-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hcq6enBnRxur445g4ZYON5pg8GPYZbG4ekFKgdS5Gn+5HMc8/1e+KTmffrh77UxL +MzqOJCw3j/XxCCrb5TPvA== 0000837276-99-000206.txt : 19990504 0000837276-99-000206.hdr.sgml : 19990504 ACCESSION NUMBER: 0000837276-99-000206 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 58 FILED AS OF DATE: 19990503 EFFECTIVENESS DATE: 19990503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GCG TRUST CENTRAL INDEX KEY: 0000837276 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-23512 FILM NUMBER: 99609185 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05629 FILM NUMBER: 99609186 BUSINESS ADDRESS: STREET 1: 1475 DUNWOODY DRIVE STREET 2: SUITE 400 CITY: WEST CHESTER STATE: PA ZIP: 19380-1478 BUSINESS PHONE: (302) 576-3516 MAIL ADDRESS: STREET 1: 1475 DUNWOODY DRIVE STREET 2: P. O. BOX 2700 CITY: WEST CHESTER STATE: PA ZIP: 19380-2700 FORMER COMPANY: FORMER CONFORMED NAME: SPECIALTY MANAGERS TRUST DATE OF NAME CHANGE: 19911209 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN CAPITAL SPECIALTY MANAGERS TRUST DATE OF NAME CHANGE: 19890725 485BPOS 1 POST-EFFECTIVE AMENDMENT NO. 40 As filed with the Securities and Exchange Commission on May 3, 1999 Registration Nos. 33-23512, 811-5629 FORM N-1A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Registration Statement under the Securities Act of 1933 [X] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 40 [X] and/or Registration Statement under the Investment Company Act of 1940 [X] Amendment No. 41 (Check appropriate box or boxes) THE GCG TRUST (Exact Name of Registrant as Specified in Charter) 1475 Dunwoody Drive West Chester, PA 19380 (Address of Principal Executive Offices) [610-425-3400] (Registrant's Telephone Number, including Area Code) Marilyn Talman, Esq. Golden American Life Insurance Company 1475 Dunwoody Drive West Chester, PA 19380 (Name and Address of Agent for Service) ---------- Approximate Date of Proposed Public Offering As soon as practical after the effective date of the Registration Statement It is proposed that this filing will become effective (check appropriate box): [X] immediately upon filing pursuant to paragraph (b) [ ] on __________ pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on __________ pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on __________ pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. ---------- PROSPECTUS #1 THE GCG TRUST THE GCG TRUST PROSPECTUS MAY 1, 1999 MONEY MARKET FUND Liquid Asset Series BOND FUNDS Limited Maturity Bond Series Global Fixed Income Series BALANCED FUND Total Return Series STOCK FUNDS DOMESTIC Equity Income Series Fully Managed Series Rising Dividends Series Growth & Income Series Growth Series Value Equity Series Research Series Mid-Cap Growth Series All-Growth Series Growth Opportunities Series Strategic Equity Series Capital Appreciation Series Small Cap Series Real Estate Series Hard Assets Series INTERNATIONAL/GLOBAL Managed Global Series Developing World Series Emerging Markets Series THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. - ------------------------------------------------------------------------- TABLE OF CONTENTS - ------------------------------------------------------------------------- IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION, WE REFER TO THE GCG TRUST AS "THE GCG TRUST," AND TO A SERIES OF THE GCG TRUST INDIVIDUALLY AS A "PORTFOLIO" AND COLLECTIVELY AS THE "PORTFOLIOS." PAGE PAGE INTRODUCTION Equity Income 51 Investing through your Variable Fully Managed 51 Contract 1 Rising Dividends 52 Why Reading this Prospectus is Growth & Income 52 Important 1 Growth 53 Types of Funds 1 Value Equity 53 General Risk Factors 2 Research 54 Mid-Cap Growth 54 PORTFOLIOS AT A GLANCE All-Growth 55 Liquid Asset 3 Growth Opportunities 55 Limited Maturity Bond 5 Strategic Equity 56 Global Fixed Income 7 Capital Appreciation 56 Total Return 9 Small Cap 57 Equity Income 11 Real Estate 57 Fully Managed 13 Hard Assets 58 Rising Dividends 15 Managed Global 58 Growth & Income 17 Developing World 59 Growth 19 Emerging Markets 59 Value Equity 21 Research 23 DESCRIPTION OF THE PORTFOLIOS Mid-Cap Growth 25 Liquid Asset 60 All-Growth 27 Limited Maturity Bond 62 Growth Opportunities 29 Global Fixed Income 64 Strategic Equity 31 Total Return 67 Capital Appreciation 33 Equity Income 71 Small Cap 35 Fully Managed 73 Real Estate 37 Rising Dividends 75 Hard Assets 39 Growth & Income 77 Managed Global 41 Growth 79 Developing World 43 Value Equity 81 Emerging Markets 45 Research 83 Mid-Cap Growth 85 MORE INFORMATION All-Growth 88 A Word about Portfolio Diversity 47 Growth Opportunities 90 Additional Information about the Strategic Equity 92 Portfolios 47 Capital Appreciation 94 Non-Principal Investments and Small Cap 96 Strategies 47 Real Estate 98 Temporary Defensive Positions 47 Hard Assets 100 Portfolio Turnover 47 Managed Global 103 Legal Counsel 47 Developing World 105 Independent Auditors 47 Emerging Markets 108 Year 2000 48 OVERALL MANAGEMENT OF THE TRUST FINANCIAL HIGHLIGHTS The Adviser 111 Liquid Asset 49 Advisory Fee 112 Limited Maturity Bond 49 Global Fixed Income 50 SHARE PRICE 112 Total Return 50 TAXES AND DISTRIBUTIONS 114
AN INVESTMENT IN ANY PORTFOLIO OF THE GCG TRUST IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. i - ------------------------------------------------------------------------- INTRODUCTION - ------------------------------------------------------------------------- INVESTING THROUGH YOUR VARIABLE MONEY MARKET FUNDS. Money market CONTRACT instruments (also known as cash Shares of the portfolios of the investments) are debt securities GCG Trust currently are sold to issued by governments, segregated asset accounts corporations, banks, or other ("Separate Accounts") of insurance financial institutions. companies as funding choices for variable annuity contracts and BOND FUNDS. Bonds are debt variable life insurance policies securities representing loans ("Variable Contracts"). Assets in from investors. A bond fund's the Separate Account are invested share price - and therefore the in shares of the portfolios based value of your investment - can on your allocation instructions. rise or fall in value because Not all portfolios described in of changing interest rates or this prospectus may be available other factors. under your Variable Contract. You do not deal directly with the BALANCED FUNDS. A balanced fund portfolios to purchase or redeem holds a mix of stocks, bonds, shares. The accompanying Separate and sometimes, cash Account prospectus describes your investments. A balanced fund rights as a Variable Contract offers the convenience of owner. We may sell shares of the investing in both stocks and portfolios to qualified pension bonds through a single fund. and retirement plans outside of the separate account context. STOCK FUNDS. Stocks - which represent shares of ownership WHY READING THIS PROSPECTUS IS in a company - generally offer IMPORTANT the greatest potential for long This prospectus explains the term growth of principal. Many investment objective, risks and stocks also provide regular strategy of each of the portfolios dividends, which are generated of the GCG Trust. Reading the by corporate profits. While prospectus will help you to decide stocks have historically whether a portfolio is the right provided the highest long-term investment for you. We suggest returns, they have also that you keep this prospectus and exhibited the greatest short- the prospectus for the Separate term price fluctuations - so a Account for future reference. stock fund has a higher risk of losing value over the short TYPES OF FUNDS term. The portfolios are generally classified among three major asset classes: stock, bond and money market. MONEY MARKET BOND STOCK FUNDS FUNDS FUNDS |----------------------------------------------------------| | LOWER <---------- RISK/RETURN ----------> HIGHER | |----------------------------------------------------------| 1 - ------------------------------------------------------------------------- INTRODUCTION (CONTINUED) - ------------------------------------------------------------------------- GENERAL RISK FACTORS for shorter- Investing in the portfolios, as term bonds, moderate for with an investment in any intermediate-term bonds, and security, involves risk factors high for longer-term bonds. A and special considerations. A bond's duration measures its portfolio's risk is defined sensitivity to changes in primarily by its principal interest rates. The longer investment strategies. An the duration, the greater the investment in a portfolio is not bond's price movement will be insured against loss of principal. as interest rates change. As with any mutual fund, there can be no assurance that a portfolio o CREDIT RISK. A bond issuer will achieve its investment (debtor) may fail to repay objective. Investing in shares of interest and principal in a a portfolio should not be timely manner. The price of a considered a complete investment security a portfolio holds may program. The share value of each fall due to changing economic, portfolio (except for the Liquid political or market conditions Asset Portfolio) will rise and or disappointing earnings fall. Although the Liquid Asset results. Portfolio seeks to preserve the value of your investment at $1.00 o CALL RISK. During periods of per share, it is still possible to falling interest rates, a bond lose money. issuer may "call," or repay, It is important to keep in mind its high yielding bond before one of the main axioms of the bond's maturity date. investing: The higher the risk of Forced to invest the losing money, the higher the unanticipated proceeds at potential reward. The lower the lower interest rates, a risk, the lower the potential portfolio would experience a reward. As you consider an decline in income. investment in a portfolio, you should take into account your o MATURITY RISK. Interest rate personal tolerance for investment risk will affect the price of risk. a fixed income security more if the security has a longer OVERALL RISK: maturity because changes in interest rates are o MANAGER RISK. A portfolio increasingly difficult to manager of a portfolio may do predict over longer periods of a mediocre or poor job in time. Fixed income securities selecting securities. with longer maturities will therefore be more volatile RISK RELATED TO STOCK INVESTING: than other fixed income securities with shorter o MARKET AND COMPANY RISK. The maturities. Conversely, fixed price of a security held by a income securities with shorter portfolio may fall due to maturities will be less changing economic, political volatile but generally provide or market conditions or lower returns than fixed disappointing earnings income securities with longer results. Stock prices in maturities. The average general may decline over short maturity of a portfolio's or even extended periods. The fixed income investments will stock market tends to be affect the volatility of the cyclical, with periods when portfolio's share price. stock prices generally rise and periods when stock prices Because of these and other risks generally decline. Further, that may be particular to a even though the stock market portfolio, your investment could is cyclical in nature, returns lose or not make any money. from a particular stock market segment in which a portfolio invests may still trail returns from the overall stock market. RISKS RELATED TO BOND INVESTING: o INCOME RISK. A portfolio's income may fall due to falling interest rates. Income risk is generally the greatest for short-term bonds, and the least for long-term bonds. Changes in interest rates will affect bond prices as well as bond income. o INTEREST RATE RISK. This is the risk that bond prices overall will decline over short or even extended periods due to rising interest rates. Interest rate risk is generally modest 2 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE - ------------------------------------------------------------------------- LIQUID ASSET PORTFOLIO INVESTMENT OBJECTIVE High level of current income consistent with the preservation of capital and liquidity PRINCIPAL The Portfolio Manager strives to maintain a INVESTMENT stable $1 per share net asset value and its STRATEGY investment strategy focuses on safety of principal, liquidity and yield, in order of importance, to achieve this goal. The management team implements its strategy through a four-step investment process designed to ensure adherence to regulatory requirements. Step One: The Portfolio Manager actively maintains a formal Approved List of high quality companies. Step Two: Securities of Approved List issuers that meet maturity guidelines and are rated in one of the two highest ratings category (or determined to be of comparable quality by the Portfolio Manager) are eligible for investment Step Three: Eligible securities are reviewed to ensure that an investment in such securities would not cause the Portfolio to exceed its diversification limits. Step Four: The Portfolio Manager makes yield curve positioning decisions based on liquidity requirements, yield curve analysis and market expectations of future interest rates Money market funds are highly regulated by Rule 2a-7 of the Investment Company Act of 1940, which sets forth specific maturity, quality and diversification guidelines. The Portfolio must adhere to procedures adopted by the Board of Trustees pursuant to Rule 2a-7 and to Rule 2a-7 itself. Some of these limitations include: o QUALITY. At least 95% of the Portfolio's investments must be rated in the highest short-term ratings category and the Portfolio Manager must make an independent determination that each investment represents minimal credit risk to the Portfolio. o MATURITY. The average maturity of the portfolio may not exceed 90 days and the maturity of any individual security may not exceed 397 days. o DIVERSIFICATION. Generally, at the time of purchase, no more than 5% of total assets may be invested in the securities of a single issuer and no more than 10% of total assets may be subject to demand features or guarantees from a single institution. ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. LIQUID ASSET LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <>> <<<---------------------------------------------------------------------->>> <> 3 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INCOME RISK o CREDIT RISK o INTEREST RATE RISK AN INVESTMENT IN THE LIQUID ASSET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE PORTFOLIO. PERFORMANCE The value of your shares in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. ING Investment Management LLC or its affiliate has managed the Portfolio since August 13, 1996. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] LIQUID ASSET -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 7.75% 5.66% 3.13% 2.64% 3.89% 5.51% 5.01% 5.07% 5.13%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN | | BEST QUARTER | |-------------------------------------------------| |--------------------| | 1 YEAR 5 YEAR 1/24/89 | | Quarter Ended | | (INCEPTION)| | | | Portfolio's Average | | 6/30/89... 2.19% | | Annual Total Return 5.13% 4.88% 5.15% | | | | | |--------------------| | | | WORST QUARTER | | | |--------------------| | | | Quarter Ended | | | | | | | | 6/30/93... 0.63% | | | | | |-------------------------------------------------| |--------------------| The Portfolio's 7-day yield as of December 31, 1998 was 4.64%. Call toll free 1-800-366-0066 for the Portfolio's current 7-day yield. 4 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- LIMITED MATURITY BOND PORTFOLIO INVESTMENT OBJECTIVE Highest current income consistent with low risk to principal and liquidity As a secondary objective, the Portfolio seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. PRINCIPAL The Portfolio invests primarily in a INVESTMENT diversified portfolio of limited maturity debt STRATEGY securities. At the time of purchase, the debt securities generally will mature in seven years or less. The average maturity of the Portfolio generally will not exceed five years, although, in periods of rapidly rising interest rates the Portfolio Manager may shorten maturities to one year or less. To achieve the Portfolio's objective, the Portfolio Manager: o manages the Portfolio's maturities o analyzes technical data in order to determine which investment choices offer the best value o over-weights or under-weights the sectors in which the Portfolio may invest relative to the benchmark based on sector analysis and market opportunities o selects securities with positive credit fundamentals, liquidity and relative value within sectors The Portfolio Manager selects debt instruments from the following broad sectors: o U.S. Treasury o U.S. Government securities Agency securities o corporate securities o mortgage-backed securities o asset-backed o money market securities securities Eligible security types include corporate securities, U.S. treasury securities, U.S. Government Agency securities, variable or floating rate securities, mortgage-backed securities, asset-backed securities, dollar- denominated foreign securities, money market securities, reverse repurchase agreements, shares of other investment companies, futures, options and options on futures, sovereign debt, supranational organizations and real estate investment trusts (REITS). ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. LIMITED MATURITY BOND LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 5 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that you will lose RISKS money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction - General Risk Factors": o MANAGER RISK o INTEREST RATE RISK o CALL RISK o INCOME RISK o CREDIT RISK PERFORMANCE The value of your share in a portfolio will The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. ING Investment Management LLC or its affiliate has managed the Portfolio since August 13, 1996. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] LIMITED MATURITY BOND -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 7.87% 11.27% 4.84% 6.20% -1.19% 11.72% 4.32% 6.67% 6.86%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 6/30/89... 4.93% | | Portfolio's Average | | | | Annual Total Return 6.86% 5.59% 6.80% | |--------------------| | Merrill Lynch 1-5 Year | | WORST QUARTER | | Corporate/Government | |--------------------| | Bond Index 7.68% 6.28% 7.92% | | Quarter Ended | | | | | | | | 3/31/94...(1.04)% | | | | | |-------------------------------------------------| |--------------------| The Merrill Lynch 1-5 Year Corporate/Government Bond Index is comprised of intermediate-term U.S. government securities and investment-grade corporate debt securities. 6 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO INVESTMENT OBJECTIVE High total return PRINCIPAL INVESTMENT The Portfolio invests primarily in high-grade debt STRATEGY securities, both foreign and domestic, and related foreign currency transactions. The Portfolio primarily invests in: o obligations issued or guaranteed by foreign national governments, or their agencies, instrumentalities or political subdivisions o U.S. Government securities o debt securities issued or guaranteed by supranational organizations, considered to be "government securities" o non-government foreign and domestic debt securities, including corporate debt securities, bank obligations, mortgage-backed or asset-backed securities, and repurchase agreements The Portfolio Manager allocates the Portfolio's investments among those markets, companies and currencies that offer the most attractive combination of high income and principal stability. In evaluating investments for the Portfolio, the Portfolio Manager analyzes relative yields and the appreciation potential of securities in particular markets, world interest rates and monetary trends, economic, political and financial market conditions in different countries, credit quality, and the relationship of individual foreign currencies to the U.S. dollar. The Portfolio Manager also relies on internally and externally generated financial, economic, and credit research to evaluate alternative investment opportunities. The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earnings of the issuer. ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. GLOBAL FIXED INCOME LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 7 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that you will RISKS lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction - General Risk Factors": o MANAGER RISK o CREDIT RISK o INCOME RISK o CALL RISK o INTEREST RATE RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios - Global Fixed Income Portfolio": o FOREIGN INVESTMENT AND CURRENCY RISK o EMERGING MARKET RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Global Fixed Income Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Baring International Investment Limited has managed the Portfolio since its inception. 8 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- TOTAL RETURN PORTFOLIO INVESTMENT Above-average income (compared to a portfolio OBJECTIVE entirely invested in equity securities) consistent with the prudent employment of capital. A secondary goal is the reasonable opportunity for growth of capital and income. PRINCIPAL INVESTMENT The Portfolio is a "balanced fund," and STRATEGY invests in a combination of equity and fixed income securities. The Portfolio normally invests: o at least 40%, but not more than 75%, of its assets in common stocks and related equity securities o at least 25% of its assets in non- convertible fixed income securities EQUITY PORTION. The Portfolio Manager uses a bottom-up, as opposed to a top-down, investment style in managing the Portfolio. This means that securities are selected based on fundamental analysis performed by the Portfolio Manager and its group of equity research analysts and not selected based on the industry in which they belong. While the Portfolio may invest in all types of equity securities, the Portfolio Manager generally purchases equity securities of companies that it believes are undervalued in the market relative to their long-term potential. The equity securities of these companies may be undervalued because they are temporarily out of favor in the market or the market has overlooked them. The Portfolio focuses on undervalued equity securities issued by companies with relatively large market capitalizations (i.e., market capitalizations of $5 billion or more). FIXED INCOME PORTION. The Portfolio invests in securities that pay a fixed interest rate, which include: o U.S. government o corporate bonds securities o mortgage-backed and asset-backed securities In selecting fixed income investments for the Portfolio, the Portfolio Manager assesses the three-month outlook for various segments of the fixed income markets. ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. TOTAL RETURN LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 9 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- This three-month "horizon" outlook is used as a tool in making or adjusting the Portfolio's asset allocations to various segments of the fixed income markets. The Portfolio may invest up to 20% of its assets in U.S. Government securities, mortgage pass-through securities, American Depositary Receipts and foreign securities (including in emerging or developing markets) and lower rated fixed income securities. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INTEREST RATE RISK o INCOME RISK o CREDIT RISK o CALL RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Total Return Portfolio": o ALLOCATION RISK o UNDERVALUED SECURITIES RISK o CONVERTIBLE o HIGH YIELD BOND RISK SECURITIES RISK o EMERGING MARKET o FOREIGN INVESTMENT AND RISK CURRENCY RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Total Return Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Massachusetts Financial Services Company has managed the Portfolio since its inception. 10 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- EQUITY INCOME PORTFOLIO (FORMERLY, THE MULTIPLE ALLOCATION PORTFOLIO) INVESTMENT OBJECTIVE Substantial dividend income as well as long- term growth of capital PRINCIPAL The Portfolio normally invests at least 65% of INVESTMENT its assets in the common stocks of well- STRATEGY established companies paying above-average dividends. The Portfolio Manager typically employs a "value" approach in selecting investments. The Portfolio Manager's in-house research team seeks companies that appear to be undervalued by various measures and may be temporarily out of favor, but have good prospects for capital appreciation and dividend growth. In selecting investments, the Portfolio Manager generally looks for companies with the following: o an established operating history o above-average dividend yield relative to the S&P 500 o low price/earnings ratio relative to the S&P 500 o a sound balance sheet and other positive financial characteristics o low stock price relative to a company's underlying value as measured by assets, cash flow or business franchises PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Equity Income Portfolio": o VALUE INVESTING RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. EQUITY INCOME LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 11 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. T. Rowe Price Associates, Inc. has managed the Portfolio since March 1, 1999. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] EQUITY INCOME -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 4.74% 20.02% 1.88% 11.13% -1.18% 18.93% 8.77% 17.44% 8.26%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 3/31/91... 8.42% | | Portfolio's Average | | | | Annual Total Return 8.26% 10.21% 9.75% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 24.05% 18.51% | |--------------------| | Lehman Brothers Inter- | | Quarter Ended | | mediate Government/ | | | | Corporate Bond Index 8.44% 6.60% 8.47% | | 3/31/92...(4.00)% | | 40% S&P/60% Lehman | | | | Index 16.56% 13.58% 12.49% | |--------------------| | | |-------------------------------------------------| The Standard & Poor's 500 Index is comprised of 500 U.S. stocks. The Lehman Brothers Intermediate Government/Corporate Bond Index comprises of intermediate-term U.S. government securities and investment-grade corporate debt securities. 12 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- FULLY MANAGED PORTFOLIO INVESTMENT Over the long term, a high total investment OBJECTIVE return, consistent with the preservation of capital and with prudent investment risk PRINCIPAL The Portfolio invests primarily in the common INVESTMENT stocks of established companies the Portfolio STRATEGY Manager believes to have above-average potential for capital growth. Common stocks typically make up at least half of the Portfolio's total assets. The Portfolio may also invest in other securities, including convertibles, warrants, preferred stocks, corporate and government debt, foreign securities, futures, and options, in keeping with its objective. The Portfolio's approach differs from that of many other stock funds. The Portfolio Manager works as hard to reduce risk as to maximize gains and may realize gains rather than lose them in market declines. In addition, the Portfolio Manager searches for the best risk/reward values among all types of securities. The portion of the Portfolio invested in a particular type of security, such as common stocks, results largely from case-by-case investment decisions, and the size of the Portfolio's cash reserve may reflect the Portfolio Manager's ability to find companies that meet valuation criteria rather than his market outlook. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INTEREST RATE RISK o CALL RISK o INCOME RISK o MARKET AND COMPANY o CREDIT RISK RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Fully Managed Portfolio": o VALUE INVESTING RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. FULLY MANAGED LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 13 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. T. Rowe Price Associates, Inc. has managed the Portfolio since January 1, 1995. Prior to that date, a different firm managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] FULLY MANAGED -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 -3.18% 28.93% 6.23% 7.59% -7.27% 20.80% 16.36% 15.27% 5.98%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 3/31/91... 9.92% | | Portfolio's Average | | | | Annual Total Return 5.89% 9.73% 9.02% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 24.05% 18.51% | |--------------------| | Lehman Brothers Inter- | | Quarter Ended | | mediate Government/ | | | | Corporate Bond Index 9.47% 7.30% 9.2% | | 9/30/90..(10.81)% | | 60% S&P/40% Lehman | | | | Index 20.62% 17.35% 14.81% | |--------------------| | | |-------------------------------------------------| The Standard & Poor's 500 Index is comprised of 500 U.S. stocks. The Lehman Brothers Intermediate Government/Corporate Bond Index comprises of intermediate-term U.S. government securities and investment-grade corporate debt securities. 14 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- RISING DIVIDENDS PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation. A secondary objective is dividend income. PRINCIPAL INVESTMENT The Rising Dividends Portfolio invests in high- STRATEGY quality equity securities, most of which meet all of the following quality criteria: o regular dividend increases during the last 10 years o at least 35% of earnings reinvested annually o credit rating of "A" to "AAA" or equivalent In selecting equity securities, the Portfolio Manager screens databases to create a universe of companies that meet the preceding criteria. The Portfolio Manager then fundamentally analyzes the securities. This research involves study of competitive industry conditions, discussions with company management, spreadsheet analysis, and valuation projections. A proprietary computer model compares expected rates of return for each equity security in the universe. In deciding whether to purchase a security, the Portfolio Manager appraises a company's fundamental strengths and relative attractiveness based on its expected return. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Rising Dividends Portfolio": o MANAGEMENT TECHNIQUE RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. RISING DIVIDENDS LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 15 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Kayne Anderson Investment Management, LLC has managed the Portfolio since its inception. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] RISING DIVIDENDS -- ANNUAL TOTAL RETURN Year 1994 1995 1996 1997 1998 0.59% 31.06% 20.65% 29.82% 14.13% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 10/4/93 | | | | (INCEPTION)| | 12/31/98... 17.29% | | Portfolio's Average | | | | Annual Total Return 14.13% 18.70% 18.47% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 24.05% 23.32% | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98..(14.88)% | | | | | |-------------------------------------------------| |--------------------| The Standard & Poor's 500 Index is comprised of 500 U.S. stocks. 16 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- GROWTH & INCOME PORTFOLIO INVESTMENT OBJECTIVE Long-term total return PRINCIPAL INVESTMENT The Portfolio invests primarily in common STRATEGY stocks of companies where the potential for change (earnings acceleration) appears significant. The Portfolio Manager applies a growth- oriented investment philosophy defined by its: o Early recognition of change o Value is created through the dynamics of changing economic, industry and company fundamentals o The Portfolio Manager's willingness to invest on incomplete information o Judgment about the future, not merely extrapolation of the past o Invest in one to two year relative earnings strength at an early stage and at a reasonable price o COMMITMENT TO FUNDAMENTAL RESEARCH o Twenty-one fundamental analysts covering U.S. companies o EMPHASIS ON STOCK SELECTION o Emphasis on companies and industries where the potential for change (earnings acceleration) is significant o Remain fully invested ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. GROWTH & INCOME LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 17 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Growth & Income Portfolio": o GROWTH INVESTING RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Growth & Income Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Alliance Capital Management L.P. has managed the Portfolio since March 1, 1999. Prior to that date, a different firm managed the Portfolio. 18 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- GROWTH PORTFOLIO (FORMERLY, THE VALUE + GROWTH PORTFOLIO) INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio invests primarily in common INVESTMENT stocks of growth companies that have favorable STRATEGY relationships between price/earnings ratios and growth rates in sectors offering the potential for above- average returns. The Portfolio invests primarily in common stocks the Portfolio Manager believes will appreciate in value. The Portfolio Manager generally takes a "bottom up" approach to selecting companies. In other words, it seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. It makes this assessment by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. Income is not a significant consideration when choosing investments for the Portfolio. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Growth Portfolio": o GROWTH INVESTING RISK o SMALL COMPANY RISK o FOREIGN INVESTMENT AND CURRENCY RISK o HIGH YIELD BOND RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. GROWTH LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 19 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Growth Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Janus Capital Corporation has managed the Portfolio since March 1, 1999. Prior to that date, a different firm managed the Portfolio. 20 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation. Dividend income is a secondary objective. PRINCIPAL The Portfolio normally invests primarily in INVESTMENT common stocks of domestic and foreign issuers STRATEGY that meet quantitative standards relating to financial soundness and high intrinsic value relative to price. In selecting equity securities, the Portfolio Manager identifies stocks trading at a significant discount to their underlying intrinsic value that fall into at least one of three basic categories: o "Pure" value opportunities -- stocks that appear attractive relative to the broader market o "Relative" value opportunities -- stocks that trade at a discount to the valuation parameters historically applied to them or their peer group o "Event-driven" value opportunities -- stocks whose underlying value may be recognized as a result of a realized or anticipated event PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Value Equity Portfolio": o VALUE INVESTING RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. VALUE EQUITY LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> IN THIS PORTFOLIO AS COMPARED TO OTHER GCG TRUST PORTFOLIOS.] 21 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Eagle Asset Management, Inc. has managed the Portfolio since its inception. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] VALUE EQUITY -- ANNUAL TOTAL RETURN Year 1995 1996 1997 1998 35.21% 10.62% 27.28% 1.55% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 1/3/95 | | | | (INCEPTION)| | 12/31/98... 17.34% | | Portfolio's Average | | | | Annual Total Return 1.55% 17.96% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 30.49% | |--------------------| | Russell Midcap Index 10.09% 22.78% | | Quarter Ended | | | | | | | | 9/30/98..(13.99)% | | | | | |-------------------------------------------------| |--------------------| The Standard & Poor's 500 Index is comprised of 500 U.S. stocks. The Russell Midcap Index consists of the 800 smallest companies in the Russell 1000 Index, which contains the 1,000 largest companies in the U.S. 22 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- RESEARCH PORTFOLIO INVESTMENT OBJECTIVE Long-term growth of capital and future income PRINCIPAL The Portfolio normally invests at least 80% of INVESTMENT its total assets in common stocks and related STRATEGY securities (such as preferred stock, convertible securities and depositary receipts). The Portfolio focuses on companies that the Portfolio Manager believes have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, dominant or growing market share and superior management. The Portfolio may invest in companies of any size. The Portfolio's investments may also include foreign securities, and securities traded on securities exchanges or in the over- the-counter markets. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios-Research Portfolio": o OTC INVESTMENT RISK o FOREIGN INVESTMENT AND CURRENCY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. RESEARCH LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 23 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Research Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Massachusetts Financial Services Company has managed the Portfolio since its inception. 24 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- MID-CAP GROWTH PORTFOLIO INVESTMENT OBJECTIVE Long-term growth of capital PRINCIPAL The Portfolio normally invests at least 65% of INVESTMENT its assets in common stocks and related equity STRATEGY securities (such as preferred stock, convertible securities and depositary receipts) of companies with medium market capitalizations (or "mid-cap") which the Portfolio Manager believes have above-average growth potential. The Portfolio Manager defines mid-cap companies as companies with market capitalizations equaling or exceeding $250 million but not exceeding the top range of the Russell Midcap/tm/ Growth Index at the time of the Portfolio's investment. Growth companies are companies that the Portfolio Manager considers well-run and poised for growth. The Portfolio Manager looks particularly for companies which demonstrate: o a strong franchise, strong cash flows and a recurring revenue stream o a solid industry position, where there is potential for high profit margins and substantial barriers to new entry in the industry o a strong management team with a clearly defined strategy o a catalyst that may accelerate growth The Portfolio Manager uses a bottom-up, as opposed to a top-down, investment style in managing the Portfolio. This means that securities are selected based on fundamental analysis performed by the Portfolio Manager and its group of equity research analysts and generally not selected based on the industry in which they belong. The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earnings of the issuer. ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. MID-CAP GROWTH LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 25 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Mid-Cap Growth Portfolio": o MID-CAP COMPANY RISK o OTC INVESTMENT RISK o EMERGING MARKETS RISK o FOREIGN INVESTMENT AND CURRENCY RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Mid-Cap Growth Portfolio became available to investors on August 17, 1998, performance information on previous full years is not available. Massachusetts Financial Services Company has managed the Portfolio since its inception. 26 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- ALL-GROWTH PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio normally invests primarily in INVESTMENT growth securities (such as common stocks) of STRATEGY middle-range capitalization (or "mid-cap") companies. Mid-cap companies in which the Portfolio invests generally have market capitalizations or annual revenues between $500 million and $10 billion. Growth securities in which the Portfolio invests are primarily common stocks that the Portfolio Manager believes have strong earnings growth and capital appreciation potential. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction-General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- All-Growth Portfolio": o MID-CAP COMPANY RISK o GROWTH INVESTING RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. ALL-GROWTH LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 27 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Pilgrim Baxter & Associates Ltd. has managed the firm since February 3, 1997. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] ALL-GROWTH -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 -7.35% 36.48% -2.59% 6.56% -10.77% 22.42% -0.57% 5.87% 9.52%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 12/31/98... 25.89% | | Portfolio's Average | | | | Annual Total Return 9.52% 4.72 5.93% | |--------------------| | | | WORST QUARTER | | Russell Midcap Index 10.09% 17.75 16.15% | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98..(21.08)% | | | | | |-------------------------------------------------| |--------------------| The Russell 1000 Index consists of the 800 smallest companies in the Russell 1000 Index, which contains the 1,000 largest companies in the U.S. 28 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- GROWTH OPPORTUNITIES PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL INVESTMENT The Portfolio invests primarily in equity STRATEGY securities of domestic companies generally having total market capitalizations of $1 billion or more. The Portfolio seeks growth at a reasonable value by investing in companies with sound fundamental value and potential. The Portfolio selects its investments based on a combination of quantitative screening techniques and fundamental analysis. The Portfolio Manager: o Identifies a universe of investment candidates by screening companies based on changes in growth rates and valuation ratios (such as price to sales, price to earnings and price to cash flows) o Identifies rapidly growing companies with reasonable valuations and accelerating growth rates, or with low valuations and initial signs of growth o Fundamentally analyzes these companies, focusing on: o balance sheets and income statements o company visits and discussions with management o contacts with industry specialists and industry analysts o review of competitive environments ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. GROWTH OPPORTUNITIES LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 29 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to following additional principal risks described under "Description of the Portfolios -- Growth Opportunities": o GROWTH INVESTING RISK o MANAGEMENT TECHNIQUE RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Growth Opportunities Portfolio became available to investors on June 1, 1998, performance information on previous full years is not available. Montgomery Asset Management, LLC has managed the Portfolio since its inception. 30 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- STRATEGIC EQUITY PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio invests principally in common INVESTMENT stocks of medium- and small-sized growth STRATEGY companies. The Portfolio Manager focuses on companies it believes are likely to benefit from new or innovative products, services or processes as well as those that have experienced above-average, long-term growth in earnings and have excellent prospects for future growth. The Portfolio primarily comprises of securities of two basic categories of companies: (a) "core" companies, which the Portfolio Manager considers to have experienced above-average and consistent long- term growth in earnings and to have excellent prospects for outstanding future growth, and (b) "earnings acceleration" companies that the Portfolio Manager believes are currently enjoying a dramatic increase in profits. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Strategic Equity Portfolio": o GROWTH INVESTING RISK o SMALL COMPANY RISK o FOREIGN INVESTMENT AND CURRENCY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. STRATEGIC EQUITY LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 31 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. A I M Capital Management, Inc. has managed the Portfolio since March 1, 1999. Prior to that date, a different firm managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] STRATEGIC EQUITY -- ANNUAL TOTAL RETURN Year 1996 1997 1998 19.39% 23.16% 0.84% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 10/2/95 | | | | (INCEPTION)| | 12/31/98... 15.31% | | Portfolio's Average | | | | Annual Total Return 0.84% 13.02% | |--------------------| | Russell Midcap Index 10.09% 18.68% | | WORST QUARTER | | Russell 2000 Index (2.55)% 8.17% | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98..(17.96)% | | | | | |-------------------------------------------------| |--------------------| The Russell Midcap Index is consisted of the 800 smallest companies in the Russell 1000 Index, which contains the 1,000 largest companies in the U.S. The Russell 2000 Index represents the 2,000 smallest companies in the Russell 3000 Index, which contains the 3,000 largest U.S. companies, based on total market capitalization. 32 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- CAPITAL APPRECIATION PORTFOLIO INVESTMENT OBJECTIVE Long-term capital growth PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities the Portfolio Manager believes to STRATEGY be undervalued relative to the Portfolio Manager's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity markets generally. The Portfolio Manager focuses on undervalued equity securities of: o out-of-favor cyclical growth companies o established growth companies that are undervalued compared to historical relative valuation parameters o companies where there is early but tangible evidence of improving prospects that are not yet reflected in the price of the company's equity securities o companies whose equity securities are selling at prices that do not reflect the current market value of their assets and where there is reason to expect realization of this potential in the form of increased equity values PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Capital Appreciation Portfolio": o VALUE INVESTING RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. CAPITAL APPRECIATION LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 33 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. A I M Capital Management, Inc. has managed the Portfolio since April 1, 1999. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] CAPITAL APPRECIATION -- ANNUAL TOTAL RETURN Year 1993 1994 1995 1996 1997 1998 8.31% -1.59% 30.16% 20.26% 28.95% 12.68% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 5/4/92 | | | | (INCEPTION)| | 6/30/97... 16.99% | | Portfolio's Average | | | | Annual Total Return 12.68% 17.48% 16.00% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 24.05% 20.49% | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98..(13.12)% | | | | | |-------------------------------------------------| |--------------------| The Standard & Poor's 500 Index is comprised of 500 U.S. stocks. 34 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- SMALL CAP PORTFOLIO INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities of small capitalization ("small- STRATEGY cap") companies. The Portfolio Manager considers small cap companies to be companies that have total market capitalization within the range of companies included in the o Russell 2000 Growth Index o Standard & Poor's Small Cap 600 Index PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Small Cap Portfolio": o SMALL CAP COMPANY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. SMALL CAP LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 35 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Fred Alger Management, Inc. has managed the Portfolio since its inception. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] SMALL CAP -- ANNUAL TOTAL RETURN Year 1996 1997 1998 20.10% 10.32% 20.98% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 1/3/96 | | | | (INCEPTION)| | 12/31/98... 28.34% | | Portfolio's Average | | | | Annual Total Return 20.98% 17.07% | |--------------------| | Russell 2000 Index (2.55)% 11.58% | | WORST QUARTER | | | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98..(19.52)% | | | | | |-------------------------------------------------| |--------------------| The Russell 2000 Index represents the 2,000 smallest companies in the Russell 3000 Index, which contains the 3,000 largest U.S. companies, based on total market capitalization. 36 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- REAL ESTATE PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation. Current income is a secondary objective. PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities of companies in the real estate STRATEGY industry that are listed on national exchanges or the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). The Portfolio Manager selects securities generally for long-term investment. The Portfolio invests the majority of its assets in companies that have at least 50% of their assets in, or that derive at least 50% of their revenues from, the following sectors of the real estate industry: o ownership (including listed real estate investment trusts) o construction and development o asset sales o property management or sale o other related real estate services The Portfolio may invest more than 25% of its assets in any of the above sectors. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Real Estate Portfolio": o REAL ESTATE o INDUSTRY CONCENTRATION RISK RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. REAL ESTATE LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 37 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The average annual total returns below include reinvestment of dividends and distributions. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. EII Realty Securities, Inc. has managed the Portfolio since January 1, 1995. Prior to that date, a different firm managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] REAL ESTATE -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 -20.78% 34.06% 13.87% 17.27% 6.34% 16.59% 35.30% 22.79% (13.45%)
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 3/31/91... 23.44% | | Portfolio's Average | | | | Annual Total Return (13.45)% 12.26% 9.65% | |--------------------| | Wilshire Real Estate | | WORST QUARTER | | Securities Index (17.63)% 9.30% 4.59% | |--------------------| | | | Quarter Ended | | | | | | | | 3/30/90..(15.18)% | | | | | |-------------------------------------------------| |--------------------| The Wilshire Real Estate Securities Index consists of real estate investment trusts (REITs) and real estate operating companies (REOCs). 38 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- HARD ASSETS PORTFOLIO INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL The Portfolio invests primarily in hard asset INVESTMENT securities. Hard asset securities include STRATEGY equity and debt securities of hard asset companies and securities, including structured notes, whose value is linked to the price of a hard asset commodity or a commodity index. Hard asset companies are companies that are directly or indirectly engaged significantly in the exploration, development, production or distribution of one or more of the following: o precious metals o ferrous and non-ferrous metals o gas, petroleum, petrochemicals or other hydrocarbons o forest products o agricultural commodities o other basic materials that can be priced by a market The Portfolio normally invests at least 5% of its assets in each of the first five sectors listed above, and up to 50% in any one of the above sectors. The Portfolio's investment strategy is based on the belief that hard asset securities can protect against eroding monetary values. Recent history indicates that the policies of many governments (particularly, budget deficits and high rates of money supply growth) have caused and will continue to cause accelerated inflation, and that the prices of many natural resources will continue to rise faster than the rate of inflation. The Portfolio Manager anticipates that inflation and the price of certain natural resources will continue on a upward trend. The Portfolio normally invests at least 5% if its assets in each of the first five sectors listed above, and may invest up to 50% in any one of the above sectors. The Portfolio's investment strategy is based on the belief that hard asset securities can protect against eroding monetary values. Recent history indicates that the policies of may governments (particularly, budget deficits and high rates of money supply growth) have caused inflation and that the profitability of many natural resources companies, will as a result, improve. ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. HARD ASSETS LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 39 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK In addition, an investment in the Portfolio is subject to the following principal risks described under "Description of the Portfolios -- Hard Assets Portfolio": o HARD ASSET RISK o INDUSTRY CONCENTRATION RISK o SECTOR CONCENTRATION o FOREIGN INVESTMENT AND RISK CURRENCY RISK PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Baring International Investment Limited has managed the Portfolio since March 1, 1999. Prior to that date, a different firm managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] HARD ASSETS -- ANNUAL TOTAL RETURN Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 -13.84% 4.70% -9.81% 49.93% 2.53% 10.69% 33.17% 6.22% -29.58%
|-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/24/89 | | | | (INCEPTION)| | 12/31/93... 21.80% | | Portfolio's Average | | | | Annual Total Return (29.58)% 2.48% 5.11% | |--------------------| | Standard & Poor's 500 | | WORST QUARTER | | Index 28.58% 24.05% 18.51% | |--------------------| | Russell 2000 Index (2.55)% 11.87% 12.54% | | Quarter Ended | | | | | | | | 9/30/98..(19.01)% | | | | | |-------------------------------------------------| |--------------------| The Standard & Poor's Index is comprised of 500 U.S. stocks. The Russell 2000 Index represents the 2,000 smallest companies in the Russell 3000 Index, which contains the 3,000 largest U.S. companies, based on total market capitalization. 40 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- MANAGED GLOBAL PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation. Current income is only an incidental consideration. PRINCIPAL The Portfolio invests primarily in common INVESTMENT stocks traded in securities markets throughout STRATEGY the world. The Portfolio generally invests at least 65% of its assets in at least three different countries, one of which may be the United States. The Portfolio may invest in any type of company, large or small, with earnings showing a relatively strong growth trend, or in a company in which significant further growth is not anticipated but whose securities are thought to be undervalued. The Portfolio may also invest in small and relatively less well known companies. The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earnings of the issuer. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk described under "Description of the Portfolios -- Managed Global Portfolio": o EMERGING MARKET RISK o SMALL COMPANY RISK o FOREIGN INVESTMENT AND CURRENCY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. MANAGED GLOBAL LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 41 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Putnam Investment Management, Inc. has managed the Portfolio since March 3, 1997. Prior to that date, different firms managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] MANAGED GLOBAL -- ANNUAL TOTAL RETURN Year 1993 1994 1995 1996 1997 1998 6.59% -13.21% 7.56% 12.27% 12.17% 29.31% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/3/96 | | | | (INCEPTION)| | 12/31/98... 22.27% | | Portfolio's Average | | | | Annual Total Return 29.31% 8.84% 8.12% | |--------------------| | Morgan Stanley Capital | | WORST QUARTER | | International All | |--------------------| | Country World Free | | Quarter Ended | | Index 21.97% 14.78% 16.40% | | | | | | 9/30/98..(12.36)% | | | | | |-------------------------------------------------| |--------------------| The Morgan Stanley Capital International All Country World Free Index is comprised of government and investment-grade corporate debt securities with remaining maturities of one to five years. 42 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- DEVELOPING WORLD PORTFOLIO INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Developing World Portfolio invests INVESTMENT primarily in emerging market companies. The STRATEGY Portfolio normally invests in at least six different "emerging market countries" with no more than 35% of its assets in any one country. Emerging market countries are those countries having economies and markets that the World Bank or the United Nations considers to be emerging or developing. A list of such countries is set forth under "Description of the Portfolios -- Developing World Portfolio." The Portfolio Manager's investment process is based on the evaluation of key investment factors at both the macro and micro level. Such factors include accelerating GDP growth earnings surprise and favorable valuation characteristics. The investment process is a combination of top-down country allocation and bottom-up stock selection. Structured fundamental research supported by quantitative analyses drives both the country and company decision making. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Developing World Portfolio": o EMERGING MARKET RISK o MANAGEMENT TECHNIQUE RISK o FOREIGN INVESTMENT AND CURRENCY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. DEVELOPING WORLD LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXxx >>> <<<---------------------------------------------------------------------->>> <> 43 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. Since the Developing World Portfolio became available to investors on June 1, 1998, performance information on previous full years is not available. Baring International Investment Limited has managed the Portfolio since March 1, 1999. Prior to that date, a different firm managed the Portfolio. 44 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities of companies in at least six STRATEGY different emerging market countries. The Portfolio's investment philosophy is to capitalize on emerging capital markets in developing nations and other nations in which economic and political factors are likely to produce above average growth rates. Emerging market countries are those that are identified as such in the Morgan Stanley Capital International Emerging Markets Free Index or the International Finance Corporation Emerging Market Index, or by the Portfolio Manager because they have a developing economy or because their markets have begun a process of change and are growing in size and/or sophistication. In selecting securities, the Portfolio Manager looks for undervalued investment opportunities for growth. The Portfolio Manager uses a disciplined, value-oriented investment philosophy that generally stresses the inherent value of companies under examination, usually based on the medium-term outlook for such companies. The Portfolio Manager considers the company's fundamental financial characteristics, its earnings potential, or the potential for economic development of the country or region in which the company is located. PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An investment in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks described under "Description of the Portfolios -- Emerging Markets Portfolio": o EMERGING MARKET o VALUE INVESTING RISK RISK o FOREIGN INVESTMENT AND CURRENCY RISK ===RELATIVE RISK COMPARISON================================================= Not intended to indicate future risk or performance. EMERGING MARKETS LA LMB GFI TR EI FM RD GI G VE R MCG AG GO SE CA SC RE HA MG DW EM <<<---------------------------------------------------------------------->>> <<< xxXXXXx>> <<<---------------------------------------------------------------------->>> <> 45 - ------------------------------------------------------------------------- PORTFOLIOS AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the Portfolio's average annual total return for 1 year, 5 years and since its inception date as compared to the applicable market index. The average annual total returns include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Putnam Investment Management, Inc. has managed the Portfolio since March 3, 1997. Prior to that date, a different firm managed the Portfolio. The performance information does not include insurance-related charges. Thus, you should not compare the Portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [Performance Bar Chart Follows:] EMERGING MARKETS -- ANNUAL TOTAL RETURN Year 1994 1995 1996 1997 1998 -15.18% -10.11% 7.28% -9.37% -24.09% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 1/3/96 | | | | (INCEPTION)| | 9/30/94... 22.68% | | Portfolio's Average | | | | Annual Total Return (24.09)%(10.86%) (6.58)%| |--------------------| | Morgan Stanley Capital | | WORST QUARTER | | International Emerging | |--------------------| | Markets Free Index (25.34)% (9.27)% (3.81)%| | Quarter Ended | | | | | | | | 9/30/98..(23.43)% | | | | | |-------------------------------------------------| |--------------------| The Morgan Stanley Capital International Emerging Markets Free Index is comprised of equity securities in emerging markets. 46 - ------------------------------------------------------------------------- MORE INFORMATION - ------------------------------------------------------------------------- A WORD Each portfolio in this prospectus, unless ABOUT specifically noted in the portfolio's PORTFOLIO investment objective, is diversified, as DIVERSITY defined in the Investment Company Act of 1940. A diversified portfolio may not, as to 75% of its total assets, invest more than 5% of its total assets in any one issuer and may not purchase more than 10% of the outstanding voting securities of any one issuer (other than U.S. Government securities). The investment objective and certain of the investment restrictions of each portfolio in this prospectus are fundamental. This means they may not be modified or changed without a vote of the shareholders. ADDITIONAL A Statement of Additional Information is made INFORMATION a part of this prospectus. It identifies and ABOUT THE discusses non-principal investment strategies PORTFOLIOS associated risks of each portfolio, as well as investment restrictions, secondary or temporary investments and associated risks,a description of how the bond rating system works and other information that may be helpful to you in your decision to invest. You may obtain a copy without charge by calling our Customer Service Center at 1-800- 344-6864, or visiting the Securities and Exchange Commission's website (http://www.sec.gov). NON-PRINCIPAL This prospectus does not describe various INVESTMENTS types of securities, strategies and practices AND which are available to, but are not the STRATEGIES principal focus of, a particular portfolio. Such non-principal investment and strategies are discussed in the Statement of Additional Information. TEMPORARY This prospectus does not describe temporary DEFENSIVE defensive positions. A portfolio may depart POSOTIONS from its principal investment strategies by temporarily investing for defensive purposes when adverse market, economic or political conditions exist. While a portfolio invests defensively, it may not be able to pursue its investment objective. A portfolio's defensive investment position may not be effective in protecting its value. The types of defensive positions in which a portfolio may engage are identified and discussed, together with their risks, in the Statement of Additional Information. PORTFOLIO Before investing in a portfolio, you should TURNOVER review its portfolio turnover rate for an indication of the potential effect of transaction costs on the portfolio's future returns. In general, the greater the volume of buying and selling by the portfolio, the greater the impact that brokerage commissions and other transaction costs will have on its return. Portfolio turnover rate is calculated by dividing the value of the lesser of purchases or sales of portfolio securities for the year by the monthly average of the value of portfolio securities owned by the portfolio during the year. Securities whose maturities at the time of purchase were one year or less are excluded. A 100% portfolio turnover rate would occur, for example, if a portfolio sold and replaced securities valued at 100% of its total net assets within a one-year period. The portfolio turnover rates for each portfolio are presented in the Financial Highlights. LEGAL Sutherland Asbill & Brennan LLP, located at COUNSEL 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004. INDEPENDENT AUDITORS Ernst & Young LLP, located at 200 Clarendon Street, Boston, MA 02116. 47 - ------------------------------------------------------------------------- MORE INFORMATION (CONTINUED) - ------------------------------------------------------------------------- YEAR 2000 The Trust could be adversely affected if the computer systems used by the Trust's investment adviser, Directed Services, Inc. ("DSI"), and the Trust's other service providers do not properly process and calculate date-related information from and after January 1, 2000. DSI, along with an affiliate, Golden American, have studied their computer software systems and hardware. Some of these systems support certain trust operations. DSI believes its and Golden American's systems are or will be substantially compliant by year 2000 and has engaged external consultants to validate this assumption. DSI is in contact with the Trust's portfolio managers and third party vendors to ensure that their systems will be substantially compliant by year 2000. If these portfolio managers and third parties are unable to transact business in the year 2000 and thereafter, the Trust's operations could be adversely affected. 48 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand each of the portfolio's financial performance for the past 5 years (or, if shorter, for the period of the portfolio's operations). Certain information reflects financial results for a single portfolio share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young LLP, whose report, along with a portfolio's financial statements, are included in the annual report, which is available upon request.
LIQUID ASSET PORTFOLIO * - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ................... 0.050 0.050 0.049 0.054 0.040 -------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.050) (0.050) (0.049) (0.054) (0.040) -------- ------- ------- ------- ------- Net asset value, end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======= ======= ======= ======= Total return ............................ 5.13% 5.07% 5.01% 5.51% 3.89% ======== ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $211,730 $59,453 $39,096 $38,589 $46,122 Ratio of operating expenses to average net assets ............................ 0.59% 0.61% 0.61% 0.61% 0.61% Ratio of net investment income to average net assets .................... 4.92% 4.99% 4.89% 5.39% 3.89%
- ---------------- * Since August 13, 1996, ING Investment Management LLC or its affiliates has managed the Liquid Asset Portfolio. Prior to that date, different firms managed the Portfolio.
LIMITED MATURITY BOND PORTFOLIO * - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94 ------- ------- ------- ------- ------- Net asset value, beginning of period .... $ 10.31 $ 10.43 $ 11.15 $ 9.98 $ 10.62 ------- ------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.24 0.60 0.59 0.60 0.51 Net realized and unrealized gain/(loss) on investments and foreign currencies ............................ 0.47 0.09 (0.13) 0.57 (0.64) ------- ------- ------- ------- ------- Total from investment operations ........ 0.71 0.69 0.46 1.17 (0.13) ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.34) (0.81) (1.15) -- (0.51) Distributions from capital gains ........ -- -- (0.03) -- -- ------- ------- ------- ------- ------- Total distributions ..................... (0.34) (0.81) (1.18) -- (0.51) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 10.68 $ 10.31 $ 10.43 $ 11.15 $ 9.98 ======= ======= ======= ======= ======= Total return ............................ 6.86% 6.67% 4.32% 11.72% (1.19% ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $148,426 $53,839 $81,317 $90,081 $72,213 Ratio of operating expenses to average net assets ............................ 0.60% 0.61% 0.61% 0.61% 0.60% Ratio of net investment income to average net assets .................... 5.15% 5.71% 5.33% 5.58% 4.73% Portfolio turnover rate ................. 52% 81% 250% 302% 209%
- ---------------- * Since August 13, 1996, ING Investment Management LLC or its affiliates has managed the Limited Maturity Bond Portfolio. Prior to that date, different firms managed the Portfolio. # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. 49 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - ------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO* - ------------------------------------------------------------------------------- YEAR ENDED - ------------------------------------------------------------------------------- 12/31/98*# ---------- Net asset value, beginning of period ............................ $ 10.47 ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ........................................... 0.09 Net realized and unrealized gain on investments and foreign currencies .................................................... 0.74 ------- Total from investment operations ................................ 0.83 ------- LESS DISTRIBUTIONS: Dividends from net investment income ............................ (0.09) Dividends in excess of net investment income .................... (0.04) Distributions from capital gains ................................ -- ------- Total distributions ............................................. (0.13) ------- Net asset value, end of period .................................. $ 11.17 ======= Total return .................................................... 7.99%++ ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $21,932 Ratio of operating expenses to average net assets ............... 1.74%+ Ratio of net investment loss to average net assets .............. 2.37%+ Portfolio turnover rate ......................................... 25% - ---------------- * The Global Fixed Income Portfolio commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. TOTAL RETURN PORTFOLIO* - ------------------------------------------------------------------------------- YEAR ENDED - ------------------------------------------------------------------------------- 12/31/98*# ---------- Net asset value, beginning of period ............................ $ 14.88 -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ........................................... 0.17 Net realized and unrealized gain on investments and foreign currencies .................................................... 0.86 -------- Total from investment operations ................................ 1.03 -------- LESS DISTRIBUTIONS: Dividends from net investment income ............................ (0.11) -------- Net asset value, end of period .................................. $ 15.80 ======== Total return .................................................... 6.90%++ ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $453,093 Ratio of operating expenses to average net assets ............... 0.98%+ Ratio of net investment income to average net assets ............ 2.95%+ Portfolio turnover rate ......................................... 37% - ---------------- * The Total Return Portfolio commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. 50 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO* - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period ... $ 13.09 $ 12.41 $ 12.52 $ 11.33 $ 11.89 -------- -------- -------- -------- -------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .................. 0.49 0.57 0.56 0.58 0.42 Net realized and unrealized gain/ (loss) on investments and foreign currencies ........................... 0.58 1.58 0.52 1.56 (0.56) -------- -------- -------- -------- -------- Total from investment operations ....... 1.07 2.15 1.08 2.14 (0.14) -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income ... (0.50) (0.55) (0.58) (0.45) (0.42) Distributions from capital gains ....... (0.99) (0.92) (0.61) (0.50) -- -------- -------- -------- -------- -------- Total distributions .................... (1.49) (1.47) (1.19) (0.95) (0.42) -------- -------- -------- -------- -------- Net asset value, end of period ......... $ 12.67 $ 13.09 $ 12.41 $ 12.52 $ 11.33 ======== ======== ======== ======== ======== Total return ........................... 8.26% 17.44% 8.77% 18.93% (1.18)% ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ... $278,074 $264,599 $272,791 $307,691 $299,392 Ratio of operating expenses to average net assets ........................... 0.98% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets ................... 3.63% 3.88% 3.86% 4.42% 3.56% Portfolio turnover rate ................ 61% 79% 158% 187% 291%
- ------------------ * Since March 1, 1999, T. Rowe Price Associates, Inc. has managed the Portfolio. Prior to that date, the Equity Income Portfolio was named the Multiple Allocation Portfolio and was managed by different firms.
FULLY MANAGED PORTFOLIO* - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .... $ 15.73 $ 14.82 $ 13.79 $ 11.70 $ 12.99 -------- -------- -------- -------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.36 0.39 0.56 0.45 0.35 Net realized and unrealized gain/(loss) on investments and foreign currencies ............................ 0.55 1.86 1.69 1.98 (1.29) -------- -------- -------- -------- ------- Total from investment operations ........ 0.91 2.25 2.25 2.43 (0.94) -------- -------- -------- -------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.36) (0.41) (0.56) (0.34) (0.35) Distributions from capital gains ........ (1.05) (0.93) (0.66) -- -- -------- -------- -------- -------- ------- Total distributions ..................... (1.41) (1.34) (1.22) (0.34) (0.35) -------- -------- -------- -------- ------- Net asset value, end of period .......... $ 15.23 $ 15.73 $ 14.82 $ 13.79 $ 11.70 ======== ======== ======== ======== ======= Total return ............................ 5.89% 15.27% 16.36% 20.80% (7.27)% ======== ======== ======== ======== ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $246,196 $169,987 $136,660 $118,589 $99,854 Ratio of operating expenses to average net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets .................... 2.83% 2.67% 3.83% 3.41% 2.62% Portfolio turnover rate ................. 44% 48% 45% 113% 66%
- ---------------- * Since January 1, 1995, T. Rowe Price Associates, Inc. has managed the Fully Managed Portfolio. Prior to that date, a different firm managed the Portfolio. 51 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
RISING DIVIDENDS PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96# 12/31/95 12/31/94 -------- -------- -------- ------- ------- Net asset value, beginning of period .... $ 20.04 $ 15.81 $ 13.30 $ 10.22 $ 10.30 -------- -------- -------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.10 0.14 0.14 0.13 0.14 Net realized and unrealized gain/(loss) on investments and foreign currencies ............................ 2.74 4.57 2.61 3.04 (0.08) -------- -------- -------- ------- ------- Total from investment operations ........ 2.84 4.71 2.75 3.17 0.06 -------- -------- -------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.10) (0.13) (0.13) (0.09) (0.14) Distributions from capital gains ........ (0.77) (0.35) (0.11) -- -- -------- -------- -------- ------- ------- Total distributions ..................... (0.87) (0.48) (0.24) (0.09) (0.14) -------- -------- -------- ------- ------- Net asset value, end of period .......... $ 22.01 $ 20.04 $ 15.81 $ 13.30 $ 10.22 ======== ======== ======== ======= ======= Total return ............................ 14.13% 29.82% 20.65% 31.06% 0.59% ======== ======== ======== ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $574,843 $252,191 $126,239 $81,210 $50,712 Ratio of operating expenses to average net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets .................... 0.72% 0.96% 0.99% 1.24% 1.88% Portfolio turnover rate ................. 34% 26% 15% 43% 26%
- ------------------ # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. GROWTH & INCOME PORTFOLIO(*)(**) - ----------------------------------------------------------------------------- YEAR ENDED - ----------------------------------------------------------------------------- 12/31/98*# ---------- Net asset value, beginning of period ............................ $ 14.24 -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ........................................... 0.09 Net realized and unrealized gain on investments and foreign currencies .................................................... 1.36 -------- Total from investment operations ................................ 1.45 -------- LESS DISTRIBUTIONS: Dividends from net investment income ............................ (0.07) -------- Net asset value, end of period .................................. $ 15.62 ======== Total return .................................................... 10.19%++ ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $298,839 Ratio of operating expenses to average net assets ............... 1.08%+ Ratio of net investment loss to average net assets .............. 1.86%+ Portfolio turnover rate ......................................... 92% - ---------------- * Since March 1, 1999, Alliance Capital Management L.P. has managed the Growth & Income Portfolio. Prior to March 1, 1999, a different firm managed the Portfolio. ** The Growth & Income Portfolio commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. 52 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - ------------------------------------------------------------------------- GROWTH PORTFOLIO(*)(**) - ----------------------------------------------------------------------------- YEAR ENDED - ----------------------------------------------------------------------------- 12/31/98# ---------- Net asset value, beginning of period ............................ $ 13.63 -------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss ............................................. (0.03) Net realized and unrealized gain on investments and foreign currencies .................................................... 2.02 -------- Total from investment operations ................................ 1.99 -------- Net asset value, end of period .................................. $ 15.62 ======== Total return .................................................... 14.60%++ ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $231,216 Ratio of operating expenses to average net assets ............... 1.09%+ Ratio of net investment loss to average net assets .............. (0.58)%+ Portfolio turnover rate ......................................... 88% - ---------------- * Since March 1, 1999, Janus Capital Corporation has managed the Growth Portfolio. Prior to that date, the Growth Protfolio was named the Value + Growth Series and was managed by a different firm. ** The Growth Portfolio commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period.
VALUE EQUITY PORTFOLIO* - ------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95* -------- ------- ------- ------- Net asset value, beginning of period ........... $ 16.13 $ 13.92 $ 13.18 $ 10.00 -------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .......................... 0.19 0.16 0.22 0.08 Net realized and unrealized gain on investments and foreign currencies ....................... 0.06 3.63 1.18 3.44 -------- ------- ------- ------- Total from investment operations ............... 0.25 3.79 1.40 3.52 -------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income ........... (0.18) (0.18) (0.19) (0.06) Distributions from capital gains ............... (0.32) (1.40) (0.47) (0.28) -------- ------- ------- ------- Total distributions ............................ (0.50) (1.58) (0.66) (0.34) -------- ------- ------- ------- Net asset value, end of period ................. $ 15.88 $ 16.13 $ 13.92 $ 13.18 ======== ======= ======= ======= Total return ................................... 1.55% 27.28% 10.62% 35.21%++ ======== ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ........... $129,784 $80,048 $44,620 $28,830 Ratio of operating expenses to average net assets ....................................... 0.98% 0.99% 1.00% 1.01%+ Ratio of net investment income to average net assets ....................................... 1.49% 1.31% 1.80% 1.53%+ Portfolio turnover rate ........................ 124% 128% 131% 86%
- ---------------- * The Value Equity Portfolio commenced operations on January 3, 1995. + Annualized ++ Non-annualized 53 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - ------------------------------------------------------------------------- RESEARCH PORTFOLIO* - ------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------ 12/31/98*# ---------- Net asset value, beginning of period ............................ $ 17.75 -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ........................................... 0.02 Net realized and unrealized gain on investments and foreign currencies .................................................... 2.56 -------- Total from investment operations ................................ 2.58 -------- LESS DISTRIBUTIONS: Dividends from net investment income ............................ (0.01) Distributions in excess of net investment income ................ (0.01) -------- Total distributions ............................................. (0.02) -------- Net asset value, end of period .................................. $ 20.31 ======== Total return .................................................... 14.54%++ ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $613,771 Ratio of operating expenses to average net assets ............... 0.94%+ Ratio of net investment income to average net assets ............ 0.23%+ Portfolio turnover rate ......................................... 35% - ---------------- * The Research Series commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. MID-CAP GROWTH PORTFOLIO* - ------------------------------------------------------------------------------- YEAR ENDED - ------------------------------------------------------------------------------- 12/31/98*# ---------- Net asset value, beginning of period ............................ $ 15.68 -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ........................................... 0.01 Net realized and unrealized gain on investments and foreign currencies .................................................... 2.52 -------- Total from investment operations ................................ 2.53 -------- LESS DISTRIBUTIONS: Dividends from net investment income ............................ (0.01) Distributions from capital gains ................................ (0.10) -------- Total distributions ............................................. (0.11) -------- Net asset value, end of period .................................. $ 18.10 ======== Total return .................................................... 16.12%++ ======== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................ $252,022 Ratio of operating expenses to average net assets ............... 0.95%+ Ratio of net investment income to average net assets ............ 0.15%+ Portfolio turnover rate ......................................... 55% - ---------------- * The Mid-Cap Portfolio commenced operations on August 14, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. 54 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
ALL-GROWTH PORTFOLIO * - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ------- ------- ------- ------- ------- Net asset value, beginning of period .... $ 13.77 $ 13.39 $ 13.78 $ 11.86 $ 13.42 ------- ------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income/(loss) ............ (0.07) (0.06) 0.14 0.18 0.11 Net realized and unrealized gain/(loss) on investments and foreign currencies .... 1.38 0.84 (0.23) 2.47 (1.56) ------- ------- ------- ------- ------- Total from investment operations ........ 1.31 0.78 (0.09) 2.65 (1.45) ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... -- (0.03) (0.14) (0.14) (0.11) Distributions from capital gains ........ (0.09) (0.37) (0.16) (0.59) -- ------- ------- ------- ------- ------- Total distributions ..................... (0.09) (0.40) (0.30) (0.73) (0.11) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 14.99 $ 13.77 $ 13.39 $ 13.78 $ 11.86 ======= ======= ======= ======= ======= Total return ............................ 9.52% 5.87% (0.57)% 22.42% (10.77)% ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $83,930 $73,856 $78,750 $93,198 $71,218 Ratio of operating expenses to average net assets ................................ 0.99% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income/(loss) to average net assets .................... (0.51)% (0.47)% 0.86% 1.42% 1.08% Portfolio turnover rate ................. 229% 325% 118% 81% 196%
- ---------------- * Since February 3, 1997, Pilgrim Baxter & Associates, Ltd. has managed the All-Growth Portfolio. Prior to that date, different firms managed the Portfolio. GROWTH OPPORTUNITIES PORTFOLIO* - ------------------------------------------------------------------------------- YEAR ENDED - ------------------------------------------------------------------------------- 12/31/98*# ---------- Net asset value, beginning of period ............................... $10.00 ------ INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .............................................. 0.08 Net realized and unrealized loss on investments and foreign currencies ............................................... (0.31) ------ Total from investment operations ................................... (0.23) ------ LESS DISTRIBUTIONS: Dividends from net investment income ............................... (0.06) ------ Net asset value, end of period ..................................... $ 9.71 ====== Total return ....................................................... (2.28)%++ ====== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................... $9,091 Ratio of operating expenses to average net assets .................. 1.15%+ Ratio of net investment income to average net assets ............... 0.99%+ Portfolio turnover rate ............................................ 77% - ---------------- * The Growth Opportunities Portfolio commenced operations on February 18, 1998. + Annualized ++ Non-annualized # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. 55 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
STRATEGIC EQUITY PORTFOLIO/1/ - ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED - ----------------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96## 12/31/95* -------- -------- ---------- --------- Net asset value, beginning of period ........... $ 13.63 $ 11.68 $ 10.01 $10.00 ------- ------- ------- ------ INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .......................... 0.16 0.20 0.23 0.06 Net realized and unrealized gain/(loss) on investments and foreign currencies ........................... (0.07) 2.49 1.71 (0.03)# ------- ------- ------- ------ Total from investment operations ............... 0.09 2.69 1.94 0.03 ------- ------- ------- ------ LESS DISTRIBUTIONS: Dividends from net investment income ........... (0.16) (0.19) (0.14) (0.02) Distributions from capital gains ............... (0.59) (0.55) (0.13) -- Distributions in excess of capital gains ....... (0.15) -- -- -- ------- ------- ------- ------ Total distributions ............................ (0.90) (0.74) (0.27) (0.02) ------- ------- ------- ------ Net asset value, end of period ................. $ 12.82 $ 13.63 $ 11.68 $10.01 ======= ======= ======= ====== Total return ................................... 0.84% 23.16% 19.39% 0.33%++ ======= ======= ======= ====== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ........... $73,261 $51,789 $30,423 $8,067 Ratio of operating expenses to average net assets ....................................... 0.99% 0.99% 1.00% 1.00%+ Ratio of net investment income to average net assets ....................................... 1.46% 1.88% 2.05% 4.04%+ Portfolio turnover rate ........................ 139% 105% 133% 29%
- - -------------- 1 Since March 1, 1999, A I M Capital Management, Inc. has managed the Strategic Equity Portfolio. Prior to that date, a different firm managed the Portfolio. * The Strategic Equity Portfolio commenced operations on October 2, 1995. + Annualized ++ Non-annualized # The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities due to timing of sales and redemptions of Series shares. ## Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period.
CAPITAL APPRECIATION PORTFOLIO* - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------ 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- ------- Net asset value, beginning of period .... $ 17.65 $ 15.06 $ 13.51 $ 11.34 $ 11.76 -------- -------- -------- -------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.15 0.16 0.16 0.19 0.23 Net realized and unrealized gain/(loss) on investments and foreign currencies ............................ 2.07 4.19 2.57 3.22 (0.42) -------- -------- -------- -------- ------- Total from investment operations ........ 2.22 4.35 2.73 3.41 (0.19) -------- -------- -------- -------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.15) (0.16) (0.17) (0.15) (0.23) Distributions from capital gains ........ (1.63) (1.60) (1.01) (1.09) -- -------- -------- -------- -------- ------- Total distributions ..................... (1.78) (1.76) (1.18) (1.24) (0.23) -------- -------- -------- -------- ------- Net asset value, end of period .......... $ 18.09 $ 17.65 $ 15.06 $ 13.51 $ 11.34 ======== ======== ======== ======== ======= Total return ............................ 12.68% 28.95% 20.26% 30.16% (1.59)% ======== ======== ======== ======== ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $263,313 $193,986 $148,752 $122,227 $88,890 Ratio of operating expenses to average net assets ............................ 0.98% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets .................... 0.95% 0.95% 1.12% 1.53% 1.96% Portfolio turnover rate ................. 64% 51% 64% 98% 84%
- ------------------ * Since April 1, 1999, A I M Capital Management, Inc. has managed the Capital Appreciation Portfolio. Prior to that date, a different firm managed the Portfolio. 56 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
SMALL CAP PORTFOLIO* - -------------------------------------------------------------------------------------------------------------- YEAR ENDED - -------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96* -------- -------- -------- Net asset value, beginning of period .................... $ 13.25 $ 12.01 $ 10.00 -------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment loss ..................................... (0.03) (0.03) (0.01) Net realized and unrealized gain on investments and foreign currencies .................................... 2.81 1.27 2.02 -------- ------- ------- Total from investment operations ........................ 2.78 1.24 2.01 -------- ------- ------- Net asset value, end of period .......................... $ 16.03 $ 13.25 $ 12.01 ======== ======= ======= Total return ............................................ 20.98% 10.32% 20.10%++ ======== ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .................... $147,696 $66,396 $34,365 Ratio of operating expenses to average net assets ....... 0.99% 0.99% 0.99%++ Ratio of net investment loss to average net assets ...... (0.32)% (0.34)% (0.08)%++ Portfolio turnover rate ................................. 133% 130% 117%
- - -------------- * The Small Cap Portfolio commenced operations on January 3, 1996. ++ Non-annualized
REAL ESTATE PORTFOLIO * - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED - -------------------------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ------------ ------------ ------------ ------------ ----------- Net asset value, beginning of period .... $ 18.27 $ 15.98 $ 12.63 $ 11.29 $ 11.18 ------- ------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.83 0.69 0.70 0.75 0.60 Net realized and unrealized gain/ (loss) on investments and foreign currencies ............................ (3.34) 2.93 3.70 1.12 0.11# ------- ------- ------- ------- ------- Total from investment operations ........ (2.51) 3.62 4.40 1.87 0.71 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.66) (0.63) (0.77) (0.53) (0.60) Distributions from capital gains ........ (1.52) (0.70) (0.28) -- -- ------- ------- ------- ------- ------- Total distributions ..................... (2.18) (1.33) (1.05) (0.53) (0.60) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 13.58 $ 18.27 $ 15.98 $ 12.63 $ 11.29 ======= ======= ======= ======= ======= Total return ............................ (13.45)% 22.79% 35.30% 16.59% 6.34% ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $69,911 $75,530 $51,135 $34,975 $37,336 Ratio of operating expenses to average net assets ............................ 0.99% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets .................... 5.26% 4.49% 5.53% 5.79% 5.31% Portfolio turnover rate ................. 29% 41% 31% 53% 64%
- ---------------- * Since January 1, 1995, EII Realty Securities, Inc. has managed the Real Estate Portfolio. Prior to that date, a different firm managed the Portfolio. # The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities due to timing of sales and redemptions of portfolio shares. 57 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------
HARD ASSETS PORTFOLIO* - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED - -------------------------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ------- ------- ------- ------- ------- Net asset value, beginning of period .... $ 15.05 $ 17.85 $ 15.04 $ 13.88 $ 13.89 ------- ------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................... 0.26 0.14 0.05 0.15 0.13 Net realized and unrealized gain/(loss) on investments and foreign currencies ............................. (4.73) 0.99 4.92 1.34 0.23 ------- ------- ------- ------- ------- Total from investment operations ........ (4.47) 1.13 4.97 1.49 0.36 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.26) (0.13) (0.07) (0.13) (0.13) Distributions from capital gains ........ (0.72) (3.80) (2.09) (0.20) (0.24) ------- ------- ------- ------- ------- Total distributions ..................... (0.98) (3.93) (2.16) (0.33) (0.37) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 9.60 $ 15.05 $ 17.85 $ 15.04 $ 13.88 ======= ======= ======= ======= ======= Total return ............................ (29.58)% 6.22% 33.17% 10.69% 2.53% ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $30,530 $46,229 $43,903 $27,147 $32,879 Ratio of operating expenses to average net assets ................................ 1.00% 0.99% 1.00% 1.01% 1.00% Ratio of net investment income to average net assets ............................ 1.99% 0.76% 0.34% 0.89% 1.01% Portfolio turnover rate ................. 178% 124% 96% 24% 25%
- ---------------- * Since March 1, 1999, Baring International Investment Limited has managed the Hard Assets Portfolio. Prior to that date, a different firm managed the Portfolio. Prior to January 23, 1997, the Hard Assets Portfolio was named the Natural Resources Series.
MANAGED GLOBAL PORTFOLIO * - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED - -------------------------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96**# 12/31/95# 12/31/94# -------- -------- ----------- --------- --------- Net asset value, beginning of period .... $ 11.46 $ 11.13 $ 9.96 $ 9.26 $ 10.67 -------- -------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income/(loss) ............ (0.02) 0.02 0.04 0.05 0.07 Net realized and unrealized gain/ (loss) on investments and foreign currencies .................... 3.37 1.33 1.18 0.65 (1.48) -------- -------- ------- ------- ------- Total from investment operations ........ 3.35 1.35 1.22 0.70 (1.41) -------- -------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... (0.05) (0.17) -- -- -- Dividends in excess of net investment income ................................ 0.00## (0.07) -- -- -- Distributions from capital gains ........ (0.57) (0.78) (0.05) -- -- -------- -------- ------- ------- ------- Total distributions ..................... (0.62) (1.02) (0.05) -- -- -------- -------- ------- ------- ------- Net asset value, end of period .......... $ 14.19 $ 11.46 $ 11.13 $ 9.96 $ 9.26 ======== ======== ======= ======= ======= Total return ............................ 29.31% 12.17% 12.27% 7.56% (13.21)% ======== ======== ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $134,078 $105,305 $86,376 $72,375 $86,209 Ratio of operating expenses to average net assets .................... 1.26% 1.36% 1.26% 1.26% 1.31% Decrease reflected in above expense ratio due to expense limitations ...... -- -- -- 0.09% 0.09% Ratio of net investment income to average net assets .................... (0.17)% 0.06% 0.39% 0.51% 0.69% Portfolio turnover rate ................. 173% 199% 141% 44% N/A
- ---------------- * Since March 3, 1997, Putnam Investment Management, Inc. has managed the Managed Global Portfolio. Prior to that date, a different firms managed the Portfolio. ** On September 3, 1996, the Managed Global Portfolio was reorganized into the GCG Trust. Net investment income and net realized gains earned prior to September 3, 1996, are not subject to Internal Revenue Code distribution requirements for regulated investment companies. Financial highlights from prior periods have been restated to account for the entity as if it had been a regulated investment company since the commencement of operations. # Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period. ## Amount represents less than $0.01 per share. 58 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - ------------------------------------------------------------------------- DEVELOPING WORLD PORTFOLIO(*)(**) - ------------------------------------------------------------------------ YEAR ENDED - ------------------------------------------------------------------------ 12/31/98*## ----------- Net asset value, beginning of period ............................. $ 10.00 ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ............................................ 0.04 Net realized and unrealized loss on investments and foreign currencies ............................................. (2.67) ------- Total from investment operations ................................. (2.63) ------- LESS DISTRIBUTIONS: Dividends from net investment income ............................. 0.00# Dividends in excess of net investment income ..................... 0.00# ------- Total distributions .............................................. 0.00# ------- Net asset value, end of period ................................... $ 7.37 ======= Total return ..................................................... (26.27)%++ ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ............................. $ 8,797 Ratio of operating expenses to average net assets ................ 1.83%+ Ratio of net investment income to average net assets ............. 0.69%+ Portfolio turnover rate .......................................... 67% - ---------------- * Since March 1, 1999, Baring International Investment limited has managed the Developing World Portfolio. Prior to that date, a different firm managed the Portfolio. ** The Developing World Portfolio commenced operations on February 18, 1998. + Annualized ++ Non-annualized # Amount represents less than $0.01 per share. ## Per share numbers have been calculated using the monthly average share method, which more appropriately represents the per share data for the period.
