1940, as amended.
(B) The Company is authorised to issue shares of capital stock in one or more
series, the shares of which will represent and correspond to interests in
one or more separate portfolios of securities and other assets held by the
Company.
(C) The Manager is engaged principally in the business of rendering investment
management services and is registered as an investment adviser under the
U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(D) The Company desires the Manager to render investment
<PAGE>
2
management services to the Company in the manner and on the terms and
conditions hereinafter set forth.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 In this Agreement the following words and expressions shall where not
inconsistent with the context have the following meanings respectively:
(a) "Associate" means and includes any corporation which in relation to
the person concerned (being a corporation) is a Holding Company or a
Subsidiary or a Subsidiary of any such Holding Company or a
corporation (or a Subsidiary of a corporation) at least one-third
of the issued share capital of which is beneficially owned by the
person concerned or an Associate thereof under the preceding part of
this definition and includes any firm the partners of which or any
one or more of them are beneficially entitled whether directly or
indirectly or through the medium of a corporation or corporations to
at least three-quarters of the issued equity share capital of the
person concerned (being a corporation) and includes any partner in
any such firm. Where the person concerned is an individual, firm or
other unincorporated body the expression "Associate" means and
includes any corporation directly or indirectly or through the
medium of a corporation or corporations controlled by such person
and any partner in any such firm;
(b) "Baillie Gifford Overseas Limited" means Baillie Gifford
<PAGE>
3
Overseas Limited, a company incorporated under the Companies Acts
and having its registered office at 7 Glenfinlas Street, Edinburgh
EH3 6YY;
(c) "Business Day" means a day on which the New York Stock Exchange is
open for business;
(d) "Commencement Date" means [ ] 1990 or, if later, the date on which a
copy of this Agreement signed by or on behalf of the Manager has
been signed by or on behalf of the Company and returned to the
Manager;
(e) "Custodian" means State Street Bank and Trust Company, Boston,
Massachusetts, U.S.A. and its agents and sub-custodian banks or such
other bank or banks as may in the future serve as custodian of the
investments'
(f) "Directors" means the Board of Directors of the Company from time to
time including any duly appointed committee thereof;
(g) "Holding Company" means a holding company as defined in Section 736
of the Companies Act 1985;
(h) "IMRO" means Investment Management Regulatory Organisation Limited;
(i) "Investments" means the assets and rights from time to time of the
Company comprised in the Portfolio;
(j) "Investment Policy" means the investment objective, policies and
restrictions which are set out in the
<PAGE>
4
current Registration Statement on Form N-1A as filed with the SEC
and as amended from time to time following written notice given by
the Company to the Manager;
(k) "Portfolio" means the investments and cash which may from time to
time comprise the Company's assets;
(1) "Rules" means the rules (including any regulations) made by the
board of IMRO, as altered, amended, added to or cancelled from time
to time whether by the board of IMRO or pursuant to the Financial
Services Act 1986, together with the Statutory Rules;
(m) "SEC" means the U.S. Securities and Exchange Commission;
(n) "Statutory Rules" means rules or regulations made under Chapter V of
the Financial Services Act 1986 which are binding on the Manager;
(o) "Sub-Investment Management Agreement" means the sub-investment
management agreement between the Manager and Baillie Gifford
Overseas Limited of even date herewith;
(p) "Subsidiary" means a subsidiary as defined in Section 736 of the
Companies Act 1985;
(q) "U.S." means the United States of America;
(r) "1940 Act" means the U.S. Investment Company Act of 1940, as
amended;
(s) any reference to the Company or the Manager includes a
<PAGE>
5
reference to its or their duly authorised agents or delegates;
(t) words importing the singular number shall be deemed to include the
plural number and vice versa;
(u) words importing the masculine gender only shall include the feminine
gender and vice versa; and
(v) words importing persons shall include companies or associations or
bodies of persons, whether corporate or not.
1.2 The headings to the Clauses of this Agreement are for convenience only and
shall not affect the construction or interpretation thereof.
1.3 References herein to statutory provisions shall be construed as references
to those provisions as respectively amended or re-enacted from time to
time and shall include any provision of which they are re-enactments
(whether with or without modification).
2. Appointment and functions of the Manager
2.1 With effect from the Commencement Date the Company hereby appoints the
Manager to be the investment manager of the Portfolio, all upon the terms
contained herein and the Manager hereby accepts such appointment and
agrees to assume the obligations set forth herein.
2.2 In exercising its functions under this Agreement the Manager shall at all
relevant times consider advice given to it by
<PAGE>
6
Baillie Gifford Overseas Limited under the Sub-Investment Management
Agreement.
2.3 Notwithstanding Clause 2.2 above, any investment activity undertaken by
the Manager pursuant to this Agreement and any other activities undertaken
by the Manager on behalf of the Company shall at all times be subject to
any written directives of the Directors, any duly constituted committee
thereof or any officer of the Company acting pursuant to written
directives of the Directors.
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as investment manager of the
Portfolio of the Company and without prejudice to the generality of
Clauses 2.1 and 2.3 above the Manager shall:-
(a) manage the investment and re-investment of the Portfolio on a
discretionary basis with a view to achieving the investment
objective contained in the Investment Policy;
(b) provide valuations of the Investments in accordance with the
provisions of Clause 12;
(c) as and when requested by the Company supply the Company with such
information in connection with the Company as may be in the
possession of the Manager or may reasonably be obtained from or
provided by them;
3.2 The Manager shall subject to Clause 4.1 take such steps as necessary to
implement the Investment Policy and regularly
<PAGE>
7
report to the Directors on the implementation of said Investment Policy
and the Manager's activities in accordance with Clause 12 below in
connection with the administration of the Company.
3.3 The Manager shall keep or cause to be kept on behalf of the Company such
books, records and statements to give a complete record of all
transactions carried out by the Manager on behalf of the Company in
relation to the investment and re-investment of the Portfolio and such
other books, records and statements as may be required by law and as may
be necessary to give a complete record of all other transactions carried
out by the Manager on behalf of the Company and shall permit the Company
and its employees and agents and the auditors for the time being of the
Company to inspect such books, records and statements at all reasonable
times.
3.4 All records required to be maintained and preserved by the Manager on
behalf of the Company or the Portfolio pursuant to the provisions of rules
or regulations of the SEC under Section 31(a) of the 1940 Act are the
property of the Company and will be surrendered by the Manager promptly on
request by the Company.
3.5 The Manager hereby warrants that it holds and undertakes that it will
continue to hold, all licences, permissions, authorisations and consents
necessary to enable it to carry out its duties hereunder in the ordinary
course of business and that all such licences, permissions, authorisations
and consents are and will remain in full force and effect during the
continuance of this Agreement.
<PAGE>
8
3.6 The services to be provided under this Agreement shall be so provided on
the basis that the Company is a "Professional Investor" as defined in the
Rules.
4. Manager's specific powers and obligations in relation to investment
management
4.1 Consistent with the Investment Policy and subject to any written
directions (in accordance with Clause 2.3 above) communicated to the
Manager, the Manager shall have and is hereby granted the authority, power
and right for the Portfolio and in the name of the Company to supervise
and direct the investments of the Company in its discretion and without
prior consultation with the Company to:-
(a) to issue orders and instructions with respect of the disposition of
Investments, moneys and other assets of the Portfolio;
(b) to purchase (or otherwise acquire), sell (or otherwise dispose of)
and invest in investments, moneys and other assets for the account
of the Company and effect foreign exchange transactions on behalf of
the Company and for the account of the Company in connection with
any such purchase, other acquisition, sale or other disposal;
(c) to enter into, make and perform all contracts, agreements and other
undertakings as may in the opinion of the Manager be necessary or
advisable or incidental to the carrying out of the objectives of
this Agreement;
(d) subject to the Rules, to aggregate transactions for the
<PAGE>
9
Portfolio with those of other clients and Associates without prior
reference to the Company or such other clients. Aggregation may
operate on some occasions to the advantage of the Company and on
other occasions to the Company's disadvantage. Also the Manager may
act as agent for the Company in relation to transactions in which it
is also acting as agent for its Associates;
(e) to purchase and sell Investments on any Recognised or Designated
Investment Exchange as defined in the Rules (including for this
purpose over the counter markets) or through such other intermediary
as the Manager may in its discretion consider;
(f) to purchase or subscribe for Investments Not Readily Realisable (as
defined in the Rules). However, such investments carry a high risk
of not being readily realisable, market-makers may not be prepared
to deal in them and proper information for determining their current
value may not be available. The purchase of such investments is
subject to such restrictions as may be set out in this Agreement not
inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and offers of paper
and/or cash alternatives in takeover bids on behalf of the Company;
(h) to invest in futures, options and contracts for differences,
including margined transactions (as defined in the Rules) effected
otherwise than under the rules of
<PAGE>
10
a Recognised or Designated Investment Exchange (as defined in the
Rules) or in a contract traded thereon.
(i) for the purposes of carrying out transactions in futures and options
only, to deposit or pledge investments comprised in the Portfolio
and such other documents of title and certificates evidencing title
to such investments and other property as may be required in order
to satisfy the counterparty's margin or collateral requirements. In
all other circumstances and except (a) with the written consent of
and on terms agreed with the Company or (b) if appropriate, as may
be provided in the Company's current Registration Statement filed
with the SEC (as amended from time to time) investments comprised in
the Portfolio and documents of title and certificates evidencing
title to such investments and other property acquired under this
Agreement may not be lent to a third party nor may money be borrowed
on the Company's behalf against the security of such investments,
documents and property.
4.2 As Investments may be denominated in different currencies, a movement of
exchange rates may have a separate effect, unfavourable as well as
favourable, on the gain or loss otherwise experienced in the Investments.
4.3 The Company understands that markets involving futures and contracts for
differences and options can be highly volatile and that such instruments
carry a high risk of loss and that a relatively small adverse market
movement may result not
<PAGE>
11
only in loss of the original investment but also an unquantifiable further
loss exceeding any margin deposited. The Company further understands that
it may be required to pay a deposit or margin in support of a transaction
or to supplement that payment after the transaction has been effected and
that the consequence of non-payment may result in the loss of deposit or
margin.
4.4 The Company acknowledges receipt of the Risk Disclosure Statements set out
in Schedule 1 hereto.
4.5 The Manager shall observe and comply with all resolutions of the Directors
of which it has written notice and other lawful orders and directions
given in writing to it from time to time by the Directors and all
activities engaged in by the Manager hereunder pursuant to Clause 3 above
shall at all times be subject to the control of and review by the
Directors and without limiting the generality of the foregoing the
Directors may from time to time:
(a) prohibit the Manager from investing the Portfolio in any investment
or in any currency or country or in or with any person;
(b) require the Manager to sell any investment or (subject to the
availability of funds) to purchase, on behalf of the Company, any
investment;
(c) amend the Investment Policy and notify the Manager of this in
writing;
and the Manager shall and shall procure that any person, firm or company
to whom it delegates any of its functions
<PAGE>
12
hereunder shall give effect to all such decisions.
5. Payments due on Investments
The Company shall be responsible for any unpaid calls or other sums which
may become payable upon any of the Investments or any rates, taxes or
other imposts or similar liabilities levied or arising on or in respect of
any of the Investments.
6. Unsolicited Calls
The Company and the Manager are free under this Agreement to telephone,
visit or otherwise communicate with each other without express invitation
to discuss the Portfolio, its composition and investment policy or changes
therein, or any individual investment current or proposed. This may
constitute an "Unsolicited Call" in terms of the Rules.
7. Custody Arrangements
7.1 The Company will at the written request of the Manager arrange for
the opening of bank accounts in the name of the Company with the
Custodian. All sums belonging to the Company including proceeds of
sales and income received on investments shall be credited directly
to such accounts. The Manager will hold no moneys on behalf of the
Company, and accepts no liability for any default by the Custodian.
These bank accounts and moneys are not Client Bank Accounts or
Clients' Money (as defined in the Rules).
7.2 Securities forming part of the Portfolio will be
<PAGE>
13
registered in the name of the Custodian or held to its order. The
Manager accepts no liability for any default by the Custodian or
sub-custodian banks.
8. Settlement
The Manager will attend to the settlement and delivery of all purchases
and sales of Investments and deal with issues, rights entitlements and any
other matters affecting such investments. The Manager will also be
entitled to instruct the Custodian to make delivery of documents of title
or certificates evidencing title when settling transactions.
9. Voting
Any rights conferred by Investments of the Company shall be exercised in
such manner as the Manager may determine after having considered the
advice of Baillie Gifford Overseas Limited, (subject to the rights of the
Directors to give instruction to the Manager regarding the exercise of
such rights) and subject as aforesaid the Manager may in its discretion
refrain from the exercise of such rights. The Company shall from time to
time, upon request from the Manager, execute and deliver or cause to be
executed and delivered to the Manager or its nominee(s) such powers of
attorney or proxies as may reasonably be required authorising such
attorneys or proxies to exercise any rights or otherwise act in respect of
all or any part of the Investments. Without prejudice to the generality of
the foregoing the Manager will be entitled to give voting instructions to
the
<PAGE>
14
Custodian in respect of the exercise of any voting or other rights
attached to any Investment at the discretion of the Manager or as the
Company may instruct from time to time.
10. Lending and Borrowing
10.1 Subject to the Investment Policy and as provided in this Clause 10,
investments comprised in the Portfolio and documents of title and
certificates evidencing title to such investments and other property
acquired under this Agreement may not be lent to a third party nor
may money be borrowed on the Company's behalf against the security
of such investments, documents and property.
10.2 Subject to the Investment Policy, an overdraft facility or line of
credit may be established on behalf of the Company and may be used
as a temporary measure for the extraordinary or emergency needs of
the Company.
10.3 Subject to the Investment Policy and to the temporary borrowing
facility provided for in 10.2 above, the Manager may not commit the
Company to supplement the monies in the Portfolio either by
borrowing on its behalf or by committing it to a contract the
performance of which may require them to supplement the Portfolio.
11. Reporting
11.1 The Manager shall arrange to notify the Company by fax of transactions on
a daily basis and will instruct brokers to send the original contract note
to the Custodian and copies to the Company and the Manager.
<PAGE>
15
11.2 The Manager shall supply quarterly to the Company the following:
(a) reports incorporating inter alia, advice as to future policy, which
will be sent within twenty five working days of the end of the
quarter to which the report relates;
(b) a Portfolio valuation prepared by Datastream or some other mutually
agreed and reputable supplier of valuation services. Such valuations
will show the number of units of each investment or other asset
held, the book cost and the aggregate value of each as at the
valuation date and will normally use middle market prices for listed
investments. In the event of any change in this method the Manager
will notify the Company accordingly;
(c) a statement of any income received on the investments held;
(d) a schedule detailing the performance of the Company broken down into
major sectors and comparing the return of the relevant index against
the return of the Company. The returns will be compiled by the WM
Company using information supplied by the Manager; and
(e) schedules showing transactions undertaken during the period under
review.
11.3 The Manager shall attend meetings with the Company from time to time
as required by the Directors. Instructions
<PAGE>
16
transactions on a daily basis and will instruct brokers to send the
original contract note to the Custodian and copies to the Company and the
Manager.
11.2 The Manager shall supply quarterly to the Company the following:
(a) reports incorporating inter alia advice as to future policy, which
will be sent within twenty five working days of the end of the
quarter to which the report relates;
(b) a Portfolio valuation prepared by Datastream or some other mutually
agreed and reputable supplier of valuation services. Such valuations
will show the number of units of each investment or other asset
held, the book cost and the aggregate value of each as at the
valuation date and will normally use middle market prices for listed
investments. In the event of any change in this method the Manager
will notify the Company accordingly;
(c) a statement of any income received on the investments held;
(d) a schedule detailing the performance of the Company broken down into
major sectors and comparing the return of the relevant index against
the return of the Company. The returns will be compiled by the WM
Company using information supplied by the Manager; and
(e) schedules showing transactions undertaken during the period under
review.
11.3 The Manager shall attend meetings with the Company from time to time
as required by the Directors. Instructions
<PAGE>
17
as to the management of the Portfolio given orally to the Manager at
such meetings will be confirmed in writing to the Manager as
provided for in Clause 23.
12. Material Interests
12.1 Except as provided in Clause 4.1(d) of this Agreement, the Manager may not
effect transactions for the Portfolio in which it has directly or
indirectly a material interest or any relationship with another party
which may involve a conflict of the Manager's duty to the Company without
prior reference to the Company, other than transactions in units in unit
trusts managed by Baillie Gifford & Co Limited, an Associate of the
Manager, in accordance with the provisions of sub-clause 12.2 of this
Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement the Manager may not
effect transactions for the Portfolio in units in unit trusts managed by
Baillie Gifford & Co. Limited unless the Manager shall first have been
issued with an order of exemption by SEC in accordance with sub-section
17(a)(1)(b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio with or through
the agency of a person who provides services under any arrangement where
that person will from time to time provide to or procure for the Manager
services or other benefits which result, or are designed to result, in an
improvement in the services which the Manager provides to its clients and
for which it may make no direct payment but may undertake to place
business with that person.
<PAGE>
18
14. Fees
14.1 In consideration for the services to be provided by the Manager
under this Agreement the Company shall, during the continuance of
this Agreement, pay to the Manager in the manner hereinafter
provided, fees calculated by reference to the value of the Portfolio
all in accordance with the following provisions of this Clause
14.
14.2 Subject to sub-clause 14.3 of this Clause, the Company shall pay to
the Manager in respect of each calendar month a fee (exclusive of
Value Added Tax) calculated at the rate of one fifteenth of one per
cent (0.067%) of:-
A
- where:
B
"A" means the aggregate of the Values of the Portfolio as at the
close of business on each Business Day falling in that
calendar month; and
"B" means the number of Business Days falling in that calendar
month.
14.3 From the fee calculated above there shall be deducted sums
representing a pro rata share of the management charge arising on
any unit trust managed by Baillie Gifford & Co Limited in which the
Portfolio may be invested from time to time.
Each such deduction shall be calculated as follows:
M x C x D
-
365
Where M is the average daily market value of a holding in a unit
trust managed by Baillie Gifford & Co Limited
<PAGE>
19
included in the valuation on which the calculation of the fee is
based.
C is the factor described as a percentage and applied to the value
of assets of the unit trust managed by Baillie Gifford & Co Limited
in calculating its annual management fee.
D is the number of days in which the holding in the fund has been
held during the period to which the fee relates.
No initial charge will be made for any investment in such unit
trust.
14.4 The Manager shall procure that a sum equal to each deduction under
sub-clause 14.3 above shall be paid by Baillie Gifford & Co Limited
to the Manager. Said sum payable to the Manager shall be invoiced by
the Manager to Baillie Gifford & Co Limited following the end of
each calendar month and shall be due and payable within ten days of
the relevant invoice.
14.5 Said fees due to the Manager shall be invoiced by the Manager to the
Company following the end of each calendar month and shall be due
and payable within ten days of the relevant invoice. The Company
shall be entitled to make such payments on account as it may in its
absolute discretion determine.
14.6 For the purposes of sub-clause 14.2 of this clause:
(i) the "Value of the Portfolio" means the aggregate of the values
of the assets of the Portfolio at the close of business on a
Business Day. The aggregate of the value of the assets shall
be
<PAGE>
20
calculated by taking the value of securities held in the
Portfolio, plus any cash or other assets (including dividends
payable and declared but not collected) less all liabilities
(including accrued expenses, but excluding capital and
surplus);
(ii) the "value of an asset" shall be taken:-
(1) in the case of an investment quoted on a Stock Exchange
where market price is the recognised basis of quotation,
at the price of such investment at the close of business
of the appropriate exchange on the relevant Valuation
Date or, if there have been no sales during the day, at
the mean of the closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and
asked prices;
(3) in the case of unquoted investments and other
investments for which market quotations are not readily
available, at the value ascertained in accordance with
such manner as the Directors have deemed appropriate to
reflect the fair value thereof;
(iii) when any asset is held or liability is outstanding in a
currency other than U.S. dollars, such asset or liability
shall be notionally converted into the U.S. dollar
<PAGE>
21
equivalents at the prevailing market rates quoted by the
Custodian at the close of business on the Business Day, on the
relevant Valuation Date or, if such Valuation Date is not a
Business Day, on the immediately preceding Business Day.
14.7 The Manager shall procure that Baillie Gifford & Co shall be
responsible for furnishing such office space, facilities and
equipment and such clerical help, administrative and bookkeeping
services in Edinburgh as the Company shall reasonably require in the
conduct of its business in accordance with the Administrative and
Secretarial Agreement between Baillie Gifford & Co. and the Manager
of even date herewith.
14.8 The Company shall bear all expenses of its organization, operations
and business not specifically assumed or agreed to be paid by the
Manager as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Company shall pay all
of the expenses relating to the following expense categories:
custody and accounting services; shareholder servicing agent;
transfer and dividend disbursing agent; shareholder communications;
shareholder meetings; prospectuses; calculation of net asset value;
legal fees and expenses; accounting fees and expenses; directors'
fees and expenses; federal and state registration fees; bonding and
insurance; brokerage commissions; taxes; trade association fees;
nonrecurring and extraordinary expenses (including but not limited
to, legal claims and liabilities and
<PAGE>
22
litigation costs and any indemnification related thereto); and all
other charges relating to the operation of the Company unless
otherwise specifically provided herein. All such expenses shall be
paid out of the assets of the Company.
15. Taxation
Bank statements and vouchers will be sent to the [Company] to enable the
Company to reclaim any credits in respect of or tax deducted from the
income of the Portfolio.
16. Ten and Termination of the Agreement
16.1 The term of this Agreement shall begin on [ ], subject to the approval of
the Directors, including a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) and to the approval of a
majority of the outstanding voting securities of the Company (as defined
in the 1940 Act) and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until [ ]. Thereafter, this
Agreement shall continue in effect from year to year, with respect to the
Company, subject to the termination provisions and all other terms and
conditions hereof, provided such continuance is approved at least annually
by the vote of holders of a majority of the outstanding voting securities
of the Company (as defined in the 1940 Act) or by the Directors, provided
that in either event, such continuance is also approved annually by the
vote of a majority of the Directors who are not parties to this Agreement
and are not "interested persons" (as defined in the
<PAGE>
23
1940 Act) of any party, which vote must be cast in person at a meeting
called for the purpose of voting on such approval. The Manager shall
furnish to the Company, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
16.2 Subject to Clauses 16.3 and 16.4 below, the Company may, at any time and
without the payment of any penalty, terminate this Agreement upon sixty
(60) days written notice to the Manager, either by majority vote of the
Directors or by the vote of a majority of the outstanding voting
securities of the Company (as defined in the 1940 Act).
16.3 The Company shall also be entitled to terminate forthwith the appointment
of the Manager hereunder notwithstanding any period remaining in
accordance with this Clause or, no notice having been given:
i) if the Manager shall commit any material breach of its obligations
under this Agreement and (if such breach shall be capable of remedy)
shall fail within thirty days of receipt of notice in writing served
by the Company requiring it so to do to make good such breach;
ii) if an order is made or a resolution passed to wind up the Manager or
if a receiver is appointed to the whole or any part of the property
and undertaking of the Manager;
iii) if the Shareholders Agreement between the Guardian Insurance &
Annuity Company, Inc., Baillie Gifford
<PAGE>
24
Overseas Limited and the Manager dated 7 November 1990 is
terminated.
16.4 The Manager may terminate this Agreement without payment of penalty upon
sixty days written notice to the Company.
16.5 The Manager shall also be entitled to terminate forthwith this Agreement,
notwithstanding any period remaining in accordance with this Clause or, no
notice having been given, if (i) the said Shareholders Agreement between
the Guardian Insurance & Annuity Company, Inc., Baillie Gifford Overseas
Limited and the Manager is terminated or expires by effluxion of time, or
(ii) an order is made or a resolution passed to wind up the Company, or
(iii) if the Company shall commit any material breach of its obligations
under this Agreement and (if such breach shall be capable of remedy) shall
fail within 30 days of receipt of notice in writing served by the Firm
requiring it so to do to make good such breach.
16.6 This Agreement shall immediately terminate in the event of its assignation
or assignment (as that term is defined in the 1940 Act) by either party
unless such automatic termination shall be prevented by an exemptive order
or rule of the SEC.
16.7 On the termination of the appointment of the Manager under the provisions
of this Clause the Manager shall be entitled to receive all fees accrued
due up to the date of such termination but shall not, in the case of
termination under any sub-clauses 16.2,16.3 or 16.4 above, be entitled to
compensation in respect of such termination.