EMERGING MARKETS PORTFOLIO* - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED - -------------------------------------------------------------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ------- ------- ------- ------- ------- Net asset value, beginning of period .... $ 8.80 $ 9.72 $ 9.06 $ 10.08 $ 12.44 ------- ------- ------- ------- ------- INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income/(loss) ............ 0.06 (0.01) 0.04 0.04 -- Net realized and unrealized gain/(loss) on investments and foreign currencies ............................ (2.18) (0.90) 0.62 (1.06) (1.89) ------- ------- ------- ------- ------- Total from investment operations ........ (2.12) (0.91) 0.66 (1.02) (1.89) ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income .... -- (0.01) -- -- -- Distributions from capital gains ........ -- -- -- (0.00)# (0.47) ------- ------- ------- ------- ------- Total distributions ..................... -- (0.01) -- (0.00) (0.47) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 6.68 $ 8.80 $ 9.72 $ 9.06 $ 10.08 ======= ======= ======= ======= ======= Total return ............................ (24.09)% (9.37)% 7.28% (10.11)% (15.18)% ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .... $26,028 $39,436 $51,510 $47,974 $65,224 Ratio of operating expenses to average net assets ................................ 1.83% 1.80% 1.55% 1.53% 1.73% Ratio of net investment income/(loss) to average net assets .................... 0.83% (0.09)% 0.38% 0.40% 0.03% Portfolio turnover rate ................. 108% 170% 136% 141% 106%
- ---------------- * Since March 3, 1997, Putnam Investment Management, Inc. has managed the Emerging Markets Portfolio. Prior to that date, a different firm managed the Portfolio. # Amount represents less than $0.01 per share. 59 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS - ------------------------------------------------------------------------- LIQUID ASSET PORTFOLIO PORTFOLIO MANAGER ING Investment Management LLC INVESTMENT OBJECTIVE High level of current income consistent with the preservation of capital and liquidity PRINCIPAL The Portfolio Manager strives to maintain a INVESTMENT stable $1 per share net asset value and its STRATEGY investment strategy focuses on safety of principal, liquidity and yield, in order of importance, to achieve this goal. The Portfolio Manager implements its strategy through a four-step investment process also designed to ensure adherence to regulatory requirements. Step One: The Portfolio Manager actively maintains a formal Approved List of high quality companies Step Two: Securities of Approved List issuers that meet maturity guidelines and are rated in one of the two highest ratings category (or determined to be of comparable quality by the Portfolio Manager) are eligible for investment Step Three: Eligible securities are reviewed to ensure that an investment in such securities would not cause the Portfolio to exceed its diversification limits Step Four: The Portfolio Manager makes yield curve positioning decisions based on liquidity requirements, yield curve analysis and market expectations of future interest rates Money market funds are highly regulated by Rule 2a-7 of the Investment Company Act of 1940, which sets forth specific maturity, quality and diversification guidelines. The Portfolio must adhere to procedures adopted by the Board of Trustees pursuant to Rule 2a-7 and to Rule 2a-7 itself. Some of these limitations include: o QUALITY. At least 95% of the Portfolio's investments must be rated in the highest short-term ratings category (or determined to be of comparable quality by the Portfolio Manager) and the Portfolio Manager must make an independent determination that each investment represents minimal credit risk to the Portfolio. o MATURITY. The average maturity of the Portfolio's securities may not exceed 90 days and the maturity of any individual security may not exceed 397 days. o DIVERSIFICATION. At the time of purchase, no more than 5% of total assets may be invested in the securities of a single issuer and no more than 10% of total assets may be subject to demand features or guarantees from a single institution. The Portfolio may invest in U.S. dollar-denominated money market instruments including: o U.S. Treasury and U.S. Government Agency securities o fully collateralized repurchase agreements o bank obligations, including certificates of deposit, time deposits, and bankers' acceptances 60 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o commercial paper o asset-backed securities o variable or floating rate securities, including variable rate demand obligations o short-term corporate debt securities other than commercial paper o U.S. dollar-denominated foreign securities o shares of other investment companies Some of the securities purchased may be considered illiquid and thus subject to a restriction of 10% of total assets. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INCOME RISK o CREDIT RISK o INTEREST RATE RISK AN INVESTMENT IN THE LIQUID ASSET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND WE CANNOT ASSURE YOU THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE. MORE ING Investment Management LLC (or investment ON THE advisers acquired by ING Investment Management LLC) PORTFOLIO ("ING Investment") have managed the Portfolio since MANAGER August, 1996. ING Investment Management is engaged in the business of providing investment advice to affiliated insurance and investment companies and institutional clients possessing portfolios, which, as of December 31, 1998, were valued at approximately $27.6 billion. The address of ING Investment is 5780 Powers Ferry Road, N.W., Suite 300, Atlanta, Georgia 30327. ING Investment is a subsidiary of ING Groep N.V. and is affiliated with Directed Services, Inc. The Portfolio is managed by a team of three investment professionals led by Ms. Jennifer J. Thompson, CFA. Ms. Thompson has been employed by ING Investment as an investment professional since 1998 and has seven years investment experience. ING Investment also manages the Limited Maturity Bond Portfolio. 61 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- LIMITED MATURITY BOND PORTFOLIO PORTFOLIO MANAGER ING Investment Management, LLC INVESTMENT OBJECTIVE Highest current income consistent with low risk to principal and liquidity. PRINCIPAL As a secondary objective, the Portfolio seeks to INVESTMENT enhance its total return through capital STRATEGY appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. The Portfolio invests primarily in a diversified portfolio of limited maturity debt securities. These short-to-intermediate-term debt securities have remaining maturities of seven years or less. The dollar-weighted average maturity of the Portfolio generally will not exceed five years and in periods of rapidly rising interest rates may be shortened to one year or less. The Portfolio Manager utilizes the following decision making process to achieve the Portfolio's objectives: o Active Duration Management. The average duration of the portfolio is actively managed relative to the benchmark's average duration. In rising rate environments, the average duration will tend to be equal to or less than the benchmark and in falling rate environments, the average duration will be longer than the benchmark. o Yield Curve Analysis. The yield curve shape is assessed to identify the risk/reward trade-off of maturity decisions and market expectations of future interest rates. o Sector Selection. Sectors are overweighted or underweighted relative to the benchmark based on sector analysis and market opportunities. Sectors are broadly defined to include U.S. Treasury securities, U.S. Government Agency securities, corporate securities, mortgage-backed securities, asset-backed securities and money market securities. The Portfolio Manager may further evaluate groupings within sectors such as various industry groups within the corporate securities sector (e.g., finance, industrials, utilities, etc.). o Security Selection. The Portfolio Manager emphasizes individual securities with positive credit fundamentals, liquidity and relative value within their respective sectors are emphasized. The Portfolio invests in non-government securities only if rated Baa3 or better by Moody's or BBB- or better by Standard & Poor's (S&P) or, if not rated by Moody's or S&P, if the Portfolio Manager determines that they are of comparable quality. Money market securities must be rated tier one or tier two by Moody's (P-1 or P-2) or S&P (A-1+, A-1 or A-2), or determined to be of comparable quality by the Portfolio Manager. For a description of bond ratings, please refer to the Statement of Additional Information. Various security types are eligible for investment including: o corporate securities o mortgage-backed securities o asset-backed o variable and floating securities rate securities 62 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o U.S. treasury securities and U.S. Government Agency securities o money market securities such as commercial paper, certificates of deposit and bankers' acceptances o repurchase agreements and reverse repurchase agreements o U.S. dollar-denominated foreign securities o shares of other investment companies o futures contracts, options and options on futures contracts o sovereign debt o supranational organizations o real estate investment trusts (REITS) In addition, private placements of debt securities (which are often restricted securities) are eligible for purchase along with other illiquid securities, subject to appropriate limits. The Portfolio may borrow up to 10% of the value of its net assets. This amount may be increased to 25% for temporary purposes. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INCOME RISK o CREDIT RISK o INTEREST RATE RISK This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE ING Investment Management LLC ("ING Investment") ON THE (or investment advisers acquired by ING PORTFOLIO Investment Management) has managed the Portfolio MANAGER since August 13, 1996. ING Investment Management is engaged in the business of providing investment advice to affiliated insurance and investment companies and institutional clients possessing portfolios, which, as of December 31, 1998, were valued at approximately $27.6 billion. ING Investment is a subsidiary of ING Groep N.V. and is affiliated with Directed Services, Inc. The address of ING Investment is 5780 Powers Ferry Road, N.W., Suite 300, Atlanta, Georgia 30327. The Portfolio is managed by a team of three investment professionals led by Ms. Jennifer J. Thompson, CFA. Ms. Thompson has been employed by ING Investment as an investment professional since 1998 and has seven years investment experience. ING Investment also manages the Liquid Asset Portfolio. 63 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO PORTFOLIO MANAGER Baring International Investment Limited INVESTMENT OBJECTIVE High total return PRINCIPAL INVESTMENT The Portfolio invests primarily in high-grade STRATEGY fixed income securities, both foreign and domestic. The Portfolio normally primarily invests in: o obligations issued or guaranteed by foreign national governments, or their agencies, instrumentalities or political subsidiaries o U.S. Government securities o debt securities issued or guaranteed by supranational organizations, considered to be "government securities" o non-government foreign and domestic debt securities, including corporate debt securities, bank obligations, mortgage-backed or asset-backed securities, and repurchase agreements The Portfolio may invest in securities issued in any currency and may hold foreign currencies normally in at least six different countries, including the U.S., although the Portfolio may at times invest all of its assets in a single country. The Portfolio's assets will be invested principally within, or in the currencies of: o Australia o United States o Canada o Scandinavia o Japan o Western Europe o New Zealand o European Community When U.S. securities offer superior opportunities for achieving the Portfolio's investment objective, the Portfolio may invest substantially all of its assets in securities of U.S. issuers or securities denominated in U.S. dollars. The Portfolio may also acquire securities and currency in less developed and developing countries. The Portfolio may invest in debt securities of any type of issuer, including foreign and domestic corporations, the 100 largest foreign commercial banks in terms of total assets, and other business organizations, domestic and foreign governments and their political subdivisions, including the U.S. Government, its agencies, and authorities or instrumentalities. The Portfolio may invest in debt securities with varying maturities, which generally will not exceed 10 years. The average maturity of the Portfolio's debt portfolio will be shorter when interest rates worldwide or in a particular country are expected to rise, and longer when interest rates are expected to fall. The majority of the Portfolio's investments are rated within the three highest rating categories of Standard & Poor's (AAA, AA, A) or Moody's (Aaa, Aa or A) or if unrated, considered by the Portfolio Manager to be of equivalent quality. For a description of bond ratings, please refer to the Statement of Additional Information. 64 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- The Portfolio Manager allocates the Portfolio's investments among those markets, companies and currencies that offer the most attractive combination of high income and principal stability. In evaluating investments for the Portfolio, the Portfolio Manager analyzes relative yields and the appreciation potential of securities in particular markets, world interest rates and monetary trends, economic, political and financial market conditions in different countries, credit quality, and the relationship of individual foreign currencies to the U.S. dollar. The Portfolio Manager also relies on internally and externally generated financial, economic, and credit research to evaluate alternative investment opportunities. Frequency of portfolio turnover will not be a limiting factor if the Portfolio Manager considers it advantageous to purchase or sell securities. The Portfolio Manager anticipates that the portfolio turnover rate generally will not exceed 300%. A higher rate of portfolio turnover may result in correspondingly higher portfolio transaction costs that would have to be borne directly by the Portfolio and ultimately by the shareholders. The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earning of the issuer. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o CREDIT RISK o INCOME RISK o CALL RISK o INTEREST RATE RISK An investment in the Portfolio is subject to the following additional principal risks: o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar Terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. o EMERGING MARKET RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after investments in those currencies by the Portfolio. Inflation and rapid fluctuations in inflation rates 65 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Baring International Investment Limited ("Baring ON THE International") has managed the Portfolio since PORTFOLIO the Portfolio's inception. Baring International MANAGER is a subsidiary of Baring Asset Management Holdings Limited ("Baring"). Baring is the parent of the world-wide group of investment management companies that operate under the collective name "Baring Asset Management" and is owned by ING Groep N.V., a publicly traded company based in the Netherlands with worldwide insurance and banking subsidiaries. The address of Baring International is 155 Bishopsgate, London. Baring Asset Management provides global investment management services to U.S. investment companies and maintains major investment offices in Boston, London, Hong Kong and Tokyo. Baring's predecessor corporation was founded in 1762. Baring Asset Management provides advisory services to institutional investors, offshore investment companies, insurance companies and private clients. As of December 31, 1998, Baring Asset Management managed approximately $45.6 billion of assets. The following person at Baring International is responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Paul Thursby Investment Manager Mr. Thursby has been an Investment Manager with Baring International since 1991 and has over 19 years of investment experience. Baring International also manages the Hard Assets Portfolio and the Developing World Portfolio. 66 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- TOTAL RETURN PORTFOLIO PORTFOLIO MANAGER Massachusetts Financial Services Company INVESTMENT OBJECTIVE Above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. A secondary goal is the reasonable opportunity for growth of capital and income. PRINCIPAL INVESTMENT The Portfolio is a "balanced fund," and invests STRATEGY in a combination of equity and fixedincome securities. Under normal market conditions, the Portfolio invests: o at least 40%, but not more than 75%, of its assets in common stocks and related securities (referred to as equity securities) such as preferred stock, bonds, warrants or rights convertible into stock, and depositary receipts for those securities o at least 25% of its net assets in non- convertible fixed income securities. The Portfolio may vary the percentage of its assets invested in any one type of security (within the limits described above) based on the Portfolio Manager's interpretation of economic and money market conditions, fiscal and monetary policy and underlying security values. EQUITY PORTION. The Portfolio Manager uses a bottom-up, as opposed to a top-down, investment style in managing the Portfolio. This means that securities are selected based on fundamental analysis performed by the Portfolio Manager and its group of equity research analysts and generally not selected based on the industry in which they belong. While the Portfolio may invest in all types of equity securities, the Portfolio Manager generally purchases equity securities of companies that the Portfolio Manager believes are undervalued in the market relative to their long- term potential. The Portfolio Manager deems equity securities of companies to be undervalued where: o they are viewed by the Portfolio Manager as being temporarily out of favor in the market due to any of the following: o a decline in the market o poor economic conditions o developments that have affected or may affect the issuer of the securities or the issuer's industry o the market has overlooked them Undervalued equity securities generally have low price-to-book, price-to-sales and/or price-to- earnings ratios. The Portfolio focuses on undervalued equity securities issued by companies with relatively large market capitalizations (i.e., market capitalizations of $5 billion or more). As noted above, the Portfolio's investments in equity securities include convertible securities. A convertible security is a security that may be converted within a specified 67 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- period of time into a certain amount of common stock of the same or a different issuer. A convertible security generally provides: o a fixed income stream o the opportunity, through its conversion feature, to participate in an increase in the market price of the underlying common stock. FIXED INCOME PORTION. The Portfolio invests in securities that pay a fixed interest rate, including: o U.S. government securities, which are bonds or other debt obligations issued by, or whose principal and interest payments are guaranteed by, the U.S. government or one of its agencies or instrumentalities, o mortgage-backed and asset-backed securities, which represent interest in a pool of assets such as mortgage loans, car loan receivables, or credit card receivables. These investments entitle the Portfolio to a share of the principal and interest payments made on the underlying mortgage, car loan, or credit card. For example, if the Portfolio invests in a pool that includes your mortgage loan, a share of the principal and interest payments on your mortgage would pass to the Portfolio, and o corporate bonds, which are bonds or other debt obligations issued by corporations or other similar entities. In selecting fixed income investments for the Portfolio, the Portfolio Manager considers the views of its group of fixed income portfolio managers and research analysts. This group periodically assesses the three-month outlook for various segments of the fixed income markets. This three-month "horizon" outlook is used as a tool in making or adjusting the Portfolio's asset allocations to various segments of the fixed income markets. In assessing the credit quality of fixed-income securities, the Portfolio Manager does not rely solely on the credit ratings assigned by credit rating agencies, but rather performs its own independent credit analysis. The Portfolio may invest up to 20% of its assets in U.S. government securities, mortgage pass- through securities, American Depositary Receipts and foreign securities (including in emerging or developing markets) and lower rated fixed income securities. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INTEREST RATE RISK o INCOME RISK o CREDIT RISK o CALL RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o ALLOCATION RISK. The Portfolio will allocate its investments between equity and fixed income securities, and among various segments of the fixed income markets, based upon judgements made by the Portfolio Manager. The Portfolio could miss attractive investment opportunities by underweighting markets where there are 68 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- significant returns, and could lose value by overweighting markets where there are significant declines. o CONVERTIBLE SECURITIES RISK. Convertible securities, like fixed income securities, tend to increase in value when interest rates decline and decrease in value when interest rates rise. The market value of a convertible security also tends to increase as the market value of the underlying stock rises and decrease as the market value of the underlying stock declines. o EMERGING MARKET RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after investments in those currencies by the Portfolio. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. o UNDERVALUED SECURITIES RISK. Prices of securities react to the economic condition of the company that issued the security. The Portfolio equity investments in an issuer may rise and fall based on the issuer's actual and anticipated earnings, changes in management and the potential for takeovers and acquisitions. The Portfolio Manager invests in securities that are undervalued based on its belief that the market value of these securities will rise due to anticipated events and investor perceptions. If these events do not occur or are delayed, or if investor perceptions about the securities do not improve, the market price of these securities may not rise or may fall. o HIGH YIELD BOND RISK. High yield bonds (commonly referred to "junk bonds") generally provide greater income and increased opportunity for capital appreciation than investments in higher quality debt securities, but they also typically have greater potential price volatility and principal and income risk. High yield bonds are not considered investment grade. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. 69 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Massachusetts Financial Services Company ("MFS") ON THE has managed the Portfolio since its inception. PORTFOLIO MFS is America's oldest mutual fund organization. MANAGER MFS and its predecessor organizations have managed money since 1924 and founded the first mutual fund in the United States. MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which in turn is an indirect subsidiary of Sun Life Assurance Company of Canada (referred to as "Sun Life"). Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the U.S. since 1895. As of December 31, 1998, MFS managed net assets of approximately $98 billion (approximately $69.5 billion in equity securities and $20.5 billion in fixed income securities) on behalf of approximately 3.7 million investor accounts. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. The Portfolio is managed by a management team consisting of six members. David M. Calabro, Senior Vice President, heads the management team and manages the common stock portion of the Portfolio. Mr. Calabro has been employed by MFS since 1992. MFS also manages the Mid-Cap Growth Portfolio and the Research Portfolio. 70 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- EQUITY INCOME PORTFOLIO (FORMERLY, THE MULTIPLE ALLOCATION PORTFOLIO) PORTFOLIO MANAGER T. Rowe Price Associates, Inc. INVESTMENT OBJECTIVE Substantial dividend income as well as long-term growth of capital. PRINCIPAL The Portfolio normally invests at least 65% of INVESTMENT its assets in the common stocks of well- STRATEGY established companies paying above-average dividends. The Portfolio Manager typically employs a "value" approach in selecting investments. The Portfolio Manager's in-house research team seeks companies that appear to be undervalued by various measures and may be temporarily out of favor, but have good prospects for capital appreciation and dividend growth. In selecting investments, the Portfolio Manager generally looks for companies with the following: o an established operating history. o above-average dividend yield relative to the S&P 500. o low price/earnings ratio relative to the S&P 500. o a sound balance sheet and other positive financial characteristics. o low stock price relative to a company's underlying value as measured by assets, cash flow or business franchises. While most of the Portfolio's assets will be invested in U.S. common stocks, it may also invest in other securities, including foreign securities, debt securities, futures and options, in keeping with its objectives. The Portfolio may also invest in shares of the Reserve Investment Fund, an internally managed money market fund of T. Rowe Price. The Portfolio may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following principal additional risk: o VALUE INVESTING RISK. Undervalued stock may not realize their perceived value for extended periods of time. Value stocks may respond differently to market and other developments than other types of stocks. Value stocks typically underperform when other investing styles, such as growth investing, are in favor. MORE T. Rowe Price Associates, Inc. has managed the ON THE Portfolio since March 1, 1999. Prior to that, PORTFOLIO different firms at different times served as MANAGER portfolio manager. T. Rowe Price was founded in 1937 by the late Thomas Rowe Price, Jr. As of March 31, 1999, the firm and its affiliates managed approximately $149 billion in assets. The address of T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. 71 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- The Portfolio is managed by an Investment Advisory Committee consisting of six members. Brian Rogers, as Committee Chair, has day-to-day responsibility for managing the Portfolio and works with the Committee in developing and executing the Portfolio's investment program. Mr. Rogers has been Chairman of the Committee since its inception. He joined T. Rowe Price in 1982. T. Rowe Price also manages the Fully Managed Portfolio. 72 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- FULLY MANAGED PORTFOLIO PORTFOLIO MANAGER T. Rowe Price Associates, Inc. INVESTMENT OBJECTIVE Over the long-term, a high total investment return, consistent with the preservation of capital and with prudent investment risk. PRINCIPAL The Portfolio invests primarily in the common INVESTMENT stocks of established companies the Portfolio STRATEGY Manager believes to have above-average potential for capital growth. Common stocks typically compose at least half of total assets. The Portfolio may also invest in other securities, including convertibles, warrants, preferred stocks, corporate and government debt, foreign securities, futures, and options, in keeping with its objective. The Portfolio's common stocks generally fall into one of two categories: o the larger category comprises long-term core holdings whose purchase prices are considered low in terms of company assets, earnings, or other factors o the smaller category comprises opportunistic investments whose prices are expected by the Portfolio Manager to rise in the short term but not necessarily over the long term. Since the Portfolio Manager attempts to prevent losses as well as achieve gains, it typically uses a value approach in selecting investments. Its in-house research team seeks to identify companies that seem undervalued by various measures, such as price/book value, and may be temporarily out of favor, but have good prospects for capital appreciation. The Portfolio Manager may establish relatively large positions in companies it finds particularly attractive The Portfolio may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities. The Portfolio's approach differs from that of many other stock funds. The Portfolio Manager works as hard to reduce risk as to maximize gains and may realize gains rather than lose them in market declines. In addition, the Portfolio Manager searches for the best risk/reward values among all types of securities. The portion of the Portfolio invested in a particular type of security, such as common stocks, results largely from case-by-case investment decisions, and the size of the Portfolio's cash reserve may reflect the Portfolio Manager's ability to find companies that meet valuation criteria rather than his market outlook. DEBT SECURITIES. Debt securities, including convertible bonds, may often constitute between 25% and 50% of the Portfolio's overall portfolio. The Portfolio may purchase debt securities of any maturity. The weighted average maturity of the debt portfolio generally will be between four and ten years, but may be shorter or longer. The Portfolio Manager may invest up to 15% of the Portfolio's assets in debt securities that are rated below investment-grade or, if not rated, of equivalent quality. For a description of bond ratings, please refer to the Statement of Additional Information. MONEY MARKET INSTRUMENTS. If there are remaining assets available for investment, the Portfolio Manager may invest the balance in any of the following money market instruments with remaining maturities not exceeding one year: (1) shares of the Reserve Investment Fund, an internally managed money market fund of T. Rowe Price 73 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- (2) U.S. government obligations (3) negotiable certificates of deposit, bankers' acceptances and fixed time deposits and other obligations of domestic banks that have more than $1 billion in assets and are members of the Federal Reserve System or are examined by the Comptroller of the Currency whose deposits are insured by the Federal Deposit Insurance Corporation (4) commercial paper rated at the date of purchase in the two highest rating categories (5) repurchase agreements The Portfolio also may invest in short-term U.S. dollar denominated obligations of foreign banks if, at the time of purchase, such banks have more than $1 billion in assets. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o INTEREST RATE RISK o CALL RISK o INCOME RISK o MARKET AND COMPANY o CREDIT RISK RISK An investment in the Portfolio is subject to the following additional principal risk: o VALUE INVESTING RISK. A particular risk of the Portfolio's value or "contrarian" approach is that some holdings may not recover and provide the capital growth anticipated. If the Portfolio has large holdings in a relatively small number of companies, disappointing performance by those companies will have a more adverse impact on the Portfolio than would be the case with a more diversified fund. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE T. Rowe Price Associates, Inc. has managed the ON THE Portfolio since January, 1995. T. Rowe Price was PORTFOLIO founded in 1937 by the late Thomas Rowe Price, Jr. MANAGER As of March 31, 1999, the firm and its affiliates managed approximately $149 billion in assets. The address of T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. The Portfolio is managed by an Investment Advisory Committee consisting of five members. Richard P. Howard, the Committee Chair, has day- to-day responsibility for managing the Portfolio and works with the Committee in developing and executing the Portfolio's investment program. Mr. Howard has been Chairman of the Committee since 1995. He joined T. Rowe Price in 1982 and has been managing investments since 1989. T. Rowe Price also manages the Equity Income Portfolio. 74 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- RISING DIVIDENDS PORTFOLIO PORTFOLIO MANAGER Kayne Anderson Investment Management, LLC INVESTMENT OBJECTIVE Capital appreciation. A secondary objective is dividend income. PRINCIPAL INVESTMENT The Portfolio invests in high-quality equity STRATEGY securities, most of which meet all of the following quality criteria: o regular dividend increases during the last 10 years o at least 35% of earnings reinvested annually o credit rating of "A" to "AAA" or its equivalent There may from time to time be other high-quality securities in the Portfolio which meet most, but not all, of the criteria, but which the Portfolio Manager deems a suitable investment. In addition to common stocks, the Portfolio may invest in securities convertible into common stocks, or rights or warrants to subscribe for or purchase common stocks. In selecting equity securities, the Portfolio Manager screens databases to create a universe of companies that meet the preceding criteria. The Portfolio Manager then fundamentally analyzes the securities. This research involves study of competitive industry conditions, discussions with company management, spreadsheet analysis, and valuation projections. A proprietary computer model compares expected rates of return for each equity security in the universe. In deciding whether to purchase a security the Portfolio Manager appraises a company's fundamental strengths and relative attractiveness based on its expected return. The Portfolio generally holds at least 25 to 30 different securities. These securities are diversified by industry. The security selection discipline also avoid over-concentration in any single sector or company. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o MANAGEMENT TECHNIQUE RISK. The Portfolio is managed based on proprietary computer models and techniques developed by the Portfolio Manager. We cannot assure you that such management techniques will correctly predict market trends, or enable the Portfolio to achieve its investment objective. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. 75 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- MORE The Portfolio has been managed by Kayne Anderson ON THE Investment Management, LLC or its predecessor PORTFOLIO since the Portfolio's inception. Kayne Anderson MANAGER has been in the business of furnishing investment advice to institutional and private clients since 1984, when founded by Richard A. Kayne and John E. Anderson. As of December 31, 1998, Kayne Anderson managed portfolios amounting to approximately $4 billion. The address of Kayne Anderson is 1800 Avenue of the Stars, Suite 200, Los Angeles, California 90067. The following persons at Kayne Anderson are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Allan M. Rudnick Chief Investment Officer and Portfolio Manager Mr. Rudnick has served as Chief Investment Officer for Kayne Anderson since 1989. Paul Wayne Director of Research and Portfolio Manager Mr. Wayne has been employed by Kayne Anderson since 1992. 76 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- GROWTH & INCOME PORTFOLIO PORTFOLIO MANAGER Alliance Capital Management L.P. INVESTMENT OBJECTIVE Long-term total return PRINCIPAL INVESTMENT The Portfolio invests primarily in common stocks STRATEGY of companies where the potential for change (earnings acceleration) is significant. The Portfolio Manager applies a growth-oriented investment philosophy defined by its: o EARLY RECOGNITION OF CHANGE o Value is created through the dynamics of changing economic, industry and company fundamentals o The Portfolio Manager's willingness to invest on incomplete information o Judgment about the future, not merely extrapolation of the past o Invest in one to two year relative earnings strength at an early stage and at a reasonable price o COMMITMENT TO FUNDAMENTAL RESEARCH o Twenty-one fundamental analysts covering U.S. companies o EMPHASIS ON STOCK SELECTION o Emphasis on companies and industries where the potential for change (earnings acceleration) is significant o Remain fully invested Although the Portfolio will focus on companies with market capitalizations of up to $5 billion, the Portfolio remains flexible and may invest in securities of larger companies. The Portfolio may also engage in short sales of securities it expects to decline in price. The Portfolio may invest a substantial portion of its assets in securities issued by small, small Cap and mid-cap companies. These companies may offer greater opportunities for share price increase than larger companies. Equity and debt securities in which the Portfolio normally invests include common and preferred stocks, convertible securities, bonds, and notes. The Portfolio may invest in: o foreign securities (including in emerging or developing markets) o foreign currencies, options o lower-quality, high yielding debt securities (commonly called "junk bonds") o "zero-coupon" bonds o "payment-in-kind" bonds 77 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- At times the Portfolio may invest more than 25% of its assets in securities of issuers in one or more market sectors such as, for example, the technology sector. A market sector may be made up of companies in a number of related industries. The Portfolio would only overweight its investments in a particular market sector if the investment return available from such overweighing in that sector justifies any additional risk associated with heavily investing in that sector. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o GROWTH INVESTING RISK. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth potential. Growth-oriented funds will typically underperform when value investing is in favor. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. Alliance Capital Management L.P. has managed the Portfolio since March 1,1999. MORE Alliance Capital Management Corporation, its ON THE general partner, is an indirect subsidiary of The PORTFOLIO Equitable Life Assurance Society of the United MANAGER States. Alliance Capital is a professional investment management firm that provides advisory services to individual and institutional investors. As of December 31, 1998, Alliance Capital managed approximately $286.7 billion of assets. The address of Alliance Capital is 1345 Avenue of the Americas, New York, New York 10105. The following person at Alliance Capital is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Kevin J. O' Brien Senior Vice President Mr. O' Brien has been employed by Alliance Capital since 1988. 78 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- GROWTH PORTFOLIO (FORMERLY, THE VALUE + GROWTH PORTFOLIO) PORTFOLIO MANAGER Janus Capital Corporation INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio invests primarily in common stocks INVESTMENT of growth companies that have favorable STRATEGY relationships between price/earnings ratios and growth rates in sectors offering the potential for above-average returns. The Portfolio invests substantially in common stocks the Portfolio Manager believes will appreciate in value. The Portfolio Manager generally takes a "bottom up" approach to selecting companies. In other words, it seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. It makes this assessment by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. Income is not a significant consideration when choosing investments for the Portfolio. The Portfolio may invest in companies of any size and may invest a substantial portion of its assets in securities issued by small and medium size companies. The Portfolio may also invest in: o foreign securities (including in emerging or developing markets) o forward foreign currency contracts, futures and options o debt securities (including up to 35% in high- yield/high-risk securities) When the Portfolio Manager believes that market conditions are unfavorable for profitable investing, or it is otherwise unable to locate attractive investment opportunities, the Portfolio's cash or similar investments may increase. In other words, the Portfolio does not always stay fully invested in stocks and bonds. Cash or similar investments generally are a residual--they represent the assets that remain after the Portfolio Manager has committed available assets to desirable investment opportunities. Frequency of portfolio turnover will not be a limiting factor if the Portfolio Manager considers it advantageous to purchase or sell securities. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o GROWTH INVESTING RISK. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth potential. Growth-oriented funds will typically underperform when value investing is in favor. 79 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o SMALL COMPANY RISK. Investing in securities of small companies may involve greater risks than investing in larger, more established issuers. Smaller companies may have limited product lines, markets or financial resources. Their securities may trade less frequently and in more limited volume than the securities of larger, more established companies. In addition, smaller companies are typically subject to greater changes in earnings and business prospects than are larger companies. Consequently, the prices of small company stocks tend to rise and fall in value more than other stocks. Although investing in small companies offers potential for above-average returns, the companies may not succeed, and the value of stock shares could decline significantly. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. o HIGH YIELD BOND RISK. High yield bonds (commonly referred to "junk bonds") generally provide greater income and increased opportunity for capital appreciation than investments in higher quality debt securities, but they also typically have greater potential price volatility and principal and income risk. High yield bonds are not considered investment grade. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Janus Capital Corporation has managed the ON THE Portfolio since March 1, 1999. Janus Capital has PORTFOLIO been an investment adviser since 1970, and MANAGER provides advisory services to managed accounts and investment companies. As of December 31, 1998, Janus Capital managed approximately $108 billion in assets. The address of Janus Capital is 100 Fillmore Street, Denver, Colorado 80206. The following person at Janus Capital is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Warren M. Lammert Executive Vice President Mr. Lammert has been employed by Janus Capital since 1987 and has managed various other mutual funds and private accounts during that time. 80 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO PORTFOLIO MANAGER Eagle Asset Management, Inc. INVESTMENT OBJECTIVE Capital appreciation. Dividend income is a secondary objective. PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities of domestic and foreign issuers that STRATEGY meet quantitative standards relating to financial soundness and high intrinsic value relative to price. The principal strategies used to select the investments include: (i) A three-step process to identify possible value opportunities: o Screening the universe of equity securities for five key variables: low price-to-book ratios; low price-to-sales ratios; low price- to earnings ratios; attractive relative dividend yield; and relative price-to- earnings ratios o Performing in-depth fundamental research on individual companies including their industry outlook and trends, strategy, management strength, and financial stability o Using a discounted free cash flow model to identify securities that are trading at a significant discount to their estimated intrinsic value (ii) Identifying stocks trading at a significant discount to their underlying intrinsic value and which fall into at least one of three basic categories: o "Pure" value opportunities: stocks that appear attractive relative to the broader market o "Relative" value opportunities: stocks that trade at a discount to the valuation parameters that the market has historically applied to them or their peer group o "Event-driven" value opportunities: stocks whose underlying value may be recognized as a result of a realized or anticipated event PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o VALUE INVESTING RISK. Undervalued stock may not realize their perceived value for extended periods of time. Value stocks may respond differently to market and other developments than other types of stocks. Value stocks typically underperform when other investing styles, such as growth investing, are in favor. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. 81 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- Eagle Asset Management, Inc. ("Eagle Asset") has managed the Portfolio since its inception. Eagle Asset is in the business of managing institutional client accounts and individual accounts on a discretionary basis. Eagle Asset is a subsidiary of Raymond James Financial, Inc., a publicly traded company whose shares are listed on the New York Stock Exchange. As of December 31, 1998, Eagle Asset had approximately $6 billion in client assets under management. The address of Eagle Asset is 880 Carillon Parkway, St. Petersburg, Florida 33716. The following persons at Eagle Asset are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Address ---- ------------------------------------ Louis Kirschbaum Senior Vice President Mr. Kirschbaum assumed portfolio management responsibilities for the Portfolio in January 1999. Prior to that, he managed various other accounts for Eagle Asset. Mr. Kirschbaum has 27 years of investment experience and also has portfolio management responsibilities for various accounts invested in other portfolios of Eagle Asset. David M. Blount Senior Vice President Mr. Blount assumed portfolio management responsibilities for the Portfolio in January, 1999. Prior to that, he managed or provided research assistance for various other accounts for Eagle Asset. Mr. Blount has 16 years of investment experience. 82 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- RESEARCH PORTFOLIO PORTFOLIO MANAGER Massachusetts Financial Services Company INVESTMENT OBJECTIVE Long-term growth of capital and future income PRINCIPAL The Portfolio normally invests at least 80% of INVESTMENT its total assets in common stocks and related STRATEGY securities (such as preferred stocks, convertible securities and depositary receipts). The Portfolio focuses on companies that the Portfolio Manager believes have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, dominant or growing market share and superior management. The Portfolio may invest in companies of any size. The Portfolio's investments may include securities traded on securities exchanges or in the over-the-counter markets. A committee of investment research analysts selects portfolio securities for the Portfolio. This committee includes investment analysts employed by the Portfolio Manager and its affiliate. The committee allocates the Portfolio's assets among various industries. Individual analysts then select what they view as the securities best suited to achieve the Portfolio's investment objective within their assigned industry responsibility. The Portfolio may invest in foreign equity securities, and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o OTC INVESTMENT RISK. Investing in securities traded on the over-the-counter (OTC) securities market can involve greater risk than is customarily associated with investing in securities traded on the New York or American Stock Exchanges since OTC securities are generally securities of companies that are smaller or newer than those listed on the New York or American Stock Exchange. For example, these companies often have limited product lines, markets, or financial resources, may be dependent for management on one or a few key persons, and can be more susceptible to losses. Also, their securities may be thinly traded (and therefore have to be sold at a discount from current prices or sold in small lots over an extended period of time), may be followed by fewer investment research analysts and may be subject to wider price swings and thus may create a greater risk of loss than securities of larger capitalization or established companies. Shares of the Portfolio, therefore, are subject to greater fluctuation in value than 83 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- shares of a conservative equity fund or of a growth fund that invests entirely in proven growth stocks. o FOREIGN INVESTMENT RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Massachusetts Financial Services Company ("MFS") ON THE has managed the Portfolio since its inception. PORTFOLIO MFS is America's oldest mutual fund organization. MAMANGER MFS and its predecessor organizations have managed money since 1924 and founded the first mutual fund in the United States. MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which in turn is an indirect subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the U.S. since 1895. As of December 31, 1998, MFS managed net assets of approximately $98 billion (approximately $69.5 billion in equity securities and $20.5 billion in fixed income securities) on behalf of approximately 3.7 million investor accounts. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. The Portfolio is managed by a committee of research analysts at MFS. MFS also manages the Mid-Cap Growth Portfolio and the Total Return Portfolio. 84 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- MID-CAP GROWTH PORTFOLIO PORTFOLIO MANAGER Massachusetts Financial Services Company INVESTMENT OBJECTIVE Long-term growth of capital PRINCIPAL The Portfolio normally invests at least 65% of INVESTMENT its total assets in common stocks and related STRATEGY securities (such as preferred stocks, convertible securities and depositary receipts) of companies with medium market capitalizations (or "mid-cap") which the Portfolio Manager believes have above- average growth potential. The Portfolio Manager defines mid-cap companies as companies with market capitalizations equaling or exceeding $250 million but not exceeding the top range of the Russell Midcap Growth Index at the time of the Portfolio's investment. The Index is a widely recognized, unmanaged index of mid-cap common stock prices. Companies whose capitalization falls below $250 million or exceeds the top of the Russell Midcap Growth Index range after purchase continue to be considered mid-cap companies for purposes of the Portfolio's 65% investment policy. As of April 30, 1999, the top of the Russell Midcap Growth Index was $47 billion. The Portfolio's investments may include securities listed on a securities exchange or traded in the over-the- counter markets. Growth companies are companies that the Portfolio Manager considers well-run and poised for growth. The Portfolio Manager looks particularly for companies which demonstrate: o a strong franchise, strong cash flows and a recurring revenue stream o a solid industry position, where there is potential for high profit margins and substantial barriers to new entry in the industry o a strong management team with a clearly defined strategy o a catalyst that may accelerate growth The Portfolio uses a bottom-up, as opposed to a top-down, investment style in managing the Portfolio. This means that securities are selected based on fundamental analysis performed by the Portfolio Manager and its group of equity research analysts and not selected based on the industry in which they belong. The Portfolio may invest in foreign securities (including emerging markets securities), and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earnings of the issuer. 85 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o MID-CAP COMPANY RISK. Investment in securities of mid-cap companies entails greater risks than investments in larger, more established companies. Mid-cap companies tend to have more narrow product lines, more limited financial resources and a more limited trading market for their stocks, as compared with larger companies. As a result, their stock prices may decline significantly as market conditions change. o OTC INVESTMENT RISK. Investing in securities traded on the over-the-counter ("OTC") securities market can involve greater risk than is customarily associated with investing in securities traded on the New York or American Stock Exchanges since OTC securities are generally securities of companies which are smaller or newer than those listed on the New York or American Stock Exchange. For example, these companies often have limited product lines, markets, or financial resources, may be dependent for management on one or a few key persons, and can be more susceptible to losses. Also, their securities may be thinly traded (and therefore have to be sold at a discount from current prices or sold in small lots over an extended period of time), may be followed by fewer investment research analysts and may be subject to wider price swings and thus may create a greater risk of loss than securities of larger capitalization or established companies. Therefore, shares of the Portfolio are subject to greater fluctuation in value than shares of a conservative equity fund or of a growth fund which invests entirely in proven growth stocks. o EMERGING MARKETS RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after the Portfolio investments in those currencies. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. 86 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Massachusetts Financial Services Company ("MFS") ON THE has managed the Portfolio since its inception. PORTOFLIO MFS is America's oldest mutual fund organization. MANAGER MFS and its predecessor organizations have managed money since 1924 and founded the first mutual fund in the United States. MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which in turn is an indirect subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the U.S. since 1895. As of December 31, 1998, MFS managed net assets of approximately $98 billion (approximately $69.5 billion in equity securities and $20.5 billion in fixed income securities) on behalf of approximately $3.7 million investor accounts. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. The following persons at MFS are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- John W. Ballen Senior VP--Investments & Chief Equity Officer Mr. Ballen has been employed by MFS since 1984. Mark Regan Vice President--Investments Mr. Regan has been employed as a portfolio manager by MFS since 1989. MFS also manages the Research Portfolio and the Total Return Portfolio. 87 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- ALL-GROWTH PORTFOLIO PORTFOLIO MANAGER Pilgrim Baxter & Associates, Ltd. INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio normally invests primarily in INVESTMENT growth securities (such as common stocks) of STRATEGY middle-range capitalization (or "mid-cap") companies. Mid-cap companies in which the Portfolio invests generally have market capitalizations or annual revenues between $500 million and $10 billion. Growth securities in the Portfolio are primarily common stocks that the Portfolio Manager believes have strong earnings growth and capital appreciation potential. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o MID-CAP COMPANY RISK. Investment in securities of mid-cap companies entail greater risks than investments in larger, more established companies. Mid-cap companies tend to have more narrow product lines, more limited financial resources and a more limited trading market for their stocks, as compared with larger companies. As a result, their stock prices may decline significantly as market conditions change. o GROWTH INVESTING RISK. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth potential. Growth-oriented funds will typically underperform when value investing is in favor. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Pilgrim Baxter & Associates, Ltd. has managed the ON THE Portfolio since February 1997. Pilgrim Baxter PORTFOLIO provides advisory services to pension and profit MANAGER sharing plans, charitable institutions, corporations, trust and estates, and other investment companies. As of December 31, 1998, Pilgrim Baxter managed approximately $12 billion of assets. Pilgrim Baxter is a subsidiary of United Asset Management Corporation, a publicly traded company. The address of Pilgrim Baxter is 825 Duportail Road, Wayne, Pennsylvania 19087. The following person at Pilgrim Baxter is primarily responsible for the day-to-day investment decisions of the Portfolio: 88 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- Name Position and Recent Business Experience ---- --------------------------------------- Jeffrey Wrona Investment Professional Mr. Wrona has been an Inivestment Professional with Pilgrim Baxter since 1997. Before joining Pilgrim Baxter, Mr. Wrona worked as a Senior Portfolio Manager at Munder Capital Management for seven years. 89 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- GROWTH OPPORTUNITIES PORTFOLIO PORTFOLIO MANAGER Montgomery Asset Management, LLC INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL INVESTMENT The Portfolio invests primarily in equity STRATEGY securities of domestic companies generally having total market capitalizations of $1 billion or more. The Portfolio may invest in other types of equity securities and equity derivative securities. The Portfolio also may invest up to 35% of its total assets in highly rated debt securities. The Portfolio seeks growth at a reasonable value by investing in companies with sound fundamental value and potential. The Portfolio selects its investments based on a combination of quantitative screening techniques and fundamental analysis. The Portfolio Manager: o identifies a universe of investment candidates by screening companies based on changes in growth rates and valuation ratios (such as price to sales, price to earnings and price to cash flows) o identifies rapidly growing companies with reasonable valuations and accelerating growth rates, or with low valuations and initial signs of growth o fundamentally analyzes these companies, focusing on: o balance sheets and income statements o company visits and discussions with management o contacts with industry specialists and industry analysts o review of the competitive environments The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o GROWTH INVESTING RISK. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth potential. Growth-oriented funds will typically underperform when value investing is in favor. o MANAGEMENT TECHNIQUE RISK. The Portfolio selects its investments based on a combination of quantitative screening techniques and fundamental analysis. We 90 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- cannot assure you that such market timing techniques will correctly predict market trends, or enable the Portfolio to achieve its investment objective. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Montgomery Asset Management, LLC ("Montgomery") ON THE or its affiliates has managed the Portfolio since PORTFOLIO its inception. Montgomery advises private MANAGER accounts as well as mutual funds. As of December 31, 1997, Montgomery had $9.5 billion in assets under management. Montgomery is a subsidiary of Commerzbank AG. Commerzbank, one of the largest commercially held banks in Germany, has total assets of approximately $173 billion. Commerzbank and its affiliates had more than $289 billion in assets under management as of December 31, 1997. Commerzbank's asset management operations involve more than 1,000 employees in 13 countries worldwide. The address of Montgomery is 101 California Street, San Francisco, CA 94111. The following persons at Montgomery are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Roger W. Honour Senior Portfolio Manager and Principal Mr. Honour has been with Montgomery since June 1993. From 1992 through May 1993, Mr. Honour spent one year as Vice President and portfolio manager at Twentieth Century Investors. Kathryn M. Peters Portfolio Manager and Principal Ms. Peters joined Montgomery in 1995. From 1993 to 1995, Ms. Peters was an associate in the investment banking division of Donaldson, Lufkin & Jenrette. From 1990 to 1990 she analyzed mezzanine investments for Barclays de Zoete Wedd. Andrew Pratt, CFA Portfolio Manager and Principal Mr. Pratt joined Montgomery in 1993, coming from Hewlett-Packard Company, where he was an equity analyst, managed a portfolio of small capitalization technology companies, and researched private placement and venture capital investments from 1988 to 1993. 91 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- STRATEGIC EQUITY PORTFOLIO PORTFOLIO MANAGER A I M Capital Management, Inc. INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Portfolio invests principally in common INVESTMENT stocks of medium- and small-sized growth STRATEGY companies. The Portfolio Manager focuses on companies it believes are likely to benefit from new or innovative products, services or processes as well as those that have experienced above- average, long-term growth in earnings and have excellent prospects for future growth. The Portfolio Manager usually sells a particular security when any of those factors materially changes. As a result of the Portfolio's investment strategy, the market prices of many of the securities purchased and held by the Portfolio may fluctuate widely. Any income received from securities held by the Portfolio is incidental. The Portfolio comprises primarily of securities of two basic categories of companies: (a) "core" companies, which the Portfolio Manager considers to have experienced above-average and consistent long-term growth in earnings and to have excellent prospects for outstanding future growth, and (b) "earnings acceleration" companies that the Portfolio Manager believes are currently enjoying a dramatic increase in profits. The Portfolio's strategy does not preclude investment in large, seasoned companies that the Portfolio Manager believes possess superior potential returns similar to companies with formative growth profiles. The Portfolio also invests in established smaller companies (under $500 million in market capitalization) which offer exceptional value based upon substantially above-average earnings growth potential relative to market value. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o GROWTH INVESTING RISK. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth potential. Growth-oriented funds will typically underperform when value investing is in favor. o SMALL COMPANY RISK. Investing in securities of small companies may involve greater risks than investing in larger, more established issuers. Smaller companies may have limited product lines, markets or financial resources. Their securities may trade less frequently and in more limited volume than the securities of larger, more established companies. In addition, smaller companies are typically subject to greater changes in earnings and business prospects than are larger companies. Consequently, the prices of small company stocks tend to rise and fall in value more than other stocks. Although investing in small companies offers potential for above-average returns, the companies may not succeed, and the value of stock shares could decline significantly. 92 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgements in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE A I M Capital Management, Inc. ("A I M Capital") ON THE has managed the Portfolio since March 1, 1999. PORTFOLIO A I M Capital is an indirect subsidiary of MANAGER AMVESCAP, one of the world's largest independent investment companies. As of December 31, 1998, A I M Capital and its immediate parent, A I M Advisors, Inc., managed approximately $109 billion in assets. The address of A I M Capital is 11 Greenway Plaza, Houston, Texas 77046. The following persons at A I M Capital are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Robert M. Kippes Senior Portfolio Manager Mr. Kippes has been associated with A I M Capital and/or its affiliates since 1989. Charles D. Scavone Senior Portfolio Manager Mr. Scavone has been associated with A I M Capital and/or its affiliates since 1996. From 1994 to 1996, he was Associate Portfolio Manager for Van Kamper Capital Asset Management, Inc. David P. Barnard Senior Portfolio Manager Mr. Barnard has been associated with A I M Capital since 1982. Kenneth A. Zschappel Senior Portfolio Manager Mr. Zschappel has been associated with A I M Capital and/or its affiliates since 1990. A I M Capital also manages the Capital Appreciation Portfolio. 93 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- CAPITAL APPRECIATION PORTFOLIO PORTFOLIO MANAGER A I M Capital Management Group, Inc. INVESTMENT OBJECTIVE Long-term capital growth PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities the Portfolio Manager believes to be STRATEGY undervalued relative to the Portfolio Manager's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity markets generally. The Portfolio also may invest in preferred stocks and debt instruments that are consistent with its investment objective. Although the Portfolio may receive income from these investments, they will be purchased for their potential for growth of capital and not for their ability to generate income. The Portfolio also may invest up to 25% of its assets in foreign securities. The Portfolio Manager focuses on undervalued equity securities of: o out-of-favor cyclical growth companies o established growth companies that are undervalued compared to historical relative valuation parameters o companies where there is early but tangible evidence of improving prospects that are not yet reflected in the price of the company's equity securities o companies whose equity securities are selling at prices that do not reflect the current market value of their assets and where there is reason to expect realization of this potential in the form of increased equity values The Portfolio Manager usually sells a particular security when it believes the company no longer fits into any of the above categories. In anticipation of or in response to adverse market conditions or for cash management purposes, the Portfolio may hold all or a portion of its assets in cash, money market securities, bonds or other debt securities. As a result, the Portfolio may not achieve its investment objective. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o VALUE INVESTING RISK. Undervalued stock may not realize their perceived value for extended periods of time. Value stocks may respond differently to market and other developments than other types of stocks. Value stocks typically underperform when other investing styles, such as growth investing, are in favor. 94 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. A I M Management, Inc. ("A I M Capital") has managed the Portfolio since April 1, 1999. MORE A I M Capital is an indirect subsidiary of ON THE AMVESCAP, one of the world's largest independent PORTFOLIO investment companies. As of December 31, 1998, MANAGER A I M Capital and its immediate parent, A I M Advisors, Inc., managed approximately $109 billion in assets. The address of A I M Capital is 11 Greenway Plaza, Houston, TX 77046. The following persons at A I M Capital are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Joel E. Dobberpuhl Senior Portfolio Manager Mr. Dubberpuhl has been associated with A I M Capital and/or its affiliate since 1990. Robert A. Shelton Portfolio Manager Mr. Shelton has been associated with A I M Capital and/or its affiliates since 1995. Prior to 1995, he was a financial analyst for CS First Boston. Evan G. Harrel Senior Portfolio Manager Mr. Harrel has been associated with A I M Capital and/or its affiliates since 1998. From 1994 to 1998, he was Vice President of Van Kamper American Asset Management, Inc. and a portfolio manager of various growth and equity funds. A I M Capital also manages the Strategic Equity Portfolio. 95 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- SMALL CAP PORTFOLIO PORTFOLIO MANAGER Fred Alger Management, Inc. INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL INVESTMENT The Portfolio invests primarily in equity STRATEGY securities of companies that have total market capitalization within the range of companies included in: o Russell 2000 Growth Index o Standard & Poor's Small Cap 600 Index Both indexes are broad indexes of small capitalization stocks. As of December 31, 1998, the range of market capitalization companies in the Russell Index was $4.42 million to $3.21 billion, the range of the market capitalization companies in the S&P 600 Index was $18 million to $3.34 billion, and the combined range was $4.42 million to $3.34 billion. The Portfolio may invest up to 35% of its assets in companies outside this combined range. Equity securities in which the Portfolio may invest include common or preferred stocks, or securities convertible into or exchangeable for equity securities, such as warrants and rights. The Portfolio invests primarily in companies whose securities are traded on domestic stock exchanges or in the over-the-counter market. These companies may still be in the developmental stage, may be older companies that appear to be entering a new stage of growth because of factors such as management changes or development of new technology, products or markets, or may be companies providing products or services with a high unit volume growth rate. The Portfolio may also hold up to 15% of its assets in money market instruments and repurchase agreements. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o SMALL CAP COMPANY RISK. Investing in securities of small cap companies may involve greater risks than investments in larger, more established issuers. Smaller companies may have limited product lines, markets or financial resources. Their securities may trade less frequently and in more limited volume than the securities of larger, more established companies. In addition, smaller companies are typically subject to greater changes in earnings and business prospects than are larger companies. Consequently, the prices of small company stocks tend to rise and fall in value more than other stocks. Although investing in small cap companies offers potential for above-average returns, the companies may not succeed and the value of stock shares could decline significantly. 96 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Fred Alger Management, Inc. ("Fred Alger") has ON THE managed the Portfolio since its inception. Fred PORTFOLIO Alger has been in the business of providing MANAGER investment advisory services since 1964. Fred Alger is owned by Fred Alger & Company, Incorporated, which in turn is owned by Alger Associates, Inc., a financial services holding company. As of December 31, 1998, Fred Alger managed approximately $10.6 billion in assets. The address of Fred Alger is One World Trade Center, Suite 9333, New York, New York 10048. The following persons at Fred Alger are primarily responsible for making the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- David D. Alger President Mr. Alger has been employed by the Portfolio Manager since 1971. Seilai Khoo Senior Vice President Ms. Khoo has been employed by the Portfolio Manager since 1989. Ronald Tartaro Senior Research Analyst Mr. Tartaro has been employed by Fred Alger Management, Inc. since 1990. 97 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- REAL ESTATE PORTFOLIO PORTFOLIO MANAGER EII Realty Securities, Inc. INVESTMENT OBJECTIVE Capital appreciation. Current income is a secondary objective. PRINCIPAL The Portfolio invests primarily in equity INVESTMENT securities of companies in the real estate STRATEGY industry that are listed on national exchanges or the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). The Portfolio Manager selects securities generally for long-term investment. The Portfolio invests the majority of its assets in companies that have at least 50% of their assets in, or that derive at least 50% of their revenues from, the following sectors of the real estate industry: o ownership (including listed real estate investment trusts) o construction and development o asset sales o property management or sale o other related real estate services The Portfolio may invest more than 25% of its assets in any of the above sectors. The Portfolio also may invest in: o equity, debt, or convertible securities of issuers whose products and services related to the real estate industry o financial institutions which issue or service mortgages o securities of companies unrelated to the real estate industry but which have significant real estate holdings believed to be undervalued PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o REAL ESTATE RISK. Although the Portfolio will not invest in real estate directly, the Portfolio may invest in real estate industry companies, including real estate investment trusts. As a result, the Portfolio may be subject to certain risks associated with direct ownership of real estate and the real estate industry in general. These risks include declines in the value of real estate, adverse changes in the climate for real estate, risks related to general and local economic conditions, over-building and increased competition, tenant credit worthiness and ability to meet rent obligations, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on 98 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- rents, changes in neighborhood values, the appeal of properties to tenants, leveraging of interests in real estate, and increase in interest rates. In addition, real estate investment trusts (called "REITs") may be affected by any changes in the value of the underlying property owned by the REIT or by the quality of any credit extended. REITs are dependent upon management skills. Some REITs may not be highly diversified, and are therefore subject to the risk of financing single or a limited number of projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation, and the possibility of failing to qualify for special tax treatment under Subchapter M of the Internal Revenue Code of 1986 and to maintain an exemption under the Investment Company Act of 1940. o INDUSTRY CONCENTRATION RISK. Since the Portfolio invests primarily in securities of companies in the real estate industry, the Portfolio may be subject to greater risks and market fluctuations than other portfolios that are more diversified by industry. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. EII Realty Securities, Inc. ("EII Realty") has managed the Portfolio since January 1995. MORE EII Realty and its parent company, European ON THE Investors, Inc., have provided advisory services PORTFOLIO to employee benefit plans, corporations, and high MANAGER net worth individuals, both foreign and domestic, since 1983. As of December 31, 1998, EII Realty and its parent company managed approximately $1.8 billion in real estate securities assets. EII Realty is a subsidiary of European Investors Incorporated. The address of EII Realty is 667 Madison Avenue, 16th Floor, New York, New York 10021. The following persons at EII Realty are primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Richard J. Adler Managing Director Mr. Adler has been a portfolio manager or real estate securities analyst for EII Realty and/or its affiliates for the past ten years. Cydney C. Donnell Managing Director Ms. Donnell has been a portfolio manager or real estate securities analyst for EII Realty and/or its affiliates for the past ten years. David P. O'Connor Managing Director Mr. O'Connor has been a portfolio manager or real estate securities analyst for EII Realty and/or its affiliates since 1994. 99 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- HARD ASSETS PORTFOLIO PORTFOLIO MANAGER Baring International Investment Limited INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL INVESTMENT The Portfolio invests primarily in hard asset securities. Hard asset securities in which the Portfolio may invest include equity securities of hard asset companies and debt securities, including structured notes, whose value is linked to the price of a hard asset commodity or a commodity index. Hard asset companies are companies that are directly or indirectly engaged significantly in the exploration, development, production or distribution of one or more of the following: o precious metals o ferrous and non-ferrous metals o gas, petroleum, petrochemicals or other hydrocarbons o forest products o agricultural commodities o other basic materials that can be priced by a market The Portfolio normally invests at least 5% of its assets in each of the first five sectors listed above, and may invest up to 50% in any one of the above sectors. The Portfolio's investment strategy is based on the belief that hard asset securities can protect against eroding monetary values. Recent history indicates that the policies of many governments (particularly, budget deficits and high rates of money supply growth) have caused inflation and that the profitability of many natural resources companies will, as a result, improve. The Portfolio may invest in: o securities of foreign issuers, including up to 35% in South Africa o companies not engaged in natural resources/hard asset activities o investment-grade corporate debt o U.S. government or foreign obligations o money market instruments o repurchase agreements o special classes of shares available only to foreign persons in those markets that restrict ownership of certain classes of equity to nationals or residents of that country o derivatives 100 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- Equity securities in which the Portfolio invests may be listed on the U.S. or foreign securities exchanges or traded over-the-counter, and include: o common stock o direct equity interests in trusts o preferred stock o joint ventures o rights o "partly paid" securities o warrants o partnerships o "when-issued" o restricted securities securities The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o HARD ASSET RISK. The production and marketing of hard assets may be affected by actions and changes in governments. Securities of hard asset companies may be subject to broad price fluctuations, reflecting volatility of energy and basic materials prices and possible instability of supply of various hard assets. In addition, some hard asset companies may also be subject to the risks generally associated with extraction of natural resources, such as the risks of mining and oil drilling, and the risks of the hazards associated with natural resources, such as fire, drought, increased regulatory and environmental costs. o SECTOR CONCENTRATION RISK. Since the Portfolio may invest up to 50% of its assets in one particular hard asset sector, the Portfolio may be subject to greater risks and market fluctuations than other portfolios that are more diversified by sector. o INDUSTRY CONCENTRATION RISK. Since the Portfolio invests primarily in securities of companies engaged in natural resources/hard asset activities and may concentrate in securities of companies engaged in gold operations, the Portfolio may be subject to greater risks and market fluctuations than other portfolios that are more diversified by industry. o FOREIGN INVESTMENT AND CURRENCY RISK. The Portfolio may purchase securities in any foreign country, developed or underdeveloped. In many foreign countries, there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. Since investment may be concentrated in South Africa, political and social conditions in South Africa, due to former segregation policies of the South African government and unsettled political conditions prevailing in South Africa and neighboring countries investment, may pose certain risks to the Portfolio's 101 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- investments. If aggravated by local or international developments, such risk could have an adverse effect on investment in South Africa, including the Portfolio's investments and possibly, the liquidity of the Portfolio and its ability to meet shareholder redemption requests. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Baring International Investment Limited ("Baring ON THE International") has managed the Portfolio since PORTOFLIO March 1, 1999. Baring International is a MANAGER subsidiary of Baring Asset Management Holdings Limited ("Baring"). Baring is the parent of the world-wide group of investment management companies that operate under the collective name "Baring Asset Management" and is owned by ING Groep N.V., a publicly traded company based in the Netherlands with worldwide insurance and banking subsidiaries. The address of Baring International is 155 Bishopsgate, London. Baring Asset Management provides global investment management services to U.S. investment companies and maintains major investment offices in Boston, London, Hong Kong and Tokyo. Baring's predecessor corporation was founded in 1762. Baring Asset Management provides advisory services to institutional investors, offshore investment companies, insurance companies and private clients. As of December 31, 1998, Baring Asset Management managed approximately $45.6 billion of assets. The following person at Baring International is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Mark Latham Investment Manager Mr. Latham has been an investment professional with Baring International Investment Limited and its ING affiliates since 1987 and has 17 years of investment experience. Baring International Investment also manages the Developing World Portfolio and the Global Fixed Income Portfolio. 102 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- MANAGED GLOBAL PORTFOLIO PORTFOLIO MANAGER Putnam Investment Management, Inc. INVESTMENT OBJECTIVE Capital appreciation. Current income is only an incidental consideration. PRINCIPAL The Portfolio invests primarily in common stocks INVESTMENT traded in securities markets throughout the STRATEGY world. The Portfolio may invest up to 100% of its total assets in securities traded in securities markets outside the United States. The Portfolio generally invests at least 65% of its total assets in at least three different countries, one of which may be the United States. In unusual market circumstances where the Portfolio Manager believes that foreign investing may be unduly risky, all of the Portfolio's assets may be invested in the United States. The Portfolio may hold a portion of its assets in cash or money market instruments. The Portfolio may invest in any type of company, large or small, with earnings showing relatively strong growth trend, or in a company in which significant further growth is not anticipated but whose securities are thought to be undervalued. The Portfolio may also invest in small and relatively less well known companies. The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risk: o EMERGING MARKET RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after investments in those currencies by the Portfolio. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. 103 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o SMALL COMPANY RISK. Investing in securities of small companies may involve greater risks than investments in larger, more established issuers. Smaller companies may have limited product lines, markets or financial resources. Their securities may trade less frequently and in more limited volume than the securities of larger, amore established companies. In addition, smaller companies are typically subject to greater changes in earnings and business prospects than are larger companies. Consequently, the prices of small company stocks tend to rise and fall in value more than other stocks. Although investing in small companies offers potential for above-average returns, the companies may not "succeed, and the value of stock shares could decline significantly. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Putnam Investment Management, Inc. ("Putnam") has ON THE managed the Portfolio since March, 1997. Putnam PORTFOLIO has been managing mutual funds since 1937. MANAGER Putnam is owned by Putnam Investments, Inc., which is owned by Marsh & McLennan Companies, Inc., a publicly traded company. As of December 31, 1998, Putnam and its affiliates managed approximately $297 billion of assets. The address of Putnam is One Post Office Square, Boston, Massachusetts 02109. An investment committee at Putnam is responsible for the day-to-day investment decisions of the Portfolio. Putnam also manages the Emerging Markets Portfolio. 104 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- DEVELOPING WORLD PORTFOLIO PORTFOLIO MANAGER Baring International Investment Limited INVESTMENT OBJECTIVE Capital appreciation PRINCIPAL The Developing World Portfolio invests primarily INVESTMENT in the equity securities of emerging market STRATEGY companies. The Portfolio normally invests in at least six different "emerging market countries" with no more than 35% of its assets in any one country. Emerging market countries are those countries having economies and markets that the World Bank or the United Nations considers to be emerging or developing. The Portfolio Manager considers the following to be emerging market countries: LATIN AMERICA ASIA EUROPE MIDDLE EAST Argentina Bangladesh Czech Republic Israel Brazil China Greece Jordan Chile India Hungary Colombia Indonesia Poland AFRICA Costa Rica Korea Russia Egypt Jamaica Malaysia Turkey Ghana Mexico Pakistan Croatia Ivory Coast Peru Philippines Estonia Kenya Trinidad and Sri Lanka Morocco Tobago Uruguay Taiwan Nigeria Venezuela Thailand South Africa Vietnam Tunisia Hong Kong Zimbabwe The Portfolio Manager when defining "emerging markets" recognizes the IFC definition of an emerging market as being those countries where the GDP is less than U.S. $10,000 a year per capita. In particular focuses on the constituent countries of the Morgan Stanley Emerging Free Index. However, there are countries, which satisfy the emerging definition even though they currently lie outside the Index. The Portfolio's philosophy is based on the belief that superior long-term results come from identifying unrecognized growth investment opportunities in countries and companies. The Portfolio Manager's investment process seeks to deliver superior risk adjusted returns by evaluating key investment factors at both the macro and micro level. Such factors include accelerating GDP growth, earnings surprise and favorable valuation characteristics. The investment process is a combination of top-down country allocation and bottom-up stock selection. Structured fundamental research supported by quantitative analysis drives both the country and company decision making. Equity securities in which the Portfolio invests are primarily common stock but may also include other types of equity and equity derivative securities. The Portfolio may invest 10% in debt securities, rated below investment-grade. 105 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- PRINCIPAL Any investment involves the possibility that RISKS you will lose money or not make money. An in the Portfolio is subject to the following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o EMERGING MARKET RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after investments in those currencies by the Portfolio. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar Terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their relative investments. o MANAGEMENT TECHNIQUE RISK. The Portfolio uses a proprietary, quantitative asset allocation model in selecting securities. We cannot assure you that such models will correctly predict market trends, or enable the Portfolio to achieve its investment objective. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. 106 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- Baring International Investment Limited ("Baring International") has managed the Portfolio since March 1, 1999. Baring International is a subsidiary of Baring Asset Management Holdings Limited ("Baring"). Baring is the parent of the world-wide group of investment management companies that operate under the collective name "Baring Asset Management" and is owned by ING Groep N.V., a publicly traded company based in the Netherlands with worldwide insurance and banking subsidiaries. The address of Baring International is 155 Bishopsgate, London. MORE Baring Asset Management provides global ON THE investment management services to U.S. investment PORTFOLIO companies and maintains major investment offices MANAGER in Boston, London, Hong Kong and Tokyo. Baring's predecessor corporation was founded in 1762. Baring Asset Management provides advisory services to institutional investors, offshore investment companies, insurance companies and private clients. As of December 31, 1998, Baring Asset Management managed approximately $45.6 billion of assets. The following person at Baring International is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Position and Recent Business Experience ---- --------------------------------------- Matt Linsey Investment Manager Mr. Linsey has been an investment professional with Baring International and its ING affiliates since 1994 and has 15 years of investment experience. Baring International also manages the Hard Assets Portfolio and the Global Fixed Income Portfolio. 107 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO PORTFOLIO MANAGER Putnam Investment Management, Inc. INVESTMENT OBJECTIVE Long-term capital appreciation PRINCIPAL The Portfolio invests primarily in equity INVESTMENT emerging market countries. The Portfolio's STRATEGY investment philosophy is to capitalize on emerging capital markets in developing nations and other nations in which economic and political factors are likely to produce above average growth rates. Emerging market countries are those that are identified as such in the Morgan Stanley Capital International Emerging Markets Free Index or the International Finance Corporation Emerging Market Index, or by the Portfolio Manager because they have a developing economy or because their markets have begun a process of change and are growing in size and/or sophistication. Equity securities that the Portfolio may invest include common stock and other securities with equity characteristics (such as preferred stock, rights and warrants, and convertible securities) shares of investment companies. The Portfolio Manager selects securities by taking into account economic and political factors that may include, among others: o relative market valuation o earnings momentum o supply and demand o prospects for relative growth among the regions and its countries o expected levels of inflation o governmental policies influencing business conditions o outlook for currency relationships o range of alternative opportunities available to international investors In selecting securities, the Portfolio Manager looks for undervalued investment opportunities for growth. The Portfolio Manager uses a disciplined, value-oriented investment philosophy that generally stresses the inherent value of companies under examination, usually based on the medium term outlook for such companies. The Portfolio Manager considers the company's fundamental financial characteristics, its earnings potential, or the potential for economic development of the country or region in which the company is located. If the Portfolio is not fully invested in emerging market equity securities, the Portfolio Manager may invest the remainder of the Portfolio's assets (but not more than 35%) in: o equity securities of issuers in developed economies 108 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- o debt securities issued or guaranteed by corporate or governmental issuers in an emerging market country, including Brady Bonds, or an industrialized country, including the United States o bank deposits or bank obligations, including certificates of deposit, time deposits, and bankers' acceptances o mortgage-backed securities of banks in emerging market or industrialized countries, including the United States o instruments issued by international development agencies o high-quality money market instruments, including commercial paper and other short- term corporate debt obligations of issuers in industrialized and emerging market countries o debt securities that are rated below investment-grade or, if not rated, of equivalent quality up to 10% of assets o borrowings up to 10% of assets (which the Portfolio Manager may increase to 25% for temporary purposes) The Portfolio may engage in active and frequent trading to achieve its principal investment strategies. Frequent trading increases transaction costs, which could detract from the Portfolio's performance. PRINCIPAL An investment in the Portfolio is subject to the RISKS following principal risks described under "Introduction -- General Risk Factors": o MANAGER RISK o MARKET AND COMPANY RISK An investment in the Portfolio is subject to the following additional principal risks: o EMERGING MARKET RISK. Investment in emerging markets countries presents risks in a greater degree than, and in addition to, those presented by investment in foreign issuers in general. A number of emerging market countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some emerging market countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur after investments in those currencies by the Portfolio. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the emerging securities markets are relatively small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in emerging market countries that a future economic or political crisis could lead to: price controls; forced mergers of companies; expropriation or confiscatory taxation; seizure; nationalization; foreign exchange controls (may be unable to transfer currency from a given country); or creation of government monopolies. o FOREIGN INVESTMENT AND CURRENCY RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and 109 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIOS (CONTINUED) - ------------------------------------------------------------------------- requirements may not be comparable to those applicable to U.S. companies. Further, the Portfolio may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms. U.S. dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. o VALUE INVESTING RISK. Undervalued stock may not realize their perceived value for extended periods of time. Value stocks may respond differently to market and other developments than other types of stocks. Value stocks typically underperform when other investing styles, such as growth investing, are in favor. This prospectus does not describe all of the risks of every technique, strategy or temporary defensive position that the Portfolio may use. For such information, please refer to the Statement of Additional Information. MORE Putnam Investment Management, Inc. ("Putnam") has ON THE managed the Portfolio since March 1997. Prior to PORTFOLIO that, different firms at different times managed MANAGER the Portfolio. Putnam has been managing mutual funds since 1937. Putnam is owned by Putnam Investments, Inc, which is owned by Marsh & McLennan Companies, Inc., a publicly traded company. As of December 31, 1998, Putnam and its affiliates managed approximately $297 billion of assets. The address of Putnam is One Post Office Square, Boston, Massachusetts 02109. An investment committee at Putnam is responsible for the day-to-day investment decisions of the Portfolio. Putnam Investment also manages the Managed Global Portfolio. 110 - ------------------------------------------------------------------------- OVERALL MANAGEMENT OF THE TRUST - ------------------------------------------------------------------------- THE Directed Services, Inc. ("DSI") is the overall ADVISER adviser to the GCG Trust. DSI is a New York corporation and is a wholly owned subsidiary of ING. DSI is registered with the SEC as an investment adviser and a broker-dealer. DSI is the principal underwriter and distributor of the Variable Contracts that Golden American Life Insurance Company issues. The address of DSI is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. DSI has overall responsibility for hiring portfolio managers and for periodically monitoring their performance. DSI considers performance records in light of a portfolio's investment objectives and policies. The GCG Trust pays DSI for its services an advisory fee. Out of this advisory fee, DSI in turn pays the portfolio managers their respective portfolio management fee. In addition to advisory services, DSI provides administrative and other services necessary for the ordinary operation of the portfolios. DSI procures and pays for the services and information necessary to the proper conduct of the portfolios' business, including custodial, administrative, transfer agency, portfolio accounting, dividend disbursing, auditing, and ordinary legal services. DSI also acts as liaison among the various service providers to the portfolios, including the custodian, portfolio accounting agent, portfolio managers, and the insurance company or companies to which the portfolios offer their shares. DSI also ensures that the portfolios operate in compliance with applicable legal requirements and monitors the portfolio managers for compliance with requirements under applicable law and with the investment policies and restrictions of the portfolios. DSI does not bear the expense of brokerage fees and other transactional expenses for securities or other assets (which are generally considered part of the cost for the assets), taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. DSI has full investment discretion and makes all determinations with respect to the investment of a portfolio's assets and the purchase and sale of portfolio securities for one or more portfolios. 111 The GCG Trust pays DSI an advisory fee, payable monthly, based on the average daily net assets of a portfolio (or the combined net assets of portfolios). ADVISORY FEE PAID IN 1998. For portfolios that were in operation for the full 1998 year, the Trust paid DSI in 1998 an advisory fee at the following annual rates (based on the average daily net assets of the portfolio): |-------------------------------------------------------------| | FEE PAID TO ADVISER | | DURING 1998 | | (as a percentage of average | | PORTFOLIO net assets) | |-------------------------------------------------------------| | Liquid Asset 0.59% | | Limited Maturity Bond 0.60% | | Equity Income 0.98% | | Fully Managed 0.98% | | Rising Dividends 0.98% | | Value Equity 0.98% | | All-Growth 0.98% | | Strategic Equity 0.98% | | Capital Appreciation 0.98% | | Small Cap 0.98% | | Real Estate 0.98% | | Hard Assets 0.98% | | Managed Global 1.25% | | Emerging Markets 1.75% | | | |-------------------------------------------------------------| For portfolios that commenced operations in 1998 and did not operate for a full 1998 year, the Trust pays DSI an advisory fee at the following annual rates (based on average daily net assets): |-------------------------------------------------------------| | FEE (AS A PERCENTAGE OF AVERAGE | | NET ASSETS OF A PORTFOLIO OR | | COMBINED ASSETS OF THE INDICATED| | PORTFOLIO GROUPS OF PORTFOLIOS) | |-------------------------------------------------------------| | Global Fixed Income 1.60% | | Total Return, Research, 1.00% of first $250 million in | | Mid-Cap Growth combined assets | | 0.95% of next $400 million; | | 0.90% of next $450 million; and | | 0.85% of amounts in excess of | | $1.1 billion | | Growth & Income, Growth, 1.10% of first $250 million in | | Mid-Cap Growth combined assets | | Growth Opportunities 1.05% of next $400 million; | | 1.00% of next $450 million; and | | 0.95% of amount in excess of | | $1.1 billion | | Developing World 1.75% | | | |-------------------------------------------------------------| Out of the advisory fee, DSI in turn pays, on a monthly basis, the portfolio managers a portfolio management fee for its services. The GCG Trust is distinct in that the portfolios' expense structure is simpler and more predictable than that of most mutual funds. DSI PAYS MANY OF THE ORDINARY EXPENSES FOR EACH PORTFOLIO, INCLUDING CUSTODIAL, ADMINISTRATIVE, TRANSFER AGENCY, PORTFOLIO ACCOUNTING, AUDITING, AND ORDINARY LEGAL EXPENSES. MOST MUTUAL FUNDS PAY FOR THESE EXPENSES DIRECTLY FROM THEIR OWN ASSETS. - ------------------------------------------------------------------------- SHARE PRICE - ------------------------------------------------------------------------- A portfolio's share price (net asset value, or "NAV"), is calculated each business day after the close of trading (generally 4 p.m. Eastern time) on the New York Stock Exchange. 112 Net asset value per share is computed by adding up the total value of the portfolio's investments and other assets, subtracting its liabilities and then dividing by the number of portfolio shares outstanding. The net asset values per share of each portfolio, except the Liquid Asset Portfolio, fluctuates in response to changes in market conditions and other factors. The NAV of the shares of the Liquid Asset Portfolio will not fluctuate in response to changes in market conditions for so long as the Portfolio is using the amortized cost method of valuation. The Liquid Asset Portfolio's securities are valued using the amortized cost method of valuation. This involves valuing a security at cost on the date of purchase and thereafter assuming a constant accretion of a discount or amortization of a premium to maturity. The other portfolios' securities are valued based on market value. Market value is determined based on the last reported sales price, or, if no sales are reported, the mean between representative bid and asked quotations obtained from a quotation reporting system or from established market makers. If market quotations are not available, securities are valued at their fair value as determined in good faith by, or under the direction of, the Board. Instruments maturing in sixty days or less may be valued using the amortized cost method of valuation. The value of a foreign security is determined in its national currency based upon the price on the foreign exchange at close of business. Securities traded in over-the-counter markets outside the United States are valued at the last available price in the over-the-counter market before the time of valuation. Debt securities, including those to be purchased under firm commitment agreements (other than obligations having a maturity sixty days or less at their date of acquisition valued under the amortized cost method), are normally valued on the basis of quotes obtained from brokers and dealers or pricing services, which take into account appropriate factors such as institutional- size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. Debt obligations having a maturity of sixty days or less may be valued at amortized cost unless the portfolio manager believes that amortized cost does not approximate market value. When a portfolio writes a put or call option, the amount of the premium is included in the portfolio's assets and an equal amount is included in its liabilities. The liability thereafter is adjusted to the current market value of the option. The premium a portfolio pays for an option is recorded as an asset, and subsequently adjusted to market value. Futures and options traded on commodities exchanges or boards of trade are valued at their closing settlement price on such exchange or board of trade. Foreign securities quoted in foreign currencies generally are valued at translated foreign market closing prices. Trading in securities on exchanges and over-the- counter markets in European and Pacific Basin countries is normally completed well before 4:00 p.m., New York City time. The calculation of the net asset value of a portfolio investing in foreign securities may not take place contemporaneously with the determination of the prices of the securities included in the calculation. Further, the prices of foreign securities are determined using information derived from pricing services and other sources. Prices derived under these procedures will be used in determining daily net asset value. Information that becomes known to the GCG Trust or its agents after the time that the net asset value is calculated on any business day may be assessed in determining net asset value per share after the time of receipt of the information, but will not be used to retroactively adjust the price of the security so determined earlier or on a prior day. Events that may affect the value of these securities that occur between the time their prices are determined and the time the portfolio's net asset value is determined may not be reflected in the calculation of net asset value of the portfolio unless DSI or the portfolio manager, acting under authority delegated by the Board of Trustees, deems that the particular event would materially 113 affect net asset value. In this event, the securities would be valued at fair market value as determined in good faith by DSI or the portfolio manager acting under the direction of the Board. - ------------------------------------------------------------------------- TAXES AND DISTRIBUTIONS - ------------------------------------------------------------------------- The GCG Trust pays net investment income, if any, on your shares of each portfolio annually, except that net investment income of the Liquid Asset Portfolio is declared as a dividend daily and paid monthly and that the Limited Maturity Bond Portfolio may declare a dividend monthly or quarterly. Any net realized long-term capital gains for any portfolio will be declared and paid at least once annually. Net realized short-term gains may be declared and paid more frequently. We will automatically reinvest any distributions made by any portfolio in additional shares of that portfolio, unless the separate account of your insurance company makes an election to receive distributions in cash. Dividends or distributions by a portfolio other than the Liquid Asset Portfolio will reduce the per share net asset value by the per share amount paid. Each portfolio of the GCG Trust has qualified and expect to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). As qualified regulated investment companies, the portfolios are generally not subject to Federal income tax on the part of their investment company taxable income (including any net capital gains) which they distribute to shareholders. It is each portfolio's intention to distribute all such income and gains. Shares of each portfolio are offered to the Separate Accounts of insurance companies. Under the Code, an insurance company pays no tax with respect to income of a qualifying Separate Account when the income is properly allocable to the value of eligible variable annuity or variable life insurance contracts. Under current tax law, your gains under your Contract are taxed only when you take them out. Contract purchasers should review the Contract prospectus for a discussion of the tax treatment applicable to holders of the Contracts. The foregoing is only a summary of some of the important Federal income tax considerations generally affecting a portfolio and you. Please refer to the Statement of Additional Information for more information about the tax status of the portfolios. You should consult with your tax adviser for more detailed information regarding taxes applicable to the Contracts. 114 TO OBTAIN THE GCG TRUST MORE INFORMATION TRUSTEES Two documents are available that offer R. Brock Armstrong, Chair further information on the portfolios: Barnett Chernow, Trustee Annual/Semi-Annual Reports to Shareholders. The GCG Trust's annual reports include a discussion J. Michael Earley, Trustee of the market conditions and investment strategies that significantly affected the R. Barbara Gitenstein, Trustee portfolios' performance during the last fiscal year. Robert A. Grayson, Trustee Statement of Additional Information. A Statement Elizabeth J. Newell, Trustee of Additional Information, dated May 1, 1999, has been filed with the Securities and Exchange Stanley B. Seidler, Trustee Commission, and is made a part of this prospectus by reference. Roger B. Vincent, Trustee
To obtain a free copy of these documents or to make inquiries about the portfolios, please write to our Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380 or call (800) 366-0066, or access the SEC's website (http://www.sec.gov). Information about the GCG Trust can be reviewed and copied at the SEC's Public Reference Room. Information about its operation may be obtained by calling 1-800-SEC-0330. You may obtain copies of reports and other information about the GCG Trust, for payment of a duplication fee, by writing to Public Reference Section of the Commission, Washington, D.C. 20549-6009. GOLDEN AMERICAN LIFE INSURANCE COMPANY Golden American Life Insurance Company is a stock company domiciled in Delaware G3059 5/99 811-5629 PROSPECTUS #2 MARKET MANAGER SERIES THE GCG TRUST PROSPECTUS MAY 1, 1999 MARKET MANAGER SERIES THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. - ------------------------------------------------------------------------- TABLE OF CONTENTS - ------------------------------------------------------------------------- In this prospectus aand in the Statement of Additional Information, we refer to The GCG Trust as "the GCG Trust" and to the Market Manager Series as the "Market Manager Portfolio or the "Portfolio." PAGE INTRODUCTION .......................................... Investing Through Your Variable Contract ............. Why Reading This Prospectus is Important ............. THE PORTFOLIO AT A GLANCE ............................. FINANCIAL HIGHLIGHTS .................................. DESCRIPTION OF THE PORTFOLIO .......................... MANAGEMENT OF THE TRUST ............................... The Adviser .......................................... Portfolio Manager .................................... Distributor .......................................... Expenses ............................................. Portfolio Transactions ............................... SHARE PRICE ........................................... TAXES AND DISTRIBUTION ................................ MORE INFORMATION ...................................... Additional Investment Strategies ..................... Portfolio Turnover ................................... Legal Counsel ........................................ Independent Auditors ................................. Year 2000 ............................................ AN INVESTMENT IN THE MARKET MANAGER PORTFOLIO OF THE GCG TRUST IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. i - ------------------------------------------------------------------------- INTRODUCTION - ------------------------------------------------------------------------- INVESTING THROUGH YOUR VARIABLE CONTRACT Shares of the Market Manager Portfolio of the GCG Trust currently are sold to segregated asset accounts ("Separate Accounts") of insurance companies as funding choices for variable annuity contracts ("Variable Contracts"). Assets in the Separate Account are invested in shares of the Portfolio based on your allocation instructions. You do not deal directly with the Portfolio to purchase or redeem shares. The accompanying Separate Account prospectus describes your rights as a Variable Contract owner. WHY READING THIS PROSPECTUS IS IMPORTANT This prospectus explains the investment objective, risks and strategy of the Portfolio. Reading the prospectus will help you to decide whether the Portfolio is the right investment for you. We suggest that you keep this prospectus and the prospectus for the Separate Account for future reference. 1 - ------------------------------------------------------------------------- PORTFOLIO AT A GLANCE - ------------------------------------------------------------------------- MARKET MANAGER PORTFOLIO INVESTMENT Favorable equity market performance and at the same OBJECTIVE time preserve capital (without taking into account expenses) for investments in the Portfolio held until the Target Maturity Date of March 6, 2001. PRINCIPAL INVESTMENT The Portfolio seeks to return the following to its STRATEGY shareholders on the Target Maturity Date: o the principal amount invested in the Portfolio (without regard to expenses) o a percentage of the price appreciation from the Portfolio's Investment Start Date through the Target Maturity Date on common stocks that are publicly traded in the United States, as represented by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") and other indexes of publicly traded common stocks of large and mid-cap companies. The Portfolio allocates its assets among the following two types of investments: o over-the-counter call options of the S&P 500 and other indexes of publicly traded common stocks of large and mid-cap companies o zero coupon bonds issued by the U.S. Government, and its agencies and instrumentalities and by private issuers which are rated A or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation ("S&P) The Portfolio is non-diversified and, when compared with other funds, may invest a greater portion of its assets in a particular issuer. A non-diversified portfolio has greater exposure to the risk of default or the poor earnings of the issuer. The Portfolio will no longer accept investments in the Portfolio as of March 3, 1995. PRINCIPAL Any investment involves the possibility that you will RISKS lose money or not make money. Investment in the Portfolio is not insured against loss of principal. We cannot assure that the Portfolio will achieve its investment objective. Investing in shares of the Portfolio should not be considered a complete investment program. The share value of the Portfolio will rise and fall. An investment in the Portfolio is subject to the following principal risks described under "Description of the Portfolio": o MANAGER RISK o MARKET AND COMPANY RISK Risks Related to Coupon Bond Investing: o INTEREST RATE RISK o CREDIT RISK. Risks Related to OTC Call Options: o CREDITWORTHINESS OF DEALER o INVESTMENT CONCENTRATION IN THE SECURITIES INDUSTRY Because of these risks, your investment could lose or not make any money. 2 - ------------------------------------------------------------------------- PORTFOLIO AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the portfolio's average annual total return for 1 year and since its inception date as compared to the applicable market indices. The average annual total returns below include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. ING Investment Management LLC has managed the Portfolio since January 2, 1998. From March 3, 1997 to January 1, 1998, Equitable Investment Services, Inc., an affiliate of ING, managed the Portfolio. Prior to that date, the Portfolio was managed by other portfolio managers. The performance information does not include insurance- related charges. Thus, you should not compare the portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [[Performance Bar Chart Follows:] MARKET MANAGER -- ANNUAL TOTAL RETURN Year 1995 1996 1997 1998 24.33% 19.40% 33.82% 24.55 |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 1/14/94 | | | | (INCEPTION)| | 12/31/98....23.77% | | Portfolio's Average | | | | Annual Total Return 24.55% 24.60% | |--------------------| | S&P 500 28.58% 28.94 | | WORST QUARTER | | Russell Midcap 10.09% 21.21 | |--------------------| | | | Quarter Ended | | | | | | | | 9/30/98...(12.19)%| | | | | |-------------------------------------------------| |--------------------| The S&P 500 Index is comprised of 500 U.S. Stocks. The Russell Midcap index consists of the 800 smallest companies in the Russell 1000 Index, which contains the 1,000 largest companies in the United States. 3 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand the Portfolio's financial performance for the past 5 years. Certain information reflects financial reqults for a single portfolio share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young LLP, whose report, along with the Portfolio's financial statements, are included in the annual report, which is available upon request.
MARKET MANAGER PORTFOLIO ** - --------------------------------------------------------------------------------------- YEAR ENDED - --------------------------------------------------------------------------------------- 12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94* - --------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $16.47 $13.22 $12.03 $10.02 $10.00 ------------------------------------------------ INVESTMENT OPERATIONS Net Investment Income(Loss) 0.32 0.36 0.46 0.37 0.02 Net Realized and Unrealized Gain(Loss) on Investments 3.69 4.11 1.89 2.06 0.02 ------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 4.01 4.47 2.35 2.43 0.04 - --------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (0.32) (0.36) (0.46) (0.37) (0.02) Distributions from Capital Gains (0.54) (0.86) (0.70) (0.05) -- Distributions in Excess of Capital Gains 0.00# -- -- -- -- ------------------------------------------------ TOTAL DISTRIBUTIONS (0.86) (1.22) (1.16) (0.42) (0.02) - --------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $19.62 $16.47 $13.22 $12.03 $10.02 ======================================================================================= TOTAL RETURN 24.55% 33.82% 19.40% 24.33% 0.44%++ ======================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (in 000's) $8,139 $6,791 $5,585 $5,952 $2,754 Ratio of Operating Expenses to Average Net Assets 1.01% 1.01% 1.02% 0.89% -- Decrease Reflected in Above Expense Ratio Due to Expense Limitations -- -- -- 0.13% 0.13%++ Ratio of Net Investment Income to Average Net Assets 1.78% 2.19% 3.06% 3.42% 0.65% Portfolio Turnover Rate -- -- -- 5.00% -- - ---------------------------------------------------------------------------------------
* The Market Manager Portfolio commenced operations on November 14, 1994. ** On January 2, 1998, ING Investment Management LLC ("IIM") became the Portfolio Manager of the Portfolio. From March 3, 1997 to January 1, 1998, Equitable Investment Services, Inc., and affiliate of IIM, was the Portfolio Manager of the Portoflio Prior to March 3, 1997, the Portfolio had been advised by other Portfolio Managers. ++ Non-annualized # Amount represents less than $0.01 per share. 4 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIO - ------------------------------------------------------------------------- MARKET MANAGER PORTFOLIO PORTFOLIO MANAGER ING Investment Management LLC INVESTMENT Favorable equity market performance and at the same time OBJECTIVE preserve capital (without taking into account expenses) for investments in the Portfolio held until the Target Maturity Date of March 6, 2001. PRINCIPAL INVESTMENT The Portfolio seeks to return the following to its STRATEGY shareholders on the Target Maturity Date: o the principal amount invested in the Portfolio (without regard to expenses) o a percentage of the price appreciation from the Portfolio's Investment Start Date through the Target Maturity Date on common stocks that are publicly traded in the United States, as represented by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") and other indices of publicly traded common stocks of large and mid-cap companies. There are two components of the Portfolio's investment objective: (1) seeking favorable equity market performance, and (2) seeking preservation of capital. The Portfolio Manager allocates the assets of the Portfolio among the investments described below: o FAVORABLE EQUITY PERFORMANCE. The Portfolio seeks favorable equity market performance by purchasing over-the-counter call options on the S&P 500 and other indexes of publicly traded common stocks of large and mid-cap companies. An index of publicly traded common stocks will generally be considered an index of large and mid-cap companies if the companies represented in the index have a median market capitalization of at least $300 million. The call options into which the Portfolio will enter will be negotiated on behalf of the Portfolio by the Portfolio Manager in an attempt to provide the Portfolio with the right to receive a percentage of the price appreciation on the stocks included in the indices for all or a portion of the period from the Investment Start Date through the Target Maturity Date. The price appreciation on the S&P 500 and other indices does not include the value of dividends paid by in the indices. The Portfolio Manager has advised the Trust that it initially intends to invest as of the Investment Start Date in call options on the S&P 500 and in call options on up to two other equity indices, and that these options would give the Portfolio the right to receive approximately 110%- 118% of the price appreciation of a composite of these indices from the Investment Start Date through the Target Maturity Date, based upon the expected weighting of the Portfolio's relative positions in call options on these indices. The Portfolio will initially invest on or about the Investment Start Date between 25% and 45% of the Portfolio's assets in call options on equity indices. If at the option's maturity or when the Portfolio seeks to close out the option there is no price appreciation on the S&P 500 or another index with respect to which the Portfolio holds a call option, the Portfolio will not benefit from the investment and will lose its investment in the option. The Portfolio will seek to enter into call options that provide an absolute right for the Portfolio to cause the issuing dealer to repurchase the call at any time. 5 PRESERVATION OF CAPITAL. The Portfolio will seek to preserve capital (without regard to expenses) by investing a portion of its assets in zero coupon bonds issued by the U.S. Government and its agencies and instrumentalities and by private issuers which, at the time of investment, are rated A or better by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), or, if not rated, are of a comparable quality as determined by the Portfolio Manager. The Portfolio will usually invest in zero coupon bonds with a maturity date on or close to the Target Maturity Date, so the length to maturity of the fixed income securities held by the Portfolio can be expected to decrease as the Portfolio nears its Target Maturity Date. The Portfolio may hold any or all of the zero coupon bonds in which it invests until their maturity date or until or close to the Portfolio's Target Maturity Date, although, alternatively, the Portfolio may dispose of one or more of such bonds prior to this time if deemed by the Portfolio Manager in its sole discretion to be in the Portfolio's best interests or to be necessary or appropriate under applicable law. This strategy for pursuit of preservation of capital does not take into account expenses of the Portfolio so that if the Portfolio Manager is successful in its strategy, an investor in the Portfolio cannot be assured that the value of his or her investment as of the Target Maturity Date will equal the value of the investment as of the Investment Start Date. Similarly, the strategy for pursuit of preservation of capital does not take into account any expenses of the Variable Contracts whose proceeds are invested in the Portfolios. The purchaser of a Variable Contract would pay the expenses of the Variable Contract, which could further detract from the value of a Variable Contract Owner's investment as of the Target Maturity Date. For more information on expenses under the Variable Contract, see the Variable Contract prospectus. OFFERING PERIOD. The Commencement Date is November 14, 1994. The Portfolio was be offered from the Commencement Date through March 3, 1995. This period is referred to as the Offering Period. The Investment Start Date is March 6, 1995. The Portfolio ceased issuing new shares at the end of the Offering Period (other than shares of the Portfolio issued in connection with reinvestment of the Portfolio's dividends and distributions). However, it is anticipated that other series with substantially similar investment objectives and policies may be offered in the future. TARGET MATURITY DATE. The Target Maturity Date of the Portfolio is March 6, 2001. On or about this date, the Portfolio will be converted to cash (after deduction of any unpaid Portfolio expenses). The proceeds will be available for reinvestment in other investment options available for annuity contracts, according to the allocation instructions received from Golden American. It is anticipated that Golden American will ask owners of the annuity contracts whose proceeds are invested in the Portfolio to choose their desired allocation. If no instructions are given, liquidation proceeds will be invested automatically in a series substantially similar to the Portfolio, if any is being offered at the time, and if not, to the Liquid Asset Series of the Trust. PRINCIPAL Any investment involves the possibility that you will RISKS lose money or not make money. Investment in the Portfolio is not insured against loss of principal. We cannot assure that the Portfolio will achieve its investment objective. Investing in shares of the Portfolio should not be considered a complete investment program. The Portfolio is not intended for sharholders seeking short-term profits. The share value of the Portfolio will rise and fall. An investment in the Portfolio is subject to the following principal risks: o MANAGER RISK. The Portfolio Manager may do a mediocre or poor job in selecting securities. o MARKET AND COMPANY RISK. The price of a security held by the Portfolio may fall due to changing economic, political or market conditions 6 or disappointing earnings results. Stock prices in general will decline over short or even extended periods. The stock market tends to be cyclical, with periods when stock prices generally rise and periods when stock prices generally decline. Risks Related to Coupon Bond Investing: o INTEREST RATE RISK. The value of debt instruments generally rises and falls inversely with interest rate. Therefore, bond prices overall will decline over short or even extended periods due to rising interest rates. Further, changes in value in response to changing interest rates may be more pronounced in zero coupon bonds than in interest-bearing bonds having the same maturity. o CREDIT RISK. A bond issuer (debtor) may fail to repay interest and principal in a timely manner. The price of a security held by a portfolio may fall due to changing economic, political or market conditions or disappointing earnings results. Risks Related to OTC Call Options: o CREDITWORTHINESS OF DEALER. Under the terms of the over-the-counter call options that will be acquired by the Portfolio, the Portfolio must look to the issuing dealer to repurchase the option and for payment upon exercise. Thus, it is likely that the Portfolio will be subject to the creditworthiness of the dealers throughout the Target Maturity Date. Nonperformance by a dealer as a result of insolvency or otherwise may result in material losses to the Portfolio. o INVESTMENT CONCENTRATION IN THE SECURITIES INDUSTRY. Since at least 25% of the Portfolio will be invested in over-the-counter options, the Portfolio might be deemed to have concentrated its investments in issuers in the securities industry. The concentration of the Portfolio's assets in firms in the securities industry will cause the Portfolio to have greater exposure to risks associated with the securities industry in general. Because of these risks, your investment could lose or not make any money. MORE ON THE ING Investment Management LLC ("ING Investment") (or PORTFOLIO investment advisors acquired by ING Investment Management) MANAGER has managed the Portfolio since March, 1997. ING Investment is engaged in the business of providing investment advice to affiliated insurance and investment companies and institutional clients possessing portfolios, which, as of December 31, 1998, were valued at approximately $27.6 billion. The address of ING Investment is 5780 Powers Ferry Road, N.W., Suite 300, Atlanta, Georgia 30327. ING Investment is a subsidiary of ING Groep N.V. and is affiliated with Directed Services, Inc. The following person at ING Investment is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Name and Recent Business Experience ---- ----------------------------------- Robert F. Bowman Senior Portfolio Manager Mr. Bowman has been employed by the Portfolio Manager as a Managing Director since January 2, 1998. Prior to that he served as the Portfolio's portfolio manager while working for Equitable Investment Services, Inc. ("EISI"). He joined EISI as Executive Vice President in 1986, and has over 18 years of direct investment experience. 7 - ------------------------------------------------------------------------- MANAGEMENT OF THE TRUST - ------------------------------------------------------------------------- THE ADVISER Directed Services, Inc. ("DSI") is the overall adviser to the GCG Trust. The Trust is an open-end management investment company organized as a Massachusetts business trust. DSI is a New York corporation and is a wholly owned subsidiary of ING Groep N.V. ("ING"). DSI is registered with the SEC as an investment adviser and a broker-dealer. DSI is the principal underwriter and distributor of the Variable Contracts that Golden American Life Insurance Company ("Golden American") issues. Golden American is a stock life insurance company organized under the laws of the State of Delaware and a subsidiary of ING. The Trust pays DSI, as adviser, for its services a quarterly fee at the annual rate of 1.0% of the value of the average daily net assets of the Portfolio. The Trust pays DSI, adviser to the manager, for management services a quarterly fee equal to an annual rate of 1.0% of the average daily net assets of the Portfolio. The Trust is distinct in that the expense structure of the Portfolio is simpler and more predictable than most mutual funds. Many of the ordinary expenses for the Portfolio, including custodial, administrative, transfer agency, portfolio accounting, auditing, and ordinary legal expenses are paid by DSI, whereas most mutual funds pay for these expenses directly from their own assets. As adviser, DSI is responsible, subject to the supervision of the Board of Trustees, for providing administrative and other services necessary for the ordinary operation of the Portfolio in addition to advisory services. DSI, as adviser, provides the overall business management and administrative services necessary for the Portfolio's operation and provides or procures the services and information necessary to the proper conduct of the business of the Portfolio. DSI is responsible for providing or procuring, at its own expense, the services reasonably necessary for the ordinary operation of the Portfolio. DSI is also responsible for ensuring that the Portfolio operate in compliance with applicable legal requirements and for monitoring the Portfolio Manager for compliance with requirements under applicable law and the their investment policies and restrictions of the Portfolio. DSI does not bear the expense of brokerage fees and other transaction expenses for securities or other asset, taxes, if any, paid by the Portfolio, interest on borrowing, fees and expenses of the independent trustees, and extraordinary expenses, such as litigation or indemnification expenses. PORTFOLIO DSI and the Trust have retained an affiliate, ING MANAGER Investment Management LLC ("ING Investment") to manage the assets of the Portfolio. As Portfolio Manager, ING Investment makes all determinations on the investment of the Portfolio's assets consistent with the investment objectives, policies, and restrictions of the Portfolio. ING is compensated by DSI. DSI pays ING a fee, payable monthly, based on the average daily net assets of the Portfolio at the annual rate of 0.50%. See "Description of the Portfolio -- More on the Portfolio Manager." DISTRIBUTOR DSI acts as distributor of shares of the Portfolio, in addition to serving as manager to the Trust. As distributor, DSI is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc., and acts as distributor without remuneration from the Trust. EXPENSES DSI, as manager, bears the expenses of the ordinary operations of the Portfolio. The Trust bears the expense of taxes (if any) paid by the Portfolio, the fees and expense of its independent trustees, any extraordinary expense, such as any litigation or indemnification 8 expenses, as well as other expenses as described under "Management of the Trust." Any such Trust expenses directly attributable to the Portfolio are charged to the Portfolio; other expenses are allocated among all the portfolios of the Trust. For the fiscal year ended December 31, 1998, total Portfolio expenses (net of fee waiver) were 1.01% of the Portfolio's net assets. PORTFOLIO Shares of the Portfolio may be offered for purchase by TRANSACTIONS separate accounts of Golden American to serve as an investment medium for the Variable Contracts issued by the insurer. Shares of the Portfolio will be sold during the Offering Period at the net asset value (without a sales charge) next computed after receipt of a purchase order by Golden American. Shares will not be available after the Offering Periods (other than for reinvestment of any dividends and distributions). Shares of the Portfolio may be redeemed on any business day. Redemptions are effected at the per share net asset value next determined after receipt of the redemption request by an insurance company whose separate account invests in the Portfolio. Redemption proceeds normally will be paid within seven days following receipt of instructions in proper form. The Trust may suspend the right of redemption or postpone the payment date beyond seven days when the New York Stock Exchange is closed (other than customary weekend and holiday closings) or for any period during which trading is restricted. Shares of the Portfolio may be exchanged for shares of any other portfolio of the Trust, other than The Fund For Life, at any time. Exchanges of shares of other portfolios of the Trust into the Portfolio will only be permitted during the Offering Period. Exchanges are treated as a redemption of shares of one portfolio and a purchase of shares of one or more of the other portfolios and are effected at the respective net asset values per shares of each portfolio on the date of the exchange. The Portfolio will be managed to achieve its investment object as of the Target Maturity Date, and is intended for investors who desire to maintain their holding in the Portfolio for the duration of the Portfolio through the Target Maturity Date. Variable Contract Owners who withdraw their interest earlier may be subject to a greater risk that the Portfolio will not achieve its investment objective and to the risk that the assets in which the Portfolio will invest have not yet reached their full potential return. - ------------------------------------------------------------------------- SHARE PRICE - ------------------------------------------------------------------------- NET ASSET The net asset value per share of the Portfolio is VALUE calculated at or about 4:00 p.m. (New York City time), Monday through Friday, on each day that the New York Stock Exchange is open for trading, exclusive of federal holidays. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets less all liabilities by the number of the Portfolio's outstanding shares. The assets of the Portfolio consist primarily of the mutual funds, which are valued at their respective net asset values under the 1940 Act. Each mutual fund is required to value securities in its portfolio for which market quotations are readily available at their current market value (generally the last reported sale price) and all other securities and assets at fair value pursuant to methods established in good faith by the board of directors of the underlying fund. Money market funds with portfolio securities that mature in one year or less may use the amortized cost or penny-rounding methods to value their securities. Securities having 60 days or less remaining to maturity generally are valued at their amortized cost, which approximates market value. 9 Other assets of the Portfolio are valued at their current market value if market quotations are readily available and, if market quotations are not available, they are valued at fair value pursuant to methods established in good faith by the Board of Trustees. Securities having 60 days or less remaining to maturity are valued at their amortized cost. - ------------------------------------------------------------------------- TAXES AND DISTRIBUTION - ------------------------------------------------------------------------- The GCG Trust pays net investment income, if any, on your shares of each Portfolio annually. Any net realized long- term capital gains for the Portfolio will be declared and paid at least once annually. Net realized short-term gains may be declared and paid more frequently. We will automatically reinvest any distributions made by the Portfolio in additional shares of the Portfolio, unless the separate account of your insurance company makes an election to receive distributions in cash. Dividends or distributions by the Portfolio will reduce the per share net asset value by the per share amount paid. The Portfolio has qualified and expect to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). As a qualified regulated investment company, the Portfolio is generally not subject to Federal income tax on the part of their investment company taxable income (including any net capital gains) which they distribute to shareholders. It is the Portfolio's intention to distribute all such income and gains. Shares of the Portfolio are offered to the Separate Accounts of insurance companies. Under the Code, an insurance company pays no tax with respect to income of a qualifying Separate Account when the income is properly allocable to the value of eligible variable annuity or variable life insurance contracts. Under current tax law, your gains under your Contract are taxed only when you take them out. Contract purchasers should review the Contract prospectus for a discussion of the tax treatment applicable to holders of the Contracts. The foregoing is only a summary of some of the important Federal income tax considerations generally affecting the Portfolio and you. Please refer to the Statement of Additional Information for more information about the tax status of the Portfolio. You are urged to consult with your tax advisor for more detailed information regarding taxes applicable to the Contracts and the holders thereof. - ------------------------------------------------------------------------- MORE INFORMATION - ------------------------------------------------------------------------- ADDITIONAL The description of the Portfolio in this prospectus does INVESTMENT not describe all of the non-principal investments, STRATEGIES techniques and strategies the Portfolio may use to achieve its investment objective. The Portfolio is not obligated to use any of these techniques or strategies at any given time or under any particular economic condition. For further information on these investments, techniques and strategies, please refer to the Statement of Additional Information. The Portfolio may take temporary defensive positions inconsistent with its respective investment policies to adjust its investment exposure during uncertain periods, such as periods when the portfolio manager determines that adverse market, economic, political or other conditions exist. These positions generally involve investing in a manner 10 different than that in which the portfolio invests under normal market conditions. To the extent the Portfolio assumes a temporary investment position, it may not achieve its investment objective. For more detailed information on the Portfolio's temporary defensive positions, please refer to the Statement of Additional Information. PORTFOLIO Before investing in the Portfolio, you should review its TURNOVER portfolio turnover rate for an indication of the potential effect of transaction costs on the portfolio's future returns. In general, the greater the volume of buying and selling by the portfolio, the greater the impact that brokerage commissions and other transaction costs will have on its return. Portfolio turnover rate is calculated by dividing the value of the lesser of purchases or sales of portfolio securities for the year by the monthly average of the value of portfolio securities owned by the portfolio during the year. Securities whose maturities at the time of purchase were one year or less are excluded. A 100% portfolio turnover rate would occur, for example, if a portfolio sold and replaced securities valued at 100% of its total net assets within a one-year period. The portfolio turnover rate for the Portfolio is presented in "Financial Highlights" in this prospectus. LEGAL COUNSEL Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004-2404 serves as counsel to the GCG Trust. INDEPENDENT Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116- AUDITORS 5072 serves as independent auditors of the GCG Trust. YEAR 2000 Based on a study of its computer software systems and hardware, DSI, in conjunction with an affiliate, Golden American, have determined their exposure to the year 2000 change of the century date issue. Some of these systems support certain trust operations. The Adviser believes its and Golden American's systems are or will be substantially compliant by year 2000 and has engaged external consultants to validate this assumption. The Adviser is in contact with the GCG Trust's third party vendors to ensure that their systems will be substantially compliant by year 2000. To the extent these third parties would be unable to transact business in the year 2000 and thereafter, the GCG Trust's operations could be adversely affected. 11 TO OBTAIN MORE INFORMATION THE GCG TRUST Two documents are available that offer further TRUSTEES information on the Portfolio: R. Brock Armstrong, Chair ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS. The annual report of the Trust include a discussion of Barnett Chernow, Trustee the market conditions and investment strategies that significantly affected the Portfolio's J. Michael Earley, Trustee performance during the last fiscal year. R. Barbara Gitenstein, Trustee STATEMENT OF ADDITIONAL INFORMATION. The Statement of Additional Information contains Robert A. Grayson, Trustee additional information about the Portfolio. A current Statement of Additional Information has Elizabeth J. Newell, Trustee been filed with the Securities and Exchange Commission, and is made a part of this prospectus Stanley B. Seidler, Trustee by reference. Roger B. Vincent, Trustee To obtain a free copy of these documents or to make inquiries about the Portfolio, please write to our Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380 or call (800) 366-0066, or access the SEC's website (http://www.sec.gov). Information about the GCG Trust can be reviewed and copied at the SEC's Public Reference Room. Information about its operation may be obtained by calling 1-800-SEC-0330. You may obtain copies of reports and other information about the GCG Trust, for payment of a duplication fee, by writing to Public Reference Section of the Commission, Washington, D.C. 20549-6009.
GOLDEN AMERICAN LIFE INSURANCE COMPANY GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN DELAWARE 811-5629 SAI #1 THE GCG TRUST THE GCG TRUST 1475 Dunwoody Drive West Chester, PA 19380 (800) 366-0066 Statement of Additional Information The date of this Statement of Additional Information is May 1, 1999 This Statement of Additional Information discusses twenty-three portfolios (the "Portfolios") of The GCG Trust (the "Trust"), which is an open-end management investment company. The Portfolios described herein are as follows: the Equity Income Portfolio; the Fully Managed Portfolio; the Limited Maturity Bond Portfolio; the Hard Assets Portfolio; the Real Estate Portfolio; the All-Growth Portfolio; the Capital Appreciation Portfolio; the Rising Dividends Portfolio; the Emerging Markets Portfolio; the Value Equity Portfolio; the Strategic Equity Portfolio; the Small Cap Portfolio; the Managed Global Portfolio; the Liquid Asset Portfolio; the Mid-Cap Growth Portfolio; the Research Portfolio; the Total Return Portfolio; the Growth & Income Portfolio; the Growth Portfolio; the Global Fixed Income Portfolio; the Growth Opportunities Portfolio; the Developing World Portfolio and the Market Manager Portfolio. The Portfolios' Manager is Directed Services, Inc. (the "Manager"). This Statement of Additional Information is intended to supplement the information provided to investors in the Prospectus of The GCG Trust dated May 1, 1999 (which pertains to all Portfolios other than the Market Manager Portfolio) and the Prospectus of the Market Manager Portfolio dated May 1, 1999. The Prospectuses have been filed with the Securities and Exchange Commission as part of the Trust's Registration Statement. Investors should note, however, that this Statement of Additional Information is not itself a prospectus and should be read carefully in conjunction with the Prospectuses and retained for future reference. The contents of this Statement of Additional Information are incorporated by reference in the Prospectuses in their entirety. A copy of either Prospectus may be obtained free of charge from the Trust at the address and telephone number listed above. Shareholder Reports are available, without charge, upon request. MANAGER: DIRECTED SERVICES, INC. (800) 447-3644 TABLE OF CONTENTS Page INTRODUCTION 1 DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES 1 U.S. Government Securities 1 Debt Securities 1 High Yield Bonds 2 Brady Bonds 3 Sovereign Debt 3 Mortgage-Backed Securities 4 GNMA Certificates 4 FNMA and FHLMC Mortgage-Backed Obligations 5 Collateralized Mortgage Obligations (CMOs) 5 Other Mortgage-Backed Securities 6 Asset-Backed Securities 6 Variable and Floating Rate Securities 7 Derivatives 7 Banking Industry and Savings Industry Obligations 7 Commercial Paper 8 Repurchase Agreements 9 Reverse Repurchase Agreements 10 Lending Portfolio Securities 10 Other Investment Companies 10 Short Sales 10 Short Sales Against the Box 10 Futures Contracts and Options on Futures Contracts 11 General Description of Futures Contracts 11 Interest Rate Futures Contracts 11 Options on Futures Contracts 11 Stock Index Futures Contracts 12 Investment in Gold and Other Precious Metals 13 Gold Futures Contracts 13 Limitations 14 Options on Securities and Securities Indexes 14 Purchasing Options on Securities 14 Risks of Options Transactions 15 Writing Covered Call and Secured Put Options 15 Options on Securities Indexes 16 Over-the-Counter Options 16 General 16 Risks Associated with Futures and Futures Options 17 When-Issued or Delayed Delivery Securities 18 Foreign Securities 18 Foreign Currency Transactions 19 Options on Foreign Currencies 20 Common Stock and Other Equity Securities 21 Convertible Securities 21 Currency Management 21 Hybrid Investments 21 Dollar Roll Transactions 23 Equity and Debt Securities Issued or Guaranteed by Supranational Organizations 23 Exchange Rate Related Securities 23 i Geographical and Industry Concentration 24 Illiquid Securities 24 Restricted Securities 24 Lease Obligation Bonds 24 Borrowing 25 Hard Asset Securities 25 Real Estate Securities 25 Swaps 26 Zero-Coupon Bonds 26 Small Companies 26 Strategic Transactions 27 Lending of Portfolio Securities 27 Special Situations 28 Warrants 28 INVESTMENT OBJECTIVES AND ADDITIONAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS 28 Equity Income Portfolio 28 Fully Managed Portfolio 28 Limited Maturity Bond Portfolio 29 Hard Assets Portfolio 31 Real Estate Portfolio 33 All-Growth Portfolio 33 Rising Dividend Portfolio 34 Emerging Market Portfolio 34 Value Equity Portfolio 35 Strategic Equity Portfolio 36 Capital Appreciation Portfolio 36 Small Cap Portfolio 37 Managed Global Portfolio 38 Growth Opportunities Portfolio 39 Developing World Portfolio 39 Mid-Cap Growth Portfolio 40 Research Portfolio 41 Total Return Portfolio 41 Growth & Income Portfolio 42 Growth Portfolio 43 Global Fixed Income Portfolio 44 Liquid Asset Portfolio 44 Market Manager Portfolio 46 INVESTMENT RESTRICTIONS 46 Fundamental Investment Restrictions For the Equity Income Portfolio, the Fully Managed Portfolio, the Limited Maturity Bond Portfolio, the Hard Assets Portfolio, the Real Estate Portfolio, the All-Growth Portfolio, the Capital Appreciation Portfolio, the Rising Dividends Portfolio, the Emerging Markets Portfolio, the Value Equity Portfolio, the Strategic Equity Portfolio, the Small Cap Portfolio, the Managed Global Portfolio, the Market Manager Portfolio and the Liquid Asset Portfolio 47 For the Total Return Portfolio, Research Portfolio, Mid-Cap Growth Portfolio and Global Fixed Income Portfolio 48 For the Growth Portfolio 49 For the Growth & Income Portfolio 50 For the Growth Opportunities and Developing World Portfolio 51 Non-Fundamental Investment Restrictions 52 ii For the Rising Dividends Portfolio, Emerging Markets Portfolio, Value Equity Portfolio, Strategic Equity Portfolio, Small Cap Portfolio, Managed Global Portfolio and Market Manager Portfolio 52 For the Managed Global Portfolio 52 For the Total Return Portfolio, Research Portfolio, Mid-Cap Growth Portfolio and Global Fixed Income Portfolio 52 For the Growth Portfolio 53 For the Growth & Income Portfolio 53 For the Growth Opportunities and Developing World Portfolio 54 MANAGEMENT OF THE TRUST 54 The Management Agreement 58 Portfolio Managers 60 Distribution of Trust Shares 62 Purchases and Redemptions 62 PORTFOLIO TRANSACTIONS AND BROKERAGE 62 Investment Decisions 62 Brokerage and Research Services 65 NET ASSET VALUE 65 PERFORMANCE INFORMATION 66 TAXES 68 OTHER INFORMATION 70 Capitalization 70 Voting Rights 70 Custodian and Other Service Providers 72 Purchase of Shares 70 Redemption of Shares 71 Exchages 71 Independent Auditors 72 Counsel 72 Registration Statement 72 Financial Statements 72 APPENDIX 1: DESCRIPTION OF BOND RATINGS A-1 iii INTRODUCTION This Statement of Additional Information is designed to elaborate upon information contained in the Prospectuses for the Portfolios, including the discussion of certain securities and investment techniques. The more detailed information contained herein is intended for investors who have read the Prospectuses and are interested in a more detailed explanation of certain aspects of some of the Portfolio's securities and some investment techniques. Some of the Portfolios' investment techniques are described only in the Prospectuses and are not repeated herein. Captions and defined terms in this Statement of Additional Information generally correspond to like captions and terms in the Portfolios' Prospectuses. Terms not defined herein will have the meanings given them in the Prospectuses. DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES U.S. GOVERNMENT SECURITIES U.S. government securities are obligations of, or are guaranteed by, the U.S. government, its agencies or instrumentalities. Treasury bills, notes, and bonds are direct obligations of the U.S. Treasury. Securities guaranteed by the U.S. government include: federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, described in the section on "Mortgage-Backed Securities," and Federal Housing Administration debentures). In guaranteed securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of the highest credit quality. Such direct obligations or guaranteed securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, the U.S. government is obligated to or guarantees to pay them in full. Securities issued by U.S. government instrumentalities and certain federal agencies are neither direct obligations of nor guaranteed by the Treasury. However, they involve federal sponsorship in one way or another: some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan Mortgage Association, Central Bank for Cooperatives, Federal Intermediate Credit Banks, and Federal Home Loan Banks. Certain Portfolios may also purchase obligations of the International Bank for Reconstruction and Development, which, while technically not a U.S. government agency or instrumentality, has the right to borrow from the participating countries, including the United States. DEBT SECURITIES Certain Portfolios may invest in debt securities, as stated in the Portfolios' investment objectives and policies in the relevant Prospectus or in this Statement of Additional Information. Some Portfolios may invest only in debt securities that are investment grade, i.e., rated BBB or better by Standard & Poor's Rating Group ("Standard & Poor's") or Baa or better by Moody's Investors Service, Inc. ("Moody's"), or, if not rated by Standard & Poor's or Moody's, of equivalent quality as determined by the Portfolio Manager. The investment return on a corporate debt security reflects interest earnings and changes in the market value of the security. The market value of corporate debt obligations may be expected to rise and fall inversely with interest rates generally. There also exists the risk that the issuers of the securities may not be able to meet their obligations on interest or principal payments at the time called for by an instrument. Bonds rated BBB or Baa, which are considered medium-grade category bonds, do not have economic characteristics that provide the high degree of security with respect to payment of principal and interest associated with higher rated bonds, and generally have some speculative characteristics. A bond will be placed in this rating category where interest payments and principal security appear adequate for the present, but economic characteristics that provide longer 1 term protection may be lacking. Any bond, and particularly those rated BBB or Baa, may be susceptible to changing conditions, particularly to economic downturns, which could lead to a weakened capacity to pay interest and principal. New issues of certain debt securities are often offered on a when- issued or firm-commitment basis; that is, the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the customary settlement time. The value of when-issued securities or securities purchased on a firm-commitment basis may vary prior to and after delivery depending on market conditions and changes in interest rate levels. However, the Portfolio will not accrue any income on these securities prior to delivery. The Portfolio will maintain in a segregated account with its custodian an amount of cash or high quality debt securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the when-issued securities or securities purchased on a firm- commitment basis. Many securities of foreign issuers are not rated by Moody's or Standard and Poor's; therefore, the selection of such securities depends, to a large extent, on the credit analysis performed or used by the Portfolio's Manager. HIGH YIELD BONDS "High Yield Bonds" (commonly referred to as "junk bonds"), are bonds rated lower than Baa or BBB, or, if not rated by Moody's or Standard & Poor's, of equivalent quality. In general, high yield bonds are not considered to be investment grade, and investors should consider the risks associated with high yield bonds before investing in the pertinent Portfolio. Investment in such securities generally provides greater income and increased opportunity for capital appreciation than investments in higher quality securities, but it also typically entails greater price volatility and principal and income risk. Investment in high yield bonds involves special risks in addition to the risks associated with investments in higher rated debt securities. High yield bonds are regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Many of the outstanding high yield bonds have not endured a lengthy business recession. A long-term track record on bond default rates, such as that for investment grade corporate bonds, does not exist for the high yield market. Analysis of the creditworthiness of issuers of debt securities, and the ability of a Portfolio to achieve its investment objective may, to the extent of investment in high yield bonds, be more dependent upon such creditworthiness analysis than would be the case if the Portfolio were investing in higher quality bonds. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade bonds. The prices of high yield bonds have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in high yield bond prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If an issuer of high yield bonds defaults, in addition to risking payment of all or a portion of interest and principal, the Portfolio may incur additional expenses to seek recovery. In the case of high yield bonds structured as zero coupon or pay-in-kind securities, their market prices are affected to a greater extent by interest rate changes, and therefore tend to be more volatile than securities which pay interest periodically and in cash. The secondary market on which high yield bonds are traded may be less liquid than the market for higher grade bonds. Less liquidity in secondary trading market could adversely affect the price at which the Portfolio could sell a high yield bond, and could adversely affect and cause large fluctuations in the daily net asset value of the Portfolio's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield bonds, especially in a thinly traded market. When secondary markets for high yield bonds are less liquid than the market for higher grade bonds, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available. 2 There are also certain risks involved in using credit ratings for evaluating high yield bonds. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield bonds. Also, credit rating agencies may fail to reflect subsequent events. BRADY BONDS "Brady Bonds," are created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructuring under a plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds are not considered U.S. Government securities and are considered speculative. Brady Plan debt restructuring have been implemented to date in several countries, including Mexico, Venezuela, Argentina, Uruguay, Costa Rica, Bulgaria, the Dominican Republic, Jordan, Nigeria, Bolivia, Ecuador, Niger, Brazil, Peru, Panama, Poland and the Philippines (collectively, the "Brady Countries"). It is expected that other countries will undertake a Brady Plan debt restructuring in the future. Brady Bonds have been issued only recently, and accordingly, do not have a long payment history. They may be collateralized or uncollateralized and issued in various currencies (although most are U.S. dollar-denominated) and they are actively traded in the over-the-counter secondary market. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds which have the same maturity as the Brady Bonds. Interest payments on these Brady Bonds generally are collateralized on a one- year or longer rolling-forward basis by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of interest payments or, in the case of floating rate bonds, initially is equal to at least one year's interest payments based on the applicable interest rate at the time and is adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to "value payments" in certain circumstances, which in effect constitute supplemental interest payments but generally are not collateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). Most Mexican Brady Bonds issued to date have principal repayments at final maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable collateral denominated in other currencies) and interest coupon payments collateralized on an 18-month rolling- forward basis by funds held in escrow by an agent for the bondholders. A significant portion of the Venezuelan Brady Bonds and the Argentine Brady Bonds issued to date have principal repayments at final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable collateral denominated in other currencies) and/or interest coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for Argentina) rolling-forward basis by securities held by the Federal Reserve Bank of New York as collateral agent. Brady Bonds involve various risk factors including residual risk and the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds. There can be no assurance that Brady Bonds in which the Portfolio may invest will not be subject to restructuring arrangements or to requests for new credit, which may cause the Portfolio to suffer a loss of interest or principal on any of its holdings. SOVEREIGN DEBT Debt obligations known as "sovereign debt" are obligations of governmental issuers in emerging market countries and industrialized countries. Some Portfolios may invest in obligations issued or guaranteed by a foreign government or its political subdivisions, authorities, agencies, or instrumentalities, or by supranational entities, which, at the time of investment, are rated A or better by Standard & Poor's or Moody's or, if not rated by Standard & Poor's or Moody's, determined by the Portfolio Manager to be of equivalent quality. Certain emerging market countries are among the largest debtors to commercial banks and foreign governments. The issuer or governmental authority that controls the repayment of sovereign debt may not be willing or able to repay the principal and/or pay interest when due in accordance with the terms of such obligations. 3 A governmental entity's willingness or ability to repay principal and pay interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the government's dependence on expected disbursements from third parties, the government's policy toward the International Monetary Fund and the political constraints to which a government may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a debtor's implementation of economic reforms or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the government debtor, which may further impair such debtor's ability or willingness to timely service its debts. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign government debt obligations in the event of default under their commercial bank loan agreements. The issuers of the government debt securities in which the Portfolio may invest have in the past experienced substantial difficulties in servicing their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds, and obtaining new credit to finance interest payments. There can be no assurance that the Brady Bonds and other foreign government debt securities in which a Portfolio may invest will not be subject to similar restructuring arrangements or to requests for new credit, which may adversely affect the Portfolio's holdings. Furthermore, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants. MORTGAGE-BACKED SECURITIES GNMA CERTIFICATES. Government National Mortgage Association ("GNMA") certificates are mortgage-backed securities representing part ownership of a pool of mortgage loans on which timely payment of interest and principal is guaranteed by the full faith and credit of the U.S. government. GNMA is a wholly owned U.S. government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks, and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Interests in pools of mortgage-backed securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a periodic payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the periodic payments made by the individual borrowers on the residential mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying residential property, refinancing or foreclosure, net of fees or costs which may be incurred. Mortgage- backed securities issued by GNMA are described as "modified pass- through" securities. These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates, regardless of whether or not the mortgagor actually makes the payment. Although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult. Expected payments may be delayed due to the delays in registering the newly traded paper securities. The custodian's policies for crediting missed payments while errant receipts are tracked down may vary. Other mortgage-backed securities, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA"), trade in book-entry form and should not be subject to the risk of delays in timely payment of income. 4 Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the GNMA certificates typically will be substantially less because the mortgages will be subject to normal principal amortization and may be prepaid prior to maturity. Early repayments of principal on the underlying mortgages may expose a Portfolio to a lower rate of return upon reinvestment of principal. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the GNMA certificates. Conversely, when interest rates are rising, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the GNMA certificates. Accordingly, it is not possible to accurately predict the average life of a particular pool. Reinvestment of prepayments may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, GNMA certificates can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, although they may have comparable risks of decline in value during periods of rising interest rates. FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. government) include the FNMA and the FHLMC. FNMA, a federally chartered and privately owned corporation, issues pass-through securities representing interests in a pool of conventional mortgage loans. FNMA guarantees the timely payment of principal and interest, but this guarantee is not backed by the full faith and credit of the U.S. government. FNMA also issues REMIC Certificates, which represent an interest in a trust funded with FNMA Certificates. REMIC Certificates are guaranteed by FNMA, and not by the full faith and credit of the U.S. Government. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA conventional (i.e., not insured or guaranteed by any government agency) purchases residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks, credit unions, and mortgage bankers. FHLMC, a corporate instrumentality of the United States, was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal and maintains reserves to protect holders against losses due to default. PCs are not backed by the full faith and credit of the U.S. government. As is the case with GNMA certificates, the actual maturity and realized yield on particular FNMA and FHLMC pass- through securities will vary based on the prepayment experience of the underlying pool of mortgages. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal are paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams. CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying investors, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner-than-desired return of principal because of the sequential payments. In a typical CMO transaction, a corporation ("issuer") issues multiple portfolios (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third-party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The portfolio A, B, and C Bonds all bear current interest. Interest on the portfolio Z Bond is accrued and added to the principal; a like amount is paid as principal on the portfolio A, B, or C Bond currently being paid off. When the portfolio A, B, and C Bonds are paid in full, interest and principal on the portfolio Z Bond begin to be 5 paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios. OTHER MORTGAGE-BACKED SECURITIES. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers, and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. In addition, such issuers may be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-backed securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government- related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. Timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance, and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers, and the mortgage poolers. Such insurance, guarantees, and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-backed security meets a Portfolio' s investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Some Portfolios may buy mortgage-backed securities without insurance or guarantees, if the Portfolio Manager determines that the securities meet a Portfolio's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. A Portfolio will not purchase mortgage-backed securities or any other assets which, in the opinion of the Portfolio Manager, are illiquid if, as a result, the Portfolio will exceed its illiquidity cap. As new types of mortgage-backed securities are developed and offered to investors, the Portfolio Manager will, consistent with a Portfolio's investment objectives, policies, and quality standards, consider making investments in such new types of mortgage-backed securities. It is expected that governmental, government-related, or private entities may create mortgage loan pools and other mortgage-backed securities offering mortgage pass-through and mortgage-collateralized investments in addition to those described above. As new types of mortgage-backed securities are developed and offered to investors, investments in such new types of mortgage-backed securities may be considered for the Portfolios. ASSET-BACKED SECURITIES Asset-backed securities (unrelated to mortgage loans) are securities such as "CARS/sm/" ("Certificates for Automobile Receivables/sm/") and Credit Card Receivable Securities. The Market Manager Portfolio may not invest in these securities. CARS/sm/ represent undivided fractional interests in a trust whose assets consist of a pool of motor vehicle retail installment sales contracts and security interests in the vehicles securing the contracts. Payments of principal and interest on CARS/sm/ are "passed- through" monthly to certificate holders, and are guaranteed up to certain amounts by a letter of credit issued by a financial institution unaffiliated with the trustee or originator of the trust. Underlying sales contracts are subject to prepayment, which may reduce the overall return certificate holders. Certificate holders may also experience delays in payment or losses on CARS/sm/ if the full amounts due on underlying sales contracts are not realized by the trust because of unanticipated legal or administrative costs of enforcing the contracts, or because of depreciation, damage, or loss of the vehicles securing the contracts, or other factors. If consistent with its investment objective and policies, a Portfolio may invest in "Credit Card Receivable Securities." Credit Card Receivable Securities are asset-backed securities backed by receivables from revolving credit card agreements. Credit balances on revolving credit card agreements ("Accounts") are generally paid down more rapidly than are Automobile Contracts. Most of the Credit Card Receivable Securities issued publicly to date have been Pass- Through Certificates. In order to lengthen the maturity of Credit Card Receivable Securities, most such securities provide for a fixed period during which only interest payments on the underlying Accounts are passed through to the security holder and principal payments received on such Accounts are used to fund the transfer to the pool of assets supporting the related Credit Card Receivable Securities of additional credit card charges made on an Account. The initial fixed period usually may be shortened upon the occurrence of 6 specified events which signal a potential deterioration in the quality of the assets backing the security, such as the imposition of a cap on interest rates. The ability of the issuer to extend the life of an issue of Credit Card Receivable Securities thus depends upon the continued generation of additional principal amounts in the underlying Accounts during the initial period and the non-occurrence of specified events. Competitive and general economic factors could adversely affect the rate at which new receivables are created in an Account and conveyed to an issuer, shortening the expected weighted average life of the related Credit Card Receivable Security, and reducing its yield. An acceleration in cardholders' payment rates or any other event which shortens the period during which additional credit card charges on an Account may be transferred to the pool of assets supporting the related Credit Card Receivable Security could have a similar effect on the weighted average life and yield. Credit card holders are entitled to the protection of a number of state and federal consumer credit laws, many of which give such holder the right to set off certain amounts against balances owed on the credit card, thereby reducing amounts paid on Accounts. In addition, unlike most other asset-backed securities, Accounts are unsecured obligations of the cardholder. VARIABLE AND FLOATING RATE SECURITIES Variable rate securities provide for automatic establishment of a new interest rate at fixed intervals (e.g., daily, monthly, semi- annually, etc.). Floating rate securities provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. The interest rate on variable or floating rate securities is ordinarily determined by reference to or is a percentage of a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or bank certificates of deposit, an index of short-term interest rates, or some other objective measure. Variable or floating rate securities frequently include a demand feature entitling the holder to sell the securities to the issuer at par value. In many cases, the demand feature can be exercised at any time on 7 days' notice; in other cases, the demand feature is exercisable at any time on 30 days' notice or on similar notice at intervals of not more than one year. Some securities which do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. DERIVATIVES Certain Portfolios invest in derivatives, which are securities and contracts whose value is based on performance of an underlying financial asset, index or other investment. Examples of the derivatives are CMOs, variable and floating rate securities, futures contracts, options contracts, and forward currency exchange contracts. Derivative securities and contracts may be used as a direct investment or as a hedge for a portfolio of investments. Hedging involves using a security or contract to offset investment risk, and can reduce the risk of a position held in an investment portfolio. If the Portfolio Manager's judgement about fluctuations in securities prices, interest rates or currency prices proves incorrect, or the strategy does not correlate well with a Portfolio's volitility. In addition, in the event that non-exchange traded derivatives are used, they could result in a loss if the counter-party to the transaction does not perform as promised. BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS Certain Portfolios may invest in (i) certificates of deposit, time deposits, bankers' acceptances, and other short-term debt obligations issued by commercial banks and in (ii) certificates of deposit, time deposits, and other short-term obligations issued by savings and loan associations ("S&Ls"). Some Portfolios may invest in obligations of foreign branches of commercial banks and foreign banks so long as the securities are U.S. dollar-denominated, and some Portfolios also may invest in obligations of foreign branches of commercial banks and foreign banks if the securities are not U.S. dollar-denominated. See "Foreign Securities" discussion in this Statement of Additional Information for further information regarding risks attending investment in foreign securities. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills 7 of exchange, which are normally drawn by an importer or exporter to pay for specific merchandise, and which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed-time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed-time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed-time deposit to a third party, because there is no market for such deposits. A Portfolio will not invest in fixed-time deposits (i) which are not subject to prepayment or (ii) which provide for withdrawal penalties upon prepayment (other than overnight deposits), if, in the aggregate, more than 10% or 15%, depending on the Portfolio, of its assets would be invested in such deposits, in repurchase agreements maturing in more than seven days, and in other illiquid assets. Obligations of foreign banks involve somewhat different investment risks than those affecting obligations of U.S. banks, which include: (i) the possibility that their liquidity could be impaired because of future political and economic developments; (ii) their obligations may be less marketable than comparable obligations of U.S. banks; (iii) a foreign jurisdiction might impose withholding taxes on interest income payable on those obligations; (iv) foreign deposits may be seized or nationalized; (v) foreign governmental restrictions, such as exchange controls, may be adopted which might adversely affect the payment of principal and interest on those obligations; and (vi) the selection of those obligations may be more difficult because there may be less publicly available information concerning foreign banks and/or because the accounting, auditing, and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to U.S. banks. Foreign banks are not generally subject to examination by any U.S. Government agency or instrumentality. Certain of the Portfolios invest only in bank and S&L obligations as specified in that Portfolio's investment policies. Other Portfolios, except the Managed Global Portfolio, will not invest in obligations issued by a commercial bank or S&L unless: (i) the bank or S&L has total assets of at least $1 billion, or the equivalent in other currencies, and the institution has outstanding securities rated A or better by Moody's or Standard and Poor's, or, if the institution has no outstanding securities rated by Moody's or Standard & Poor's, it has, in the determination of the Portfolio Manager, similar creditworthiness to institutions having outstanding securities so rated; (ii) in the case of a U.S. bank or S&L, its deposits are insured by the FDIC or the Savings Association Insurance Fund ("SAIF"), as the case may be; and (iii)in the case of a foreign bank, the security is, in the determination of the Portfolio Manager, of an investment quality comparable with other debt securities which may be purchased by the Portfolio. These limitations do not prohibit investments in securities issued by foreign branches of U.S. banks, provided such U.S. banks meet the foregoing requirements. The Managed Global Portfolio will not invest in obligations issued by a U.S. or foreign commercial bank or S&L unless: (i) the bank or S&L has total assets of at least $10 billion (U.S.), or the equivalent in other currencies, and the institution has outstanding securities rated A or better by Moody's or Standard & Poor's, or, if the institution has no outstanding securities rated by Moody's or Standard & Poor's, it has, in the determination of the Portfolio Manager, similar creditworthiness to institutions having outstanding securities so rated; and (ii) in the case or a U.S. bank or S&L, its deposits are insured by the FDIC or the SAIF, as the case may be. COMMERCIAL PAPER All of the Portfolios may invest in commercial paper (including variable amount master demand notes and extendable command notes ("ECN")), denominated in U.S. dollars, issued by U.S. corporations or foreign 8 corporations. Unless otherwise indicated in the investment policies for a Portfolio, it may invest in commercial paper (i) rated, at the date of investment, Prime-1 or Prime-2 by Moody's or A- 1 or A-2 by Standard & Poor's; (ii) if not rated by either Moody's or Standard & Poor's, issued by a corporation having an outstanding debt issue rated AA or better by Moody's or AA or better by Standard & Poor's; or (iii) if not rated, are determined to be of an investment quality comparable to rated commercial paper in which a Portfolio may invest. Commercial paper obligations may include variable amount master demand notes. These notes are obligations that permit investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between a Portfolio, as lender, and the borrower. These notes permit daily changes in the amounts borrowed. The lender has the right to increase or to decrease the amount under the note at any time up to the full amount provided by the note agreement; and the borrower may prepay up to the full amount of the note without penalty. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, and because no secondary market exists for those notes, such instruments will probably not be traded. However, the notes are redeemable (and thus immediately repayable by the borrower) at face value, plus accrued interest, at any time. In connection with master demand note arrangements, the Portfolio Manager will monitor, on an ongoing basis, the earning power, cash flow, and other liquidity ratios of the borrower and its ability to pay principal and interest on demand. The Portfolio Manager also will consider the extent to which the variable amount master demand notes are backed by bank letters of credit. These notes generally are not rated by Moody's or Standard & Poor's; the Portfolio may invest in them only if the Portfolio Manager believes that at the time of investment, the notes are of comparable quality to the other commercial paper in which the Portfolio may invest. Master demand notes are considered by the Portfolio to have a maturity of one day, unless the Portfolio Manager has reason to believe that the borrower could not make immediate repayment upon demand. See the Appendix for a description of Moody's and Standard & Poor's ratings applicable to commercial paper. For purposes of limitations on purchases of restricted securities, commercial paper issued pursuant to Section 4(2) of the 1933 Act as part of a private placement that meets liquidity standards under procedures adopted by the Board shall not be considered to be restricted. REPURCHASE AGREEMENTS All Portfolios may invest in repurchase agreements. The term of such an agreement is generally quite short, possibly overnight or for a few days, although it may extend over a number of months (up to one year) from the date of delivery. The resale price is in excess of the purchase price by an amount which reflects an agreed-upon market rate of return, effective for the period of time the Portfolio is invested in the security. This results in a fixed rate of return protected from market fluctuations during the period of the agreement. This rate is not tied to the coupon rate on the security subject to the repurchase agreement. The Portfolio Manager monitors the value of the underlying securities at the time the repurchase agreement is entered into and at all times during the term of the agreement to ensure that their value always equals or exceeds the agreed-upon repurchase price to be paid to the Portfolio. The Portfolio Manager, in accordance with procedures established by the Board of Trustees, also evaluates the creditworthiness and financial responsibility of the banks and brokers or dealers with which the Portfolio enters into repurchase agreements. A Portfolio may engage in repurchase transactions in accordance with guidelines approved by the Board of Trustees of the Trust, which include monitoring the creditworthiness of the parties with which a Portfolio engages in repurchase transactions, obtaining collateral at least equal in value to the repurchase obligation, and marking the collateral to market on a daily basis. A Portfolio may not enter into a repurchase agreement having more than seven days remaining to maturity if, as a result, such agreements, together with any other securities that are not readily marketable, would exceed that Portfolio's limitation, either 10% or 15% of the net assets of the Portfolio, depending on the Portfolio, on investing in illiquid securities. If the seller should become bankrupt or default on its obligations to repurchase the securities, a Portfolio may experience delay or difficulties in exercising its rights to the securities held as collateral and might incur a loss if the value of the securities should decline. A Portfolio also might incur disposition costs in connection with liquidating the securities. 9 REVERSE REPURCHASE AGREEMENTS A reverse repurchase agreement involves the sale of a security by the Portfolio and its agreement to repurchase the instrument at a specified time and price. A Portfolio will use the proceeds of a reverse repurchase agreement to purchase other money market instruments which either mature at a date simultaneous with or prior to the expiration of the reverse repurchase agreement or which are held under an agreement to resell maturing as of that time. A Portfolio will maintain a segregated account consisting of cash and/or securities to cover its obligations under reverse repurchase agreements. Under the Investment Company Act of 1940, reverse repurchase agreements may be considered to be borrowings by the seller; accordingly, a Portfolio will limit its investments in reverse repurchase agreements consistent with the borrowing limits applicable to the Portfolio. See "Borrowing" for further information on these limits. The use of reverse repurchase agreements by a Portfolio creates leverage which increases a Portfolio's investment risk. If the income and gains on securities purchased with the proceeds of reverse repurchase agreements exceed the cost of the agreements, the Portfolio's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the costs, earnings or net asset value would decline faster than otherwise would be the case. LENDING PORTFOLIO SECURITIES Some Portfolios may lend portfolio securities to broker-dealers or institutional investors for the purpose of realizing additional income. A Portfolio will only enter into this type of transaction if (1) the loan is fully collateralized at all times with U.S. Government securities, cash, or cash equivalents (cash, U.S. Government securities, negotiable certificates of deposit, bankers' acceptances, or letters of credit) maintained on a daily marked-to- market basis, in an amount at least equal to the value of the securities loaned; (2) it may at any time call the loan and obtain the return of the securities loaned within five business days; (3) it will receive any interest or dividends paid on the loaned securities; and (4) the aggregate market value of securities loaned will not at any time exceed 30% of the total assets of the Portfolio. As with other extensions of secured credit, loans of portfolio securities involve some risk of loss of rights in the collateral should the borrower fail financially. Accordingly, the Portfolio Manager will monitor the value of the collateral, which will be marked-to- market daily, and will monitor the creditworthiness of the borrowers. There is no assurance that a borrower will return any securities loaned; however, as discussed above, a borrower of securities from a Portfolio must maintain with the Portfolio cash or U.S. Government securities equal to at least 100% of the market value of the securities borrowed. Voting rights attached to the loaned securities may pass to the borrower with the lending of portfolio securities; however, a Portfolio lending such voting securities may call them if important shareholder meetings are imminent. A Portfolio may only lend portfolio securities to entities that are not affiliated with either the Manager or a Portfolio Manager. OTHER INVESTMENT COMPANIES All Portfolios may invest in shares issued by other investment companies. A Portfolio is limited in the degree to which it may invest in shares of another investment company in that it may not, at the time of the purchase, (1) acquire more than 3% of the outstanding voting shares of the investment company, (2) invest more than 5% of the Portfolio's total assets in the investment company, or (3) invest more than 10% of the Portfolio's total assets in all investment company holdings. As a shareholder in any investment company, a Portfolio will bear its ratable share of the investment company's expenses, including management fees in the case of a management investment company. The Equity Income and Fully Managed Portfolios may, however, invest in shares of the T. Rowe Price Money Market Funds and the Growth Portfolio may invest in shares of Janus' Money Market Funds. Other Portfolios may invest in shares issued by other investment companies to the extent allowable by the 1940 Act. SHORT SALES A short sale is a transaction in which the Portfolio sells a security it does not own in anticipation of a decline in market price. A Portfolio may make short sales to offset a potential decline in a long position or a group of long positions, or if the Portfolio Manager believes that a decline in the price of a particular security or group of securities is likely. The Portfolio's obligation to replace the security borrowed in connection with the short sale will be secured by collateral deposited with a broker, consisting of cash or securities acceptable to the broker. In addition, with 10 respect to any short sale, other than short sales against the box, the Portfolio will be required to deposit collateral consisting of cash, cash items, or U.S. Government securities in a segregated account with its custodian in an amount such that the value of the sum of both collateral deposits is at all times equal to at least 100% of the current market value of the securities sold short. The deposits do not necessarily limit the Portfolio's potential loss on a short sale, which may exceed the entire amount of the collateral. A Portfolio is not required to liquidate an existing short sale position solely because a change in market values has caused one or more of these percentage limitations to be exceeded. SHORT SALES AGAINST THE BOX A short sale "against the box" is a short sale where, at the time of the short sale, the Portfolio owns or has the immediate and unconditional right, at no added cost, to obtain the identical security. A Portfolio would enter into such a transaction to defer a gain or loss for Federal income tax purposes on the security owned by the Portfolio. Short sales against the box are not subject to the percentage limitations on short sales described in the Prospectuses. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a particular financial instrument (debt security) or commodity for a specified price at a designated date, time, and place. Although futures contracts by their terms require actual future delivery of and payment for financial instruments, commodities futures contracts are usually closed out before the delivery date. Closing out an open futures contract position is effected by entering into an offsetting sale or purchase, respectively, for the same aggregate amount of the same financial instrument or commodities and the same delivery date. Where a Portfolio has sold a futures contract, if the offsetting purchase price is less than the original futures contract sale price, the Portfolio realizes a gain; if it is more, the Portfolio realizes a loss. Where a Portfolio has purchased a futures contract, if the offsetting price is more than the original futures contract purchase price, the Portfolio realizes a gain; if it is less, the Portfolio realizes a loss. INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an obligation traded on an exchange or board of trade that requires the purchaser to accept delivery, and the seller to make delivery, of a specified quantity of the underlying financial instrument, such as U.S. Treasury bills and bonds, in a stated delivery month, at a price fixed in the contract. A Portfolio may purchase and sell interest rate futures as a hedge against adverse changes in debt instruments and other interest rate sensitive securities. As a hedging strategy a Portfolio might employ, a Portfolio would purchase an interest rate futures contract when it is not fully invested in long-term debt securities but wishes to defer their purchase for some time until it can orderly invest in such securities or because short-term yields are higher than long- term yields. Such a purchase would enable the Portfolio to earn the income on a short-term security while at the same time minimizing the effect of all or part of an increase in the market price of the long- term debt security which the Portfolio intends to purchase in the future. A rise in the price of the long-term debt security prior to its purchase either would be offset by an increase in the value of the futures contract purchased by the Portfolio or avoided by taking delivery of the debt securities under the futures contract. A Portfolio would sell an interest rate futures contract in order to continue to receive the income from a long-term debt security, while endeavoring to avoid part or all of the decline in market value of that security which would accompany an increase in interest rates. If interest rates did rise, a decline in the value of the debt security held by the Portfolio would be substantially offset by the ability of the Portfolio to repurchase at a lower price the interest rate futures contract previously sold. While the Portfolio could sell the long-term debt security and invest in a short-term security, ordinarily the Portfolio would give up income on its investment, since long-term rates normally exceed short-term rates. OPTIONS ON FUTURES CONTRACTS. A futures option gives the Portfolio the right, in return for the premium paid, to assume a long position (in the case of a call) or short position (in the case of a put) in a futures contract at a specified exercise price prior to the expiration of the option. Upon exercise of a call option, the purchaser acquires a long position in the futures contract and the writer of the option is assigned the opposite short position. In the 11 case of a put option, the converse is true. A futures option may be closed out (before exercise or expiration) by an offsetting purchase or sale of a futures option by the Portfolio. The Portfolio may use options on futures contracts in connection with hedging strategies. Generally these strategies would be employed under the same market conditions in which a Portfolio would use put and call options on debt securities, as described hereafter in "Options on Securities and Securities Indexes." STOCK INDEX FUTURES CONTRACTS. A "stock index" assigns relative values to the common stock included in an index (for example, the Standard & Poor's 500 Index of Composite Stocks or the New York Stock Exchange Composite Index), and the index fluctuates with changes in the market values of such stocks. A stock index futures contract is a bilateral agreement to accept or make payment, depending on whether a contract is purchased or sold, of an amount of cash equal to a specified dollar amount multiplied by the difference between the stock index value at the close of the last trading day of the contract and the price at which the futures contract is originally purchased or sold. To the extent that changes in the value of a Portfolio corresponds to changes in a given stock index, the sale of futures contracts on that index ("short hedge") would substantially reduce the risk to the Portfolio of a market decline and, by so doing, provide an alternative to a liquidation of securities position, which may be difficult to accomplish in a rapid and orderly fashion. Stock index futures contracts might also be sold: (1) when a sale of portfolio securities at that time would appear to be disadvantageous in the long-term because such liquidation would: (a) forego possible price appreciation, (b) create a situation in which the securities would be difficult to repurchase, or (c) create substantial brokerage commissions; (2) when a liquidation of the portfolio has commenced or is contemplated, but there is, in the Portfolio Manager's determination, a substantial risk of a major price decline before liquidation can be completed; or (3) to close out stock index futures purchase transactions. Where a Portfolio anticipates a significant market or market sector advance, the purchase of a stock index futures contract ("long hedge") affords a hedge against not participating in such advance at a time when the Portfolio is not fully invested. Such purchases would serve as a temporary substitute for the purchase of individual stocks, which may then be purchased in an orderly fashion. As purchases of stock are made, an amount of index futures contracts which is comparable to the amount of stock purchased would be terminated by offsetting closing sales transactions. Stock index futures might also be purchased: (1) if the Portfolio is attempting to purchase equity positions in issues which it had or was having difficulty purchasing at prices considered by the Portfolio Manager to be fair value based upon the price of the stock at the time it qualified for inclusion in the portfolio, or (2) to close out stock index futures sales transactions. INVESTMENT IN GOLD AND OTHER PRECIOUS METALS. Some Portfolios may invest in gold bullion and coins and other precious metals (silver or platinum) bullion and in futures contracts with respect to such metals. In order to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, each Portfolio (with the exception of the Hard Assets Portfolio) intends to manage its metal investments and/or futures contracts on metals so that less than 10% of the gross income of the Portfolio for tax purposes during any fiscal year (the current limit on so-called non- qualifying income) is derived from these and other sources that produce such non-qualifying income. Metals will not be purchased in any form that is not readily marketable, and gold coins will be purchased for their intrinsic value only (i.e., coins) will not be purchased for their numismatic value. Any metals purchased by 12 a Portfolio will be delivered to and stored with a qualified custodian bank. Metal investments do not generate interest or dividend income. Metal investments are considered speculative and are affected by various worldwide economic, financial, and political factors. Prices may fluctuate sharply over short time periods due to changes in inflation expectations in various countries, metal sales by central banks of governments or international agencies, speculation, changes in industrial and commercial demand, and governmental prohibitions or restriction on the private ownership of certain precious metals or minerals. Furthermore, at the present time, there are four major producers of gold bullion: the Republic of South Africa, the United States, Canada, and Australia. Political and economic conditions in these countries will have a direct effect on the mining and distribution of gold and, consequently, on its price. Many of these risks also may affect the value of securities of companies engaged in operations respecting gold and other precious metals. GOLD FUTURES CONTRACTS. A gold futures contract is a standardized contract which is traded on a regulated commodity futures exchange, and which provides for the future delivery of a specified amount of gold at a specified date, time, and price. When the Portfolio purchases a gold futures contract it becomes obligated to take delivery of and pay for the gold from the seller, and when the Portfolio sells a gold futures contract, it becomes obligated to make delivery of precious metals to the purchaser, in each case at a designated date and price. A Portfolio may be able to enter into gold futures contracts only for the purpose of hedging its holdings or intended holdings of gold stocks and gold bullion. The Portfolio will not engage in these contracts for speculation or for achieving leverage. The Portfolio's hedging activities may include purchases of futures contracts as an offset against the effect of anticipated increases in the price of gold or sales of futures contracts as an offset against the effect of anticipated declines in the price of gold. As long as required by regulatory authorities, each investing Portfolio will limit its use of futures contracts and futures options to hedging transactions and other strategies as described under the heading "Limitations" in this section, in order to avoid being deemed a commodity pool. For example, a Portfolio might use futures contracts to hedge against anticipated changes in interest rates that might adversely affect either the value of the Portfolio's securities or the price of the securities which the Portfolio intends to purchase. The Portfolio's hedging may include sales of futures contracts as an offset against the effect of expected increases in interest rates and purchases of futures contracts as an offset against the effect of expected declines in interest rates. Although other techniques could be used to reduce that Portfolio's exposure to interest rate fluctuations, a Portfolio may be able to hedge its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. See this Statement of Additional Information for a discussion of other strategies involving futures and futures options. If a purchase or sale of a futures contract is made by a Portfolio, it is required to deposit with its custodian a specified amount of cash and/or securities ("initial margin"). The margin required for a futures contract is set by the exchange or board of trade on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Portfolio upon termination of the contract, assuming all contractual obligations have been satisfied. Each investing Portfolio expects to earn interest income on its initial margin deposits. A futures contract held by a Portfolio is valued daily at the official settlement price of the exchange on which it is traded. Each day the Portfolio pays or receives cash, called "variation margin" equal to the daily change in value of the futures contract. This process is known as "marking to market." The payment or receipt of the variation margin does not represent a borrowing or loan by a Portfolio but is settlement between the Portfolio and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, each Portfolio will mark-to- market its open futures positions. A Portfolio is also required to deposit and maintain margin with respect to put and call options on futures contracts it writes. Such margin deposits will vary depending on the nature of the underlying futures contract (including the related initial margin requirements), the current market value of the option, and other futures positions held by the Portfolio. 13 Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security, and delivery month). If an offsetting purchase price is less than the original sale price, the Portfolio realizes a capital gain, or if it is more, the Portfolio realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Portfolio realizes a capital gain, or if it is less, the Portfolio realizes a capital loss. The transaction costs must also be included in these calculations. LIMITATIONS. When purchasing a futures contract, a Portfolio must maintain with its custodian cash or securities (including any margin) equal to the market value of such contract. When writing a call option on a futures contract, the Portfolio similarly will maintain with its custodian cash and/or securities (including any margin) equal to the amount such option is "in-the-money" until the option expires or is closed out by the Portfolio. A call option is "in-the- money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A Portfolio may not maintain open short positions in futures contracts or call options written on futures contracts if, in the aggregate, the market value of all such open positions exceeds the current value of its portfolio securities, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the Portfolio and the positions. For this purpose, to the extent the Portfolio has written call options on specific securities it owns, the value of those securities will be deducted from the current market value of the securities portfolio. In compliance with the requirements of the Commodity Futures Trading Commission ("CFTC") under which an investment company may engage in futures transactions, the Trust will comply with certain regulations of the CFTC to qualify for an exclusion from being a "commodity pool." The regulations require that the Trust enter into futures and options (1) for "bona fide hedging" purposes, without regard to the percentage of assets committed to initial margin and options premiums, or (2) for other strategies, provided that the aggregate initial margin and premiums required to establish such positions do not exceed 5% of the liquidation value of a Portfolio, after taking into account unrealized profits and unrealized gains on any such contracts entered into. OPTIONS ON SECURITIES AND SECURITIES INDEXES PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract that gives the purchaser of the option, in return or the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the seller ("writer") of the option at a designated price during the term of the option. A Portfolio may purchase put options on securities to protect holdings in an underlying or related security against a substantial decline in market value. Securities are considered related if their price movements generally correlate to one another. For example, the purchase of put options on debt securities held by a Portfolio would enable it to protect, at least partially, an unrealized gain in an appreciated security without actually selling the security. In addition, the Portfolio would continue to receive interest income on such security. A Portfolio may purchase call options on securities to protect against substantial increases in prices of securities the Portfolio intends to purchase pending its ability to invest in such securities in an orderly manner. A Portfolio may sell put or call options it has previously purchased, which could result in a net gain or loss depending on whether the amount realized on the sale is more or less than the premium and other transactional costs paid on the put or call option which is sold. A Portfolio may purchase long-term exchange traded equity options called Long Term Equity Anticipation Securities ("LEAPS") and Buy Write Option Unitary Derivatives ("BOUNDS"). LEAPs provide the holder the opportunity to participate in the underlying securities' appreciation in excess of a fixed dollar amount, BOUNDs provide a holder the opportunity to retain dividends on the underlying securities while potentially participating in underlying securities' capital appreciation up to a fixed dollar amount. 14 RISKS OF OPTIONS TRANSACTIONS The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities at the exercise price. If a put or call option purchased by the Portfolio is not sold when it has remaining value, and if the market price of the underlying security, in the case of a put, remains equal to or greater than the exercise price or, in the case of a call, remains less than or equal to the exercise price, the Portfolio will lose its entire investment in the option. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security. There can be no assurance that a liquid market will exist when a Portfolio seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options markets, a Portfolio may be unable to close out a position. If a Portfolio cannot effect a closing transaction, it will not be able to sell the underlying security while the previously written option remains outstanding, even though it might otherwise be advantageous to do so. Possible reasons for the absence of a liquid secondary market on a national securities exchange could include: insufficient trading interest, restrictions imposed by national securities exchanges, trading halts or suspensions with respect to call options or their underlying securities, inadequacy of the facilities of national securities exchanges or the Options Clearing Corporation due to a high trading volume or other event, and a decision by one or more national securities exchanges to discontinue the trading of call options or to impose restrictions on types of orders. Since option premiums paid or received by a Portfolio, as compared to underlying investments, are small in relation to the market value of such investments, buying and selling put and call options offer large amounts of leverage. Thus, the leverage offered by trading in options could result in the Portfolio's net asset value being more sensitive to changes in the value of the underlying securities. WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn additional income on its portfolio securities or to protect partially against declines in the value of such securities, a Portfolio may write covered call options. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. During the option period, a covered call option writer may be assigned an exercise notice by the broker-dealer through whom such call option was sold requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time in which the writer effects a closing purchase transaction. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security, or to enable the Portfolio to write another call option on the underlying security with either a different exercise price or expiration date or both. In order to earn additional income or to facilitate its ability to purchase a security at a price lower than the current market price of such security, a Portfolio may write secured put options. During the option period, the writer of a put option may be assigned an exercise notice by the broker-dealer through whom the option was sold requiring the writer to purchase the underlying security at the exercise price. A Portfolio may write a call or put option only if the option is "covered" or "secured" by the Portfolio holding a position in the underlying securities. This means that so long as the Portfolio is obligated as the writer of a call option, it will own the underlying securities subject to the option or hold a call with the same exercise price, the same exercise period, and on the same securities as the written call. Alternatively, a Portfolio may maintain, in a segregated account with the Trust's custodian, cash and/or securities with a value sufficient to meet its obligation as writer of the option. A put is secured if the Portfolio maintains cash and/or securities with a value equal to the exercise price in a segregated account, or holds a put on the same underlying security at an equal or greater 15 exercise price. Prior to exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same Portfolio. OPTIONS ON SECURITIES INDEXES. A Portfolio may purchase or sell call and put options on securities indexes for the same purposes as it purchase or sells of options on securities. Options on securities indexes are similar to options on securities, except that the exercise of securities index options requires cash payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. When such options are written, the Portfolio is required to maintain a segregated account consisting of cash, cash equivalents or high grade obligations or the Portfolio must purchase a like option of greater value that will expire no earlier than the option sold. Purchased options may not enable the Portfolio to hedge effectively against stock market risk if they are not highly correlated with the value of the Portfolio's securities. Moreover, the ability to hedge effectively depends upon the ability to predict movements in the stock market. OVER-THE-COUNTER OPTIONS. Certain Portfolios may write or purchase options in privately negotiated domestic or foreign transactions ("OTC Options"), as well as exchange-traded or "listed" options. OTC Options can be closed out only by agreement with the other party to the transaction, and thus any OTC Options purchased by a Portfolio will be considered an Illiquid Security. In addition, certain OTC Options on foreign currencies are traded through financial institutions acting as market-makers in such options and the underlying currencies. The staff of the SEC has taken the position that purchased over- the-counter options and assets used to cover written over-the-counter options are illiquid and, therefore, together with other illiquid securities, cannot exceed a certain percentage of a Portfolio's assets (the "SEC illiquidity ceiling"). Except as provided below, the Portfolios intend to write over-the-counter options only with primary U.S. Government securities dealers recognized by the Federal Reserve Bank of New York. Also, the contracts which such Portfolio have in place with such primary dealers will provide that each Portfolio has the absolute right to repurchase any option it writes at any time at a price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula in the contract. Although the specific formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by the Portfolio for writing the option, plus the amount, if any, of the option's intrinsic value (i.e., the amount that the option is in-the-money). The formula may also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written out-of-money. A Portfolio will treat all or a part of the formula price as illiquid for purposes of the SEC illiquidity ceiling. Certain Portfolio may also write over-the-counter options with non-primary dealers, including foreign dealers, and will treat the assets used to cover these options as illiquid for purposes of such SEC illiquidity ceiling. OTC Options entail risks in addition to the risks of exchange- traded options. Exchange-traded options are in effect guaranteed by the Options Clearing Corporation, while a Portfolio relies on the party from whom it purchases an OTC Option to perform if the Portfolio exercises the option. With OTC Options, if the transacting dealer fails to make or take delivery of the securities or amount of foreign currency underlying an option it has written, in accordance with the terms of that option, the Portfolio will lose the premium paid for the option as well as any anticipated benefit of the transaction. Furthermore, OTC Options are less liquid than exchange- traded options. GENERAL. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price of the option, the volatility of the underlying security, and the time remaining until the expiration date. The premium paid for a put or call option purchased by a Portfolio is recorded as an asset of the Portfolio and subsequently adjusted. The premium received for an option written by a Portfolio is included in the Portfolio's assets and an equal amount is included in its liabilities. The value of an option purchased or written is marked to market daily and valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. 16 RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS There are several risks associated with the use of futures and futures options. The value of a futures contract may decline. While a Portfolio's transactions in futures may protect the Portfolio against adverse movements in the general level of interest rates or other economic conditions, such transactions could also preclude the Portfolio from the opportunity to benefit from favorable movements in the level of interest rates or other economic conditions. With respect to transactions for hedging, there can be no guarantee that there will be correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. An incorrect correlation could result in a loss on both the hedged securities in a Portfolio and the hedging vehicle so that the Portfolio's return might have been better if hedging had not been attempted. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options on securities, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment and even a well conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. There can be no assurance that a liquid market will exist at a time when a Portfolio seeks to close out a futures contract or a futures option position. Most futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single day; once the daily limit has been reached on a particular contract, no trades may be made that day at a price beyond that limit. In addition, certain of these instruments are relatively new and without a significant trading history. As a result, there is no assurance that an active secondary market will develop or continue to exist. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Lack of a liquid market for any reason may prevent the Portfolio from liquidating an unfavorable position and the Portfolio would remain obligated to meet margin requirements and continue to incur losses until the position is closed. Most Portfolios will only enter into futures contracts or futures options which are standardized and traded on a U.S. exchange or board of trade, or, in the case of futures options, for which an established over-the-counter market exists. A Portfolio will not enter into a futures contract or purchase a futures option if immediately thereafter the initial margin deposits for futures contracts held by the Portfolio plus premiums paid by it for open futures options positions, less the amount by which any such positions are "in-the-money," would exceed 5% of the Portfolio's total assets. Foreign markets may offer advantages such as trading in indexes that are not currently traded in the United States. Foreign markets, however, may have greater risk potential than domestic markets. Unlike trading on domestic commodity exchanges, trading on foreign commodity markets is not regulated by the CFTC and may be subject to greater risk than trading on domestic exchanges. For example, some foreign exchanges are principal markets so that no common clearing facility exists and a trader may look only to the broker for performance of the contract. Trading in foreign futures or foreign options contracts may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the CFTC's regulations, and the rules of the National Futures Association and any domestic exchange, including the right to use reparations proceedings before the CFTC and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. Amounts received for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. A Portfolio could incur losses or lose any profits that had been realized in trading by adverse changes in the exchange rate of the currency in which the transaction is denominated. Transactions on foreign exchanges may include both commodities that are traded on domestic exchanges and boards of trade and those that are not. The Trust reserves the right to engage in other types of futures transactions in the future and to use futures and related options for other than hedging purposes to the extent permitted by regulatory authorities. 17 WHEN-ISSUED OR DELAYED DELIVERY SECURITIES All Portfolios except the Market Manager Portfolio may purchase securities on a when issued or delayed delivery basis if the Portfolio holds, and maintains until the settlement date in a segregated account, cash and/or securities in an amount sufficient to meet the purchase price, or if the Portfolio enters into offsetting contracts for the forward sale of other securities it owns. Purchasing securities on a when-issued or delayed delivery basis involves a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in value of the Portfolio's other assets. Although a Portfolio would generally purchase securities on a when- issued basis or enter into forward commitments with the intention of acquiring securities, the Portfolio may dispose of a when-issued or delayed delivery security prior to settlement if the Portfolio Manager deems it appropriate to do so. The Portfolio may realize short-term profits or losses upon such sales. FOREIGN SECURITIES Some Portfolios may invest in equity securities of foreign issuers, including American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts") which are described below. Some Portfolio may invest in foreign branches of commercial banks and foreign banks. See the "Banking Industry and Savings Industry Obligations" discussion in this Statement of Additional Information for further description of these securities. Except for the Hard Assets Portfolio, each Portfolio may have no more than 25% of its net assets invested in securities of issuers located in any one emerging market country and no more than 50% of its assets invested in securities of any one country, except that a Portfolio may have additional investments of its net assets invested in securities of issuers located in any one of the following countries: Australia, Canada, France, Japan, the United Kingdom, or Germany. In addition, the Hard Assets Portfolio may invest up to 35% of its net assets in securities of issuers located in South Africa. A Portfolio's investments in U.S. issuers are not subject to the foreign country diversification guidelines. Investments in foreign securities offer potential benefits not available solely in securities of domestic issuers by offering the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries with economic policies or business cycles different from those of the United States, or to reduce fluctuations in portfolio value by taking advantage of foreign stock markets that may not move in a manner parallel to U.S. markets. Investments in securities of foreign issuers involve certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include fluctuations in foreign exchange rates, future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Since each of these Portfolios may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments so far as U.S. investors are concerned. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, other foreign taxation, political or social instability, or diplomatic developments that could adversely affect investments in those countries. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing, and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies. Foreign securities markets, while growing in volume, have, for the most part, substantially less volume than U.S. markets. Securities of many foreign companies are less liquid and their prices more volatile than securities of comparable U.S. companies. Transactional costs in non-U.S. securities markets are generally higher than in U.S. securities markets. There is generally less government supervision and regulation of exchanges, brokers, and issuers than there is in the United States. A Portfolio might have greater difficulty taking appropriate legal action with respect to foreign investments in non-U.S. courts than with respect to domestic issuers in U.S. courts. In addition, transactions in foreign securities may involve greater time from the trade date until settlement than domestic securities transactions and involve the risk of possible losses through the holding of securities by custodians and securities depositories in foreign countries. 18 As discussed above "sovereign debt" consists of debt obligations of governmental issuers in emerging market countries and industrialized countries. The sovereign debt issued or guaranteed by certain emerging market governmental entities and corporate issuers in which the Portfolio may invest potentially involves a high degree of risk and may be deemed the equivalent in terms of quality to high risk, low rated securities (i.e., high yield bonds) and subject to many of the same risks as such securities. Similarly, the Portfolio may have difficulty disposing of certain of these debt obligations because there may be a thin trading market for such securities. In the event a governmental issuer defaults on its obligations, the Portfolio may have limited legal recourse against the issuer or guarantor, if any. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government debt securities to obtain recourse may be subject to the political climate in the relevant country. The issuers of the government debt securities in which the Portfolio may invest have in the past experienced substantial difficulties in servicing their external debt obligations, which has led to defaults on certain obligations and the restructuring of certain indebtedness. See "Description of Securities and Investment Techniques--High Yield Bonds" and "Debt Securities--Sovereign Debt". Dividend and interest income from foreign securities may generally be subject to withholding taxes by the country in which the issuer is located and may not be recoverable by a Portfolio or its investors. ADRs are Depositary Receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs and GDRs are typically issued by foreign banks or trust companies, although they also may be issued by U.S. banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or U.S. corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. In addition, the issuers of the securities underlying unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts. Depositary Receipts also involve the risks of other investments in foreign securities. On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxenbourg, the Netherlands, Portugal, and Spain established a common European currency known as the "euro" and each member's local currency became a denomination of the euro. It is anticipated that each participating country will replace its local currency with the euro on July 1, 2002. Any other European country that is a member of the European Union and satisfies the criteria for participation in the EMU may elect to participate in the EMU and may supplement its existing currency with the euro. The anticipated replacement of existing currencies with the euro on July 1, 2002 could market disruptions before or after July 1, 2002 and could adversely affect the value of securities held by a Portfolio. FOREIGN CURRENCY TRANSACTIONS A forward currency contract is an obligation to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Portfolio may either accept or make delivery of the currency at the maturity of the forward contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. A Portfolio will engage in forward currency transactions in anticipation of or to protect itself against fluctuations in currency exchange rates. A Portfolio might sell a particular currency forward, for example, when it wants to hold bonds or bank obligations denominated in that currency but anticipates or wishes to be protected against a decline in the currency against the dollar. Similarly, it might purchase a currency forward to "lock in" the dollar price of securities denominated in or exposed to that currency which it anticipated purchasing. A Portfolio may enter into forward foreign currency contracts in two circumstances. When a Portfolio enters into a contract for the purchase or sale of a security denominated in or exposed to a foreign currency, the Portfolio may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for a fixed amount of dollars for the purchase or sale of the amount of foreign currency involved in the underlying transactions, the Portfolio will be able to protect itself against a possible loss resulting from an adverse change in 19 the relationship between the U.S. dollar and such foreign currency during the period between the date on which the security is purchased or sold and the date on which payment is made or received. Second, when the Portfolio Manager believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract for a fixed amount of dollars to sell the amount of foreign currency approximating the value of some or all of the Portfolio's securities denominated in or exposed to such foreign currency. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of securities in foreign currencies will change as a consequence of market movements in the value of these securities between the date on which the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. None of the Portfolios will enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's securities or other assets denominated in that currency. At the maturity of a forward contract, a Portfolio may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract with the same currency trader obligating it to purchase, on the same maturity date, the same amount of the foreign currency. It is impossible to forecast the market value of a particular portfolio security at the expiration of the contract. Accordingly, if a decision is made to sell the security and make delivery of the foreign currency, it may be necessary for the Portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency that the Portfolio is obligated to deliver. If the Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. Should forward prices decline during the period between the Portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Portfolio will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent that the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. Forward contracts are not traded on regulated commodities exchanges. There can be no assurance that a liquid market will exist when a Portfolio seeks to close out a forward currency position, and in such an event, a Portfolio might not be able to effect a closing purchase transaction at any particular time. In addition, a Portfolio entering into a forward foreign currency contract incurs the risk of default by the counter party to the transaction. The CFTC has indicated that it may in the future assert jurisdiction over certain types of forward contracts in foreign currencies and attempt to prohibit certain entities from engaging in such foreign currency forward transactions. For more information on forward currency contracts, including limits upon the Portfolios with respect to such contracts, see "Foreign Currency Transactions" in this Statement of Additional Information. OPTIONS ON FOREIGN CURRENCIES A call option on a foreign currency gives the buyer the right to buy, and a put option the right to sell, a certain amount of foreign currency at a specified price during a fixed period of time. Currently, options are traded on the following foreign currencies on a domestic exchange: British Pound, Canadian Dollar, German Mark, Japanese Yen, French Franc, and Swiss Franc. A Portfolio may enter into closing sale transactions with respect to such options, exercise them, or permit them to expire. A Portfolio may employ hedging strategies with options on currencies before the Portfolio purchases a foreign security denominated in the hedged currency that the Portfolio anticipates acquiring, during the period the 20 Portfolio holds the foreign security, or between the date the foreign security is purchased or sold and the date on which payment therefor is made or received. In those situations where foreign currency options may not be readily purchased (or where such options may be deemed illiquid) in the currency in which the hedge is desired, the hedge may be obtained by purchasing or selling an option on a "surrogate" currency, i.e., a currency where there is tangible evidence of a direct correlation in the trading value of the two currencies. A surrogate currency is a currency that can act, for hedging purposes, as a substitute for a particular currency because the surrogate currency's exchange rate movements parallel that of the primary currency. Surrogate currencies are used to hedge an illiquid currency risk, when no liquid hedge instruments exist in world currency markets for the primary currency. COMMON STOCK AND OTHER EQUITY SECURITIES Common Stocks represent an equity (ownership) interest in a corporation. This ownership interest generally gives a Portfolio the right to vote on measures affecting the company's organization and operations. Certain of the Portfolios may also buy securities such as convertible debt, preferred stock, warrants or other securities exchangeable for shares of common stock. In selecting equity investments for a Portfolio, the Adviser or Portfolio Manager will generally invest the Portfolio's assets in industries and companies that it believes are experiencing favorable demand for their products and services and which operate in a favorable competitive and regulatory climate. CONVERTIBLE SECURITIES A convertible security is a security that may be converted either at a stated price or rate within a specified period of time into a specified number of shares of common stock. By investing in Convertible Securities, a Portfolio seeks the opportunity, through the conversion feature, to participate in the capital appreciation of the common stock into which the securities are convertible, while earning a higher fixed rate of return than is available in common stocks. CURRENCY MANAGEMENT A Portfolio's flexibility to participate in higher yielding debt markets outside of the United States may allow the Portfolios to achieve higher yields than those generally obtained by domestic money market funds and short-term bond investments. When a Portfolio invests significantly in securities denominated in foreign currencies, however, movements in foreign currency exchange rates versus the U.S. dollar are likely to impact the Portfolio's share price stability relative to domestic short-term income funds. Fluctuations in foreign currencies can have a positive or negative impact on returns. Normally, to the extent that the Portfolio is invested in foreign securities, a weakening in the U.S. dollar relative to the foreign currencies underlying a Portfolio's investments should help increase the net asset value of the Portfolio. Conversely, a strengthening in the U.S. dollar versus the foreign currencies in which a Portfolio's securities are denominated will generally lower the net asset value of the Portfolio. The Manager or relevant Portfolio Manager attempts to minimize exchange rate risk through active Portfolio management, including hedging currency exposure through the use of futures, options and forward currency transactions and attempting to identify bond markets with strong or stable currencies. There can be no assurance that such hedging will be successful and such transactions, if unsuccessful, could result in additional losses or expenses to a Portfolio. HYBRID INSTRUMENTS Hybrid Instruments (a type of potentially high-risk derivative) have been developed and combine the elements of futures contracts or options with those of debt, preferred equity, or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository share, trust certificate, certificate of deposit, or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption, or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles, or commodities (collectively "Underlying Assets") or by another objective index, economic factor, or other 21 measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid Instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a Portfolio may wish to take advantage of expected declines in interest rates in several European countries, but avoid the transaction costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument whose redemption price is linked to the average three-year interest rate in a designated group of countries. The redemption price formula would provide for payoffs of greater than par if the average interest rate was lower than a specified level, and payoffs of less than par if rates were above the specified level. Furthermore, the Portfolio could limit the downside risk of the security by establishing a minimum redemption price so that the principal paid at maturity could not be below a predetermined minimum level if interest rates were to rise significantly. The purpose of this arrangement, known as a structured security with an embedded put option, would be to give the Fund the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transactions costs. Of course, there is no guarantee that the strategy will be successful, and the Portfolio could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the Hybrid Instrument. The risks of investing in Hybrid Instruments reflect a combination of the risks of investing in securities, options, futures and currencies. Thus, an investment in a Hybrid Instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars, or bears interest either at a fixed rate or a floating rate determined by reference to a common, nationally published benchmark. The risks of a particular Hybrid Instrument will, of course, depend upon the terms of the instrument, but may include, without limitation, the possibility of significant changes in the Benchmarks or the prices of Underlying Assets to which the instrument is linked. Such risks generally depend upon factors which are unrelated to the operations or credit quality of the issuer of the Hybrid Instrument and which may not be readily foreseen by the purchaser, such as economic and political events, the supply and demand for the Underlying Assets, and interest rate movements. In recent years, various Benchmarks and prices for Underlying Assets have been highly volatile, and such volatility may be expected in the future. Reference is also made to the discussion of futures, options, and forward contracts herein for a discussion of the risks associated with such investments. Hybrid Instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the Hybrid Instrument and have an even more dramatic and substantial effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if "leverage" is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured so that a given change in a Benchmark or Underlying Asset is multiplied to produce a greater value change in the Hybrid Instrument, thereby magnifying the risk of loss as well as the potential for gain. Hybrid Instruments may also carry liquidity risk since the instruments are often "customized" to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. In addition, because the purchase and sale of Hybrid Instruments could take place in an over-the-counter market without the guarantee of a central clearing organization or in a transaction between the Fund and the issuer of the Hybrid Instrument, the creditworthiness of the counter party of issuer of the Hybrid Instrument would be an additional risk 22 factor which the Fund would have to consider and monitor. Hybrid Instruments also may not be subject to regulation of the Commodities Futures Trading Commission, which generally regulates the trading of commodity futures by U.S. persons, the SEC, which regulates the offer and sale of securities by and to U.S. persons, or any other governmental regulatory authority. The various risks discussed above, particularly the market risk of such instruments, may in turn cause significant fluctuations in the net asset value of the Portfolio. Accordingly, the Portfolio will limit its investments in Hybrid Instruments to 10% of total assets. However, because of their volatility, it is possible that the Portfolio's investment in Hybrid Instruments will account for more than 10% of the Fund's return (positive or negative). DOLLAR ROLL TRANSACTIONS Certain Portfolios seeking a high level of current income may enter into dollar rolls or "covered rolls" in which the Portfolio sells securities (usually Mortgage-Backed Securities) and simultaneously contracts to purchase, typically in 30 to 60 days, substantially similar, but not identical securities, on a specified future date. The proceeds of the initial sale of securities in the dollar roll transactions may be used to purchase long-term securities which will be held during the roll period. During the roll period, the Portfolio forgoes principal and interest paid on the securities sold at the beginning of the roll period. The Portfolio is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or cash equivalent securities position that matures on or before the forward settlement date of the dollar roll transaction. As used herein the term "dollar roll" refers to dollar rolls that are not "covered rolls." At the end of the roll commitment period, the Portfolio may or may not take delivery of the securities the Portfolio has contracted to purchase. The Portfolio will establish a segregated account with its custodian in which it will maintain cash, U.S. Government Securities or other liquid high- grade debt obligations equal in value at all times to its obligations in respect of dollar rolls, and, accordingly, the Portfolio will not treat such obligations as senior securities for purposes of the Investment Company Act of 1940. "Covered rolls" are not subject to these segregation requirements. Dollar Roll Transactions may be considered borrowings and are, therefore, subject to the borrowing limitations applicable to the Portfolio. EQUITY AND DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS Portfolios authorized to invest in securities of foreign issuers may invest assets in equity and debt securities issued or guaranteed by Supranational Organizations, such as obligations issued or guaranteed by the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Coal and Steel Community, European Economic Community, European Investment Bank and the Nordic Investment Bank. EXCHANGE RATE RELATED SECURITIES Certain of the Portfolios may invest in securities that are indexed to certain specific foreign currency exchange rates. The terms of such securities would provide that the principal amount or interest payments are adjusted upwards or downwards (but not below zero) at payment to reflect fluctuations in the exchange rate between two currencies while the obligation is outstanding, depending on the terms of the specific security. A Portfolio will purchase such security with the currency in which it is denominated and will receive interest and principal payments thereon in the currency, but the amount of principal or interest payable by the issuer will vary in proportion to the change (if any) in the exchange rate between the two specific currencies between the date the instrument is issued and the date the principal or interest payment is due. The staff of the SEC is currently considering whether a mutual fund's purchase of this type of security would result in the issuance of a "senior security" within the meaning of the 1940 Act. The Trust believes that such investments do not involve the creation of such a senior security, but nevertheless undertakes, pending the resolution of this issue by the staff, to establish a segregated account with respect to such investments and to maintain in such account cash not available for 23 investment or U.S. Government Securities or other liquid high quality debt securities having a value equal to the aggregate principal amount of outstanding securities of this type. Investment in Exchange Rate-Related Securities entails certain risks. There is the possibility of significant changes in rates of exchange between the U.S. dollar and any foreign currency to which an Exchange Rate-Related Security is linked. In addition, there is no assurance that sufficient trading interest to create a liquid secondary market will exist for a particular Exchange Rate-Related Security due to conditions in the debt and foreign currency markets. Illiquidity in the forward foreign exchange market and the high volatility of the foreign exchange market may from time to time combine to make it difficult to sell an Exchange Rate-Related Security prior to maturity without incurring a significant price loss. GEOGRAPHICAL AND INDUSTRY CONCENTRATION Where a Portfolio invests at least 25% of its assets in Bank Obligations, the Portfolio's investments may be subject to greater risk than a Portfolio that does not concentrate in the banking industry. In particular, Bank Obligations may be subject to the risks associated with interest rate volatility, changes in federal and state laws and regulations governing banking and the inability of borrowers to pay principal and interest when due. In addition, foreign banks present the risks of investing in foreign securities generally and are not subject to reserve requirements and other regulations comparable to those of U.S. Banks. ILLIQUID SECURITIES Illiquid securities are securities that are not readily marketable, including, where applicable: (1) repurchase agreements with maturities greater than seven calendar days; (2) time deposits maturing in more than seven calendar days; (3) to the extent a liquid secondary market does not exist for the instruments, futures contracts and options thereon; (4) certain over-the-counter options, as described in this Statement of Additional Information; (5) certain variable rate demand notes having a demand period of more than seven days; and (6) securities the disposition of which is restricted under Federal securities laws (excluding Rule 144A Securities, described below). RESTRICTED SECURITIES The Portfolio may also purchase securities that are not registered under the Securities Act of 1933 ("1933 Act") ("restricted securities"), including those that can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of Trustees confirms based upon information and recommendations provided by the Portfolio Manager that a specific Rule 144A security is liquid and thus not subject to the limitation on investing in illiquid investments. The Board of Trustees has adopted guidelines and has delegated to the Portfolio Manager the daily function of determining and monitoring the liquidity of Rule 144A securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. This investment practice could have the effect of decreasing the level of liquidity in the Portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing Rule 144A securities held in the investment Portfolio. Subject to limitation on investments in illiquid investments and subject to the diversification requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the Portfolio may also invest in restricted securities that may not be sold under Rule 144A, which presents certain risks. As a result, the Portfolio might not be able to sell these securities when the Portfolio Manager wishes to do so, or might have to sell them at less than fair value. In addition, market quotations are less readily available. Therefore, judgment may at times play a greater role in valuing these securities than in the case of unrestricted securities LEASE OBLIGATION BONDS Lease Obligation Bonds are mortgages on a facility that is secured by the facility and are paid by a lessee over a long term. The rental stream to service the debt as well as the mortgage are held by a collateral trustee on behalf of the public bond holders. The primary risk of such instrument is the risk of default. Under the lease indenture, the failure to pay rent is an event of default. The remedy to cure default is to rescind the lease and sell the assets. If the lease obligation is not readily marketable or market quotations are not readily available, such lease obligations will be subject to a Portfolio's limit on illiquid securities. 24 BORROWING Leveraging by means of borrowing will exaggerate the effect of any increase or decrease in the value of portfolio securities on a Portfolio's net asset value; money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances), which may or may not exceed the income received from the securities purchased with borrowed funds. The use of borrowing tends to result in a faster than average movement, up or down, in the net asset value of the Portfolio's shares. A Portfolio also may be required to maintain minimum average balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. Reverse repurchase agreements, short sales of securities, and short sales of securities against the box will be included as borrowing subject to the borrowing limitations described below, except those Portfolios that are permitted to engage in short sales of securities with respect to an additional 15% of the Portfolio's net assets in excess of the limits otherwise applicable to borrowing. Securities purchased on a when-issued or delayed delivery basis will not be subject to a Portfolio's borrowing limitations to the extent that a Portfolio establishes and maintains liquid assets in a segregated account with the Trust's custodian equal to the Portfolio's obligations under the when-issued or delayed delivery arrangement. HARD ASSET SECURITIES The production and marketing of Hard Assets may be affected by actions and changes in governments. In addition, Hard Asset Companies and securities of Hard Asset Companies may be cyclical in nature. During periods of economic or financial instability, the securities of some Hard Asset Companies may be subject to broad price fluctuations, reflecting volatility of energy and basic materials prices and possible instability of supply of various Hard Assets. In addition, some Hard Asset Companies may also be subject to the risks generally associated with extraction of natural resources, such as the risks of mining and oil drilling, and the risks of the hazards associated with natural resources, such as fire, drought, increased regulatory and environmental costs, and others. Securities of Hard Asset Companies may also experience greater price fluctuations than the relevant Hard Asset. In periods of rising Hard Asset prices, such securities may rise at a faster rate, and, conversely, in time of falling Hard Asset prices, such securities may suffer a greater price decline. REAL ESTATE SECURITIES Real estate securities include real estate investment trusts ("REITs") and other companies in the real estate industry or companies with substantial real estate investments. A Portfolio investing in such real estate securities may be subject to the risks associated with the direct ownership of real estate because of its policy of concentration in the securities of companies which own, construct, manage, or sell residential, commercial, or industrial real estate. These risks include: declines in the value of real estate, adverse changes in the climate for real estate, risks related to general and local economic conditions, over-building and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants, leveraging of interests in real estate, and increases in interest rates. The value of securities of companies which service the real estate industry may also be affected by such risks. In addition to the risks discussed above, REITs may be affected by any changes in the value of the underlying property owned by the trusts or by the quality of any credit extended. REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation, and the possibility of failing to qualify for special tax treatment under Subchapter M of the Internal Revenue Code of 1986 and to maintain an exemption under the 1940. Act Finally, certain REITs may be self-liquidating in that a specific term of existence is provided for in the trust document and such REITs run the risk of liquidating at an economically inopportune time. 25 SWAPS Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differential in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or "swapped" between the parties are generally calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, or in a "basket" of securities representing a particular index. The use of swaps is a highly specialized activity which involved investment techniques and risks different from those associated with ordinary portfolio transactions. Whether the Portfolio's use of swap agreements will be successful in furthering its investment objective will depend on the Portfolio Manager's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Moreover, the Portfolio bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Swaps are generally considered illiquid and will be aggregated with other illiquid positions for purposes of the limitation on illiquid investments. The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Portfolio's ability to terminate existing swap agreements or to realize amounts to be received under such agreements. ZERO-COUPON BONDS Zero-coupon bonds are issued at a significant discount from face value and pay interest only at maturity rather than at intervals during the life of the security. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. The values of zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently, and may involve greater credit risk than such bonds. The discount of zero-coupon and deferred interest bonds approximates the total amount of interest the bonds will accrue and compound over the period until maturity or the first interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. While zero-coupon bonds do not require the periodic payment of interest, deferred interest bonds provide that the issuer thereof may, at its option, pay interest on such bonds in cash or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments may experience greater volatility in market value due to changes in interest rates than debt obligations which make regular payments of interest. The Portfolio will accrue income on such investments for tax and accounting purposes, as required, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other Portfolio securities to satisfy the Portfolio's distribution obligations. SMALL COMPANIES Certain of the Portfolios may invest in small companies, some of which may be unseasoned. Such companies may have limited product lines, markets, or financial resources and may be dependent on a limited management group. While the markets in securities of such companies have grown rapidly in recent years, such securities may trade less frequently and in smaller volume than more widely held securities. The values of these securities may fluctuate more sharply than those of other securities, and a Portfolio may experience some difficulty in establishing or closing out positions in these securities at prevailing market prices. There may be less publicly available information about the issuers of these securities or less market interest in such securities than in the case of larger companies, and it may take a longer period of time for the prices of such securities to reflect the full value of their issuers' underlying earnings potential or assets. Some securities of smaller issuers may be restricted as to resale or may otherwise be highly illiquid. The ability of a Portfolio to dispose of such securities may be greatly limited, and a Portfolio may have to continue to hold such securities during periods when the Manager or a Portfolio Manager would otherwise have sold the 20=6 security. It is possible that the Manager or a Sub-Adviser or its affiliates or clients may hold securities issued by the same issuers, and may in some cases have acquired the securities at different times, on more favorable terms, or at more favorable prices, than a Portfolio which it manages. STRATEGIC TRANSACTIONS Subject to the investment limitations and restrictions for each of the Portfolios as stated elsewhere in this Statement of Additional Information certain of the Portfolios may, but are not required to, utilize various investment strategies as described herein to hedge various market risks, to manage the effective maturity or duration of fixed income securities, or to seek potentially higher returns. Utilizing these investment strategies, the Portfolio may purchase and sell, to the extent not otherwise limited or restricted for such Portfolios, exchange-listed and over-the-counter put and call options on securities, equity and fixed income indexes and other financial instruments, purchase and sell financial futures contracts and options thereon, enter into various Interest Rate Transactions such as swaps, caps, floors or collars, and enter into various currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currencies or currency futures (collectively, all the above are called "Strategic Transactions"). Strategic Transactions may be used to attempt to protect against possible changes in the market value of securities held in or to be purchased for the Portfolios resulting from securities markets or currency exchange rate fluctuations, to protect the Portfolio's unrealized gains in the value of its Portfolio securities, to facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration of the Portfolio, or to establish a position in the derivatives markets as a temporary substitute for purchasing or selling particular securities. Some Strategic Transactions may also be used to seek potentially higher returns, although no more than 5% of the Portfolio's assets will be used as the initial margin or purchase price of options for Strategic Transactions entered into for purposes other than "bona fide hedging" positions as defined in the regulations adopted by the Commodity Futures Trading Commission. Any or all of these investment techniques may be used at any time, as use of any Strategic Transaction is a function of numerous variables including market conditions. The ability of the Portfolio to utilize these Strategic Transactions successfully will depend on the Adviser's or Portfolio Manager's ability to predict, which cannot be assured, pertinent market movements. The Portfolio will comply with applicable regulatory requirements when utilizing Strategic Transactions. Strategic Transactions involving financial futures and options thereon will be purchased, sold or entered into only for bona fide hedging, risk management or Portfolio management purposes. LENDING OF PORTFOLIO SECURITIES For the purpose of realizing additional income, the relevant Portfolios may make secured loans of portfolio securities. Securities loans are made to banks, brokers and other financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent marked to market on a daily basis. The collateral received will consist of cash, U.S. government securities, letters of credit or such other collateral as may be permitted under the Portfolio's investment program. While the securities are being lent, the Portfolio will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The Portfolio has a right to call each loan and obtain the securities on five business day's notice or, in connection with securities trading on foreign markets, within such longer period of time which coincides with the normal settlement period for purchases and sales of such securities in such foreign markets. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral in the event the value of the collateral decreased below the value of the securities loaned or of delay in recovering the securities loaned or even loss of rights in the collateral should the borrower of the securities fail financially. Loans will not be made unless, in the judgement of the Portfolio Manager, the consideration to be earned from such loans would justify the risk. 27 SPECIAL SITUATIONS A special situation arises when, in the opinion of the Portfolio Manager, the securities of a particular company will, within a reasonably estimable period of time, be accorded market recognition at an appreciated value solely by reason of a development applicable to that company, and regardless of general business conditions or movements of the market as a whole. Developments creating special situations might include, among others: liquidations, reorganizations, recapitalizations, mergers, material litigation, technical breakthroughs, and new management or management policies. Investments in unseasoned companies and special situations often involve much greater risk than in inherent in ordinary investment securities. WARRANTS Certain Portfolios may, from time to time, invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain period of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Of course, since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the losses of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other qualification as a regulated investment company and a Portfolio's intent to continue to qualify as such. The result of a hedging program cannot be foreseen and may cause a Portfolio to suffer losses which it would not otherwise sustain. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of warrants do not necessarily move in tandem with the prices of the underlying securities, and are speculative investments. They pay no dividends and confer no rights other than a purchase option. If a warrant is not exercised by the date of its expiration, the Portfolio will lose its entire investment in such warrant. INVESTMENT OBJECTIVES AND ADDITIONAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS EQUITY INCOME PORTFOLIO Investment Objective: Substantial dividend income as well as long- term growth of capital. In addition to the investment strategies discussed in the prospectus, the Portfolio may invest in foreign securities, convertible stocks and bonds, warrants and certain potentially high- risk derivatives described in this Statement of Additional Information whose investment characteristics are consistent with the Portfolio's investment program. The Portfolio may invest in common and preferred stocks, convertible securities and warrants, foreign securities, fixed income securities, high-yield, high-risk bonds, hybrid instruments and certain types of illiquid investments as private placements. The Portfolio will hold a certain portion of its assets in money market reserves. The Portfolio 's reserve position can consist of shares of one or more T. Rowe Price internal money market portfolios as well as short-term, high-quality U.S. and foreign dollar- denominated money market securities, including repurchase agreements. For temporary, defensive purposes, the Portfolio may invest without limitation in money market reserves. The reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and can serve as a short-term defense during periods of unusual market volatility. The Portfolio's emphasis on stocks of established, high dividend- paying companies, as well as its possible exposure to fixed income securities, could limit its potential for capital appreciation. Sharply rising interest rates could also decrease the appeal of stocks purchased by the Portfolio, further restraining total return. In addition, the value approach includes the risks that 1) the market will not recognize a security's intrinsic value for an 28 unexpectedly long time, and 2) a stock that is judged to be undervalued is actually appropriately priced due to intractable or fundamental problems that are not yet apparent. FULLY MANAGED PORTFOLIO Investment Objective: Over the long-term, a high total investment return, consistent with the preservation of capital and with prudent investment risk. The Fully Managed Portfolio seeks, over the long term, to achieve a high total investment return, consistent with the preservation of capital and with prudent investment risk. The Portfolio Manager uses a value approach, which means looking for companies whose stocks and other securities appear to be undervalued or out of favor with investors. This value emphasis may lead to a "contrarian" approach, resulting in purchases of stocks or other securities shunned by investors due to earnings setbacks, unfavorable industry or economic conditions, or negative publicity. Such investments may be attractive if their prices appear to be excessively discounted and prospects for appreciation are considered favorable. The Portfolio holds a certain portion of its assets in money market reserves. The Portfolio's reserve position can consist of shares of one or more T. Rowe Price internal money market portfolios as well as short-term, high-quality U.S. and foreign dollar- denominated money market securities, including repurchase agreements. For temporary, defensive purposes, the Portfolio may invest without limitation in money market reserves. The reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and can serve as a short-term defense during periods of unusual market volatility. To maximize potential return, the Portfolio Manager may utilize the following investment methods: writing "covered" listed put and call equity options, including options on stock indexes, and purchasing such options; purchasing and selling, for hedging purposes, stock index, interest rate, and other futures contracts, and purchasing options on such futures; purchasing warrants and preferred and convertible preferred stocks; entering into repurchase agreements and reverse repurchase agreements; lending portfolio securities to brokers, dealers, banks, or other recognized institutional borrowers of securities; purchasing restricted securities; purchasing securities of foreign issuers, with up to 20% of total net assets invested in foreign equities; entering into forward currency contracts and currency exchange transactions for hedging purposes; and borrowing from banks to purchase securities. The Portfolio will not engage in short sales of securities other than short sales "against the box." The Portfolio may invest up to 10% of its net assets in illiquid securities. See "Description of Securities and Investment Techniques" for further discussion of these investment methods. The Portfolio may invest in debt or preferred equity securities and warrants. The Portfolio may also purchase foreign securities (up to 25% total assets), debt securities, including junk bonds (up to 15% total assets) and hybrids (up to 10% total assets). In addition, the Portfolio may purchase securities in private placements, subject to a 15% net asset limit on illiquid securities. The total market value of securities against which the Portfolio writes call or put options may not exceed 25% of its total assets. LIMITED MATURITY BOND PORTFOLIO Investment Objective: Highest current income consistent with low risk to principal and liquidity. As discussed in the Prospectus, the Portfolio invests primarily in short-to-intermediate term debt securities with actual remaining maturities of seven years or less, and other debt securities with special features (i.e., puts, variable floating coupon rates, maturity extension arrangements, mortgage pass-throughs, etc.) producing price characteristics similar to those of short-to-intermediate term debt securities. The Portfolio will not invest more than 25% of its total assets in a single industry. The Portfolio will not invest more than 10% of its total assets in foreign government securities. The asset-backed securities in which the Portfolio may invest include mortgage-backed U.S. government securities, mortgages pooled by high quality financial institutions, and other asset-backed securities representing pools of receivables unrelated to mortgage loans. The Portfolio's investments in banking industry obligations include certificates of deposit, time deposits, and bankers' acceptances issued by commercial banks. The Portfolio's investments in savings industry obligations include certificates of deposit and time deposits issued by savings and loan associations. The Portfolio's investments in commercial paper consist primarily of unsecured 29 notes with maturities of nine months or less issued to finance short-term credit needs. The Portfolio's investments in variable and floating rate securities have coupon rates which vary with a designated money market index. The Portfolio will not invest more than 10% of its total assets in foreign government securities. The Portfolio may purchase securities on a when-issued and delayed-delivery basis and may purchase or sell securities on a forward commitment basis. When-issued or delayed-delivery transactions arise when securities are purchased by the Portfolio with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Portfolio at the time of entering into the transaction. A forward commitment transaction is an agreement by the Portfolio to purchase or sell securities at a specified future date. When the Portfolio engages in these transactions, the Portfolio relies on the buyer or seller, as the case may be, to consummate the sale. Failure to do so may result in the Portfolio missing the opportunity to obtain a price or yield considered to be advantageous. When-issued and delayed-delivery transactions and forward commitment transactions may be expected to occur a month or more before delivery is due. However, no payment or delivery is made by a Portfolio until it receives payment or delivery from the other party to the transaction. A separate account containing only liquid assets, such as cash, U.S. government securities, or other liquid assets equal to the value of purchase commitments will be maintained until payment is made. Such transactions have the effect of leverage on the Portfolio and may contribute to volatility of a Portfolio's net asset value. To increase current income, the Portfolio may lend its portfolio securities in an amount up to 33% of its total assets to brokers, dealers and financial institutions, provided certain conditions are met, including the condition that each loan is secured continuously by collateral maintained on a daily mark-to-market basis in an amount at least equal to the current market value of the securities loaned. These transactions involve a loan by the applicable Fund and are subject to the same risks as repurchase agreements. The Portfolio may enter into repurchase agreements with any bank or broker-dealer which, in the opinion of the Board of Trustees, presents a minimal risk of bankruptcy. Under a repurchase agreement, the Portfolio acquires securities and obtain a simultaneous commitment from the seller to repurchase the securities at a specified time and at an agreed-upon yield. The agreements will be fully collateralized and the value of the collateral, including accrued interest, marked-to-market daily. The Portfolio seeks to reduce risk, increase income, and preserve or enhance total return by actively managing the maturity of its portfolio in light of market conditions and trends. When, in the opinion of the Portfolio Manager, market indicators point to higher interest rates and lower bond prices, average maturity generally will be shortened. When falling interest rates and rising bond prices are indicated, a longer average portfolio maturity generally can be expected. During periods of rising or falling interest rates, the Portfolio may also seek to hedge all or a part of its portfolio against related changes in securities prices by buying or selling interest rate futures contracts and options thereon. Such a strategy involves using the contracts as a maturity management device that reduces risk and preserves total return while the Portfolio is restructuring its portfolio in response to the changing interest rate environment. For information on such contracts, see "Description of Securities and Investment Techniques." The Portfolio's dollar-weighted average maturity will not exceed five years, and, in periods of rapidly rising interest rates, may be shortened to one year or less. For these purposes, (i) the maturity of mortgage-backed securities is determined on an "expected life" basis, (ii) variable or floating rate securities are deemed to mature at the next interest rate adjustment date, and (iii) debt securities with put features are deemed to mature at the next put exercise date. Positions in interest rate futures contracts (long or short) will be reflected in average portfolio maturity on the basis of the maturities of the securities underlying the futures contracts. The Portfolio may invest in futures contracts, purchase and sell interest rate futures contracts, and purchase and write options on such futures contracts. The Portfolio may invest in private placements of debt securities. These investments may be considered to be restricted securities. The Portfolio may invest up to 10% of its net assets in these and other illiquid securities. The 30 Portfolio may also purchase securities (including mortgage-backed securities such as GNMA, FNMA, and FHLMC Certificates) on a when-issued basis. A description of these techniques and their attendant risks is contained in the section of this Statement of Additional Information entitled "Description of Securities and Investment Techniques." The Portfolio may write covered call options and purchase put options, and purchase call and write put options to close out options previously written by the Portfolio. The Portfolio may engage in options transactions to reduce the effect of price fluctuations of securities owned by the Portfolio (and involved in the options) on the Portfolio's net asset value per share. This Portfolio will purchase put options involving portfolio securities only when the Portfolio Manager believes that a temporary defensive position is desirable in light of market conditions, but does not desire to sell the portfolio security. The Portfolio will engage only in short sales "against the box." In addition to the limited maturity debt in which the Portfolio invests, other investments may include other debt securities with special features (e.g., puts, variable or floating coupon rates, maturity extensions arrangements, mortgage pass-throughs, etc.) producing price characteristics similar to those of short-to medium- term debt securities. Generally, the Portfolio securities are selected from as many as ten sectors of the fixed income market, each representing a different type of fixed income investment. HARD ASSETS PORTFOLIO Investment Objective: Long-term capital appreciation. The Hard Assets Portfolio provides a diversified portfolio with protection against inflation or rapid economic activity. In economic periods of rising inflation or when activity of companies within the Hard Assets Portfolio tend to show rapid rises in earnings, it is common to find that bonds and other equities perform poorly. As such, the Hard Assets Portfolio may provide a source of diversification to an overall portfolio. There can be no assurance that an increased rate of return or reduced fluctuation of the Portfolio will be achieved. Thus, an investment in the Portfolio's shares should be considered part of an overall investment program rather than a complete investment program. The Portfolio may invest in securities of foreign issuers, including up to 35% of its assets in securities of South African issuers. The relative amount of the Portfolio's investment in foreign issuers will change from time to time, and the Portfolio is subject to certain guidelines for diversification of foreign security investments. Investments by the Portfolio in securities of foreign issuers may involve particular investment risks. See "Description of Securities and Investment Techniques". The Portfolio normally invests at least 65% of its total assets in Hard Asset Securities, that is equity and debt securities of companies engaged in the exploration, development, production, management and distribution of assets such as gold and other precious metals, strategic metals, oil, natural gas, coal and real estate investment trusts. The Portfolio may invest over 25% of its assets in securities of companies predominantly engaged in gold operations, although the Portfolio will not invest in any such security or in gold bullion and coins if, after such acquisition, more than 50% of the Portfolio's assets (taken at market value at the time of such investment) would be invested in securities of companies predominantly engaged in gold operations and gold bullion and coins. The Portfolio may also invest directly in other commodities including petroleum and strategic metals. The Portfolio may invest up to 35% of the value of its total assets in non-hard asset securities. Since a large percentage of the Portfolio's assets will be invested in Hard Assets, the Portfolio might be deemed to have concentrated in such investments. This may cause the Portfolio to have greater exposure to risks associated with Hard Assets in general. During periods of less favorable economic and/or market conditions, the Portfolio may make substantial investments for temporary defensive purposes in obligations of the U.S. Government, certificates of deposit, bankers acceptances, investment grade commercial paper, asset-backed securities, mortgage-backed securities and repurchase agreements. The Portfolio may engage in short sales, and may lend portfolio securities. The Portfolio may not exceed a total of 25% of net assets in short sales, but this amount is decreased by the amount the Portfolio has borrowed. 31 Short sales of unlisted securities may not exceed 10% of net assets. The Portfolio will not make short sales of more than 2% of net assets in any one issuer or more than 2% of the outstanding class of shares of any one issuer. The Portfolio may purchase securities on margin. The Portfolio may borrow up to 10% of the value of its net assets and for temporary purposes may increase this amount to 25%. The Portfolio may also invest up to 5% of its assets at the time of purchase in warrants, and may purchase or sell put or call options on securities and foreign currencies. The Portfolio may purchase and sell interest rate, gold, and other futures contracts. The Portfolio may also purchase and sell stock index futures contracts and other futures contracts based upon other financial instruments, and purchase options on those contracts. These techniques are described in "Description of Securities and Investment Techniques." The Portfolio Manager believes the Portfolio may offer a hedge against inflation, particularly commodity price driven inflation. However, there is no assurance that rising commodity (or other hard asset) prices will result in higher earnings or share prices for the Hard Asset Companies in the Portfolio. Hard Asset Companies' equities are affected by many factors, including movements in the overall stock market. Inflation may cause a decline in the overall stock market, including the stocks of Hard Asset Companies. The Portfolio seeks investment opportunities in the world's major stock, bond and commodity markets. The Portfolio may invest in securities issued anywhere in the world, including the United States. There is no limitation or restriction on the amount of assets to be invested in any one country with the exception of South Africa. There is no limitation on the amount the Portfolio can invest in emerging markets. The Portfolio may purchase securities in any foreign country, developed or underdeveloped. Investors should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments. Global investing involves economic and political considerations not typically applicable to the U.S. markets. See "Description of Securities and Investment Techniques." The equity securities in which the Portfolio may invest include common stocks; preferred stocks (either convertible or non- convertible); rights; warrants; direct equity interests in trusts; partnerships; joint ventures and other incorporated entities or enterprises; "when-issued" securities; "partly paid" securities (securities paid for over a period of time); restricted securities and special classes of shares available only to foreign persons in those markets that restrict ownership of certain classes of equity to nationals or residents of that country. These securities may be listed on the U.S. or foreign securities exchanges or traded over-the- counter. Direct investments are generally considered illiquid and will be aggregated with other illiquid investments for purposes of the 10% limitation on illiquid investments. The Portfolio may invest in certain derivatives. Derivatives are instruments whose value is "derived" from an underlying asset. Derivatives in which the Portfolio may invest include futures contracts, forward contracts, options, swaps and structured notes and other similar securities as may become available in the market. These instruments offer certain opportunities and are subject to additional risks that are described in the "Description of Securities and Investment Techniques." In addition, the Portfolio may invest in futures and forward contracts and options on precious metals and other Hard Assets. See "Investment in Gold and Other Precious Metals." Since the Portfolio may invest substantially all of its assets in securities of companies engaged in natural resources/hard asset activities and may concentrate in securities of companies engaged in gold energy, base metal or agriculturals and their operations, the Portfolio may be subject to greater risks and market fluctuations than other investment companies with more diversified portfolios. These risks are described further in "Description of Securities and Investment Techniques." Investors should be aware that some of the instruments in which the Portfolio may invest, such as structured or indexed notes, swaps and foreign securities, may be subject to periods of extreme volatility and illiquidity and may be difficult to value. Despite these risks, some of which are noted above, these instruments may offer unique investment opportunities. These techniques are described in "Description of Securities and Investment Techniques." 32 REAL ESTATE PORTFOLIO Investment Objective: Capital appreciation. Current income as a secondary objective. The Portfolio will invest not less than 65% of its total assets in common and preferred stocks and convertible preferred securities of companies which have at least 50% of the value of their assets in, or which derive at least 50% of their revenues from, the ownership, construction, management, or sale of residential, commercial, or industrial real estate, which include listed equity REITs which own properties, and listed mortgage REITs which make short-term construction and development mortgage loans or which invest in long- term mortgages or mortgage pools. The Portfolio may invest more than 25% of its total assets in any of the foregoing sectors of the real estate industry. The Portfolio's assets may, however, be invested in money market instruments and U.S. Government securities if, in the opinion of the Portfolio Manager, market conditions warrant a temporary defensive investment strategy. The Portfolio may invest up to 35% of its total assets in equity, debt, or convertible securities of issuers whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies, and up to 25% of its total assets in financial institutions which issue or service mortgages, such as savings and loans or mortgage bankers. The Portfolio may invest in mortgage- and asset-backed securities, repurchase agreements, restricted securities up to 10% of its assets in illiquid securities, may purchase and write put and call options on securities it covered or secured, and may purchase or sell options to effect closing transactions, and on stock indexes, and may borrow up to 10% of its net assets, and for temporary purposes may borrow up to 25% of its assets for such items as large redemptions. The Portfolio will engage only in short sales "against the box." In addition to the common and preferred stocks described above, the Portfolio may invest up to 35% of its total assets in securities believed by the Portfolio Manager to be undervalued and have capital appreciation potential, including up to 5% of total assets in warrants and other rights to purchase securities, bonds, convertible securities, and publicly traded limited partnerships listed on national securities exchanges or NASDAQ. The Portfolio may invest up to 5% of its total assets in bonds, convertible securities, and limited partnerships traded on the Toronto or London Stock Exchanges. The Portfolio may also invest up to 20% of its assets, measured at the time of investment, in high yield convertible bonds that are rated below investment grade by one of the primary rating agencies (or if not rated, deemed to be of equivalent quality by the Portfolio Manager). See " Description of Securities and Investment Techniques-- High Yield Bonds." Since a large percentage of the Portfolio's assets will be invested in the real estate industry, the Portfolio might be deemed to have concentrated in this area. This may cause the Portfolio to have greater exposure to risks associated with real estate in general. There are risks inherent in the Portfolio's investment policies. These risks are discussed in "Description of Securities and Investment Techniques." ALL-GROWTH PORTFOLIO Investment Objective: Capital appreciation. While it has no present intention to do so, the Portfolio reserves the right to invest up to 10% of its net assets in restricted securities and securities of foreign issuers traded outside the United States and Canada and, for hedging purposes only, to purchase and sell options on stocks and stock indexes. The Portfolio also may invest up to 15% of its net assets in illiquid securities, but will not invest more than 5% of its net assets in restricted securities that the Portfolio Manager determines are illiquid based on guidelines approved by the Board of Trustees of the Trust. The Portfolio may invest in repurchase agreements. The Portfolio may make short sales of securities but may not exceed a total of 25% of net assets in short sales. Short sales of unlisted securities may not exceed 10% of net assets. The Portfolio will not make short sales of more than 2% of net assets in any one issuer or more than 2% of the outstanding class of shares of any one issuer. The Portfolio may from time to time increase its ownership of securities above the amounts otherwise possible by borrowing from banks on an unsecured basis and investing the borrowed funds. The Portfolio will borrow only up to 10% (for temporary purposes 25%) of its total net assets. In connection with permissible borrowings the Portfolio may transfer as collateral securities owned by the Portfolio. 33 For discussion of the risks involved in these investment techniques see "Description of Securities and Investment Techniques." Securities will be sold when the Portfolio Manager believes that anticipated appreciation is no longer probable, when alternative investments offer superior appreciation prospects, or when the risk of a decline in the market price is too great. Because of its policy with respect to sales of investments, the Portfolio may from time to time realize short-term gains and losses. the Portfolio will likely have somewhat greater volatility than the stock market in general, as measured by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). Because the investment techniques employed by the Portfolio Manager are responsive to near-term earnings trends of the companies whose securities are owned by the Portfolio, portfolio turnover can be expected to be fairly high. The Portfolio may invest 100% of its assets in cash or U.S. dollar denominated high quality instruments for temporary defensive purposes, to maintain liquidity or when economic or market conditions are unfavorable for investing. While these investments are generally designed to limit the Portfolio's losses, they can prevent the Portfolio from achieving its investment objective. RISING DIVIDEND PORTFOLIO Investment Objective: Capital appreciation. A secondary objective is dividend income. In seeking its objectives, the Portfolio normally invests its net assets in equity securities of companies determined to be of high quality by the Portfolio Manager, including, but not limited to, companies with substantial dividend increases. The individual security selection is overlaid with a sector allocation discipline to avoid over-concentration in any single sector. It is anticipated that the Portfolio's portfolio will generally contain a minimum of 25 to 30 issues. It is the policy of the Portfolio that no equity security will be acquired if, after its acquisition, more than 15% of the Portfolio's total assets would be invested in any one industry or more than 5% would be invested in any one issuer. The Portfolio Manager does not intend to invest any of the Portfolio's assets in securities that, at the time of investment, it believes to be illiquid, but may hold up to 15% of its assets in these securities. The Portfolio Manager periodically monitors the Portfolio's equity securities to assure they meet the quality criteria which include; regular dividend increases and at least 35% of earnings reinvested annually; and a credit rating of "A" to "AAA". There may from time to time be other equity securities in the Portfolio which meet most, but not all, of the criteria, but which the Portfolio Manager deems a suitable investment. A security will generally be sold when it reaches its target price, when negative changes occur in either the company or its industry, or when any one or more of the four criteria are no longer satisfied. Equity securities are deemed to include common stocks, securities convertible into common stocks, or rights or warrants to subscribe for or purchase common stocks. During those times when equity securities that meet the Portfolio Manager's investment criteria cannot be found, for temporary defensive purposes or pending longer-term investment, the Portfolio may invest any amount of its assets in short-term fixed income securities or in cash or cash equivalents. EMERGING MARKETS PORTFOLIO Investment Objective: Long-term capital appreciation. At least 65% of the Portfolio's assets normally will be invested in the equity securities of issuers in countries that are identified as emerging market countries in the Morgan Stanley Capital International Emerging Markets Free Index or the International Finance Corporation Emerging Market Index, or a country that the Portfolio Manager otherwise believes is an emerging market country because it has a developing economy or because its markets have begun a process of change and are growing in size and/or sophistication. For purposes of allocating the Portfolio's investments, a company will be considered located in the country in which the company is domiciled, in which it is primarily traded, from which it derives a significant portion of its revenues, in which it has 50% more of its assets, or in which a significant portion of its goods or services are produced. 34 The Emerging Markets Portfolio may invest in debt obligations ("sovereign debt") of governmental issuers in emerging market countries and industrialized countries. The sovereign debt issued or guaranteed by certain emerging market governmental entities and corporate issuers in which the Portfolio may invest potentially involves a high degree of risk and may be deemed the equivalent in terms of quality to high risk, low rated securities (i.e., high yield bonds) and subject to many of the same risks as such securities. Similarly, the Portfolio may have difficulty disposing of certain of these debt obligations because there may be a thin trading market for such securities. In the event a governmental issuer defaults on its obligations, the Portfolio may have limited legal recourse against the issuer or guarantor, if any. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government debt securities to obtain recourse may be subject to the political climate in the relevant country. The issuers of the government debt securities in which the Portfolio may invest have in the past experienced substantial difficulties in servicing their external debt obligations, which has led to defaults on certain obligations and the restructuring of certain indebtedness. See "Description of Securities and Investment Techniques--High Yield Bonds" and "Debt Securities--Sovereign Debt" in this Statement of Additional Information. For temporary defensive purposes, the Portfolio may decrease its investment in emerging market country equity securities, and may invest to a significant degree in debt securities and bank and money market instruments as described above. In addition, the Portfolio may invest significantly in such securities after receipt of new monies. Most of the foreign securities in which the Portfolio invests will be denominated in foreign currencies. The Portfolio may engage in foreign currency transactions in anticipation of or to protect itself against fluctuations in currency exchange rates in relation to the U.S. dollar. Such foreign currency transactions may include forward foreign currency contracts, currency exchange transactions on a spot (i.e., cash) basis, put and call options on foreign currencies, and foreign exchange futures contracts. For a description on these techniques, see "Description of Securities and Investment Techniques- - -Foreign Currency Transactions" in this Statement of Additional Information. The Emerging Markets Portfolio may use various investment strategies and techniques to meet its investment objective, including purchasing options on securities and writing (selling) secured put and covered call options on securities, securities index, foreign securities and foreign currencies. The Portfolio may purchase and sell interest rate, stock indexes and other financial instrument futures contracts, and may purchase and write options on such futures contracts. The Portfolio may engage in options transactions not only on U.S. domestic markets but also exchanges and other markets outside the United States. When deemed appropriate by the Portfolio Manager, the Portfolio may enter into reverse repurchase agreements and may invest cash balances in repurchase agreements and money market instruments in an amount necessary to maintain liquidity, in an amount to meet expenses or for day-to-day operating purposes. The Portfolio may invest in shares of other investment companies when the Portfolio Manager believes such investment is an appropriate method of investing in one or more emerging capital markets. The Portfolio may invest in up to 15% of its assets in illiquid securities. The Portfolio may invest in warrants and restricted securities. The Portfolio may make short sales "against the box." These investment techniques are described under the heading "Description of Securities and Investment Techniques" in this Statement of Additional Information. VALUE EQUITY PORTFOLIO Investment Objective: Capital appreciation. Dividend income is a secondary objective. At least 65% of the Portfolio's assets normally will be invested in equity securities. However, during adverse market conditions, as a temporary investment posture, the Portfolio may invest significantly in the debt securities and money market instruments. The Portfolio may invest without limit in equity securities of foreign issuers, including ADRs. However, it is expected that under ordinary circumstances, the Portfolio will not invest more than 25% of its assets in foreign issuers, measured at the time of investment. For a description of the risks associated with investment in foreign issuers, see "Description of Securities and Investment Techniques-- Foreign Securities" in this Statement of Additional Information. 35 It is the policy of the Portfolio that no equity security will be acquired, if, with respect to 75% of the Portfolio's total assets, after its acquisition, more than 25% of the Portfolio's total assets would be invested in any one industry or more than 5% would be invested in any one issuer. The Portfolio Manager periodically monitors the Portfolio's equity securities to assure they meet the selection criteria. A security may be sold from the portfolio when (i) its price approaches its intrinsic value; (ii) a temporary, dramatic, short-term price appreciation occurs; (iii) its fundamentals deteriorate; or (iv) its relative attractiveness diminishes. From time to time, the Portfolio may invest in equity securities that do not meet the selection criteria described above, but which the Portfolio Manager deems a suitable investment. For purposes of the Portfolio's investment policies, equity securities are deemed to include common stocks, securities convertible into common stocks, options on equity securities, and rights or warrants to subscribe for or purchase common stocks. The Portfolio may also invest in Standard & Poor's Depositary Receipts ("SPDR's"), which are publicly traded interests in a unit investment trust that invests in substantially all of the common stocks in the S&P 500 Index. SPDR's are not subject to the Portfolio's policy that no more than 5% of the Portfolio's total assets be invested in any one issuer. The Portfolio may make short sales "against the box." The Portfolio may also invest in restricted or illiquid securities; however, the Portfolio Manager can not invest more than 15% of the Portfolio's assets in securities that, at the time of investment, it believes to be illiquid. In pursuing its investment objective or for hedging purposes, the Portfolio may, but is not required to, utilize the following investment techniques: writing "covered" listed put and call options with respect to 25% of its net assets, may purchase protective puts up to 25% of its net assets and may purchase calls and puts other than protective puts up to 5% of its assets; entering into stock index, interest rate, foreign currency and other financial futures contracts, and purchasing options on such futures contracts; entering into forward currency contracts, currency exchange transactions; purchasing mortgage-backed securities and asset-backed securities; and borrowing from banks up to 10% of its net assets to purchase securities and up to 25% of its net assets for temporary purposes. See "Description of Securities and Investment Techniques" for a discussion of the risks associated with these investment techniques. During unusual or adverse market conditions, the Portfolio may invest significantly in U.S. Government and agency debt securities, and in money market instruments such as certificates of deposit, bankers' acceptances, high quality commercial paper, U.S. Treasury bills, and repurchase agreements. STRATEGIC EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO Investment Objective Strategic Equity: Capital appreciation. Investment Objective Capital Appreciation: Long-term capital growth. Each Portfolio may invest, for temporary defensive purposes, all or substantially all of its assets in investment grade (high quality) corporate bonds, commercial paper, or U.S. Government obligations. In addition, a portion of each Portfolio's assets may be held, from time to time, in cash, repurchase agreements or other short-term debt securities when such positions are deemed advisable in light of economic or market conditions. Each Portfolio will invest in common stocks, which fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Each Portfolio may also invest in preferred stocks (which may be subject to optional or mandatory redemption provisions) and convertible securities, without regard to corporate bond ratings. Each Portfolio may invest in corporate debt, which may be subject to call provisions that entitle the issuer to repurchase such securities at a predetermined price prior to their stated maturity. In the event that a security is called during a period of declining interest rates, the portfolio may be required to reinvest the proceeds in securities having a lower yield. In addition, in the event that a security was purchased at a premium over the call price, the portfolio will experience a capital loss if the security is called. Adjustable rate corporate debt securities may have interest rate caps and floors. The Portfolios may invest in equity and/or debt securities issued by REITs. Such investments will not exceed 25% of the total assets of each Portfolio. To the extent that the Portfolios have the ability to invest in REITs, each could conceivably own real estate directly as a result of a default on securities it owns. The Portfolio, therefore, may be subject to certain risks associated with the direct ownership of real estate including difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic 36 conditions, and changes in zoning laws. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation, and the possibility of failing to maintain exemption from the 1940 Act. To the extent consistent with its respective investment objective, each of the Portfolios may invest in foreign securities. The Capital Appreciation Portfolio may invest up to 25% of its total assets in foreign securities. The Strategic Equity Portfolio may invest up to 20% of its total assets in foreign securities. For purposes of computing such limitation, American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other securities representing underlying securities of foreign issuers are treated as foreign securities. Each of the Portfolios may also invest in foreign securities listed on recognized U.S. securities exchanges or traded in the U.S. over-the-counter market. Each Portfolio has the authority to deal in foreign exchange between currencies of the different countries in which each will invest either for the settlement of transactions or as a hedge against possible variations in the foreign exchange rates between those currencies. Each Portfolio will not speculate in foreign exchange, nor commit a larger percentage of its total assets to foreign hedges than the percentage of its assets that it could invest in foreign securities. The Strategic Equity Portfolio will not invest more than 15% of its net assets in illiquid securities, including repurchase agreements with maturities in excess of seven days. The Capital Appreciation Portfolio will not invest more than 10% of its assets in illiquid securities. The Portfolio may purchase privately placed securities that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933. For the purpose of realizing additional income, the Portfolios may each make secured loans of portfolio securities amounting to not more than 33 1/3% of its total assets. Although it does not currently intend to do so, the Strategic Equity Portfolio may invest in "special situations, as described in this Statement of Additional Information. The Portfolio may also invest in U.S. Government Securities, Repurchase Agreements, short sales and has the ability to use forward contracts, futures contracts, options on securities, options on indices, options on currencies and options on futures and in other investment companies to the extent permitted by the 1940 Act, and rules and regulation thereunder. SMALL CAP PORTFOLIO Investment Objective: Long-term capital appreciation. The Portfolio invests at least 65% of its total assets in equity securities of companies that, at the time of purchase of the securities, have total market capitalization within the range of companies included in the Russell 2000 Growth Index ("Russell Index") or the S&P Small-Cap 600 Index ("S&P 600 Index"), updated quarterly. In order to afford the Portfolio the flexibility to take advantage of new opportunities for investments in accordance with its investment objective, it may hold up to 15% of its net assets in money market instruments and repurchase agreements and in excess of that amount (up to 100% of its assets), after receipt of new monies, or during temporary defensive periods. This amount may be higher than that maintained by other funds with similar investment objectives. The Portfolio may use the following various investment strategies and techniques when the Portfolio Manager determines that such use is appropriate in an effort to meet the Portfolio's investment objective: short sales of securities; investing in securities of foreign issuers (including Depositary Receipts), including not more than 10% of its total assets in foreign government securities denominated in U.S. dollars; engaging in futures contracts, including purchasing and selling stock index futures contracts and interest rate futures contracts; purchasing and selling options on securities; purchasing options on stock index futures contracts, interest rate futures contracts, and foreign currency futures contracts; entering into foreign currency transactions and options on foreign currencies; entering into repurchase and reverse repurchase agreements; purchase mortgage- and asset-backed securities; and lending portfolio securities to brokers, dealers, bankers, and other recognized institutional borrowers of securities. The Portfolio may not exceed a total of 25% of net assets in short sales, but this amount is decreased by any amount the Portfolio has borrowed. The Portfolio may from time to time increase its ownership of securities above the amounts otherwise possible by borrowing from banks on an unsecured basis and investing the borrowed funds. 37 The Portfolio may borrow up to 10% of its net assets to purchase securities and up to 25% of its net assets for temporary purposes. In connection with permissible borrowings the Portfolio may transfer as collateral securities owned by the Portfolio. The Portfolio may invest up to 15% of its net assets in illiquid securities. MANAGED GLOBAL PORTFOLIO Investment Objective: Capital appreciation. Current income is only an incidental consideration. As discussed in the Prospectus, the Managed Global Portfolio may invest in common stock traded in securities market around the world, issued by any type of company, large or small. Investing in securities of smaller, less well known companies may present greater opportunities for capital appreciation, but may also involve greater risks. The Portfolio may not acquire the securities of any issuer if, as a result of such investment, more than 10% of the Portfolio's assets would be invested in the securities of any issuer, except that this restriction does not apply to U.S. Government securities or foreign government securities, and the Portfolio may not invest in a security if, as a result of such investment, it would hold more than 10% of the outstanding voting securities of any one issuer. At times, the Portfolio Manager may judge that conditions in the international securities markets make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of shareholders. The Portfolio Manager may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of the Portfolio's assets. In implementing these "defensive" strategies the Portfolio may invest in some of the following securities. The Portfolio may invest solely in equity securities traded primarily in U.S. markets. Also the Portfolio may add preferred stocks to the portfolio. The Portfolio may purchase mortgage- and asset-backed securities. The Portfolio may invest in the following debt instruments (includes debt instruments convertible into equity): (i) fixed-income instruments issued or guaranteed by the U.S. Government, its agencies, or instrumentalities ("U.S. Government securities"); (ii) obligations issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies, or instrumentalities, or by supranational entities ("foreign government securities"); and (iii) debt securities of domestic or foreign issuers. Debt securities purchased by the Portfolio may be of any maturity, at the discretion of the Portfolio Manager. The Portfolio may invest in money market instruments. These include the following: (i) short-term U.S. Government securities; (ii) short-term foreign government securities; (iii) certificates of deposit, time deposits, bankers' acceptances, and short-term obligations of banks and other depository institutions, both U.S. and foreign, that have total assets of at least $10 billion (U.S.); and (iv) commercial paper and other short-term corporate obligations. The Managed Global Portfolio may use various investment strategies and techniques to meet its investment objective, including purchasing options on securities and writing (selling) secured put and covered call options on securities and securities indexes. The Managed Global Portfolio will only purchase and write options that are standardized and traded on a U.S. or foreign exchange or board of trade, or for which an established over-the-counter market exists. The Portfolio may purchase and sell futures contracts, and may purchase and write options on such futures contracts, including stock index futures contracts. The Portfolio may enter into foreign currency contracts and currency exchange contracts on a spot basis. When deemed appropriate by the Portfolio Manager, the Portfolio may enter into reverse repurchase agreements and may invest cash balances in repurchase agreements and money market instruments in an amount necessary to maintain liquidity, in an amount to meet expenses or for day-to-day operating purposes. The Portfolio may invest in shares of other investment companies when the Portfolio Manager believes such investment is an appropriate method of investing in one or more emerging capital markets. The Portfolio may invest in restricted securities and warrants. The Portfolio may not invest more than 15% of its net assets in illiquid securities. The Portfolio may not exceed a total of 25% of net assets in short sales, but this amount is decreased by any amount the Portfolio has borrowed. The Portfolio may borrow up to 10% of its net assets to purchase securities and up to 25% of its net assets for temporary purposes. In connection with permissible borrowings the Portfolio may transfer as collateral securities owned by the Portfolio. 