16.8 On termination of the appointment of the Manager under the
<PAGE>
25
provisions of this Clause the Manager shall deliver to the Company, or as
it shall direct, all books of account, records, registers, correspondence,
documents and assets in relation to the affairs of or belonging to the
Company in possession of or under the control of the Manager as investment
manager and take all necessary steps to vest in the Company any assets
previously held in the name of or to the order of the Manager as
investment manager on behalf of the Company.
16.9 Termination of the appointment of the Manager hereunder shall be without
prejudice to transactions already initiated, which transactions shall be
completed.
16.10 The Company and the Manager will co-operate with each other to ensure
that transactions in progress at the date of termination of the Manager's
appointment hereunder shall be completed by the Company in accordance with
the terms of such transactions and, to this end, the Manager shall provide
the Company with all necessary information and documentation to secure
implementation thereof.
17. Continuation and exercise of Manager's powers
The authorities herein contained are continuing ones and shall remain in
full force and effect until revoked by termination of this Agreement as
hereinbefore provided but such revocation shall not affect any liability
in any way resulting from transactions initialled prior to such
revocation.
<PAGE>
26
18. Non-exclusivity
18.1 The services of the Manager hereunder are not to be deemed exclusive and
the Manager or any Associate thereof shall be free to render investment
management services, investment advisory services and corporate
administrative services to other parties (including without prejudice to
the generality of the foregoing other investment companies) on such terms
as the Manager or such Associate may arrange so long as its services under
this Agreement are not thereby impaired and to retain for its own use and
benefit fees or other moneys payable thereby. The Manager shall not be
deemed to be affected with notice of or to be under any duty to disclose
to the Company any fact or thing which may come to the notice of it or any
servant or agent of it in the course of the Manager rendering the said
services to others or in the course of its business in any other capacity
or in any manner whatsoever otherwise than in the course of carrying out
its duties under this Agreement.
18.2 The Manager agrees to permit individuals who are directors or officers of
the Manager to serve as directors or officers of the Company.
19. Indemnity
19.1 Neither the Manager nor any of its officers, directors, or employees, nor
any person performing executive, administrative, trading, or other
functions for the Company (at the direction or request of the Manager) or
the Manager in connection with the Manager's discharge of its obligations
undertaken or reasonably assumed with respect to this
<PAGE>
27
Agreement, shall be liable for any error of judgment or mistake of law or
for any loss suffered by the Company in connection with the matters to
which this Agreement relates, except for loss resulting from wilful
misfeasance or misconduct, wilful default, bad faith, or gross negligence
in the performance of its or his/her duties on behalf of the Company or
from reckless disregard by the Manager or any such person of the duties of
the Manager under this Agreement.
19.2 The Manager shall not be liable for the consequences of any investment
decision made hereunder or in respect of any other fund managed by the
Manager or any of its Associates which is a permitted investment
hereunder. The Manager acts only as agent for the Company and the Company
hereby undertakes to indemnify the Manager against all actions,
proceedings, claims, demands, costs and expenses which may be brought
against, suffered or incurred by the Manager by reason of its performance
of such duties, including all legal, professional and other expenses
incurred.
19.3 Notwithstanding the provisions of Clause 19.2 the Manager will indemnify
the Company in respect of any loss incurred as a result of negligence or
fraud by the Manager or any of its Associates or their respective
employees in their performance of the duties under the terms of this
Agreement.
20. Complaints
20.1 The Manager has established procedures in accordance with the requirements
of IMRO for the effective consideration of complaints by the Company.
<PAGE>
28
20.2 Should the Company wish to make a complaint to the Manager about any
aspect of the Manager's carrying out of its duties under this Agreement or
otherwise, it shall, in the first instance, do so by letter addressed to
the director or directors of the Manager responsible for the management of
the Portfolio. If no satisfactory resolution of the complaint is achieved
within five days, the Company may reiterate the complaint by letter
addressed to the Chairman of the Manager. If no satisfactory resolution is
achieved within ten days of the original complaint, the Company shall then
make its complaint to IMRO.
Notwithstanding the above provisions the Company has a right of complaint
direct to IMRO at any time.
20.3 A booklet setting out the Company's right to investor's compensation under
the Securities and Investments Board's Scheme is available on request from
the Manager.
21. Delegation
The Manager is authorised to delegate any or all of the obligations
incumbent upon it in terms of this Agreement to Baillie Gifford Overseas
Limited provided that such delegation is effected by way of a sub
investment management agreement in the form or as near as in the form of
Schedule 2 annexed hereto.
22. Confidentiality
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination disclose to any person firm or fund
whatsoever (except with the authority of
<PAGE>
29
the relevant party or unless ordered to do so by a court of competent
jurisdiction or any regulatory body) any information relating to the
business, investments, finances or other matters of a confidential nature
of the other party of which it may in the course of its duties hereunder
or otherwise become possessed and each party shall use all reasonable
endeavours to prevent any such disclosure as aforesaid.
23. Reliance on documents
Whenever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Directors) to the Manager, the Manager may accept as
sufficient evidence thereof:
i) a document signed or purporting to be signed on behalf of the
issuing party by such person or persons whose signature the Manager
is for the time being authorised by such issuing party to accept; or
ii) a message by tested telexcopier, facsimile machine or cable
transmitted by, or on behalf of, the Company (or its Directors) by
such person or persons whose messages the Manager is for the time
being authorised by the Company or its Directors to accept, and the
Manager shall not be obliged to accept any document or message
signed or transmitted or purporting to be signed or transmitted by
any other person.
<PAGE>
30
24. Severability
If any of the provisions of this Agreement is found by an arbiter, court
or other competent authority to be void or unenforceable, such provision
shall be deemed to be deleted from this Agreement and the remaining
provisions of this Agreement shall continue in full force and effect.
Notwithstanding the foregoing the parties shall thereon negotiate in good
faith in order to agree the terms of a mutually satisfactory provision to
be substituted for the provision so found to be void or unenforceable.
25. Notices
Any notice required to be given under this Agreement shall be in writing,
delivered personally or sent by first class prepaid letter or transmitted
by telex or facsimile and shall be deemed duly served if left at or served
if left at or sent or (as appropriate) transmitted to the following
addresses (or to the most recent of any other address of which a party
hereto shall have given notice to the other party pursuant to this
Clause):-
(a) if to the Company at:
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
(b) if to the Manager at:-
6 Glenfinlas Street,
Edinburgh EH3 6YY
For the attention of: G Gemmell
Facsimile number: 031-225-2358
Notices sent by first class prepaid letter shall be deemed to
<PAGE>
31
be served seven business days after posting. Evidence that the Notice was
properly addressed, stamped and put into post shall be conclusive evidence
of posting. A notice sent by facsimile transmission shall be deemed to
have been served at the time when a complete and legible copy is received
by the addressee. In this Clause "business day" means a day on which
normal banking business is carried on in Edinburgh and New York City.
26. Arbitration
If any dispute shall arise between the parties as to the true intent or
meaning or the implementation or termination of this Agreement or any part
thereof in any manner of way, such dispute shall be referred to a single
Arbiter to be nominated by the President for the time being of the Law
Society of Scotland on the application of either party hereto and all
decisions and awards of such arbiter both interim and final shall be
binding upon all parties who hereby respectively undertake to implement
and fulfil the same. Section 3(3) of the Administration of Justice
(Scotland) Act 1972 shall not apply to this Agreement.
27. Governing Law
Notwithstanding any conflict of laws, principles or provisions which may
otherwise apply, this Agreement and the rights and obligations of the
parties shall be governed by and are to be construed in accordance with
the law of
<PAGE>
32
Scotland and, to the extent applicable, in accordance with the 1940 Act:
IN WITNESS WHEREOF these presents typewritten on this and the thirty
preceding pages are, together with the Schedule, executed as follows:-
<PAGE>
33
SCHEDULE 1
GENERAL RISK DISCLOSURE STATEMENT
PART 1
This statement is made in compliance with the rules of the Securities and
Investments Board.
The risk of loss in investing in commodity, financial or other futures, options
or contracts for differences can be substantial. You should carefully consider
whether such investments are suitable for you in the light of your circumstances
and financial resources. You should be aware of the following points:-
1. In a relatively short time you may sustain a total loss of the deposits
and of the margin placed with your broker to establish or maintain an open
position if the market moves against you. You may be called upon to
deposit a substantial additional margin, at short notice, to maintain your
position. If you do not provide such additional funds within the time
required, your position may be liquidated at a loss and you will be liable
for any resulting deficit.
2. If you deposit collateral as security for calls made upon you by your
broker it will lose its identity as your property once dealings on your
behalf are undertaken and may be passed to an exchange's clearing house or
other brokers. Even if your dealings should ultimately prove profitable,
you may have to accept payment in cash and not get back the actual assets
which you have deposited. Nor will your deposit be protected to the same
extent as would a cash deposit held on trust in a segregated client bank
account.
<PAGE>
34
3. Under certain market conditions it may be difficult or impossible to
liquidate a position. This may occur, for example, at times of rapid price
movement if the price rises or falls in one trading session to such an
extent that, under the rules of the relevant exchange, trading is
suspended or restricted.
4. Placing a stop-loss order will not necessarily limit your losses to the
intended amounts, for market conditions may make it impossible to execute
such orders at the stipulated price.
5. A spread or straddle position may be as risky as a single long or short
position and can be more complex.
6. Markets in futures, options and contracts for differences can be highly
volatile and investment in them carries a high risk of loss. The high
degree of "gearing" or "leverage" is a particular feature of this type of
transaction. This stems from the margining system applicable to such
contracts which generally involves a comparatively modest deposit or
margin in terms of the overall contract value, so that a relatively small
market movement can have a disproportionately dramatic effect on your
investment. If the market movement is in your favour, you may achieve a
good profit return, but an equally small adverse market movement can
result not only in the loss of your entire original investment, but may
also expose you to the distinct possibility of an unquantifiable loss
exceeding your original investment.
7. If you take (buy) an option, your risk in most cases will be less than
trading in futures since you should not lose more
<PAGE>
35
than the premium you paid plus any commission or other transaction
charges. However, there are many different types of options with different
peculiarities and subject to different conditions. You should accordingly
require your broker to inform you of all relevant details before
committing yourself. In all cases you can easily lose your entire
investment in the option.
If you grant (sell) an option, your risk of loss may be at least as great
as your exposure in trading futures. Although you will receive a premium
payment for granting (selling) the option, a relatively small adverse
market movement can quickly eradicate that premium. You may be liable to
pay substantial additional margins which could involve you in significant
losses. Moreover, the buyer of an option acquires certain rights which may
limit your ability to protect yourself. Only experienced traders should
contemplate granting options and then only after securing full details
from their broker of the applicable conditions and potential risk
exposure.
8. Unless you have effectively agreed otherwise in circumstances where this
is permitted under the rules of the Board when your broker deals for you
he should do so only in contracts of the types dealt with on one of the
recognised or designated exchanges. If you instruct a broker to deal on
foreign markets, he will probably instruct a broker in the country
concerned. Normally that broker will not be subject to the rules or
regulations of the Securities and Investments Board and the exchange on
which he effects the transaction
<PAGE>
36
may not be subject to as strict regulations as a recognised investment
exchange in the United Kingdom. Hence the degree of protection afforded to
you may be less than if you restrict your transactions to the United
Kingdom markets. You should ensure that your broker explains the
protections which will operate and ascertain whether he accepts liability
for any default of the foreign broker that he employs. If he does not
accept such liability you could lose all that you have invested or stand
to gain if the foreign broker defaults.
9. You should require of your broker prior to the commencement of trading
written confirmation of all commission and other transaction charges for
which you will be liable. In the event that any charges are not expressed
in money terms (but, for example, as a percentage of contract value) you
should obtain a clear written explanation, including appropriate examples,
to establish what such charges are likely to mean in specific money terms.
You should realise that when commission is charged as a percentage it will
normally be as a percentage of the total contract value and not simply a
percentage of your deposit.
10. Brokers may also be dealers trading for their own account and they may
accordingly be involved in the same markets as you. Under such
circumstances you should be aware that their own account involvement could
be contrary to your interests. Your broker is required to inform you in
advance if he deals on his own behalf in relevant markets.
<PAGE>
37
11. The guarantee of performance by the exchanges' clearing houses applies
only to their contracts with members. They do not guarantee performance of
your brokers' contracts with you.
12. Your broker's insolvency or that of any other brokers involved may lead to
your positions being closed out without your consent.
13. You have agreed that your money held by your broker need not be segregated
in a client bank account and you will lack that protection should your
broker become insolvent.
14. This brief statement cannot disclose all risks of investments in futures,
options and contracts for differences. They are not suitable for many
members of the public and you should carefully study such investments
before you commit funds to them. They may also have tax consequences and
on this you should consult your lawyer, accountant or other tax adviser.
PART II
Limited Liability Transaction
1. Before entering into a limited liability transaction, you should obtain
from your broker or the firm with which you are dealing a formal written
statement confirming that the extent of your loss liability on each
transaction will be limited to an amount agreed by you prior to entering
into the transaction.
2. The amount of such agreed liability must be indicated in the contract or
confirmation note of the transaction.
<PAGE>
38
3. You are required under the rules of the Board to deposit in cash the
amount of the agreed maximum liability assumed by you in relation to each
transaction.
4. The amount you can lose in limited liability transactions will be less
than in other margined transactions where there is no guaranteed loss
limit. Such costs must be included in (and not additional to) your agreed
loss liability, and you should be aware that higher charges increase the
likelihood and extent of your loss.
<PAGE>
39
ADDITIONAL RISK DISCLOSURE STATEMENT
This Statement is made in compliance with the rules of the Securities and
Investments Board because you have authorised your broker to deal with or for
you in futures, options or contracts for differences which are not undertaken
under the rules of a recognised or designated investment exchange and in
contracts traded thereon. Its purpose is to warn you of the risks, additional to
those referred to in the General Risk Disclosure Statement, inherent in such
dealings.
1. In general it is only if you are a business, professional or experienced
investor within the meaning of the Board's rules and have agreed to be
treated as such that your broker will be entitled to undertake such
dealings with or for you. There are only three other circumstances in
which this is permissible subject to your agreement:-
(a) if the dealings are undertaken under a limited liability transaction
(see the General Risk Disclosure Statement) and your broker has
required you to deposit with him a sum in cash equivalent to the
amount of your limited liability prior to the entry into the
transaction,
(b) if your broker carries on investment business only as an
"execution-only dealer", acts only on your unsolicited instructions
and offers not advice or recommendation of any kind, or
(c) your broker is managing your investment portfolio under an agreement
which provides that such transactions may be entered into but only
with a view to protecting
<PAGE>
40
against possible adverse fluctuations in the value of other
investments or cash in the portfolio.
Unless you are a business, professional or experienced investor or one or more
of circumstances (a), (b) and (c) apply your broker will not be entitled to
undertake such transactions with or for you.
2. Such transactions may involve you in substantially greater risks than you
might incur by investing in futures, options or contracts for differences
under the rules of a recognised or designated investment exchange and in
contracts of a type traded thereon.
3. There is no regulated market in such contracts and the bid and offer
prices will be established solely by dealers in these contracts. Hence you
may not be able to sell what you have bought or buy what you have sold or
to ascertain whether you are doing so at a fair price.
4. Before entering into any such transactions you should obtain from your
broker a written explanation as to how dealing is to be conducted, the
nature of the contracts offered, the facilities which will be made
available to you and the applicable procedures for entering into the
liquidating transactions, the method of calculating prices and other
relevant material. This you should study carefully, in conjunction with
the General Risk Disclosure Statement and this Additional Risk Disclosure
Statement. You should satisfy yourself that dealing is conducted
throughout in strict conformity with that written explanation and report
to
<PAGE>
41
the Board if you have reason to believe it is not. (The Securities and
Investments Board, 3 Royal Exchange Buildings, London EC3V 3NL Tel: 283
2474).
5. If you deal in contracts which are traded solely by one dealer you will
have no alternative other than to liquidate your position with the same
dealer and to accept the price he offers. You should ensure that this
price will be based on objective criteria and that your broker undertakes
that deals will be done at that price.
6. You are also reminded that if you have agreed that your money held by your
broker need not be segregated in a client bank account you will lack that
protection should your broker become insolvent.
<PAGE>
42
RISK DISCLOSURE STATEMENT - OPTIONS
This statement is made in compliance with the rules of the Securities and
Investments Board.
The risk of loss in investing in options can be substantial. You should
carefully consider whether such investments are suitable for you in light of
your circumstances and financial resources. You should be aware of the following
points:
Risk Disclosure Statement
1. There are many different types of options with different peculiarities and
subject to different conditions. You should accordingly require your
broker to inform you of all relevant details before committing yourself.
If you take (buy) an option, the extent of your risk should not be more
than the amount of the premium you paid plus any commission or other
transaction charges. However, if you write or grant (sell) an uncovered
option, a relatively small adverse market movement can quickly eradicate
that premium. You may be liable to pay substantial additional margins
which could involve you in significant losses. You may be obliged to make
or take delivery of the underlying investment. Moreover, the buyer of an
option acquires certain rights which may limit your ability to protect
yourself. Only experienced persons should contemplate selling options and
then only after securing full details from their broker of the applicable
conditions and potential risk exposure.
2. If you are required to deposit collateral as security with your broker in
respect of your options transactions, the way
<PAGE>
43
in which it will be treated will vary widely according to the type of
option and where it is traded. If you trade options on a recognised or
designated investment exchange, the rules of that exchange and its
clearing house are likely to apply, but entirely different practices and
conditions are likely to be applicable in the case of off-exchange
options. You are strongly advised in either case to ascertain from your
broker prior to entering into the transaction how your collateral will be
dealt with, whether or not it will retain its identity as your property,
and under what circumstances you may be called upon for additional
collateral or other forms of security deposit.
3. Under certain market conditions it may be difficult or impossible to
liquidate positions. This may occur, for example, at times of rapid price
movement if the price rises or falls in one trading session to such an
extent that, under the rules of the relevant exchange, trading is
suspended or restricted.
4. A spread or straddle position may be as risky as a single long or short
position and can be more complex.
5. Unless you have effectively agreed otherwise in circumstances where this
is permitted under the rules of the Board when your broker deals for you
he should do so only in contracts of the type dealt with on one of the
recognised or designated exchanges. If you instruct your broker to deal on
foreign markets, he will probably instruct a broker in the country
concerned. Normally that broker will not be subject to the rules or
regulations of the Securities and Investments Board
<PAGE>
44
and the exchange on which he effected the transaction may not be subject
to as strict regulations as a recognised investment exchange in the United
Kingdom. Hence the degree of protection afforded to you may be less than
if you restrict your transactions to the United Kingdom markets. You
should ensure that your broker explains the protections which operate and
ascertain whether he accepts liability for any default of the foreign
broker that he employs. If he does not accept such a liability you could
lose all that you have invested or stand to gain if the foreign broker
defaults.
6. You should require of your broker prior to the commencement of trading
written confirmation of all commission and other transaction charges for
which you will be liable. In the event that any charges are not expressed
in money terms (but, for example, as a percentage of contract value) you
should obtain a clear written explanation, including appropriate examples,
to establish what such charges are likely to mean in specific money terms.
7. Brokers may also be dealers trading for their own account and they may
accordingly be involved in the same markets as you. Under such
circumstances you should be aware that their own account involvement could
be contrary to your interests. Your broker is required to inform you in
advance if he deals on his own behalf in relevant markets.
8. The guarantee of performance by the exchanges' clearing houses applies
only to their contracts with members. They do not guarantee performance of
your contracts.
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45
9. Your broker's insolvency or that of any other firm involved in the
transaction may lead to your positions being closed out without your
consent.
10. You have agreed that your money held by your broker need not be segregated
in a client bank account and you will lack that protection should your
broker become insolvent.
Exhibit 5(b)
<PAGE>
INVESTMENT ADVISORY AGREEMENT
between
BAILLIE GIFFORD INTERNATIONAL FUND, INC. having its principal place of business
at 201 Park Avenue South, New York, New York 10003, U.S.A. (hereinafter called
"the Company") OF THE ONE PART
and
GUARDIAN BAILLIE GIFFORD LIMITED, a company incorporated under the Companies
Acts and having its Registered Office at 1 Rutland Court, Edinburg, EH3 8EY,
Scotland (hereinafter called "The Manager") OF THE OTHER PART
WHEREAS:
(A) The Company is engaged in business as an open-end management
investment company and is registered as such under the U.S. Investment Company
Act of 1940, as amended.
(B) The Company is authorised to issue shares of common stock in one or
more series, the shares of which will represent and correspond to interests in
one or more separate portfolios of securities and other assets held by the
Company.
(C) The Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(D) The Company desires the Manager to render investment management
services to the Company and to those of its Series which are named in written
Fee Appendices as described herein in the manner and on the terms and conditions
herein set forth.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 In this Agreement the following words and expressions shall
where not inconsistent with the context have the following meanings
respectively:
(a) "Associate" means and includes any corporation which in
relation to the person concerned (being a corporation) is a Holding
Company or a Subsidiary or a Subsidiary of any such Holding Company
or a Corporation (or a Subsidiary of a corporation) at least
one-third of the issued share capital of which is beneficially owned
by the person concerned or an Associate therefore under the
preceding part of this definition and includes any firm the partners
of which or any one or more of them are beneficially entitled
whether directly or indirectly or through the medium of a
corporation or corporations to at least three-quarters of the issued
equity share capital of the person concerned (being a corporation)
and includes any partner in any such firm. Where the person
concerned is an individual, firm or other unincorporated body the
expression "Associate" means and includes any corporation directly
or indirectly or through the medium of a corporation or corporations
controlled by such person and any partner in any such firm;
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(b) "Baillie Gifford Overseas Limited" means Baillie Gifford
Overseas Limited, a company incorporated under the Companies Acts
and having its registered office at 1 Rutland Court, Edinburgh EH3
8EY, Scotland;
(c) "Business Day" means a day on which the New York Stock
Exchange is open for business;
(d) "Commencement Date" means 12 September 1994 or, if later,
the date on which a copy of this Agreement signed by or on behalf of
the Manager has been signed by or on behalf of the Company and
returned to the Manager;
(e) "Custodian" means State Street Bank and Trust Company.
Boston, Massachusetts, U.S.A. and its agents and subcustodian banks
or such other bank or banks as may in the future serve as custodian
of the investments;
(f) "Fee Appendix" means the Investment Advisory Fee Appendix
entered into by the Manager and the Company on behalf of a Series,
which sets forth the compensation to be paid by the Series to the
Manager for services rendered hereunder. Each Fee Appendix shall be
subject to the terms and conditions of this Agreement;
(g) "Holding Company" means a holding company as defined in
Section 736 of the Companies Act 1985;
(h) "IMRO" means Investment Management Regulatory Organisation
Limited;
(i) "Investments" means the assets and rights from time to
time of each series comprised in the Portfolio of such Series;
(j) "Investment Policy" means the investment objective,
policies and restrictions of a Series which are set out in the
current Registration Statement on Form N-1A as filed with the SEC
and as amended from time to time following written notice given by
the Company to the Manager;
(k) "Portfolio" means the investments and cash which may from
time to time comprise the assets of a Series;
(l) "Rules" means the rules (including any regulations) made
by the board of IMRO, as altered, amended, added to or cancelled
from time to time whether by the board of IMRO or pursuant to the
Financial Services Act 1986, together with the Statutory Rules;
(m) "SEC" means the U.S. Securities and Exchange Commission;
(n) "Series" means a separate portfolio of assets of the
Company which has been named in a written Fee Appendix;
(o) "Statutory Rules" means rules or regulations made under
Chapter V of the Financial Services Act 1986 which are binding on
the Manager;
(p) "Sub-Investment Advisory Agreement" means the
sub-investment advisory agreement between the Manager and Baillie
Gifford Overseas Limited of even date herewith;
(q) "Subsidiary" means a subsidiary as defined in Section 736
of the Companies Act 1985;
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(r) "Trustees" means the Board of Directors of the Company
from time to time including any duly appointed committee thereof;
(s) "U.S." means the United States of America;
(t) "1940 Act" means the U.S. Investment Company Act of 1940,
as amended;
(u) any reference to the Company, a Series or the Manager
includes a reference to its or their duly authorised agents or
delegates;
(v) words importing the singular number shall be deemed to
include the plural number and vice versa;
(w) words importing the masculine gender only shall include
the feminine gender and vice versa;
(x) words importing persons shall include companies or
associations or bodies of persons, whether corporate or not; and
(y) any reference to this Agreement shall be deemed to be a
reference to this Agreement as it may from time to time be
supplemented by a Fee Appendix.