38 For more information about the Portfolio's investments including the risks of such investing see "Description of Securities and Investment Techniques." The Portfolio Manager may invest in the above or any other securities that it considers consistent with the defensive strategies of the Portfolio. It is impossible to predict when or for how long the Portfolio will use such alternative strategies. The Portfolio is the successor for accounting purposes to the Managed Global Account of Separate Account D of Golden American. For additional information, see "Other Information--The History of the Managed Global Portfolio." GROWTH OPPORTUNITIES PORTFOLIO Investment Objective: Capital appreciation. The Portfolio invests at least 65% of its total assets in equity securities of domestic companies. Although such companies may be of any size, the Portfolio targets companies having total market capitalizations of $1 billion or more. The Portfolio Manager for the Portfolio is Montgomery Asset Management, LLC. The Portfolio also may invest up to 35% of its total assets in highly rated debt securities. The Portfolio Manager does not expect the Portfolio to be consistently totally invested in equity securities. During periods that the Portfolio Manager deems appropriate, the Portfolio may take a more defensive position and be significantly invested in cash and cash equivalents. The Portfolio may enter into repurchase agreements and reverse repurchase agreements, invest in U.S. Government securities, up to 10% of its total net assets in investment companies, leverage transactions, lend portfolio securities up to 30% of Portfolio total net assets, when-issued and forward commitment securities, purchase and write put and call options on securities, currencies and stock indexes, write "covered" call and put options,. The Portfolio will not enter into any options on securities, securities indexes or currencies or related options (including options on futures) if the sum of the initial margin deposits and premiums paid for any such option or options would exceed 5% of its total assets, and it will not enter into options with respect to more than 25% of its total assets. The Portfolio may borrow up to one-third of its total net assets, but will not purchase any securities while borrowings exceed 10%. The Portfolio may invest in interest rate futures contracts or related options only if the sum of initial margin deposits on futures contracts, related options (including options on securities, securities indexes and currencies) and premiums paid for any such related options would exceed 5% of its total assets. The Portfolio does not purchase futures contracts or related options if, as a result, more than one-third of its total assets would be so invested. The Portfolio may invest in forward currency contracts, but may not invest more than one-third of its assets in such contracts. The Portfolio may invest in futures, swaps, including equity swaps, and options on futures. The Portfolio may invest up to 15% of its total net assets in illiquid securities. See "Description of Securities and Investment Techniques." DEVELOPING WORLD PORTFOLIO Investment Objective: Capital appreciation. As discussed in the Prospectus, the Developing World Portfolio invests primarily in the equity securities of emerging market companies. The Portfolio also may enter into repurchase agreements, purchase U.S. Government securities, invest up to 10% of its total net assets in investment companies, leverage transactions, lend portfolio securities up to 30% of Portfolio total net assets, invest in when-issued and forward commitment securities, purchase and write put and call options on securities, currencies and stock indexes, and write "covered" call and put options. The Portfolio will not enter into any options transactions on securities, securities indexes or currencies or related options (including options on futures) if the sum of the initial margin deposits and premiums paid for any such option or options would exceed 5% of its total assets, and it will not enter into options' transactions with respect to more than 25% of its total assets. The Portfolio may borrow up to one third of its total net assets, but will not purchase any securities while borrowings exceed 10%. The Portfolio may invest in interest rate futures contracts or related options only if the sum of initial margin deposits on futures contracts, related options (including options on securities, securities indexes and currencies) and premiums paid for any such related options would not exceed 5% of its total assets. The Portfolio does not purchase futures contracts or related options if, as a result, more than one-third of its total assets would be so invested. The Portfolio may invest in forward currency 39 contracts, but may not invest more than one-third of its assets in such contracts. The Portfolio may invest in futures, swaps, including equity swaps, and options on futures. The Portfolio may invest up to 15% of its total net assets in illiquid securities. See "Description of Securities and Investment Techniques." MID-CAP GROWTH PORTFOLIO Investment Objective: Long-term growth of capital. The Portfolio seeks to achieve its objective by investing primarily or at least 65% 0f it assets in equity securities of companies with medium market capitalization which the Portfolio Manager believes have above-average growth potential under normal circumstances. Shares of the Portfolio are subject to greater fluctuation in value than shares of a conservative equity fund or of a growth fund that invests entirely in proven growth stocks. Therefore, the Portfolio is intended for long-term investors who understand and can accept the risks entailed in seeking long-term growth of capital. The Portfolio is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. Accordingly, an investment in shares of the Portfolio should not be considered a complete investment program. Each prospective purchaser should take into account his investment objectives as well as his other investments when considering the purchase of shares of the Portfolio. Debt securities of issuers in which the Portfolio may invest include all types of long- or short-term debt obligations, such as bonds, debentures, notes and commercial paper. Fixed income securities in which the Portfolio may invest include securities in the lower rating categories of recognized rating agencies (and comparable unrated securities). Fixed income securities in which the Portfolio may invest also include zero-coupon bonds, deferred interest bonds and bonds on which the interest is payable in kind. Such investments involve certain risks. See "Description of Securities and Investment Techniques--High Yield Bonds" for a discussion of the risks involved in investing in lower-rated securities. When the Portfolio Manager believes that investing for temporary defensive purposes is appropriate, such as during periods of unusual market conditions, part or all of the Portfolio's assets may be temporarily invested in cash (including foreign currency) or cash equivalent short-term obligations including, but not limited to, certificates of deposit, commercial paper, short-term notes, obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities, and repurchase agreements. The Portfolio may invest 20% of its net assets in foreign securities. Investing in securities of foreign issuers generally involves risks not ordinarily associated with investing in securities of domestic issuers. (See "Description of Securities and Investment Techniques--Foreign Securities" for a discussion of the risks involved in foreign investing.) The Portfolio may invest in ADRs which are certificates issued by a U.S. depository (usually a bank) and represent a specified quantity of shares of an underlying non-U.S. stock on deposit with a custodian bank as collateral. Although ADRs are issued by a U.S. depository, they are subject to many of the risks of foreign securities such as changes in exchange rates and more limited information about foreign issuers. The Portfolio may also purchase illiquid or restricted securities (such as private placements). The Portfolio's may not invest more than 15% of its net assets in illiquid securities. The Portfolio is classified as a "non-diversified" investment company as described above under "Diversification." See "Diversification" for risks associated with investing in a non- diversified Portfolio. While it is not generally the Portfolio's policy to invest or trade for short-term profits, the Portfolio may dispose of a portfolio security whenever the Portfolio Manager is of the opinion that such security no longer has an appropriate appreciation potential or when another security appears to offer relatively greater appreciation potential. Portfolio changes are made without regard to the length of time a security has been held, or whether a sale would result in a profit or loss. Therefore, the rate of Portfolio turnover is not a limiting factor when a change in the Portfolio is otherwise appropriate. Because the Portfolio is expected to have a Portfolio turnover rate of over 40 100%, transaction costs incurred by the Portfolio and the realized capital gains and losses of the Portfolio may be greater than that of a Portfolio with a lesser turnover rate. The Portfolio may also enter into repurchase agreements, lend securities, purchase securities on a "when-issued" or on a "forward delivery" basis (which means that the securities will be delivered to the Portfolio at a future date usually beyond customary settlement time), purchase restricted securities, options on securities, options on stock indexes, options on foreign currencies, futures contracts, options on futures contracts and forward foreign currency exchange contracts. RESEARCH PORTFOLIO Investment Objective: Long-term growth of capital and future income. The Portfolio invests in debt securities, and may invest up to 10% of its net assets in lower rated debt securities (e.g., rated BA or lower by Moody's or BB or lower by S&P or Fitch), or in securities the Portfolio Manager believes to be of comparable quality. It is not the Portfolio's policy to rely exclusively on ratings issued by established credit rating agencies but rather to supplement such ratings with the Portfolio Manager's own independent and ongoing review of credit quality. The Portfolio's achievement of its investment objective may be more dependent on the Portfolio Manager's own credit analysis than in the case of a Portfolio investing in primarily higher quality bonds. From time to time, the Portfolio's management will exercise its judgment with respect to the proportions invested in growth stocks, income-producing securities or cash (including foreign currency) and cash equivalents depending on its view of their relative attractiveness. The Portfolio may enter into repurchase agreements, make loans of its securities, invest in ADRs, invest up to 20% of its net assets in foreign securities, invest in emerging markets or countries with limited or developing capital markets and purchase "Rule 144A securities." Investing in these type of securities involves certain risks. See "Description of Securities and Investment Techniques" and the Statement of Additional Information for a discussion of the risks involved with investing in the above listed securities transactions. While it is not generally the Portfolio's policy to invest or trade for short-term profits, the Portfolio may dispose of a portfolio security whenever the Portfolio Manager is of the opinion that such security no longer has an appropriate appreciation potential or when another security appears to offer relatively greater appreciation potential. Portfolio changes are made without regard to the length of time a security has been held, or whether a sale would result in a profit or loss. Therefore, the rate of Portfolio turnover is not a limiting factor when a change in the Portfolio is otherwise appropriate. TOTAL RETURN PORTFOLIO Investment Objective: Above-average income (compared to a portfolio entirely invested in equity securities) consistent with the prudent employment of capital. A secondary goal is the reasonable opportunity for growth of capital and income. As discussed in the Prospectus, the Total Return Portfolio is a "balanced fund that invests in a combination of equity and fixed income securities. The Portfolio may invest in mortgage pass-through securities, which are securities representing interests in "pools" of mortgage loans. Monthly payments of interest and principal by the individual borrowers on mortgages are passed through to the holders of the securities (net of fees paid to the issuer or guarantor of the securities) as the mortgages in the underlying mortgage pools are paid off. Payment of principal and interest on some mortgage pass- through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. government (in the case of securities guaranteed by GNMA); or guaranteed by U.S. government-sponsored corporations (such as FNMA or FHLMC, which are supported only by the discretionary authority of the U.S. government to purchase the agency's obligations). Mortgage pass- through securities may also be issued by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers). Fixed income securities that the Portfolio may invest in also include zero coupon bonds, deferred interest bonds and 41 bonds on which the interest is payable in kind ("PIK bonds"). See "Description of Securities and Investment Techniques" for a further discussion of these securities. The Portfolio may invest in ADRs which are certificates issued by a U.S. depository (usually a bank), that represent a specified quantity of shares of an underlying non-U.S. stock on deposit with a custodian bank as collateral. Although ADRs are issued by a U.S. depository, they are subject to many of the risks of foreign securities such as changes in exchange rates and more limited information about foreign issuers. The Portfolio may invest up to 20% of its net assets in foreign securities (including investments in emerging markets or countries with limited or developing capital markets). Investing in securities of foreign issuers generally involves risks not ordinarily associated with investing in securities of domestic issuers. (See "Description of Securities and Investment Techniques--Foreign Investments" for a discussion of the risks involved in foreign investing.) In order to protect the value of the Portfolio's investments from interest rate fluctuations, the Portfolio may enter into various hedging transactions, such as interest rate swaps, and the purchase or sale of interest rate caps, floors and collars. The Portfolio may purchase "Rule 144A securities"; enter into repurchase agreements; lend portfolio securities; purchase securities on a "when-issued" or on a "delayed delivery" basis; invest in indexed securities linked to foreign currencies, indexes, or other financial indicators; enter into mortgage "dollar roll" transactions; invest a portion of its assets in loan participations and other direct indebtedness; purchase restricted securities, corporate asset- backed securities, options on securities, options on stock indexes, options on foreign currencies, futures contracts, options on futures contracts and forward foreign currency exchange contracts. See "Description of Securities and Investment Techniques" for more information regarding these transactions and the risks associated with them. While it is not generally the Portfolio's policy to invest or trade for short-term profits, the Portfolio may dispose of a portfolio security whenever the Portfolio Manager is of the opinion that such security no longer has an appropriate appreciation potential or when another security appears to offer relatively greater appreciation potential. Portfolio changes are made without regard to the length of time a security has been held, or whether a sale would result in a profit or loss. Therefore, the rate of Portfolio turnover is not a limiting factor when a change in the Portfolio is otherwise appropriate. Because the Portfolio is expected to have a Portfolio turnover rate of over 100%, transactions costs incurred by the Portfolio and the realized capital gains and losses of the Portfolio may be greater than that of a Portfolio with a lesser turnover rate. GROWTH & INCOME PORTFOLIO Investment Objective: Long-term total return. As discussed in the Prospectus, the Growth & Income Portfolio invests primarily in common stocks of companies where the potential for change is significant. The Portfolio may at times invest a substantial portion of its assets in securities traded in the over- the-counter markets in foreign countries and not on any exchange, which may affect the liquidity of the investment and expose the Portfolio to the credit risk of its counterparties in trading those investments. International investing in general may involve greater risks than U.S. investments. These risks may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. To hedge against changes in net asset value or to attempt to realize a greater current return, the Portfolio may use the following investment strategies and techniques. The Portfolio may buy and sell put and call options; index futures contracts and options on index futures and on indexes; warrants on foreign securities indexes; purchase and sell options in the over-the-counter markets only when appropriate exchange-traded transactions are unavailable and when, in the opinion of the Portfolio Manager, the pricing mechanism and liquidity of the over-the-counter markets are satisfactory and the participants are responsible parties likely to meet their obligations. The Portfolio will not purchase futures or options on futures or sell futures if, as a result, the sum of the initial margin deposits on the Portfolio's existing futures positions and premiums paid for outstanding options on futures contracts would exceed 5% of the Portfolio's assets. (For options that are "in-the- money" at the time of purchase, the amount by 42 which the option is "in- the-money" is excluded from this calculation.) The Portfolio may lend portfolio securities to broker-dealers and may enter into repurchase agreements. At times, the Portfolio Manager may judge that market conditions make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the Portfolio Manager may temporarily use alternative strategies, primarily designed to reduce fluctuations in the values of the Portfolio's assets. In implementing these "defensive" strategies, the Portfolio may invest in U.S. Government securities, other high- quality debt instruments, and other securities the Portfolio Manager believes to be consistent with the Portfolio's best interests. The Portfolio may invest in domestic or foreign securities GROWTH PORTFOLIO Investment Objective: Capital appreciation. In addition to the Growth Portfolio's primary strategies discussed in the Prospectus, the Portfolio may engage in several other strategies. To hedge against changes in net asset value or to attempt to increase its investment return, the Portfolio may buy and sell: put and call options; futures contracts; options on futures contracts; index futures contracts and options on index futures and on indexes; warrants; foreign securities indexes; and options in the over-the-counter markets but only when appropriate exchange-traded transactions are unavailable and when, in the opinion of the Portfolio Manager, the pricing mechanism and liquidity of over-the- counter markets are satisfactory and the participants are responsible parties likely to meet their obligations. To the extent that the Portfolio hold positions is futures contracts and related options that do not fall within the definition of bona fide hedging transactions, the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the Portfolio's net assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into. When the Portfolio Manager believes that market conditions are not favorable for profitable investing or when the Portfolio Manager is otherwise unable to locate favorable investment opportunities, a Portfolio's investments may be hedged to a greater degree and/or its cash or similar investments may increase. In other words, the Portfolio does not always stay fully invested in stocks and bonds. Cash or similar investments are a residual -- they represent the assets that remain after a portfolio manager has committed available assets to desirable investment opportunities. Larger hedged positions and/or larger cash positions may serve as a means of preserving capital in unfavorable market conditions. Securities that the Portfolio may invest in as a means of receiving a return on idle cash include high-grade commercial paper, certificates of deposit, repurchase agreements or other short-term obligations. The Portfolio may also invest in money market funds (including funds managed by the Portfolio Manager). When a Portfolio is hedged or its investments in cash or similar investments increase, it may not participate in stock or bond market advances or declines to the same extent that it would if the Portfolio was not hedged or remained more fully invested in stocks or bonds. At times the Portfolio may invest more than 25% of its assets in securities of issuers in one or more market sectors such as, for example, the technology sector. A market sector may be made up of companies in a number of related industries. The Portfolio would only concentrate its investments in a particular market sector if the Portfolio's Portfolio Manager were to believe the investment return available from concentration in that sector justifies any additional risk associated with concentration in that sector. When the Portfolio concentrates its investments in a market sector, financial, economic, business, and other developments affecting issuers in that sector will have a greater effect on the Portfolio than if it had not concentrated its assets in that sector. The Portfolio may enter into repurchase agreements. These transactions must be fully collateralized at all times, but involve some risk to the Portfolio if the other party should default on its obligations and the Portfolio is delayed or prevented from recovering the collateral. At times, the Portfolio Manager may judge that market conditions make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the Portfolio Manager may temporarily use alternative strategies, primarily designed to reduce fluctuations in the values of the Portfolio's 43 assets. In implementing these "defensive" strategies, the Portfolio may invest in U.S. Government securities, other high- quality debt instruments, and other securities the Portfolio Manager believes to be consistent with the Portfolio's best interests. During extremely unusual conditions, the Portfolio may take a position of cash and cash equivalents. The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. The investment policies of a Portfolio may lead to frequent changes in the Portfolio's investments, particularly in periods of volatile market movements. Such portfolio turnover generally involves some expense to a Portfolio, including brokerage commissions or dealer markups and other transaction costs on the sale of securities and reinvestment in other securities. Such sales may result in realization of taxable capital gains. GLOBAL FIXED INCOME PORTFOLIO Investment Objective: High total return The investment objective of the Global Fixed Income Portfolio is to provide high total return. The Portfolio will seek to achieve its objective by investing at least 65% of its assets in both domestic and foreign debt securities and related foreign currency transactions. The total return will be sought through a combination of current income, capital gains and gains in currency positions. International investing in general may involve greater risks than U.S. investments. These risks may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. The Portfolio may engage in certain transactions, which include dollar roll transactions, reverse repurchase agreements, interest rate transactions, options on securities and indexes, futures and options on futures, options on foreign currencies, foreign exchange transactions and over the counter options. (See "Description of Securities and Investment Techniques.") The Portfolio's net asset value per share fluctuates, depending on (i) current worldwide market interest rates, (ii) the value of the currencies in which the Portfolio's securities are denominated when compared to the U.S. dollar, (iii) the success of the Portfolio Manager's currency hedging techniques, and (iv) the creditworthiness of the issuers in which the Portfolio is invested. In pursuing the Portfolio's investment objective, however, the Portfolio Manager actively manages the Portfolio in an effort to minimize the effect of such factors on the Portfolio's net asset value per share. In extremely unusual conditions the Portfolio may take a defensive position of 100% U.S. cash. LIQUID ASSET PORTFOLIO Investment Objective: High level of current income consistent with the preservation of capital and liquidity. The Liquid Asset Portfolio seeks to achieve a high level of current income consistent with the preservation of capital and liquidity. The Portfolio is permitted to invest in asset-backed securities, subject to the rating and quality requirements specified with respect to the Portfolio. Through the use of trusts and special purpose subsidiaries, various types of assets, primarily home equity loans and automobile and credit card receivables, are being securitized in pass-through structures similar to the mortgage pass- through structures described above. Consistent with the Portfolio's investment objectives, policies and quality standards, the Portfolio may invest in these and other types of asset-backed securities which may be developed in the future. Asset-backed securities involve certain risks that are not posed by mortgage-related securities, resulting mainly from the fact that asset-backed securities do not usually contain the benefit of a complete security interest in the related collateral. For example, credit card receivables generally are unsecured and the debtors are entitled to the protection of a number of state and Federal consumer credit laws, some of which may reduce the ability to obtain full payment. In the case of automobile receivables, due to various legal and economic factors, proceeds from repossessed collateral may not always be sufficient to support payments on these securities. The risks 44 associated with asset-backed securities are often reduced by the addition of credit enhancements such as a letter of credit from a bank, excess collateral or a third-party guarantee. The Portfolio may invest in shares of other open-end management investment companies, subject to the limitations of the 1940 Act and subject to such investments being consistent with the overall objective and policies of the Portfolio, provided that any such purchases will be limited to short-term investments in shares of unaffiliated investment companies, and will not, in the aggregate, exceed 10% of the Portfolio's net assets. The purchase of securities of other mutual funds results in duplication of expenses such that investors indirectly bear a proportionate share of the expenses of such mutual funds including operating costs and investment advisory and administrative fees. The Portfolio may also make limited investments in guaranteed investment contracts ("GIC") issued by U.S. insurance companies. The Portfolio will purchase a GIC only when the Manager has determined, under guidelines established by the Board of Trustees, that the GIC presents minimal credit risks to the Portfolio and is of comparable quality to instruments that are rated high quality by certain nationally recognized statistical rating organizations. The Portfolio may purchase securities on a when-issued and delayed-delivery basis and may purchase or sell securities on a forward commitment basis. When-issued or delayed-delivery transactions arise when securities are purchased by a Portfolio with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Portfolio at the time of entering into the transaction. A forward commitment transaction is an agreement by a portfolio to purchase or sell securities at a specified future date. When a portfolio engages in these transactions, the Portfolio relies on the buyer or seller, as the case may be, to consummate the sale. Failure to do so may result in the Portfolio missing the opportunity to obtain a price or yield considered to be advantageous. When-issued and delayed- delivery transactions and forward commitment transactions may be expected to occur a month or more before delivery is due. However, no payment or delivery is made by a Portfolio until it receives payment or delivery from the other party to the transaction. A separate account containing only liquid assets, such as cash, U.S. government securities, or other liquid assets equal to the value of purchase commitments will be maintained until payment is made. Such transactions have the effect of leverage on the Portfolio and may contribute to volatility of a 's net asset value. To increase current income, the Portfolio may lend its portfolio securities in an amount up to 33% of each such Portfolio's total assets to brokers, dealers and financial institutions, provided certain conditions are met, including the condition that each loan is secured continuously by collateral maintained on a daily mark-to- market basis in an amount at least equal to the current market value of the securities loaned. These transactions involve a loan by the applicable Portfolio and are subject to the same risks as repurchase agreements. The Portfolio may enter into repurchase agreements with any bank or broker-dealer which, in the opinion of the Board of Trustees, presents a minimal risk of bankruptcy. Under a repurchase agreement, the Portfolio acquire securities and obtain a simultaneous commitment from the seller to repurchase the securities at a specified time and at an agreed-upon yield. The agreements will be fully collateralized and the value of the collateral, including accrued interest, marked- to-market daily. The Portfolio may not invest more than 5% of its total assets, measured at the time of investment, in securities of any one issuer, except that this limitation shall not apply to U.S. government securities and repurchase agreements thereon. The Portfolio may not invest more than the greater of 1% of its total assets or $1,000,000, measured at the time of investment, in securities of any one issuer that are rated in the second-highest rating category, except that this limitation shall not apply to U.S. government securities. In the event that an instrument acquired by the Portfolio is downgraded or otherwise ceases to be of the quality that is eligible for the Portfolio, the Portfolio Manager, under procedures approved by the Board of Trustees (or the Board of Trustees itself if the Portfolio Manager becomes aware an unrated security is downgraded below high quality (within the first or second highest rating category) and the Portfolio Manager does not dispose of the security or such security does not 45 mature within five business days), shall promptly reassess whether such security presents minimal credit risk and determine whether to retain the instrument. The Portfolio shall engage only in short sales "against the box." The Portfolio may also invest up to 10% in illiquid securities and may borrow up to 10% of its net assets to purchase securities and up to 25% of its net assets for temporary purposes. In connection with permissible borrowings the Portfolio may transfer as collateral securities owned by the Portfolio. See "Description of Securities and Investment Techniques" for descriptions of these techniques. MARKET MANAGER PORTFOLIO Investment Objective: The Portfolio seeks favorable equity market performance by purchasing over-the-counter call options on the S&P 500 and other indexes of publicly traded common stocks of large and mid-cap companies. The call options into which the Portfolio will enter will be negotiated on behalf of the Portfolio by the Portfolio Manager in an attempt to provide the Portfolio with the right to receive a percentage of the price appreciation on the stocks included in the indexes for all or a portion of the period from the Investment Start Date through the Target Maturity Date. The price appreciation on the S&P 500 and other indexes does not include the value of dividends paid by in the indexes. The Portfolio Manager has advised the Trust that it initially intends to invest as of the Investment Start Date in call options on the S&P 500 and in call options on up to two other equity indexes, and that these options would give the Portfolio the right to receive approximately 110%-118% of the price appreciation of a composite of these indexes from the Investment Start Date through the Target Maturity Date, based upon the expected weighting of the Portfolio's relative positions in call options on these indexes. The Portfolio will seek to preserve capital (without regard to expenses) by investing a portion of its assets in zero coupon bonds issued by the U.S. Government and its agencies and instrumentalities and by private issuers which, at the time of investment, are rated A or better by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P). This strategy for pursuit of preservation of capital does not take into account expenses of the Portfolio so that if the Portfolio Manager is successful in its strategy, an investor in the Portfolio cannot be assured that the value of his or her investment as of the Target Maturity Date will equal the value of the investment as of the Investment Start Date. Similarly, the strategy for pursuit of preservation of capital does not take into account any expenses of the Variable Contracts whose proceeds are invested in the Portfolios. The purchaser of a Variable Contract would pay the expenses of the Variable Contract, which could further detract from the value of a Variable Contract Owner's investment as of the Target Maturity Date. For more information on expenses under the Variable Contract, see the Variable Contract prospectus. INVESTMENT RESTRICTIONS Each Portfolio's investment objective should be read, together with the investment restrictions set forth below. These are broken into two sections for different groups of Portfolios into fundamental and non-fundamental policies. Fundamental policies and restrictions of each Portfolio may not be changed with respect to any Portfolio without the approval of a majority of the outstanding voting shares of that Portfolio. The vote of a majority of the outstanding voting securities of a Portfolio means the vote, at an annual or special meeting, of the lesser of (a) 67% or more of the voting securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of such Portfolio are present or represented by proxy; or (b) more than 50% of the outstanding voting securities of such Portfolio. Non-fundamental policies and restrictions may be changed by a vote of the Board of Trustees and without shareholder approval, consistent with the Investment Company Act of 1940 and changes in relevant SEC interpretations. 46 FUNDAMENTAL INVESTMENT RESTRICTIONS FOR THE EQUITY INCOME PORTFOLIO, THE FULLY MANAGED PORTFOLIO, THE LIMITED MATURITY BOND PORTFOLIO, THE HARD ASSETS PORTFOLIO, THE REAL ESTATE PORTFOLIO, THE ALL-GROWTH PORTFOLIO, THE CAPITAL APPRECIATION PORTFOLIO, THE RISING DIVIDENDS PORTFOLIO, THE EMERGING MARKETS PORTFOLIO, THE VALUE EQUITY PORTFOLIO, THE STRATEGIC EQUITY PORTFOLIO, THE SMALL CAP PORTFOLIO, THE MANAGED GLOBAL PORTFOLIO, THE MARKET MANAGER PORTFOLIO, AND THE LIQUID ASSET PORTFOLIO: Under these restrictions, a Portfolio may not: (1) Invest in a security if, with respect to 75% of its total assets, more than 5% of the total assets (taken at market value at the time of such investment) would be invested in the securities of any one issuer, except that this restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and except that this restriction shall not apply to the Market Manager Portfolio; (2) Invest in a security if, with respect to 75% of its assets, it would hold more than 10% (taken at the time of such investment) of the outstanding voting securities of any one issuer, except securities issued or guaranteed by the U.S. Government, or its agencies or instrumentalities; (3) Invest in a security if more than 25% of its total assets (taken at market value at the time of such investment) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply: (a) to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (or repurchase agreements with respect thereto), (b) with respect to the Liquid Asset Portfolio, to securities or obligations issued by U.S. banks, (c) with respect to the Market Manager Portfolio, to options on stock indexes issued by eligible broker-dealers or banks, as described in the Market Manager Portfolio's Prospectus; (d) with respect to the Managed Global Portfolio, to securities issued or guaranteed by foreign governments or any political subdivisions thereof, authorities, agencies, or instrumentalities (or repurchase agreements with respect thereto); and (e) to the Real Estate Portfolio, which will normally invest more than 25% of its total assets in securities of issuers in the real estate industry and related industries, or to the Hard Assets Portfolio, which will normally invest more than 25% of its total assets in the group of industries engaged in hard assets activities, provided that such concentration for these two Portfolios is permitted under tax law requirements for regulated investment companies that are investment vehicles for variable contracts; (4) Purchase or sell real estate, except that a Portfolio may invest in securities secured by real estate or real estate interests or issued by companies in the real estate industry or which invest in real estate or real estate interests; (5) Purchase securities on margin (except for use of short- term credit necessary for clearance of purchases and sales of portfolio securities), except a Portfolio engaged in transactions in options, futures, and options on futures may make margin deposits in connection with those transactions, except that effecting short sales will be deemed not to constitute a margin purchase for purposes of this restriction, and except that the Hard Assets Portfolio may, consistent with its investment objective and subject to the restrictions described in the Prospectus and in the Statement of Additional Information, purchase securities on margin; (6) Lend any funds or other assets, except that a Portfolio may, consistent with its investment objective and policies: (a) invest in debt obligations, even though the purchase of such obligations may be deemed to be the making of loans; (b) enter into repurchase agreements; and (c) lend its portfolio securities in accordance with applicable guidelines established by the Securities and Exchange Commission and any guidelines established by the Board of Trustees; 47 (7) Issue senior securities, except insofar as a Portfolio may be deemed to have issued a senior security by reason of borrowing money in accordance with that Portfolio's borrowing policies, and except, for purposes of this investment restriction, collateral or escrow arrangements with respect to the making of short sales, purchase or sale of futures contracts or related options, purchase or sale of forward currency contracts, writing of stock options, and collateral arrangements with respect to margin or other deposits respecting futures contracts, related options, and forward currency contracts are not deemed to be an issuance of a senior security; (8) Act as an underwriter of securities of other issuers, except, when in connection with the disposition of portfolio securities, a Portfolio may be deemed to be an underwriter under the federal securities laws; (9) With respect to the Equity Income, Fully Managed, Limited Maturity Bond, Hard Assets, Real Estate, All-Growth, Capital Appreciation and Liquid Asset Portfolio, make short sales of securities, except short sales against the box, and except that this restriction shall not apply to the, Hard Assets, All- Growth or Capital Appreciation Portfolio, which may engage in short sales within the limitations described in the Statement of Additional Information; (10) Borrow money or pledge, mortgage, or hypothecate its assets, except that a Portfolio may: (a) borrow from banks, but only if immediately after each borrowing and continuing thereafter there is asset coverage of 300%; and (b) enter into reverse repurchase agreements and transactions in options, futures, options on futures, and forward currency contracts as described in the Prospectus and in the Statement of Additional Information. (The deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a "when-issued" or delayed delivery basis and collateral arrangements with respect to initial or variation margin and other deposits for futures contracts, options on futures contracts, and forward currency contracts will not be deemed to be pledges of a Portfolio's assets); (11) With respect to the Equity Income, Fully Managed, Limited Maturity Bond, Hard Assets, Real Estate, All-Growth, Capital Appreciation, and Liquid Asset Portfolio, invest in securities that are illiquid because they are subject to legal or contractual restrictions on resale, in repurchase agreements maturing in more than seven days, or other securities which in the determination of the Portfolio Manager are illiquid if, as a result of such investment, more than 10% of the total assets of the Portfolio, except for the All-Growth Portfolio, and more than 15% of the total assets (10% for the Capital Appreciation Portfolio) of the Portfolio, (taken at market value at the time of such investment) would be invested in such securities; (12) purchase or sell commodities or commodities contracts (which, for the purpose of this restriction, shall not include foreign currency or forward foreign currency contracts), except: (a) any Portfolio may engage in interest rate futures contracts, stock index futures contracts, futures contracts based on other financial instruments, and on options on such futures contracts; (b) the Equity Income and Strategic Equity Portfolio may engage in futures contracts on gold; and (d) this restriction shall not apply to the Managed Global and the Hard Assets Portfolio. (13) With respect to all Portfolios except the Managed Global Portfolio, invest in puts, calls, straddles, spreads, or any combination thereof, provided that this restriction does not apply to puts that are a feature of variable or floating rate securities or to puts that are a feature of other corporate debt securities, and except that any Portfolio may engage in transactions in options, futures contracts, and options on futures. FOR THE TOTAL RETURN PORTFOLIO, RESEARCH PORTFOLIO, MID-CAP GROWTH PORTFOLIO AND GLOBAL FIXED INCOME PORTFOLIO: A Portfolio may not: 48 (1) With respect to 75% of its total assets, purchase the securities of any issuer if such purchase would cause more than 5% of the value of a Portfolio total assets to be invested in securities of any one issuer (except securities issued or guaranteed by the U.S. Government or any agency or instrumentality thereof), or purchase more than 10% of the outstanding voting securities of any one issuer; provided that this restriction shall not apply to the Global Fixed Income Portfolio or the Mid-Cap Growth Portfolio; (2) invest more than 25% of the value of the Portfolio total assets in the securities of companies engaged in any one industry (except securities issued by the U.S. Government, its agencies and instrumentalities); (3) borrow money except from banks as a temporary measure for extraordinary or emergency purposes or by entering into reverse repurchase agreements (each Portfolio of the Trust is required to maintain asset coverage (including borrowings) of 300% for all borrowings), except Global Fixed Income Portfolio may also borrow to enhance income; (4) make loans to other persons, except loans of portfolio securities and except to the extent that the purchase of debt obligations in accordance with its investment objectives and policies or entry into repurchase agreements may be deemed to be loans; (5) purchase or sell any commodity contract, except that each Portfolio may purchase and sell futures contracts based on debt securities, indexes of securities, and foreign currencies and purchase and write options on securities, futures contracts which it may purchase, securities indexes, and foreign currencies and purchase forward contracts. (Securities denominated in gold or other precious metals or whose value is determined by the value of gold or other precious metals are not considered to be commodity contracts.) The Mid-Cap Growth, Research and Total Return Portfolio reserve the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts acquired as a result of the ownership of securities. The Mid-Cap Growth, Research and Total Return Portfolio will not purchase securities for the purpose of acquiring real estate or mineral leases, commodities or commodity contracts (except for options, futures contracts, options on futures contracts and forward contracts). (6) underwrite securities of any other company, although it may invest in companies that engage in such businesses if it does so in accordance with policies established by the Trust's Board of Trustees, and except to the extent that the Portfolio may be considered an underwriter within the meaning of the Securities Act of 1933, as amended, in the disposition of restricted securities; (7) purchase or sell real estate, although it may purchase and sell securities which are secured by or represent interests in real estate, mortgage-related securities, securities of companies principally engaged in the real estate industry and participation interests in pools of real estate mortgage loans, and it may liquidate real estate acquired as a result of default on a mortgage; and (8) issue any class of securities which is senior to a Portfolio shares of beneficial interest except as permitted under the Investment Company Act of 1940 or by order of the SEC. FOR THE GROWTH PORTFOLIO: The Portfolio may not: (1) purchase or sell commodities or commodity contracts, or interests in oil, gas, or other mineral leases, or other mineral exploration or development programs, although it may invest in companies that engage in such businesses to the extent otherwise permitted by the Portfolio investment policies and restrictions and by applicable law, except as required in connection with otherwise permissible options, futures and commodity activities as described elsewhere this Statement; 49 (2) purchase or sell real estate, although it may invest in securities secured by real estate or real estate interests, or issued by companies, including real estate investment trusts, that invest in real estate or real estate interests; (3) make short sales or purchases on margin, although it may obtain short-term credit necessary for the clearance of purchases and sales of its portfolio securities and except as required in connection with permissible options, futures, short selling and leverage activities as described elsewhere in the Prospectus and this Statement (the short sale restriction is non-fundamental); (4) with respect to 75% of its total assets, invest in the securities of any one issuer (other than the U.S. Government and its agencies and instrumentalities) if immediately after and as a result of such investment more than 5% of the total assets of a Portfolio would be invested in such issuer. There are no limitations with respect to the remaining 25% of its total assets, except to the extent other investment restrictions may be applicable. (5) mortgage, hypothecate, or pledge any of its assets as security for any of its obligations, except as required for otherwise permissible borrowings (including reverse repurchase agreements), short sales, financial options and other hedging activities; (6) make loans to other persons, except loans of portfolio securities and except to the extent that the purchase of debt obligations in accordance with its investment objectives and policies or entry into repurchase agreements may be deemed to be loans; (7) borrow money, except from banks for temporary or emergency purposes or in connection with otherwise permissible leverage activities, and then only in an amount not in excess of 5% of the Portfolio total assets (in any case as determined at the lesser of acquisition cost or current market value and excluding collateralized reverse repurchase agreements); (8) underwrite securities of any other company, although it may invest in companies that engage in such businesses if it does so in accordance with policies established by the Trust's Board of Trustees, and except to the extent that the Portfolio may be considered an underwriter within the meaning of the Securities Act of 1933, as amended, in the disposition of restricted securities; (9) invest more than 25% of the value of the Portfolio total assets in the securities of companies engaged in any one industry (except securities issued by the U.S. Government, its agencies and instrumentalities); (10) issue senior securities, as defined in the 1940 Act, except that this restriction shall not be deemed to prohibit the Portfolio from making any otherwise permissible borrowings, mortgages or pledges, or entering into permissible reverse repurchase agreements, and options and futures transactions; (11) own, directly or indirectly, more than 25% of the voting securities of any one issuer or affiliated person of the issuer; and (12) purchase the securities of other investment companies, except as permitted by the 1940 Act or as part of a merger, consolidation, acquisition of assets or similar reorganization transaction. FOR THE GROWTH & INCOME PORTFOLIO: The Portfolio may not: (1) issue any class of securities which is senior to the Portfolio shares of beneficial interest, except that the Portfolio may borrow money to the extent contemplated by Restriction 3 below; (2) purchase securities on margin (but a Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions). (Margin payments or other arrangements in connection with transactions in short sales, futures contracts, options, and other financial instruments are not considered to constitute the purchase of securities on margin for this purpose); 50 (3) borrow more than one-third of the value of its total assets less all liabilities and indebtedness (other than such borrowings) not represented by senior securities; (4) underwrite securities of any other company, although it may invest in companies that engage in such businesses if it does so in accordance with policies established by the Trust's Board of Trustees, and except to the extent that the Portfolio may be considered an underwriter within the meaning of the Securities Act of 1933, as amended, in the disposition of restricted securities; (5) as to 75% of the Portfolio total assets, purchase any security (other than obligations of the U.S. Government, its agencies or instrumentalities) if as a result: (i) more than 5% of the Portfolio total assets (taken at current value) would then be invested in securities of a single issuer, or (ii) more than 25% of the Portfolio total assets (taken at current value) would be invested in a single industry; (6) invest in securities of any issuer if any officer or Trustee of the Trust or any officer or director of the Portfolio Manager owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers, Trustees and directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer; and (7) make loans to other persons, except loans of portfolio securities and except to the extent that the purchase of debt obligations in accordance with its investment objectives and policies or entry into repurchase agreements may be deemed to be loans. FOR THE GROWTH OPPORTUNITIES AND DEVELOPING WORLD PORTFOLIO: A Portfolio may not: (1) With respect to 75% of its total assets, invest in the securities of any one issuer (other than the U.S. Government and its agencies and instrumentalities) if immediately after and as a result of such investment more than 5% of the total assets of a Portfolio would be invested in such issuer. There are no limitations with respect to the remaining 25% of its total assets, except to the extent other investment restrictions may be applicable. (2) Make loans to others, except (a) through the purchase of debt securities in accordance with its investment objective and policies, (b) through the lending of up to 30% of its portfolio securities as described above and in its Prospectus, or (c) to the extent the entry into a repurchase agreement or a reverse dollar roll transaction is deemed to be a loan. (3) (a) Borrow money, except for temporary or emergency purposes from a bank, or pursuant to reverse repurchase agreements or dollar roll transactions for a Portfolio that uses such investment techniques and then not in excess of one- third of the value of its total assets (at the lower of cost or fair market value). Any such borrowing will be made only if immediately thereafter there is an asset coverage of at least 300% of all borrowings (excluding any fully collateralized reverse repurchase agreements and dollar roll transactions the Portfolio may enter into), and no additional investments may be made while any such borrowings are in excess of 10% of total assets. (b) Mortgage, pledge or hypothecate any of its assets except in connection with permissible borrowings and permissible forward contracts, futures contracts, option contracts or other hedging transactions. (4) Except as required in connection with permissible hedging activities, purchase securities on margin or underwrite securities. (This does not preclude a Portfolio from obtaining such short-term credit as may be necessary for the clearance of purchases and sales of its portfolio securities.) (5) Buy or sell real estate or commodities or commodity contracts; however, a Portfolio, to the extent not otherwise prohibited in the Prospectus or this Statement of Additional Information, may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, including real estate investment trusts, and may purchase or sell currencies 51 (including forward currency exchange contracts), futures contracts and related options generally as described in the Prospectus and this Statement of Additional Information. (6) Invest in securities of other investment companies, except to the extent permitted by the Investment Company Act and discussed in the Prospectus or this Statement of Additional Information, or as such securities may be acquired as part of a merger, consolidation or acquisition of assets. (7) Invest more than 25% of the value of the Portfolio total assets in the securities of companies engaged in any one industry (except securities issued by the U.S. Government, its agencies and instrumentalities); (8) Issue senior securities, as defined in the Investment Company Act, except that this restriction shall not be deemed to prohibit a Portfolio from (a) making any permitted borrowings, mortgages or pledges, or (b) entering into permissible repurchase and dollar roll transactions. (9) Invest in commodities, except for futures contracts or options on futures contracts if, as a result thereof, more than 5% of a Portfolio's total assets (taken at market value at the time of entering into the contract) would be committed to initial deposits and premiums on open futures contracts and options on such contracts. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS FOR THE RISING DIVIDENDS PORTFOLIO, EMERGING MARKETS PORTFOLIO, VALUE EQUITY PORTFOLIO, STRATEGIC EQUITY PORTFOLIO, SMALL CAP PORTFOLIO, MANAGED GLOBAL PORTFOLIO AND MARKET MANAGER PORTFOLIO: A Portfolio may not: (1) Make short sales of securities, except short sales against the box (this restriction shall not apply to the Strategic Equity, Small Cap, and Managed Global Portfolio, which may make short sales within the limitations described in the Prospectus and elsewhere in this Statement of Additional Information); and (2) Invest in securities that are illiquid because they are subject to legal or contractual restrictions on resale, in repurchase agreements maturing in more than seven days, or other securities which in the determination of the Portfolio Manager are illiquid if, as a result of such investment, more than 15% of the net assets of the Portfolio (taken at market value at the time of such investment) would be invested in such securities. FOR THE MANAGED GLOBAL PORTFOLIO: The Portfolio may not: Purchase or sell commodities or commodities contracts (which, for the purpose of this restriction, shall not include foreign currency or forward foreign currency contracts or futures contracts on currencies), except that the Portfolio may engage in interest rate futures contracts, stock index futures contracts, futures contracts based on other financial instruments, and in options on such futures contracts. FOR THE TOTAL RETURN PORTFOLIO, RESEARCH PORTFOLIO, MID-CAP GROWTH PORTFOLIO AND GLOBAL FIXED INCOME PORTFOLIO: A Portfolio may not: (1) invest more than 10% (except 15% with respect to the Global Fixed Income Portfolio, Mid-Cap Growth Portfolio and Total Return Portfolio) of the net assets of a Portfolio (taken at market value) in illiquid securities, including repurchase agreements maturing in more than seven days; (2) purchase securities on margin, except such short-term credits as may be necessary for the clearance of purchases and sales of securities, and except that it may make margin payments in connection with 52 options, futures contracts, options on futures contracts and forward foreign currency contracts and in connection with swap agreements; (3) make short sales of securities unless such Portfolio owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short; and (4) make investments for the purpose of gaining control of a company's management. FOR THE GROWTH PORTFOLIO: The Portfolio may not invest, in the aggregate, more than 10% of its net assets in illiquid securities. FOR THE GROWTH & INCOME PORTFOLIO: The Portfolio may not: (1) invest in warrants (other than warrants acquired by the Portfolio as a part of a unit or attached to securities at the time of purchase) if, as a result, such investment (valued at the lower of cost or market value) would exceed 5% of the value of the Portfolio net assets, provided that not more than 2% of the Portfolio net assets may be invested in warrants not listed on the New York or American Stock Exchanges; (2) purchase or sell commodities or commodity contracts, except that the Portfolio may purchase or sell financial futures contracts, options on financial futures contracts, and futures contracts, forward contracts, and options with respect to foreign currencies, and may enter into swap transactions; (3) purchase securities restricted as to resale if, as a result, (i) more than 10% of the Portfolio total assets would be invested in such securities, or (ii) more than 5% of the Portfolio total assets (excluding any securities eligible for resale under Rule 144A under the Securities Act of 1933) would be invested in such securities; (4) invest in (a) securities which at the time of such investment are not readily marketable, (b) securities restricted as to resale, and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of the Portfolio net assets (taken at current value) would then be invested in the aggregate in securities described in (a), (b), and (c) above; (5) invest in securities of other registered investment companies, except by purchases in the open market involving only customary brokerage commissions and as a result of which not more than 5% of its total assets (taken at current value) would be invested in such securities, or except as part of a merger, consolidation, or other acquisition; (6) invest in real estate limited partnerships; (7) purchase any security if, as a result, the Portfolio would then have more than 5% of its total assets (taken at current value) invested in securities of companies (including predecessors) less than three years old; (8) purchase or sell real estate or interests in real estate, including real estate mortgage loans, although it may purchase and sell securities which are secured by real estate and securities of companies, including limited partnership interests, that invest or deal in real estate and it may purchase interests in real estate investment trusts. (For purposes of this restriction, investments by a Portfolio in mortgage-backed securities and other securities representing interests in mortgage pools shall not constitute the purchase or sale of real estate or interests in real estate or real estate mortgage loans.); (9) make investments for the purpose of exercising control or management; 53 (10) invest in interests in oil, gas or other mineral exploration or development programs or leases, although it may invest in the common stocks of companies that invest in or sponsor such programs; (11) acquire more than 10% of the voting securities of any issuer; (12) invest more than 15%, in the aggregate, of its total assets in the securities of issuers which, together with any predecessors, have a record of less than three years continuous operation and securities restricted as to resale (including any securities eligible for resale under Rule 144A under the Securities Act of 1933); or (13) purchase or sell puts, calls, straddles, spreads, or any combination thereof, if, as a result, the aggregate amount of premiums paid or received by the Portfolio in respect of any such transactions then outstanding would exceed 5% of its total assets. FOR THE GROWTH OPPORTUNITIES AND DEVELOPING WORLD PORTFOLIO: A Portfolio may not: (1) Invest, in the aggregate, more than 15% of its net assets in illiquid securities, including (under current SEC interpretations) restricted securities (excluding liquid Rule 144A-eligible restricted securities), securities which are not otherwise readily marketable, repurchase agreements that mature in more than seven days and over-the-counter options (and securities underlying such options) purchased by a Portfolio. (2) Invest in any issuer for purposes of exercising control or management of the issuer. (3) Except as described in the Prospectus and this Statement of Additional Information, acquire or dispose of put, call, straddle or spread options subject to the following conditions (a) such options are written by other persons, and (b) the aggregate premiums paid on all such options which are held at any time do not exceed 5% of the Portfolio's total assets. (4) Except as described in the Prospectus and this Statement of Additional Information, engage in short sales of securities. (5) Purchase more than 10% of the outstanding voting securities of any one issuer. If a percentage restriction is adhered to at the time of investment, a subsequent increase or decrease in a percentage resulting from a change in the values of assets will not constitute a violation of that restriction, except as otherwise noted. MANAGEMENT OF THE TRUST The business and affairs of the Trust are managed under the direction of the Board of Trustees according to the applicable laws of the Commonwealth of Massachusetts and the Trust's Agreement and Declaration of Trust. The Trustees are R. Brock Armstrong, Barnett Chernow, J. Michael Earley, R. Barbara Gitenstein, Robert A. Grayson, Elizabeth J. Newell, Stanley B. Seidler, and Roger B. Vincent. The Executive Officers of the Trust are R. Brock Armstrong, Barnett Chernow, Myles R. Tashman, and Mary Bea Wilkinson. 54 Trustees and Executive Officers of the Trust, their business addresses, and principal occupations during the past five years are: NAME AND ADDRESS POSITION BUSINESS AFFILIATIONS AND WITH THE PRINCIPAL OCCUPATIONS TRUST R. Brock Armstrong Trustee, President and Chairman of the GCG Golden American Life President and Trust since February 1999. Director Insurance Cpompany; Chairman of Golden American Life Insurance Company 1475 Dunwoody Drive the GCG Trust and President of Equitable Life West Chester, PA 19380 Insurance Company of Iowa since April, 1999. Director and Chairman of the Board of First Golden American Life Insurance Company of New York since December 1998, Groupd Executive of ING Group since October 1998. Senior Vice President, Individual Insurance, The Prudential Insurance Company of America, April 1997 - February 16, 1999; Executive Vice President, Operation, London Life Insurance Co., Executive Vice President, Life and Health Operations, London Insurance Group, Chairman, Security First Group, Chairman, Security First Group; 1994 to April 1997 Executive Vice President, U.S. Insurance Operations, President and Chief Executive Officer, Security First Group, 1991 to 1994. Age 52. Barnett Chernow Vice Executive Vice President, Golden American Life President Golden American Life Insurance Co. Trustee Insurance Company; Executive 1001 Jefferson Street Vice President, Directed Wilmington, DE 19801 Services, Inc.; Executive Vice President, First Golden American Life Insurance Company of New York. Age 49. J. Michael Earley Trustee President, and Chief 665 Locust Street Executive Officer, Bankers Des Moines, IA 50309 Trust Company, Des Moines, Iowa since July 1992. Age 53. R. Barbara Gitenstein Trustee President, The College of New Jersey The College of New Jersey since January, 1999; Trustee Provost, 200 Pennington Road Drake Office of the President Ewing, NJ 08628 University from July 1992 to December 1998. Age 50. 55 Robert A. Grayson Trustee Co-founder, Grayson Grayson Associates Associates, Inc.; Adjunct 108 Loma Media Road Professor of Marketing, New Santa Barbara, CA York University School of Business Administration; former Director, The Golden Financial Group, Inc.; 93103 former Senior Vice President, David & Charles Advertising. Age 71. Myles R. Tashman Secretary Executive Vice President, Golden American Life Secretary and General Counsel, Insurance Co. Golden American Life Insurance 1475 Dunwoody Drive Company since 1993; Director, West Chester, PA 19380 Gold American Life since 1998; Executive Vice President, Secretary and General Counsel, Directed Services, Inc. since 1993; Director, Executive Vice President, Secretary and General Counsel, First Golden American Life Insurance Company of New York. Age 55. Stanley B. Seidler Trustee President, Iowa Periodicals, P.O. Box. 1297 Inc. since 1990 and 3301 McKinley Avenue President, Excell Marketing Des Moines, IA 50321 L.C. since 1994. Age 70. Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer, Golden American Life First Golden American Life Insurance Insurance Co. Company of New York since 1996; Senior 1475 Dunwoody Drive Vice President and Treasurer, Golden West Chester, PA 19803 American Life Insurance Co.; and President and Treasurer, Directed Services, Inc. October 1993 to December 1996. Age 42. Roger B. Vincent Trustee President, Springwell Springwell Corporation; Director Corporation Petralone, Inc.; formerly, 230 Park Avenue, Managing Director Bankers New York, NY 10169 Trust Company. Age 53. 56 Elizabeth J. Newell Trustee President and Chief KRAGIE/NEWELL, Inc. Executive Officer of 2633 Fleur Drive KRAGIE/NEWELL, Inc. Age 51 Des Moines, IA 50321 As of March 31, 1998, none of the Trustees directly owns shares of the Portfolio. In addition, as of March 31, 1998, the Trustees and Officers as a group owned Variable Contracts that entitled them to give voting instructions with respect to less than one percent of the outstanding shares of each Portfolio in the aggregate. Each Trustee of the Trust who is not an interested person of the Trust or Manager or Portfolio Manager receives a fee of $6,000 for each Trustees' meeting attended and any expenses incurred in attending such meetings or carrying out their responsibilities as Trustees of the Trust. With respect to the period ended December 31, 1998, the Trust paid Trustees' Fees aggregating $151,000. The following table shows 1998 compensation by Trustee. COMPENSATION TABLE
(1) (2) (3) (4) (5) Pension or Total Aggregate Retirement Estimated Compensation Compensation Benefits Accrued Annual From Registrant Name of Person, From As Part of Fund Benefits Upon and Fund Complex Position Registrant Expenses Retirement Paid to Trustees J. Michael Earley, $ 24,000 N/A N/A $ 24,000 Trustee R. Barbara Gitenstein, $ 24,750 N/A N/A $ 24,750 Trustee Robert A. Grayson $ 24,000 N/A N/A $ 24,000 Trustee Stanley B. Seidler, $ 24,750 N/A N/A $ 24,750 Trustee Elizabeth J. Newell $ 24,000 N/A N/A $ 24,000 Trustee Roger B. Vincent $ 24,000 N/A N/A $ 24,000 Trustee M. Norvell Young $ 6,000 N/A N/A $ 6,000 Trustee*
--------------- * Mr. Young served as a Trustee until his death in February of 1998. The table below lists each Variable Contract Owner who owns a Variable Contract that entitles the owner to give voting instructions with respect to 5% or more of the shares of the Portfolio as of March 31, 1998. The address for each record owner is c/o Golden American Life Insurance Company, 1475 Dunwoody Drive, West Chester, PA 19380- 1478. 57 NAME PORTFOLIO PERCENTAGE - ---- --------- ---------- David & Anita Swann Market Manager 14.76% Charitable Remainder Trust Darald Libby Market Manager 9.21% Charitable Remainder Unit Trust George Berman Market Manager 8.21% Charitable Remainder Trust Sanford Lugar Market Manager 6.58% Ivan DeAnda Growth Opportunities 5.89% In addition, as of December 31, 1998 the General Account of Golden American owned 9.83% of the shares of the Emerging Markets Portfolio, 53.74% of the Growth Opportunities Portfolio; 41.91% of the Developing World Portfolio. THE MANAGEMENT AGREEMENT Directed Services, Inc. ("DSI" or the "Manager") serves as Manager to the Portfolio pursuant to a Management Agreement (the "Management Agreement") between the Manager and the Trust. DSI's address is 1475 Dunwoody Drive, West Chester, PA 19380-1478. DSI is a New York corporation that is a wholly owned subsidiary of Equitable of Iowa Companies, Inc. ("Equitable of Iowa"), which, in turn, is a subsidiary of ING Groep, N.V. ("ING"). DSI is registered with the Securities and Exchange Commission as an investment adviser and a broker-dealer. The Trust currently offers the shares of its operating Portfolios to, among others, separate accounts of Golden American Life Insurance Company ("Golden American") to serve as the investment medium for Variable Contracts issued by Golden American. DSI is the principal underwriter and distributor of the Variable Contracts issued by Golden American. Golden American is a stock life insurance company organized under the laws of the State of Delaware. Prior to December 30, 1993, Golden American was a Minnesota corporation. Golden American is an indirect wholly owned subsidiary of Equitable of Iowa. Pursuant to the Management Agreement, the Manager, subject to the direction of the Board of Trustees, is responsible for providing all supervisory, management, and administrative services reasonably necessary for the operation of the Trust and its Portfolios other than the investment advisory services performed by the Portfolio Managers. These services include, but are not limited to, (i) coordinating for all Portfolios, at the Manager's expense, all matters relating to the operation of the Portfolios, including any necessary coordination among the Portfolio Managers, Custodian, Dividend Disbursing Agent, Portfolio Accounting Agent (including pricing and valuation of the Portfolio's portfolios), accountants, attorneys, and other parties performing services or operational functions for the Trust; (ii) providing the Trust and the Portfolio, at the Manager's expense, with the services of a sufficient number of persons competent to perform such administrative and clerical functions as are necessary to ensure compliance with federal securities laws and to provide effective supervision and administration of the Trust; (iii) maintaining or supervising the maintenance by third parties selected by the Manager of such books and records of the Trust and the Portfolios as may be required by applicable federal or state law; (iv) preparing or supervising the preparation by third parties selected by the Manager of all federal, state, and local tax returns and reports of the Trust relating to the Portfolios required by applicable law; (v) preparing and filing and arranging for the distribution of proxy materials and periodic reports to shareholders of the Portfolios as required by applicable law in connection with the Portfolios; (vi) preparing and arranging for the filing of such registration statements and other documents with the Securities and Exchange Commission and other federal and state regulatory authorities as may be required by applicable law in connection with the Portfolio; (vii) taking such other action with respect to 58 the Trust, as may be required by applicable law, including without limitation the rules and regulations of the SEC and other regulatory agencies; and (viii) providing the Trust at the Manager's expense, with adequate personnel, office space, communications facilities, and other facilities necessary for operation of the Portfolios contemplated in he Management Agreement. Other responsibilities of the Manager are described in the Prospectus. The Manager shall make its officers and employees available to the Board of Trustees and Officers of the Trust for consultation and discussions regarding the supervision and administration of the Portfolio. Pursuant to the Management Agreement, the Manager is authorized to exercise full investment discretion and make all determinations with respect to the day-to-day investment of a Portfolio's assets and the purchase and sale of portfolio securities for one or more Portfolios in the event that at any time no Portfolio Manager is engaged to manage the assets of such Portfolio. The Management Agreement shall continue in effect until October 24, 1999, and from year to year thereafter, provided such continuance after August 13, 1998 is approved annually by (i) the holders of a majority of the outstanding voting securities of the Trust or by the Board of Trustees, and (ii) a majority of the Trustees who are not parties to such Management Agreement or "interested persons" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of any such party. The Management Agreement, dated October 24, 1997, was approved by shareholders at a meeting held on October 9, 1997, and was approved by the Board of Trustees, including the Trustees who are not parties to the Management Agreement or interested persons of such parties, at a meeting held on November 17, 1998. The Management Agreement may be terminated without penalty by vote of the Trustees or the shareholders of the Portfolio or by the Manager, on 60 days' written notice by either party to the Management Agreement, and will terminate automatically if assigned as that term is described in the 1940 Act. Prior to October 24, 1997, DSI served as the manager to the Trust pursuant to a Management Agreement dated August 13, 1996, and prior to August 13, 1996, DSI served as manager to the Trust pursuant to a Management Agreement dated October 1, 1993. Gross fees paid to the Manager under the Management Agreement (pursuant to which the Manager provides all services reasonably necessary for the operation of the Trust) for the fiscal year ended December 31, 1998 were as follows: Equity Income Portfolio-- $2,628,164; Strategic Equity Portfolio--$614,438, Fully Managed Portfolio--$2,036,662; Limited Maturity Bond Portfolio--$554,541; Hard Assets Portfolio--$370,049; Real Estate Portfolio--$738,372; All- Growth Portfolio--$723,616; Capital Appreciation Portfolio-- $2,170,004; Rising Dividends Portfolio--$3,933,978; Emerging Markets Portfolio--$559,306; Liquid Asset Portfolio--$796,602; Value Equity Portfolio--$1,033,315, Small Cap Portfolio--$922,032; Managed Global Portfolio--$1,476,351, and the Market Manager Portfolio--$72,140. The above amounts represent 0.98% as a percentage of average daily net assets for the Equity Income, Strategic Equity, Fully Managed, Hard Assets, Real Estate, All-Growth, Capital Appreciation, Rising Dividends, Value Equity and the Small Cap Portfolios. The above amounts represent 0.59% as a percentage of average daily net assets for the Liquid Assets Portfolio, 0.60% for the Limited Maturity Bond Portfolio, 1.25% for the Managed Global Portfolio, 0.89 % for the Market Manager Portfolio, and 1.75% for the Emerging Markets Portfolio. For the period from August 17, 1998 (commencement of operations) to December 31, 1998, the Mid-Cap Growth Portfolio paid Manager fees of $708,271; the Research Portfolio paid Manager fees of $1,716,605; the Growth Portfolio paid Manager fees of $725,286; the Total Return Portfolio paid Manager fees of $1,372,818; the Growth & Income Portfolio paid Manager fees of $994,126, the Global Fixed Income Portfolio paid Manager fees of $118,137. For the period of June 1, 1998 (commencement of operations) to December 31, 1998 the Growth Opportunities Portfolio paid Manager fees of $78,500, and the Developing World Portfolio paid Manager fees of $94,921 The above Portfolios did not operate for a full year. The Trust paid the Manager an advisory fee at the following annual rates (as a percentage of average net assets of a portfolio or combined assets of the indicated groups of portfolios): 1.60% for the Global Fixed Income Portfolio; 1.00% of the first $250 million, 0.95% of next $400 million, 0.90% of next $450 million, and 0.85% of amounts in excess of 1.1 billion (all of combined assets) for the Total Return, Research and Mid Cap Growth Portfolios; 1.10% of first $250 million 1.05% of next $400 59 million, 1.00% of next $450 million and 0.95% of amounts in excess of 1.1 billion, each for the Growth & Income, Growth and Growth Opportunities Portfolios; 1.75% for the Developing World Portfolio. Gross fees paid to the Manager under the Management Agreement (pursuant to which the Manager provides all services reasonably necessary for the operation of the Trust) for the fiscal year ended December 31, 1997 were as follows: Equity Income Portfolio-- $2,635,937; Strategic Equity Portfolio --$349,342; Fully Managed Portfolio--$1,489,989; Limited Maturity Bond Portfolio--$454,759; Hard Assets Portfolio--$462,391; Real Estate Portfolio--$610,484; All- Growth Portfolio--$730,308; Capital Appreciation Portfolio-- $1,664,222; Rising Dividends Portfolio --$1,794,223; Emerging Markets Portfolio--$845,128; Liquid Asset Portfolio--$289,064; Small Cap Portfolio--$472,567; Value Equity Portfolio--$591,757; Managed Global Portfolio--$1,238,851 and Market Manager Portfolio--63,228. Gross fees paid to the Manager under the Management Agreement (pursuant to which the Manager provides all services reasonably necessary for the operation of the Trust)for the fiscal year ended December 31, 1996 were as follows: Equity Income Portfolio-- $2,892,936; Strategic Equity Portfolio--$195,979; Fully Managed Portfolio--$1,266,104; Limited Maturity Bond Portfolio--$497,345; Hard Assets Portfolio--$362,600; Real Estate Portfolio--$371,844; All- Growth Portfolio--$910,039; Capital Appreciation Portfolio-- $1,335,410; Rising Dividends Portfolio--$989,772; Emerging Markets Portfolio--$791,005; Liquid Asset Portfolio--$240,479; Small Cap Portfolio--$180,699 and Value Equity Portfolio--$379,126. For the period from September 1, 1996 to December 31, 1996 the Managed Global Portfolio paid the Manager fees of $349,038. For the period from January 1 to August 30, 1996 and the fiscal year ended December 31, 1995, the predecessor of the Managed Global Portfolio of the Portfolio paid management fees of $211,615, and $293,930, respectively. PORTFOLIO MANAGERS The Trust, DSI, and each Portfolio Manager entered into Portfolio Management Agreements dated and effective as of October 24, 1997. The Portfolio Management Agreements were approved by the Trustees of the Trust at a meeting held on November 17, 1998 and were approved by shareholders of each Portfolio of the Trust at a meeting held on April 28, 1998. Pursuant to the separate Portfolio Management Agreements, the Manager (and not the Trust) pays each Portfolio Manager for its services a monthly fee at annual rates which are expressed as percentages of the average daily net assets of each Portfolio. For the fiscal year ended December 31, 1998, the Manager (and not the Trust) paid the Portfolio Managers the following amounts: Zweig Advisors Inc.--$ 1,349,052 for the Equity Income Portfolio and-- $315,395 for the Strategic Equity Portfolio, T. Rowe Price Associates, Inc.--$1,045,430 for the Fully Managed Portfolio; ING Investment Management, LLC--$236197 for the Limited Maturity Bond Portfolio, and $186,305 for the Liquid Asset Portfolio; Van Eck Associates Corp.--$189,949 for the Hard Assets Portfolio; Chancellor LGT Asset Management, Inc.--$1,113,876 for the Capital Appreciation Portfolio; Kayne, Anderson Investment Management, L.P.--$2,019,334 for the Rising Dividends Portfolio; EII Realty Securities, Inc.-- $376,011 for the Real Estate Portfolio; Eagle Asset Management, Inc.- - -$530,407 for the Value Equity Portfolio; and Pilgrim Baxter & Associates--$408,580 for the All-Growth Portfolio; Robertson, Stephens & Company Investment Management, L.P.---++$371,191 for the Growth Portfolio and --$490,723 for the ++Growth & Income Portfolio; Putnam Investment Management, Inc.--$319,604 for the Emerging Markets Portfolio; and --$826,757 for the Managed Global Portfolio; Massachusetts Financial Services Company--++$535,501 for the Total Return; and --++$626,679 for the Research Portfolio; and --++$300,581 for the Mid-Cap Portfolio. Baring International Investment Limited-- ++$33,226 for the Global Fixed Income Portfolio; Montgomery Asset Management, LLC --+$36,739 for the Growth Opportunities Portfolio and - --+$47,417 for the Developing World Portfolio; Fred Alger Management, Inc.--$473,285 for the Small Cap Portfolio; and ING Investment Management, LLC, .--$36,070 for the Market Manager Portfolio. ++For the period from August 17, 1998 (commencement of operations) to December 31, 1998. +For the period February 18, 1998 (commencement of operations) to December 31, 1998 60 Van Eck Associate Corp.; Zweig Advisor Inc; Chancellor LGT Asset Management, L. P.; Pilgrim Baxter & Associates; Robertson, Stephens & Company Investment Management, Putnam Investment Management, Inc., and Montgomery Asset Management, LLC. are no longer managers of the GCG Trust Portfolios. A I M Capital Management, Inc. ("AIM") has been the Portfolio Manager of the Capital Appreciation Portfolio since April 1, 1999 and the Strategic Equity Portfolio since March 1, 1999. The Manager pays AIM the following fees for each Portfolio: 0.50% for the first $250 million, 0.45% for the next $250 million and 0.40% on assets over $500 million. Barings International Investment Limited ("Barings") has been the Portfolio Manager of the Hard Assets and Developing World Portfolios since March 1, 1998. The Manager pays Barings 0.90% of assets with respect to the Developing World Portfolio and 0.40% with respect to the Hard Assets Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price") has been the Portfolio Manager of the Equity Income Portfolio since March 1, 1999. The Manager pays T. Rowe Price 0.40% of assets to serve as the Portfolio's manager. Alliance Capital Management L.P. ("Alliance") has been the Portfolio Manger of the Growth & Income Portfolio since April 1, 1999. The Manager pays Alliance 0.75% on the first $10 million, 0.625% on the next $10 million; 0.50% on the next $20 million, 0.375% on the next $20 million and 0.25% of net assets on amounts in excess of $60 million. Janus Capital Corporation ("Janus") has been the Portfolio Manager of the Growth Portfolio since March 1, 1999. The Manager pays Janus 0.55% on the first $100 million, 0.50% on the next $400 million, and 0.45% on amounts in excess of $500 million. The above amounts represent .14% (of daily net assets) for the Liquid Assets Portfolio, .25% for the Limited Bond Maturity Bond Portfolio, .50% for the Equity Income, Fully Managed, Rising Dividends, Value Equity, Strategic Equity, Capital Appreciation, Small Cap, Real Estate and the Hard Assets Portfolios. The amounts represent .55% of net assets for the All-Growth Portfolio, .70% for the Managed Global Portfolio, 2.05% for the Market Manager Portfolio, and 1.75% for the Emerging Markets Portfolio. The Preceding Portfolios were in operation for the full year. For Portfolios that commenced operation in 1998 and did not operate for a full year, the Manager pays the following portfolio management fees (based on the average daily net assets of a portfolio): .45% for the Managed Global Portfolio, .37% for the Total Return Portfolio, .35% for the Research Portfolio, .40% for the Mid Cap Growth Portfolio, .54% for the Growth & Income Portfolio, .90% for the Developing World Portfolio, and .50% for the Growth Opportunities Portfolio. For the fiscal year ending December 31, 1997, the Manager (and not the Trust) paid the Portfolio Managers the following amounts: Zweig Advisors Inc.--$1,339,369 for the Equity Income Portfolio and $200,373 for the Strategic Equity Portfolio; T. Rowe Price Associates, Inc.--$757,091 for the Fully Managed Portfolio; Putnam Investment Management, Inc.--$462,738 for the Emerging Markets Portfolio and $664,883 for the Managed Global Portfolio; Van Eck Associates Corp.--$234,949 for the Hard Assets Portfolio; Chancellor LGT Asset Management Inc. --$845,622 for the Capital Appreciation Portfolio; Kayne Anderson Investment Management, L.P.--$911,678 for the Rising Dividends Portfolio; EII Realty Securities, Inc.--$310,198 for the Real Estate Portfolio; Eagle Asset Management, Inc.--$301,429 for the Value Equity Portfolio; and Pilgrim Baxter & Associated, Ltd.- - - $396,195 for the All-Growth Portfolio; Equitable Investment Services, Inc.--$84,766 for Liquid Assets Portfolio, $198,601 for Limited Maturity Bond Portfolio and $31,614 for Market Manager Portfolio; and Fred Alger Management, Inc.--$240,119 for Small Cap Portfolio. For the fiscal year ended December 31, 1996, the Manager (and not the Trust) paid the Portfolio Managers the following amounts: Zweig Advisors Inc.--$1,458,329 for the Equity Income Portfolio and $98,793 for the Strategic Equity Portfolio; T. Rowe Price Associates, Inc.-- $638,243 for the Fully Managed Portfolio; Bankers Trust Company-- $395,503 for the Emerging Markets Portfolio and $28,992 for the Market Manager Portfolio; Van Eck Associates Corp.--$182,786 for the Hard Assets Portfolio; Chancellor LGT Asset Management Inc. -- $673,180 for the Capital Appreciation Portfolio; Kayne Anderson Investment Management, L.P.--$498,776 for the Rising Dividends Portfolio; EII Realty Securities, Inc.--$187,447 for the Real Estate Portfolio; Eagle Asset Management, Inc. ---$191,117 for the Value Equity Portfolio; and Warburg, Pincus Counsellors, Inc.--$458,750 for the All-Growth Portfolio. For the fiscal period of September 1, 1996 to December 31, 1996 the Manager (and not the Trust) paid Warburg, Pincus Counsellors, Inc. $170,010 on behalf of the Managed Global Portfolio. For the fiscal period 61 January 1, 1996 to August 31, 1996, Warburg, Pincus Counsellors, Inc. received $317,424 from the predecessor of the Managed Global Portfolio. For the fiscal period of January 1, 1996 to August 12, 1996 the Manager paid Bankers Trust Company $44,413 for the Liquid Asset Portfolio and $135,897 for the Limited Maturity Bond Portfolio. For the fiscal period of August 13, 1996 to December 31, 1996 the Manager paid Equitable Investment Services, Inc. $28,206 for the Liquid Asset Portfolio and $79,768 for the Limited Maturity Bond Portfolio. DISTRIBUTION OF TRUST SHARES DSI serves as the Portfolio's Distributor. DSI is not obligated to sell a specific amount of the Portfolio's shares. DSI bears all expenses of providing distribution services including the costs of sales presentations, mailings, advertising, and any other marketing efforts by DSI in connection with the distribution or sale of the shares. PORTFOLIO TRANSACTIONS AND BROKERAGE INVESTMENT DECISIONS Investment decisions for each Portfolio are made by its Portfolio Manager of each Portfolio. Each Portfolio Manager has investment advisory clients other than the Portfolio. A particular security may be bought or sold by a Portfolio Manager for clients even though it could have been bought or sold for other clients at the same time. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, allocated between such clients in a manner deemed fair and reasonable by the Portfolio Manager. Although there is no specified formula for allocating such transactions, the various allocation methods used by the Portfolio Manager, and the results of such allocations, are subject to periodic review by the Trust's Manager and Board of Trustees. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. The Portfolio Manager for a Portfolio may receive research services from many broker-dealers with which the Portfolio Manager places the Portfolio's portfolio transactions. These services, which in some cases may also be purchased for cash, include such matters as general economic and security market reviews, industry and company reviews, evaluations of securities, and recommendations as to the purchase and sale of securities. Some of these services may be of value to the Portfolio Manager and its affiliates in advising its various clients (including the Portfolio), although not all of these services are necessarily useful and of value in managing a Portfolio. BROKERAGE AND RESEARCH SERVICES The Portfolio Manager for a Portfolio places all orders for the purchase and sale of portfolio securities, options, and futures contracts for a Portfolio through a substantial number of brokers and dealers or futures commission merchants. In executing transactions, the Portfolio Manager will attempt to obtain the best execution for a Portfolio taking into account such factors as price (including the applicable brokerage commission or dollar spread), size of order, the nature of the market for the security, the timing of the transaction, the reputation, experience and financial stability of the broker- dealer involved, the quality of the service, the difficulty of execution and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. In transactions on stock exchanges in the United States, payments of brokerage commissions are negotiated. In effecting purchases and sales of portfolio securities in transactions on United States stock exchanges for the account of the Trust, the Portfolio Manager may pay higher commission rates than the lowest available when the Portfolio Manager believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction, as described below. In the case of securities traded on some foreign stock exchanges, brokerage commissions may be fixed and the Portfolio Manager may be unable to negotiate commission rates for these transactions. In the case of securities traded on the over-the- counter markets, there is generally no stated commission, but the price includes an undisclosed commission or markup. There is generally no stated commission in the case of fixed income securities, which are generally traded in the over-the-counter markets, but the price paid by the Portfolio usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Portfolio includes a disclosed, fixed commission or discount retained by the underwriter or dealer. Transactions on U.S. stock exchanges and other agency transactions involve 62 the payment by the Portfolio of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive research services from broker- dealers which execute portfolio transactions for the clients of such advisers. Consistent with this practice, the Portfolio Manager for a Portfolio may receive research services from many broker-dealers with which the Portfolio Manager places the Portfolio's portfolio transactions. These services, which in some cases may also be purchased for cash, include such matters as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities. Some of these services may be of value to the Portfolio Manager and its affiliates in advising its various clients (including the Portfolio), although not all of these services are necessarily useful and of value in managing a Portfolio. The advisory fee paid by the Portfolio to the Portfolio Manager is not reduced because the Portfolio Manager and its affiliates receive such services. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager may cause a Portfolio to pay a broker- dealer, which provides "brokerage and research services" (as defined in the Act) to the Portfolio Manager, a disclosed commission for effecting a securities transaction for the Portfolio in excess of the commission which another broker-dealer would have charged for effecting that transaction. A Portfolio Manager may place orders for the purchase and sale of exchange-listed portfolio securities with a broker-dealer that is an affiliate of the Portfolio Manager where, in the judgment of the Portfolio Manager, such firm will be able to obtain a price and execution at least as favorable as other qualified brokers. Pursuant to rules of the Securities and Exchange Commission, a broker-dealer that is an affiliate of the Manager or a Portfolio Manager or, if it is also a broker-dealer, the Portfolio Manager may receive and retain compensation for effecting portfolio transactions for a Portfolio on a national securities exchange of which the broker- dealer is a member if the transaction is "executed" on the floor of the exchange by another broker which is not an "associated person" of the affiliated broker-dealer or Portfolio Manager, and if there is in effect a written contract between the Portfolio Manager and the Trust expressly permitting the affiliated broker-dealer or Portfolio Manager to receive and retain such compensation. The Portfolio Management Agreements provide that each Portfolio Manager may retain compensation on transactions effected for a Portfolio in accordance with the terms of these rules. Securities and Exchange Commission rules further require that commissions paid to such an affiliated broker-dealer or Portfolio Manager by a Portfolio on exchange transactions not exceed "usual and customary brokerage commissions." The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Board of Trustees has adopted procedures for evaluating the reasonableness of commissions paid to broker-dealers that are affiliated with Portfolio Managers or to Portfolio Managers that are broker-dealers and will review these procedures periodically, Zweig Securities Corp., Robertson Stephens Securities Corp., Raymond James & Associates, Inc., and Fred Alger & Company, Incorporated Montgomery Securities, Inc. are registered broker-dealers, and each is an affiliate of a Portfolio Manager. Barings Securities Corporation, Furman Selz Securities Corp. and ING Securities are also registered broker-dealers and each is an affiliate of Directed Services, Inc. the Manager to the CGC Trust. Certain affiliates of Robert Fleming Holdings Limited and Jardine Fleming Group Limited are broker-dealers affiliated with T. Rowe Price Associates, Inc. Any of the above firms may retain compensation on transactions effected for a Portfolio in accordance with these rules and procedures. For the fiscal year ended December 31, 1998, the Equity Income Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio, Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio, Real Estate Portfolio, Capital Appreciation Portfolio, Rising Dividends Portfolio, Value Equity Portfolio, All-Growth Portfolio, Small Cap Portfolio, Developing World Portfolio, Growth Opportunities Portfolio, Mid-Cap Growth Portfolio, Global Fixed Income Portfolio, Growth & Income Portfolio, 63 Growth Portfolio, Research Portfolio, Total Return Portfolio and Managed Global Portfolio paid brokerage commissions of $263,419, $170,714, $202,689, $0, $190,071, $0, $0, $282,693, $104,920, $365,400, $583,931, $490,592, $204,680, $266,848, $36,384, $24,964, $200,333, $0, $612,148, $330,923, $468,656, $189,846, $636,858, respectively. The Equity Income Portfolio paid brokerage commissions of $568 (.22% of its total brokerage commissions) to Barings Securities Corporation, $30,928 (11.74% of its total brokerage commissions) to Zweig Securities Corp., $2484 (0.88% of its total brokerage commissions) to Raymond James & Associates. The All-Growth Portfolio paid brokerage commissions of $978 (0.48% of its total brokerage commissions) to Furman Selz Securities Corp.. The Value Equity Portfolio paid brokerage commissions of $1,032 (0.21 % of its total brokerage commissions) to Furman Selz Securities Corp. and $12,768 (2.60% of its total brokerage commissions) to Raymand James & Associates. The Capital Appreciation Portfolio is paid $9,000 (2.97% of its brokerage commissions) to Furman Selz. The Emerging Markets Portfolio paid $5,638 (2.97% of its total brokerage commissions) to Barings Securities Corporation and $611 (0.48% of its brokerage commissions) to ING Securities. The Managed Global Portfolio paid $1,041 (0.16% of its total commissions) to Barings Securities and $55 (0.01% of its total commissions) to ING Securities. The Fully Managed Portfolio paid $225 (0.11% of its total brokerage commissions) to Furman Selz Securities. The Real Estate Portfolio paid $1,344 (1.28% of its brokerage commissions) to Furman Selz Securities. The Strategic Equity Portfolio paid $160 (0.09% of its total brokerage commissions) to Zweig Securities Corp. The Growth & Income Portfolio paid $4.404 (0.72% of its total commissions) to Furman Selz Securities and $70,671 (11.54% of its total brokerage commissions) to Robertson Stephens Securities Corp. The Growth Opportunities Portfolio paid $78 (0.31% of its total brokerage commissions) to Furman Selz Securities. The Growth Portfolio paid $6,624 (2.00% of its total brokerage commissions) to Furman Selz Securities and $4,963 (1.50% of its total brokerage commissions) to Robertson Stephens Securities Corp. The Small-Cap Portfolio paid $262,004 (98.18% of its total brokerage commissions) to Fred Alger & Company. For the fiscal year ended December 31, 1997, the Equity Income Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio, Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio, Real Estate Portfolio, Capital Appreciation Portfolio, Rising Dividends Portfolio, Value Equity Portfolio, Managed Global Portfolio, All-Growth Portfolio and Small Cap Portfolio paid brokerage commissions of $315,130, $82,710, $113,636, $0, $614,405, $0, $0, $249,483, $112,726, $174,820, $163,515, $219,706, $811,015, $231,719, and $150,934, respectively. The Equity Income Portfolio and Strategic Equity Portfolio paid brokerage commissions of $33,263 and $1,788 (10.55% and 2.16% of its total brokerage commissions), respectively, to Zweig Securities. The Value Equity Portfolio paid brokerage commissions of $13,239 (6.03% of its total brokerage commissions) to Raymond James & Associates, Inc. The Hard Assets Portfolio paid brokerage commissions of $900 (0.36% of its total brokerage commissions) to Raymond James & Associates, Inc. The Small Cap Portfolio paid brokerage commissions of $150,041 (99.41% of its total brokerage commissions) to Fred Alger. For the fiscal year ended December 31, 1996, the Equity Income Portfolio, Strategic Equity Portfolio, Fully Managed Portfolio, Limited Maturity Bond Portfolio, Emerging Markets Portfolio, Liquid Asset Portfolio, Market Manager Portfolio, Hard Assets Portfolio, Real Estate Portfolio, Capital Appreciation Portfolio, Rising Dividends Portfolio, Value Equity Portfolio, Managed Global Portfolio, and All-Growth Portfolio paid brokerage commissions of $472,297, $55,015, $127,213, $0, $541,589, $0, $0, $138,086, $52,435, $188,794, $72,044, $121,872,$191,843, and $333,960, respectively. The Equity Income Portfolio paid brokerage commissions of $42,834 (9.07% of its total brokerage commissions) to Zweig Securities. The Value Equity Portfolio paid brokerage commissions of $2,550 (2.09% of its total brokerage commissions) to Raymond James & Associates, Inc. The Capital Appreciation Portfolio paid brokerage commissions of $1,920 (1.02% of its total brokerage commissions) to Raymond James & Associates, Inc. The Fully Managed Portfolio paid brokerage commissions of $150 (0.12% of its total brokerage commissions) to Raymond James & Associates, Inc. The Hard Assets Portfolio paid brokerage commissions of $150 (0.11% of its total brokerage commissions) to Raymond James & Associates, Inc. The Small Cap Portfolio paid brokerage commissions of $33,058 (78.34% of its total brokerage commissions) to Fred Alger. The Emerging Markets Portfolio paid brokerage commissions of $64,131 and $2,113 (11.84% and 0.39% of its total brokerage commissions) to Jardine 64 Fleming and Robert Fleming, respectively. The Managed Global Portfolio paid brokerage commissions of $3,041 (1.59% of its total brokerage commissions) to Jardine Fleming. The Strategic Equity Portfolio paid brokerage commissions of $435 (0.79% of its total brokerage commissions) to Zweig Securities. Barings Securities Corporation is an affiliate of Barings International Investment Limited, an affiliate of the Manager and Portfolio Manager of the Hard Assets, Developing World and Global Fixed Income Portfolios. Zweig Securities Corp. is an affiliate of Zweig Advisors, Inc., the former Portfolio Manager to the Strategic Equity and Equity Income (formerly, the Multiple Allocation Series) Portfolios. Raymond James & Associates is an affiliate of Eagle asset Management, Inc., Portfolio Manager of the Value Equity Portfolio. Furman Selz Securities Corp. is an affiliate of the Manager, as each is owned by ING Groep. Robertson, Stephens Securities Corp. is an affiliate of Robertson, Stephens & Company Investment Management, LP, the former Portfolio Manager of the Growth Portfolio and the Growth & Income Portfolio. Fred Alger & Company is an affiliate of Fred Alger Management, Inc., Portfolio Manager to the Small Cap Portfolio. Jardine Fleming Securities and Robert Fleming Securities are both affiliates of T. Rowe Price Associates, Inc., Portfolio Manager to the Fully Managed Portfolio since September, 1999 and to the Equity Income Portfolio since March, 1999. The Manager, Directed Services, Inc., is an affiliate of the GCG Trust. NET ASSET VALUE As indicated under "Net Asset Value" in the Prospectuses, the Portfolio's net asset value per share for the purpose of pricing purchase and redemption orders is determined at or about 4:00 P.M., New York City time, on each day the New York Stock Exchange is open for trading, exclusive of federal holidays. The Liquid Asset Portfolio's portfolio securities are valued using the amortized cost method of valuation. This involves valuing a security at cost on the date of acquisition and thereafter assuming a constant accretion of a discount or amortization of a premium to maturity, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Portfolio would receive if it sold the instrument. During such periods the yield to investors in the Portfolio may differ somewhat from that obtained in a similar investment company which uses available market quotations to value all of its portfolio securities. The Securities and Exchange Commission's regulations require the Liquid Asset Portfolio to adhere to certain conditions. The Trustees, as part of their responsibility within the overall duty of care owed to the shareholders, are required to establish procedures reasonably designed, taking into account current market conditions and the Portfolio's investment objectives, to stabilize the net asset value per share as computed for the purpose of distribution and redemption at $1.00 per share. The Trustees' procedures include a requirement to periodically monitor, as appropriate and at such intervals as are reasonable in light of current market conditions, the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will consider what steps should be taken, if any, in the event of a difference of more than 1/2 of 1% between the two. The Trustees will take such steps as they consider appropriate (e.g., selling securities to shorten the average portfolio maturity) to minimize any material dilution or other unfair results which might arise from differences between the two. The Portfolio also is required to maintain a dollar-weighted average portfolio maturity of 90 days or less, to limit its investments to instruments having remaining maturities of 13 months or less (except securities held subject to repurchase agreements having 13 months or less to maturity) and to invest only in securities determined by the Portfolio Manager under procedures established by the Board of Trustees to be of high quality with minimal credit risks. 65 PERFORMANCE INFORMATION The Trust may, from time to time, include the current yield and effective yield of its Liquid Asset Portfolio, the yield of the remaining Portfolios, and the total return of all Portfolios in advertisements or sales literature. In the case of Variable Contracts, performance information for the Portfolio will not be advertised or included in sales literature unless accompanied by comparable performance information for a separate account to which the Portfolio offer their shares. Current yield for Liquid Asset Portfolio will be based on the change in the value of a hypothetical investment (exclusive of capital charges) over a particular seven-day period, less a pro- rata share of Portfolio expenses accrued over that period (the "base period"), and stated as a percentage of the investment at the start of the base period (the "base period return"). The base period return is then annualized by multiplying by 365/7, with the resulting yield figure carried to at least the nearest hundredth of one percent. "Effective yield" for the Liquid Asset Portfolio assumes that all dividends received during an annual period have been reinvested. Calculation of "effective yield" begins with the same "base period return" used in the calculation of yield, which is then annualized to reflect weekly compounding pursuant to the following formula: Effective Yield = [((Base Period Return) + 1) ^ 365/7] - 1 Quotations of yield for the remaining Portfolio will be based on all investment income per share earned during a particular 30-day period (including dividends and interest and calculated in accordance with a standardized yield formula adopted by the Securities and Exchange Commission), less expenses accrued during the period ("net investment income"), and are computed by dividing net investment income by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2 [((a-b)/cd + 1)^6 - 1] where, a = dividends and interest earned during the period, b = expenses accrued for the period (net of reimbursements), c = the average daily number of shares outstanding during the period that were entitled to receive dividends, and d = the maximum offering price per share on the last day of the period. Quotations of average annual total return for a Portfolio will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the Portfolio over certain periods that will include periods of one, five, and ten years (or, if less, up to the life of the Portfolio), calculated pursuant to the following formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). Quotations of total return may also be shown for other periods. All total return figures reflect the deduction of a proportional share of Portfolio expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. For the period of January 3, 1989 (inception of the Trust) to December 31, 1998 and for the five- and one-year periods ended December 31, 1998 the average annual total return for each Portfolio was as follows: 9.75%, 10.21% and 8.26% for the Equity Income Portfolio; 9.02%, 9.73%, and 9.02% for the Fully Managed Portfolio; 6.80%, 5.59%, and 6.86% for the Limited Maturity Bond Portfolio; 5.93%, 4.72%, and 9.52% for the All-Growth Portfolio; 9.65%, 12.26%, and (13.45)% for the Real Estate Portfolio; 5.11%, 2.48%, and (29.58)% for the Hard Assets Portfolio; and 5.15%, 4.88%, and 5.13% for the Liquid Asset Portfolio. For the period of May 4, 1992 (inception of the Capital Appreciation Portfolio) to December 31, 1998 and for the five- and one-year period ended December 31, 1997, the average total return for the Capital Appreciation Portfolio was 16.00%, 17.48%, and 12.68%. For the period of October 1, 1993 (inception of the Rising Dividends and Emerging Markets Portfolio) to December 31, 1998 and for the five-year and one-year periods ended December 31, 1998, the average total return 66 for the Rising Dividends Portfolio was 18.47% and 18.70% and 14.13% and the average annual total return for the Emerging Markets Portfolio was (6.58)% and (10.86)%. and (24.09). For the period of November 14, 1994 (inception of the Market Manager Portfolio) to December 31, 1997 and for the one-year period ended December 31, 1998, the average total return for the Market Manager Portfolio was 24.60% and 24.55%. For the period of January 1, 1995 (inception of the Value Equity Portfolio) to December 31, 1998 and for the one-year period ended December 31, 1998, the average total return for the Value Equity Portfolio was 17.96% and 1.55%. For the period of October 2, 1995 (inception of the Strategic Equity Portfolio) to December 31, 1998 and for the one-year period ended December 31, 1998, the average total return for the Strategic Equity Portfolio was 13.02% and 0.84%. For the period ended January 3, 1996 (inception for the Small Cap Portfolio) to December 31, 1997, and for the one-year period ended December 31, 1998 the total return for the Small Cap Portfolio was 17.07% and 20.98%. The Managed Global Portfolio is a successor to the Managed Global Account of Separate Account D of Golden American. As of September 3, 1996, the investment-related assets of the Managed Global Account of Separate Account D were transferred to a newly created division of Separate Account B of Golden American. Simultaneously, Separate Account B exchanged the investment-related assets for shares of the Managed Global Portfolio, a newly created Portfolio of the Trust. The following information regarding average total return is restated from the Managed Global Account of Separate Account D. The total return figures reflect the deduction of certain expenses, including the management fees, custodian fees, fees of the Board of Governors of Separate Account D, and other expenses. For the period of October 21, 1992 (commencement of operations) to December 31, 1997 and for the five- and one-year period ended December 31, 1998, the average total return for the Managed Global Portfolio was 8.12%, 8.84% and 29.31%, respectively. For the period of August 17, 1998 (commencement of operations) to December 31, 1998, the total return (not annualized) was 16.12% for the Mid-Cap Portfolio; 14.54% for the Research Portfolio; 14.60% for the Growth Portfolio; 6.90% for the Total Return Portfolio; 10.19% for the Growth & Income Portfolio; 7.99% for Global Fixed Income Portfolio; For the period of February 18, 1998 (commencement of operations) to December 31, 1998 the total return (not annualized) was (2.28)% for the Growth Opportunities Portfolio; (26.27)% and for the Developing World Portfolio. Each Portfolio may be categorized as to its market capitalization make-up ("large cap," mid cap" or "small cap") with regard to the market capitalization of the issuers whose securities it holds. A Portfolio average or median market capitalization may also be cited. Certain other statistical measurements may be used to provide measures of a Portfolio's characteristics. Some of these statistical measures include without limitation: median or average P/E ratios, duration and beta. Median and average P/E ratios are measures describing the relationship between the price of a Portfolio's various securities and their earnings per share. Duration is a weighted-average term-to-maturity of the bond's cash flows, the weights being present value of each cash flow as a percentage of the bond's full price. Beta is a historical measure of a portfolio's market risk; a Beta of 1.10 indicates that the portfolio's returns tended to be 10% higher (lower) than the market return during periods in which market returns were positive (negative). Performance information for a Portfolio may be compared, in advertisements, sales literature, and reports to shareholders to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), the Dow Jones Industrial Average ("DJIA"), the Lehman Brothers Government Bond Index, the Donoghue Money Market Institutional Averages, the Lehman Brothers Government Corporate Index, the Salomon High Yield Index, or other indexes that measure performance of a pertinent group of securities, (ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the Portfolio. Unmanaged indexes may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. 67 Reports and promotional literature may also contain other information including (i) the ranking of any Portfolio derived from rankings of mutual funds or other investment products tracked by Lipper Analytical Services, Inc. or by other rating services, companies, publications, or other persons who rank mutual funds or other investment products on overall performance or other criteria, and (ii) the effect of tax deferred compounding on a Portfolio's investment returns, or returns in general, which may by illustrated by graphs, charts, or otherwise, and which may include a comparison, at various points in time, of the return from an investment in a Portfolio (or returns in general) on a tax-deferred basis (assuming one or more tax rates) with the return on a taxable basis. In addition, reports and promotional literature may contain information concerning the Manager, the Portfolio Managers, or affiliates of the Trust, the Manager, or the Portfolio Managers, including (i) performance rankings of other mutual funds managed by a Portfolio Manager, or the individuals employed by a Portfolio Manager who exercise responsibility for the day-to-day management of a Portfolio, including rankings of mutual funds published by Morningstar, Inc., Value Line Mutual Fund Survey, or other rating services, companies, publications, or other persons who rank mutual funds or other investment products on overall performance or other criteria; (ii) lists of clients, the number of clients, or assets under management; and (iii) information regarding services rendered by the Manager to the Trust, including information related to the selection and monitoring of the Portfolio Managers. Reports and promotional literature may also contain a description of the type of investor for whom it could be suggested that a Portfolio is intended, based upon each Portfolio's investment objectives. In the case of Variable Contracts, quotations of yield or total return for a Portfolio will not take into account charges and deductions against any Separate Accounts to which the Portfolio shares are sold or charges and deductions against the life insurance policies or annuity contracts issued by Golden American, although comparable performance information for the Separate Account will take such charges into account. Performance information for any Portfolio reflects only the performance of a hypothetical investment in the Portfolio during the particular time period on which the calculations are based. Performance information should be considered in light of the Portfolio's investment objective or objectives and investment policies, the characteristics and quality of the portfolios, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. TAXES Shares of the Portfolios are offered only to the Separate Accounts that fund Variable Contracts. See the respective prospectuses for the Variable Contracts for a discussion of the special taxation of insurance companies with respect to the Separate Accounts and of the Variable Contracts and the holders thereof. Each Portfolio has qualified, and expects to continue to qualify, for treatment as a regulated investment company (?RIC?) under the Internal Revenue Code of 1986, as amended (the ?Code?). In order to qualify for that treatment, a Portfolio must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income, net short-term capital gain, and net gains from certain foreign currency transactions) (?Distribution Requirement?) and must meet several additional requirements. These requirements include the following (1) the Portfolio must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in securities or those currencies (?Income Requirement?); (2) at the close of each quarter of the Portfolio's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs, and other securities that, with respect to any one issuer, do not exceed 5% of the value of the Portfolio's total assets and that do not represent more than 10% of the outstanding voting securities of the issuer; and (3) at the close of each quarter of the Portfolio's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer. If each Portfolio qualifies as a regulated investment company and distributes to its shareholders substantially all of its net income and net capital gains, then each Portfolio should have little or no income taxable to it under the Code. 68 Each Portfolio must, and intends to also comply with, the diversification requirements imposed by section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements mentioned above, place certain limitations on the proportion of each Portfolio's assets that may be represented by any single investment (which includes all securities of the same issuer). For purposes of section 817(h), all securities of the same issuer, all interests in the same real property project, and all interest in the same commodity are treated as a single investment. In addition, each U.S. Government agency or instrumentality is treated as a separate issuer, while the securities of a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered securities issued by the same issuer. If a Portfolio fails to qualify as a regulated investment company, the Portfolio will be subject to federal, and possibly state, corporate taxes on its taxable income and gains (without any deduction for its distributions to its shareholders) and distributions to its shareholders will constitute ordinary income to the extent of such Portfolio's available earnings and profits. Owners of Variable Contracts which have invested in such a Portfolio might be taxed currently on the investment earnings under their contracts and thereby lose the benefit of tax deferral. In addition, if a Portfolio failed to comply with the diversification requirements of section 817(h) of the Code and the regulations thereunder, owners of Variable Contracts which have invested in the Portfolio could be taxed on the investment earnings under their contracts and thereby lose the benefit of tax deferral. For additional information concerning the consequences of failure to meet the requirements of section 817(h), see the prospectuses for the Variable Contracts. Generally, a RIC must distribute substantially all of its ordinary income and capital gains in accordance with a calendar year distribution requirement in order to avoid a nondeductible 4% excise tax. However, the excise tax does not apply to certain Portfolios whose only shareholders are segregated asset accounts of life insurance companies held in connection with Variable Contracts. To avoid the excise tax, each Portfolios that does not qualify for this exemption intends to make its distributions in accordance with the calendar year distribution requirement. The use of hedging strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward contracts, involves complex rules that will determine for income tax purposes the character and timing of recognition of the income received in connection therewith by the Portfolios. Income from the disposition of foreign currencies (except certain gains therefrom that may be excluded by future regulations); and income from transactions in options, futures, and forward contracts derived by a Portfolio with respect to its business of investing in securities or foreign currencies, are expected to qualify as permissible income under the Income Requirement. Foreign Investments -- Portfolios investing in foreign securities or currencies include may be required to pay withholding, income or other taxes to foreign governments or U.S. possession. Foreign tax withholding from dividends and interest, if any, is generally at a rate between 10% and 35%. The investment yield of any Portfolio that invests in foreign securities or currencies is reduced by these foreign taxes. Owners of Variable Contracts investing in such Portfolios bear the cost of any foreign taxes but will not be able to claim a foreign tax credit or deduction for these foreign taxes. Tax conventions between certain countries and the United States may reduce or eliminate these foreign taxes, however, and foreign countries generally do not impose taxes on capital gains in respect of investments by foreign investors. The Portfolios listed above may invest in securities of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. A Portfolio investing in securities of PFICs may be subject to U.S. Federal income taxes and interest charges, which would reduce the investment yield of a Portfolio making such investments. Owners of Variable Contracts investing in such Portfolios would bear the cost of these taxes and interest charges. In certain cases, a Portfolio may be eligible to make certain elections with respect to securities of PFICs which could reduce taxes and interest charges payable by the Portfolio. However, a Portfolio's intention to qualify annually as a regulated investment company may limit a Portfolio's elections with respect to PFIC securities and no assurance can be given that such elections can or will be made. 69 The foregoing is only a general summary of some of the important Federal income tax considerations generally affecting the Portfolios and their shareholders. No attempt is made to present a complete explanation of the Federal tax treatment of each Portfolio's activities, and this discussion and the discussion in the prospectuses and/or statements of additional information for the Variable Contracts are not intended as a substitute for careful tax planning. Accordingly, potential investors are urged to consult their own tax advisors for more detailed information and for information regarding any state, local, or foreign taxes applicable to the Variable Contracts and the holders thereof. OTHER INFORMATION CAPITALIZATION The Trust is a Massachusetts business trust established under an Agreement and Declaration of Trust dated August 3, 1988, an open-end management investment company and currently consists of twenty-four Portfolios. The twenty-three Portfolios that are discussed in this Statement of Additional Information and accompanying prospectuses and a Portfolio that is described in an additional prospectus and statement of additional information are operational. The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with a par value of $0.001 each. The Board of Trustees may establish additional Portfolios (with different investment objectives and fundamental policies) at any time in the future. Establishment and offering of additional Portfolios will not alter the rights of the Trust's shareholders, the Separate Accounts. When issued in accordance with the terms of the Agreement and Declaration of Trust, shares are fully paid, redeemable, freely transferable, and non-assessable by the Trust. Shares do not have preemptive rights or subscription rights. In liquidation of a Portfolio of the Trust, each shareholder is entitled to receive his or her pro rata share of the net assets of that Portfolio. All of the Trust's Portfolios are diversified with the exception of Global Fixed Income and Mid-Cap Growth. On January 31, 1992, the name of the Trust was changed to The GCG Trust. Prior to that change, the name of the Trust was The Specialty Managers Trust. VOTING RIGHTS Shareholders of the Portfolio are given certain voting rights. Each share of each Portfolio will be given one vote, unless a different allocation of voting rights is required under applicable law for a mutual fund that is an investment medium for variable insurance products. Massachusetts business trust law does not require the Trust to hold annual shareholder meetings, although special meetings may be called for a specific Portfolio, or for the Trust as a whole, for purposes such as electing or removing Trustees, changing fundamental policies, or approving a contract for investment advisory services. The Trust will be required to hold a meeting to elect Trustees to fill any existing vacancies on the Board if, at any time, fewer than a majority of the Trustees have been elected by the shareholders of the Trust. In addition, the Agreement and Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares or other voting interests of the Trust may remove a person serving as Trustee either by declaration in writing or at a meeting called for such purpose. The Trust's shares do not have cumulative voting rights. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. The Trust is required to assist in shareholders' communications. PURCHASE OF SHARES Shares of a Portfolio may be offered for purchase by separate accounts of insurance companies to serve as an investment medium for the variable contracts issued by the insurance companies and to certain qualified pension and retirement plans, as permitted under the federal tax rules relating to the Portfolios serving as investment mediums for variable contracts. Shares of the Portfolios are sold to insurance company separate accounts funding both variable annuity contracts and variable life insurance contracts and may be sold to insurance companies that are not affiliated. The Trust currently does not foresee any disadvantages to variable contract owners or other 70 investors arising from offering the Trust's shares to separate accounts of unaffiliated insurers, separate accounts funding both life insurance polices and annuity contracts in certain qualified pension and retirement plans; however, due to differences in tax treatment or other considerations, it is theoretically possible that the interests of owners of various contracts or pension and retirement plans participating in the Trust might at sometime be in conflict. However, the Board of Trustees and insurance companies whose separate accounts invest in the Trust are required to monitor events in order to identify any material conflicts between variable annuity contract owners and variable life policy owners, between separate accounts of unaffiliated insurers, and between various contract owners or pension and retirement plans. The Board of Trustees will determine what action, if any, should be taken in the event of such a conflict. If such a conflict were to occur, in one or more insurance company separate accounts might withdraw their investment in the Trust. This might force the Trust to sell securities at disadvantageous prices. Shares of each Portfolio are sold at their respective net asset values (without a sales charge) next computed after receipt of a purchase order by an insurance company whose separate account invests in the Trust. REDEMPTION OF SHARES Shares of any Portfolio may be redeemed on any business day. Redemptions are effected at the per share net asset value next determined after receipt of the redemption request by an insurance company whose separate account invests in the Portfolio. Redemption proceeds normally will be paid within seven days following receipt of instructions in proper form. The right of redemption may be suspended by the Trust or the payment date postponed beyond seven days when the New York Stock Exchange is closed (other than customary weekend and holiday closings) or for any period during which trading thereon is restricted because an emergency exists, as determined by the SEC, making disposal of portfolio securities or valuation of net assets not reasonably practicable, and whenever the SEC has by order permitted such suspension or postponement for the protection of shareholders. If the Board of Trustees should determine that it would be detrimental to the best interests of the remaining shareholders of a Portfolio to make payment wholly or partly in cash, the Portfolio may pay the redemption price in whole or part by a distribution in kind of securities from the portfolio of the Portfolio, in lieu of cash, in conformity with applicable rules of the SEC. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets into cash. EXCHANGES Shares of any one Portfolio may be exchanged for shares of any of the other Portfolios described in the Prospectus. Exchanges are treated as a redemption of shares of one Portfolio and a purchase of shares of one or more of the other Portfolios and are effected at the respective net asset values per share of each Portfolio on the date of the exchange. The Trust reserves the right to modify or discontinue its exchange privilege at any time without notice. Variable contract owners do not deal directly with the Trust with respect to the purchase, redemption, or exchange of shares of the Portfolios, and should refer to the Prospectus for the applicable variable contract for information on allocation of premiums and on transfers of contract value among divisions of the pertinent insurance company separate account that invest in the Portfolio. The Trust reserves the right to discontinue offering shares of one or more Portfolios at any time. In the event that a Portfolio ceases offering its shares, any investments allocated by an insurance company to such Portfolio will be invested in the Liquid Asset Portfolio or any successor to such Portfolio. CUSTODIAN AND OTHER SERVICE PROVIDERS The Custodian for the Portfolio is Bankers Trust Company, 280 Park Avenue, New York, New York 10017. First Data Investors Services Group of First Data Corporation, One Exchange Place, 4th Floor, Boston, MA 02109, provides administrative and portfolio accounting services for all Portfolio. 71 INDEPENDENT AUDITORS Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072, serves as independent auditors for the Trust. COUNSEL Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW, Washington, D.C. 20004-2440 serves as counsel to the Trust. REGISTRATION STATEMENT This Statement of Additional Information and the Prospectuses do not contain all the information included in the Trust's Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered by the Prospectus. Certain portions of the Registration Statement have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement, including the exhibits filed therewith, may be examined at the offices of the Securities and Exchange Commission in Washington, D.C. Statements contained herein and in the Prospectuses as to the contents of any contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other documents filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. FINANCIAL STATEMENTS The Trust's audited financial statements dated December 31, 1998 for all Portfolios (except the Fund for Life Portfolio), including notes thereto, are incorporated by reference in this Statement of Additional Information from the Trust's Annual Report dated as of December 31, 1998. 72 APPENDIX 1: DESCRIPTION OF BOND RATINGS Excerpts from Moody's Investors Service, Inc.'s ("Moody's") description of its bond ratings: Aaa - judged to be the best quality; they carry the smallest degree of investment risk. Aa - judged to be of high quality by all standards; together with the Aaa group, they comprise what are generally known as high grade bonds. A - possess many favorable investment attributes and are to be considered as "upper medium grade obligations." Baa - considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured; interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Ba - judged to have speculative elements; their future cannot be considered as well assured. B - generally lack characteristics of the desirable investment. Caa - are of poor standing; such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - speculative in a high degree; often in default. C - lowest rate class of bonds; regarded as having extremely poor prospects. Moody's also applies numerical indicators 1, 2, and 3 to rating categories. The modifier 1 indicates that the security is in the higher end of its rating category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Excerpts from Standard & Poor's Rating Group ("S&P") description of its bond ratings: AAA - highest grade obligations; capacity to pay interest and repay principal is extremely strong. AA - also qualify as high grade obligations; a very strong capacity to pay interest and repay principal and differs from AAA issues only in small degree. A - regarded as upper medium grade; they have a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - regarded as having an adequate capacity to pay interest and repay principal; whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity than in higher rated categories - this group is the lowest which qualifies for commercial bank investment. BB, B, CCC, CC, C- predominately speculative with respect to capacity to pay interest and repay principal in accordance with terms of the obligation: BB indicates the lowest degree of speculation and C the highest. S&P applies indicators "+", no character, and "-" to its rating categories. The indicators show relative standing within the major rating categories. DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS: Moody's ratings for state and municipal short-term obligations will be designated Moody's Investment Grade or MIG. Such ratings recognize the differences between short-term credit and long-term risk. Short-term ratings on issues with demand features (variable rate demand obligations) are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payments relying on external liquidity. MIB 1/VMIG 1: This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample although not as large as in the preceding group. DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS: Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations which have an original maturity not exceeding nine months. Moody's makes no representation that such obligations are exempt from registration under the Securities Act of 1933, nor does it represent that any specific note is a valid obligation of a rated issuer or issued in conformity with any applicable law. The following A-1 designations, all judged to be investment grade, indicate the relative repayment ability of rated issuers of securities in which the Trust may invest: PRIME-1: Issuers rates Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term promissory obligations. PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term promissory obligations. DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS: INVESTMENT GRADE AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A: Debt rated "A" has strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. SPECULATIVE GRADE BB, B, CCC, CC: Debt rated in these categories is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CI: The "CI" rating is reserved for income bonds on which no interest is being paid. D: Debt rated "D" is in default, and repayment of interest and/or repayment of principal is in arrears. PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND SHORT-TERM DEMAND OBLIGATIONS: SP-1: Issues carrying this designation have a very strong or strong capacity to pay principal and interest. Those issued determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2: Issues carrying this designation have a satisfactory capacity to pay principal and interest. DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT COMMERCIAL PAPER: An S&P commercial paper rating is a current assessment of the likelihood of timely repayment of debt having an original maturity of no more than 365 days. The two rating categories for securities in which the Trust may invest are as follows: A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics will be denoted with a plus (+) designation. A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1." A-2 PROSPECTUS #3 THE FUND FOR LIFE SERIES THE GCG TRUST PROSPECTUS MAY 1, 1999 THE FUND FOR LIFE SERIES THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. - ------------------------------------------------------------------------- TABLE OF CONTENTS - ------------------------------------------------------------------------- In this prospectus aand in the Statement of Additional Information, we refer to The GCG Trust as "the GCG Trust" and to the Fund For Life Series as the "Fund For Life Portfolio" Portfolio or the "Portfolio." PAGE INTRODUCTION .......................................... Investing Through Your Variable Contract ............. Why Reading This Prospectus is Important ............. THE PORTFOLIO AT A GLANCE ............................. FINANCIAL HIGHLIGHTS .................................. DESCRIPTION OF THE PORTFOLIO .......................... MANAGEMENT OF THE TRUST ............................... The Adviser .......................................... Portfolio Manager .................................... Distributor .......................................... Expenses ............................................. Portfolio Transactions ............................... SHARE PRICE ........................................... TAXES AND DISTRIBUTION ................................ MORE INFORMATION ...................................... Additional Investment Strategies ..................... Portfolio Turnover ................................... Legal Counsel ........................................ Independent Auditors ................................. Year 2000 ............................................ AN INVESTMENT IN THE FUND FOR LIFE PORTFOLIO OF THE GCG TRUST IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. i - ------------------------------------------------------------------------- INTRODUCTION - ------------------------------------------------------------------------- [Section is in two-column format.] INVESTING THROUGH YOUR VARIABLE CONTRACT Shares of the Fund For Life Portfolio of the GCG Trust currently are sold to segregated asset accounts ("Separate Accounts") of insurance companies as funding choices for variable annuity contracts ("Variable Contracts"). Assets in the Separate Account are invested in shares of the Portfolio based on your allocation instructions. You do not deal directly with the Portfolio to purchase or redeem shares. The accompanying Separate Account prospectus describes your rights as a Variable Contract owner. WHY READING THIS PROSPECTUS IS IMPORTANT This prospectus explains the investment objective, risks and strategy of the Portfolio. Reading the prospectus will help you to decide whether the Portfolio is the right investment for you. We suggest that you keep this prospectus and the prospectus for the Separate Account for future reference. 1 - ------------------------------------------------------------------------- PORTFOLIO AT A GLANCE - ------------------------------------------------------------------------- THE FUND FOR LIFE PORTFOLIO INVESTMENT High total investment return (capital appreciation and OBJECTIVE current income) consistent with prudent investment risk and a balanced investment approach. PRINCIPAL The Portfolio invests primarily in shares of other INVESTMENT mutual funds. Under the Portfolio's allocation STRATEGY strategy, investments are allocated between two asset classes of mutual funds: o 70% of the Portfolio's assets in mutual funds investing primarily in equity securities (including 10% in equity securities of foreign issuers) o 30% of the Portfolio's assets in mutual funds investing primarily in debt securities rated at least investment grade. The Portfolio Manager believes that such asset allocation strategy provides the majority of investment return that would otherwise be obtained by investing exclusively in common stocks, yet with significantly lower volatility. PRINCIPAL Any investment involves the possibility that you will RISKS lose money or not make money. Investment in the Portfolio is not insured against loss of principal. We cannot assure that the Portfolio will achieve its investment objective. Investing in shares of the Portfolio should not be considered a complete investment program. The share value of the Portfolio will rise and fall. An investment in the Portfolio is subject to the following principal risks described under "Description of the Portfolio": o MANAGER RISK o LIQUIDITY RISK o DIVERSITY RISK Because the Portfolio invests in underlying mutual funds, the Portfolio is subject to the risks associated with the investment activities of the underlying mutual funds. The following principal risks are described under "Description of the Portfolio": Principal risk associated with equity securities: o MARKET AND COMPANY RISK Principal risk associated with international investments: o FOREIGN INVESTMENT RISK Principal risk associated with debt securities: o INCOME RISK o INTEREST RATE RISK o CREDIT RISK o CALL RISK Because of these risks, your investment could lose or not make any money. 2 - ------------------------------------------------------------------------- PORTFOLIO AT A GLANCE (CONTINUED) - ------------------------------------------------------------------------- PERFORMANCE The value of your share in the Portfolio will fluctuate depending on its investment performance. The following bar chart shows the Portfolio's annual total return changes from year-to-year. The accompanying table shows the portfolio's average annual total return for 1 year, 5 year and since its inception date as compared to the applicable market indices. The average annual total returns below include reinvestment of dividends and distributions. This may help you weigh the risk of investing in the Portfolio. Of course, past performance does not necessarily indicate future results. Directed Services manages the Portfolio. The performance information does not include insurance- related charges. Thus, you should not compare the portfolio's performance directly with performance information of other products without taking into account all insurance-related charges and expenses payable under your Variable Contract. [[Performance Bar Chart Follows:] FUND FOR LIFE -- ANNUAL TOTAL RETURN Year 1994 1995 1996 1997 1998 -2.15% 18.79% 10.57% 14.58% 13.67% |-------------------------------------------------| |--------------------| | AVERAGE ANNUAL TOTAL RETURN AS COMPARED TO | | BEST QUARTER | | MARKET INDEX | |--------------------| |-------------------------------------------------| | Quarter Ended | | 1 YEAR 5 YEAR 3/1/93 | | | | (INCEPTION)| | 6/30/97... 12.62% | | Portfolio's Average | | | | Annual Total Return 13.67% 10.85% 10.75% | |--------------------| | Standard & Poor's | | WORST QUARTER | | 500 Index 28.58% 24.05 21.81% | |--------------------| | Lehman Aggregate Bond | | Quarter Ended | | Index 8.69% 7.27% 7.23% | | | | Morgan Stanley/Capital | | 9/30/98... (4.60)%| | International | | | | Pacific Index 2.69% (4.06)% 0.90% | |--------------------| |-------------------------------------------------| The S&P 500 Index is composed of 500 U.S. Stocks. The Lehman Aggregate Bond Index is composed of the Lehman Brothers Government/Corporate Index, the Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. The Morgan Stanley/Capital International Pacific index measures the performance of stock markets in Australia, Hong Kong, Japan, New Zealand, Singapore and Malaysia. 3 - ------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand the Portfolio's financial performance for the past 5 years. Cetain information reflects financial results for a single portfolio share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young LLP, whose report, along with the Portfolio's financial statements, are included in the annual report, which is available upon request.
FUND FOR LIFE PORTFOLIO * - --------------------------------------------------------------------------------------- YEAR ENDED - --------------------------------------------------------------------------------------- 12/31/98 12/31/97# 12/31/96 12/31/95 12/31/94 - --------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25 $ 7.61 $10.95 $ 9.23 $10.51 ------------------------------------------------ INVESTMENT OPERATIONS Net Investment Income(Loss) 0.03 0.03 0.01 (0.24) 0.44 Net Realized and Unrealized Gain(Loss) on Investments 0.88 1.09 0.88 1.98 (0.67) ------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.91 1.12 0.89 1.74 (0.23) - --------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income 0.09 0.13 0.00 0.02 0.44 Distributions from Capital Gains 0.62 1.35 4.23 0.00 0.61 ------------------------------------------------ TOTAL DISTRIBUTIONS 0.71 1.48 4.23 0.02 1.05 - --------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 7.45 $ 7.25 $ 7.61 $10.95 $ 9.23 ======================================================================================= TOTAL RETURN 13.67% 14.58% 10.57% 18.79% (2.15)% ======================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (in 000's) $ 227 $ 202 $ 201 $ 333 $1,346 Ratio of Operating Expenses to Average Net Assets 2.50% 2.50% 2.56% 4.25% 1.84% Decrease Reflected in Above Expense Ratio Due to Expense Limitations 3.27% 12.06% 9.45% 0.68% -- Ratio of Net Investment Income to Average Net Assets 0.40% 0.40% 0.10% (2.32%) 2.23% Portfolio Turnover Rate 0.00% 8.94% 6.87% 5.68% 13.06% - ---------------------------------------------------------------------------------------
# Per share data numbers have been calculated using the average share method. 4 - ------------------------------------------------------------------------- DESCRIPTION OF THE PORTFOLIO - ------------------------------------------------------------------------- THE FUND FOR LIFE PORTFOLIO PORTFOLIO MANAGER Directed Services, Inc. INVESTMENT High total investment return (capital appreciation and OBJECTIVE current income) consistent with prudent investment risk and a balanced investment approach. PRINCIPAL The Portfolio invests primarily in other mutual funds. INVESTMENT The Portfolio uses an allocation strategy that emphasizes STRATEGY mutual funds that invest primarily in domestic equity securities, while also allocating a portion of the Portfolio's assets to mutual funds that invest in international equity securities and a portion of the Portfolio's assets to mutual funds that invest primarily in debt securities rated at least investment grade. The Portfolio invests only in mutual funds that are not affiliated with the Portfolio or the Portfolio Manager. Toward this end, the Portfolio allocates its assets among the following three general classifications: o EQUITY FUNDS. Approximately 60% of the Portfolio's assets will be invested in mutual funds that seek growth, growth and income, capital appreciation, or a similar objective or objectives, primarily through investment in domestic equity securities under normal circumstances. o INTERNATIONAL EQUITY FUNDS. Approximately 10% of the Portfolio's assets will be invested in mutual funds that seek growth, growth and income, capital appreciation, or a similar objective or objectives, primarily through investment in equity securities that may be from issuers domiciled or traded in countries outside of the United States. o INCOME FUNDS. Approximately 30% of the Portfolio's assets will be invested in mutual funds that seek as their objective income, growth, or total return primarily through investment in debt securities that are rated investment grade or better. The Portfolio normally maintains the allocation of its assets among the three classifications indicated above, but may vary the percentages to respond to market conditions. The Portfolio Manager believes that the allocation strategy provides the majority of investment return that would otherwise be obtained by investing exclusively in common stocks, yet with significantly lower volatility. The Portfolio Manager also believes that with the increasing globalization of securities markets, investors should have some exposure to foreign stock markets. The Portfolio Manager selects mutual funds that have had the best performance within their classification, as measured over time periods deemed appropriate by the Portfolio Manager. The Portfolio normally invests in 10-15 mutual funds. The Portfolio generally may not purchase or invest in securities of any investment company if, as a result, the Portfolio and all of its affiliates, would own more than 3% of the total outstanding stock of that company. 5 The Portfolio may invest in underlying mutual funds that are both diversified and non-diversified. A non- diversified mutual fund may invest more than 5% and up to 25% of its assets in the securities of one issuer. The Portfolio itself is classified as diversified under the Investment Company Act of 1940. PRINCIPAL Any investment involves the possibility that you will RISKS lose money or not make money. Investment in the Portfolio is not insured against loss of principal. We cannot assure that the Portfolio will achieve its investment objective. Investing in shares of the Portfolio should not be considered a complete investment program. The share value of the Portfolio will rise and fall. An investment in the Portfolio is subject to the following principal risks: o MANAGER RISK. The Portfolio Manager and the investment advisers of the underlying mutual funds may do a mediocre or poor job in selecting securities. o LIQUIDITY RISK. The 1940 Act provides than an underlying mutual fund whose shares are purchased by the Portfolio will be obligated to redeem shares held by the Portfolio only in an amount up to 1% of the mutual fund's outstanding securities during any period of less than 30 days. Shares held by the Portfolio in excess of 1% of a mutual fund's outstanding securities therefore will be considered not readily marketable, and these securities together with other illiquid securities may not, exceed 15% of the Portfolio's assets. o DIVERSITY RISK. The Portfolio may invest in shares of mutual funds that are both diversified and non- diversified. Non-diversified funds are permitted to invest a greater proportion of their assets in the securities of a smaller number of issuers, and may be more susceptible to any single economic, political or regulatory occurrence. Because the Portfolio invests in underlying mutual funds, the Portfolio is subject to the following principal risks associated with the investment activities of the underlying mutual funds: o PRINCIPAL RISK ASSOCIATED WITH EQUITY SECURITIES: o MARKET AND COMPANY RISK. The price of a security held by an underlying mutual fund may fall due to changing economic, political or market conditions or disappointing earnings results. Stock prices in general will decline over short or even extended periods. The stock market tends to be cyclical, with periods when stock prices generally rise and periods when stock prices generally decline. Further, even though the stock market is cyclical, returns from a particular stock market segment in which the mutual fund may invest may still trail returns from the overall stock market. o PRINCIPAL RISK ASSOCIATED WITH INTERNATIONAL INVESTMENTS: o FOREIGN INVESTMENT RISK. In many foreign countries there is less publicly available information about companies than is available in the United States. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the underlying mutual fund may encounter difficulties or be unable to pursue legal remedies or obtain judgments in foreign courts. The values of foreign investments may be affected by changes in currency rates or exchange control regulations. If the local currency gains strength against the U.S. dollar, the value of the foreign security increases in U.S. dollar terms. Conversely, if the local currency weakens against the U.S. dollar, the value of the foreign security declines in U.S. dollar terms U.S. 6 dollar-denominated securities of foreign issuers, including depositary receipts, also are subject to currency risk based on their related investments. o PRINCIPAL RISK ASSOCIATED WITH DEBT SECURITIES: o INCOME RISK. The underlying mutual fund's income may fall due to falling interest rates. Income risk is generally the greatest for short- term bonds, and the least for long-term bonds. Changes in interest rates will affect bond prices as well as bond income. o INTEREST RATE RISK. This is the risk that bond prices overall will decline over short or even extended periods due to rising interest rates. Interest rate risk is generally modest for shorter-term bonds, moderate for intermediate- term bonds, and high for longer-term bonds. A bond's duration measures its sensitivity to changes in interest rates. The longer the duration, the greater the bond's price movement will be as interest rates change. o CREDIT RISK. A bond issuer (debtor) may fail to repay interest and principal in a timely manner. The price of a security held by a portfolio may fall due to changing economic, political or market conditions or disappointing earnings results. o CALL RISK. During periods of falling interest rates, a bond issuer may "call," or repay, its high yielding bond before the bond's maturity date. Forced to invest the unanticipated proceeds at lower interest rates, a portfolio would experience a decline in income. Because of these risks, your investment could lose or not make any money. MORE ON THE The Trust has retained Directed Services, Inc. ("DSI") as PORTFOLIO Portfolio Manager to manage the assets of the Portfolio MANAGER and to act as administrator to the Portfolio. DSI is a subsidiary of ING Groep N.V. The address of DSI is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. The following person at DSI is primarily responsible for the day-to-day investment decisions of the Portfolio: Name Name and Recent Business Experience ---- ------------------------------------ Christopher W. Smythe Vice President Mr. Smythe has been employed as Vice President at DSI for the past 2 years. Prior to date, he was employed as Assistant Vice President at PNC Bank. DSI also serves as manager and administrator to the GCG Trust and is the principal underwriter and distributor of the Variable Contracts issued by Golden American Life Insurance Company. For more information, please refer to "Management of the Trust." 7 - ------------------------------------------------------------------------- MANAGEMENT OF THE TRUST - ------------------------------------------------------------------------- THE ADVISER Directed Services, Inc. ("DSI") is the overall adviser to the GCG Trust. The Trust is an open-end management investment company organized as a Massachusetts business trust. DSI is a New York corporation and is a wholly owned subsidiary of ING Groep N.V. ("ING"). DSI is registered with the SEC as an investment adviser and a broker-dealer. DSI is the principal underwriter and distributor of the Variable Contracts that Golden American Life Insurance Company ("Golden American") issues. Golden American is a stock life insurance company organized under the laws of the State of Delaware and a subsidiary of ING. DSI performs the activities described above in this Prospectus and below under the caption "Distributor." The Trust pays DSI, as portfolio manager, for management services a monthly fee at an annual rate of 0.10% of the average daily net assets of the Portfolio. DSI is currently waiving the management fee. DSI also provides administrative services necessary for the Trust's operation and furnishes or procures on behalf of the Trust and the Portfolio the services and information necessary to the proper conduct of the Portfolio's business. As administrator, DSI also liaisons among the various service providers to the Portfolio. DSI is also responsible for ensuring that the Portfolio is operated in compliance with applicable legal requirements. The Trust pays DSI, as administrator, for administrative services a monthly fee at an annual rate of 0.20% of the average daily net assets of the Portfolio. DSI is currently providing (non-advisory) management and administrative services to the other operational portfolios of the Trust. DISTRIBUTOR DSI acts as distributor of shares of the Portfolio, in addition to serving as manager and administrator. As distributor, DSI is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc., and acts as distributor without remuneration from the Trust. EXPENSES Investors in the Portfolio bear not only a proportionate share of the expenses of the Portfolio (including operating costs and management fees) but also indirectly similar expenses of the underlying mutual funds. Shareholders also bear their proportionate share of any sales charges incurred by the Portfolio related to the purchase of shares of the mutual funds. In addition, shareholders of the Portfolio may indirectly bear expenses paid by a mutual fund related to the distribution of its shares. For the fiscal year ended December 31, 1998, total expenses paid by the Portfolio were 2.50% of average net assets. OTHER The Trust bears all costs of its operations other than EXPENSES expenses specifically borne by DSI. See "Management of the Trust" in the Statement of Additional Information. Trust expenses directly attributable to the Portfolio are charged to the Portfolio; other expenses are allocated among all the portfolios of the Trust. The Trust reimburses DSI for the Portfolio's organizational expenses that DSI advanced. PORTFOLIO DSI, as portfolio manager, places orders for the purchase TRANSACTIONS and sale of no-load mutual funds for the Portfolio's account directly with the mutual fund. Purchase and sale orders of load mutual funds may be placed with DSI, as the distributor, although other brokers or dealers may be selected at the discretion of DSI. Purchase order for certain money market instruments may be placed directly with the issuer. 7 DSI, as distributor, may also assist in the execution of the Portfolio's transactions to purchase underlying fund shares for which it may receive distribution payments from the mutual funds or their distributors in accordance with the distribution plans of those funds. The Portfolio has no restrictions on portfolio turnover, although its annual turnover rate is not expected to exceed 100%. A 100% annual portfolio turnover rate would occur if each security in the Portfolio (other than securities with less than one year remaining to maturity) was replaced once during the year. If the Portfolio purchases shares of load funds, a higher turnover rate would result in correspondingly higher sales loads paid by the Portfolio. There is no limit on the portfolio turnover rates of the mutual funds in which the Portfolio may invest. - ------------------------------------------------------------------------- SHARE PRICE - ------------------------------------------------------------------------- NET ASSET VALUE The net asset value per share of the Portfolio is calculated at or about 4:00 p.m. (New York City time), Monday through Friday, on each day that the New York Stock Exchange is open for trading, exclusive of federal holidays. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets less all liabilities by the number of the Portfolio's outstanding shares. The assets of the Portfolio consist primarily of the mutual funds, which are valued at their respective net asset values under the 1940 Act. Each mutual fund is required to value securities in its portfolio for which market quotations are readily available at their current market value (generally the last reported sale price) and all other securities and assets at fair value pursuant to methods established in good faith by the board of directors of the underlying fund. Money market funds with portfolio securities that mature in one year or less may use the amortized cost or penny-rounding methods to value their securities. Securities having 60 days or less remaining to maturity generally are valued at their amortized cost, which approximates market value. Other assets of the Portfolio are valued at their current market value if market quotations are readily available and, if market quotations are not available, they are valued at fair value pursuant to methods established in good faith by the Board of Trustees. Securities having 60 days or less remaining to maturity are valued at their amortized cost. - ------------------------------------------------------------------------- TAXES AND DISTRIBUTION - ------------------------------------------------------------------------- The GCG Trust pays net investment income, if any, on your shares of each Portfolio annually. Any net realized long- term capital gains for the Portfolio will be declared and paid at least once annually. Net realized short-term gains may be declared and paid more frequently. We will automatically reinvest any distributions made by the Portfolio in additional shares of the Portfolio, unless the separate account of your insurance company makes an election to receive distributions in cash. Dividends or distributions by the Portfolio will reduce the per share net asset value by the per share amount paid. The Portfolio has qualified and expect to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended 9 ("Code"). As a qualified regulated investment company, the Portfolio is generally not subject to Federal income tax on the part of their investment company taxable income (including any net capital gains) which they distribute to shareholders. It is the Portfolio's intention to distribute all such income and gains. Shares of the Portfolio are offered to the Separate Accounts of insurance companies. Under the Code, an insurance company pays no tax with respect to income of a qualifying Separate Account when the income is properly allocable to the value of eligible variable annuity or variable life insurance contracts. Under current tax law, your gains under your Contract are taxed only when you take them out. Contract purchasers should review the Contract prospectus for a discussion of the tax treatment applicable to holders of the Contracts. The foregoing is only a summary of some of the important Federal income tax considerations generally affecting the Portfolio and you. Please refer to the Statement of Additional Information for more information about the tax status of the Portfolio. You are urged to consult with your tax advisor for more detailed information regarding taxes applicable to the Contracts and the holders thereof. - ------------------------------------------------------------------------- MORE INFORMATION - ------------------------------------------------------------------------- ADDITIONAL The description of the Portfolio in this prospectus does INVESTMENT not describe all of the non-principal investments, STRATEGIES techniques and strategies the Portfolio may use to achieve its investment objective. The Portfolio is not obligated to use any of these techniques or strategies at any given time or under any particular economic condition. For further information on these investments, techniques and strategies, please refer to the Statement of Additional Information. The Portfolio may take temporary defensive positions inconsistent with its respective investment policies to adjust its investment exposure during uncertain periods, such as periods when the portfolio manager determines that adverse market, economic, political or other conditions exist. These positions generally involve investing in a manner different than that in which the portfolio invests under normal market conditions. To the extent the Portfolio assumes a temporary investment position, it may not achieve its investment objective. For more detailed information on the Portfolio's temporary defensive positions, please refer to the Statement of Additional Information. PORTFOLIO Before investing in the Portfolio, you should review its TURNOVER portfolio turnover rate for an indication of the potential effect of transaction costs on the portfolio's future returns. In general, the greater the volume of buying and selling by the portfolio, the greater the impact that brokerage commissions and other transaction costs will have on its return. Portfolio turnover rate is calculated by dividing the value of the lesser of purchases or sales of portfolio securities for the year by the monthly average of the value of portfolio securities owned by the portfolio during the year. Securities whose maturities at the time of purchase were one year or less are excluded. A 100% portfolio turnover rate would occur, for example, if a portfolio sold and replaced securities valued at 100% of its total net assets within a one-year period. The portfolio turnover rate for the Portfolio is presented in "Financial Highlights" in this prospectus. LEGAL COUNSEL Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004-2404 serves as counsel to the GCG Trust. 10 INDEPENDENT Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116- AUDITORS 5072 serves as independent auditors of the GCG Trust. YEAR 2000 Based on a study of its computer software systems and hardware, DSI, in conjunction with an affiliate, Golden American, have determined their exposure to the year 2000 change of the century date issue. Some of these systems support certain trust operations. The Adviser believes its and Golden American's systems are or will be substantially compliant by year 2000 and has engaged external consultants to validate this assumption. The Adviser is in contact with the GCG Trust's third party vendors to ensure that their systems will be substantially compliant by year 2000. To the extent these third parties would be unable to transact business in the year 2000 and thereafter, the GCG Trust's operations could be adversely affected. 11 TO OBTAIN MORE INFORMATION THE GCG TRUST Two documents are available that offer further TRUSTEES information on the Portfolio: R. Brock Armstrong, Chair ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS. The annual report of the Portfolio includes a Barnett Chernow, Trustee discussion of the market conditions and investment strategies that significantly affected the J. Michael Earley, Trustee Portfolio's performance during the last fiscal year. R. Barbara Gitenstein, Trustee STATEMENT OF ADDITIONAL INFORMATION. The Robert A. Grayson, Trustee Statement of Additional Information contains additional information about the Portfolio. A Elizabeth J. Newell, Trustee current Statement of Additional Information has been filed with the Securities and Exchange Stanley B. Seidler, Trustee Commission, and is made a part of this prospectus by reference. Roger B. Vincent, Trustee To obtain a free copy of these documents or to make inquiries about the Portfolio, please write to our Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380 or call (800) 366-0066, or access the SEC's website (http://www.sec.gov). Information about the GCG Trust can be reviewed and copied at the SEC's Public Reference Room. Information about its operation may be obtained by calling 1-800-SEC-0330. You may obtain copies of reports and other information about the GCG Trust, for payment of a duplication fee, by writing to Public Reference Section of the Commission, Washington, D.C. 20549-6009.
GOLDEN AMERICAN LIFE INSURANCE COMPANY GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN DELAWARE IN 29999 5/99 811-5629 SAI #2 THE FUND FOR LIFE SERIES THE FUND FOR LIFE 1475 DUNWOODY DRIVE WEST CHESTER, PA 19380 (800) 366-0066 STATEMENT OF ADDITIONAL INFORMATION May 1, 1999 This Statement of Additional Information describes The Fund For Life (the "Fund"), one of the Portfolos of The GCG Trust (the "Trust"). The Trust is an open-end management investment company organized as a Massachusetts business trust. The Fund's Manager is Directed Services, Inc. ("DSI" or the "Manager"). The Fund's investment objective is high total investment return (capital appreciation and current income) consistent with prudent investment risk and a balanced investment approach. The Fund seeks to achieve its investment objective by investing in shares of other open-end investment companies--commonly called mutual funds. As of the date of this Statement of Additional Information, shares of the Fund are sold only to separate accounts of insurance companies to serve as the investment medium for variable annuity contracts issued by the insurance companies. This Statement of Additional Information is intended to supplement the information provided to investors in the Prospectus dated May 1, 1999, of The Fund For Life and has been filed with the Securities and Exchange Commission as part of the Trust's Registration Statement. Investors should note, however, that this Statement of Additional Information is not itself a prospectus and should be read carefully in conjunction with the Fund's Prospectus and retained for future reference. The contents of this Statement of Additional Information are incorporated by reference in the Prospectus in their entirety. A copy of the Prospectus may be obtained free of charge from the Trust at the address and telephone number listed above. Manager: Directed Services, Inc. (800) 447-3644 TABLE OF CONTENTS Page INTRODUCTION 1 INVESTMENT POLICIES 1 U.S. Government Securities 2 Banking Industry Obligations 2 Commercial Paper 4 Corporate Debt Securities 4 Repurchase Agreements 5 Illiquid and Restricted Securities 5 Foreign Securities 6 Foreign Currency Transactions 6 Industry Concentration 7 Loans of Portfolio Securities 7 Short Sales 7 Options 7 Futures Contracts and Options on Futures Contracts 8 Leverage through Borrowing 9 Warrants 9 INVESTMENT RESTRICTIONS 10 MANAGEMENT OF THE TRUST 12 The Management Agreement 16 The Administrative Services Agreement 17 Distribution of Trust Shares 18 Purchases and Redemptions 19 PORTFOLIO TRANSACTIONS 19 NET ASSET VALUE 21 ADVERTISING 21 TAXATION 22 Distributions 25 Other Taxes 25 OTHER INFORMATION 25 Capitalization 25 Voting Rights 26 Purchase of Shares 26 Custodian 26 Independent Auditors 27 Counsel 27 Registration Statement 27 FINANCIAL STATEMENTS 27 Appendix A: Description of Bond Ratings A-1 Appendix B: Securities and Investment Techniques of Underlying Mutual Funds B-1 INTRODUCTION This Statement of Additional Information is designed to elaborate upon the discussion of certain securities and investment techniques which are described in the Prospectus. The more detailed information contained herein is intended solely for investors who have read the Prospectus and are interested in a more detailed explanation of certain aspects of some of the Fund's securities and some investment techniques. Some of the Fund's investment techniques are described only in the Prospectus and are not repeated herein. Captions and defined terms in this Statement of Additional Information generally correspond to like captions and terms in the Prospectus. INVESTMENT POLICIES FUND INVESTMENTS. The Fund intends to maintain its assets invested in mutual funds in accordance with the investment program described above. At times, for temporary purposes pending full investment of its assets or to meet anticipated redemptions, the Fund may invest in money market mutual funds or invest directly in (or enter into repurchase agreements with respect to) short-term debt securities, including U.S. Treasury bills and other short-term U.S. Government securities, commercial paper, certificates of deposit, time deposits, and bankers' acceptances. The Fund may not purchase shares of any investment company that is not registered with the Securities and Exchange Commission. The Fund will not employ a defensive strategy in response to market or financial conditions, but will attempt to remain as fully invested as practicable in the shares of mutual funds allocated as described above. However, the mutual funds themselves may adopt defensive strategies consistent with their own investment policies. This may result, for example, in the Fund holding underlying funds that, in turn, have committed significant assets to defensive investments so they are not primarily invested in equity or longer-term debt securities in which they would normally be invested. The Fund's investments other than mutual funds are more fully described as follows: 1 U.S. GOVERNMENT SECURITIES. U.S. Government agency and instrumentality obligations are debt securities issued by U.S. Government-sponsored enterprises and Federal agencies. Some obligations of agencies are supported by the full faith and credit of the United States or U.S. Treasury guarantees; others, by the right of the issuer to borrow from the U.S. Treasury; others, by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others, only by the credit of the agency or instrumentality issuing the obligation. In the case of obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment. Agencies and instrumentalities which issue or guarantee debt securities and which have been established or sponsored by the U.S. Government include the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage Association and the Student Loan Marketing Association. U.S. Treasury bills, which have a maturity of up to one year, are direct obligations of the United States and are the most frequently issued marketable U.S. Government security. The U.S. Treasury also issues securities with longer maturities in the form of notes and bonds. BANK OBLIGATIONS. These obligations include negotiable certificates of deposit, bankers' acceptances, and fixed time deposits. The Fund limits its investments in United States bank obligations to obligations of United States banks which have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. Certificates of Deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, which are normally drawn by an importer or exporter to pay for specific merchandise, and which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed-time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed-time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal 2 penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed-time deposit to a third party, because there is no market for such deposits. The Fund will not invest in fixed-time deposits (i) which are not subject to prepayment; (ii) which mature in more than seven days that are subject to withdrawal penalties upon prepayment; or (iii) which mature from two business days through seven calendar days that provide for withdrawal penalties upon prepayment (other than overnight deposits), if, in the aggregate, more than 15% of its assets would be invested in such deposits, in repurchase agreements maturing in more than seven days, and in other illiquid assets. Obligations of foreign banks involve somewhat different investment risks than those affecting obligations of U.S. banks, which include: (i) the possibility that their liquidity could be impaired because of future political and economic developments; (ii) their obligations may be less marketable than comparable obligations of U.S. banks; (iii) a foreign jurisdiction might impose withholding taxes on interest income payable on those obligations; (iv) foreign deposits may be seized or nationalized; (v) foreign governmental restrictions, such as exchange controls, may be adopted which might adversely affect the payment of principal and interest on those obligations; and (vi) the selection of those obligations may be more difficult because there may be less publicly available information concerning foreign banks and/or because the accounting, auditing, and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to U.S. banks. Foreign banks are not generally subject to examination by any U.S. Government agency or instrumentality. The Fund may not invest in fixed time deposits maturing in more than seven calendar days that are subject to withdrawal penalties. Investments in fixed time deposits maturing from two business days through seven calendar days that are subject to withdrawal penalties may not, along with other illiquid securities, exceed 15% of the value of the total assets of the Fund. 3 COMMERCIAL PAPER. Commercial paper includes short-term unsecured promissory notes, variable rate demand notes, and variable rate master demand notes issued by domestic and foreign bank holding companies, corporations, and financial institutions, as well as similar taxable instruments issued by government agencies and instrumentalities. All commercial paper purchased by the Fund must be, at the time of investment, (i) rated "P-1" by Moody's or "A-1" by S&P, (ii) issued or guaranteed as to principal and interest by issuers having an existing debt security rating of "Aa" or better by Moody's or "AA" or better by S&P or (iii) securities which, if not rated, are in the opinion of the Manager of an investment quality comparable to rated commercial paper in which the Fund may invest. Variable amount master demand notes are obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the Fund, as lender, and the borrower. These notes permit daily changes in the amountsborrowed. The lender has the right to increase or to decrease the amount under the note at any time up to the full amount provided by the note agreement; and the borrower may prepay up to the full amount of the note without penalty. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, and because no secondary market exists for those notes, such instruments will probably not be traded. However, the notes are redeemable (and thus immediately repayable by the borrower) at face value, plus accrued interest, at any time. In connection with master demand note arrangements, the Manager will monitor, on an ongoing basis, the earning power, cash flow, and other liquidity ratios of the borrower and its ability to pay principal and interest on demand. The Manager also will consider the extent to which the variable amount master demand notes are backed by bank letters of credit. These notes generally are not rated by Moody's or S&P; the Fund may invest in them only if the Manager believes that at the time of investment the notes are of comparable quality to the other commercial paper in which the Fund may invest. Master demand notes are considered by the Fund to have a maturity of one day, unless the Manager has reason to believe that the borrower could not make immediate repayment upon demand. See Appendix A for a description of Moody's and S&P ratings applicable to commercial paper. See more on "Master Demand Notes" under the same title in Appendix B. CORPORATE DEBT SECURITIES. Fund investments in these securities are limited to non-convertible corporate debt securities (corporate bonds, debentures, notes and other similar corporate debt instruments) which have one year or less remaining to maturity and which are rated "AA" or better by S&P or "Aa" or better by Moody's. 4 The rating "P-1" is the highest commercial paper rating assigned by Moody's and the ratings "A-1" and "A-1+" are the highest commercial paper ratings assigned by S&P. Debt obligations rated "Aa" or better by Moody's or "AA" or better by S&P are generally regarded as high-grade obligations and such ratings indicate that the ability to pay principal and interest is very strong. After purchase by the Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require a sale of such security by the Fund. However, the Manager will consider such event in its determination of whether the Fund should continue to hold the security. To the extent the ratings given by Moody's or S&P may change as a result of changes in such organizations or their rating systems, the Fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the Prospectus and in this Statement of Additional Information. REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A repurchase agreement is a transaction in which the seller of a security commits itself at the time of the sale to repurchase that security from the buyer at a mutually agreed-upon time and price. These agreements may be considered to be loans by the purchaser collateralized by the underlying securities. The Fund may not enter into a repurchase agreement of greater than seven days maturity if, after such investment, the amount of the Fund's total assets in such agreements and other illiquid securities is greater than 15%. In the event of default by the seller under the repurchase agreement, the Fund may experience problems in exercising its rights to the underlying securities and may experience time delays and costs in connection with the disposition of such securities. The Fund may engage in repurchase transactions in accordance with guidelines approved by the Board of Trustees of the Trust, which include monitoring the creditworthiness of the parties with which the Fund engages in repurchase transactions, obtaining collateral at least equal in value to the repurchase obligation, and marking the collateral to market on a daily basis. ILLIQUID AND RESTRICTED SECURITIES. An underlying fund may invest not more than 15% of its total assets in securities for which there is no readily available market ("illiquid securities"), which would include securities that are illiquid because their disposition is subject to legal restrictions (so-called "restricted securities") and repurchase agreements having more than seven days to maturity. A considerable period of time may elapse between an underlying fund's decision to dispose of such securities and the time when the underlying fund is able to dispose of them, during which time the value of the securities (and therefore the value of the underlying fund's shares held by the Fund) could decline. 5 FOREIGN SECURITIES. An underlying fund may invest up to 100% of its assets in securities of foreign issuers. There may be less publicly available information about these issuers than is available about companies in the U.S., and foreign auditing, accounting, and financial reporting requirements may not be comparable to those in the U.S. In addition, the value of the underlying fund's foreign securities may be adversely affected by fluctuations in the exchange rates between foreign currencies and the U.S. dollar, as well as other political and economic developments, including the possibility of expropriation, confiscatory or other taxation, exchange controls or other foreign governmental restrictions. Many foreign securities markets, while growing in volume, have, for the most part, substantially less volume than U.S. markets. Securities of many foreign companies are less liquid and their prices more volatile than securities of comparable U.S. companies. Transactional costs in non-U.S. securities markets are generally higher than in U.S. securities markets. There is generally less government supervision and regulation of exchanges, brokers, and issuers than there is in the U.S. In addition, transactions in foreign securities may involve greater time from the trade date until settlement than domestic securities transactions and involve the risk of possible losses through the holding of securities by custodians and securities depositories in foreign countries. In addition, foreign securities and dividends and interest payable on those securities may be subject to foreign taxes, including taxes withheld from payments on those securities. The underlying funds will calculate generally their net asset values and complete orders to purchase, exchange or redeem shares only on a Monday-Friday basis (excluding holidays on which the New York Stock Exchange is closed). Foreign securities in which the underlying funds may invest may be listed primarily on foreign stock exchanges which may trade on other days (such as Saturday). As a result, the net asset value of an underlying fund's portfolio may be significantly affected by such trading on days when the Manager does not have access to the underlying funds and shareholders do not have access to the Fund. FOREIGN CURRENCY TRANSACTIONS. In connection with its portfolio transactions in securities traded in a foreign currency, an underlying fund may enter into forward contracts to purchase or sell an agreed-upon amount of a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties at a price set at the time of the contract. Although such contracts tend to minimize the risk of loss due to a decline in the value of the subject currency, they tend to limit commensurately any potential gain which might result should the value of such currency increase during the contract period. See more on "Foreign Currency Transactions" under the same title in Appendix B. 6 INDUSTRY CONCENTRATION. An underlying fund may concentrate its investments within one industry. Because the scope of investment alternatives within an industry is limited, the value of the shares of such an underlying fund may be subject to greater market fluctuation than an investment in a fund which invests in a broader range of securities. LOANS OF PORTFOLIO SECURITIES. An underlying fund may lend its portfolio securities provided: (1) that the loan is secured continuously by collateral consisting of U.S. Government securities or cash or cash equivalents maintained on a daily marked-to-market basis in an amount at least equal to the current market value of the securities loaned; (2) the fund may at any time call the loan and obtain the return of the securities loaned; (3) the fund will receive any interest or dividends paid on the loaned securities; and (4) the aggregate market value of the securities loaned will not at any time exceed one-third of the total assets of the fund. Loans of securities involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. SHORT SALES. An underlying fund may sell securities short. The underlying fund will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The fund will realize a gain if the security declines in price between those dates. The amount of any gain will be decreased and the amount of any loss increased by the amount of any premium, dividends or interest the fund may be required to pay in connection with a short sale. See more on "Short Sales" under the same title in Appendix B. OPTIONS. Certain underlying mutual funds may purchase and write call and put options on securities, securities indexes, and on foreign currencies. The purchase and writing of options involves certain risks. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying securities above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying securities at the exercise price. If a put or call option purchased by a mutual fund is not sold when it has remaining value, and if the market price of the underlying security, 7 in the case of a put, remains equal to or greater than the exercise price, or in the case of a call, remains less than or equal to the exercise price, the fund will lose its entire investment in the option. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security. There can be no assurance that a liquid market will exist when a mutual fund seeks to close out an option position. Furthermore, if trading restrictions or suspensions are imposed on the options market a fund may be unable to close out a position. If a mutual fund cannot effect a closing transaction, it will not be able to sell the underlying security while the previously written option remains outstanding, even if it might otherwise be advantageous to do so. See "Options Activities" under the same title in Appendix B. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. An underlying mutual fund may invest in financial futures contracts such as interest rate futures contracts, stock index futures contracts, and others, and may purchase and write options on such futures contracts. Generally, transactions in futures contracts and options thereon by a mutual fund must constitute bona fide hedging or other permissible transactions under regulations promulgated by the Commodities Futures Trading Commission (the "CFTC"), under which a fund engaging in such transactions would not be a "commodity pool." There are several risks associated with the use of futures contracts. While a mutual fund's use of futures contracts for hedging may protect a fund against adverse movements in the general level of interest rates or securities prices, such transactions could also preclude the opportunity to benefit from favorable movements in the level of interest rates or securities prices. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the securities being hedged. An incorrect correlation could result in a loss on both the hedged securities in a mutual fund and the hedging vehicle so that the fund's return might have been better had hedging not been attempted. 8 There can be no assurance that a liquid market will exist at a time when a mutual fund seeks to close out a futures contract or futures option position. Most futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single day; once the daily limit has been reached on a particular contract, no trades may be made that day at a price beyond that limit. In addition, certain of these instruments are relatively new and without a significant trading history. As a result, there is no assurance that an active secondary market will develop or continue to exist. Lack of a liquid market for any reason may prevent the fund from liquidating an unfavorable position and the fund would remain obligated to meet margin requirements until the position is closed. See "Futures Contracts" and "Options on Futures Contracts" in Appendix B. LEVERAGE THROUGH BORROWING. An underlying fund may borrow a percentage of the value of its net assets on an unsecured basis from banks to increase its holdings of portfolio securities. Under the 1940 Act, the fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if disadvantageous from an investment standpoint. In addition, the Fund may, for temporary or emergency purposes, such as to facilitate redemptions, borrow from a bank in an amount not in excess of 25% of the Fund's total assets, and the Fund may pledge a portion of its total assets to secure such borrowings. Leveraging will exaggerate the effect of any increase or decrease in the value of portfolio securities on the fund's net asset value, and money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the interest and option premiums received from the securities purchased with borrowed funds. WARRANTS. An underlying fund may invest in warrants, which are options to purchase equity securities at specific prices valid for a specific period of time. The prices do not necessarily move parallel to the prices of the underlying securities. Warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. If a warrant is not exercised within the specified time period, it will become worthless and the fund will lose the purchase price and the right to purchase the underlying security. 9 INVESTMENT RESTRICTIONS The investment restrictions set forth below, together with the Fund's investment objective and policies, are fundamental policies of the Fund and may not be changed by the Fund without the approval of a majority of the outstanding voting shares of the Fund. Under these restrictions, the Fund may not: (1) Invest in a security if more than 25% of its total assets (taken at market value at the time of such investment) would be invested in the securities of issuers in any particular industry or the securities of issuers that are registered investment companies and that themselves invest more than 25% of their total assets in one industry, except that this restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (or repurchase agreements with respect thereto) or securities or obligations issued by U.S. banks; (2) Purchase or sell real estate, except that the Fund may invest in securities secured by real estate or real estate interests or issued by companies in the real estate industry or which invest in real estate or real estate interests; (3) Purchase securities on margin (except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities), except that to the extent the Fund engages in transactions in options, futures, and options on futures, the Fund may make margin deposits in connection with those transactions and except that effecting short sales will be deemed not to constitute a margin purchase for purposes of this restriction, and subject to the restrictions described in the Prospectus and in the Statement of Additional Information, purchase securities on margin; (4) Lend any funds or other assets, except that the Fund may, consistent with its investment objective and policies: (a) invest in debt obligations, even though the purchase of such obligations may be deemed to be the making of loans; (b) enter into repurchase agreements; and (c) lend its portfolio securities in accordance with applicable guidelines established by the Board of Trustees; 10 (5) Issue senior securities, except insofar as the Fund may be deemed to have issued a senior security by reason of borrowing money in accordance with the Fund's borrowing policies, or in connection with any repurchase agreement, and except, for purposes of this investment restriction, collateral or escrow arrangements with respect to the making of short sales, purchase or sale of futures contracts or related options, purchase or sale of forward currency contracts, writing of stock options, and collateral arrangements with respect to margin or other deposits respecting futures contracts, related options, and forward currency contracts are not deemed to be an issuance of a senior security; (6) Act as an underwriter of securities of other issuers, except when in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter under the federal securities laws; and (7) Borrow money or pledge, mortgage, or hypothecate its assets, except that the Fund may borrow from banks but only if immediately after each borrowing and continuing thereafter, there is asset coverage of 300%. The Fund is also subject to the following restrictions and policies that are not fundamental and may, therefore, be changed by the Board of Trustees (without shareholder approval). Unless otherwise indicated, the Fund may not: (1) Invest in securities that are illiquid because they are subject to legal or contractual restrictions on resale, in repurchase agreements maturing in more than seven days, or other securities which in the determination of the Manager are illiquid if, as a result of such investment, more than 15% of the total assets of the Fund (taken at market value at the time of such investment) would be invested in such securities; (2) Purchase or sell commodities or commodities contracts; and (3) Invest in puts, calls, straddles, spreads, or any combination thereof, provided that this restriction does not apply to puts that are a feature of variable or floating rate securities or to puts that are a feature of other corporate debt securities. 11 MANAGEMENT OF THE TRUST The business and affairs of the Trust are managed under the direction of the Board of Trustees according to the applicable laws of the Common- wealth of Massachusetts and the Trust's Agreement and Declaration of Trust. The Trustees are R. Brock Armstrong, Barnett Chernow, J. Michael Earley, R. Barbara Gitenstein, Robert A. Grayson, Stanley B. Seidler, Elizabeth J. Newell, and Roger B. Vincent. The Executive Officers of the Trust are Barnett Chernow, Myles R. Tashman, and Mary Bea Wilkinson. Trustees and Executive Officers of the Trust, their business addresses, and principal occupations during the past five years are: NAME AND ADDRESS POSITION BUSINESS AFFILIATIONS AND WITH THE PRINCIPAL OCCUPATIONS TRUST R. Brock Armstrong Trustee, President and Chairman of the GCG Golden American Life President and Trust since February 1999. Director Insurance Cpompany; Chairman of Golden American Life Insurance Company 1475 Dunwoody Drive the GCG Trust and President of Equitable Life West Chester, PA 19380 Insurance Company of Iowa since April, 1999. Director and Chairman of the Board of First Golden American Life Insurance Company of New York since December 1998, Groupd Executive of ING Group since October 1998. Senior Vice President, Individual Insurance, The Prudential Insurance Company of America, April 1997 - February 16, 1999; Executive Vice President, Operation, London Life Insurance Co., Executive Vice President, Life and Health Operations, London Insurance Group, Chairman, Security First Group, Chairman, Security First Group; 1994 to April 1997 Executive Vice President, U.S. Insurance Operations, President and Chief Executive Officer, Security First Group, 1991 to 1994. Age 52. Barnett Chernow Vice Executive Vice President, Golden American Life President Golden American Life Insurance Co. Trustee Insurance Company; Executive 1001 Jefferson Street Vice President, Directed Wilmington, DE 19801 Services, Inc.; Executive Vice President, First Golden American Life Insurance Company of New York. Age 49. J. Michael Earley Trustee President, and Chief 665 Locust Street Executive Officer, Bankers Des Moines, IA 50309 Trust Company, Des Moines, Iowa since July 1992. Age 53. 12 R. Barbara Gitenstein Trustee President, The College of New Jersey The College of New Jersey since January, 1999; Trustee Provost, 200 Pennington Road Drake Office of the President Ewing, NJ 08628 University from July 1992 to December 1998. Age 50. Robert A. Grayson Trustee Co-founder, Grayson Grayson Associates Associates, Inc.; Adjunct 108 Loma Media Road Professor of Marketing, New Santa Barbara, CA York University School of Business Administration; former Director, The Golden Financial Group, Inc.; 93103 former Senior Vice President, David & Charles Advertising. Age 71. Myles R. Tashman Secretary Executive Vice President, Golden American Life Secretary and General Counsel, Insurance Co. Golden American Life Insurance 1475 Dunwoody Drive Company since 1993; Director, West Chester, PA 19380 Gold American Life since 1998; Executive Vice President, Secretary and General Counsel, Directed Services, Inc. since 1993; Director, Executive Vice President, Secretary and General Counsel, First Golden American Life Insurance Company of New York. Age 55. Stanley B. Seidler Trustee President, Iowa Periodicals, P.O. Box. 1297 Inc. since 1990 and 3301 McKinley Avenue President, Excell Marketing Des Moines, IA 50321 L.C. since 1994. Age 70. 13 Mary Bea Wilkinson Treasurer Senior Vice President & Treasurer, Golden American Life First Golden American Life Insurance Insurance Co. Company of New York since 1996; Senior 1475 Dunwoody Drive Vice President and Treasurer, Golden West Chester, PA 19803 American Life Insurance Co.; and President and Treasurer, Directed Services, Inc. October 1993 to December 1996. Age 42. Roger B. Vincent Trustee President, Springwell Springwell Corporation; Director Corporation Petralone, Inc.; formerly, 230 Park Avenue, Managing Director Bankers New York, NY 10169 Trust Company. Age 53. Elizabeth J. Newell Trustee President and Chief KRAGIE/NEWELL, Inc. Executive Officer of 2633 Fleur Drive KRAGIE/NEWELL, Inc. Age 51 Des Moines, IA 50321 - ----------------------------- As of March 31, 1999, none of the Trustees directly owns shares of the Portfolios. In addition, as of March 31, 1998, the Trustees and Officers as a group owned Variable Contracts that entitled them to give voting instructions with respect to less than one percent of the outstanding shares of each Portfolios in the aggregate. Each Trustee of the Trust who is not an interested person of the Trust or Manager or Portfolio Manager receives a fee of $6,000 for each Trustees' meeting attended and any expenses incurred in attending such meetings or carrying out their responsibilities as Trustees of the Trust. With respect to the period ended December 31, 1998, the Trust paid Trustees' Fees aggregating $151,500. The following table shows 1998 compensation by Trustee. 14 COMPENSATION TABLE
(1) (2) (3) (4) (5) Pension or Total Aggregate Retirement Estimated Compensation Compensation Benefits Accrued Annual From Registrant Name of Person, From As Part of Fund Benefits Upon and Fund Complex Position Registrant Expenses Retirement Paid to Trustees J. Michael Earley, $ 24,000 N/A N/A $ 24,000 Trustee R. Barbara Gitenstein, $ 24,750 N/A N/A $ 24,750 Trustee Robert A. Grayson $ 24,000 N/A N/A $ 24,000 Trustee Stanley B. Seidler, $ 24,750 N/A N/A $ 24,750 Trustee Elizabeth J. Newell $ 24,000 N/A N/A $ 24,000 Trustee Roger B. Vincent $ 24,000 N/A N/A $ 24,000 Trustee M. Norvell Young $ 6,000 N/A N/A $ 6,000 Trustee*