1.2 The headings to the Clauses of this Agreement are for
convenience only and shall not affect the construction or interpretation
thereof.
1.3 References herein to statutory provisions shall be construed as
references to those provisions as respectively amended or re-enacted from
time to time and shall include any provision of which they are
re-enactments (whether with or without modification).
2. Appointment and Functions of the Manager
2.1 With effect from the Commencement Date the Company hereby
appoints the Manager to be the investment manager of the Portfolio of each
Series, all upon the terms contained herein and the Manager hereby accepts
such appointment and agrees to assume the obligations set forth herein.
2.2 In exercising its functions under this Agreement the Manager
shall at all relevant times consider advice given to it by Baillie Gifford
Overseas Limited under the Sub-Investment Advisory Agreement.
2.3 Notwithstanding Clause 2.2 above, any investment activity
undertaken by the Manager pursuant to this Agreement and any other
activities undertaken by the Manager on behalf of the Company or any
series shall at all times be subject to any written directives of the
Trustees, any duly constituted committee thereof or any officer of the
Company acting pursuant to written directives of the Trustees.
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as investment manager
of the Portfolio of each Series and without prejudice to the generality of
Clauses 2.1 and 2.3 above the Manager shall:
(a) manage the investment and re-investment of the Portfolio
of such Series on a discretionary basis with a view to achieving the
investment objective contained in the Investment Policy;
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(b) provide valuations of the Investments of the Series in
accordance with the provisions of Clause 11;
(c) as and when requested by the Company supply the Company
with such information in connection with the Company and each Series
as may be in the possession of the Manager or may reasonably be
obtained from or provided by them;
3.2 The Manager shall subject to Clause 4.1 take such steps as
necessary to implement the Investment Policy of each Series and regularly
report to the Trustees on the implementation of said Investment Policy and
the Manager's activities in accordance with Clause 11 below in connection
with the administration of each Series.
3.3 The Manager shall keep or cause to be kept on behalf of each
Series such books, records and statements to give a complete record of all
transactions carried out by the Manager on behalf of each Series in
relation to the investment and reinvestment of the Portfolio of such
Series and such other books, records and statements as may be required by
law and as may be necessary to give a complete record of all other
transactions carried out by the Manager on behalf of each Series and shall
permit the Company and each Series and their employees and agents and the
auditors for the time being of the Company and each Series to inspect such
books, records and statements at all reasonable times.
3.4 All records required to be maintained and preserved by the
Manager on behalf of each Series or the Portfolio of such Series pursuant
to the provisions of rules or regulations of the SEC under Section 31(a)
of the 1940 Act are the property of the Company and will be surrendered by
the Manager promptly on request by the Company.
3.5 The Manager hereby warrants that it holds and undertakes that it
will continue to hold, all licences, permissions, authorisations and
consents necessary to enable it to carry out its duties hereunder in the
ordinary course of business and that all such licences, permissions,
authorisations and consents are and will remain in full force and effect
during the continuance of this Agreement.
3.6 The services to be provided under this Agreement shall be so
provided on the basis that the Company is a "Non-Private Customer" as
defined in the Rules.
4. Manager's Specific Powers and Obligations in Relation to Investment
Management
4.1 Consistent with the Investment Policy and subject to any written
directions (in accordance with Clause 2.3 above) communicated to the
Manager, the Manager shall have and is hereby granted the authority, power
and right for the Portfolio of each Series and in the name of the Company
and each Series to supervise and direct the investments of each Series in
its discretion and without prior consultation with the Company:
(a) to issue orders and instructions with respect to the
disposition of Investments, moneys and other assets of the Portfolio
of each Series;
(b) to purchase (or otherwise acquire), sell (or otherwise
dispose of) and invest in investments, moneys and other assets for
the account of each Series and effect foreign exchange transactions
on behalf of each Series and for the account of each Series in
connection with any such purchase, other acquisition, sale or other
disposal;
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(c) to enter into, make and perform all contracts, agreements
and other undertakings as may in the opinion of the Manager be
necessary or advisable or incidental to the carrying out of the
objectives of this Agreement;
(d) subject to the Rules, to aggregate transactions for the
Portfolio of each Series with those of other clients and Associates
without prior reference to the Company or any Series or such other
clients. Aggregation may operate on some occasions to the advantage
of a Series and on other occasions to the disadvantage of a Series.
Also the Manager may act as agent for the Company and each Series in
relation to transactions in which it is also acting as agent for its
Associates;
(e) to purchase and sell Investments on any Recognised or
Designated Investment Exchange as defined in the Rules (including
for this purpose over the counter markets) or through such other
intermediary as the Manager may in its discretion consider;
(f) to purchase or subscribe for Investments Not Readily
Realisable (as defined in the Rules). However, such investments
carry a high risk of not being readily realisable, market-makers may
not be prepared to deal in them and proper information for
determining their current value may not be available. The purchase
of such investments is subject to such restrictions as may be set
out in this Agreement not inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and
offers of paper and/or cash alternatives in takeover bids on behalf
of each Series;
(h) to invest in Contingent Liability Transactions and Options
(as defined in the Rules) effected otherwise than under the rules of
a Recognised or Designated Investment Exchange (as defined in the
Rules) or in a contract traded thereon;
(i) for the purposes of carrying out transactions in futures
and options only, to deposit or pledge investments comprised in the
Portfolio of each Series and such other documents of title and
certificates evidencing title to such investments and other property
as may be required in order to satisfy the counterparty's margin or
collateral requirements. In all other circumstances and except (a)
with the written consent of and on terms agreed with the Company or
(b) if appropriate, as may be provided in the Company's current
Registration Statement filed with the SEC (as amended from time to
time) investments comprised in the Portfolio of a Series and
documents of title and certificates evidencing title to such
investments and other property acquired under this Agreement may not
be lent to a third party nor may money be borrowed on the Company's
or a Series' behalf against the security of such investments,
documents and property.
4.2 As Investments may be denominated in different currencies, a
movement of exchange rates may have a separate effect, unfavourable as
well as favourable, on the gain or loss otherwise experienced in the
Investments.
4.3 The Company understands that markets involving Contingent
Liability Transactions can be highly volatile and that such instruments
carry a high risk of loss and that a relatively small adverse market
movement may result not only in loss of the original investment but also
an unquantifiable further loss exceeding any margin deposited. The Company
further understands that it may be required to pay on behalf of a Series
5
<PAGE>
a deposit or margin in support of a transaction or to supplement that
payment after the transaction has been effected and that the consequence
of non-payment may result in the loss of deposit or margin.
4.4 The Company acknowledges receipt of the Risk Disclosure
Statements set out in Schedule 1 hereto.
4.5 The Manager shall observe and comply with all resolutions of the
Trustees of which it has written notice and other lawful orders and
directions given in writing to it from time to time by the Trustees and
all activities engaged in by the Manager hereunder pursuant to Clause 3
above shall at all times be subject to the control of and review by the
Trustees and without limiting the generality of the foregoing the Trustees
may from time to time:
(a) prohibit the Manager from investing the Portfolio of any
Series in any investment or in any currency or country or in or with
any person;
(b) require the Manager to sell any investment or (subject to
the availability of funds) to purchase, on behalf of a Series, any
investment;
(c) amend the Investment Policy of any Series and notify the
Manager of this in writing;
and the Manager shall and shall procure that any person, firm or company
to whom it delegates any of its functions hereunder shall give effect to
all such decisions.
5. Payments Due on Investments
The Company shall be responsible on behalf of each Series for any
unpaid calls or other sums which may become payable upon any of the
Investments or any rates, taxes or other imposts or similar liabilities
levied or arising on or in respect of any of the Investments.
6. Cold Calls
The Company and the Manager are free under this Agreement to
telephone, visit or otherwise communicate with each other without express
invitation to discuss the Portfolio of any Series, its composition and
investment policy or changes therein, or any individual investment current
or proposed. This may constitute a "Cold Call" in terms of the Rules.
7. Custody Arrangements
7.1 The Company on behalf of each Series will at the written request
of the Manager arrange for the opening of bank accounts in the name of
each Series with the Custodian. All sums belonging to a Series including
proceeds of sales and income received on investments shall be credited
directly to such accounts. The Manager will hold no moneys on behalf of a
Series, and accepts no liability for any default by the Custodian. These
bank accounts and moneys are not Client Bank Accounts or Clients' Money
(as defined in the Rules).
7.2 Securities forming part of the Portfolio of each Series will be
registered in the name of the Custodian or held to its order. The Manager
accepts no liability for any default by the Custodian or sub-custodian
banks.
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8. Settlement
The Manager will attend to the settlement and delivery of all
purchases and sales of Investments of each Series and deal with issues,
rights entitlements and any other matters affecting such investments. The
Manager will also be entitled to instruct the Custodian to make delivery
of documents of title or certificates evidencing title when settling
transactions.
9. Voting
Any rights conferred by Investments of a Series shall be exercised
in such manner as the Manager may determine after having considered the
advice of Baillie Gifford Overseas Limited, (subject to the rights of the
Trustees to give instruction to the Manager regarding the exercise of such
rights) and subject as aforesaid the Manager may in its discretion refrain
from the exercise of such rights. The Company, on behalf of each Series,
shall from time to time, upon request from the Manager, execute and
deliver or cause to be executed and delivered to the Manager or its
nominee(s) such powers of attorney or proxies as may reasonably be
required authorising such attorneys or proxies to exercise any rights or
otherwise act in respect of all or any part of the Investments. Without
prejudice to the generality of the foregoing the Manager will be entitled
to give voting instructions to the Custodian in respect of the exercise of
any voting or other rights attached to any Investment at the discretion of
the Manager or as the Company may instruct from time to time.
10. Lending and Borrowing
10.1 Subject to the Investment Policy of a Series and as provided in
this Clause 10, investments comprised in the Portfolio of a Series and
documents of title and certificates evidencing title to such investments
and other property acquired under this Agreement may not be lent to a
third party nor may money be borrowed on the Company's or a Series' behalf
against the security of such investments, documents and property.
10.2 Subject to the Investment Policy of a Series, an overdraft
facility or line of credit may be established on behalf of each Series and
may be used as a temporary measure for the extraordinary or emergency
needs of each Series.
10.3 Subject to the Investment Policy of a Series and to the
temporary borrowing facility provided for in 10.2 above, the Manager may
not commit the Company or a Series to supplement the monies in the
Portfolio of the Series either by borrowing on its behalf or by committing
it to a contract the performance of which may require them to supplement
the Portfolio of such Series.
11. Reporting
11.1 The Manager shall arrange to notify the Company of transactions
in each Series on a daily basis and will instruct brokers to send the
original contract note to the Custodian and copies to the Company and the
Manager.
11.2 The Manager shall supply quarterly, on a Series by Series
basis, to the Company the following:
(a) reports incorporating inter alia investment policy, which
will be sent within twenty-five working days of the end of the
quarter to which the report relates;
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(b) a Portfolio valuation prepared by Datastream or some other
mutually agreed and reputable supplier of valuation services. Such
valuations will show the number of units of each investment or other
asset held, the book cost and the aggregate value of each as at the
valuation date and will normally use middle market prices for listed
investments. In the event of any change in this method the Manager
will notify the Company accordingly;
(c) a statement of any income received on the investments
held;
(d) a schedule detailing the performance of each Series broken
down into major sectors and comparing the return of the relevant
index against the return of each Series. The returns will be
compiled by the WM Company using information supplied by the
Manager; and
(e) schedules showing transactions undertaken during the
period under review.
11.3 The Manager shall attend meetings with the Company from time to
time as required by the Trustees. Instructions as to the management of the
Portfolio of each Series given orally to the Manager at such meetings will
be confirmed in writing to the Manager as provided for in Clause 23.
12. Material Interests
12.1 Except as provided in Clause 4.1(d) of this Agreement, the
Manager may not effect transactions for the Portfolio of a Series in which
it has directly or indirectly a material interest or any relationship with
another party which may involve a conflict of the Manager's duty to the
Company and each Series without prior reference to the Company, other than
transactions in units in unit trusts managed by Baillie Gifford & Co.
Limited, an Associate of the Manager, in accordance with the provisions of
sub-clause 12.2 of this Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement the
Manager may not effect transactions for the Portfolio in units in unit
trusts managed by Baillie Gifford & Co. Limited unless the Manager shall
first have been issued with an order of exemption by the SEC in accordance
with sub-section 17(a)(1)(b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio of any
Series with or through the agency of a person who provides services under
any arrangement where that person will from time to time provide to or
procure for the Manager services or other benefits which result, or are
designed to result, in an improvement in the services which the Manager
provides to its clients and for which it may make no direct payment but
may undertake to place business with that person.
14. Fees
In consideration for the services to be provided by the Manager
under this Agreement each Series shall, during the continuance of this
Agreement, pay to the Manager fees calculated by reference to the value of
the Portfolio of each Series all in accordance with the provisions set
forth in the applicable Fee Appendix. All such Fee Appendices shall
provide that they are subject to all terms and conditions of this
Investment Advisory Agreement.
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Compensation under this Agreement and the related Fee Appendices for
all Series shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid quarterly, or at such other intervals agreed
to by the parties. If this Agreement becomes effective with respect to a
Series subsequent to the first day of a quarter or shall terminate before
the last day of a quarter, compensation for that part of the quarter
during which this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth in the applicable
Fee Appendix.
15. Taxation
Bank statements and vouchers for each Series will be sent by the
Custodian to the Company to enable the Company to reclaim any credits in
respect of or tax deducted from the income of the Portfolio of such
Series.
16. Term and Termination of the Agreement
16.1 The term of this Agreement shall begin on 12 September 1994,
provided that, with respect to any Series, this Agreement shall not take
effect unless it has first been approved by the Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in
the 1940 Act) and by a majority of the outstanding voting securities of
that Series (as defined in the 1940 Act) and unless sooner terminated as
hereinafter provided, this Agreement shall remain in effect until 1
January 1996. Thereafter, this Agreement shall continue in effect from
year to year with respect to a Series, subject to the termination
provisions and all other terms and conditions hereof, provided such
continuance is approved at least annually by the vote of holders of a
majority of the outstanding voting securities of such Series (as defined
in the 1940 Act) or by the Trustees, provided that in either event, such
continuance is also approved annually by the vote of a majority of the
Trustees who are not parties to this Agreement and are not "interested
persons" (as defined in the 1940 Act) of any party, which vote must be
cast in person at a meeting called for the purpose of voting on such
approval. The Manager shall furnish to the Company, on behalf of each
Series, promptly upon its request, such information as may reasonably be
necessary to evaluate the terms of this Agreement or any extension,
renewal or amendment hereof.
16.2 Subject to Clauses 16.3 and 16.4 below, the Company may, at any
time and without the payment of any penalty, terminate this Agreement on
behalf of a Series upon sixty (60) days written notice to the Manager,
either by majority vote of the Trustees or by the vote of a majority of
the outstanding voting securities of such Series (as defined in the 1940
Act).
16.3 The Company, on behalf of each Series, shall also be entitled
to terminate forthwith the appointment of the Manager hereunder
notwithstanding any period remaining in accordance with this Clause or, no
notice having been given:
i) if the Manager shall commit any material breach of its
obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within thirty days of receipt of
notice in writing served by the Company requiring it so to do to
make good such breach;
ii) if an order is male or a resolution passed to wind up the
Manager or if a receiver is appointed to the whole or any part of
the property and undertaking of the Manager;
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iii) if the Shareholders Agreement between The Guardian
Insurance & Annuity Company, Inc., Baillie Gifford Overseas Limited
and the Manager dated 7 November 1990 is terminated.
16.4 The Manager may terminate this Agreement with respect to a
Series without payment of penalty upon sixty days written notice to the
Company.
16.5 The Manager shall also be entitled to terminate forthwith this
Agreement with respect to a Series, notwithstanding any period remaining
in accordance with this Clause or, no notice having been given, if (i) the
said Shareholders Agreement between The Guardian Insurance & Annuity
Company, Inc., Baillie Gifford Overseas Limited and the Manager is
terminated or expires by effluxion of time, or (ii) an order is made or a
resolution passed to wind up the Company or such Series, or (iii) if the
Company shall commit any material breach of its obligations under this
Agreement and (if such breach shall be capable of remedy) shall fail
within 30 days of receipt of notice in writing served by the firm
requiring it so to do to make good such breach.
16.6 Termination of this Agreement as detailed in this Clause with
respect to any Series shall in no way affect the continued validity of
this Agreement or the performance thereunder with respect to any other
Series.
16.7 This Agreement shall immediately terminate in the event of its
assignation or assignment (as that term is defined in the 1940 Act) by
either party unless such automatic termination shall be prevented by an
exemptive order or rule of the SEC.
16.8 On the termination of the appointment of the Manager under the
provisions of this Clause the Manager shall be entitled to receive all
fees accrued due up to the date of such termination but shall not, in the
case of termination under any sub-clauses 16.2, 16.3 or 16.4 above, be
entitled to compensation in respect of such termination.
16.9 On termination of the appointment of the Manager under the
provisions of this Clause the Manager shall deliver to the Company, or as
it shall direct, all books of account, records, registers, correspondence,
documents and assets in relation to the affairs of or belonging to the
Company or any Series in possession of or under the control of the Manager
as investment manager and take all necessary steps to vest in each Series
any assets previously held in the name of or to the order of the Manager
as investment manager on behalf of each Series.
16.10 Termination of the appointment of the Manager hereunder shall
be without prejudice to transactions already initiated, which transactions
shall be completed.
16.11 The Company and the Manager will co-operate with each other to
ensure that transactions in progress at the date of termination of the
Manager's appointment hereunder shall be completed by the Company in
accordance with the terms of such transactions and, to this end, the
Manager shall provide the Company with all necessary information and
documentation to secure implementation thereof.
17. Continuation and Exercise of Manager's Powers
The authorities herein contained are continuing ones and shall
remain in full force and effect until revoked by termination of this
Agreement as hereinbefore provided but such revocation shall not affect
any liability in any way resulting from transactions initiated prior to
such revocation.
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18. Non-Exclusivity
18.1 The services of the Manager hereunder are not to be deemed
exclusive and the Manager or any Associate thereof shall be free to render
investment management services, investment advisory services and corporate
administrative services to other parties (including without prejudice to
the generality of the foregoing other investment companies) on such terms
as the Manager or such Associate may arrange so long as its services under
this Agreement are not thereby impaired and to retain for its own use and
benefit fees or other moneys payable thereby. The Manager shall not be
deemed to be affected with notice of or to be under any duty to disclose
to the Company any fact or thing which may come to the notice of it or any
servant or agent of it in the course of the Manager rendering the said
services to others or in the course of its business in any other capacity
or in any manner whatsoever otherwise than in the course of carrying out
its duties under this Agreement
18.2 The Manager agrees to permit individuals who are directors or
officers of the Manager to serve as trustees or officers of the Company.
19. Indemnity
19.1 Neither the Manager nor any of its officers, directors, or
employees, nor any person performing executive, administrative, trading,
or other functions for the Company or any Series (at the direction or
request of the Manager) or the Manager in connection with the Manager's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection
with the matters to which this Agreement relates, except for loss
resulting from wilful misfeasance or misconduct, wilful default, bad
faith, or gross negligence in the performance of its or his/her duties on
behalf of the Company or any Series or from reckless disregard by the
Manager or any such person of the duties of the Manager under this
Agreement.
19.2 The Manager shall not be liable for the consequences of any
investment decision made hereunder or in respect of any other fund managed
by the Manager or any of its Associates which is a permitted investment
hereunder. The Manager acts only as agent for the Company and each Series
and the Company hereby undertakes to indemnify the Manager against all
actions, proceedings, claims, demands, costs and expenses which may be
brought against, suffered or incurred by the Manager by reason of its
performance of such duties, including all legal, professional and other
expenses incurred.
19.3 Notwithstanding the provisions of Clause 19.2 the Manager will
indemnify the Company and each Series in respect of any loss incurred as a
result of negligence or fraud by the Manager or any of its Associates or
their respective employees in their performance of the duties under the
terms of this Agreement.
20. Complaints
20.1 The Manager has established procedures in accordance with the
requirements of IMRO for the effective consideration of complaints by the
Company.
20.2 Should the Company wish to make a complaint to the Manager
about any aspect of the Manager's carrying out of its duties under this
Agreement or otherwise, it shall, in the first instance, do so by letter
11
<PAGE>
addressed to the director or directors of the Manager responsible for the
management of the Portfolio of the Series in question. If no satisfactory
resolution of the complaint is achieved within five days, the Company may
reiterate the complaint by letter addressed to the Chairman of the
Manager. If no satisfactory resolution is achieved within ten days of the
original complaint, the Company shall then make its complaint to IMRO.
Notwithstanding the above provisions the Company has a right of complaint
direct to IMRO at any time.
20.3 A booklet setting out the Company's right to investor's
compensation under the Securities and Investments Board's Scheme is
available on request from the Manager.
21. Delegation
The Manager is authorised to delegate any or all of the obligations
incumbent upon it in terms of this Agreement to Baillie Gifford Overseas
Limited provided that such delegation is effected by way of a
sub-investment advisory agreement in the form or as near as in the form of
Schedule 2 annexed hereto.
22. Confidentiality
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination disclose to any person, firm or fund
whatsoever (except with the authority of the relevant party or unless
ordered to do so by a court of competent jurisdiction or any regulatory
body) any information relating to the business, investments, finances or
other matters of a confidential nature of the other party of which it may
in the course of its duties hereunder or otherwise become possessed and
each party shall use all reasonable endeavours to prevent any such
disclosure as aforesaid.
23. Reliance on Documents
Whenever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Trustees) to the Manager, the Manager may accept as
sufficient evidence thereof:
i) a document signed or purporting to be signed on behalf of
the issuing party by such person or persons whose signature the
Manager is for the time being authorised by such issuing party to
accept; or
ii) a message by tested telexcopier, facsimile machine or
cable transmitted by, or on behalf of, the Company (or its Trustees)
by such person or persons whose messages the Manager is for the time
being authorised by the Company or its Trustees to accept, and the
Manager shall not be obliged to accept any document or message
signed or transmitted or purporting to be signed or transmitted by
any other person.
24. Severability
If any of the provisions of this Agreement is found by an arbiter,
court or other competent authority to be void or unenforceable, such
provision shall be deemed to be deleted from this Agreement and the
remaining provisions of this Agreement shall continue in full force and
effect.
Notwithstanding the foregoing the parties shall thereon negotiate in
good faith in order to agree to the terms of a mutually satisfactory
provision to be substituted for the provision so found to be void or
unenforceable.
12
<PAGE>
25. Amendments
This Agreement may be amended by mutual consent, but no amendment
shall be effective as to any given Series until it is approved by vote of
a majority of such Series' outstanding voting securities, and by the vote
of a majority of the members of the Board of Trustees, including a
majority of the Trustees who are not deemed to be "interested persons" (as
defined by the 1940 Act).
Notwithstanding the foregoing, where the effect of a requirement of
the 1940 Act which is reflected in any provision of this Agreement is
relaxed by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
26. Notices
Any notice required to be given under this Agreement shall be in
writing, delivered personally or sent by first class prepaid letter or
transmitted by telex or facsimile and shall be deemed duly served if left
at or sent or (as appropriate) transmitted to the following addresses (or
to the most recent of any other address of which a party hereto shall have
given notice to the other party pursuant to this Clause):
(a) if to the Company at:
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
(b) if to the Manager at
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
Notices sent by first class air mail prepaid letter shall be deemed
to be served seven business days after posting. Evidence that the Notice
was properly addressed, stamped and put into post shall be conclusive
evidence of posting. A notice sent by facsimile transmission shall be
deemed to have been served at the time when a complete and legible copy is
received by the addressee. In this Clause "business day" means a day on
which normal banking business is carried on in Edinburgh and New York
City.
27. Arbitration
If any dispute shall arise between the parties as to the true intent
or meaning or the implementation or termination of this Agreement or any
part thereof in any manner of way, such dispute shall be referred to a
single Arbiter to be nominated by the President for the time being of the
Law Society of Scotland on the application of either party hereto and all
decisions and awards of such arbiter both interim and final shall be
binding upon all parties who hereby respectively undertake to implement
and fulfil the same. Section 3(3) of the Administration of Justice
(Scotland) Act 1972 shall not apply to this Agreement.