--------------- * Mr. Young served as a Trustee until his death in February of 1998. The table below lists each Variable Contract Owner who owns a Variable Contract that entitles the owner to give voting instructions with respect to 5% or more of the shares of the Portfolios as of March 31, 1999. The address for each record owner is c/o Golden American Life Insurance Company, 1475 Dunwoody Drive, West Chester, PA 19803. NAME SERIES PERCENTAGE Helen B. Yungman The Fund For Life 68.92% Jerome S. Golden The Fund For Life 8.08% Donald C. Nonell The Fund For Life 12.09% Additionally, as of March 31, 1999, the General Account of Golden American owned 8.01% of the shares of the Fund For Life. 15 The Management Agreement - ------------------------ Subject to the supervision of the Trust's Board of Trustees, the Manager will provide a continuous investment program for the Fund's portfolio and determine the composition of the assets of the Fund's portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of the Fund's assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Fund, when these transactions should be executed, and what portion of the assets of the Fund should be held in the various securities and other investments in which it may invest in accordance with the Fund's investment objective or objectives, policies, and restrictions. Pursuant to the Management Agreement, the Manager is authorized to exercise full investment discretion and make all determinations with respect to the investment of the Fund's assets and the purchase and sale of its portfolio securities. The Management Agreement will continue in effect until February 1996, and from year to year thereafter provided such continuance is approved annually by (i) the holders of a majority of the outstanding voting securities of the Fund or by the Board of Trustees, and (ii) a majority of the Trustees who are not parties to such Management Agreement or "interested persons" (as defined in the 1940 Act) of any such party. The Management Agreement was approved by the Board of Trustees, including a majority of the Trustees who are not parties to the Management Agreement, or interested persons of such party, at a meeting held on September 27, 1994. The Management Agreement may be terminated without penalty by vote of the Trustees or the shareholders of the Fund, or by the Manager, on 60 days' written notice by either party to the Management Agreement and will terminate automatically if assigned. The Trust pays the Manager a monthly fee at an annual rate of 0.25% of the average daily net assets of the Fund. Gross fees payable to the Manager for the fiscal years ended December 31, 1998, 1997 and 1996 under the Management Agreement were $211, $258, and $830, respectively. The 1997 an 1998 fees were waived by the Manager. 16 The Administrative Services Agreement - ------------------------------------- Directed Services, Inc. ("Administrator") serves as Administrator to the Fund pursuant to an Administrative Services Agreement between the Administrator and the Trust. Its address is 1475 Dunwoody Drive, West Chester, PA 19803. DSI also serves as Manager to the Fund. Pursuant to the Administrative Services Agreement, the Administrator, subject to the direction of the Board of Trustees, is responsible for providing all supervisory and management services reasonably necessary for the operation of the Trust and the Fund other than the services performed by the Manager. These services shall include, but are not limited to, (i) coordinating all matters relating to the functions of the Fund's Manager, Custodian, Dividend Disbursing Agent, and Recordkeeping Agent (including pricing and valuation of the Fund's portfolio), accountants, attorneys, and other parties performing services or operational functions for the Trust, (ii) providing the Trust and the Fund, at the Administrator's expense, with the services of a sufficient number of persons competent to perform such administrative and clerical functions as are necessary to ensure compliance with federal securities laws as well as other applicable laws and to provide effective supervision and administration of the Trust; (iii) maintaining or supervising the maintenance by the Manager or third parties approved by the Trust of such books and records of the Trust and the Fund as may be required by applicable federal or state law; (iv) preparing or supervising the preparation by third parties approved by the Trust of all federal, state, and local tax returns and reports of the Trust required by applicable law; (v) preparing and, after approval by the Trust, filing and arranging for the distribution of proxy materials and periodic reports to shareholders of the Trust as required by applicable law; (vi) preparing and, after approval by the Trust, arranging for the filing of such registration statements and other documents with the Securities and Exchange Commission and other federal and state regulatory authorities as may be required by applicable law; (vii) taking such other action with respect to the Trust, after approval by the Trust, as may be required by applicable law, including without limitation the rules and regulations of the Securities and Exchange Commission and other regulatory agencies; and (viii) providing the Trust, at the Administrator's expense, with adequate personnel, office space, communications facilities, and other facilities necessary for its operations as contemplated in the Administrative Services Agreement. Other responsibilities of the Administrator are described in the Prospectus. 17 The Administrator shall make its officers and employees available to the Board of Trustees and officers of the Trust for consultation and discussions regarding the supervision and administration of the Fund. The Trust pays the Administrator a monthly fee at an annual rate of 0.10%% of the Fund's average daily assets. Gross fees payable to the Administrator under the Administrative Services Agreement for the fiscal years ended December 31, 1998, 1997 and 1996 were $922, $518, and $1,660, respectively. The 1997 and 1998 fees were waived by the Administrator. The Trust bears all of its costs of operation other than those specifically borne by the Administrator or the Manager. The Fund's costs include any direct charges relating to the purchase and sale of portfolio securities, interest charges, fees and expenses of the Trust's attorneys and auditors, taxes and governmental fees, cost of share certificates and other expenses of issue, sale, repurchase or redemption of shares, expenses of registering and qualifying shares for sale, expenses of printing and distributing reports, notices and proxy materials to shareholders, fees and expenses of data processing, recordkeeping and financial accounting services rendered to the Trust, expenses of printing and filing reports and other documents with governmental agencies, expenses of typesetting, printing and distributing Prospectuses to the existing shareholders, expenses of annual and special shareholders' meetings, charges of custodians, fees and expenses of Trustees of the Trust who are not officers or employees to the Manager or its affiliates, membership dues in the Investment Company Institute or other industry associations, insurance premiums and extraordinary expenses such as litigation expense and the expense of compliance with any governmental tax withholding requirements. Certain of the expenses incurred by the Fund in connection with its organization, its registration with the Securities and Exchange Commission and any states where registered, and the public offering of its shares were advanced on behalf of the Trust by the Manager. These organizational expenses are deferred and amortized by the Fund over a period not exceeding 60 months from the date of the Fund's commencement of operations. Distribution of Trust Shares - ---------------------------- Directed Services, Inc. (the "Distributor") serves as the Trust's Distributor pursuant to a Distribution Agreement with the Trust. The Distributor is not obligated to sell a specific amount of Trust shares. The Distributor bears all expenses of providing services pursuant to the Distribution Agreement including the costs of sales presentations, mailings, advertising, and any other marketing efforts by the Distributor in connection with the distribution or sale of the shares. 18 Purchases and Redemptions - ------------------------- For information on purchase and redemption of shares, see "Purchase of Shares" and "Redemption of Shares" in the Fund's Prospectus. The Trust may suspend the right of redemption of shares of the Fund and may postpone payment beyond seven days for any period: (i) during which the New York Stock Exchange is closed other than customary weekend and holiday closing or during which trading on the New York Stock Exchange is restricted; (ii) when the Securities and Exchange Commission determines that a state of emergency exists which may make payment or transfer not reasonably practicable; (iii) as the Securities and Exchange Commission may by order permit for the protection of the security holders of the Trust; or (iv) at any other time when the Trust may, under applicable laws and regulations, suspend payment on the redemption of its shares. If the Board of Trustees should determine that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may pay the redemption price in whole or in part by a distribution in kind of securities from its portfolio, in lieu of cash, in conformity with applicable rules of the Securities and Exchange Commission. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets into cash. PORTFOLIO TRANSACTIONS As part of its obligations under the Management Agreement, the Manager places all orders for the purchase and sale of portfolio investments for the Fund's account with brokers or dealers selected by it in its discretion. With respect to orders for the purchase and sale of no-load mutual funds, the Manager places orders directly with the mutual fund or its agent. With respect to purchases of certain money market instruments, purchase orders are placed directly with the issuer or its agent. Purchases of load fund shares may be effected by the Manager itself, which is a registered broker-dealer, although other brokers or dealers may be selected at the discretion of the Manager. When appropriate, the Fund may arrange to be included within a class of investors entitled to a reduced sales charge on load fund shares and may purchase load fund shares under letters of intent, rights of accumulation and cumulative purchase privileges, which permit it to obtain reduced sales charges for larger purchases of shares. Therefore, in a majority of cases, the sales charges paid by the Fund on a load fund purchase do not exceed 1% of the public offering price. 19 Under the 1940 Act, a mutual fund must sell its shares at the price (including sales load, if any) described in its prospectus, and current rules under the 1940 Act do not permit negotiations of sales charges. Therefore, the Fund currently is not able to negotiate the level of the sales charges at which it purchases shares of load funds, which may be as great as 8.5% of the public offering price (or 9.29% of the net amount invested). Nevertheless, certain factors tend to keep the Fund's portfolio transaction costs as low as possible, including: (1) the Fund, to the extent feasible, purchases shares of no-load funds which can be acquired without incurring a sales charge or utilizing a broker to effect the transaction; (2) the Fund, to the extent feasible, takes advantage of exchange or conversion privileges offered by many "families" of mutual funds; and (3) insofar as the Fund invests in U.S. Government and other money market securities, the transaction costs should be minimal. With respect to all non-mutual fund securities, in executing transactions, the Manager attempts to obtain the best execution for the Fund taking into account such factors as price (including the applicable brokerage commission or dollar spread), size of order, the nature of the market for the security, the timing of the transaction, the reputation, experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. In the case of securities traded on the over-the-counter markets, there is generally no stated commission, but the price includes an undisclosed commission or markup. The Manager may in the future provide advisory services to clients other than the Fund. A particular security may be bought or sold by the Manager for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more clients are selling the security. In some instances, one client may sell a particular security to another client. Two or more clients of the Manager also may simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, allocated between such clients in a manner deemed fair and reasonable by the Manager. Although there is no specified formula for allocating such transactions, the various allocation methods used by the Manager, and the results of such allocations, are subject to periodic review by the Trust's Board of Trustees. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. 20 NET ASSET VALUE As indicated under "Net Asset Value" in the Prospectus, the Fund's net asset value per share for the purpose of pricing purchase and redemption orders is determined at or about 4:00 P.M., New York City time, on each day the New York Stock Exchange is open for trading, exclusive of federal holidays. ADVERTISING The Trust may, from time to time, include the total return of the Fund in advertisements or sales literature. Performance information for the Fund will not be advertised or included in sales literature unless accompanied by comparable performance information for a separate account to which the Fund offers its shares. Quotations of average annual total return for the Fund will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the Fund over certain periods that will include periods of one, five, and ten years (or, if less, up to the life of the Fund), calculated pursuant to the following formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). Quotations of total return may also be shown for other periods. All total return figures reflect the deduction of a proportional share of Fund expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. For the fiscal year ended December 31, 1998, the five year period ended December 31, 1998, and the period from the commencement of operations of the Fund on March 1, 1993 to December 31, 1998, the total return of the Fund was 13.67%, 10,85% and 10.75%, respectively. 21 Performance information for the Fund may be compared, in advertisements, sales literature, and reports to shareholders to: (i) the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average, the Lehman Brothers Government Bond Index, the Donoghue Money Market Institutional Averages, the Lehman Brothers Government Corporate Index, the Salomon High Yield Index, or other indexes that measure performance of a pertinent group of securities; (ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the Fund. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Quotations of total return for the Fund will not take into account charges and deductions against any separate accounts to which the Fund shares are sold or charges and deductions against the life insurance policies or annuity contracts issued by Golden American Life Insurance Company, although comparable performance information for the separate account will take such charges into account. Performance information for the Fund reflects only the performance of a hypothetical investment in the Fund during the particular time period on which the calculations are based. Performance information should be considered in light of the Fund's investment objective and investment policies, the characteristics and quality of the portfolios, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. Advertisements may include discussion of the underlying mutual funds held by the Fund. 22 TAXATION The following discussion summarizes certain U.S. federal tax considerations incident to an investment in the Fund. The Fund intends to qualify annually and to elect to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated investment company, the Fund generally must, among other things: (i) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities, or currencies; (ii)diversify its holdings so that, at the end of each quarter of the taxable year, (a) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies, and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies); and (iii) distribute at least 90% of its net investment income (which includes, among other items, dividends, interest, and net short-term capital gains in excess of any net long-term capital losses) each taxable year. As a regulated investment company, the Fund generally will not be subject to U.S. federal income tax on its net investment income and net capital gains (net long-term capital gains in excess of the net short-term capital losses) that it distributes to shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its net investment income and any net capital gains. In general, amounts not distributed by a regulated investment company on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To avoid the tax, a regulated investment company must distribute during each calendar year, (i) at least 98% of its ordinary income (not taking into account any capital gains or losses) of the calendar year, (ii) at least 98% of its capital gains in excess of its capital losses for the twelve month period ending on October 31 of the calendar year (adjusted for certain ordinary losses), and (iii) all ordinary income and capital gains for previous years that were not distributed during such years. The Fund will not be subject to 22 the excise tax on undistributed amounts for any calendar year if at all times during the calendar year the shareholders of the Fund consist only of segregated asset accounts of life insurance companies established in connection with variable contracts, as defined in the Code. (For this purpose, any shares of the Fund attributable to an investment in the Fund not exceeding $250,000 made in connection with the organization of the Fund shall not be taken into account.) In the event the Fund fails to meet this exception, the Fund intends to make its distributions in accordance with the calendar year distribution requirement. A distribution will be treated as paid on December 31 of a calendar year if it is declared by the Fund in October, November, or December of that year with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to shareholders (the insurance company separate accounts) for the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. If the Fund invests in shares of an investment company organized abroad, the Fund may be subject to U.S. federal income tax on a portion of an "excess distribution" from, or on the gain from the sale of part or all of the shares in, such company. In addition, an interest charge may be imposed with respect to deferred taxes arising from such distributions or gains. To comply with regulations under Section 817(h) of the Code, the Fund generally will be required to diversify its investments following the first anniversary of the beginning of its operations. Generally, pursuant to Section 817(h), the Fund will be required to diversify its investments so that on the last day of each quarter of a calendar year, no more than 55% of the value of its assets is represented by any one investment, no more than 70% is represented by any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. In connection with the issuance of the diversification regulations, the Treasury Department announced that it would issue future regulations or rulings addressing the circumstances in which a variable contract owner's control of the investments of a separate account may cause the contract owner, rather than the insurance company, to be treated as the owner of the assets held by the separate account. If the variable contract owner is considered the owner of the securities underlying the separate 23 account, income and gains produced by those securities would be included currently in the contract owner's gross income. The insurance company to which the Fund offers its shares (the "Company") has advised the Trust that it believes that, for federal income tax purposes, the Fund will be the owner of the shares of the mutual funds and any income therefrom, and the separate accounts of the Company will be the owners of the Shares of the Fund and any income therefrom. Although it is not known what standards will be incorporated in future regulations or other pronouncements, the Treasury staff has indicated informally that it is concerned that there may be too much contract owner control where a mutual fund (or series) underlying a separate account invests solely in securities issued by companies in a specific industry. Similarly, the ability of a contract owner to select a fund representing a specific economic risk or to direct (without restriction) the issuer of a variable contract at any time to invest in the Fund or other investments may also be proscribed. The belief of the Company with respect to the ownership by the Fund of the mutual fund shares and the income therefrom, and by the separate accounts of the Shares of the Fund and the income therefrom, is based upon published Internal Revenue Service rulings and the Company's understanding of the current Internal Revenue Service policy. In connection with the issuance of the temporary diversification regulations in 1986, the Treasury announced that such regulations did not provide guidance concerning the extent to which owners may direct their investments to particular divisions of a separate account without being considered the owners of the assets of the account. It is possible that regulations or revenue rulings may be issued in this area at some time in the future. These future rules and regulations proscribing investment control may adversely affect the ability of the Fund to operate as described in the Prospectus. There is, however, no certainty as to what standards, if any, Treasury will ultimately adopt. In the event that unfavorable rules or regulations are adopted, there can be no assurance that the Fund will be able to operate as currently described in the Prospectus, or that the Fund will not have to change its investment objective or objectives, investment policies, or investment restrictions. While the Fund's investment objective is fundamental and may be changed only by a vote of a majority of its outstanding shares, the Trustees have the right to modify the investment policies of the Fund as necessary to prevent any such prospective rules and regulations from causing the Variable Contract owners to be considered the owners of the assets underlying the Separate Accounts. 24 Distributions - ------------- Distributions of net investment income by the Fund are taxable to shareholders (the insurance company separate accounts) as ordinary income. Net capital gains will be treated, to the extent distributed and designated as capital gains dividends, as long-term capital gains in the hands of the shareholders. Other Taxes - ----------- Distributions may also be subject to additional state, local and foreign taxes, depending on each shareholder's particular situation. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. OTHER INFORMATION Capitalization - -------------- The Trust is a Massachusetts business trust established under an Agreement and Declaration of Trust dated August 3, 1988. The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with a par value of $0.001 each. The Trust currently consists of fourteen operational Series, one of which is discussed in this Statement of Additional Information. The Board of Trustees may establish additional Series (with different investment objectives and fundamental policies) at any time in the future. Establishment and offering of additional Series will not alter the rights of the Trust's shareholders, the Separate Accounts. When issued in accordance with the terms of the Agreement and Declaration of Trust, shares are fully paid, redeemable, freely transferable, and non-assessable by the Trust. Shares do not have preemptive rights or subscription rights. In liquidation of a Series of the Trust, each shareholder is entitled to receive his or her pro rata share of the net assets of that portfolio. Expenses incurred by the Fund in connection with its organization and the public offering of its shares aggregated approximately $51,850.03. These costs have been deferred and are being amortized over a period not exceeding five years from the Fund's commencement of operations. 25 On January 31, 1992, the name of the Trust was changed to The GCG Trust. Prior to that change, the name of the Trust was The Specialty Managers Trust, and prior to July 17, 1989, the name of the Trust was Western Capital Specialty Managers Trust. Voting Rights - ------------- Shareholders of the Trust are given certain voting rights. Each share of each Series will be given one vote, unless a different allocation of voting rights is required under applicable law for a mutual fund that is an investment medium for variable insurance products. Massachusetts business law does not require the Trust to hold annual shareholder meetings, although special meetings may be called for a specific Series, or for the Trust as a whole, for purposes of electing or removing Trustees, changing fundamental policies, or approving a contract for investment advisory services. It is not anticipated that the Trust will hold meetings of the shareholders of the Fund unless required by law or the Agreement and Declaration of Trust. In this regard, the Trust will be required to hold a meeting to elect Trustees to fill any existing vacancies on the Board if, at any time, fewer than a majority of the Trustees have been elected by the shareholders of the Trust. In addition, the Agreement and Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares or other voting interests of the Trust may remove a person serving as Trustee either by declaration in writing or at a meeting called for such purpose. The Trust's shares do not have cumulative voting rights. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. The Trust is required to assist in shareholders' communications. Purchase of Shares - ------------------ Shares of the Portfolio may be offered for purchase by separate accounts of insurance companies to serve as an investment medium for the variable contracts issued by the insurance companies and to certain qualified pension and retirement plans, as permitted under the federal tax rules relating to the Portfolio serving as investment mediums for variable contracts. Shares of the Portfolio are sold to insurance company separate accounts funding both variable annuity contracts and variable life insurance contracts and may be sold to insurance companies that are not affiliated. The Trust currently does not foresee any disadvantages to variable contract owners or other investors arising from offering the Trust's shares to separate accounts of unaffiliated insurers, separate accounts funding both life insurance polices and annuity contracts in certain qualified pension and retirement plans; however, due to differences in tax treatment or other considerations, it is theoretically possible that the interests of owners of various contracts or pension and retirement plans participating in the Trust might at sometime be in conflict. However, the Board of Trustees and insurance companies whose separate accounts invest in the Trust are required to monitor events in order to identify any material conflicts between variable annuity contract owners and variable life policy owners, between separate accounts of unaffiliated insurers, and between various contract owners or pension and retirement plans. The Board of Trustees will determine what action, if any, should be taken in the event of such a conflict. If such a conflict were to occur, in one or more insurance company separate accounts might withdraw their investment in the Trust. This might force the Trust to sell securities at disadvantageous prices. Shares of the Portfolio are sold at its net asset values (without a sales charge) next computed after receipt of a purchase order by an insurance company whose separate account invests in the Trust. Redemption of Shares - -------------------- Shares of the Portfolio may be redeemed on any business day. Redemptions are effected at the per share net asset value next determined after receipt of the redemption request by an insurance company whose separate account invests in the Portfolio. Redemption proceeds normally will be paid within seven days following receipt of instructions in proper form. The right of redemption may be suspended by the Trust or the payment date postponed beyond seven days when the New York Stock Exchange is closed (other than customary weekend and holiday closings) or for any period during which trading thereon is restricted because an emergency exists, as determined by the SEC, making disposal of portfolio securities or valuation of net assets not reasonably practicable, and whenever the SEC has by order permitted such suspension or postponement for the protection of shareholders. If the Board of Trustees should determine that it would be detrimental to the best interests of the remaining shareholders of the Portfolio to make payment wholly or partly in cash, the Portfolio may pay the redemption price in whole or part by a distribution in kind of securities from the portfolio of the Portfolio, in lieu of cash, in conformity with applicable rules of the SEC. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets into cash. Exchanges - --------- Shares of the Portfolio may be exchanged for shares of any of the other Portfolios of the GCG Trust. Exchanges are treated as a redemption of shares of one Portfolio and a purchase of shares of one or more of the other Portfolios and are effected at the respective net asset values per share of each Portfolio on the date of the exchange. The Trust reserves the right to modify or discontinue its exchange privilege at any time without notice. Variable contract owners do not deal directly with the Trust with respect to the purchase, redemption, or exchange of shares of the Portfolio, and should refer to the Prospectus for the applicable variable contract for information on allocation of premiums and on transfers of contract value among subaccounts of the pertinent insurance company separate account that invest in the Portfolio. The Trust reserves the right to discontinue offering shares of the Portfolio at any time. Custodian - --------- The Custodian for the Trust is Bankers Trust Company, 280 Park Avenue, New York, NY 10017. DSI provides portfolio accounting services for the Trust pursuant to a Portfolio Accounting Agreement. 26 Independent Auditors - -------------------- Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116-5072, serves as independent auditors for the Trust. Counsel - ------- Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW, Washington, D.C. 20004-2440 serves as counsel to the Trust. Registration Statement - ---------------------- This Statement of Additional Information and the Prospectus do not contain all the information included in the Trust's Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered by the Prospectus. Certain portions of the Registration Statement have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement, including the exhibits filed therewith, may be examined at the offices of the Securities and Exchange Commission in Washington, D.C. Statements contained herein and in the Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other documents filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. FINANCIAL STATEMENTS The audited financial statements for the Fund dated as of December 31, 1998, including notes thereto, are incorporated by reference in this Statement of Additional Information from the Fund's Annual Report dated as of December 31, 1998. 27 APPENDIX A: DESCRIPTION OF BOND RATINGS Excerpts from Moody's Investors Service, Inc.'s ("Moody's") description of its bond ratings: Aaa - judged to be the best quality; they carry the smallest degree of investment risk. Aa - judged to be of high quality by all standards; together with the Aaa group, they comprise what are generally known as high grade bonds. A - possess many favorable investment attributes and are to be considered as "upper medium grade obligations." Baa - considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured; interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Ba - judged to have speculative elements; their future cannot be considered as well assured. B - generally lack characteristics of the desirable investment. Caa - are of poor standing; such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - speculative in a high degree; often in default. C - lowest rate class of bonds; regarded as having extremely poor prospects. Moody's also applies numerical indicators 1, 2, and 3 to rating categories. The modifier 1 indicates that the security is in the higher end of its rating category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of the category. Excerpts from the Standard & Poor's Rating Group ("S&P") description of its bond ratings: AAA - highest grade obligations; capacity to pay interest and repay principal is extremely strong. AA - also qualify as high grade obligations; a very strong capacity to pay interest and repay principal and differs from AAA issues only in small degree. A - regarded as upper medium grade; they have a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - regarded as having an adequate capacity to pay interest and repay principal; whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity than in higher rated categories - this group is the lowest which qualifies for commercial bank investment. BB, B, CCC, CC - predominantly speculative with respect to capacity to pay interest and repay principal in accordance with terms of the obligation: BB indicates the lowest degree of speculation and C the highest. S&P applies indicators "+", no character, and "-" to its rating categories. The indicators show relative standing within the major rating categories. A-1 APPENDIX B: SECURITIES AND INVESTMENT TECHNIQUES OF UNDERLYING MUTUAL FUNDS FOREIGN CURRENCY TRANSACTIONS. An underlying fund may enter into forward contracts in connection with its portfolio transactions in securities traded in a foreign currency. Under such an arrangement, concurrently with the entry into a contract to acquire a foreign security for a specified amount of currency, the fund would purchase with U.S. dollars the required amount of foreign currency for delivery at the settlement date of the purchase; the fund would enter into similar forward currency transactions in connection with the sale of foreign securities. The effect of such transactions would be to fix a U.S. dollar price for the security to protect against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date the security is purchased or sold and the date on which payment is made or received, the normal range of which is three to fourteen days. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement and no commissions are charged at any stage for trades. Under the Internal Revenue Code (the "Code"), gains or losses attributable to fluctuations in exchange rates which occur between the time an underlying fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time it actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of an underlying fund's investment company taxable income to be distributed to the Fund as ordinary income. This, in turn, will affect the amount of investment company taxable income of the Fund. See "Dividends, Distributions, and Taxes" in the Fund's Prospectus. B-1 MASTER DEMAND NOTES. Although the Fund itself will not do so, underlying funds (particularly money market mutual funds) may invest up to 100% of their assets in master demand notes. Master demand notes are unsecured obligations of U.S. corporations redeemable upon notice that permit investment by a fund of fluctuating amounts at varying rates of interest pursuant to direct arrangements between the fund and the issuing corporation. Because they are direct arrangements between the fund and the issuing corporation, there is no secondary market for the notes. However, they are redeemable at face value, plus accrued interest, at any time. SHORT SALES. An underlying fund may sell securities short. In a short sale, the fund sells stock which it does not own, making delivery with securities "borrowed" from a broker. The fund is then obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. This price may or may not be less than the price at which the security was sold by the fund. Until the security is replaced, the fund is required to pay to the lender any dividends or interest which accrue during the period of the loan. In order to borrow the security, the fund also may have to pay a premium which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. The underlying fund also must deposit in a segregated account an amount of cash or U.S. Government securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) the value of the collateral deposited with the broker in connection with the short sale (not including the proceeds from the short sale). While the short position is open, the fund must maintain daily the segregated account at such a level that (1) the amount deposited in it plus the amount deposited with the broker as collateral equals the current market value of the securities sold short and (2) the amount deposited in it plus the amount deposited with the broker as collateral is not less than the market value of the securities at the time they were sold short. Depending upon market conditions, up to 80% of the value of a fund's net assets may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to a segregated account in connection with short sales. A short sale is "against the box" if at all times when the short position is open the fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issue as the securities sold short. Such a transaction serves to defer a gain or loss for federal income tax purposes. B-2 OPTIONS ACTIVITIES. An underlying fund may write (i.e., sell) listed call options ("calls") if the calls are "covered" throughout the life of the option. A call is "covered" if the fund owns the optioned securities. When a fund writes a call, it receives a premium and gives the purchaser the right to buy the underlying security at any time during the call period (usually not more than nine months in the case of common stock) at a fixed exercise price regardless of market price changes during the call period. If the call is exercised, the fund will forgo any gain from an increase in the market price of the underlying security over the exercise price. An underlying fund may purchase a call on securities only to effect a "closing purchase transaction," which is the purchase of a call covering the same underlying security and having the same exercise price and expiration date as a call previously written by the fund on which it wishes to terminate its obligation. If the fund is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call previously written by the fund expires (or until the call is exercised and the fund delivers the underlying security). An underlying fund also may write and purchase put options ("puts"). When a fund writes a put, it receives a premium and gives the purchaser of the put the right to sell the underlying security to the fund at the exercise price at any time during the option period. When an underlying fund writes a put, it must "cover" the put by either maintaining cash or fixed income securities with a value equal to the exercise price in a segregated account with its custodian or by holding a put on the same security and in the same principal amount as the put written when the exercise price of the put held is equal to or greater than the exercise price of the put written. When a fund purchases a put, it pays a premium in return for the right to sell the underlying security at the exercise price at any time during the option period. An underlying fund also may purchase stock index puts, which differ from puts on individual securities in that they are settled in cash based on the values of the securities in the underlying index rather than by delivery of the underlying securities. Purchase of a stock index put is designed to protect against a decline in the value of the portfolio generally rather than an individual security in the portfolio. If any put is not exercised or sold, it will become worthless on its expiration date. An underlying fund's option positions may be closed out only on an exchange which provides a secondary market for options of the same series, but there can be no assurance that a liquid secondary market will exist at a given time for any particular option. In this regard, trading in options on certain securities (such as U.S. Government securities) is relatively new so that it is impossible to predict to what extent liquid markets will develop or continue. B-3 The underlying fund's custodian, or a securities depository acting for it, generally acts as escrow agent as to the securities on which the fund has written puts or calls, or as to other securities acceptable for such escrow so that no margin deposit is required of the fund. Until the underlying securities are released from escrow, they cannot be sold by the fund. In the event of a shortage of the underlying securities deliverable on exercise of an option, the Options Clearing Corporation has the authority to permit other, generally comparable securities, to be delivered in fulfillment of option exercise obligations. If the Options Clearing Corporation exercises its discretionary authority to allow such other securities to be delivered, it may also adjust the exercise prices of the affected options by setting different prices at which otherwise ineligible securities may be delivered. As an alternative to permitting such substitute deliveries, the Options Clearing Corporation may impose special exercise settlement procedures. FUTURES CONTRACTS. An underlying fund may enter into futures contracts for the purchase or sale of debt securities and stock indexes. A futures contract is an agreement between two parties to buy and sell a security or an index for a set price on a future date. Futures contracts are traded on designated "contract markets" which, through their clearing corporations, guarantee performance of the contracts. Generally, if market interest rates increase, the value of outstanding debt securities declines (and vice versa). Entering into a futures contract for the sale of securities has an effect similar to the actual sale of securities, although sale of the futures contract might be accomplished more easily and quickly. For example, if an underlying fund holds long-term U.S. Government securities and it anticipates a rise in long-term interest rates, it could, in lieu of disposing of its portfolio securities, enter into futures contracts for the sale of similar long-term securities. If rates increased and the value of the fund's portfolio securities declined, the value of the fund's futures contracts would increase, thereby protecting the fund by preventing the net asset value from declining as much as it otherwise would have. Similarly, entering into futures contracts for the purchase of securities has an effect similar to the actual purchase of the underlying securities, but permits the continued holding of securities other than the underlying securities. For example, if the fund expects long-term interest rates to decline, it might enter into futures contracts for the purchase of long-term securities so that it could gain rapid market exposure that may offset anticipated increases in the cost of securities it intends to purchase while continuing to hold higher-yield short-term securities or waiting for the long-term market to stabilize. B-4 A stock index futures contract may be used to hedge an underlying fund's portfolio with regard to market risk as distinguished from risk relating to a specific security. A stock index futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective accounts of the parties to the contract. On the contract's expiration date, a final cash settlement occurs. Changes in the market value of a particular stock index futures contract reflect changes in the specified index of equity securities on which the future is based. There are several risks in connection with the use of futures contracts. In the event of an imperfect correlation between the futures contract and the portfolio position which is intended to be protected, the desired protection may not be obtained and the fund may be exposed to risk of loss. Further, unanticipated changes in interest rates or stock price movements may result in a poorer overall performance for the fund than if it had not entered into futures contracts on debt securities or stock indexes. Also, the successful use of futures depends upon the underlying fund investment advisor's ability to predict correctly movements in the direction of the market. In addition, the market prices of futures contracts may be affected by certain factors. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the securities and futures markets. Second, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market also may cause temporary price distortions, although speculators generally serve an important function by bringing liquidity to the futures markets. When purchasing a futures contract, a fund must deposit in a segregated account cash or high quality debt instruments equal in value to the current value of the underlying instruments less the margin deposit. Finally, positions in futures contracts may be closed out only on an exchange or board of trade which provides a secondary market for such futures. There is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. B-5 OPTIONS ON FUTURES CONTRACTS. An underlying fund also may purchase and sell listed put and call options on futures contracts. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the option period. When an option on a futures contract is exercised, delivery of the futures position is accompanied by cash representing the difference between the current market price of the futures contract and the exercise price of the option. The fund may purchase put options on futures contracts in lieu of, and for the same purpose as, a sale of a futures contract. It also may purchase such put options in order to hedge a long position in the underlying futures contract in the same manner as it purchases "protective puts" on securities. B-6 **************** PART C **************** PART C. OTHER INFORMATION Item 23. Exhibits Exhibits (a) (1) Amended and Restated Agreement and Declaration of Trust (1) (2) Amendment to the Restated Agreement and Declaration of Trust (adding the Managed Global Series) (2) (3) Amendment to the Restated Agreement and Declaration of Trust (adding the Mid-Cap Growth Series, Research Series, Total Return Series, Growth & Income Series, Value + Growth Series, Global Fixed Income Series, Growth Opportunities Series & Developing World Series) (3) (b) By-laws (c) Instruments Defining Rights of Security Holders (d) (1) (A) Management Agreement (for all Series except The Fund For Life)(3) (B) Management Agreement (for The Fund For Life) (2) Portfolio Management Agreements (A) Portfolio Management Agreement with Pilgrim Baxter & Associates, Ltd. (5) (B) Portfolio Management Agreement with Putnam Investment Management, Inc. (6) (C) Portfolio Management Agreement with T. Rowe Price Associates, Inc. (7) (D) Portfolio Management Agreement with Van Eck Associates Corporation (8) (E) Portfolio Management Agreement with ING Investment Management LLC, formerly Equitable Investment Services, Inc. (9) (F) Portfolio Management Agreement with EII Realty Securities, Inc. (10) (G) Portfolio Management Agreement with Kayne Anderson Investment Management, LLC. (11) (H) Portfolio Management Agreement with Fred Alger Management, Inc. (12) (I) Portfolio Management Agreement with Eagle Asset Management, Inc. (13) (J) Portfolio Management Agreement with Massachusetts Financial Services Company and Montgomery Asset Management, L.P. (14) (K) Portfolio Management Agreement with Baring International Investment Limited (L) Portfolio Management Agreement with A I M Capital Management, Inc. (M) Portfolio Management Agreement with Janus Capital Corporation (N) Portfolio Management Agreement with Alliance Capital Management L.P. (O) Schedule Pages for T. Rowe Price Associates, Inc. (P) Schedule Pages for EII Realty Securities, Inc. (3) Administrative Services Agreement for The Fund For Life (4) Administration and Fund Accounting Agreement among the Trust, Directed Services, Inc., and First Data Corporation. (e) Distribution Agreement (15) (f) Not Applicable (g) (1) Custodian Agreement and Addenda (2) Addendum to the Custodian Agreement (adding Managed Global Series) (16) (3) Addendum to the Custodian Agreement (adding Mid-Cap Growth Series)(17) (4) Addendum to the Custodian Agreement (adding Mid-Cap Growth Series, Research Series, Total Return Series, Growth & Income Series, Value & Growth, Global Fixed Income Series, Growth Opportunities Series, and Developing World Series) (18) (h) (1) (A) Transfer Agency and Service Agreement (B) Addendum to the Transfer Agency and Service Agreement for The Fund For Life, Zero Target 2002 Series, and Capital Appreciation Series (18) (2) (A) Organizational Agreement for Golden American Life Insurance Company (B) Assignment Agreement for Organizational Agreement (C) Organizational Agreement for The Mutual Benefit Life Insurance Company (20) (D) Assignment Agreement for Organizational Agreement (E) Addendum to Organizational Agreement (adding Market Manager Series and Value Equity Series) (21) (F) Addendum to the Organizational Agreement (adding the Strategic Equity Series) (G) Addendum to the Organizational Agreement (adding the Small Cap Series)(22) (H) Addendum to the Organizational Agreement (adding Managed Global Series) (23) (I) Addendum to the Organizational Agreement (adding Mid-Cap Growth Series, Research Series, Total Return Series, Growth & Income Series, Value & Growth, Global Fixed Income Series, Growth Opportunities Series, and Developing World Series (24) (3) (A) Settlement Agreement for Golden American Life Insurance Company (B) Assignment Agreement for Settlement Agreement (24) (C) Settlement Agreement for The Mutual Benefit Life Insurance Company (D) Assignment Agreement for Settlement Agreement (4) Indemnification Agreement (5) (A) Expense Reimbursement Agreement (B) Amendment No. 1 to the Expense Reimbursement Agreement (C) Amendment No. 2 to the Expense Reimbursement Agreement (D) Amendment No. 3 to the Expense Reimbursement Agreement (E) Amendment No. 4 to the Expense Reimbursement Agreement (i) Consent of Sutherland Asbill & Brennan LLP (j) Consent of Ernst & Young LLP, independent auditors (k) Not Applicable (l) (1) Initial Capital Agreement (m) Not Applicable (n) Financial Data Schedule (o) Not Applicable (p) Powers of Attorney - ------------------------- (1) Incorporated by reference to Exhibit 1(a) of Post-Effective Amendment No. 25 to the Registration Statement on Form N-1A of The GCG Trust as filed on May 2, 1996, File No. 33-23512. (2) Incorporated by reference to Exhibit 1(b) of Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A of The GCG Trust as filed on June 14, 1996, File No. 33-23512. (3) Incorporated by reference to Exhibit 1(c) of Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A of The GCG Trust as filed on September 2, 1997, File No. 33-23512. (4) Incorporated by reference to Exhibit 5(a)(i) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (5) Incorporated by reference to Exhibit 5(b)(i) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (6) Incorporated by reference to Exhibit 5(b)(iii) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (7) Incorporated by reference to Exhibit 5(b)(iv) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (8) Incorporated by reference to Exhibit 5(b)(v) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (9) Incorporated by reference to Exhibit 5(b)(vi) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (10) Incorporated by reference to Exhibit 5(b)(viii) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (11) Incorporated by reference to Exhibit 5(b)(ix) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (12) Incorporated by reference to Exhibit 5(b)(x) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (13) Incorporated by reference to Exhibit 5(b)(xi) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (14) Incorporated by reference to Exhibit 5(b)(xii) of Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A of The GCG Trust as filed on September 2, 1997, File No. 33-23512. (15) Incorporated by reference to Exhibit 6 of Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A of The GCG Trust as filed on June 14, 1996, File No. 33-23512. (16) Incorporated by reference to Exhibit 8(a)(vi) of Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A of The GCG Trust as filed on June 14, 1996, File No. 33-23512. (17) Incorporated by reference to Exhibit 8(a)(vii) of Post-Effective Amendment No. 32 to the Registration Statement on Form N-1A of The GCG Trust as filed on May 1, 1997, File No. 33-23512. (18) Incorporated by reference to Exhibit 8(a)(viii) of Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A of The GCG Trust as filed on September 2, 1997, File No. 33-23512. (19) Incorporated by reference to Exhibit 9(a)(ii) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (20) Incorporated by reference to Exhibit 9(b)(iii) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (21) Incorporated by reference to Exhibit 9(b)(v) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. (22) Incorporated by reference to Exhibit 9(b)(vii) of Post-Effective Amendment No. 24 to the Registration Statement on Form N-1A of The GCG Trust as filed on December 22, 1995, File No. 33-23512. (23) Incorporated by reference to Exhibit 9(b)(viii) of Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A of The GCG Trust as filed on June 14, 1996, File No. 33-23512. (24) Incorporated by reference to Exhibit 9(c)(i) of Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of The GCG Trust as filed on November 26, 1997, File No. 33-23512. Item 24. Persons Controlled by or Under Control with Registrant. As of the date of this Post-Effective Amendment, a separate account of The Mutual Benefit Life Insurance Company ("MBL"), separate accounts of Security Equity Life Insurance Company, a separate account of Equitable Life Insurance Company of Iowa, Golden American Life Insurance Company and First Golden American Life Insurance Company of New York and its separate accounts own all of the outstanding shares of Registrant. MBL, Security Equity Life Insurance Company, a separate account of Equitable Life Insurance Company of Iowa, Golden American Life Insurance Company and First Golden American Life Insurance Company of New York are required to vote fund shares in accordance with instructions received from owners of variable life insurance and annuity contracts funded by separate accounts of the relevant company. The subsidiaries of ING Groep N.V. are included as Exhibit 16. Item 25. Indemnification. Reference is made to Article V, Section 5.4 of the Registrant's Agreement and Declaration of Trust, which is incorporated by reference herein. Pursuant to Indemnification Agreements between the Trust and each Independent Trustee, the Trust indemnifies each Independent Trustee against any liabilities resulting from the Independent Trustee's serving in such capacity, provided that the Trustee has not engaged in certain disabling conduct. The Trust has a management agreement with Directed Services Inc. ("DSI"), and The Trust and DSI have various portfolio management agreements with the portfolio managers (the "Agreements"). Generally, the Trust will indemnify DSI and the portfolio managers under the Agreements for acts and omissions by DSI and/or the portfolio managers. Also, DSI will indemnify the portfolio managers under the Agreements for acts and omissions by the portfolio managers. Neither DSI nor the portfolio managers are indemnified for acts or omissions where DSI and/or the portfolio managers commit willful misfeasance, bad faith, gross negligence and/or by reason of reckless disregard. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant by the Registrant pursuant to the Trust's Agreement and Declaration of Trust, its By-laws or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by directors, officers or controlling persons or the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such directors, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 26. Business and Other Connections of Investment Adviser. Directed Services, Inc. The Manager of all Series of the Trust is DSI. The directors and officers of the Manager have, during the past year, had substantial affiliations with Golden American Life Insurance Company ("Golden American") and Equitable of Iowa Companies ("EIC") and its affiliates. Unless otherwise stated all officers of DSI have a principal business address of 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. Most directors of DSI are employees of either EIC or one of its affiliates or each serves as directors of some or all of EIC's subsidiaries. In addition to DSI and Golden American, EIC's subsidiaries are Equitable Life Insurance Company of Iowa ("Equitable Life"), Equitable American Insurance Company ("Equitable American") USG Annuity & Life Company ("USG") and Locust Street Securities. EIC's principal business address 909 Locust Street, Des Moines, Iowa 50306. Name Position With Adviser Other Affiliations Myles R. Tashman Director, Executive Vice Director, Executive Vice President, General President, Secretary and Counsel, and Secretary of Golden American General Counsel Life Insurance Company, Inc., and First Golden American Insurance Company of New York. R. Lawrence Roth Director President of VESTAX Capital Corporation VESTAX Capital Corporation 1931 Georgetown Road Hudson, OH 44236 James R. McInnis President Executive Vice President of Golden American Life Insurance Company and First Golden American Life Insurance Company of New York. Barnett Chernow Director and President of Golden American Executive Vice President Life Insurance Company and First Golden American Life Insurance Company of New York; Vice President of Equitable Life Insurance Company of Iowa and USG Annuity & Life Company. Stephen J. Preston Senior Vice President Executive Vice President and Chief Actuary Golden American Life Insurance Company, Inc. and First Golden American Life Insurance Company of New York Jodie Schult Treasurer Treasurer of Locust Street Securities, Inc. Equitable of Iowa Companies 909 Locust Street Des Moines, IA 50309 David L. Jacobson Senior Vice President Senior Vice President and Assistant Secretary of Golden American Life Insurance Company, Inc. and First Golden American Life Insurance Company of New York
T. Rowe Price Associates, Inc. For information regarding T. Rowe Price Associates, Inc., reference is made to Form ADV of T. Rowe Price Associates, Inc., SEC File No. 801-00856, which is incorporated by reference. Van Eck Associates Corporation For information regarding Van Eck Associates Corporation, reference is made to Item 28 on Form N-1A for Van Eck Funds, Registration No. 2-97596, which is incorporated by reference. Kayne Anderson Investment Management, LLC For information regarding Kayne Anderson Investment Management, LLC, reference is made to Form ADV of Kayne Anderson Investment Management, LLC, SEC File No. 801-24241, which is incorporated by reference. Eagle Asset Management, Inc. For information regarding Eagle Asset Management, Inc., reference is made to Form ADV of Eagle Asset Management, Inc., SEC File No. 801-21343, which is incorporated by reference. EII Realty Securities, Inc. For information regarding EII Realty Securities, Inc., reference is made to Form ADV of EII Realty Securities, Inc., SEC File No. 801-44099, which is incorporated herein by reference. Fred Alger Management, Inc. For information regarding Fred Alger Management, Inc., reference is made to Form ADV of Fred Alger Management, Inc., SEC File No. 801-6709, which is incorporated by reference. A I M Capital Management, Inc. For information regarding A I M Capital Management, Inc., reference is made to Form ADV of A I M Capital Management, Inc., SEC File No. 801-15211, which is incorporated by refereence. Putnam Investment Management, Inc. For information regarding Putnam Investment Management, Inc., reference is made to Form ADV of Putnam Investment Management, Inc., SEC File No. 801-7974, which is incorporated by reference. ING Investment Management, LLC For information regarding ING Investment Management, LLC, reference is made to Form ADV of ING Investment Management, LLC, SEC File No. 801-15160, which is incorporated by reference. Baring International Investment Limited For information regarding Baring International Investment Limited, reference is made to Form ADV of Baring International Investment Limited, SEC File No. 801-15160, which is incorporated by reference. Massachusetts Financial Services Company For information regarding Massachusetts Financial Services Company, reference is made to Form ADV of Massachusetts Financial Services Company, SEC File No. 801-15160, which is incorporated by reference. Janus Capital Corporation For information regarding Janus Capital Corporation reference is made to Form ADV of Janus Capital Corporation, SEC File No. 801-13991, which is incorporated by reference. Alliance Capital Management L.P. For information regarding Alliance Capital Management L.P. reference is made to Form ADV of Alliance Capital Management L.P., SEC File No. 801-32361, which is incorporated by reference. Montgomery Asset Management, LLC For information regarding Montgomery Asset Management, LLC, reference is made to Form ADV of Montgomery Asset Management, LLC, SEC File No. 801-54803, which is incorporated by reference. Item 27. Principal Underwriters. (a) Directed Services, Inc. serves as Distributor of Shares of The GCG Trust. (b) The following officers of Directed Services, Inc. hold positions with the registrant: Barnett Chernow, Vice President, and Myles R. Tashman, Secretary. NAME and PRINCIPAL POSITIONS and OFFICES POSITIONS and OFFICES BUSINESS ADDRESS with UNDERWRITER with FUND Barnett Chernow Director and Executive Vice President Golden American Life Vice President Insurance Co. 1001 Jefferson Street Wilmington, DE 19801 Myles R. Tashman Director, Executive Vice Secretary Golden American Life President, Secretary and Insurance Co. General Counsel 1001 Jefferson Street Wilmington, DE 19801
(c) Not Applicable (Underwriter Receives No Compensation) Item 28. Location of Accounts and Records. The Trust maintains its books of account for each Series as required by Section 31(a) of the 1940 Act and rules thereunder at its principal office at 1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801. After March 19, 1999 the new address is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. The Trust's books of account are also kept at the offices of First Data Corp. 3200 Horizon Drive, P. O. Box 61503, King of Prussia, Pennsylvania 19406-0903. Item 29. Management Services. There are no management-related service contracts not discussed in Part A or Part B. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485 (b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A (File No. 33-23512) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Chester, and the Commonwealth of Pennsylvania, on May 3, 1999. THE GCG TRUST (Registrant) /s/ Myles R. Tashman -------------------------- Myles R. Tashman* Secretary *By: /s/Marilyn Talman --------------------- Marilyn Talman as Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A (File No. 33-23512) has been duly signed below by the following persons on behalf of The GCG Trust in the capacity indicated on May 3, 1999. Signature Title Chairman, President and Trustee - ---------------------- R. Brock Armstrong Vice-President and Trustee - ---------------------- Barnett Chernow* Trustee - ---------------------- J. Michael Earley* Trustee - ---------------------- R. Barbara Gitenstein* Trustee - ---------------------- Robert A. Grayson* Trustee - ---------------------- Elizabeth J. Newell* Trustee - ---------------------- Stanley B. Seidler* Trustee - ---------------------- Roger B. Vincent* *By: /s/ Marilyn Talman ----------------------- Marilyn Talman as Attorney-in-Fact EXHIBIT INDEX Number Exhibit Name Exhibit (b) By-laws EX99.b (c) Instruments Defining Rights of Security Holders EX99.c (d)(1)(B) Management Agreement (for The Fund For Life) EX99.d1b (d)(2)(K) Portfolio Management Agreement with EX99.d2k Baring International Investment Limited (d)(2)(L) Portfolio Management Agreement with EX99.d2l A I M Capital Management, Inc. (d)(2)(M) Portfolio Management Agreement with EX99.d2m Janus Capital Corporation (d)(2)(N) Portfolio Management Agreement with EX99.d2n Alliance Capital Management L.P. (d)(2)(O) Schedule Pages for T. Rowe Price Associates, Inc. EX99.d2o (d)(2)(P) Schedule Pages for EII Realty Securities, Inc. EX99.d2p (d)(3) Administrative Services Agreement for The Fund For Life EX99.d3 (d)(4) Administration and Fund Accounting Agreement among the EX99.d3a Trust, Directed Services, Inc., and First Data Corporation. (g)(1) Custodian Agreement and Addenda EX99.g1 (h)(1)(A) Transfer Agency and Service Agreement EX99.h1a (h)(2)(A) Organizational Agreement for Golden American EX99.h2a Life Insurance Company (h)(2)(B) Assignment Agreement for Organizational Agreement (19) EX99.h2b (h)(2)(C) Organizational Agreement for The Mutual Benefit Life Insurance Company (20) EX99.h2d (h)(2)(D) Assignment Agreement for Organizational Agreement (21) EX99.h2e (h)(2)(F) Addendum to the Organizational Agreement (adding EX99.h2f the Strategic Equity Series) (h)(2)(G) Addendum to the Organizational Agreement (adding EX99.h2g the Small Cap Series) (h)(3)(A) Settlement Agreement for Golden American Life EX99.h3a Insurance Company (h)(3)(C) Settlement Agreement for The Mutual Benefit Life EX99.h3c Insurance Company (h)(3)(D) Assignment Agreement for Settlement Agreement EX99.h3d (h)(4) Indemnification Agreement EX99.h4 (h)(5)(A) Expense Reimbursement Agreement EX99.h5a (h)(5)(B) Amendment No. 1 to the Expense Reimbursement EX99.h5b Agreement (h)(5)(C) Amendment No. 2 to the Expense Reimbursement EX99.h5c Agreement (h)(5)(D) Amendment No. 3 to the Expense Reimbursement EX99.h5d Agreement (h)(5)(E) Amendment No. 4 to the Expense Reimbursement EX99.h5e Agreement (i) Consent of Sutherland, Asbill & Brennan LLP EX99.i (j) Consent of Ernst & Young LLP EX99.j (l)(1) Initial Capital Agreement EX99.l1 (p) Powers of Attorney EX99.p 16 Subsidiaries of ING Groep N.V. EX99.16 27 Financail Data Schedules EX99.27 EX-99.B 2 BY-LAWS WESTERN CAPITAL SPECIALTY MANAGERS TRUST BY-LAWS TABLE OF CONTENTS PAGE ARTICLE I -- SHAREHOLDER MEETINGS .............. 1 Section 1.1. Calling of Meetings ............. 1 Section 1.2. Notices ......................... 1 Section 1.3. Place of Meeting ................ 1 Section 1.4. Chairman ........................ 1 Section 1.5. Proxies; Voting ................. 1 Section 1.6. Closing of Transfer Books and Fixing Record Dates ........ 2 Section 1.7. Inspectors of Election .......... 2 ARTICLE II -- TRUSTEES .......................... 3 Section 2.1. The Trustees .................... 3 Section 2.2. Regular and Special Meetings .... 3 Section 2.3. Notice .......................... 3 Section 2.4. Records ......................... 3 Section 2.5. Quorum and Vote ................. 4 Section 2.6. Telephone Meeting ............... 4 Section 2.7. Special Action .................. 4 Section 2.8. Action by Consent ............... 4 Section 2.9. Compensation of Trustees ........ 4 ARTICLE III -- OFFICERS .......................... 4 Section 3.1. Officers of the Trust ........... 4 Section 3.2. Election and Tenure ............. 5 Section 3.3. Removal of Officers ............. 5 Section 3.4. Bonds and Surety ................ 5 Section 3.5. Chairman, President and Vice President ...................... 5 Section 3.6. Secretary ....................... 6 Section 3.7. Treasurer ....................... 6 Section 3.8. Other Officers and Duties ....... 7 ARTICLE IV -- POWER AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES .............. 7 Section 4.1. Executive and Other Committees .. 7 Section 4.2. Vacancies in Executive Committee. 7 Section 4.3. Executive Committee to Report to Trustees ....................... 7 Section 4.4. Procedure of Executive Committee. 7 Section 4.5. Powers of Executive Committee ... 7 Section 4.6. Compensation .................... 8 Section 4.7. Informal Action by Executive Committee or Other Committee ... 8 ARTICLE V -- SHARES OF BENEFICIAL INTEREST ..... 8 Section 5.1. Book Entry Shares ............... 8 Section 5.2. Transfer Agents, Registrars and the Like ................... 8 Section 5.3. Transfer of Shares .............. 9 Section 5.4. Registered Shareholders ......... 9 ARTICLE VI -- AMENDMENT OF BY-LAWS .............. 9 ARTICLE VII -- INSPECTION OF BOOKS ............... 9 ARTICLE VIII -- AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC. ................ 10 Section 8.1. Agreements, Etc. ................ 10 Section 8.2. Checks, Drafts, Etc. ............ 10 Section 8.3. Endorsements, Assignments and Transfers of Securities ........ 10 Section 8.4. Evidence of Authority ........... 10 ARTICLE IX -- SEAL .............................. 10 ARTICLE X -- FISCAL YEAR ....................... 11 ARTICLE XI -- WAIVERS OF NOTICE ................. 11 ARTICLE XII -- BOOKS AND RECORDS ................. 11 ii WESTERN CAPITAL SPECIALTY MANAGERS TRUST BY-LAWS These By-laws are made and adopted pursuant to Section 3.9 of the Agreement and Declaration of Trust establishing WESTERN CAPITAL SPECIALTY MANAGERS TRUST ("Trust") dated ____________________, 1999 as from time to time amended (hereinafter called the "Declaration"). All words and terms capitalized in these By-laws shall have the meaning or meanings set forth for such words or terms in the Declaration. ARTICLE I SHAREHOLDER MEETINGS Section 1.1. Calling of Meetings. Meetings of the Shareholders shall be held as provided in Section 10.2 of the Declaration at such place within or without the Commonwealth of Massachusetts as the Trustees designate. Section 1.2. Notices. Notice of all meetings of Shareholders, stating the time, place and purposes of the meeting, shall be given by mail to each Shareholder at his registered address as recorded on the register of the Trust, mailed at least 10 days and not more than sixty (60) days before the meeting. Any adjourned meeting shall be held as adjourned without further notice. No notice need be given to any Shareholder who shall have failed to inform the Trust of his current address or if a written waiver of notice, executed before or after the meeting by the Shareholder or his attorney, thereunto authorized, is filed with the records of the meeting. Section 1.3. Place of Meeting. Meetings of the Shareholders of the Trust shall be held at such place within or without the Commonwealth of Massachusetts as may be fixed from time to time by resolution of the Trustees. Section 1.4. Chairman. The Chairman, if any, shall act as Chairman at all meetings of the Shareholders; in his absence, the President shall act as Chairman, and in the absence of the Chairman and the President, the Vice President; and in the absence of the Vice President, the Trustee or Trustees present at each meeting may elect a temporary Chairman for the meeting, who may be one of themselves. Section 1.5. Proxies; Voting. Shareholders may vote either in person or by duly executed proxy and, unless otherwise required by applicable law, each full share represented at the meeting shall have one vote, and each fractional share shall have a proportionate fractional vote all as provided in Article X of the Declaration. No proxy shall be valid after eleven (11) months from the date of its execution, unless a longer period is expressly stated in such proxy. Section 1.6. Closing of Transfer Books and Fixing Record Dates. For the purpose of determining the Shareholders who are entitled to notice of or to vote or act at any meeting, including any adjournment thereof, or who are entitled to participate in any dividends, or for any other proper purpose, the Trustees may from time to time close the transfer books or fix a record date in the manner provided in Section 10.4 of the Declaration. If the Trustees do not, prior to any meeting of the Shareholders, so fix a record date or close the transfer books, then an officer of the Trust shall determine a date which shall be not more than 189 days prior to the date of the meeting or the date upon which the dividend is declared, as the case may be, and such date shall be the record date. Section 1.7. Inspectors of Election. In advance of any meeting of Shareholders, the Trustees may appoint Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the Chairman, if any, of the meeting of Shareholders may, and on the request of any Shareholder or his proxy shall, appoint Inspectors of Election of the meeting. The number of Inspectors shall be either one or three. If appointed at the meeting on the request of one or more Shareholders or proxies, a majority of Shares present shall determine whether one or three Inspectors are to be appointed, but failure to allow such determination by the Shareholders shall not affect the validity of the appointment of Inspectors of Election. In case any person appointed as Inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Trustees in advance of the convening of the meeting or at the meeting by the person acting as Chairman. The Inspectors of Election shall ascertain and monitor the number of Shares outstanding, the Shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, shall receive votes, ballots or consents, shall hear and determine all challenges and questions in any way arising in connection with the right to vote, shall count and tabulate all votes or consents, determine the results, and do such other acts as maybe proper to conduct the election or vote with fairness to all Shareholders. If there are three Inspectors of Election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. On request of the Chairman, if any, of the meeting, or of any Shareholder or his proxy, the Inspectors of Election shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any facts found by them. 2 ARTICLE II TRUSTEES Section 2.1. The Trustees. The Trustees shall be responsible for the management of the Trust; they may retain such authority to direct the business affairs of the Trust as they deem advisable, but, subject to the Declaration and the provisions of applicable law, they may delegate any of the various functions involved in the management of the Trust to its officers and/or agents as they deem fit. The term of office of each Trustee shall continue until the Trustee resigns, is removed, retires, or is retired pursuant to Section 2.3 of the Declaration. Subject to the provisions of Sections 2.2 and 2.4 of the Declaration, all persons to serve as Trustees of the Trust shall be elected at each meeting of the Shareholders of the Trust called for that purpose. Section 2.2. Regular and Special Meetings. Regular meetings of the Trustees may be held without call or notice at such place or places and times as the Trustees may determine from time to time. Special Meetings of the Trustees shall be held upon the call of the Chairman, if any, the President, the Vice President, or any two Trustees, at such time, on such day, and at such place, as shall be designated in the notice of the meeting. Section 2.3. Notice. Notice of a meeting shall be given b mail or by telegram (which term shall include a cablegram) or delivered personally or by courier. If notice is given by mail, it shall be mailed not later than 24 hours preceding the meeting and if given by telegram or personally, such telegram shall be sent or delivered not later than 24 hours preceding the meeting, unless otherwise subject to the provisions of the 1940 Act. Notice by telephone shall constitute personal delivery for these purposes. Notice of a meeting of Trustees may be waived before or after any meeting by signed written waiver. Neither the business to be transacted at, nor the purpose of, any meeting of the Trustees need be stated in the notice or waiver of notice of such meeting, and no notice need be given of action proposed to be taken by unanimous consent. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Section 2.4. Records. The results of all actions taken at a meeting of the Trustees, or by unanimous consent of the Trustees, shall be recorded by the Secretary or Assistant Secretary. 3 Section 2.5. Quorum and Vote. A majority of the Trustees shall constitute a quorum for the transaction of business. The act of a majority of the Trustees present at any meeting at which a quorum is present shall be the act of the Trustees unless a greater proportion is required by the Declaration or these By-laws or applicable law. In the absence of a quorum, a majority of the Trustees present may adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. Section 2.6. Telephone Meeting. Subject to compliance with the provisions of the 1940 Act, the Trustees may meet by means of a conference telephone or similar equipment by means of which all persons participating in the meeting can hear each other. Section 2.7. Special Action. When all the Trustees shall be present at any meeting, however called or whenever held, or shall assent to the holding of the meeting without notice, or after the meeting shall sign a written assent thereto on the record of such meeting, the acts of such meeting shall be valid as if such meeting had been regularly held. Section 2.8. Action by Consent. Subject to compliance with the provisions of the 1940 Act, any action by the Trustees may be taken without a meeting if a written consent thereto is signed by a majority of the Trustees then in office and filed with the records of the Trustees' meetings. Such consent shall be treated as a vote of the Trustees for all purposes. Section 2.9. Compensation of Trustees. The Trustees may receive a stated salary for their services as Trustees, and by resolution of the Trustees a fixed fee and expense of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any Trustee from serving the Trust in any other capacity, as an officer, agent or otherwise, and receiving compensation therefor. ARTICLE III OFFICERS Section 3.1. Officers of the Trust. The officers of the Trust may consist of a Chairman, if one shall be appointed by the Trustees, and shall consist of a President, a Vice President, a Secretary, a Treasurer and such other officers or assistant officers, as may be elected by the Trustees. Any two or more of the offices may be held by the same person, except that the same person may not be both President and Vice President. The Chairman, the President and the Vice President shall be Trustees, but no other officer of the Trust need be a Trustee. 4 Section 3.2. Election and Tenure. At the initial organizational meeting and at least once a year thereafter the Trustees shall elect the Chairman, if any, the President, the Vice President, Secretary, Treasurer and such other officers as the Trustees shall deem necessary or appropriate in order to carry out the business of the Trust. Such officers shall hold the office until their successors have been duly elected and qualified. The Trustees may fill any vacancy in office or add any additional officers at any time. Section 3.3. Removal of Officers. Any officer may be removed at any time, with or without cause, by action of a majority of the Trustees. This provision shall not prevent the making of a contract of employment for a definite term with any officer and shall have no effect upon any cause of action which any officer may have as a result of removal in breach of a contract of employment. Any officer may resign at any time by notice in writing signed by such officer and delivered or mailed to the Chairman, if any, President, or Vice President, and such resignation shall take effect immediately upon receipt by the Chairman, if any, President, Vice President, or Secretary, or at a later date according to the terms of such notice in writing. Section 3.4. Bonds and Surety. Any officer may be required by the Trustees to be bonded for the faithful performance of his duties in such amount and with such sureties as the Trustees may determine. Section 3.5. Chairman, President and Vice President. The Chairman, if any, shall, if present, preside at all meetings of the Shareholders and of the Trustees and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Trustees. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman, if any, the President shall be the chief executive officer of the Trust, and, subject to the control of the Trustees, shall have general supervision, direction and control of the business of the Trust and of its employees and shall exercise such general powers of management as are usually vested in the office of President of a corporation. In the absence of the Chairman, if any, the President, and in his absence, the Vice President, shall preside at all meetings of the Shareholders and of the Trustees. The President and the Vice President shall be, ex officio, members of all outstanding committees (except the Audit Committee or any other Committee that consists only of Trustees who are not interested persons of the Trust, its Investment Adviser, Manager or any Portfolio Manager). Subject to direction of the Trustees, the Chairman, if any, the President and the Vice President shall each have power in the name and on behalf of the Trust to execute any and all loan documents, contracts, agreements, deeds, mortgages and other instruments in writing, and to employ and discharge employees and agents of the Trust. Unless otherwise 5 directed by the Trustees, the Chairman, if any, the President and the Vice President shall each have full authority and power, on behalf of all of the Trustees, to attend and to act and to vote, on behalf of the Trust at any meetings of the business organizations in which the Trust holds an interest, or to confer such powers upon any other persons, by executing any proxies duly authorizing such persons. The Chairman, if any, the President and the Vice President shall have such further authorities and duties as the Trustees shall from time to time determine. Section 3.6. Secretary. The Secretary shall keep the minutes of all meetings of, and record all votes of, Shareholders, Trustees and the Executive Committee, if any. He shall be custodian of the seal of the Trust, if any, and he (and any other person so authorized by the Trustees) shall affix the seal or, if permitted, a facsimile thereof, to any instrument executed by the Trust which would be sealed by a Massachusetts corporation executing the same or a similar instrument and shall attest to the seal and the signature or signatures of the officer or officers executing such instrument on behalf of the Trust. The Secretary shall also perform any other duties commonly incident to such office in a Massachusetts business corporation, and shall have such other authorities and duties as the Trustees shall form time to time determine. Any of the duties of the Secretary may be performed by an Assistant Secretary duly appointed by the Trustees. Section 3.7. Treasurer. Except as otherwise directed by the Trustees, the Treasurer shall have the general supervision of the monies, funds, securities, notes receivable and other valuable papers and documents of the Trust, and shall have and exercise under the supervision of the Trustees and of the President all powers and duties normally incident to his office. He may endorse for deposit or collection all notes, checks and other instruments payable to the Trust or to its order. He shall deposit all funds of the Trust in such depositories as the Trustees shall designate. He shall be responsible for such disbursement of the funds of the Trust as may be ordered by the Trustees or the President. He shall keep accurate account of the books of the Trust's transactions which shall be the property of the Trust, and which together with all other property of the Trust in his possession, shall be subject at all times to the inspection and control of the Trustees. Unless the Trustees shall otherwise determine, the Treasurer shall be the principal accounting officer of the Trust and shall also be the principal financial officer of the Trust. He shall have such other duties and authorities as the Trustees shall from time to time determine. Notwithstanding anything to the contrary herein contained, the Trustees may authorize any adviser, administrator, manager, portfolio manager, or transfer agent to maintain bank accounts and deposit and disburse funds of any Series of the Trust on behalf of such Series. 6 Section 3.8. Other Officers and Duties. The Trustees may elect such other officers and assistant officers as they shall from time to time determine to be necessary or desirable in order to conduct the business of the Trust. Assistant officers shall act generally in the absence of the officer whom they assist and shall assist that officer in the duties of his office. Each officer, employee and agent of the Trust shall have such other duties and authority as may be conferred upon him by the Trustees or delegated to him by the President or, in his absence, the Vice President. ARTICLE IV POWER AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES Section 4.1. Executive and Other Committees. The Trustees may, but shall not be required to, elect from their own number an Executive Committee to consist of not less than two members, which number shall include the President and Vice President, who shall, ex officio, be members thereof. The Executive Committee shall be elected by a resolution passed by a vote of at least a majority of the Trustees then in office. The Trustees may also elect from their own number other committees from time to time, the number composing such committees and the powers conferred upon the same to be determined by vote of the Trustees. Section 4.2. Vacancies in Executive Committee. Vacancies occurring in the Executive Committee from any cause shall be filled by the Trustees by a resolution passed by the vote of at least a majority of the Trustees then in office. Section 4.3. Executive Committee to Report to Trustees. All action by the Executive Committee shall be reported to the Trustees at their meeting next succeeding such action. Section 4.4. Procedure of Executive Committee. The Executive Committee shall fix its own rules of procedures not inconsistent with these By-laws or with any directions of the Trustees. It shall meet at such times and places and upon such notice as shall be provided by such rules or by resolution of the Trustees. The presence of a majority shall constitute a quorum for the transaction of business, and in every case an affirmative vote of a majority of all the members of the Committee present shall be necessary for the taking of any action. Section 4.5. Powers of Executive Committee. During the intervals between the meetings of the Trustees, the Executive Committee, except as limited by the By-laws of the Trust or by specific directions of the Trustees, shall possess and may exercise all the powers of the Trustees in the management and 7 direction of the business and conduct of the affairs of the Trust in such manner as the Executive Committee shall deem for the best interests of the Trust, and shall have power to authorize the seal of the Trust to be affixed to all instruments and documents requiring same. Notwithstanding the foregoing, the Executive Committee shall not have the power to elect Trustees, increase or decrease the number of Trustees, elect or remove any officer, declare dividends, issue shares or recommend to Shareholders any action requiring Shareholder approval. Section 4.6. Compensation. The members of any duly appointed committee shall receive such compensation and/or fees as from time to time may be fixed by the Trustees. Section 4.7. Informal Action by Executive Committee or Other Committee. Any action required or permitted to be taken at any meeting of the Executive Committee or any other duly appointed committee may be taken without a meeting if a consent in writing setting forth such action is signed by all members of such committee and such consent is filed with the records of the Trust. ARTICLE V SHARES OF BENEFICIAL INTEREST Section 5.1. Book Entry Shares. No certificates will be issued to represent shares in the Trust unless the Trustees, in their discretion, may so authorize. The Trust may issue certificates in any fixed denomination of shares, or alternatively, may issue to all investors certificates evidencing ownership of shares of beneficial interest in the Trust which will not evidence ownership of a fixed number of shares but will indicate on its face that it represents all Trust shares of beneficial interest for which the investor is the record owner as shown on the books of record of the Transfer Agent of the Trust. The Trust shall maintain adequate records to determine the holdings of each Shareholder of record, and such records shall be deemed the equivalent of a certificate representing the shares for all purposes. Section 5.2. Transfer Agents, Registrars and the Like. As provided in Section 6.7 of the Declaration, the Trustees shall have authority to employ and compensate such transfer agents and registrars with respect to the shares of the various Series of the Trust as the Trustees shall deem necessary or desirable. In addition, the Trustees shall have power to employ and compensate such dividend disbursing agents, warrant agents and agents for the reinvestment of dividends as they shall deem necessary or desirable. Any of such agents shall have such power and authority as is delegated to any of them by the Trustees. 8 Section 5.3. Transfer of Shares. The shares of the Trust shall be transferable on the books of the Trust only upon delivery to the Trustees or a transfer agent of the Trust of proper documentation as provided in Section 6.8 of the Declaration. The Trust, or its transfer agents, shall be authorized to refuse any transfer unless and until there is presented such evidence as may be reasonably required to show that the requested transfer is proper. Section 5.4. Registered Shareholders. The Trust may deem and treat the holder of record of any share as the absolute owner thereof for all purposes and shall not be required to take any notice of any right or claim of right of any other person, unless otherwise required by applicable law. ARTICLE VI AMENDMENT OF BY-LAWS In accordance with Section 3.9 of the Declaration, the Trustees shall have the power to alter, amend or repeal the By-laws or adopt new By-laws at any time. Action by the Trustees with respect to the By-laws shall be taken by an affirmative vote of a majority of the Trustees. The Trustees shall in no event adopt By-laws which are in conflict with the Declaration, and any apparent inconsistency shall be construed in favor of the related provisions in the Declaration. The Agreement and Declaration of Trust establishing WESTERN CAPITAL SPECIALTY MANAGERS TRUST, dated __________, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name WESTERN CAPITAL SPECIALTY MANAGERS TRUST refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and not Trustee, Shareholder, officer, employee or agent of WESTERN CAPITAL SPECIALTY MANAGERS TRUST shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said WESTERN CAPITAL SPECIALTY MANAGERS TRUST but the Trust estate only shall be liable. ARTICLE VII INSPECTION OF BOOKS The Trustees shall from time to time determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Trust or any of them shall be open to the inspection of the Shareholders; and no Shareholder shall have any right to inspect an account or 9 book or document of the Trust except as conferred by law or authorized by the Trustees or by resolution of the Shareholders. ARTICLE VIII AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC. Section 8.1. Agreements, Etc. The Trustees or the Executive Committee may authorize any officer or officers, or agent or agents of the Trust to enter into any agreement or execute and deliver any instrument in the name of and on behalf of the Trust, and such authority may be general or confined to specific instances; and, unless so authorized by the Trustees or by the Executive Committee or by these By-laws, no officer, agent or employee shall have any power or authority to bind the Trust by any agreement or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 8.2. Checks, Drafts, Etc. All checks, drafts, or orders for the payment of money, notes and other evidences of indebtedness shall be signed by such officer or officers, employee or employees, or agent or agents, as shall from time to time be designated by the Trustees or the Executive Committee, if any, or as may be specified in or pursuant to the agreement between the Trust and any bank or trust company appointed as custodian depository pursuant to the provisions of the Declaration. Section 8.3. Endorsements, Assignments and Transfers of Securities. All endorsements, assignments, stock powers or other instruments of transfer of securities standing in the name of the Trust or its nominees or directions for the transfer of securities belonging to the Trust shall be made by such officer or officers, employee or employees, or agent or agents as may be authorized by the Trustees or the Executive Committee, if any. Section 8.4. Evidence of Authority. Anyone dealing with the Trust shall be fully justified in relying on a copy of a resolution of the Trustees or of any committee thereof empowered to act in the premises which is certified as true by the Secretary or an Assistant Secretary under the seal of the Trust. ARTICLE IX SEAL The seal of the Trust shall be circular in form, bearing the inscription: WESTERN CAPITAL SPECIALTY MANAGERS TRUST - 1988 - MASSACHUSETTS 10 ARTICLE X FISCAL YEAR The fiscal year of the Trust shall be the period of twelve months ending on December 31 of each calendar year. ARTICLE XI WAIVERS OF NOTICE Whenever any notice whatsoever is required to be given under the provisions of any statute of the Commonwealth of Massachusetts, or under the provisions of the Declaration or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice whether before or after the time stated therein, shall be deemed equivalent thereto. A notice shall be deemed to have been given if telegraphed, cabled or sent by wireless when it has been delivered to a representative of any telegraph, cable or wireless company with instructions that it be telegraphed, cabled or sent by wireless. Any notice, if mailed, shall be deemed to be given at the time when the same shall be deposited in the mail. ARTICLE XII BOOKS AND RECORDS The books and records of the Trust, including the stock ledger or ledgers, may be kept in or outside the Commonwealth of Massachusetts at such office or agency of the Trust as may be from time to time determined by the Trustees. 11 EX-99.C 3 ARTICLE X OF DEC OF TRUST DEFINING RIGHTS OF SECURITY HOLDERS Exhibit c ARTICLE X SHAREHOLDERS SECTION 10.1 VOTING POWERS. The Shareholders shall have the power to vote (i) for the election of Trustees as provided in Article II, Section 2.2; (ii) for the removal of Trustees as provided in Article II, Section 2.3(d); (iii) with respect to any investment adviser as provided in Article IV, Section 4.1; (iv) with respect to the merger, consolidation and sale of assets of the Trust as provided in Article XI, Section 11.3; (v) with respect to the amendment of this Declaration as provided in Article XI, Section 11.4; (vi) to the same extent as the Shareholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders (provided, however, that a shareholder of a particular Series shall not be entitled to a derivative or class action on behalf of any other Series (or shareholders of any other Series) of the Trust); and (vii) with respect to such additional matters relating to the Trust as may be required by law, by this Declaration, or the By-laws of the Trust or any regulation of the Trust, by the Commission or any State, or as the Trustees may consider desirable. Any matter affecting a particular Series, including without limitation, matters affecting the investment advisory arrangements or investment policies or restrictions of a Series, if required by law, shall not be deemed to have been effectively acted upon unless approved by the required vote of the Shareholders of such Series if required by law. Unless otherwise required by law, each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote, and each fractional Share shall be entitled to a proportionate fractional vote. There shall be no cumulative voting in the election of Trustees. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action to be taken by Shareholders which is required or permitted by law, this Declaration or any By-laws of the Trust. SECTION 10.2 MEETINGS. Shareholder meetings shall be held as specified in Article I of the By-laws and in Section 2.2 hereof at the principal office of the Trust or at such other place as the Trustees may designate. No annual or regular meetings of shareholders are required. Meetings of the Shareholders may be called by the Trustees and shall be held at such times, on such day and at such hour as the Trustees may from time to time determine, for the purposes specified in Section 2.2 and for such other purposes as may be specified by the Trustees. SECTION 10.3 QUORUM AND REQUIRED VOTE. Except as otherwise provided by law, the holders of thirty percent of the outstanding Shares of each Series present in person or by proxy shall constitute a quorum for the transaction of any business at any meeting of Shareholders. If a quorum, as above defined, shall not be present for the purpose of any vote that may properly come before the meeting, the Shareholders present in person or by proxy and entitled to vote at such meeting on such matter holding a majority of the Shares present entitled to vote on such matter may by vote adjourn the meeting from time to time to be held at the same place without further notice than by announcement to be given at the meeting until a quorum, as above defined, entitled to vote on such matter shall be present, whereupon any such matter may be voted upon at the meeting as though held when originally convened. Subject to any applicable requirement of law, this Declaration or the By-laws, a plurality of the votes cast shall elect a Trustee and all other matters shall be decided by a majority of the votes cast entitled to vote thereon. SECTION 10.4 RECORD DATE FOR MEETINGS. For the purpose of determining the Shareholders who are entitled to notice of and to vote at any meeting, or to participate in any distribution, or for the purpose of any other action, the Trustees may from time to time close the transfer books for such period, not exceeding 30 days, as the Trustees may determine; or without closing the transfer books the Trustees may fix a date not more than 180 days prior to the date of any meeting of Shareholders or declaration of dividends or other action as a record date for the determination of the persons to be treated as Shareholders of record for such purposes, except for dividend payments which shall be governed by Section 9.2 hereof. SECTION 10.5 PROXIES. Any vote by a Shareholder of the Trust may be made in person or by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Trustees or their designee prior to the time the vote is taken. Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more officers of the Trust. Only Shareholders of record shall be entitled to vote. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. A proxy with respect to shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. SECTION 10.6 ADDITIONAL PROVISIONS. The By-laws may include further provisions for Shareholders' votes, meetings and related matters. SECTION 10.7 REPORTS. The Trustees shall cause to be prepared with respect to each Series at least annually a report of operations containing a balance sheet and statement of income and undistributed income of the applicable Series of the Trust prepared in conformity with generally accepted accounting principles and an opinion of an independent public accountant on such financial statements. It is contemplated that separate reports may be prepared for the various Series. Copies of such reports shall be mailed to all Shareholders of record of the applicable Series within the time required by the 1940 Act. The Trustees shall, in addition, furnish to the Shareholders at least semi-annually, interim reports containing an unaudited balance sheet of the Series as of the end of such period and an unaudited statement of income and surplus for the period from the beginning of the current fiscal year to the end of such period. SECTION 10.8 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Shareholders may be taken without a meeting if a majority of Shareholders of each Series entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration) consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. EX-99.D1B 4 MANAGEMENT AGREEMENT FOR FUND FOR LIFE EXHIBIT (d)(1)(b) MANAGEMENT AGREEMENT AGREEMENT made as of February 5, 1993, between The GCG Trust (the "Trust"), a Massachusetts business trust, and Directed Services, Inc. (the "Manager"), a New York corporation. WHEREAS, the Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; and WHEREAS, the Trust intends to offer shares in a series designated The Fund For Life, and the Trust may offer shares of additional series in the future; and WHEREAS, the Trust wishes to retain the Manager to furnish investment advisory services to The Fund For Life, and the Manager is willing to furnish such services to the Trust. NOW THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust and the Manager as follows: 1. Appointment. The Trust hereby appoints Directed Services, Inc. to act as Manager to The Fund For Life (the "Series") for the periods and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. In the event the Trust designates one or more series other than the Series with respect to which the Trust wishes to retain the Manager to render investment advisory services hereunder, the Trust shall notify the Manager in writing. If the Manager is willing to render such services, it shall notify the Trust in writing, whereupon such series shall become a Series hereunder, and be subject to this Agreement. 2. Management Duties. Subject to the supervision of the Trust's Board of Trustees, the Manager will provide a continuous investment program for the Series' portfolio and determine the composition of the assets of the Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of the Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of the Series should be held in the various securities and other investments in which it may invest, and the Manager is hereby authorized to execute and perform such services on behalf of the Series. The Manager will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission ("SEC"), as amended. The Manager further agrees as follows: a. The Manager will (1) manage the Series so that it will qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, (2) manage the Series so as to ensure compliance by the Series with the diversification requirements of Section 817(h) of the Internal Revenue Code and regulations issued thereunder, and (3) use reasonable efforts to manage the Series so as to ensure compliance by the Series with any other rules and regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. b. The Manager will conform with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of Trustees, and the provisions of the Registration Statement of the Trust under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended. c. On occasions when the Manager deems the purchase or sale of a security to be in the best interest of the Series as well as of other investment advisory clients of the Manager or any of its affiliates, the Manager may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Manager in a manner that is fair and equitable in the judgment of the Manager in the exercise of its fiduciary obligations to the Trust and to such other clients subject to review by the Board of Trustees. - 2 - d. In connection with the purchase and sale of securities for the Series, the Manager will arrange for the transmission to the custodian and recordkeeping agent for the Trust on a daily basis, such confirmation, trade tickets, and other documents and information, including but not limited to Cusip, Sedol, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian and recordkeeping agent to perform its administrative recordkeeping responsibilities with respect to the Series. With respect to portfolio securities, if any, to be purchased or sold through the Depository Trust Company, the Manager will arrange for the automatic transmission of the confirmation of such trades to the Trust's custodian and recordkeeping agent. e. The Manager will monitor on a daily basis the determination by the custodian and recordkeeping agent for the Trust of the valuation of the portfolio securities and other investments of the Series. The Manager will assist the custodian and recordkeeping agent for the Trust in determining or confirming, consistent with the procedures and policies stated in the Registration Statement for Trust, the value of any portfolio securities or other assets of the Series for which the custodian and recordkeeping agent seeks assistance from or identifies for review by the Manager. f. The Manager will make available to the Trust, promptly upon request, all the Series' investment records and ledgers maintained by the Manager (which shall not include the records and ledgers maintained by the custodian and recordkeeping agent for the Trust) as are necessary to assist the Trust to comply with the requirements of the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as well as other applicable laws. The Manager will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services which may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations. g. The Manager will provide reports to the Trust's Board of Trustees for consideration at meetings of the Board on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Trust's Board of Trustees with respect to the Series such periodic and special reports as the Trustees may reasonably request. - 3 - h. In rendering the services required under this Agreement, the Manager may, from time to time, employ or associate with itself such person or persons as it believes necessary to assist it in carrying out its obligations under this Agreement. However, the Manager may not retain as subadviser any company that would be an "investment adviser," as that term is defined in the 1940 Act, to the Series unless the contract with such company is approved by a majority of Trustees who are not parties to any agreement or contract with such company and who are not "interested persons," as defined in the 1940 Act, of the Trust or the Manager or any such company that is retained as subadviser, and is approved by the vote of a majority of the outstanding voting securities of the Series to the extent required by the 1940 Act. The Manager shall be responsible for making reasonable inquiries and for reasonably ensuring that any employee of the Manager, any subadviser that the Manager has employed or with which it has associated with respect to the Series, or any employee thereof has not, to the best of the Manager's knowledge, in any material connection with the handling of Trust assets: i. been convicted, in the last ten (10) years, of any felony or misdemeanor arising out of conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, involving violations of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving the purchase or sale of any security; or ii. been found by any state regulatory authority, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or iii. been found by any federal or state regulatory authorities, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation. 3. Broker-Dealer Selection. The Manager is responsible for decisions to buy and sell securities and other investments for the Series' portfolio, broker-dealer selection, negotiation of brokerage commission rates and obtaining discounts on sales loads of mutual fund shares. The Manager's primary consideration in effecting a security transaction will be to obtain the best execution for the Series, taking into account the factors specified in the prospectus and statement of additional information - 4 - for the Series. Subject to such policies as the Board of Trustees may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934, the Manager shall not be deemed to have acted unlawfully or to have breached any duty created by the Agreement or otherwise solely by reason of its having caused the Series to pay a broker-dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the Manager's overall responsibilities with respect to the Series and to its other clients as to which it exercises investment discretion. To the extent consistent with these standards, the Manager is further authorized to allocate the orders placed by it on behalf of the Series to the Manager if it is registered as a broker-dealer with the SEC, to its affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material or other services to the Series, the Manager, or an affiliate of the Manager. Such allocation shall be in such amounts and proportions as the Manager shall determine consistent with the above standards, and the Manager will report on said allocation regularly to the Board of Trustees of the Trust indicating the broker-dealers to which such allocations have been made and the basis therefor. 