13
<PAGE>
28. Miscellaneous
All persons extending credit to, contracting with or having any
claim against the Company, its Series or the Trustees shall look only to
the assets of the Company or the Series, as the case may be, for payment
under such credit, contract or claim. Neither the shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall
be personally liable for payment of any such credit, contract or claim.
The obligations of the Company and each Series hereunder may be satisfied
only by resort to the assets of the Company as divided among the Series.
29. Governing Law
Notwithstanding any conflict of laws, principles or provisions which
may otherwise apply, this Agreement and the rights and obligations of the
parties shall be governed by and are to be construed in accordance with
the law of Scotland and, to the extent applicable, in accordance with the
1940 Act: IN WITNESS WHEREOF these presents typewritten on this and the 13
preceding pages are, together with the Schedules, executed in triplicate
as follows: they are subscribed for and on behalf of Guardian Baillie
Gifford Limited by Gavin John Norman Gemmell, one of its Directors, at
Edinburgh, Scotland on 5 October 1994 before these witnesses, Edward Harry
Rockwell, of 1 Rutland Ct., Edinburgh and Rowan Robin Menzies of 1 Rutland
Ct., Edinburgh; and they are subscribed for and on behalf of Baillie
Gifford International Fund, Inc. by John M. Smith, one of its Officers at
New York, United States of America on September, 1994 before these
witnesses, Richard T. Potter, Jr. and Marjorie A. Silverman both of 201
Park Avenue South, New York, New York.
For Baillie Gifford International Fund, Inc.:
/s/ John M. Smith
---------------------------------------------
/s/ Richard T. Potter? Witness
- ----------------------
/s/ [ILLEGIBLE]? Witness
- ----------------------
For Guardian Baillie Gifford Limited:
/s/ [ILLEGIBLE]? Witness /s/ Gavin JN Gemmell
- ---------------------- ---------------------------------------------
/s/ [ILLEGIBLE]? Witness
- ---------------------- ---------------------------------------------
14
<PAGE>
SCHEDULE 1
GENERAL RISK DISCLOSURE STATEMENT
PART 1
This statement is made in compliance with the rules of the Securities and
Investments Board.
The risk of loss in investing in commodity, financial or other futures,
options or contracts for differences can be substantial. You should carefully
consider whether such investments are suitable for you in the light of your
circumstances and financial resources. You should be aware of the following
points:
1. In a relatively short time you may sustain a total loss of the deposits
and of the margin placed with your broker to establish or maintain an open
position if the market moves against you. You may be called upon to deposit a
substantial additional margin, at short notice, to maintain your position. If
you do not provide such additional funds within the time required, your position
may be liquidated at a loss and you will be liable for any resulting deficit.
2. If you deposit collateral as security for calls made upon you by your
broker it will lose its identity as your property once dealings on your behalf
are undertaken and may be passed to an exchange's clearing house or other
brokers. Even if your dealings should ultimately prove profitable, you may have
to accept payment in cash and not get back the actual assets which you have
deposited. Nor will your deposit be protected to the same extent as would a cash
deposit held on trust in a segregated client bank account.
3. Under certain market conditions it may be difficult or impossible to
liquidate a position. This may occur, for example, at times of rapid price
movement if the price rises or falls in one trading session to such an extent
that, under the rules of the relevant exchange, trading is suspended or
restricted.
4. Placing a stop-loss order will not necessarily limit your losses to the
intended amounts, for market conditions may make it impossible to execute such
orders at the stipulated price.
5. A spread or straddle position may be as risky as a single long or short
position and can be more complex.
6. Markets in futures, options and contracts for differences can be
highly volatile and investment in them carries a high risk of loss. The high
degree of "gearing" or "leverage" is a particular feature of this type of
transaction. This stems from the margining system applicable to such contracts
which generally involves a comparatively modest deposit or margin in terms of
the overall contract value, so that a relatively small market movement can have
a disproportionately dramatic effect on your investment. If the market movement
is in your favour, you may achieve a good profit return, but an equally small
adverse market movement can result not only in the loss of your entire original
investment, but may also expose you to the distinct possibility of an
unquantifiable loss exceeding your original investment.
7. If you take (buy) an option, your risk in most cases will be less than
trading in futures since you should not lose more than the premium you paid plus
any commission or other transaction charges. However, there are many different
types of options with different peculiarities and subject to different
conditions. You should accordingly require your broker to inform you of all
relevant details before committing yourself. In all cases you can easily lose
your entire investment in the option.
If you grant (sell) an option, your risk of loss may be at least as great
as your exposure in trading futures. Although you will receive a premium payment
for granting (selling) the option, a relatively small adverse market movement
can quickly eradicate that premium. You may be liable to pay substantial
additional margins which could
<PAGE>
involve you in significant losses. Moreover, the buyer of an option acquires
certain rights which may limit your ability to protect yourself. Only
experienced traders should contemplate granting options and then only after
securing full details from their broker of the applicable conditions and
potential risk exposure.
8. Unless you have effectively agreed otherwise in circumstances where
this is permitted under the rules of the Board when your broker deals for you he
should do so only in contracts of the types dealt with on one of the recognised
or designated exchanges. If you instruct a broker to deal on foreign markets, he
will probably instruct a broker in the country concerned. Normally that broker
will not be subject to the rules or regulations of the Securities and
Investments Board and the exchange on which he effects the transaction may not
be subject to as strict regulations as a recognised investment exchange in the
United Kingdom. Hence the degree of protection afforded to you may be less than
if you restrict your transactions to the United Kingdom markets. You should
ensure that your broker explains the protections which will operate and
ascertain whether he accepts liability for any default of the foreign broker
that he employs. If he does not accept such liability you could lose all that
you have invested or stand to gain if the foreign broker defaults.
9. You should require of your broker prior to the commencement of trading
written confirmation of all commission and other transaction charges for which
you will be liable. In the event that any charges are not expressed in money
terms (but, for example, as a percentage of contract value) you should obtain a
clear written explanation, including appropriate examples, to establish what
such charges are likely to mean in specific money terms. You should realise that
when commission is charged as a percentage it will normally be as a percentage
of the total contract value and not simply a percentage of your deposit.
10. Brokers may also be dealers trading for their own account and they may
accordingly be involved in the same markets as you. Under such circumstances you
should be aware that their own account involvement could be contrary to your
interests. Your broker is required to inform you in advance if he deals on his
own behalf in relevant markets.
11. The guarantee of performance by the exchanges' clearing houses applies
only to their contracts with members. They do not guarantee performance of your
brokers' contracts with you.
12. Your broker's insolvency or that of any other brokers involved may
lead to your positions being closed out without your consent.
13. You have agreed that your money held by your broker need not be
segregated in a client bank account and you will lack that protection should
your broker become insolvent.
14. This brief statement cannot disclose all risks of investments in
futures, options and contracts for differences. They are not suitable for many
members of the public and you should carefully study such investments before you
commit funds to them. They may also have tax consequences and on this you should
consult your lawyer, accountant or other tax adviser.
PART III
Limited Liability Transaction
1. Before entering into a limited liability transaction, you should obtain
from your broker or the firm with which you are dealing a formal written
statement confirming that the extent of your loss liability on each transaction
will be limited to an amount agreed by you prior to entering into the
transaction.
<PAGE>
2. The amount of such agreed liability must be indicated in the contract
or confirmation note of the transaction.
3. You are required under the rules of the Board to deposit in cash the
amount of the agreed maximum liability assumed by you in relation to each
transaction.
4. The amount you can lose in limited liability transactions will be less
than in other margined transactions where there is no guaranteed loss limit.
Such costs must be included in (and not additional to) your agreed loss
liability, and you should be aware that higher charges increase the likelihood
and extent of your loss.
ADDITIONAL RISK DISCLOSURE STATEMENT
This Statement is made in compliance with the rules of the Securities and
Investments Board because you have authorised your broker to deal with or for
you in futures, options or contracts for differences which are not undertaken
under the rules of a recognised or designated investment exchange and in
contracts traded thereon. Its purpose is to warn you of the risks, additional to
those referred to in the General Risk Disclosure Statement, inherent in such
dealings.
1. In general it is only if you are a business, professional or
experienced investor within the meaning of the Board's rules and have
agreed to be treated as such that your broker will be entitled to
undertake such dealings with or for you. There are only three other
circumstances in which this is permissible subject to your agreement:
(a) if the dealings are undertaken under a limited liability
transaction (see the General Risk Disclosure Statement) and your
broker has required you to deposit with him a sum in cash equivalent
to the amount of your limited liability prior to the entry into the
transaction,
(b) if your broker carries on investment business only as an
"execution-only dealer", acts only on your unsolicited instructions
and offers no advice or recommendation of any kind, or
(c) your broker is managing your investment portfolio under an
agreement which provides that such transactions may be entered into
but only with a view to protecting against possible adverse
fluctuations in the value of other investments or cash in the
portfolio.
Unless you are a business, professional or experienced investor or
one or more of circumstances (a), (b) and (c) apply your broker will not
be entitled to undertake such transactions with or for you.
2. Such transactions may involve you in substantially greater risks
than you might incur by investing in futures, options or contracts for
differences under the rules of a recognised or designated investment
exchange and in contracts of a type traded thereon.
3. There is no regulated market in such contracts and the bid and
offer prices will be established solely by dealers in these contracts.
Hence you may not be able to sell what you have bought or buy what you
have sold or to ascertain whether you are doing so at a fair price.
4. Before entering into any such transactions you should obtain from
your broker a written explanation as to how dealing is to be conducted,
the nature of the contracts offered, the facilities which will be made
available to you and the applicable procedures for entering into the
liquidating transactions, the method of calculating prices and other
relevant material. This you should study carefully, in conjunction with
the General Risk Disclosure Statement and this Additional Risk Disclosure
Statement. You should satisfy yourself that dealing is conducted
throughout in strict conformity with that written explanation and report
to the Board if you have reason to believe it is not. (The Securities and
Investments Board, 3 Royal Exchange Buildings, London EC3V 3NL Tel: 283
2474).
<PAGE>
5. If you deal in contracts which are traded solely by one dealer
you will have no alternative other than to liquidate your position with
the same dealer and to accept the price he offers. You should ensure that
this price will be based on objective criteria and that your broker
undertakes that deals will be done at that price.
6. You are also reminded that if you have agreed that your money
held by your broker need not be segregated in a client bank account you
will lack that protection should your broker become insolvent.
RISK DISCLOSURE STATEMENT -- OPTIONS
This statement is made in compliance with the rules of the Securities and
Investments Board.
The risk of loss in investing in options can be substantial. You should
carefully consider whether such investments are suitable for you in light of
your circumstances and financial resources. You should be aware of the following
points:
Risk Disclosure Statement
1. There are many different types of options with different
peculiarities and subject to different conditions. You should accordingly
require your broker to inform you of all relevant details before
committing yourself. If you take (buy) an option, the extent of your risk
should not be more than the amount of the premium you paid plus any
commission or other transaction charges. However, if you write or grant
(sell) an uncovered option, a relatively small adverse market movement can
quickly eradicate that premium. You may be liable to pay substantial
additional margins which could involve you in significant losses. You may
be obliged to make or take delivery of the underlying investment.
Moreover, the buyer of an option acquires certain rights which may limit
your ability to protect yourself. Only experienced persons should
contemplate selling options and then only after securing full details from
their broker of the applicable conditions and potential risk exposure.
2. If you are required to deposit collateral as security with your
broker in respect of your options transactions, the way in which it will
be treated will vary widely according to the type of option and where it
is traded. If you trade options on a recognised or designated investment
exchange, the rules of that exchange and its clearing house are likely to
apply, but entirely different practices and conditions are likely to be
applicable in the case of off-exchange options. You are strongly advised
in either case to ascertain from your broker prior to entering into the
transaction how your collateral will be dealt with, whether or not it will
retain its identity as your property, and under what circumstances you may
be called upon for additional collateral or other forms of security
deposit.
3. Under certain market conditions it may be difficult or impossible
to liquidate positions. This may occur, for example, at times of rapid
price movement if the price rises or falls in one trading session to such
an extent that, under the rules of the relevant exchange, trading is
suspended or restricted.
4. A spread or straddle position may be as risky as a single long or
short position and can be more complex.
5. Unless you have effectively agreed otherwise in circumstances
where this is permitted under the rules of the Board when your broker
deals for you he should do so only in contracts of the type dealt with on
one of the recognised or designated exchanges. If you instruct your broker
to deal on foreign markets, he will probably instruct a broker in the
country concerned. Normally that broker will not be subject to the rules
or regulations of the Securities and Investments Board and the exchange on
which he effected the transaction may not be subject to as strict
regulations as a recognised investment exchange in the United Kingdom.
Hence the degree of protection afforded to you may be less than if you
restrict your transactions to the United Kingdom markets. You should
<PAGE>
ensure that your broker explains the protections which operate and
ascertain whether be accepts liability for any default of the foreign
broker that he employs. If he does not accept such a liability you could
lose all that you have invested or stand to gain if the foreign broker
defaults.
6. You should require of your broker prior to the commencement of
trading written confirmation of all commission and other transaction
charges for which you will be liable. In the event that any charges are
not expressed in money terms (but, for example, as a percentage of
contract value) you should obtain a clear written explanation, including
appropriate examples, to establish what such charges are likely to mean in
specific money terms.
7. Brokers may also be dealers trading for their own account and
they may accordingly be involved in the same markets as you. Under such
circumstances you should be aware that their own account involvement could
be contrary to your interests. Your broker is required to inform you in
advance if he deals on his own behalf in relevant markets.
8. The guarantee of performance by the exchanges' clearing houses
applies only to their contracts with members. They do not guarantee
performance of your contracts.
9. Your broker's insolvency or that of any other firm involved in
the transaction may lead to your positions being closed out without your
consent.
10. You have agreed that your money held by your broker need not be
segregated in a client bank account and you will lack that protection
should your broker become insolvent.
For Baillie Gifford International Fund, Inc.:
/s/ John M. Smith
----------------------------------------------
For Guardian Baillie Gifford Limited:
/s/ [ILLEGIBLE]?
----------------------------------------------
<PAGE>
INVESTMENT ADVISORY AGREEMENT FEE APPENDIX
Fee Appendix made as of September 12, 1994, between BAILLIE GIFFORD
INTERNATIONAL FUND, INC., a Maryland corporation (the "Company"), on behalf of
Baillie Gifford Emerging Markets Fund ("Series"), a series of shares of common
stock of the Company, and GUARDIAN BAILLIE GIFFORD LIMITED (the "Manager"), a
company incorporated under the Companies Act and registered as an investment
adviser under the U.S. Investment Advisers Act of 1940, as amended.
WHEREAS the Company has appointed the Manager as investment adviser and
administrator for each series of shares of beneficial interest of the Company
for which it may enter into a Fee Appendix pursuant to the Investment Advisory
Agreement dated September 12, 1994 between the Company and the Manager
("Investment Advisory Agreement"); and
WHEREAS the Series has been established as a series of shares of the
Company;
NOW, THEREFORE, the parties agree as follows:
1. The Investment Advisory Agreement is hereby adopted for the Series. The
Series shall be one of the "Series" referred to in the Investment Advisory
Agreement. Certain capitalized terms used without definition in this Fee
Appendix have the meaning specified in the Investment Advisory Agreement.
2. For the services provided and the expenses assumed pursuant to the
Investment Advisory Agreement with respect to the Series, and subject to
paragraph 3 hereof, the Series will pay to the Manager a fee (exclusive of Value
Added Tax), computed daily and paid quarterly (or at such other intervals as the
parties may from time to time agree), at the monthly rate of one twelfth of one
percent of:
A where:
---
B
"A" means the aggregate of the Values of the Portfolio as at the close of
business on each Business Day falling in that quarter; and
"B" means the number of Business Days falling in that quarter.
3. From the fee calculated above there shall be deducted sums representing
a pro rata share of the management charge arising on any unit trust managed by
Baillie Gifford & Co. Limited in which the Series may be invested from time to
time. Each such deduction shall be calculated as follows:
M x C x D
--
365
<PAGE>
Where M is the average daily market value of a holding in a unit trust
managed by Baillie Gifford & Co. Limited included in the valuation on
which the calculation of the fee is based.
C is the factor described as a percentage and applied to the value of
assets of the unit trust managed by Baillie Gifford & Co. Limited in
calculating its annual management fee.
D is the number of days in which the holding in the Series has been held
during the period to which the fee relates.
No initial charge will be made for any investment in such unit trust.
4. The Manager shall procure that a sum equal to each deduction under
paragraph 3 above shall be paid by Baillie Gifford & Co. Limited to the Manager.
Said sum payable to the Manager shall be invoiced by the Manager to Baillie
Gifford & Co. Limited following the end of each quarter and shall be due and
payable within ten days of the relevant invoice.
5. Said fees due to the Manager shall be invoiced by the Manager to the
Series following the end of each quarter and shall be due and payable within ten
days of the relevant invoice. The Series shall be entitled to make such payments
on account as it may in its absolute discretion determine.
6. For the purposes of paragraph 2 above:
(i) the "Value of the Portfolio" means the aggregate of the values of the
assets of the Portfolio of the Series at the close of business on a Business
Day. The aggregate of the values of the assets shall be calculated by taking the
value of securities held in the Portfolio of the Series, plus any cash or other
assets (including dividends payable and declared but not collected) less all
liabilities (including accrued expenses, but excluding capital and surplus);
(ii) the "value of an asset" shall be taken:
(1) in the case of an investment quoted on a Stock Exchange where
market price is the recognised basis of quotation, at the
price of such investment at the close of business of the
appropriate exchange on the relevant Valuation Date or, if
there have been no sales during the day, at the mean of the
closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and
asked prices;
<PAGE>
(3) in the case of unquoted investments and other investments for
which market quotations are not readily available, at the
value ascertained in accordance with such manner as the
Directors have deemed appropriate to reflect the fair value
thereof;
(iii) when any asset is held or liability is outstanding in a currency
other than U.S. dollars, such asset or liability shall be notionally converted
into the U.S. dollar equivalents at the prevailing market rates quoted by the
Custodian at the close of business on the Business Day, on the relevant
Valuation Date or, if such Valuation Date is not a Business Day, on the
immediately preceding Business Day.
7. The Manager shall procure that Baillie Gifford & Co. shall be
responsible for furnishing such office space, facilities and equipment and such
clerical help, administrative and bookkeeping services in Edinburgh as the
Series shall reasonably require in the conduct of its business in accordance
with the Administrative and Secretarial Agreement between Baillie Gifford & Co.
and the Manager.
8. The Series shall bear all expenses of its organization, operations and
business not specifically assumed or agreed to be paid by the Manager as
provided in this Fee Appendix. In particular, but without limiting the
generality of the foregoing, the Series shall pay all of the expenses relating
to the following expense categories: custody and accounting services;
shareholder servicing agent; transfer and dividend disbursing agent; shareholder
communications; shareholder meetings; prospectuses; calculation of net asset
value; legal fees and expenses; accounting fees and expenses; directors' fees
and expenses; federal and state registration fees; bonding and insurance;
brokerage commissions; taxes; trade association fees; nonrecurring and
extraordinary expenses (including but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges relating to the operation of the Series unless otherwise
specifically provided herein. All such expenses shall be paid out of the assets
of the Series.
9. This Fee Appendix shall be subject to all terms and conditions of the
Investment Advisory Agreement.
10. This Fee Appendix shall become effective upon the date hereabove
written, provided that it shall not take effect unless it has first been
approved (i) by a vote of the Directors of the Company, including a majority of
those Directors of the Company who are not parties to this Fee Appendix or the
Investment Advisory Agreement or
<PAGE>
interested persons of any such persons at a meeting called for the purpose of
such approval and (ii) by vote of a majority of the Series' outstanding voting
securities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
FOR BAILLIE GIFFORD INTERNATIONAL FUND, INC.
on behalf of
BAILLIE GIFFORD EMERGING MARKETS FUND:
/s/ John M. Smith
---------------------------------------------
/s/ Richard T. Potter Witness
- ----------------------
/s/ [ILLEGIBLE]? Witness
- ----------------------
FOR GUARDIAN BAILLIE GIFFORD LIMITED:
/s/ [ILLEGIBLE]? Witness /s/ Gavin JN Gemmell
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/s/ [ILLEGIBLE]? Witness
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Sub-investment Management Agreement
AGREEMENT
between
GUARDIAN BAILLIE GIFFORD LIMITED,
incorporated under the Companies Acts and
having its Registered Office at 6 Glenfinlas
Street Edinburgh EH3 6YY (hereinafter
called "the Company") OF THE
ONE PART
and
BAILLIE GIFFORD OVERSEAS LIMITED, a company
incorporated under the Companies Acts and
having its Registered Office at 7 Glenfinlas
Street, Edinburgh, EH3 6YY (hereinafter
called "the Manager") OF THE OTHER PART
--------------
WHEREAS:-
(A) Baillie Gifford International Fund, Inc. (hereinafter called the "Client")
proposes to engage in business as an open-end management investment
company and to register as such under the U.S. Investment Company Act of
1940, as amended.
(B) The Company proposes to engage principally in the business of rendering
investment management services and to become registered as an investment
adviser under the U.S. Investment Advisers Act of 1940, as amended, and to
become a member of, and regulated in the conduct of its investment
business by, the Investment Management Regulatory Organisation Limited.
(C) The Manager is engaged principally in the business of rendering investment
management services and is registered as an investment adviser under the
U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by the Investment
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47
Management Regulatory Organisation Limited.
(D) The Client desires the Company to render investment management services to
the Client in the manner set forth and in the terms and conditions set
forth in a separate Investment Management Agreement of even date herewith.
(E) The Company, in turn, desires the Manager to render sub-investment
management services to the Client in the manner and on the terms and
conditions hereinafter set forth.
IT IS HEREBY AGREED AND DECLARED as follows:-
1. Definitions
1.1 In this Agreement the following words and expressions shall where
not inconsistent with the context have the following meanings
respectively:
(a) "Articles" means the Articles of Association of the Company as
amended from time to time;
(b) "Associate" means and includes any corporation which in
relation to the person concerned (being a corporation) is a
Holding Company or a Subsidiary or a Subsidiary of any such
Holding Company or a corporation (or a Subsidiary of a
corporation) at least one-third of the issued share capital
of which is beneficially owned by the person concerned or an
Associate thereof under the preceding part of this definition
and includes any firm the partners of which or any one or
more of them are beneficially entitled whether directly or
indirectly or through the medium of a corporation
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48
or corporations to at least three-quarters of the issued
equity share capital of the person concerned (being a
corporation) and includes any partner in any such firm. Where
the person concerned is an individual, firm or other
unincorporated body the expression "Associate" means and
includes any corporation directly or indirectly or through the
medium of a corporation or corporations controlled by such
person and any partner in any such firm;
(c) "Business Day" means a day on which the New York Stock
Exchange is open for business;
(d) "Commencement Date" means [___________] 1990 or, if later, the
date on which a copy of this Agreement signed by or on behalf
of the Manager has been signed by or on behalf of the Company
and returned to the Manager;
(e) "Custodian" means State Street Bank & Trust Company, Boston,
Massachusetts, U.S.A. and its agents and sub-custodian banks
or such other bank or banks as may in the future serve as
custodian of the Investments;
(f) "Directors" means the Board of Directors of the Company from
time to time including any duly appointed committee thereof;
(g) "Holding Company" means a holding company as defined in
Section 736 of the Companies Act 1985;
(h) "IMRO" means Investment Management Regulatory Organisation
Limited;
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49
(i) "Investments" means the assets and rights from time to time of
the Company comprised in the Portfolio;
(j) "Investment Policy" means the investment objective, policies
and restrictions which are set out in the current Registration
Statement on Form N-1A as filed on behalf of the Client with
the SEC and as amended from time to time following written
notice given by the Company to the Manager;
(k) "Investment Management Agreement" means the investment
management agreement between the Company and the Client of
even date herewith.
(1) "Portfolio" means the investments and cash which may from time
to time comprise the Client's assets which are the subject of
the Investment Management Agreement;
(m) "Rules" means the rules (including any regulations) made by
the board of IMRO, as altered, amended, added to or cancelled
from time to time whether by the board of IMRO or pursuant to
the Financial Services Act 1986, together with the Statutory
Rules;
(n) "SEC" means the U.S. Securities and Exchange Commission;
(o) "Statutory Rules" means rules or regulations made under
Chapter V of the Financial Services Act 1986 which are binding
on the Manager;
(p) "Subsidiary" means a subsidiary as defined in Section 736 of
the Companies Act 1985;
(q) "U.S." means the United States of America;
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50
(r) "1940 Act" means the U.S. Investment Company Act of 1940, as
amended;
(s) any reference to the Company, Client or the Manager includes a
reference to its duly authorised agents or delegates;
(t) words importing the singular number shall be deemed to include
the plural number and vice versa;
(u) words importing the masculine gender only shall include the
feminine gender and vice versa; and
(v) words importing persons shall include companies or
associations or bodies of persons, whether corporate or not.
1.2 Words and expressions contained in this Agreement (but not defined
herein) shall bear the same meanings as in the Articles.
1.3 The headings to the Clauses of this Agreement are for convenience
only and shall not affect the construction or interpretation
thereof.
1.4 References herein to statutory provisions shall be construed as
references to those provisions as respectively amended or
re-enacted from time to time and shall include any provision of
which they are reenactments (whether with or without
modification).
2. Appointment
2.1 The Company HEREBY APPOINTS the Manager as Sub-Investment Manager in
relation to the Portfolio and the Manager accepts such appointment
on the terms and conditions of this Agreement.
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51
2.2 The appointment of the Manager as Sub-Investment Manager as
aforesaid shall take effect from the Commencement Date, and shall
continue in full force and effect, provided it is initially and
continually approved in accordance with the 1940 Act, and unless and
until terminated in accordance with the provisions hereof.
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as Sub-Investment Manager of
the Company, subject to Clause 3.2 below and without prejudice to the
generality of Clause 2.1 above the Manager shall (subject to the overall
supervision of the Directors):
(a) manage the investment and re-investment of the Portfolio on a
discretionary basis with a view to achieving the investment
objective contained in the Investment Policy;
(b) provide valuations of the Investments in accordance with the
provisions of Clause 11;
(c) as and when requested by the Company and/or the Client supply the
Company and/or the Client with such information in connection with
the Portfolio as may be in the possession of the Manager or may
reasonably be obtained from or provided by them;
3.2 Any investment activity undertaken by the Manager pursuant to this
Agreement and any other activities undertaken by the Manager on behalf of
the Company or the Client shall at all times be subject to any written
directives of the Directors or of the Board of Directors of the Client, as
the case may
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52
be, any duly constituted committee of such Board, or any officer of the
Company or of the Client acting pursuant to the written directives of its
respective Board of Directors.
3.3 The Manager shall keep or cause to be kept on behalf of the Client such
books, records and statements to give a complete record of all
transactions carried out by the Manager on behalf of the Client in
relation to the investment and reinvestment of the Portfolio and such
other books, records and statements as may be required by law and as may
be necessary to give a complete record of all other transactions carried
out by the Manager on behalf of the Client and shall permit the Company
and its employees and agents and the auditors for the time being of the
Company and/or the Client to inspect such books, records and statements at
all reasonable times.
3.4 All records required to be maintained and preserved by the Manager on
behalf of the Client or the Portfolio pursuant to the provisions of rules
or regulations of the SEC under Section 31(a) of the 1940 Act are the
property of the Client and will be surrendered by the Manager promptly on
request by the Client.
2.5 The Manager hereby warrants that it holds and undertakes that it will
continue to hold, all licences, permissions, authorisations and consents
necessary to enable it to carry out its duties hereunder in the ordinary
course of business and that all such licences, permissions, authorisations
and consents are and will remain in full force and effect during the
continuance of this Agreement.
3.6 The services to be provided under this Agreement shall be so provided on
the basis that the Company and the Client are
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53
"Professional Investors" as defined in the Rules.
4. Manager's specific powers and obligations in relation to investment
management
4.1 Consistent with the Investment Policy and subject to any written
directions (in accordance with Clause 3.2 above) communicated to the
Manager, the Manager shall have and is hereby granted the authority,
power and right for the Portfolio and in the name of the Client to
supervise and direct the Client in its discretion and without prior
consultation with the Client as the Company:-
(a) to issue orders and instructions with respect to the
disposition of Investments, moneys and other assets of the
Portfolio;
(b) to purchase (or otherwise acquire), sell (or otherwise dispose
of) and invest in investments, moneys and other assets for the
account of the Client and effect foreign exchange transactions
on behalf of the Client and for the account of the Client in
connection with any such purchase, other acquisition, sale or
other disposal;
(c) to enter into, make and perform all contracts, agreements and
other undertakings as may in the opinion of the Manager be
necessary or advisable or incidental to the carrying out of
the objectives of this Agreement;
(d) subject to the Rules, to aggregate transactions for the
Portfolio with those of other clients and Associates without
prior reference to the Company, the Client or such other
clients. Aggregation may operate on some occasions to the
advantage of the Client and on other
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54
occasions to the Client's disadvantage. Also the Manager may
act as agent for the Client in relation to transactions in
which it is also acting as agent for its Associates;
(e) to purchase and sell Investments on any Recognised or
Designated Investment Exchange as defined in the Rules
(including for this purpose over the counter markets) or
through such other intermediary as the Manager may in its
discretion consider;
(f) to purchase or subscribe for Investments Not Readily
Realisable (as defined in the Rules). However, such
investments carry a high risk of not being readily realisable,
market-makers may not be prepared to deal in them and proper
information for determining their current value may not be
available. The purchase of such investments is subject to such
restrictions as may be set out in this Agreement not
inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and offers of
paper and/or cash alternatives in takeover bids on behalf of
the Client;
(h) to invest in futures, options and contracts for differences,
including margined transactions effected otherwise than under
the rules of a Recognised or Designated Investment Exchange
(as defined in the Rules) or in a contract traded thereon.
(i) for the purposes of carrying out transactions in futures and
options only, to deposit or pledge investments comprised in
the Portfolio and such other documents of
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55
title and certificates evidencing title to such investments
and other property as may be required in order to satisfy the
counterparty's margin or collateral requirements. In all other
circumstances and except (a) with the written consent of and
on terms agreed with the Company and the Client or (b) if
appropriate, as may be provided in the Client's current
Registration Statement filed with the SEC (as amended from
time to time) investments comprised in the Portfolio and
documents of title and certificates evidencing title to such
investments and other property acquired under this Agreement
may not be lent to a third party nor may money be borrowed on
the Client's behalf against the security of such investments,
documents and property.
4.2 As Investments may be denominated in different currencies, a movement of
exchange rates may have a separate effect, unfavourable as well as
favourable, on the gain or loss otherwise experienced in the Investments.
4.3 The Company understands, and has informed the Manager that the Client
understands, that markets involving futures and contracts for differences
and options can be highly volatile and that such instruments carry a high
risk of loss and that a relatively small adverse market movement may
result not only in loss of the original investment but also an
unquantifiable further loss exceeding any margin deposited. The Company
further understands, and has informed the Manager that the Client
understands, that the Client may be required to pay a deposit or margin in
support of a transaction or to supplement that payment after the
transaction has been
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56
effected and that the consequence of non-payment may result in the loss
of deposit or margin.
4.4 The Company confirms to the Manager that the Client has received from the
Company the appropriate risk disclosure statements required under
paragraph 12(a) of Schedule 4 of Chapter III of the Rules.
4.5 The Manager shall observe and comply with all resolutions of the Directors
of which it has written notice and other lawful orders and directions
given in writing to it from time to time by the Directors including those
orders and directions emanating from the Client and all activities engaged
in by the Manager hereunder pursuant to Clause 3 above shall at all times
be subject to the control of and review by the Directors, acting on behalf
of the Client, and without limiting the generality of the foregoing the
Directors may from time to time:
(a) prohibit the Manager from investing the Portfolio in any investment
or in any currency or country or in or with any person;
(b) require the Manager to sell any investment or (subject to the
availability of funds) to purchase, on behalf of the Company, any
investment;
(c) notify the Manager, in writing, of any amendments to the Investment
Policy;
and the Manager shall and shall procure that any person, firm or company
to whom it delegates any of its functions hereunder shall give effect to
all such decisions.
5. Payments due on Investments
The Company undertakes to the Manager that it shall be
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57
responsible for any unpaid calls or other sums which may become payable
upon any of the Investments or any rates, taxes or other imposts or
similar liabilities levied or arising on or in respect of any of the
Investments but only to the extent that the Client has failed to pay same.
6. Unsolicited Calls
(4) The Company and the Manager are free under this Agreement at any time to
telephone or otherwise communicate with each other (which in the case of
the Manager, its partners, employees or representatives, may constitute an
"Unsolicited Call" in terms of IMRO's Rules) to discuss the Portfolio, its
composition and investment policy or any changes therein, or any
individual investment, current or proposed.
7. Custody Arrangements
7.1 The Company will at the written request of the Manager arrange with
the Client for the opening of bank accounts in the name of the
Client with the Custodian. All sums belonging to the Client
including proceeds of sales and income received on investments shall
be credited directly to such accounts. The Manager will hold no
moneys on behalf of the Client, and accepts no liability for any
default by the Custodian. These bank accounts and moneys are not
Client Bank Accounts or Clients' Money (as defined in the Rules).
7.2 Securities forming part of the Portfolio will be registered in the
name of the Custodian or held to its
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58
order. The Manager accepts no liability for any default by the
Custodian or sub-custodian banks.
8. Settlement
The Manager will attend to the settlement and delivery of all purchases
and sales of Investments and deal with issues, rights entitlements and any
other matters affecting such investments. The Manager will also be
entitled to instruct the Custodian to make delivery of documents of title
or certificates evidencing title when settling transactions.
9. Voting
Any rights conferred by Investments of the Client shall be exercised in
such manner as the Manager may determine (subject to the rights of the
Directors to give instruction to the Manager regarding the exercise of
such rights) and subject as aforesaid the Manager may in its discretion
refrain from the exercise of such rights. The Company shall from time to
time, upon request from the Manager, procure that the Client shall execute
and deliver or cause to be executed and delivered to the Manager or its
nominee(s) such powers of attorney or proxies as may reasonably be
required authorising such attorneys or proxies to exercise any rights or
otherwise act in respect of all of any part of the Investments. Without
prejudice to the generality of the foregoing the Manager will be entitled
to give voting instructions to the Custodian in respect of the exercise of
any voting or other rights attached to any Investment at the discretion of
the Manager or as the Company and/or the Client may instruct from time to
time.
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59
10. Lending and Borrowing
10.1 Subject to the Investment Policy and as provided in this Clause 10,
investments comprised in the Portfolio and documents of title and
certificates evidencing title to such investments and other property
acquired under this Agreement may not be lent to a third party nor
may money be borrowed on the Client's behalf against the security of
such investments, documents and property.
10.2 Subject to the Investment Policy, an overdraft facility or line of
credit may be established on behalf of the Client and may be used as
a temporary measure for the extraordinary or emergency needs of the
Client.
10.3 Subject to the Investment Policy and to the temporary borrowing
facility provided for in 10.2 above, the Manager may not commit the
Client to supplement the monies in the Portfolio either by borrowing
on its behalf or by committing it to a contract the performance of
which may require them to supplement the Portfolio.
11. Reporting
11.1 The Manager shall arrange to notify the Company and the Client (by
fax) of transactions on a daily basis and will instruct brokers to
send the original contract note to the Custodian and copies to the
Company and the Client.
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11.2 The Manager shall supply quarterly to the Company and the Client the
following:
(a) reports incorporating inter alia advice as to future policy,
which will be sent within twenty five working days of the end
of the quarter to which the report relates;
(b) a Portfolio valuation prepared by Datastream or some other
mutually agreed and reputable supplier of valuation services.
Such valuations will show the number of units of each
investment or other asset held, the book cost and the
aggregate value of each as at the valuation date and will
normally use middle market prices for listed investments. In
the event of any change in this method the Manager will notify
the Company and the Client accordingly;
(c) a statement of any income received on the investments held;
(d) a schedule detailing the performance of the Client broken down
into major sectors and comparing the return of the relevant
index against the return of the Client. The returns will be
compiled by the WM Company using information supplied by the
Manager; and
(e) schedules showing transactions undertaken during the period
under review.
11.3 The Manager shall attend meetings with the Company and/or the Client
from time to time as required by the Directors. Instructions as to
the management of the
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61
Portfolio given orally to the Manager at such meetings will be
confirmed in writing to the Manager as provided for in Clause 23.
12. Material Interests
12.1 Except as specified in Clause 4.1(d) of this Agreement, the Manager
may not effect transactions for the Portfolio in which it has
directly or indirectly a material interest or any relationship with
another party which may involve a conflict of the Manager's duty to
the Company and/or the Client without prior reference to the
Company, other than transactions in units in unit trusts managed by
Baillie Gifford & Co. Limited, an Associate of the Manager, in
accordance with the provisions of sub-clause 12.2 of this
Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement, the Manager
may not effect transactions for the Portfolio in units in unit
trusts managed by Baillie Gifford & Co. Limited unless the Manager
shall first have been issued with an order of exemption by SEC in
accordance with sub-section 17(a) (1) (b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio with or through
the agency of a person who provides services under any arrangement where
that person will from time to time provide to or procure for the Manager
services or other benefits which result, or are designed to result, in an
improvement in the services which the Manager provides to its
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62
clients and for which it may make no direct payment but may undertake to
place business with that person.
14. Taxation
Bank statements and vouchers will be sent to the Client to enable the
Client to reclaim any credits in respect of or tax deducted from the
income of the Portfolio.
15. Fees
15.1 In consideration for the services to be provided by the Manager as
Sub-Investment Manager under this Agreement the Company shall,
during the continuance of this Agreement, pay to the Manager, in the
manner hereinafter provided, fees calculated by reference to the
value of the Portfolio all in accordance with the following
provisions of this Clause 15.
15.2 The Company shall pay to the Manager in respect of each calendar
month a fee (exclusive of Value Added Tax) calculated at the rate of
one-thirtieth of one per cent (0.033%) of:-
A
--- where:
B
"A" means the aggregate of the Values of the Portfolio
as at the close of business on each Business Day falling
in that calendar month; and "B" means the number of
Business Days falling in that calendar month.
15.3 Said fees due to the Manager shall be invoiced by the Manager to the
Company following the end of each calendar month and shall be due
and payable within ten
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63
days of the relevant invoice. The Company shall be entitled to make
such payments on account as it may in its absolute discretion
determine.
15.4 For the purposes of sub-clause 15.2 of this Clause:
(i) the "Value of the Portfolio" means the aggregate of the values
of the assets of the Portfolio at the close of business on a
Business Day. The aggregate of the value of the assets shall
be calculated by taking the value of securities held in the
Portfolio, plus any cash or other assets (including dividends
payable and declared but not collected) less all liabilities
(including accrued expenses, but excluding capital and
surplus);
(ii) the "value of an asset" shall be taken:-
(1) in the case of an investment quoted on a Stock Exchange
where market price is the recognised basis of quotation,
at the price of such investment at the close of business
of the appropriate exchange on the relevant Valuation
Date or, if there have been no sales during the day, at
the mean of the closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and
asked prices;
(3) in the case of unquoted investments and other
investments for which market
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64
quotations are not readily available, at the value
ascertained in accordance with such manner as the Board
of Directors of the Client have deemed appropriate to
reflect the fair value thereof;
(iii) when any asset is held or liability is outstanding in a
currency other than U.S. dollars, such asset or
liability shall be notionally converted into the U.S.
dollar equivalents at the prevailing market rates quoted
by the Custodian at the close of business on the
Business Day, on the relevant Valuation Date or, if such
Valuation Date is not a Business Day, on the immediately
preceding Business Day.
15.5 The Manager shall procure that Baillie Gifford & Co shall be
responsible for furnishing such office space, facilities and
equipment and such clerical help, administrative and bookkeeping
services in Edinburgh as the Company shall reasonably require in the
conduct of its business in accordance with the Administrative and
Secretarial Agreement between Baillie Gifford & Co. and the Company
of even date herewith.
15.6 The Client shall bear all expenses of its organization, operations
and business not specifically assumed or agreed to be paid by the
Company as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Client shall pay all
of the expenses relating to the following expense
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65
categories: custody and accounting services; shareholder servicing
agent; transfer and dividend disbursing agent; shareholder
communications; shareholder meetings; prospectuses; calculation of
net asset value; legal fees and expenses; accounting fees and
expenses; directors' fees and expenses; federal and state
registration fees; bonding and insurance; brokerage commissions;
taxes; trade association fees; nonrecurring and extraordinary
expenses (including but not limited to, legal claims and liabilities
and litigation costs and any indemnification related thereto); and
all other charges relating to the operation of the Client unless
otherwise specifically provided herein. All such expenses shall be
paid out of the assets of the Client.
15.7 The Company shall not be responsible for any expenses incurred in
connection with its duties and responsibilities under the terms of
this Agreement.
16. Indemnity of the Manager as Sub-Investment Manager
16.1 Neither the Manager nor any of its officers, directors, or
employees, nor any person performing executive, administrative,
trading, or other functions for the Client and/or the Company (at
the direction or request of the Manager) or the Manager in
connection with the Manager's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement,
shall be liable for any error of judgment or mistake of law or for
any loss suffered by the Client and/or the Company in connection
with the matters to which this Agreement
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66
relates, except for loss resulting from wilful misfeasance or
misconduct, wilful default, bad faith, or gross negligence in the
performance of its or his/her duties on behalf of the Client and/or
the Company or from reckless disregard by the Manager or any such
person of the duties of the Manager under this Agreement.
16.2 The Manager shall not be liable for the consequences of any
investment decision made hereunder or in respect of any other fund
managed by the Manager or any of its Associates which is a permitted
investment hereunder. The Manager acts only as agent for the Client
and the Company hereby undertakes to indemnify the Manager against
all actions, proceedings, claims, demands, costs and expenses which
may be brought against, suffered or incurred by the Manager by
reason of its performance of such duties, including all legal,
professional and other expenses incurred.
16.3 Notwithstanding the provisions of Clause 16.2, the Manager will
indemnify the Company and/or the Client in respect of any loss
incurred as a result of negligence or fraud by the Manager or any of
its Associates or their respective employees in their performance of
the duties under the terms of this Agreement.
17. Term and Termination of Agreement
17.1 The term of this Agreement shall begin on [__________], subject to
the approval of the Board of Directors of the Client, including a
majority of the Directors who are not "interested persons" (as
defined in the 1940 Act)
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and to the approval of a majority of the outstanding voting
securities of the Client (as defined in the 1940 Act) and, unless
sooner terminated as hereinafter provided, this Agreement shall
remain in effect until [__________]. Thereafter, this Agreement
shall continue in effect from year to year, with respect to the
Company, subject to the termination provisions and all other terms
and conditions hereof, provided such continuance is approved at
least annually by the vote of holders of a majority of the
outstanding voting securities of the Client (as defined in the 1940
Act) or by the Board of Directors of the Client, provided, that in
either event, such continuance is also approved annually by the vote
of a majority of the Board of Directors of the Client who are not
parties to this Agreement and are not "interested persons" (as
defined in the 1940 Act) of any party, which vote must be cast in
person at a meeting called for the purpose of voting on such
approval. The Manager shall furnish to the Client, promptly upon its
request, such information as may reasonably be necessary to evaluate
the terms of this Agreement or any extension, renewal or amendment
hereof.
17.2 The Manager acknowledges that this Agreement may be terminated by
the Company in accordance with the following provisions of this
Clause 17.2. Subject to Clause 17.3 below, the Client may, either by
majority vote of its Board of Directors or by the vote of a majority
of the outstanding voting securities of the
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68
Client (as defined in the 1940 Act), at any time and without the
payment of any penalty, direct the Company to terminate this
Agreement upon sixty days written notice to the Manager.
17.3 The Manager acknowledges that this Agreement may also be terminated
in accordance with the following provisions of this Clause 17.3. The
Client shall also be entitled forthwith to direct the Company to
terminate the appointment of the Manager as Sub-Investment Manager
hereunder notwithstanding any period remaining in accordance with
this Clause or, no notice having been given:-
(i) if the Manager shall commit any material breach of its
obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within thirty days of receipt of
notice in writing served by the Company requiring it so to do
to make good such breach;
(ii) if an order is made or a resolution passed to wind up the
Manager or if a receiver is appointed to the whole or any part
of the property and undertaking of the Manager;
(iii) if the said Shareholders Agreement between the Guardian
Insurance & Annuity Company, Inc., Baillie Gifford Overseas
Limited and the Company is terminated or expires by effluxion
of time.
17.4 The Manager may terminate this Agreement without payment of penalty
upon sixty days written notice to the Company.
17.5 The Manager shall also be entitled to terminate forthwith this
Agreement, notwithstanding any period
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remaining in acccordance with this Clause or, no notice having been
given, if (i) the said Shareholders Agreement between the Guardian
Insurance & Annuity Company Inc. and Baillie Gifford Overseas
Limited and the Company is terminated or expires by effluxion of
time, or (ii) an order is made or a resolution passed to wind up the
Company, or (iii) if the Company shall commit any material breach of
its obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within 30 days of receipt of notice in
writing served by the Manager requiring it so to do to make good
such breach, or (iv) a receiver is appointed to the whole or any
part of the property and undertaking of the Company.
17.6 This Agreement shall immediately terminate in the event of its
assignation or assignment (as that term is defined in the 1940 Act)
by either party unless such automatic termination shall be prevented
by an exemptive order or rule of the SEC.
17.7 On the termination of the appointment of the Manager under the
provisions of this Clause the Manager shall be entitled to receive
all fees accrued due and outlays incurred up to the date of such
termination but shall not in the case of termination under
sub-clause 17.2., 17.3 or 17.4 above, be entitled to compensation in
respect of such termination.
17.8 On termination of the appointment of the Manager under the
provisions of this Clause the Manager shall deliver to the Company,
or as it shall direct, all books of
<PAGE>
70
account, records, registers, correspondence, documents and assets in
relation to the affairs of or belonging to the Company and/or the
Client in the possession of or under the control of the Manager as
Sub-Investment Manager, and take all necessary steps to vest in the
Company any assets previously held in the name of or to the order of
the Manager as Investment Adviser, on behalf of the Company.
17.9 Termination of the appointment of the Manager hereunder shall be
without prejudice to transactions already initiated, which
transactions shall be completed.
17.10 The Company and the Manager will co-operate with each other to
ensure that transactions in progress at the date of termination of
the Manager's appointment hereunder shall be completed by the
Company in accordance with the terms of such transactions and, to
this end, the Manager shall provide the Company with all necessary
information and documentation to secure implementation thereof.
18. Non-Exclusivity
18.1 The services of the Manager hereunder are not to be deemed exclusive and
the Manager or any Associate thereof shall be free to render investment
management services, investment advisory services and corporate
administrative services to other parties (including without prejudice to
the generality of the foregoing other investment companies) on such terms
as the Manager or such Associate may arrange so long as its services under
this Agreement are not thereby impaired and to
<PAGE>
71
retain for its own use and benefit fees or other moneys payable thereby.
The Manager shall not be deemed to be affected with notice of or to be
under any duty to disclose to the Company any fact or thing which may come
to the notice of it or any servant or agent of it in the course of the
Manager rendering the said services to others or in the course of its
business in any other capacity or in any manner whatsoever otherwise than
in the course of carrying out its duties under this Agreement.
18.2 The Manager agrees to permit individuals who are directors or officers of
the Manager to serve as directors or officers of the Company and/or the
Client.
19. Confidentiality
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination, disclose to any person firm or fund
whatsoever (except in the case of the Manager, with the written authority
of the Company and/or the Client or unless ordered to do so by a court of
competent jurisdiction or any regulatory body) any information of a
confidential nature relating to the business investments finances or other
matters of a confidential nature of the other party (or of the Client) of
which it may have become possessed during the period of this Agreement and
each party shall use its reasonable endeavours to prevent any such
disclosure as aforesaid.
20. Complaints
20.1 The Manager has established procedures in accordance
<PAGE>
72
with the requirements of IMRO for the effective consideration of
complaints by the Company.
20.2 Should the Company and/or the Client wish to make a complaint to the
Manager about any aspect of the Manager carrying out its duties
under this Agreement or otherwise it shall in the first instance do
so by letter addressed to the partner or partners of the Manager
responsible for the performance of the Manager's duties hereunder;
if no satisfactory resolution of the complaint is achieved within
five days the Company and/or the Client may repeat the complaint by
letter addressed to the Senior Partners of the Manager. If no
satisfactory resolution is achieved within ten days of the original
complaint the Company and/or the Client may then make its complaint
(insofar as such complaint relates to the Manager's duties as
Investment Adviser hereunder) to IMRO. Notwithstanding the above
provisions the Company and/or the Client has a right of complaint
direct to IMRO.
20.3 A booklet setting out the right to investors compensation under the
Securities and Investment's Board's Scheme in the event of the
Manager's inability to meet any liabilities to the Company and/or
the Client is available on request from the Manager.
21. Arbitration
Without prejudice to the rights of the Company in accordance with Clause
20 hereof any matters of difference between the parties arising out of or
in connection with this Agreement
<PAGE>
73
shall be submitted to arbitration to be determined under Scottish Law
before a sole Arbiter to be agreed between the parties and in default of
agreement to be appointed by the President of the Law Society of Scotland
for the time being. No action shall be brought upon any issue between the
parties arising out of or in connection with this Agreement until the same
has been submitted to arbitration pursuant hereto and an award made.
Section 3(3) of the Administration of Justice (Scotland) Act 1972 shall
not apply to this Agreement.
22. Notices
Any notice required to be given under this Agreement shall be in writing,
delivered personally or sent by first class prepaid letter or transmitted
by telex or facsimile and shall be deemed duly served if left at or served
if left at or sent or (as appropriate) transmitted to the following
addresses (or to the most recent of any other address of which a party
hereto shall have given notice to the other party pursuant to this
Clause):-
(a) if to the Company at:
6 Glenfinlas Street,
Edinburgh EH3 6YY
For the attention of: G Gemmell
Facsimile number: 031-225-2358
(b) if to the Manager at:-
10 Glenfinlas Street,
Edinburgh EH3 6YY
For the attention of: G Gemmell
Facsimile number: 031-225-2358
(c) if to the Client at:-
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
<PAGE>
74
Notices sent by first class prepaid letter shall be deemed to be served
seven business days after posting. Evidence that the Notice was properly
addressed, stamped and put into post shall be conclusive evidence of
posting. A notice sent by facsimile transmission shall be deemed to have
been served at the time when a complete and legible copy is received by
the addressee. In this Clause "business day" means a day on which normal
banking business is carried on in Edinburgh and New York City.
23. Reliance on documents
Wherever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Directors) to the Manager as Sub-Investment Manager and
the Manager may accept as sufficient evidence thereof:-
(i) a document signed or purporting to be signed on behalf of the
issuing party by such person or persons whose signature the Manager
is for the time being authorised by such issuing party to accept; or
(ii) a message by tested telex, telecopier, facsimile machine or cable
transmitted by, or on behalf of, the Company (or its Directors) by
such person or persons whose messages the Manager is for the time
being authorised by the Company or its Directors to accept, and the
Manager shall not be obliged to accept any document or message
signed or transmitted or purporting to be signed or transmitted by
any other person.
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75
24. Client's rights under this Agreement
The Manager agrees that the Client, in any question with the Manager in
relation to its duties as Sub-Investment Manager hereunder, may rely on
any of the provisions of this Agreement as if it were a party hereto. The
Company shall deliver a certified copy of this Agreement to the Client by
way of intimation of the Client's rights hereunder.
25. Invalidity
The invalidity or unenforceability of any part of this Agreement shall not
prejudice or affect the validity or enforceability of the remainder.
26. Proper Law
Notwithstanding any conflict of laws, principles or provisions which may
otherwise apply, this Agreement and the rights and obligations of the
parties shall be governed by and are to be construed in accordance with
the law of Scotland and, to the extent applicable, in accordance with the
1940 Act: WITNESS WHEREOF these presents typewritten on this and the
thirty preceding pages are executed as follows:-
EXHIBIT 5(c)(ii)
<PAGE>
SUPPLEMENTAL AGREEMENT
between
GUARDIAN BAILLIE GIFFORD LIMITED, incorporated under the
Companies Acts having its Registered Office formerly at 6
Glenfinlas Street, Edinburgh EH3 6YY and now at 1 Rutland
Court, Edinburgh EH3 8EY (hereinafter called "the Company");
OF THE ONE PART
and
BAILLIE GIFFORD OVERSEAS LIMITED, a company incorporated under
the Companies Acts having its Registered Office formerly at 7
Glenfinlas Street, Edinburgh EH3 6YY and now at 1 Rutland
Court, Edinburgh EH3 8EY (hereinafter called "the Manager") OF
THE OTHER PART
----------------
WHEREAS:
(A) The Company and the Manager are parties to a Sub-Investment Management
Agreement dated 17 and 21 January 1991 (the "Agreement") in terms of which
the Manager was appointed as Sub-Investment Manager to Baillie Gifford
International Fund Inc. (the "Client").
(B) In Clause 1.1(i) of the Agreement the definition "Investments" erroneously
refers to the Company; and
(C) The Company and the Manager have agreed that the said definition be
amended in terms of this Supplemental Agreement.
IT IS HEREBY AGREED AND DECLARED as follows:
1. In Clause 1.1(i) or the Agreement the definition "Investments" shall be
amended by substituting the word "Client" in lieu of "Company" in the
second line of said definition.
2. Save in so far as amended by the foregoing provisions of this Supplemental
Agreement, the Agreement shall continue in full force and effect: IN
WITNESS WHEREOF these presents consisting of this and the preceding page
are executed in duplicate as follows: _ they are subscribed for Baillie
Gifford Overseas Limited by John Ross Lidstone, one of its Directors at
Edinburgh on 27 January 1992 in the presence of these witnesses, Gillian
Elizabeth Meekison, Marketing Manager, 30 Royal Circus, TFR, Edinburgh EH3
6SS and Morag Cameron, Company Secretary, 19 Buckingham Terrace, Edinburgh
EH4 3AD and they are subscribed for Guardian Baillie Gifford Limited by
John Matthew Smith at New
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York on 29 January 1992 in the presence of these witnesses, Thomas Richard
Hickey, Jr. Second Vice President and Counsel and Nancy White Le Donne,
Attorney, both of 201 Park Avenue South, New York, New York 10003.
For Guardian Baillie Gifford Limited
s/Thomas R. Hickey, Jr. Witness s/John M. Smith
- ------------------------ ------------------------
s/Nancy W Le Donne Witness
- ------------------------
For Baillie Gifford Overseas Limited
s/G.E. Meekison Witness s/J.R. Lidstone
- ------------------------ ------------------------
s/Morag Cameron Witness
- ------------------------
2
Exhibit 5(d)
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT
between
GUARDIAN BAILLIE GIFFORD LIMITED, incorporated under the Companies Acts and
having its Registered Office at 1 Rutland Court, Edinburg EH3 8EY (hereinafter
called "the Company") OF THE ONE PART
and
BAILLIE GIFFORD OVERSEAS LIMITED, a company incorporated under the Companies
Acts and having its Registered Office at 1 Rutland Court, Edinburg, EH3 8EY
(hereinafter called "the Manager") OF THE OTHER PART
------------------
WHEREAS:
(A) Baillie Gifford International Fund, Inc. (hereinafter called the
"Client") is engaged in business as an open-end management investment company
and is registered as such under the U.S. Investment Company Act of 1940, as
amended.
(B) The Client is authorised to issue shares of common stock in one or
more series, the shares of which will represent and correspond to interests in
one or more separate portfolios of securities and other assets held by the
Client.
(C) The Company is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(D) The Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(E) The Client desires the Company to render investment management
services to the Client and to those of its Series which are named in written Fee
Appendices as described herein in the manner set forth and in the terms and
conditions set forth in a separate Investment Management Agreement of even date
herewith.
(F) The Company, in turn, desires the Manager to render sub-investment
management services to the Client and to those of its Series which are named in
written Fee Appendices as described herein in the manner and on the terms and
conditions hereinafter set forth.
IT IS HEREBY AGREED AND DECLARED as follows:
1. Definitions
1.1 In this Agreement the following words and expressions
shall where not inconsistent with the context have the following
meanings respectively:
(a) "Articles" means the Articles of Association of the
Company as amended from time to time;
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(b) "Associate" means and includes any corporation which
in relation to the person concerned (being a corporation) is a
Holding Company or a Subsidiary or a Subsidiary of any such
Holding Company or a corporation (or a Subsidiary of a
corporation) at least one-third of the issued share capital of
which is beneficially owned by the person concerned or an
Associate thereof under the preceding part of this definition
and includes any firm the partners of which or any one or more
of them are beneficially entitled whether directly or
indirectly or through the medium of a corporation or
corporations to at least three-quarters of the issued equity
share capital of the person concerned (being a corporation)
and includes any partner in any such firm. Where the person
concerned is an individual, firm or other unincorporated body
the expression "Associate" means and includes any corporation
directly or indirectly or through the medium of a corporation
or corporations controlled by such person and any partner in
any such firm;
(c) "Business Day" means a day on which the New York
Stock Exchange is open for business;
(d) "Commencement Date" means 12 September 1994 or, if
later, the date on which a copy of this Agreement signed by or
on behalf of the Manager has been signed by or on behalf of
the Company and returned to the Manager;
(e) "Custodian" means State Street Bank & Trust Company,
Boston, Massachusetts, U.S.A. and its agents and sub-custodian
banks or such other bank or banks as may in the future serve
as custodian of the Investments;
(f) "Directors" means the Board of Directors of the
Company from time to time including any duly appointed
committee thereof;
(g) "Fee Appendix" means the Sub-Investment Advisory Fee
Appendix entered into by the Manager and the Company which
sets forth the compensation to be paid by the Company to the
Manager for services rendered hereunder with respect to any
Series. Each Fee Appendix shall be subject to the terms and
conditions of this agreement;
(h) "Holding Company" means a holding company as defined
in Section 736 of the Companies Act 1985;
(i) "IMRO" means Investment Management Regulatory
Organisation Limited;
(j) "Investments" means the assets and rights from time
to time of each Series comprised in the Portfolio of such
Series;
(k) "Investment Policy" means the investment objective,
policies and restrictions of a Series which are set out in the
current Registration Statement on Form N-1A as filed on behalf
of the Client with the SEC and as amended from time to time
following written notice given by the Company to the Manager;
(l) "Investment Management Agreement" means the
investment advisory agreement between the Company and the
Client of even date herewith.
(m) "Portfolio" means the investments and cash which may
from time to time comprise the assets of a Series which are
the subject of the Investment Management Agreement;
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<PAGE>
(n) "Rules" means the rules (including any regulations)
made by the board of IMRO, as altered, amended, added to or
cancelled from time to time whether by the board of IMRO or
pursuant to the Financial Services Act 1986, together with the
Statutory Rules;
(o) "SEC" means the U.S. Securities and Exchange
Commission;
(p) "Series" means a separate portfolio of assets of the
Client which has been named in a written Fee Appendix;
(q) "Statutory Rules" means rules or regulations made
under Chapter V of the Financial Services Act 1986 which are
binding on the Manager;
(r) "Subsidiary" means a subsidiary as defined in
Section 736 of the Companies Act 1985;
(s) "U.S." means the United States of America;
(t) "1940 Act" means the U.S. Investment Company Act of
1940, as amended;
(u) any reference to the Company, Client, a Series or
the Manager includes a reference to its duly authorised agents
or delegates;
(v) words importing the singular number shall be deemed
to include the plural number and vice versa;
(w) words importing the masculine gender only shall
include the feminine gender and vice versa;
(x) words importing persons shall include companies or
associations or bodies of persons, whether corporate or not;
and
(y) any reference to this Agreement shall be deemed to
be a reference to this Agreement as it may from time to time
be supplemented by a Fee Appendix.
1.2 Words and expressions contained in this Agreement (but not
defined herein) shall bear the same meanings as in the Articles.
1.3 The headings to the Clauses of this Agreement are for
convenience only and shall not affect the construction or
interpretation thereof.
1.4 References herein to statutory provisions shall be
construed as references to those provisions as respectively amended
or re-enacted from time to time and shall include any provision of
which they are reenactments (whether with or without modification).
2. Appointment
2.1 The Company HEREBY APPOINTS the Manager as Sub-Investment
Manager in relation to the Portfolio of each Series and the Manager
accepts such appointment on the terms and conditions of this
Agreement.
2.2 The appointment of the Manager as Sub-Investment Manager
as aforesaid shall take effect from the Commencement Date, and shall
continue in full force and effect with respect to each Series,
provided it is initially and continually approved in accordance with
the 1940 Act, and unless and until terminated in accordance with the
provisions hereof.
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<PAGE>
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as
Sub-Investment Manager of the Company, subject to Clause 3.2 below
and without prejudice to the generality of Clause 2.1 above the
Manager shall (subject to the overall supervision of the Directors):
(a) manage the investment and re-investment of the
Portfolio of each Series on a discretionary basis with a view
to achieving the investment objective contained in the
Investment Policy;
(b) provide valuations of the Investments in accordance
with the provisions of Clause 11;
(c) as and when requested by the Company and/or the
Client supply the Company and/or the Client with such
information in connection with the Portfolio of each Series as
may be in the possession of the Manager or may reasonably be
obtained from or provided by them;
3.2 Any investment activity undertaken by the Manager pursuant
to this Agreement and any other activities undertaken by the Manager
on behalf of the Company or the Client or any Series shall at all
times be subject to any written directives of the Directors or of
the Board of Trustees of the Client, as the case may be, any duly
constituted committee of such Board, or any officer of the Company
or of the Client acting pursuant to the written directives of its
respective Board.
3.3 The Manager shall keep or cause to be kept on behalf of
each Series such books, records and statements to give a complete
record of all transactions carried out by the Manager on behalf of
each Series in relation to the investment and reinvestment of the
Portfolio of such Series and such other books, records and
statements as may be required by law and as may be necessary to give
a complete record of all other transactions carried out by the
Manager on behalf of each Series and shall permit the Company and
its employees and agents and the auditors for the time being of the
Company and/or the Client and each Series to inspect such books,
records and statements at all reasonable times.
3.4 All records required to be maintained and preserved by the
Manager on behalf of each Series or the Portfolio of such Series
pursuant to the provisions of rules or regulations of the SEC under
Section 31(a) of the 1940 Act are the property of the Client and
will be surrendered by the Manager promptly on request by the
Client.
3.5 The Manager hereby warrants that it holds and undertakes
that it will continue to hold, all licences, permissions,
authorisations and consents necessary to enable it to carry out its
duties hereunder in the ordinary course of business and that all
such licences, permissions, authorisations and consents are and will
remain in full force and effect during the continuance of this
Agreement.
3.6 The services to be provided under this Agreement shall be
so provided on the basis that the Company and the Client are
"Non-Private Customers" as defined in the Rules.
4. Manager's Specific Powers and Obligations in Relation to Investment
Management
4.1 Consistent with the Investment Policy and subject to any
written directions (in accordance with Clause 3.2 above)
communicated to the Manager, the Manager shall have and is hereby
granted the authority, power and right for the Portfolio of each
Series and in the name of the Client and each Series
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<PAGE>
to supervise and direct the investments of each Series in its
discretion and without prior consultation with the Client or the
Company:
(a) to issue orders and instructions with respect to the
disposition of Investments, moneys and other assets of the
Portfolio of each Series;
(b) to purchase (or otherwise acquire), sell (or
otherwise dispose of) and invest in investments, moneys and
other assets for the account of each Series and effect foreign
exchange transactions on behalf of each Series and for the
account of each Series in connection with any such purchase,
other acquisition, sale or other disposal;
(c) to enter into, make and perform all contracts,
agreements and other undertakings as may in the opinion of the
Manager be necessary or advisable or incidental to the
carrying out of the objectives of this Agreement;
(d) subject to the Rules, to aggregate transactions for
the Portfolio of each Series with those of other clients and
Associates without prior reference to the Company, the Client
or any Series or such other clients. Aggregation may operate
on some occasions to the advantage of a Series and on other
occasions to the disadvantage of a Series. Also the Manager
may act as agent for the Client and each Series in relation to
transactions in which it is also acting as agent for its
Associates;
(e) to purchase and sell Investments on any Recognised
or Designated Investment Exchange as defined in the Rules
(including for this purpose over the counter markets) or
through such other intermediary as the Manager may in its
discretion consider;
(f) to purchase or subscribe for Investments Not Readily
Realisable (as defined in the Rules). However such investments
carry a high risk of not being readily realisable,
market-makers may not be prepared to deal in them and proper
information for determining their current value may not be
available. The purchase of such investments is subject to such
restrictions as may be set out in this Agreement not
inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and
offers of paper and/or cash alternatives in takeover bids on
behalf of each Series;
(h) to invest in Contingent Liability Transactions and
Options effected otherwise than under the rules of a
Recognised or Designated Investment Exchange (as defined in
the Rules) or in a contract traded thereon;
(i) for the purposes of carrying out transactions in
futures and options only, to deposit or pledge investments
comprised in the Portfolio of each Series and such other
documents of title and certificates evidencing title to such
investments and other property as may be required in order to
satisfy the counterparty's margin or collateral requirements.
In all other circumstances and except (a) with the written
consent of and on terms agreed with the Company and the Client
or (b) if appropriate, as may be provided in the Client's
current Registration Statement filed with the SEC (as amended
from time to time) investments comprised in the Portfolio of a
Series and documents of title and certificates evidencing
title to such investments and other property
5
<PAGE>
acquired under this Agreement may not be lent to a third party
nor may money be borrowed on the Client's or a Series' behalf
against the security of such investments, documents and
property.
4.2 As Investments maybe denominated in different currencies,
a movement of exchange rates may have a separate effect,
unfavourable as well as favourable, on the gain or loss otherwise
experienced in the Investments.
4.3 The Company understands, and has informed the Manager that
the Client understands, that markets involving Contingent Liability
Transactions can be highly volatile and that such instruments carry
a high risk of loss and that a relatively small adverse market
movement may result not only in loss of the original investment but
also an unquantifiable further loss exceeding any margin deposited.
The Company further understands, and has informed the Manager that
the Client understands, that the Client may be required to pay on
behalf of a Series a deposit or margin in support of a transaction
or to supplement that payment after the transaction has been
effected and that the consequence of non-payment may result in the
loss of deposit or margin.
4.4 The Company confirms to the Manager that the Client has
received from the Company the appropriate risk disclosure statements
required under paragraph 12(a) of Schedule 4 of Chapter III of the
Rules.
4.5 The Manager shall observe and comply with all resolutions
of the Directors of which it has written notice and other lawful
orders and directions given in writing to it from time to time by
the Directors including those orders and directions emanating from
the Client and all activities engaged in by the Manager hereunder
pursuant to Clause 3 above shall at all times be subject to the
control of and review by the Directors, acting on behalf of the
Client, and without limiting the generality of the foregoing the
Directors may from time to time:
(a) prohibit the Manager from investing the Portfolio of
any Series in any investment or in any currency or country or
in or with any person;
(b) require the Manager to sell any investment or
(subject to the availability of funds) to purchase, on behalf
of a Series, any investment;
(c) notify the Manager, in writing, of any amendments to
the Investment Policy of any Series;
and the Manager shall and shall procure that any person,
firm or company to whom it delegates any of its functions
hereunder shall give effect to all such decisions.
5. Payments Due on Investments
The Company undertakes to the Manager that it shall be
responsible for any unpaid calls or other sums which may become
payable upon any of the Investments or any rates, taxes or other
imposts or similar liabilities levied or arising on or in respect of
any of the Investments but only to the extent that the Client, on
behalf of a Series, has failed to pay same.
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<PAGE>
6. Cold Calls
The Company and the Manager are free under this Agreement at
any time to telephone or otherwise communicate with each other
(which in the case of the Manager, its directors, employees or
representatives, may constitute a "Cold Call" in terms of IMRO's
Rules) to discuss the Portfolio of any Series, its composition and
investment policy or any changes therein, or any individual
investment, current or proposed.
7. Custody Arrangements
7.1 The Company will at the written request of the Manager
arrange with the Client, on behalf of a Series, for the opening of
bank accounts in the name of each Series with the Custodian. All
sums belonging to a Series including proceeds of sales and income
received on investments shall be credited directly to such accounts.
The Manager will hold no moneys on behalf of a Series, and accepts
no liability for any default by the Custodian. These bank accounts
and moneys are not Client Bank Accounts or Clients' Money (as
defined in the Rules).
7.2 Securities forming part of the Portfolio of each Series
will be registered in the name of the Custodian or held to its
order. The Manager accepts no liability for any default by the
Custodian or sub-custodian banks.
8. Settlement
The Manager will attend to the settlement and delivery of all
purchases and sales of Investments and deal with issues, rights
entitlements and any other matters affecting such investments. The
Manager will also be entitled to instruct the Custodian to make
delivery of documents of title or certificates evidencing title when
settling transactions.
9. Voting
Any rights conferred by Investments of a Series shall be
exercised in such manner as the Manager may determine (subject to
the rights of the Directors to give instruction to the Manager
regarding the exercise of such rights) and subject as aforesaid the
Manager may in its discretion refrain from the exercise of such
rights. The Company shall from time to time, upon request from the
Manager, procure that the Client, on behalf of each Series, shall
execute and deliver or cause to be executed and delivered to the
Manager or its nominee(s) such powers of attorney or proxies as may
reasonably be required authorising such attorneys or proxies to
exercise any rights or otherwise act in respect of all or any part
of the Investments. Without prejudice to the generality of the
foregoing the Manager will be entitled to give voting instructions
to the Custodian in respect of the exercise of any voting or other
rights attached to any Investment at the discretion of the Manager
or as the Company and/or the Client may instruct from time to time.
10. Lending and Borrowing
10.1 Subject to the Investment Policy of a Series and as
provided in this Clause 10, investments comprised in the Portfolio
of a Series and documents of title and certificates evidencing title
to such
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<PAGE>
investments and other property acquired under this Agreement may not
be lent to a third party nor may money be borrowed on the Client's
or a Series' behalf against the security of such investments,
documents and property.
10.2 Subject to the Investment Policy of a Series, an
overdraft facility or line of credit may be established on behalf of
each Series and may be used as a temporary measure for the
extraordinary or emergency needs of each Series.
10.3 Subject to the Investment Policy of a Series and to the
temporary borrowing facility provided for in 10.2 above, the Manager
may not commit the Client or a Series to supplement the monies in
the Portfolio of a Series either by borrowing on its behalf or by
committing it to a contract the performance of which may require
them to supplement the Portfolio of such Series.
11. Reporting
11.1 The Manager shall arrange to notify the Company and the
Client (by fax) of transactions in each Series on a daily basis and
will instruct brokers to send the original contract note to the
Custodian and copies to the Company and the Client.
11.2 The Manager shall supply quarterly, on a Series by Series
basis, to the Company and the Client the following:
(a) reports incorporating inter alia investment policy,
which will be sent within twenty-five working days of the end
of the quarter to which the report relates;
(b) a Portfolio valuation prepared by Datastream or some
other mutually agreed and reputable supplier of valuation
services. Such valuations will show the number of units of
each investment or other asset held, the book cost and the
aggregate value of each as at the valuation date and will
normally use middle market prices for listed investments. In
the event of any change in this method the Manager will notify
the Company and the Client accordingly;
(c) a statement of any income received on the
investments held;
(d) a schedule detailing the performance of each Series
broken down into major sectors and comparing the return of the
relevant index against the return of each Series. The returns
will be compiled by the WM Company using information supplied
by the Manager; and
(e) schedules showing transactions undertaken during the
period under review.
11.3 The Manager shall attend meetings with the Company and/or
the Client from time to time as required by the Directors.
Instructions as to the management of the Portfolio of a Series given
orally to the Manager at such meetings will be confirmed in writing
to the Manager as provided for in Clause 23.
12. Material Interests
12.1 Except as specified in Clause 4.1(d) of this Agreement,
the Manager may not effect transactions for the Portfolio of a
Series in which it has directly or indirectly a material interest or
any relationship with another party which may involve a conflict of
the Manager's duty to the Company and/or the
8
<PAGE>
Client or any Series without prior reference to the Company, other
than transactions in units in unit trusts managed by Baillie Gifford
& Co. Limited, an Associate of the Manager, in accordance with the
provisions of sub-clause 12.2 of this Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement,
the Manager may not effect transactions for the Portfolio of a
Series in units in unit trusts managed by Baillie Gifford & Co.
Limited unless the Manager shall first have been issued with an
order of exemption by the SEC in accordance with sub-section
17(a)(1)(b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio of a
Series with or through the agency of a person who provides services
under any arrangement where that person will from time to time
provide to or procure for the Manager services or other benefits
which result, or are designed to result, in an improvement in the
services which the Manager provides to its clients and for which it
may make no direct payment but may undertake to place business with
that person.
14. Taxation
Bank statements and vouchers will be sent by the Custodian to
the Client to enable the Client, on behalf of each Series, to
reclaim any credits in respect of or tax deducted from the income of
the Portfolio of such Series.
15. Fees
In consideration for the services to be provided by the
Manager as Sub-Investment Manager under this Agreement the Company
shall, during the continuance of this Agreement, pay to the Manager,
fees calculated by reference to the value of the Portfolio of each
Series all in accordance with the provisions set forth in the
applicable Fee Appendix. All such Fee Appendices shall provide that
they are subject to all terms and conditions of this Sub-Investment
Advisory Agreement.
Compensation under this Agreement and the related Fee
Appendices for all Series shall be calculated and accrued daily and
the amounts of the daily accruals shall be paid quarterly, or at
such other intervals agreed to by the parties. If this Agreement
becomes effective with respect to a Series subsequent to the first
day of a quarter or shall terminate before the last day of a
quarter, compensation for that part of the quarter during which this
Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth in the applicable Fee
Appendix.
16. Indemnity
16.1 Neither the Manager nor any of its officers, directors,
or employees, nor any person performing executive, administrative,
trading, or other functions for the Client or any Series and/or the
Company (at the direction or request of the Manager) or the Manager
in connection with the Manager's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement,
shall be liable for any error of judgment or mistake of law or for
any loss suffered by the Client or any Series and/or the Company in
connection with the matters to which this Agreement relates, except
for loss resulting from wilful
9
<PAGE>
misfeasance or misconduct, wilful default, bad faith, or gross
negligence in the performance of its or his/her duties on behalf of
the Client or any Series and/or the Company or from reckless
disregard by the Manager or any such person of the duties of the
Manager under this Agreement.
16.2 The Manager shall not be liable for the consequences of
any investment decision made hereunder or in respect of any other
fund managed by the Manager or any of its Associates which is a
permitted investment hereunder. The Manager acts only as agent for
the Client and each Series and the Company hereby undertakes to
indemnify the Manager against all actions, proceedings, claims,
demands, costs and expenses which may be brought against, suffered
or incurred by the Manager by reason of its performance of such
duties, including all legal, professional and other expenses
incurred.
16.3 Notwithstanding the provisions of Clause 16.2, the
Manager will indemnify the Company and/or the Client and each Series
in respect of any loss incurred as a result of negligence or fraud
by the Manager or any of its Associates or their respective
employees in their performance of the duties under the terms of this
Agreement.
17. Term and Termination of Agreement
17.1 The term of this Agreement shall begin on 12 September
1994, provided that, with respect to any Series, this Agreement
shall not take effect unless it has first been approved by the Board
of Trustees of the Client, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) and by a
majority of the outstanding voting securities of that Series (as
defined in the 1940 Act) and, unless sooner terminated as
hereinafter provided, this Agreement shall remain in effect until 1
January 1996. Thereafter, this Agreement shall continue in effect
from year to year, with respect to the Company and each Series,
subject to the termination provisions and all other terms and
conditions hereof, provided such continuance is approved at least
annually by the vote of holders of a majority of the outstanding
voting securities of each Series (as defined in the 1940 Act) or by
the Board of Trustees of the Client, provided, that in either event,
such continuance is also approved annually by the vote of a majority
of the Board of Trustees of the Client who are not parties to this
Agreement and are not "interested persons" (as defined in the 1940
Act) of any party, which vote must be cast in person at a meeting
called for the purpose of voting on such approval. The Manager shall
furnish to the Client, on behalf of each Series, promptly upon its
request, such information as may reasonably be necessary to evaluate
the terms of this Agreement or any extension, renewal or amendment
hereof.
17.2 The Manager acknowledges that this Agreement may be
terminated by the Company in accordance with the following
provisions of this Clause 17.2. Subject to Clause 17.3 below, the
Client may, with respect to a Series, either by majority vote of its
Board of Trustees or by the vote of a majority of the outstanding
voting securities of such Series (as defined in the 1940 Act), at
any time and without the payment of any penalty, direct the Company
to terminate this Agreement upon sixty days written notice to the
Manager.
17.3 The Manager acknowledges that this Agreement may also be
terminated in accordance with the following provisions of this
Clause 17.3. The Client shall also be entitled forthwith to direct
the Company to terminate the appointment of the Manager as
Sub-Investment Manager hereunder, with respect to a Series,
notwithstanding any period remaining in accordance with this Clause
or, no notice having been given:
10
<PAGE>
(i) if the Manager shall commit any material breach of
its obligations under this Agreement and (if such breach shall
be capable of remedy) shall fail within thirty days of receipt
of notice in writing served by the Company requiring it so to
do to make good such breach;
(ii) if an order is made or a resolution passed to wind
up the Manager or if a receiver is appointed to the whole or
any part of the property and undertaking of the Manager;
(iii) if the Shareholders Agreement dated 7 November
1990 between the Guardian Insurance & Annuity Company, Inc.,
the Manager and the Company is terminated or expires by
effluxion of time.
17.4 The Manager may terminate this Agreement with respect to
a Series without payment of penalty upon sixty days written notice
to the Company.
17.5 The Manager shall also be entitled to terminate forthwith
this Agreement with respect to a Series, notwithstanding any period
remaining in accordance with this Clause or, no notice having been
given, if (i) the said Shareholders Agreement between The Guardian
Insurance & Annuity Company, Inc. and the Manager and the Company is
terminated or expires by effluxion of time, or (ii) an order is made
or a resolution passed to wind up the Company, or (iii) if the
Company shall commit any material breach of its obligations under
this Agreement and (if such breach shall be capable of remedy) shall
fail within 30 days of receipt of notice in writing served by the
Manager requiring it so to do to make good such breach, or (iv) a
receiver is appointed to the whole or any part of the property and
undertaking of the Company.
17.6 Termination of this Agreement as detailed in this Clause
with respect to any Series shall in no way affect the continued
validity of this Agreement or the performance thereunder with
respect to any other Series.
17.7 This Agreement shall immediately terminate in the event
of its assignation or assignment (as that term is defined in the
1940 Act) by either party unless such automatic termination shall be
prevented by an exemptive order or rule of the SEC.
17.8 On the termination of the appointment of the Manager
under the provisions of this Clause the Manager shall be entitled to
receive all fees accrued due and outlays incurred up to the date of
such termination but shall not in the case of termination under
sub-clause 17.2, 17.3 or 17.4 above, be entitled to compensation in
respect of such termination.
17.9 On termination of the appointment of the Manager under
the provisions of this Clause the Manager shall deliver to the
Company, or as it shall direct, all books of account, records,
registers, correspondence, documents and assets in relation to the
affairs of or belonging to the Company and/or the Client or any
Series in the possession of or under the control of the Manager as
sub-investment manager, and take all necessary steps to vest in the
Company any assets previously held in the name of or to the order of
the Manager as sub-investment manager, on behalf of the Company.
17.10 Termination of the appointment of the Manager hereunder
shall be without prejudice to transactions already initiated, which
transactions shall be completed.
17.11 The Company and the Manager will co-operate with each
other to ensure that transactions in progress at the date of
termination of the Manager's appointment hereunder shall be
completed by the Company in accordance with the terms of such
transactions and, to this end, the Manager shall provide the Company
with all necessary information and documentation to secure
implementation thereof.
11
<PAGE>
18. Non-Exclusivity
18.1 The services of the Manager hereunder are not to be
deemed exclusive and the Manager or any Associate thereof shall be
free to render investment management services, investment advisory
services and corporate administrative services to other parties
(including without prejudice to the generality of the foregoing
other investment companies) on such terms as the Manager or such
Associate may arrange so long as its services under this Agreement
are not thereby impaired and to retain for its own use and benefit
fees or other moneys payable thereby. The Manager shall not be
deemed to be affected with notice of or to be under any duty to
disclose to the Company any fact or thing which may come to the
notice of it or any servant or agent of it in the course of the
Manager rendering the said services to others or in the course of
its business in any other capacity or in any manner whatsoever
otherwise than in the course of carrying out its duties under this
Agreement.
18.2 The Manager agrees to permit individuals who are
directors or officers of the Manager to serve as directors or
officers of the Company and/or the Client.
19. Confidentiality
Neither of the parties hereto shall during the continuance of
this Agreement or after its termination, disclose to any person,
firm or fund whatsoever (except in the case of the Manager, with the
written authority of the Company and/or the Client or unless ordered
to do so by a court of competent jurisdiction or any regulatory
body) any information of a confidential nature relating to the
business investments finances or other matters of a confidential
nature of the other party (or of the Client or any Series) of which
it may have become possessed during the period of this Agreement and
each party shall use its reasonable endeavours to prevent any such
disclosure as aforesaid.
20. Complaints
20.1 The Manager has established procedures in accordance with
the requirements of IMRO for the effective consideration of
complaints by the Company.
20.2 Should the Company and/or the Client wish to make a
complaint to the Manager about any aspect of the Manager carrying
out its duties under this Agreement or otherwise it shall in the
first instance do so by letter addressed to the director or
directors of the Manager responsible for the performance of the
Manager's duties hereunder; if no satisfactory resolution of the
complaint is achieved within five days the Company and/or the Client
may repeat the complaint by letter addressed to the Chairman of the
Manager. If no satisfactory resolution is achieved within ten days
of the original complaint the Company and/or the Client may then
make its complaint (insofar as such complaint relates to the
Manager's duties as sub-investment manager hereunder) to IMRO.
Notwithstanding the above provisions the Company and/or the Client
has a right of complaint direct to IMRO.
20.3 A booklet setting out the right to investors compensation
under the Securities and Investments Board's Scheme in the event of
the Manager's inability to meet any liabilities to the Company
and/or the Client is available on request from the Manager.
12
<PAGE>
21. Arbitration
Without prejudice to the rights of the Company in accordance
with Clause 20 hereof any matters of difference between the parties
arising out of or in connection with this Agreement shall be
submitted to arbitration to be determined under Scottish Law before
a sole Arbiter to be agreed between the parties and in default of
agreement to be appointed by the President of the Law Society of
Scotland for the time being. No action shall be brought upon by any
issue between the parties arising out of or in connection with this
Agreement until the same has been submitted to arbitration pursuant
hereto and an award made. Section 3(3) of the Administration of
Justice (Scotland) Act 1972 shall not apply to this Agreement.
22. Amendments
This Agreement may be amended by mutual consent, but no
amendment shall be effective as to any given Series until it is
approved by vote of a majority of such Series' outstanding voting
securities, and by the vote of a majority of the members of the
Board of Trustees of the Client, including a majority of the
Trustees who are not deemed to be "interested persons" (as defined
in the 1940 Act).
Notwithstanding the foregoing, where the effect of a
requirement of the 1940 Act which is reflected in any provision of
this Agreement is relaxed by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall he
deemed to incorporate the effect of such rule, regulation or order.
23. Notices
Any notice required to be given under this Agreement shall be
in writing, delivered personally or sent by first class prepaid
letter or transmitted by telex or facsimile and shall be deemed duly
served if left at or sent or (as appropriate) transmitted to the
following addresses (or to the most recent of any other address of
which a party hereto shall have given notice to the other party
pursuant to this Clause):
(a) if to the Company at:
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
(b) if to the Manager at:
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
(c) if to the Client at:
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
13
<PAGE>
Notices sent by first class prepaid letter shall be deemed to
be served seven business days after posting. Evidence that the
Notice was properly addressed, stamped and put into post shall be
conclusive evidence of posting. A notice sent by facsimile
transmission shall be deemed to have been served at the time when a
complete and legible copy is received by the addressee. In this
Clause "business day" means a day on which normal banking business
is carried on in Edinburgh and New York City.
24. Reliance on documents
Wherever pursuant to any provision of this Agreement any
notice, instruction or other communication is to be given by, or on
behalf of, the Company (or its Directors) to the Manager as
sub-investment manager and the Manager may accept as sufficient
evidence thereof:
(i) a document signed or purporting to be signed on
behalf of the issuing party by such person or persons whose
signature the Manager is for the time being authorized by such
issuing party to accept; or
(ii) a message by tested telex, telecopier, facsimile
machine or cable transmitted by, or on behalf of, the Company
(or its Directors) by such person or persons whose messages
the Manager is for the time being authorized by the Company or
its Directors to accept, and the Manager shall not be obliged
to accept any document or message signed or transmitted or
purporting to be signed or transmitted by any other person.
25. Client's Rights Under this Agreement
The Manager agrees that the Client, in any question with the
Manager in relation to its duties as sub-investment manager
hereunder, may rely on any of the provisions of this Agreement as if
it were a party hereto. The Company shall deliver a certified copy
of this Agreement to the Client by way of intimation of the Client's
rights hereunder.
26. Invalidity
The invalidity or unenforceability of any part of this
Agreement shall not prejudice or affect the validity or
enforceability of the remainder.
27. Proper Law
Notwithstanding any conflict of laws, principles or provisions
which may otherwise apply, this Agreement and the rights and
obligations of the parties shall be governed by and are to be
construed in accordance with the law of Scotland and, to the extent
applicable, in accordance with the 1940 Act: IN WITNESS WHEREOF
these presents typewritten on this and the 13 preceding pages are
executed as follows: they are subscribed for and on behalf of
Baillie Gifford Overseas Limited by Gavin John Norman Gemmell, one
of its Directors, at Edinburgh, Scotland on 12 September, 1994
before these witnesses, Edward Harry Hocknell, of 1 Rutland Ct.,
Edinburgh and Rowan Robin Menzies of 1 Rutland Ct., Edinburgh
and they are subscribed for
14
<PAGE>
and on behalf of Guardian Baillie Gifford Limited by John M. Smith,
one of its Directors at New York, United States of America on 12
September, 1994 before these witnesses, Richard T. Potter, Jr. and
Marjorie A. Silverman both of 201 Park Avenue South. New York, New
York.
For Guardian Baillie Gifford Limited:
/s/ Richard T. Potter, Jr. Witness /s/ John M. Smith
- -------------------------- ------------------------
/s/ Marjorie A. Silverman Witness
- --------------------------
For Baillie Gifford Overseas Limited:
/s/ [ILLEGIBLE]? Witness /s/ Gavin J.N. Gemmell
- -------------------------- ------------------------
/s/ Robin Menzies Witness
- --------------------------
15
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT FEE APPENDIX
Fee Appendix made as of September 12, 1994, between GUARDIAN BAILLIE
GIFFORD LIMITED (the "Company"), a company incorporated under the Companies Act
and registered as an investment adviser under the U.S. Investment Advisers Act
of 1940, as amended ("Adviser's Act") and BAILLIE GIFFORD OVERSEAS LIMITED (the
"Manager"), a company incorporated under the Companies Act and registered under
the Adviser's Act.
WHEREAS Baillie Gifford International Fund, Inc., a Maryland corporation
(the "Client") has appointed the Company as investment adviser and administrator
for each series of shares of beneficial interest of the Client for which it may
enter into an Investment Advisory Fee Agreement pursuant to the Investment
Advisory Agreement dated September 12, 1994 between the Client and the Company
("Investment Advisory Agreement"); and
WHEREAS the Company has appointed the Manager as sub-investment adviser
for each series of shares of beneficial interest of the Client for which it may
enter into a Fee Appendix to the Sub-Investment Advisory Agreement dated
September 12, 1994 between the Company and the Manager ("Sub-Investment Advisory
Agreement"); and
WHEREAS Baillie Gifford Emerging Markets Fund (the "Series") has been
established as a series of shares of the Client;
NOW, THEREFORE, the parties agree as follows:
1. The Sub-Investment Advisory Agreement is hereby adopted for the Series.
The Series shall be one of the "Series" referred to in the Sub-Investment
Advisory Agreement. Certain capitalized terms used without definition in this
Fee Appendix have the meaning specified in the Sub-Investment Advisory
Agreement.
2. For the services provided and the expenses assumed pursuant to the
Sub-Investment Advisory Agreement, the Company will pay to the Manager a fee
(exclusive of Value Added Tax), computed daily and paid quarterly (or at such
other intervals as the parties may from time to time agree), at the monthly rate
of one twenty-fourth of one percent of:
A where:
---
B
"A" means the aggregate of the Values of the Portfolio as at the close of
business on each Business Day falling in that quarter; and
"B" means the number of Business Days falling in that quarter.
<PAGE>
3. Said fees due to the Manager shall be invoiced by the Manager to the
Company following the end of each quarter and shall be due and payable within
ten days of the relevant invoice. The Company shall be entitled to make such
payments on account as it may in its absolute discretion determine.
4. For the purposes of paragraph 2 above:
(i) the "Value of the Portfolio" means the aggregate of the values
of the assets of the Portfolio of the Series at the close of business on a
Business Day. The aggregate of the values of the assets shall be calculated by
taking the value of securities held in the Portfolio of the Series, plus any
cash or other assets (including dividends payable and declared but not
collected) less all liabilities (including accrued expenses, but excluding
capital and surplus);
(ii) the "value of an asset" shall be taken:
(1) in the case of an investment quoted on a Stock Exchange
where market price is the recognised basis of quotation,
at the price of such investment at the close of business
of the appropriate exchange on the relevant Valuation
Date or, if there have been no sales during the day, at
the mean of the closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and
asked prices;
(3) in the case of unquoted investments and other
investments for which market quotations are not readily
available, at the value ascertained in accordance with
such manner as the Board of Directors of the Client have
deemed appropriate to reflect the fair value thereof;
(iii) when any asset is held or liability is outstanding in a
currency other than U.S. dollars, such asset or liability shall be notionally
converted into the U.S. dollar equivalents at the prevailing market rates quoted
by the Custodian at the close of business on the Business Day, on the relevant
Valuation Date or, if such Valuation Date is not a Business Day, on the
immediately preceding Business Day.
5. The Company shall procure that Baillie Gifford & Co. shall be
responsible for furnishing such office space, facilities and equipment and such
clerical help, administrative and bookkeeping services in Edinburgh as the
Series shall reasonably require in the conduct of its business in accordance
with the Administrative and Secretarial Agreement between Baillie Gifford & Co.
and the Company.
<PAGE>
6. This Fee Appendix shall be subject to all terms and conditions of the
Sub-Investment Advisory Agreement.
7. This Fee Appendix shall become effective upon the date hereabove
written, provided that it shall not take effect unless it has first been
approved (i) by a vote of the Board of Directors of the Client, including a
majority of those Directors of the Client who are not parties to this Fee
Appendix or the Sub- Investment Advisory Agreement or interested persons of any
such persons at a meeting called for the purpose of such approval and (ii) by
vote of a majority of the Series' outstanding voting securities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the 12th day of September, 1994.
FOR GUARDIAN BAILLIE GIFFORD LIMITED:
/s/ Richard T. Potter, Jr. Witness /s/ John M. Smith
- -------------------------- --------------------------
/s/ Marjorie D. Silverman Witness
- --------------------------
FOR BAILLIE GIFFORD OVERSEAS LIMITED:
/s/ [ILLEGIBLE] Witness /s/ Gavin J.N. Gemmell
- -------------------------- ------------------------
/s/ Robin Menzies Witness
- --------------------------
Exhibit 8
<PAGE>
CUSTODIAN CONTRACT
Between
BAILLIE GIFFORD INTERNATIONAL FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By It ................. 1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States .................................... 3
2.1 Holding Securities ............................................. 3
2.2 Delivery of Securities ......................................... 3
2.3 Registration of Securities ..................................... 8
2.4 Bank Accounts .................................................. 9
2.5 Availability of Federal Funds .................................. 10
2.6 Collection of Income ........................................... 10
2.7 Payment of Fund Monies ......................................... 11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased ................................ 14
2.9 Appointment of Agents .......................................... 14
2.10 Deposit of Fund Assets in Securities System .................... 15
2.10A Fund Assets Held in the Custodian's Direct
Paper System ................................................... 18
2.11 Segregated Account ............................................. 19
2.12 Ownership Certificates for Tax Purposes ........................ 21
2.13 Proxies ........................................................ 21
2.14 Communications Relating to Portfolio
Securities ..................................................... 21
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ............................ 22
3.1 Appointment of Foreign Sub-Custodians .......................... 22
3.2 Assets to be Held .............................................. 23
3.3 Foreign Securities Depositories ................................ 23
3.4 Agreements with Foreign Banking Institutions ................... 24
3.5 Access of Independent Accountants of the Fund .................. 24
3.6 Reports by Custodian ........................................... 25
3.7 Transactions in Foreign Custody Account ........................ 25
3.8 Liability of Foreign Sub-Custodians ............................ 26
3.9 Liability of Custodian ......................................... 27
3.10 Reimbursement for Advances ..................................... 28
3.11 Monitoring Responsibilities .................................... 28
3.12 Branches of U.S. Banks ......................................... 29
3.13 Tax Law ........................................................ 29
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund ................................................. 30
5. Proper Instructions ................................................... 31
6. Actions Permitted Without Express Authority ........................... 32
7. Evidence of Authority ................................................. 32
<PAGE>
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income ......................... 33
9. Records ............................................................... 34
10. Opinion of Fund's Independent Accountants ............................. 34
11. Reports to Fund by Independent Public Accountants ..................... 35
12. Compensation of Custodian ............................................. 35
13. Responsibility of Custodian ........................................... 35
14. Effective Period, Termination and Amendment ........................... 37
15. Successor Custodian ................................................... 39
16. Interpretive and Additional Provisions ................................ 41
17. Additional Funds ...................................................... 41
18. Massachusetts Law to Apply ............................................ 41
19. Severabilty ........................................................... 41
20. Limitation of Liability of the Directors
and Shareholders ...................................................... 42
21. Prior Contracts ....................................................... 42
22. Shareholder Communications ............................................ 42
<PAGE>
CUSTODIAN CONTRACT
This Contract between Baille Gifford International Fund, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 201 Park Avenue South, New York, New York 10003
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, Baillie
Gifford International Fund and Baillie Gifford Emerging Markets Fund (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 17, being herein
referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and
<PAGE>
securities it desires to be held outside the United States ("foreign
securities") pursuant to the provisions of the Articles of Incorporation. The
Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of common stock of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
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2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by each Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of a applicable
Portfolio, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with
3
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any repurchase agreement related to such securities entered
into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the
4
<PAGE>
account of the Portfolio, to the broker or its clearing agent,
against a receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
5
<PAGE>
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumental- ities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to
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compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
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15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Directors or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
applicable Portfolio or in the name of any nominee of the Fund on behalf
of such Portfolio or of any nominee of the Custodian which nominee shall
be assigned exclusively to such Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the
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Portfolio under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian to
maintain securities of a Portfolio in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Portfolio
on such securities and to notify the Fund, on behalf of the Portfolio, on
a best efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of a Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such
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<PAGE>
bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Directors of the Fund. Such
funds shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
10
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coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund.
The Custodian will have no duty or responsibility in connection therewith,
other than to provide the Fund with such information or data as may be
necessary to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of each Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
11
<PAGE>
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or
(ii) against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
12
<PAGE>
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the
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<PAGE>
Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
14
<PAGE>
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by each Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep domestic securities of a Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of a
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account
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<PAGE>
of a Portfolio upon (i) receipt of advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio. The Custodian shall transfer domestic
securities sold for the account of a Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of domestic securities for the account of a
Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund, on
behalf of the Portfolio, upon request. Upon request, the
Custodian shall furnish the Fund, on behalf of a Portfolio,
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the
Securities
16
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System for the account of the Portfolio.
4) The Custodian shall provide the Fund with any report regarding
any portfolio obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of each
Portfolio for any loss or damage to a Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence of any such
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loss or damage if and to the extent that the Fund or the
applicable Portfolio has not been made whole for any such loss
or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System
The Custodian may deposit and/or maintain securities owned by a Portfolio
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the
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Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities
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maintained in an account by the Custodian pursuant to Section 2.10 hereof,
(i) in accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Portfolio or commodity futures contracts
or options thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an officer
of the Fund and
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certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal state and
local tax purposes in connection with receipt of income or other payments
with respect to domestic securities held by the Custodian for each
portfolio and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities
Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
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behalf of the applicable Portfolio and the maturity of futures contracts
purchased or sold by such Portfolio) received by the Custodian from
issuers of the securities being held for each such Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
each Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If a Portfolio
desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the securities and other assets maintained outside the
United States on behalf of the Portfolios designated on Schedule A hereto
the foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Directors, the
Custodian and the Fund may agree to amend Schedule A hereto from time
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to time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodians. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
applicable Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.4 hereof.
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3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-
24
<PAGE>
custodian insofar as such books and records relate to the performance of
such foreign banking institution under its agreement with the Custodian.
3.6 Reports by Custodian. 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 Portfolio held by foreign sub-custodians, including
but not limited to an identification of entities having possession of each
Portfolio's securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities.
3.7 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.7, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary
25
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established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser
thereof or to a dealer 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.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless, the
Custodian, the Fund and the Fund's applicable Portfolios from and against
any loss, damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At the
election of the Fund, it and its applicable Portfolios shall be entitled
to be subrogated to the rights of the Custodian with respect to any claims
against a foreign banking institution as a consequence of any such loss,
26
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damage, cost, expense, liability or claim if and to the extent that the
Fund and its applicable Portfolios have not been made whole for any such
loss, damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.12 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.9, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and
27
<PAGE>
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the applicable
Portfolios of the Fund or in the case of any foreign sub-custodian not
28
<PAGE>
the subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there appears to
be a substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.12 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions hereof
shall not apply where the custody of a Portfolio's assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by paragraph 1 of
this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the
29
<PAGE>
United States of America or any state or political subdivision thereof. It
shall be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the Fund
by the tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such
tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and By-Laws and any applicable
votes of the Board of Directors of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to
30
<PAGE>
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include
31
<PAGE>
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for each Portfolio's assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which requires
a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other
32
<PAGE>
instrument or paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of Directors of the Fund as conclusive
evidence (a) of the authority of any person to act in accordance with such vote
or (b) of any determination or of any action by the Board of Directors pursuant
to the Articles of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of written
notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of any Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio(s) and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or
33
<PAGE>
times described from time to time in the Fund's currently effective prospectus
related to each such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
34
<PAGE>
11. Reports to Fund by Independent Public Accountants
The Custodian shall promptly provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System on the Direct Paper System, relating to the services
provided by the Custodian under this Contract; such reports, shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
35
<PAGE>
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall exercise the
standard of care observed by a professional Custodian engaged in the banking or
trust company industry who has professional expertise in financial and
securities processing transactions and custody, in carrying out the provisions
of this Contract, but shall be kept indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act upon advice of
Fund counsel on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody of any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action
36
<PAGE>
involves the payment of money or which action may, in the opinion of the
Custodian, result in the Custodian or its nominee assigned to the Fund or the
Portfolio being liable for the payment of money or incurring liability of some
other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring
the Custodian to take such action, shall provide indemnity to the Custodian in
an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
14.1 This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either
37
<PAGE>
party by an instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than thirty (30) days
after the date of such delivery or mailing; provided, however that the Custodian
shall not with respect to a Portfolio act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by such Portfolio of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended and that the Custodian shall not with respect to a Portfolio act
under Section 2.10A hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of Directors has
approved the initial use of the Direct Paper System by such Portfolio and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors has reviewed the use by such Portfolio of the Direct
Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Directors (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the
38
<PAGE>
event of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
14.2 Termination of this Contract with respect to any given Portfolio
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Portfolio.
15. Successor Custodian
If a successor custodian for the Fund, or for one or more of the
Portfolios shall be appointed by the Board of Directors of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
39
<PAGE>
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
40
<PAGE>
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Baillie Gifford International Fund and Baillie Gifford Emerging
Markets Fund with respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so notify the Custodian
in writing, and if the Custodian agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Severability
If any provision of this Contract shall be held or made
41
<PAGE>
invalid by a court decision, statute, rule or otherwise, the remainder of this
Contract shall not be affected thereby.
20. Limitation of Liability of the Directors and Shareholders
A copy of the Articles of Incorporation of the Corporation is on file with
State Department of Assessments and Taxation of the State of Maryland, and
notice is hereby given that this instrument is executed on behalf of the
Directors of the Corporation as Directors and not individually and that the
obligations of this instrument are not binding upon any of the Directors or
Shareholders individually but are binding only upon the assets and property of
the Fund.
21. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
22. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, we need you to indicate whether you authorize us to provide your name,
address, and share position to requesting companies whose stock you own. If you
tell us "no", we will not provide this information to requesting companies. If
you tell us "yes" or do
42
<PAGE>
not check either "yes" or "no" below, we are required by the rule to treat you
as consenting to disclosure of this information for all securities owned by you
or any funds or accounts established by you. For your protection, the Rule
prohibits the requesting company from using your name and address for any
purpose other than corporate communications. Please indicate below whether you
consent or object by checking one of the alternatives below.
YES [ ] You are authorized to release our name, address, and share
positions.
NO [ ] You are not authorized to release our name, address, and share
positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the _______ day of ____________, 1994.
ATTEST BAILLIE GIFFORD INTERNATIONAL FUND,
INC.
By
- ----------------------------- ------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ----------------------------- ------------------------------
Executive Vice President
43
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Baillie Gifford
International Fund, Inc. for use as sub-custodians for the Fund's securities and
other assets:
(Insert banks and securities depositories)
Certified:
- -----------------------------
Fund's Authorized Officer
Date:
------------------------
EXHIBIT 8(b)
<PAGE>
ADDENDUM
The Contract between Baillie Gifford International Fund, Inc. (the "Fund") and
State Street Bank and Trust Company (the "Custodian") dated January 10, 1991
(the "Contract") is hereby amended as follows:
1. Article I entitled "Employment of Custodian and Property to be held by It;
Application of Contract" shall be removed in its entirety, and in its place a
new Article I, which appears in full below, shall be inserted into the Contract.
I. Employment of Custodian and Property to be Held by It; Application of
Contract
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund agrees to deliver to the Custodian all securities and
cash owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received buy it for such new or
treasury shares of capital stock, $0.10 par value, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Fund. The Custodian may employ as sub-custodians for
the Fund's securities and other assets the foreign banking institutions and
foreign securities depositories designated in Schedule "A" hereto but only in
accordance with the provisions of Article 3.
2. Article II, Sections 2.2(6) and 2.3 shall be amended by deleting the phrase
"or into the name or nominee name of any sub-custodian appointed pursuant to
Article I," and adding the following:
"and provided further that if a nominee other than a nominee of the
Custodian is utilized, it shall be the nominee of an approved depository.
<PAGE>
3. Article III, Section 3.5(a) shall be amended by deleting the phrase "except a
claim of payment for their safe custody or administration," and Section 3.5(b)
shall be amended by deleting the phrase "other than for custody or
administration."
4. Article III, Section 3.11, entitled "Duties of the Custodian with Respect to
Property of the Fund Held Outside of the United States; Reimbursement for
Advances" shall be removed in its entirety, and in its place a new Section 3.11,
which appears in full below, shall be inserted into the Contract.
If the Fund requires the Custodian to advance cash or securities for any
purpose except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to debit the
custodial account to the extent necessary to obtain reimbursement for cash or
securities advanced at the Fund's request for the purpose of purchasing
securities. The Custodian is to promptly notify the Fund of any such debits.
5. Article VI entitled, "Actions Permitted without Express Authority" shall be
amended by deleting subparagraph 1 thereof and re-numbering subparagraphs 2
through 4 as subparagraphs 1 through 3.
6. Article XII entitled "Responsibility of Custodian" shall be removed in its
entirety, and in its place a new Article XII, which appears in full below, shall
be inserted into the Contract.
XII. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall exercise the
standard of care observed by a professional custodian engaged in the banking or
trust company industry who has professional expertise in financial and
securities processing transactions and custody, but shall be kept indemnified by
and shall be without liability to the Fund for any action taken or omitted by it
in good faith without negligence. It shall be entitled to rely on and may act
upon advice of Fund counsel on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice.
-2-
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article I hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to debit the
custodial account to the extent necessary to obtain reimbursement for cash or
securities advanced at the Fund's request for the purpose of purchasing
securities. The Custodian is to promptly notify the Fund of any such debits.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of this
___ day of _________ , 1992.
BAILLIE GIFFORD INTERNATIONAL FUND, INC.
By
--------------------------------------
Its (Title)
-------------------------------------
STATE STREET BANK AND TRUST COMPANY
By
--------------------------------------
Its (Title)
-------------------------------------
-3-
TRANSFER AGENCY AND SERVICE AGREEMENT
between
BAILLIE GIFFORD INTERNATIONAL FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
DHTA 82594
1G193
<PAGE>
TABLE OF CONTENTS
-----------------
Article 1 Terms of Appointment; Duties of the Bank ....................... 1
Article 2 Fees and Expenses .............................................. 4
Article 3 Representations and Warranties of the Bank ..................... 5
Article 4 Representations and Warranties of the Fund ..................... 5
Article 5 Data Access and Proprietary Information ........................ 6
Article 6 Responsibility of the Fund ..................................... 7
Article 7 Standard of Care ............................................... 9
Article 8 Covenants of the Fund and the Bank ............................. 9
Article 9 Termination of Agreement ....................................... 10
Article 10 Additional Funds ............................................... 10
Article 11 Assignment ..................................................... 10
Article 12 Amendment ...................................................... 11
Article 13 Massachusetts Law to Apply ..................................... 11
Article 14 Force Majeure .................................................. 11
Article 15 Consequential Damages .......................................... 11
Article 16 Merger of Agreement ............................................ 12
Article 17 Limitation of Liability of the Directors and Shareholders ...... 12
Article 18 Counterparts ................................................... 12
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of ___________, 1994, by and between
Baille Gifford International Fund, Inc., a Maryland corporation, having its
principal office and place of business at 201 Park Avenue South, New York, New
York 10003 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, Baillie
Gifford International Fund and Baillie Gifford Emerging Markets Fund (each such
series, together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 10, being herein
referred to, as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of capital stock of the Fund representing interests in each of the
respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
<PAGE>
("prospectus") of the Fund on behalf of the applicable Portfolio, including
without limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Articles of Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriately manner such
monies to the redeeming Shareholder(s) or other appropriately
designated payee(s);
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii)Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
2
<PAGE>
its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-l0(e) a record of the total number
of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and nonresident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other appropriate
forms required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the Fund to monitor the
total number of Shares sold in each State.
3
<PAGE>
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (d) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances identified
under Section 2.02 below may be changed from time to time subject to mutual
written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall
4
<PAGE>
be advanced to the Bank by the Fund at least seven (7) days prior to the mailing
date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the
5
<PAGE>
Fund being offered for sale
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank,
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the
6
<PAGE>
Banks expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and
under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain certain
data included in the Data Access Services are solely responsible for the
contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Responsibility of the Fund
6.01 The Bank shall not be responsible for all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken
7
<PAGE>
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and furnished to it by or
on behalf of the Fund or the applicable Portfolio, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on behalf of the
Fund.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable for
any action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected in acting upon any paper or document furnished by or on behalf of the
Fund, reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected in recognizing stock certificates
8
<PAGE>
which are reasonably believed to bear the proper manual or facsimile signatures
of the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-registrar.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees. Article 8
Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Directors of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records,
information and data
9
<PAGE>
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party as to all or
any of the Portfolios upon one hundred twenty (120) days written notice to the
other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the
Bank reserves the right to charge for any other reasonable expenses associated
with such termination and/or a charge equivalent to the average of three (3)
months' fees.
9.03 Termination of this Agreement with respect to any given
Portfolio shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Portfolio.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of
Shares in addition to Baillie Gifford International Fund and Baillie Gifford
Emerging Markets Fund with respect to which it desires to have the Bank render
services as transfer agent under the terms hereof it shall so notify the Bank in
writing, and if the Bank agrees in writing to provide such services, such series
of Shares shall become a Portfolio hereunder.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any
10
<PAGE>
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)l)"), (ii) a BFDS subsidiary duly registered as
a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Directors of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
11
<PAGE>
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 17 Limitation of Liability of the Directors and Shareholders
17.01 A copy of the Articles of Incorporation of the Corporation is
on file with the State Department of Assessments and Taxation of the State of
Maryland, and notice is hereby given that this instrument is executed on behalf
of the Directors of the Corporation as Directors and not individually and that
the obligations of this instrument are not binding upon any of the Directors or
the Shareholders individually but are binding only upon the assets and property
of the Fund.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
BAILLIE GIFFORD INTERNATIONAL FUND,
INC.
BY:
-------------------------------
ATTEST:
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY
--------------------------------
Executive Vice President
ATTEST:
- ------------------------------
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase of Shares.
2. Issue Shares and hold Shares in Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above directly with
broker-dealers.
5. Pay over monies to redeeming Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10 Maintain records of account.
11. Maintain and keep a current and accurate control book
for each issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current Shareholders.
15. Withhold taxes on U.S. resident and non-resident alien
accounts.
<PAGE>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
16. Prepare and file U.S. Treasury Department forms.
17. Prepare and mail account and confirmation statements
for Shareholders.
18. Provide Shareholder account information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02
(a), (b) and (c) of the Agreement.
BAILLIE GIFFORD INTERNATIONAL FUND,
INC.
BY:
-----------------------------
ATTEST:
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
-----------------------------
Executive Vice President
ATTEST
- ------------------------------
[LETTERHEAD OF THE GUARDIAN LIFE INSURANCE COMPANY]
April 16, 1992 Richard T. Potter, Jr.
Counsel
Baillie Gifford International Fund, Inc.
201 Park Avenue South
New York, New York 10003
To Whom it may concern:
As Counsel to Baillie Gifford International Fund, Inc. (the "Fund"), I have
general legal supervision over the organization of the Fund and the preparation
of any post-effective amendment to its registration statement on Form N-1A which
is filed in connection with the offering of the Fund's shares of capital stock.
It is my opinion that: (a) the Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Fund is authorized to
issue a total of one billion (1,000,000,000) shares, one hundred million of
which are authorized for the Fund's initial series; and (c) upon the issuance of
the shares in accordance with the Fund's Articles of Incorporation and the
receipt by the Fund of a purchase price not less than the net asset value per
share, the shares of the Fund will be legally issued and outstanding, fully paid
and non-assessable.
I consent to the use of this opinion in connection with the Fund's registration
statement, as amended, and to the reference to me under the heading "Legal
Opinions" in the Statement of Additional Information constituting part of the
post-effective amendment to the Fund's registration statement.
Sincerely,
/s/ Richard T. Potter, Jr.
Richard T. Potter, Jr.
Counsel to Baillie Gifford International Fund, Inc.
EX-99.10(b)
CONSENT OF COUNSEL
I hereby consent to the reference to my name under the caption
"Legal Opinion" included in the Statement of Additional Information constituting
part of this Post-Effective Amendment to the Registration Statement on Form N-1A
for GIAC Funds, Inc. and to the filing of this consent as an exhibit to said
Amendment.
By /s/ Richard T. Potter, Jr.
-----------------------------
Richard T. Potter, Jr.
Counsel
New York, New York
April 23, 1998
EX-99.11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information in this Registration
Statement (Form N-1A No. 33-37883), and to the incorporation by reference herein
of our report dated February 9, 1998 on the financial statements and financial
highlights of GIAC Funds, Inc.
By /s/ Ernst & Young LLP
----------------------------
Ernst & Young LLP
New York, New York
April 27, 1998
EXHIBIT 13
[LETTERHEAD OF THE GUARDIAN LIFE INSURANCE COMPANY]
January 22, 1991
Baillie Gifford International Fund, Inc.
c/o Guardian Baillie Gifford Limited
6 Glenfinlas Street
Edinburgh, EH3 6YY
SCOTLAND
Re: Initial Capitalization of
Baillie Gifford International Fund, Inc.
Gentlemen:
In connection with providing aggregate initial capital of up to ten million
dollars ($10,000,000) to Baillie Gifford International Fund, Inc. (Fund) in
exchange for shares of capital stock in the Fund priced at the prevailing net
asset value per share, The Guardian Insurance & Annuity Company, Inc. ("GIAC")
hereby agrees that said purchase or purchases made solely for investment
purposes without any present intention of redeeming or reselling such shares.
In the event that any Fund shares owned by GIAC are redeemed prior to the
expiration of the five year period beginning with the date of the initial public
offering of the Fund, the redemption value of such shares will be reduced by the
pro rata share of the as yet unamortized deferred organizational expenses of the
Fund (based on the proportion which the shares redeemed bear to the total number
of original shares outstanding at the time of GIAC's redemption) as of the date
of such redemption.
Very truly yours,
/s/ John M. Smith
John M. Smith
Executive Vice President
EXHIBIT 16
Baillie Gifford International Fund, Inc.
Schedule for Computation of Performance Quotations*
Total Return
The total return is equal to the change in value of an initial investment
amount, as measured from the time of payment to the end of the period, divided
by the initial investment amount.
Total Return for the Life of the Fund
(1,085.60-1,000.00)
--------------------
1,000.00
= 8.56%
initial investment amount at the beginning of
the period = $1,000.00
initial investment amount at the end of
the period = $1,085.60
Life of the Fund = 2/8/91 - 12/31/91
*All calculations assume immediate reinvestment of all dividends and Fund
distributions.
<PAGE>
Baillie Gifford International Fund, Inc.
Schedule for Computation of Performance Quotations*
Average Annual Total Return
The average annual total return ("AATR') is the annual interest rate accruing on
the initial investment amount, on a compounded interest basis, as measured from
the beginning of the period to the end of the period. The following formula is
used: P(1+AATR)n = ERV
AATR for the Life of the Fund
$1,000.00 x (1+AATR)(326/365) = 1,085.60
AATR = 9.63%
P - initial investment amount at the beginning of
the period = $1,000.00
n - Life of the Fund = 326/365 Years
ERV - ending redeemable value of initial investment
amount at the end of
period = $1,085.60
*All calculations assume immediate reinvestment of all dividends and Fund
distributions.
Exhibit 17
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Arthur V. Ferrrara, whose signature appears
below, constitutes and appoints John M. Smith, Herbert N. Grolnick and Thomas R.
Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for THE BAILLIE GIFFORD
INTERNATIONAL FUND, INC. and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
his substitutes, may do or cause to be done by virtue hereof.
Dated: December 18, 1990 /s/ Arthur V. Ferrrara
--------------------------------
Signature
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that William W. Hewitt, Jr., whose signature
appears below, constitutes and appoints John M. Smith, Herbert N. Grolnick and
Thomas R. Hickey, Jr., and each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for THE
BAILLIE GIFFORD INTERNATIONAL FUND, INC. and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
Dated: December 18, 1990 /s/ William W. Hewitt, Jr.
--------------------------------
Signature
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Edward K. Kane, whose signature appears
below, constitutes and appoints John M. Smith, Herbert N. Grolnick and Thomas R.
Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for THE BAILLIE GIFFORD
INTERNATIONAL FUND, INC. and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
his substitutes, may do or cause to be done by virtue hereof.
Dated: December 18, 1990 /s/ Edward K. Kane
--------------------------------
Signature
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank L. Pepe, whose signature appears
below, constitutes and appoints John M. Smith, Herbert N. Grolnick and Thomas
R. Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for THE BAILLIE GIFFORD
INTERNATIONAL FUND, INC. and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
his substitutes, may do or cause to be done by virtue hereof.
Dated: December 18, 1990 /s/ Frank L. Pepe
--------------------------------
Signature
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Robert G. Smith, whose signature appears
below, constitutes and appoints John M. Smith, Herbert N. Grolnick and Thomas R.
Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for THE BAILLIE GIFFORD
INTERNATIONAL FUND, INC. and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
his substitutes, may do or cause to be done by virtue hereof.
Dated: December 18, 1990 /s/ Robert G. Smith
--------------------------------
Signature
Ex-99.17(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank J. Fabozzi, whose signature appears
below, constitutes and appoints John M. Smith, Joseph A. Caruso and Thomas R.
Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for GBG FUNDS, INC. and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ FRANK J. FABOZZI
----------------------------------------
Signature
Dated: April 15, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John C. Angle, whose signature appears
below, constitutes and appoints John M. Smith, Joseph A. Caruso and Thomas R.
Hickey, Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for GBG FUNDS, INC. and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ JOHN C. ANGLE
----------------------------------------
Signature
Dated: April 16, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Leo R. Futia, whose signature appears below,
constitutes and appoints John M. Smith, Joseph A. Caruso and Thomas R. Hickey,
Jr., and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for GBG FUNDS, INC. and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitutes, may do
or cause to be done by virtue hereof.
/s/ Leo R. Futia
----------------------------------------
Signature
Dated: April 15, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
BAILLIE GIFFORD INTERNATIONAL FUND
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1997, and is qualified
in its entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> BAILLIE GIFFORD INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 423,743
<INVESTMENTS-AT-VALUE> 529,197
<RECEIVABLES> 8,214
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 537,411
<PAYABLE-FOR-SECURITIES> 1,337
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,362
<TOTAL-LIABILITIES> 2,700
<SENIOR-EQUITY> 2,927
<PAID-IN-CAPITAL-COMMON> 427,576
<SHARES-COMMON-STOCK> 29,269
<SHARES-COMMON-PRIOR> 26,432
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4,372)
<ACCUMULATED-NET-GAINS> 3,341
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105,239
<NET-ASSETS> 534,711
<DIVIDEND-INCOME> 8,153
<INTEREST-INCOME> 622
<OTHER-INCOME> 0
<EXPENSES-NET> 4,963
<NET-INVESTMENT-INCOME> 3,812
<REALIZED-GAINS-CURRENT> 23,438
<APPREC-INCREASE-CURRENT> 27,252
<NET-CHANGE-FROM-OPS> 54,503
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,343)
<DISTRIBUTIONS-OF-GAINS> (20,728)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,511
<NUMBER-OF-SHARES-REDEEMED> (4,263)
<SHARES-REINVESTED> 1,589
<NET-CHANGE-IN-ASSETS> 78,509
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 971
<OVERDISTRIB-NII-PRIOR> (181)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,963
<AVERAGE-NET-ASSETS> 513,877
<PER-SHARE-NAV-BEGIN> 17.26
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> 1.91
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.27
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
BAILLIE GIFFORD EMERGING MARKETS FUND
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1997, and is qualified
in its entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> BAILLIE GIFFORD EMERGING MARKETS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 80,920
<INVESTMENTS-AT-VALUE> 84,501
<RECEIVABLES> 281
<ASSETS-OTHER> 2,786
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87,568
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 554
<TOTAL-LIABILITIES> 554
<SENIOR-EQUITY> 855
<PAID-IN-CAPITAL-COMMON> 84,370
<SHARES-COMMON-STOCK> 8,553
<SHARES-COMMON-PRIOR> 6,365
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (563)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,239)
<ACCUM-APPREC-OR-DEPREC> 3,591
<NET-ASSETS> 87,014
<DIVIDEND-INCOME> 1,828
<INTEREST-INCOME> 262
<OTHER-INCOME> 0
<EXPENSES-NET> 1,356
<NET-INVESTMENT-INCOME> 734
<REALIZED-GAINS-CURRENT> 2,641
<APPREC-INCREASE-CURRENT> (4,534)
<NET-CHANGE-FROM-OPS> (1,159)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (470)
<DISTRIBUTIONS-OF-GAINS> (4,220)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,436
<NUMBER-OF-SHARES-REDEEMED> (2,710)
<SHARES-REINVESTED> 461
<NET-CHANGE-IN-ASSETS> 19,952
<ACCUMULATED-NII-PRIOR> 31
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 30
<OVERDIST-NET-GAINS-PRIOR> (518)
<GROSS-ADVISORY-FEES> 968
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,356
<AVERAGE-NET-ASSETS> 96,835
<PER-SHARE-NAV-BEGIN> 10.54
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> (.06)
<PER-SHARE-DISTRIBUTIONS> (.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN SMALL CAP STOCK FUND
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1997
and is qualified in its entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> THE GUARDIAN SMALL CAP STOCK FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 81,397
<INVESTMENTS-AT-VALUE> 88,603
<RECEIVABLES> 344
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,948
<PAYABLE-FOR-SECURITIES> 968
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 230
<TOTAL-LIABILITIES> 1,198
<SENIOR-EQUITY> 644
<PAID-IN-CAPITAL-COMMON> 79,038
<SHARES-COMMON-STOCK> 6,439
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 861
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,206
<NET-ASSETS> 87,749
<DIVIDEND-INCOME> 294
<INTEREST-INCOME> 202
<OTHER-INCOME> 0
<EXPENSES-NET> 331
<NET-INVESTMENT-INCOME> 166
<REALIZED-GAINS-CURRENT> 1,925
<APPREC-INCREASE-CURRENT> 7,206
<NET-CHANGE-FROM-OPS> 9,297
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (166)
<DISTRIBUTIONS-OF-GAINS> (1,064)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,957
<NUMBER-OF-SHARES-REDEEMED> (611)
<SHARES-REINVESTED> 93
<NET-CHANGE-IN-ASSETS> 87,749
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 331
<AVERAGE-NET-ASSETS> 45,683
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 3.80
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.63
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