4. Disclosure About Manager. The Manager has reviewed the post- effective amendment to the Registration Statement for the Trust to be filed with the Securities and Exchange Commission that contains disclosure about the Manager, and represents and warrants that, with respect to the disclosure about the Manager or information relating, directly or indirectly, to the manager, such Registration Statement contains, as of the date hereof, no untrue statement or any material fact and does not omit any statement of material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. The Manager further represents and warrants that it is a duly registered investment adviser under the Advisers Act and a duly registered investment adviser in all states in which the Manager is required to be registered. 5. Expenses. During the term of this Agreement, the Manager will pay all expenses incurred by it and its staff and for their activities in connection with its portfolio management duties under this Agreement. The Trust shall be responsible for all the expenses of its operations including, but not limited to: a. Expenses of all audits by the Trust's independent public accountants; - 5 - b. Expenses of the Series' transfer agent, registrar, dividend disbursing agent, and shareholder recordkeeping services; c. Expenses of the Series' custodial services including recordkeeping services provided by the custodian; d. Expenses of obtaining quotations for calculating the value of the Series' net assets; e. Expenses of obtaining Portfolio Activity Reports and Analyses of International Management Reports (as appropriate) for the Series; f. Expenses of maintaining the Trust's tax records; g. Salaries and other compensation of any of the Trust's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the Manager or an affiliate of the Manager; h. Taxes levied against the Trust; i. Brokerage fees and commissions in connection with the purchase and sale of portfolio securities for the Series; j. Costs, including the interest expense, of borrowing money; k. Costs and/or fees incident to meetings of the Trust's shareholders, the preparation and mailings of prospectuses and reports of the Trust to its shareholders, the filing of reports with regulatory bodies, the maintenance of the Trust's existence, and the regulation of shares with federal and state securities or insurance authorities; l. The Trust's legal fees, including the legal fees related to the registration and continued qualification of the Trust's shares for sale; m. Costs of printing stock certificates representing shares of the Trust; n. Trustees' fees and expenses to trustees who are not officers, employees, or stockholders of the Manager or any affiliate thereof; - 6 - o. The Trust's pro rata portion of the fidelity bond required by Section 17(g) of the 1940 Act, or other insurance premiums; p. Association membership dues' q. Extraordinary expenses of the Trust as may arise including expenses incurred in connection with litigation, proceedings, and other claims (unless the Manager is responsible for such expenses under Section 13 of this Agreement), and the legal obligations of the Trust to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; r. Organizational and offering expenses, and if applicable, reimbursement (with interest) of underwriting discounts and commissions. 6. Compensation. For the services provided, the Trust will pay the Manager a fee, payable monthly, at the annual rate of .10% of the average daily net assets of the Series. 7. Compliance. The Manager agrees that it shall immediately notify the Trust (1) in the event that the SEC has censured the Manager; placed limitations upon its activities, functions or operations; suspended or revoked its registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Internal Revenue Code or the Regulations thereunder. The Manager further agrees to notify the Trust immediately of any material fact known to the Manager respecting or relating to the Manager that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto, or of any statement contained therein that becomes untrue in any material respect. 8. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Manager hereby agrees that all records which it maintains for the Series are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's request, although the Manager may, at its own expense, make and retain a copy of such records. The Manager further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to - 7 - preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule 9. Cooperation. Each party to this Agreement agrees to cooperate with the other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the Securities and Exchange Commission and state insurance regulators) in connection with any investigation or inquiry relating to this Agreement or the Trust. 10. Control. Notwithstanding any other provision of the Agreement, it is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement and reserves the right to direct, approve, or disapprove any action hereunder taken on its behalf by the Manager. 11. Services Not Exclusive. It is understood that the services of the Manager are not exclusive, and nothing in this Agreement shall prevent the Manager (or its affiliates) from providing similar services to other clients, including investment companies (whether or not their investment objectives and policies are similar to those of the Series) or from engaging in other activities. 12. Liability. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Manager agree that the Manager, any affiliated person of the Manager, and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls the Manager shall not be liable for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason if willful misfeasance, bad faith, or gross negligence in the performance of the Manager's duties, or by reason of reckless disregard of the Manager's obligations and duties under this Agreement. 13. Duration and Termination. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for two (2) years from such date and continue on an annual basis thereafter with respect to the Series; provided that such annual continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Series, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person - 8 - at a meeting called for the purpose of voting on such approval. The Manager shall not provide any services for such Series or receive any fees on account of such Series with respect to which this Agreement is not approved s described in the preceding sentence. However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this Agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. Notwithstanding the foregoing, this Agreement may be terminated in its entirety or for any Series hereunder: (a) by the Manager at any time without penalty, upon sixty (60) days' written notice to the Trust, (b) at any time without payment of any penalty by the Trust, upon the vote of a majority of the Trust's Board of Trustees or a majority of the outstanding voting securities or each Series upon sixty (60) days' written notice to the Manager. In the event of termination for any reason, all records of the Series for which the Agreement is terminated shall promptly be returned to the Trust, free from any claim or retention of rights in such record by the Manager, although the Manager may, at its own expense, make and retain a copy of such records. The Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described above, the Sections or Paragraphs numbered 2(f), 8, 9, 12, and 15 of this Agreement shall remain in effect, as well as any applicable provision of this Paragraph numbered 13. 14. Amendments. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by an affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Series, and (ii) the Trustees of the Trust who are not interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law. 15. Use of Name. It is understood that the name "Directed Services, Inc." or any derivative thereof or logo associated with that name is the valuable property of the Manager and its affiliates and that the Trust and/or the Series have the right to use such name (or derivative or logo) in offering - 9 - materials of the Trust with the approval of the Manager and for so long as the Manager is an investment adviser to the Trust and/or the Series. Upon termination of this Agreement between the Trust and the Manager, the Trust shall forthwith cease to use such name (or derivative or logo) unless otherwise agreed by the Manager. 16. Agreement and Declaration of Trust. A copy of the Agreement and Declaration of Trust for Trust is on file with the Secretary of the Commonwealth of Massachusetts . The Agreement and Declaration of Trust has been executed on behalf of the Trust by the Trustees of the Trust in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, or shareholder of the Trust individually. 17. Miscellaneous. a. This Agreement shall be governed by the laws of the State of New York, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. b. The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. c. To the extent permitted under Section 13 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other parties. d. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent the provisions of this Agreement shall be deemed severable. - 10 - IN WITNESS WHEREOF, the parties have caused this instrument to be executed. THE GCG TRUST ------------------------- ---------------------------------- Attest: Title: Title: DIRECTED SERVICES, INC. ------------------------- ---------------------------------- Attest: Title: Title: - 11 - EX-99.D2K 5 BARING PORTFOLIO MANAGEMENT AGREEMENT EXHIBIT (d)(2)(K) PORTFOLIO MANAGEMENT AGREEMENT AGREEMENT made this 24th day of October, 1997, among The GCG Trust (the "Trust"), a Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New York corporation, and Baring International Investment Limited ("Portfolio Manager"), a limited liability company organized under the laws of the United Kingdom. WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; WHEREAS, pursuant to a Management Agreement, effective as of October 24, 1997, a copy of which has been provided to the Portfolio Manager, the Trust has retained the Manager to render advisory, management, and administrative services to many of the Trust's series; WHEREAS, the Trust and the Manager wish to retain the Portfolio Manager to furnish investment advisory services to one or more of the series of the Trust, and the Portfolio Manager is willing to furnish such services to the Trust and the Manager; NOW THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust, the Manager, and the Portfolio Manager as follows: 1. APPOINTMENT. The Trust and the Manager hereby appoint Baring International Investment Limited to act as Portfolio Manager to the Series designated on Schedule A of this Agreement (each a "Series") for the periods and on the terms set forth in this Agreement. The Portfolio Manager accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. In the event the Trust designates one or more series other than the Series with respect to which the Trust and the Manager wish to retain the Portfolio Manager to render investment advisory services hereunder, they shall promptly notify the Portfolio Manager in writing. If the Portfolio Manager is willing to render such services, it shall so notify the Trust and Manager in writing, whereupon such series shall become a Series hereunder, and be subject to this Agreement. 2. PORTFOLIO MANAGEMENT DUTIES AND AUTHORITY. Subject to the supervision of the Trust's Board of Trustees and the Manager, the Portfolio Manager will provide a continuous investment program for each Series' portfolio and determine the composition of the assets of each Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Portfolio Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of each Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of each Series should be held in the various securities and other investments in which it may invest, and the Portfolio Manager is hereby authorized to execute and perform such services on behalf of each Series. In accordance with the forgoing duties, the Portfolio Manager is hereby authorized to act as agent for the portfolio to order deposits and the investment of cash and purchases and sales of securities for the Series account and risk and in the name of the Trust. This authorization shall be continuing one and shall remain in full force and effect until this Agreement is terminated in accordance with the provisions of Section 15 hereof. To the extent permitted by the investment policies of the Series, the Portfolio Manager 1 shall make decisions for the Series as to foreign currency matters and make determinations as to and execute and perform foreign currency exchange contracts on behalf of the Series and shall have the authority to act in such capacity as the Portfolio Manager deems necessary or desirable in order to carry out its duties hereunder for the protection of the Series so long as not expressly prohibited by the terms of this Agreement, the 1940 Act or other securities laws or regulations. The Portfolio Manager will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission (the "SEC"), as from time to time amended (the "Registration Statement"), copies of which shall be sent to the Portfolio Manager by the Manager upon filing with the SEC. The Portfolio Manager further agrees as follows: (a) The Portfolio Manager will (1) manage each Series so that no action or omission on the part of the Portfolio Manager will cause a Series to fail to meet the requirements to qualify as a regulated investment company specified in Section 851 of the Internal Revenue Code (other than the requirements for the Trust to register under the 1940 Act and to file with its tax return an election to be a regulated investment company, both of which shall not be the responsibility of the Portfolio Manager), (2) manage each Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with the diversification requirements of Section 817(h) of the Internal Revenue Code and regulations issued thereunder, and (3) use reasonable efforts to manage the Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with any other rules and regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. The Manager will notify the Portfolio Manager promptly if the Manager believes that a Series is in violation of any requirement specified in the first sentence of this paragraph. The Manager or the Trust will notify the Portfolio Manager of any pertinent changes, modifications to, or interpretations of Section 817(h) of the Internal Revenue Code and regulations issued thereunder and of rules or regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. (b) The Portfolio Manager will perform its duties hereunder pursuant to the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of Trustees (the "Board") of which the Portfolio Manager has been notified in writing, and the provisions of the Registration Statement of the Trust under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, (provided that the Manager on behalf of the Board has delivered copies of any such supplement or amendments to the Portfolio Manager). (c) On occasions when the Portfolio Manager deems the purchase or sale of a security to be in the best interest of a Series as well as of other investment advisory clients of the Portfolio Manager or any of its affiliates, the Portfolio Manager may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Portfolio Manager in a manner that is fair and equitable in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust and to such other clients, provided, however that the Manager and the Board shall have the right to renew and amend, from time the Portfolio Manager's manner of allocation, provided further that any requested changes to such manner of allocation shall be implemented on a prospective basis only. (d) In connection with the purchase and sale of securities for a Series, the Portfolio Manager will arrange for the transmission to the custodian and portfolio accounting agent for the Series on a daily basis, such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Sedol, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian and portfolio accounting agent to perform its administrative and recordkeeping 2 responsibilities with respect to the Series. With respect to portfolio securities to be purchased or sold through the Depository Trust Company, the Portfolio Manager will arrange for the automatic transmission of the confirmation of such trades to the Trust's custodian and portfolio accounting agent. (e) The Portfolio Manager will assist the portfolio accounting agent for the Trust in determining or confirming, consistent with the procedures and policies stated in the Registration Statement, the value of any portfolio securities or other assets of the Series for which the portfolio accounting agent seeks assistance from or identifies for review by the Portfolio Manager, and the parties agree that the Portfolio Manager shall not bear responsibility or liability for the determination or accuracy of the valuation of any portfolio securities and other assets of the Series except to the extent that the Portfolio Manager exercises judgment with respect to any such valuation. (f) The Portfolio Manager will make available to the Trust and the Manager, promptly upon request, all of the Series' investment records and ledgers maintained by the Portfolio Manager (which shall not include the records and ledgers maintained by the custodian and portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Manager to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as well as other applicable laws. The Portfolio Manager will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services which may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations. (g) The Portfolio Manager will provide reports to the Trust's Board of Trustees for consideration at meetings of the Board on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Trust's Board of Trustees with respect to the Series such periodic and special reports as the Trustees and the Manager may reasonably request. (h) In rendering the services required under this Agreement, the Portfolio Manager may, from time to time, employ or associate with itself such person or persons as it believes necessary to assist it in carrying out its obligations under this Agreement. However, the Portfolio Manager may not retain as subadviser any company that would be an "investment adviser," as that term is defined in the 1940 Act, to the Series unless the contract with such company is approved by a majority of the Trust's Board of Trustees and a majority of Trustees who are not parties to any agreement or contract with such company and who are not "interested persons," as defined in the 1940 Act, of the Trust, the Manager, or the Portfolio Manager, or any such company that is retained as subadviser, and is approved by the vote of a majority of the outstanding voting securities of the applicable Series of the Trust to the extent required by the 1940 Act. The Portfolio Manager shall be responsible for making reasonable inquiries and for reasonably ensuring that any employee of the Portfolio Manager, any subadviser that the Portfolio Manager has employed or with which it has associated with respect to the Series, or any employee thereof has not, to the best of the Portfolio Manager's knowledge, in any material connection with the handling of Trust assets: (i) been convicted, in the last ten (10) years, of any felony or misdemeanor arising out of conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, involving violations of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving the purchase or sale of any security; or (ii) been found by any state regulatory authority, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or (iii) been found by any federal or state regulatory authorities, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation. (i) In using spot and forward foreign exchange contracts for the Series as an investment the parties represent the following: 3 (i) That the Manager is properly and lawfully established with full power and authority to enter into spot and forward foreign exchange contracts, to perform its obligations under such foreign exchange contracts and to procure the Portfolio Manager to enter into such foreign exchange contracts on its behalf. (ii) That the Manager may not, except for purposes of redemptions, expenses, and other costs of doing business, encumber funds which the Portfolio Manager has under the Portfolio Manager's management or which benefit from the Portfolio Manager's investment advice. If the Manager requires funds for any redemptions, expenses, and other costs of doing business, the Portfolio Manager will make funds available in a timely manner for Manager to meet such obligations. The Manager reserves the right to segregate assets upon notice to the Portfolio Manager and provide different arrangements for investment management with respect to those assets. (iii) That the Portfolio Manager has been granted full power and authority to enter into foreign exchange contracts as agent on the Manager's behalf and to give instructions for settlement for the same. (iv) That the Portfolio Manager has full authority to instruct Manager's custodian in conformity with its mandate. (v) That in the event of the termination of this Agreement, the Portfolio Manager may offer its counterparty the ability to leave open any existing foreign exchange contracts or to close them out at prevailing market rates. 3. BROKER-DEALER SELECTION. The Portfolio Manager is hereby authorized to place orders for the purchase and sale of securities and other investments for each Series' portfolio, with or through such persons, brokers or dealers and to negotiate commissions to be paid on such transactions and to supervise the execution thereof. The Portfolio Manager's primary consideration in effecting any such transaction will be to obtain the best execution for the Series, taking into account the factors specified in the Registration Statement, which include price (including the applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the security, the timing of the transaction, the reputation, the experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, and the execution capabilities and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. Accordingly, the price to the Series in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified, in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager may effect a transaction on behalf of the Series with a broker-dealer who provides brokerage and research services to the Portfolio Manager notwithstanding the fact that the commissions payable with respect to any such transaction may be greater than the amount of any commission another broker-dealer might have charged for effecting that transaction, if the Portfolio Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the Portfolio Manager's or its affiliate's overall responsibilities with respect to the Series and to their other clients as to which they exercise investment discretion. To the extent consistent with these standards, the Portfolio Manager is further authorized to allocate the orders placed by it on behalf of the Series to the Portfolio Manager if it is registered as a broker-dealer with the SEC, to any of its affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material, or other services to the Series, the Portfolio Manager, or an affiliate of the Portfolio Manager. Such allocation shall be in such amounts and proportions as the Portfolio Manager shall determine consistent with the above standards, and the Portfolio Manager will report on said allocation regularly to the Board indicating the broker- dealers to which such allocations have been made and the basis therefor. 4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has reviewed the post-effective amendment to the Registration Statement for the Trust filed with the SEC that contains disclosure 4 about the Portfolio Manager, and represents and warrants that, with respect to the disclosure about or information concerning the Portfolio Manager, to the Portfolio Manager's knowledge, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. The Portfolio Manager further represents and warrants that it is a duly registered investment adviser under the Advisers Act, or alternatively that it is not required to be a registered investment adviser under the Advisers Act to perform the duties described in this Agreement, and that it is a duly registered investment adviser in all states in which the Portfolio Manager is required to be registered. 5. EXPENSES. During the term of this Agreement, the Portfolio Manager will pay all expenses incurred by it and its staff and for their activities in connection with its portfolio management duties under this Agreement. The Manager or the Trust shall be responsible for all the expenses of the Trust's operations including, but not limited to: (a) Expenses of all audits by the Trust's independent public accountants; (b) Expenses of the Series' transfer agent, registrar, dividend disbursing agent, and shareholder recordkeeping services; (c) Expenses of the Series' custodial services including recordkeeping services provided by the custodian; (d) Expenses of obtaining quotations for calculating the value of each Series' net assets; (e) Expenses of obtaining Portfolio Activity Reports and Analyses of International Management Reports (as appropriate) for each Series; (f) Expenses of maintaining the Trust's tax records; (g) Salaries and other compensation of any of the Trust's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the Portfolio Manager or an affiliate of the Portfolio Manager; (h) Taxes levied against the Trust; (i) Brokerage fees and commissions, transfer fees, registration fees, taxes and similar liabilities and costs properly payable or incurred in connection with the purchase and sale of portfolio securities for the Series; (j) Costs, including the interest expense, of borrowing money; (k) Costs and/or fees incident to meetings of the Trust's shareholders, the preparation and mailings of prospectuses and reports of the Trust to its shareholders, the filing of reports with regulatory bodies, the maintenance of the Trust's existence, and the regulation of shares with federal and state securities or insurance authorities; (l) The Trust's legal fees, including the legal fees related to the registration and continued qualification of the Trust's shares for sale; (m) Costs of printing stock certificates representing shares of the Trust; (n) Trustees' fees and expenses to trustees who are not officers, employees, or stockholders of the Portfolio Manager or any affiliate thereof; (o) The Trust's pro rata portion of the fidelity bond required by Section 17(g) of the 1940 Act, or other insurance premiums; (p) Association membership dues; (q) Extraordinary expenses of the Trust as may arise including expenses incurred in connection with litigation, proceedings, and other claims (unless the Portfolio Manager is responsible for such expenses under Section 13 of this Agreement), and the legal obligations of the Trust to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; and (r) Organizational and offering expenses. 5 6. COMPENSATION. For the services provided, the Manager will pay the Portfolio Manager a fee, payable as described in Schedule B. 7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not be responsible for providing money for the initial capitalization of the Series. 8. COMPLIANCE. (a) The Portfolio Manager agrees that it shall promptly notify the Manager and the Trust (1) in the event that the SEC or other governmental authority has censured the Portfolio Manager; placed limitations upon its activities, functions or operations; suspended or revoked its registration, if any, as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Code or the regulations thereunder. The Portfolio Manager further agrees to notify the Manager and the Trust promptly of any material fact known to the Portfolio Manager respecting or relating to the Portfolio Manager that is not contained in the Registration Statement as then in effect, and is required to be stated therein or necessary to make the statements therein not misleading, or of any statement contained therein that becomes untrue in any material respect. (b) The Manager agrees that it shall immediately notify the Portfolio Manager (1) in the event that the SEC has censured the Manager or the Trust; placed limitations upon either of their activities, functions, or operations; suspended or revoked the Manager's registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Code, or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Code or the regulations thereunder. 9. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all records which it maintains for the Series are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Manager's request, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Portfolio Manager further agrees to preserve for the periods prescribed by Rule 31a- 2 under the 1940 Act the records required to be maintained by Rule 31a-l under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in such rules. 10. COOPERATION. Each party to this Agreement agrees to cooperate with each other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC and state insurance regulators) in connection with any investigation or inquiry relating to this Agreement or the Trust. 11. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. (a) During the term of this Agreement, the Trust and the Manager agree to furnish to the Portfolio Manager at its principal offices prior to use thereof copies of all Registration Statements and amendments thereto, prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Trust or any Series or to the public that refer or relate in any way to the Portfolio Manager, Baring Asset Management, Inc. or any of its affiliates (other than the Manager), or that use any derivative of the name Baring Asset Management or any logo associated therewith. The Trust and the Manager agree that they will not use any such material without the prior consent of the Portfolio Manager, which consent shall not be unreasonably withheld. In the event of the termination of this Agreement, the Trust and the Manager will furnish to the Portfolio Manager copies of any of the above-mentioned materials that refer or relate in any way to the Portfolio Manager; 6 (b) the Trust and the Manager will furnish to the Portfolio Manager such information relating to either of them or the business affairs of the Trust as the Portfolio Manager shall from time to time reasonably request in order to discharge its obligations hereunder; (c) the Manager and the Trust agree that neither the Trust, the Manager, nor affiliated persons of the Trust or the Manager shall give any information or make any representations or statements in connection with the sale of shares of the Series concerning the Portfolio Manager or the Series other than the information or representations contained in the Registration Statement, prospectus, or statement of additional information for the Trust, as they may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved in advance by the Portfolio Manager, except with the prior permission of the Portfolio Manager. 12. SERVICES NOT EXCLUSIVE. It is understood that the services of the Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent the Portfolio Manager (or its affiliates) from providing similar services to other clients, including investment companies (whether or not their investment objectives and policies are similar to those of the Series) or from engaging in other activities. 13. LIABILITY. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Manager agree that the Portfolio Manager, any affiliated person of the Portfolio Manager, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable for any error of judgment, mistake of law, any diminution in value of the investment portfolio of the Series, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance by the Portfolio Manager of its duties, or by reason of reckless disregard by the Portfolio Manager of its obligations and duties under this Agreement. 14. INDEMNIFICATION. (a) Notwithstanding Section 13 of this Agreement, the Manager agrees to indemnify and hold harmless the Portfolio Manager, any affiliated person of the Portfolio Manager (other than the Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls ("controlling person") the Portfolio Manager (all of such persons being referred to as "Portfolio Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Portfolio Manager Indemnified Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the Code, under any other statute, at common law or otherwise, arising out of the Manager's responsibilities to the Trust which (1) may be based upon any violations of willful misconduct, malfeasance, bad faith or gross negligence by the Manager, any of its employees or representatives, or any affiliate of or any person acting on behalf of the Manager, or (2) may be based upon any untrue statement or alleged untrue statement of a material fact supplied by, or which is the responsibility of, the Manager and contained in the Registration Statement or prospectus covering shares of the Trust or a Series, or any amendment thereof or any supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Manager and was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Manager or the Trust or to any affiliated person of the Manager by a Portfolio Manager Indemnified Person; provided however, that in no case shall the indemnity in favor of the Portfolio Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its reckless disregard of obligations and duties under this Agreement. (b) Notwithstanding Section 13 of this Agreement, the Portfolio Manager agrees to indemnify and hold harmless the Manager, any affiliated person of the Manager (other than the Portfolio Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls ("controlling person") the Manager (all of such persons being referred to as "Manager 7 Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Manager Indemnified Person may become subject under the 1933 Act, 1940 Act, the Advisers Act, the Code, under any other statute, at common law or otherwise, arising out of the Portfolio Manager's responsibilities as Portfolio Manager of the Series which (1) may be based upon any violations of willful misconduct, malfeasance, bad faith or gross negligence by the Portfolio Manager, any of its employees or representatives, or any affiliate of or any person acting on behalf of the Portfolio Manager, (2) may be based upon a failure to comply with Section 2, Paragraph (a) of this Agreement, or (3) any breach of any representations or warranties contained in Section 4; provided, however, that in no case shall the indemnity in favor of a Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under this Agreement. (c) The Manager shall not be liable under Paragraph (a) of this Section 14 with respect to any claim made against a Portfolio Manager Indemnified Person unless such Portfolio Manager Indemnified Person shall have notified the Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Portfolio Manager Indemnified Person (or after such Portfolio Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Manager of any such claim shall not relieve the Manager from any liability which it may have to the Portfolio Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 14. In case any such action is brought against the Portfolio Manager Indemnified Person, the Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Portfolio Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Portfolio Manager Indemnified Person. If the Manager assumes the defense of any such action and the selection of counsel by the Manager to represent both the Manager and the Portfolio Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Portfolio Manager Indemnified Person, adequately represent the interests of the Portfolio Manager Indemnified Person, the Manager will, at its own expense, assume the defense with counsel to the Manager and, also at its own expense, with separate counsel to the Portfolio Manager Indemnified Person, which counsel shall be satisfactory to the Manager and to the Portfolio Manager Indemnified Person. The Portfolio Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Manager shall not be liable to the Portfolio Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Portfolio Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Portfolio Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Portfolio Manager Indemnified Person. (d) The Portfolio Manager shall not be liable under Paragraph (b) of this Section 14 with respect to any claim made against a Manager Indemnified Person unless such Manager Indemnified Person shall have notified the Portfolio Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Manager Indemnified Person (or after such Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Portfolio Manager of any such claim shall not relieve the Portfolio Manager from any -liability which it may have to the Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 14. In case any such action is brought against the Manager Indemnified Person, the Portfolio Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory 8 to the Manager Indemnified Person. If the Portfolio Manager assumes the defense of any such action and the selection of counsel by the Portfolio Manager to represent both the Portfolio Manager and the Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Manager Indemnified Person, adequately represent the interests of the Manager Indemnified Person, the Portfolio Manager will, at its own expense, assume the defense with counsel to the Portfolio Manager and, also at its own expense, with separate counsel to the Manager Indemnified Person which counsel shall be satisfactory to the Portfolio Manager and to the Manager Indemnified Person. The Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Portfolio Manager shall not be liable to the Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Portfolio Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Manager Indemnified Person. (e) The Manager shall not be liable under this Section 14 to indemnify and hold harmless the Portfolio Manager and the Portfolio Manager shall not be liable under this Section 14 to indemnify and hold harmless the Manager with respect to any losses, claims, damages, liabilities, or litigation that first become known to the party seeking indemnification during any period that the Portfolio Manager is, within the meaning of Section 15 of the 1933 Act, a controlling person of the Manager. 15. DURATION AND TERMINATION. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for two (2) years from such date and continue on an annual basis thereafter with respect to each Series; provided that such annual continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Series, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The Portfolio Manager shall not provide any services for such Series or receive any fees on account of such Series with respect to which this Agreement is not approved as described in the preceding sentence. However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. Notwithstanding the foregoing, this Agreement may be terminated for each or any Series hereunder: (a) by the Manager at any time without penalty, upon sixty (60) days' written notice to the Portfolio Manager and the Trust, (b) at any time without payment of any penalty by the Trust, upon the vote of a majority of the Trust's Board of Trustees or a majority of the outstanding voting securities of each Series, upon sixty (60) day's written notice to the Manager and the Portfolio Manager, or (c) by the Portfolio Manager at any time without penalty, upon sixty (60) days written notice to the Manager and the Trust. In addition, this Agreement shall terminate with respect to a Series in the event that it is not initially approved by the vote of a majority of the outstanding voting securities of that Series at a meeting of shareholders at which approval of the Agreement shall be considered by shareholders of the Series. In the event of termination for any reason, all records of each Series for which the Agreement is terminated shall promptly be returned to the Manager or the Trust, free from any claim or retention of rights in such records by the Portfolio Manager, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described 9 above, the Sections or Paragraphs numbered 2(f), 9, 10, 11, 13, 14, and 17 of this Agreement shall remain in effect, as well as any applicable provision of this Paragraph numbered 15. 16. AMENDMENTS. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by an affirmative vote of (i) the Trustees of the Trust, including a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement, and (ii) the holders of a majority of the outstanding voting securities of the Series, cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law. 17. USE OF NAME. (a) It is understood that the name "Directed Services, Inc." or any derivative thereof or logo associated with that name is the valuable property of the Manager and/or its affiliates, and that the Portfolio Manager has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Manager is Manager to the Trust and/or the Series. Upon termination of the Management Agreement between the Trust and the Manager, the Portfolio Manager shall as soon as is reasonably possible cease to use such name (or derivative or logo). (b) It is understood that the name "Baring International Investment Limited" or any derivative thereof or logo associated with that name is the valuable property of the Portfolio Manager and its affiliates and that the Trust and/or the Series have the right to use such name (or derivative or logo) in offering materials of the Trust with the approval of the Portfolio Manager and for so long as the Portfolio Manager is a portfolio manager to the Trust and/or the Series. Upon termination of this Agreement between the Trust, the Manager, and the Portfolio Manager, the Trust shall as soon as is reasonably possible cease to use such name (or derivative or logo). 18. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A copy of the Amended and Restated Agreement and Declaration of Trust for the Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Amended and Restated Agreement and Declaration of Trust has been executed on behalf of the Trust by Trustees of the Trust in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, or shareholder of the Trust individually. 19. INVESTMENT MANAGEMENT REGULATORY ORGANIZATION. (a) Under the rules of the Investment Management Regulatory Organization ("IMRO"), clients must be placed in specific categories which are dictated by different considerations including the nature and financial description of the client, the experience of the client in certain investments and other factors. On the basis of the information given by the Manager, it is categorized as a Non-Private Customer in relation to the services to be provided in accordance with the Agreement. (b) The Portfolio Manager has written procedures in operation in accordance with IMRO rules for the effective consideration and proper handling of client complaints. Any complaint by the Manager should be sent in writing to the Compliance Officer of the Portfolio Manager. The Manager and the Trust may make any complaint about the Portfolio Manager to IMRO. 20. MISCELLANEOUS. (a) This Agreement shall be governed by the laws of the State of Delaware, without giving effect to the provisions, policies or principals thereof relating to choice or conflict of laws, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. 10 (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) To the extent permitted under Section 15 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other parties. (d) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable. (e) Nothing herein shall be construed as constituting the Portfolio Manager as an agent of the Manager, or constituting the Manager as an agent of the Portfolio Manager. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. THE GCG TRUST Attest /s/Marilyn Talman By: Myles R. Tashman ----------------- ---------------- Title: Assistant Secretary Title: Secretary ------------------- -------------- DIRECTED SERVICES, INC. Attest /s/Marilyn Talman By: David L. Jacobson ------------------ ------------------ Title: Vice President Title: Senior Vice President --------------- --------------------- BARING INTERNATIONAL INVESTMENT LIMITED Attest /s/ A.H. Routledge By: /s/ Mala S. Dhillon ------------------- -------------------- Title: Company Solicitor Title: Director ------------------- --------- 11 AMENDED SCHEDULE A The Series of The GCG Trust, as described in Section 1 of the attached Portfolio Management Agreement, to which Baring International Investment Limited shall act as Portfolio Manager are as follows: Global Fixed Income Series Developing World Series Hard Asset Series IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the 26th day February, 1999. THE GCG TRUST Attest /s/Marilyn Talman By: /s/Myles R. Tashman ----------------- ------------------- Title: Vice President Title: Secretary ----------------- --------- DIRECTED SERVICES, INC. Attest /s/Marilyn Talman By: /s/Myles R. Tashman ----------------- ------------------- Title: Vice President Title: Executive Vice President ----------------- ------------------------ and Assistant Secretary BARING INTERNATIONAL INVESTMENT LIMITED Attest Michael T. Brown By: /s/Mala S. Dhillon ---------------- ------------------ Title: Vice President Title: Director -------------- -------- 12 AMENDED SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by Baring International Investment Limited ("Portfolio Manager") to the following Series of The GCG Trust, pursuant to the attached Portfolio Management Agreement, the Manager will pay the Portfolio Manager a fee, computed daily and payable monthly, based on the average daily net assets of the Series at the following annual rates of the average daily net assets of the Series: SERIES RATE Global Fixed Income Series 0.45% of first $200 million, 0.30% of next $500 million, 0.25% of next $1 billion, 0.10% in excess of $2 billion Developing World Series 0.90% Hard Asset Series 0.40% IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the 26th day February, 1999. THE GCG TRUST Attest /s/Marilyn Talman By: /s/Myles R. Tashman ----------------- ------------------- Title: Assistant Secretary Title: Secretary ------------------- --------- DIRECTED SERVICES, INC. Attest /s/Marilyn Talman By: /s/Myles R. Tashman ------------------ ------------------- Title: Vice President Title: Executive Vice President ----------------------- ------------------------ and Assistant Secretary BARING INTERNATIONAL INVESTMENT LIMITED Attest Michael T. Brown By: /s/Mala S. Dhillon ---------------- ------------------ Title: Vice President Title: Director -------------- -------- 13 EX-99.D2L 6 SUBADVISORY AGREEMENT EXHIBIT (d)(2)(L) SUBADVISORY AGREEMENT GCG TRUST THIS AGREEMENT is made this 26th day of February, 1999, by and between GCG Trust (the "Trust"), a Massachusetts business trust, on behalf of the portfolios listed on Schedule A hereto (the "Portfolios"), Directed Services, Inc. (the "Manager") a New York corporation and AIM Capital Management, Inc. (the "Sub- Adviser") a Delaware corporation. WHEREAS, the Trust represents that it is registered under the Investment Company Act of 1940, as amended (the A1940 Act") as an open-end, diversified management investment company, consisting of multiple series of investment portfolios; WHEREAS, the Manager represents that it is registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act") as an investment adviser and engages in the business of acting as an investment adviser; WHEREAS, the Sub-Adviser represents that it is registered under the Advisers Act as an investment adviser and engages in the business of acting as an investment adviser; WHEREAS, the Trust represents that the Board of Trustees of the Trust is authorized to classify or reclassify authorized but unissued shares of the Trust, and as of the date of this Agreement the Trust's Board of Trustees has authorized the issuance of series of shares representing interests in investment portfolios; and WHEREAS, the Manager represents that it has entered into a management agreement dated as of October 24, 1997 with the Trust (the "Management Agreement"), pursuant to which the Manager shall act as manager with respect to the Portfolios; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. INVESTMENT DESCRIPTION; APPOINTMENT The Trust desires to employ its capital relating to the Portfolios by investing and reinvesting in investments of the kind and in accordance with the investment objective(s), policies and limitations specified in the prospectuses (the "Prospectus") and the statements of additional information (the "Statement") filed with the Securities and Exchange Commission as part of the Trust's Registration Statement on Form N-1A, as amended or supplemented from time to time, and in the manner and to the extent as may from time to time be approved by the Board of Trustees of the Trust (the "Board"). Copies of the Registration Statement, Prospectus and the Statement have been or will be provided to the Sub-Adviser. The Trust agrees promptly to provide copies of all amendments and supplements to the current Registration Statement, Prospectus and the Statement to the Sub- Adviser on or before the effective date thereof on an on-going basis. Until the Trust delivers any such amendment or supplement to the Sub-Adviser, the Sub-Adviser shall be fully protected in relying on the Prospectus and Statement as previously furnished to the Sub-Adviser. The Trust employs the Manager as the manager to the Portfolios pursuant to the Management Agreement, and the Trust and the Manager desire to employ and hereby appoint the Sub-Adviser to act as the sub-investment adviser to the Portfolios. The Sub-Adviser accepts the appointment and agrees to furnish the services for the compensation set forth below. 2. SERVICES AS SUB-ADVISER Subject to the supervision, direction and approval of the Board and the Manager, the Sub-Adviser shall conduct a continual program of investment, evaluation and, if appropriate in the view of the Sub-Adviser, sale and reinvestment of the Portfolios' assets. The Sub-Adviser is authorized, in its sole discretion and without prior consultation with the Manager, to: (a) manage the Portfolios' assets in accordance with each Portfolio's investment objective(s) and policies as stated in the A - 1 Prospectus and the Statement; (b) make investment decisions for the Portfolios; (c) place purchase and sale orders for portfolio transactions on behalf of the Portfolios; and (d) employ professional portfolio managers and securities analysts who provide research services to the Portfolios. In addition, (i) the Sub-Adviser shall furnish the Manager daily information concerning portfolio transactions and quarterly and annual reports concerning transactions and performance of the Portfolios in such form as may be mutually agreed by the Manager and the Sub-Adviser, and the Sub-Adviser agrees to review the Portfolio and discuss the management thereof with the Manager and the Board. (ii) Unless the Manager gives the Sub-Adviser written instructions to the contrary, the Sub-Adviser shall use its good faith judgment in a manner which it reasonably believes best serves the interests of the Portfolios' shareholders to vote or abstain from voting all proxies solicited by or with respect to the issuers of securities in which assets of the Portfolios may be invested. (iii) The Sub-Adviser shall maintain and preserve such records related to the Portfolios' transactions as required under the 1940 Act. The Manager shall maintain and preserve all books and other records not related to the Portfolios= transactions as required under the 1940 Act. The Sub-Adviser shall timely furnish to the Manager all information relating to the Sub- Adviser's services hereunder reasonably requested by the Manager to keep and preserve the books and records of the Portfolios. The Sub-Adviser agrees that all records which it maintains for the Portfolios are the property of the Trust and the Sub-Adviser will surrender promptly to the Trust copies of any of such records. (iv) The Sub-Adviser shall maintain compliance procedures for the Portfolios that it reasonably believes are adequate to ensure the Portfolios' compliance with (A) the 1940 Act and the rules and regulations promulgated thereunder and (B) each Portfolio's investment objective(s) and policies as stated in the Prospectus and Statement. The Sub-Adviser shall maintain compliance procedures that it reasonably believes are adequate to ensure its compliance with the Advisers Act. (v) The Sub-Adviser has adopted a written code of ethics that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act, which it will provide to the Trust. The Sub-Adviser has policies and procedures regarding the detection and prevention and the misuse of material, nonpublic information by the Sub-Adviser and its employees as required by the Insider Trading and Securities Fraud Enforcement Act of 1988. 3. BROKERAGE The Sub-Adviser is responsible for decisions to buy and sell securities for the Portfolios, broker-dealer selection, and negotiation of brokerage commission rates. The Sub-Adviser's primary consideration in effecting a security transaction will be executed at the most favorable price. In selecting a broker- dealer to execute each particular transaction, the Sub-Adviser will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker-dealer, the size of and difficulty in executing the order; and the value of the expected contribution of the broker- dealer to the investment performance of the Portfolio on a continuing basis. Accordingly, the price to a Portfolio in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Subject to such policies as the Board may from time to time determine, the Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Portfolio to pay a broker or dealer that provides brokerage and research services to the Sub-Adviser an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction of the Sub-Adviser's overall responsibilities with respect to a particular Portfolio, and to the other clients of the Sub-Adviser as to which the Sub-Adviser exercises investment discretion. The Sub-Adviser is further authorized to allocate A - 2 the orders placed by it on behalf of the Portfolios to such brokers and dealers who also provide research or statistical material, or other services to the Portfolios or to the Sub-Adviser. Such allocation shall be in such amounts and proportions as the Sub-Adviser shall determine and the Sub- Adviser will report on said allocations regularly to the Board indicating the brokers to whom such allocations have been made and the basis therefor. 4. INFORMATION PROVIDED TO THE COMPANY AND THE MANAGER The Sub-Adviser shall keep the Trust and the Manager informed of developments materially affecting the Portfolios' holdings, and shall, on its own initiative, furnish the Trust and the Manager from time to time with whatever information the Sub- Adviser believes is appropriate for this purpose. 5. COMPENSATION In consideration of the services rendered pursuant to this Agreement, the Manager will pay the Sub-Adviser an annual fee calculated at the rate specified in Schedule B hereto. The fee is calculated daily and paid monthly. The fee for the period from the Effective Date (defined below) of the Agreement to the end of the month during which the Effective Date occurs shall be prorated according to the proportion that such period bears to the full monthly period. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Sub-Adviser, the value of each Portfolio's net assets shall be computed at the times and in the manner specified in the Prospectus and/or the Statement. 6. EXPENSES The Sub-Adviser shall bear all expenses incurred by it in connection with the performance of its services under this Agreement. Each Portfolio will bear certain other expenses to be incurred in its operation, including, but not limited to, investment advisory fees, sub-advisory fees (other than sub- advisory fees paid pursuant to this Agreement) and administration fees; fees for necessary professional and brokerage services; costs relating to local administration of securities; fees for any pricing service; the costs of regulatory compliance; and pro rata costs associated with maintaining the Trust's legal existence and shareholder relations. All other expenses not specifically assumed by the Sub-Adviser hereunder or by the Manager under the Management Agreement are borne by the Portfolios or the Trust. 7. STANDARD OF CARE The Sub-Adviser shall exercise its best judgment and shall act in good faith in rendering the services listed in paragraphs 2 and 3 above. The Sub-Adviser, its officers, directors and employees shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Portfolios, any shareholder of the Portfolios or the Manager in connection with the matters to which this Agreement relates, provided that nothing in this Agreement shall be deemed to protect or purport to protect the Sub-Adviser against any liability to the Manager, the Trust or to the shareholders of the Portfolios to which the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or by reason of the Sub-Adviser's reckless disregard of its obligations and duties under this Agreement. 8. TERM OF AGREEMENT This Agreement shall become effective with respect to each Portfolio as of March 1, 1999 (the "Effective Date") and shall continue for an initial two-year term and shall continue thereafter so long as such continuance is specifically approved at least annually as required by the 1940 Act. This Agreement is terminable with respect to any Portfolio, without penalty, on 60 days' written notice, by the Board or by vote of holders of a majority (as defined in the 1940 Act and the rules thereunder) of the outstanding voting securities of the Portfolio, or upon 60 days' written notice, by the Sub-Adviser. This Agreement will also terminate automatically in the event of its assignment (the term Aassignment@ having the meaning defined in Section 2(a)(4) of the 1940 Act and the rules thereunder). A - 3 9. SERVICES TO OTHER COMPANIES OR ACCOUNTS The Trust understands that the Sub-Adviser now acts, will continue to act and may act in the future as investment manager or adviser to fiduciary and other managed accounts, and as investment manager or adviser to other investment companies, including any offshore entities, or accounts, and the Trust has no objection to the Sub-Adviser's so acting, provided that whenever the Portfolios and one or more other investment companies or accounts managed or advised by the Sub-Adviser have available funds for investment, investments suitable and appropriate for each will be allocated in accordance with a formula believed to be equitable to each company and account. The Trust recognizes that in some cases this procedure may adversely affect the size of the position obtainable for the Portfolios. In addition, the Trust understands that the persons employed by the Sub-Adviser to assist in the performance of the Sub-Adviser's duties under this Agreement will not devote their full time to such service and nothing contained in this Agreement shall be deemed to limit or restrict the right of the Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. 10. NOTICES Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other parties at such address as such other parties may designate for the receipt of such notice. Until further notice to the other parties, it is agreed that the address of each party is as follows: (a) To the Trust: Prior to March 19, 1999 After March 19, 1999 Myles R. Tashman Myles R. Tashman GCG Trust The GCG Trust The GCG Trust 1001 Jefferson Street 1463 Dunwoody Road Suite 400 West Chester, PA 19380 Wilmington, DE 19801 (b) To the Manager: Prior to March 19, 1999 After March 19, 1999 Myles R. Tashman Myles R. Tashman Directed Services, Inc. The GCG Trust The GCG Trust 1001 Jefferson Street 1463 Dunwoody Road Suite 400 West Chester, PA 19380 Wilmington, DE 19801 (c) To the Sub-Adviser: AIM Capital Management, Inc. President 11 Greenway Plaza, Suite 1919 Houston, TX 77046 cc: General Counsel A - 4 11. REPRESENTATIONS The Trust represents that a copy of the Agreement and Declaration of Trust together with all amendments thereto, is on file with the Secretary of the Commonwealth of Massachusetts. Each of the parties hereto represents that the Agreement has been duly authorized, executed and delivered by all required action. 12. USE OF NAME The Trust may use the names "AIM Capital Management, Inc.", "AIM Capital Management", or "AIM Capital" (collectively the AIM Names) only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect. At such times as this Agreement shall no longer be in effect, the Trust shall cease to use such names or any other name indicating that it is advised by or otherwise connected with the Sub-Adviser and shall promptly change its name accordingly. The Trust acknowledges that it has authority to use the AIM Names through permission of the Sub-Adviser, and agrees that the Sub-Adviser reserves to itself and any successor to its business the right to grant the non-exclusive right to use the aformentioned names or any similar names to any other corporation or entity, including but not limited to any investment company of which the Sub- Adviser or any subsidiary or affiliate thereof or any successor to the business of any thereof shall be the investment adviser. 13. SEVERABILITY If any provision of this Agreement is found to be unenforceable, then this Agreement shall be deemed to be amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent. The remainder of this Agreement shall not be affected by such modification. 14. QUESTIONS OF INTERPRETATION Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act or the Advisers Act shall be resolved by reference to such term or provision of the 1940 Act or the Advisers Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Acts. In addition, where the effect of a requirement of the 1940 Act or the Advisers Act reflected in any provision of this Agreement is revised by rule, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in triplicated by their respective officers on the day and year first written above. A - 5 GCG TRUST Attest: /s/ Marilyn Talman By: /s/ Myles R. Tashman ------------------ -------------------- Name: Myles R. Tashman ---------------- Title: Secretary --------- DIRECTED SERVICES, INC. Attest: /s/ Marilyn Talman By: /s/ Myles R. Tashman ------------------ -------------------- Name: Myles R. Tashman ---------------- Title: Secretary --------- AIM CAPITAL MANAGEMENT, INC. Attest: /s/ Nancy L. Martin By: /s/ Gary T. Crum ------------------- ---------------- Name: Gary T. Crum ------------ Title: President --------- A - 6 SCHEDULE A Portfolios Capital Appreciation Portfolio Strategic Equity Portfolio SCHEDULE B Fee Schedule Pursuant to Section 5 of the Sub-Advisory Agreement among GCG Trust, Directed Services, Inc. and AIM Capital Management, Inc. (the ASub-Adviser@), the fees payable to the Sub-Adviser shall be calculated by applying the following rates to the average daily net assets of the Portfolios as indicated below: Portfolio Net Assets Annual Rate Capital Appreciation Portofolio First $250 million 0.50% Next $250 million 0.45% Over $500 million 0.40% Strategic Equity Portfolio First $250 million 0.50% Next $250 million 0.45% Over $500 million 0.40% A - 7 EX-99.D2M 7 JANUS PORTFOLIO MANAGEMENT AGREEMENT EXHIBIT (d)(2)(M) PORTFOLIO MANAGEMENT AGREEMENT AGREEMENT made this 26th day of February, 1999, among The GCG Trust (the "Trust"), a Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New York corporation, and Janus Capital Corporation ("Portfolio Manager"), a Colorado corporation. WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; WHEREAS, pursuant to a Management Agreement, effective as of October 24, 1997, a copy of which has been provided to the Portfolio Manager, the Trust has retained the Manager to render advisory, management, and administrative services to many of the Trust's series; WHEREAS, the Trust and the Manager wish to retain the Portfolio Manager to furnish investment advisory services to one or more of the series of the Trust, and the Portfolio Manager is willing to furnish such services to the Trust and the Manager; NOW THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust, the Manager, and the Portfolio Manager as follows: 1. APPOINTMENT. The Trust and the Manager hereby appoint Janus Capital Corporation to act as Portfolio Manager to the Series designated on Schedule A of this Agreement (each a "Series") for the periods and on the terms set forth in this Agreement. The Portfolio Manager accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. In the event the Trust designates one or more series other than the Series with respect to which the Trust and the Manager wish to retain the Portfolio Manager to render investment advisory services hereunder, they shall promptly notify the Portfolio Manager in writing. If the Portfolio Manager is willing to render such services, it shall so notify the Trust and Manager in writing, whereupon such series shall become a Series hereunder, and be subject to this Agreement. 2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the Trust's Board of Trustees and the Manager, the Portfolio Manager will provide a continuous investment program for each Series' portfolio and determine the composition of the assets of each Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Portfolio Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of each Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of each Series should be held in the various securities and other investments in which it may invest, and the Portfolio Manager is hereby authorized to execute and perform such services on behalf of each Series. To the extent permitted by the investment policies of the Series, the Portfolio Manager shall make decisions for the Series as to foreign currency matters and make determinations as to and execute and perform foreign currency exchange contracts on behalf of the Series. The Portfolio Manager will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission (the "SEC"), as from time to time amended, copies of which shall be sent to the Portfolio Manager by the Manager upon filing with the SEC. Prior to filing the Manager will provide an opportunity 1 for the Portfolio Manager to review the Trust's prospectus and statement of additional information. The Portfolio Manager further agrees as follows: (a) The Portfolio Manager will (1) manage each Series so that no action or omission on the part of the Portfolio Manager will cause a Series to fail to meet the requirements to qualify as a regulated investment company specified in Section 851 of the Internal Revenue Code (other than the requirements for the Trust to register under the 1940 Act and to file with its tax return an election to be a regulated investment company, both of which shall not be the responsibility of the Portfolio Manager), (2) manage each Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with the diversification requirements of Section 817(h) of the Internal Revenue Code and regulations issued thereunder, and (3) use reasonable efforts to manage the Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with any other rules and regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. The Manager will notify the Portfolio Manager promptly if the Manager believes that a Series is in violation of any requirement specified in the first sentence of this paragraph. The Manager or the Trust will notify the Portfolio Manager of any pertinent changes, modifications to, or interpretations of Section 817(h) of the Internal Revenue Code and regulations issued thereunder and of rules or regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. Portfolio Manager shall have no responsibility to monitor those limitations or restrictions, including the 90%-source test, for which the Portfolio Manager has not been provided sufficient information in accordance with Section 2(j) of this Agreement or otherwise, provided Portfolio Manager has notified Manager of its need for such information. All such monitoring shall be the responsibility of the Manager. (b) The Portfolio Manager will perform its duties hereunder pursuant to the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of Trustees of which the Portfolio Manager has been notified in writing, and the provisions of the Registration Statement of the Trust under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of which the Portfolio Manager has received a copy ("Registration Statement"). The Manager or the Trust will notify the Portfolio Manager of pertinent provisions of applicable state insurance law with which the Portfolio Manager must comply under this Paragraph 2(b). (c) On occasions when the Portfolio Manager deems the purchase or sale of a security to be in the best interest of a Series as well as of other investment advisory clients of the Portfolio Manager or any of its affiliates, the Portfolio Manager may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Portfolio Manager in a manner that is fair and equitable in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust and to such other clients, subject to review by the Manager and the Board of Trustees. (d) In connection with the purchase and sale of securities for a Series, the Portfolio Manager will arrange for the transmission to the custodian and portfolio accounting agent for the Series on a daily basis, such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Sedol, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian and portfolio accounting agent to perform its administrative and recordkeeping responsibilities with respect to the Series. With respect to portfolio securities to be purchased or sold through the Depository Trust Company, the Portfolio Manager will arrange for the automatic transmission of the confirmation of such trades to the Trust's custodian and portfolio accounting agent. 2 (e) The Portfolio Manager will assist the portfolio accounting agent for the Trust in determining or confirming, consistent with the procedures and policies stated in the Registration Statement for the Trust, the value of any portfolio securities or other assets of the Series for which the portfolio accounting agent seeks assistance from or identifies for review by the Portfolio Manager, and the parties agree that the Portfolio Manager shall not bear responsibility or liability for the determination or accuracy of the valuation of any portfolio securities and other assets of the Series except to the extent that the Portfolio Manager exercises judgment with respect to any such valuation. The Portfolio Manager shall not otherwise be responsible for portfolio accounting nor shall it be required to generate information derived from portfolio accounting data. (f) The Portfolio Manager will make available to the Trust and the Manager, promptly upon request, all of the Series' investment records and ledgers maintained by the Portfolio Manager (which shall not include the records and ledgers maintained by the custodian and portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Manager to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as well as other applicable laws. The Portfolio Manager will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services which may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations. (g) The Portfolio Manager will provide reports to the Trust's Board of Trustees for consideration at meetings of the Board on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Trust's Board of Trustees with respect to the Series such periodic and special reports as the Trustees and the Manager may reasonably request. (h) In rendering the services required under this Agreement, the Portfolio Manager may, from time to time, employ or associate with itself such person or persons as it believes necessary to assist it in carrying out its obligations under this Agreement. However, the Portfolio Manager may not retain as subadviser any company that would be an "investment adviser," as that term is defined in the 1940 Act, to the Series unless the contract with such company is approved by a majority of the Trust's Board of Trustees and a majority of Trustees who are not parties to any agreement or contract with such company and who are not "interested persons," as defined in the 1940 Act, of the Trust, the Manager, or the Portfolio Manager, or any such company that is retained as subadviser, and is approved by the vote of a majority of the outstanding voting securities of the applicable Series of the Trust to the extent required by the 1940 Act. The Portfolio Manager shall be responsible for making reasonable inquiries and for reasonably ensuring that any employee of the Portfolio Manager, any subadviser that the Portfolio Manager has employed or with which it has associated with respect to the Series, or any employee thereof has not, to the best of the Portfolio Manager's knowledge, in any material connection with the handling of Trust assets: (i) been convicted, in the last ten (10) years, of any felony or misdemeanor arising out of conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, involving violations of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving the purchase or sale of any security; or (ii) been found by any state regulatory authority, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or (iii) been found by any federal or state regulatory authorities, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation. (i) Portfolio Manager shall be responsible for the preparation and filing of Schedule 13G and 13F on behalf of the Series. Portfolio Manager shall not be responsible for preparing or filing of any other reports required of the Series by any governmental or regulatory agency, except as may be expressly agreed to in writing. This section shall not be interpreted to 3 relieve Portfolio Manager of its duty to file reports of it as an investment adviser. Portfolio Manager shall vote proxies received in connection with securities held by the Series. (j) Manager shall timely furnish Portfolio Manager with such information as may be reasonably necessary for or requested by Portfolio Manager to perform its responsibilities. (k) The Series assets shall be maintained in the custody of the Trust's designated custodian. Any assets added to the Series shall be delivered directly to such custodian. Portfolio Manager shall have no liability for the acts or omissions of any custodian of the Series' assets, except for Portfolio Manager's instructions given to any custodian. Portfolio Manager shall have no responsibility, except for Portfolio Manager's instructions to custodian, for custodian's compliance with the segregation requirement of the 1940 Act or other applicable law. Portfolio Manager shall be subject to a written code of ethics adopted by it pursuant to Rule 17j-1(b) 0f the 1940 Act, which was adopted by the Board of Trustees of the Trust as the code of ethics for the Series, and shall not be subject to any other code of ethics, including Manager's code of ethics, unless specifically adopted by Portfolio Manager. 3. BROKER-DEALER SELECTION. The Portfolio Manager is responsible for decisions to buy and sell securities and other investments for each Series' portfolio, broker-dealer selection, and negotiation of brokerage commission rates. The Portfolio Manager's primary consideration in effecting a security transaction will be to obtain the best execution for the Series, taking into account the factors specified in the prospectus and/or statement of additional information for the Trust, which include price (including the applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the security, the timing of the transaction, the reputation, the experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, and the execution capabilities and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. Accordingly, the price to the Series in any transaction may be less favorable than that available from another broker- dealer if the difference is reasonably justified, in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Series to pay a broker-dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the Portfolio Manager or its affiliate determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the Portfolio Manager's or its affiliate's overall responsibilities with respect to the Series and to their other clients as to which they exercise investment discretion. To the extent consistent with these standards, the Portfolio Manager is further authorized to allocate the orders placed by it on behalf of the Series to the Portfolio Manager if it is registered as a broker-dealer with the SEC, to its affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material, or other services to the Series, the Portfolio Manager, or an affiliate of the Portfolio Manager. Such allocation shall be in such amounts and proportions as the Portfolio Manager shall determine consistent with the above standards, and the Portfolio Manager will report on said allocation regularly to the Board of Trustees of the Trust indicating the broker- dealers to which such allocations have been made and the basis therefor. Pursuant to the Procedures for Opening Brokerage and Other Accounts, the Portfolio Manager is authorized to open brokerage and other trading accounts on behalf of the Series in compliance with these procedures. 4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has reviewed the post-effective amendment to the Registration Statement for the Trust filed with the SEC that contains disclosure about the Portfolio Manager, and represents and warrants that, with respect to the disclosure about or information relating, directly or indirectly, to the Portfolio Manager, to the Portfolio Manager's knowledge, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. 4 The Portfolio Manager further represents and warrants that it is a duly registered investment adviser under the Advisers Act, or alternatively that it is not required to be a registered investment adviser under the Advisers Act to perform the duties described in this Agreement, and that it is a duly registered investment adviser in all states in which the Portfolio Manager is required to be registered. Manager represents and warrants that: (a) it has complied, in all material respects, with all registrations required by, and will comply, in all material respects, with all applicable rules and regulations of, the SEC, and (b) it has authority under the Management Agreement and applicable law to execute, deliver and perform this Agreement. 5. EXPENSES. During the term of this Agreement, the Portfolio Manager will pay all expenses incurred by it and its staff and for their activities in connection with its portfolio management duties under this Agreement. The Manager or the Trust shall be responsible for all the expenses of the Trust's operations including, but not limited to: (a) Expenses of all audits by the Trust's independent public accountants; (b) Expenses of the Series' transfer agent, registrar, dividend disbursing agent, and shareholder recordkeeping services; (c) Expenses of the Series' custodial services including recordkeeping services provided by the custodian; (d) Expenses of obtaining quotations for calculating the value of each Series' net assets; (e) Expenses of obtaining Portfolio Activity Reports and Analyses of International Management Reports (as appropriate) for each Series; (f) Expenses of maintaining the Trust's tax records; (g) Salaries and other compensation of any of the Trust's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the Portfolio Manager or an affiliate of the Portfolio Manager; (h) Taxes levied against the Trust; (i) Brokerage fees and commissions in connection with the purchase and sale of portfolio securities for the Series; (j) Costs, including the interest expense, of borrowing money; (k) Costs and/or fees incident to meetings of the Trust's shareholders, the preparation and mailings of prospectuses and reports of the Trust to its shareholders, the filing of reports with regulatory bodies, the maintenance of the Trust's existence, and the regulation of shares with federal and state securities or insurance authorities; (l) The Trust's legal fees, including the legal fees related to the registration and continued qualification of the Trust's shares for sale; (m) Costs of printing stock certificates representing shares of the Trust; (n) Trustees' fees and expenses to trustees who are not officers, employees, or stockholders of the Portfolio Manager or any affiliate thereof; (o) The Trust's pro rata portion of the fidelity bond required by Section 17(g) of the 1940 Act, or other insurance premiums; (p) Association membership dues; (q) Extraordinary expenses of the Trust as may arise including expenses incurred in connection with litigation, proceedings, and other claims (unless the Portfolio Manager is responsible for such expenses under Section 14 of this Agreement), and the legal obligations of the Trust to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; and (r) Organizational and offering expenses. 6. COMPENSATION. For the services provided, the Manager will pay the Portfolio Manager a fee, payable as described in Schedule B. 5 7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not be responsible for providing money for the initial capitalization of the Series. 8. COMPLIANCE. (a) The Portfolio Manager agrees that it shall promptly notify the Manager and the Trust (1) in the event that the SEC or other governmental authority has censured the Portfolio Manager; placed limitations upon its activities, functions or operations; suspended or revoked its registration, if any, as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Internal Revenue Code or the regulations thereunder. The Portfolio Manager further agrees to notify the Manager and the Trust promptly of any material fact known to the Portfolio Manager respecting or relating to the Portfolio Manager that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto, and is required to be stated therein or necessary to make the statements therein not misleading, or of any statement contained therein that becomes untrue in any material respect. (b) The Manager agrees that it shall immediately notify the Portfolio Manager (1) in the event that the SEC has censured the Manager or the Trust; placed limitations upon either of their activities, functions, or operations; suspended or revoked the Manager's registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Internal Revenue Code or the Regulations thereunder. 9. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all records which it maintains for the Series are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Manager's request, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Portfolio Manager further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-l under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. 10. COOPERATION. Each party to this Agreement agrees to cooperate with each other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC and state insurance regulators) in connection with any investigation or inquiry relating to this Agreement or the Trust. 11. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. (a) During the term of this Agreement, the Trust and the Manager agree to furnish to the Portfolio Manager at its principal offices prior to use thereof copies of all Registration Statements and amendments thereto, prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Trust or any Series or to the public that refer or relate in any way to the Portfolio Manager, Janus Capital Corporation or any of its affiliates (other than the Manager), or that use any derivative of the name Janus Capital Corporation or any logo associated therewith. The Trust and the Manager agree that they will not use any such material without the prior written consent of the Portfolio Manager, which consent shall not be unreasonably withheld or delayed. The Series' name shall not include the name Janus without prior written consent of the Portfolio Manager. In the event of the termination of this Agreement, the Trust and the Manager will furnish to the Portfolio Manager copies of any of the above-mentioned materials that refer or relate in any way to the Portfolio Manager; 6 (b) the Trust and the Manager will furnish to the Portfolio Manager such information relating to either of them or the business affairs of the Trust as the Portfolio Manager shall from time to time reasonably request in order to discharge its obligations hereunder; (c) the Manager and the Trust agree that neither the Trust, the Manager, nor affiliated persons of the Trust or the Manager shall give any information or make any representations or statements in connection with the sale of shares of the Series concerning the Portfolio Manager or the Series other than the information or representations contained in the Registration Statement, prospectus, or statement of additional information for the Trust, as they may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved in advance by the Portfolio Manager, except with the prior permission of the Portfolio Manager. 12. CONTROL. It is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement and reserve the right to direct, approve, or disapprove any action hereunder taken on its behalf by the Portfolio Manager. 13. SERVICES NOT EXCLUSIVE. It is understood that the services of the Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent the Portfolio Manager (or its affiliates) from providing similar services to other clients, including investment companies (whether or not their investment objectives and policies are similar to those of the Series) or from engaging in other activities. 14. LIABILITY. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Manager agree that the Portfolio Manager, any affiliated person of the Portfolio Manager, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Portfolio Manager's duties, or by reason of reckless disregard of the Portfolio Manager's obligations and duties under this Agreement. 15. INDEMNIFICATION. (a) Notwithstanding Section 14 of this Agreement, the Manager agrees to indemnify and hold harmless the Portfolio Manager, any affiliated person of the Portfolio Manager (other than the Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls ("controlling person") the Portfolio Manager (all of such persons being referred to as "Portfolio Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Portfolio Manager Indemnified Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the Internal Revenue Code, under any other statute, at common law or otherwise, arising out of the Manager's responsibilities to the Trust which (1) may be based upon any misfeasance, malfeasance, or nonfeasance by the Manager, any of its employees or representatives or any affiliate of or any person acting on behalf of the Manager or (2) may be based upon any untrue statement or alleged untrue statement of a material fact supplied by, or which is the responsibility of, the Manager and contained in the Registration Statement or prospectus covering shares of the Trust or a Series, or any amendment thereof or any supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Manager and was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Manager or the Trust or to any affiliated person of the Manager by a Portfolio Manager Indemnified Person; provided however, that in no case shall the indemnity in favor of the Portfolio Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its reckless disregard of obligations and duties under this Agreement. 7 (b) Notwithstanding Section 14 of this Agreement, the Portfolio Manager agrees to indemnify and hold harmless the Manager, any affiliated person of the Manager (other than the Portfolio Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls ("controlling person") the Manager (all of such persons being referred to as "Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Manager Indemnified Person may become subject under the 1933 Act, 1940 Act, the Advisers Act, the Internal Revenue Code, under any other statute, at common law or otherwise, arising out of the Portfolio Manager's responsibilities as Portfolio Manager of the Series which (1) may be based upon any misfeasance, malfeasance, or nonfeasance by the Portfolio Manager, any of its employees or representatives, or any affiliate of or any person acting on behalf of the Portfolio Manager, (2) may be based upon a failure to comply with Section 2, Paragraph (a) of this Agreement, or (3) may be based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or prospectus covering the shares of the Trust or a Series, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Portfolio Manager and was required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Manager, the Trust, or any affiliated person of the Manager or Trust by the Portfolio Manager or any affiliated person of the Portfolio Manager; provided, however, that in no case shall the indemnity in favor of a Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under this Agreement. (c) The Manager shall not be liable under Paragraph (a) of this Section 15 with respect to any claim made against a Portfolio Manager Indemnified Person unless such Portfolio Manager Indemnified Person shall have notified the Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Portfolio Manager Indemnified Person (or after such Portfolio Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Manager of any such claim shall not relieve the Manager from any liability which it may have to the Portfolio Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 15. In case any such action is brought against the Portfolio Manager Indemnified Person, the Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Portfolio Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Portfolio Manager Indemnified Person. If the Manager assumes the defense of any such action and the selection of counsel by the Manager to represent both the Manager and the Portfolio Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Portfolio Manager Indemnified Person, adequately represent the interests of the Portfolio Manager Indemnified Person, the Manager will, at its own expense, assume the defense with counsel to the Manager and, also at its own expense, with separate counsel to the Portfolio Manager Indemnified Person, which counsel shall be satisfactory to the Manager and to the Portfolio Manager Indemnified Person. The Portfolio Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Manager shall not be liable to the Portfolio Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Portfolio Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Portfolio Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Portfolio Manager Indemnified Person. (d) The Portfolio Manager shall not be liable under Paragraph (b) of this Section 15 with respect to any claim made against a Manager Indemnified Person unless such Manager Indemnified 8 Person shall have notified the Portfolio Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Manager Indemnified Person (or after such Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Portfolio Manager of any such claim shall not relieve the Portfolio Manager from any liability which it may have to the Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 15. In case any such action is brought against the Manager Indemnified Person, the Portfolio Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Manager Indemnified Person. If the Portfolio Manager assumes the defense of any such action and the selection of counsel by the Portfolio Manager to represent both the Portfolio Manager and the Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Manager Indemnified Person, adequately represent the interests of the Manager Indemnified Person, the Portfolio Manager will, at its own expense, assume the defense with counsel to the Portfolio Manager and, also at its own expense, with separate counsel to the Manager Indemnified Person which counsel shall be satisfactory to the Portfolio Manager and to the Manager Indemnified Person. The Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Portfolio Manager shall not be liable to the Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Portfolio Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Manager Indemnified Person. (e) The Manager shall not be liable under this Section 15 to indemnify and hold harmless the Portfolio Manager and the Portfolio Manager shall not be liable under this Section 15 to indemnify and hold harmless the Manager with respect to any losses, claims, damages, liabilities, or litigation that first become known to the party seeking indemnification during any period that the Portfolio Manager is, within the meaning of Section 15 of the 1933 Act, a controlling person of the Manager. 16. DURATION AND TERMINATION. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for two (2) years from such date and continue on an annual basis thereafter with respect to each Series; provided that such annual continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Series, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The Portfolio Manager shall not provide any services for such Series or receive any fees on account of such Series with respect to which this Agreement is not approved as described in the preceding sentence. However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. Notwithstanding the foregoing, this Agreement may be terminated for each or any Series hereunder: (a) by the Manager at any time without penalty, upon sixty (60) days' written notice to the Portfolio Manager and the Trust, (b) at any time without payment of any penalty by the Trust, upon the vote of a majority of the Trust's Board of Trustees or a majority of the outstanding voting securities of each Series, upon sixty (60) day's written notice to the Manager and the Portfolio Manager, or (c) by the Portfolio Manager at any time without penalty, upon sixty (60) days written notice to the Manager and the Trust. In 9 addition, this Agreement shall terminate with respect to a Series in the event that it is not initially approved by the vote of a majority of the outstanding voting securities of that Series at a meeting of shareholders at which approval of the Agreement shall be considered by shareholders of the Series. In the event of termination for any reason, all records of each Series for which the Agreement is terminated shall promptly be returned to the Manager or the Trust, free from any claim or retention of rights in such records by the Portfolio Manager, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described above, the Sections or Paragraphs numbered 2(f), 9, 10, 11, 14, 15, and 18 of this Agreement shall remain in effect, as well as any applicable provision of this Paragraph numbered 16. 17. AMENDMENTS. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by an affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Series, and (ii) the Trustees of the Trust, including a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law. 18. USE OF NAME. (a) It is understood that the name "Directed Services, Inc." or any derivative thereof or logo associated with that name is the valuable property of the Manager and/or its affiliates, and that the Portfolio Manager has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Manager is Manager to the Trust and/or the Series. Upon termination of the Management Agreement between the Trust and the Manager, the Portfolio Manager shall as soon as is reasonably possible cease to use such name (or derivative or logo). (b) It is understood that the name "Janus" or any derivative thereof or logo associated with that name is the valuable property of the Portfolio Manager and its affiliates and that the Trust and/or the Series have the right to use such name (or derivative or logo) in offering materials of the Trust with the approval of the Portfolio Manager, only as stated in Section 11, and only for so long as the Portfolio Manager is a portfolio manager to the Trust and/or the Series. Upon termination of this Agreement between the Trust, the Manager, and the Portfolio Manager, the Trust shall as soon as is reasonably possible cease to use such name (or derivative or logo). 19. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A copy of the Amended and Restated Agreement and Declaration of Trust for the Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Amended and Restated Agreement and Declaration of Trust has been executed on behalf of the Trust by Trustees of the Trust in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, or shareholder of the Trust individually. 20. MISCELLANEOUS. (a) This Agreement shall be governed by the laws of the State of Delaware, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) To the extent permitted under Section 16 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other parties. 10 (d) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable. (e) Nothing herein shall be construed as constituting the Portfolio Manager as an agent of the Manager, or constituting the Manager as an agent of the Portfolio Manager. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. THE GCG TRUST Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman ------------------ -------------------- Title: Assistant Secretary Title: Secretary ------------------- --------- DIRECTED SERVICES, INC. Attest /s/ Marilyn Talman By: /s/ David L. Jacobson ------------------- --------------------- Title: Assistant Secretary Title: Senior Vice President ------------------- --------------------- and Vice President JANUS CAPITAL CORPORATION Attest /s/ Verna Morris By: /s/ Bonnie Howe ---------------- --------------- Title: Legal Secretary Title: Assistant Vice President --------------- ------------------------ 11 SCHEDULE A The Series of The GCG Trust, as described in Section 1 of the attached Portfolio Management Agreement, to which Janus Capital Corporation shall act as Portfolio Manager are as follows: Growth Series SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by ("Portfolio Manager") to the following Series of The GCG Trust, pursuant to the attached Portfolio Management Agreement, the Manager will pay the Portfolio Manager a fee, computed daily and payable monthly, based on the average daily net assets of the Series at the following annual rates of the average daily net assets of the Series: SERIES FEE Growth Series 0.55% on first $100 million; 0.50% on next $400 million; 0.45% on amounts in excess of $500 million. EX-99.D2N 8 ALIANCE PORTFOLIO MANAGEMENT AGREEMENT EXHIBIT (d)(2)(N) PORTFOLIO MANAGEMENT AGREEMENT AGREEMENT made this 26th day of February, 1999, among The GCG Trust (the "Trust"), a Massachusetts business trust, Directed Services, Inc. (the "Manager"), a New York corporation, and Alliance Capital Management L.P. ("Portfolio Manager"), a Delaware limited partnership. WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, management investment company; WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, and limitations; WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; WHEREAS, pursuant to a Management Agreement, effective as of October 24, 1997, a copy of which has been provided to the Portfolio Manager, the Trust has retained the Manager to render advisory, management, and administrative services to many of the Trust's series; WHEREAS, the Trust and the Manager wish to retain the Portfolio Manager to furnish investment advisory services to one or more of the series of the Trust, and the Portfolio Manager is willing to furnish such services to the Trust and the Manager; NOW THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust, the Manager, and the Portfolio Manager as follows: 1. APPOINTMENT. The Trust and the Manager hereby appoints Alliance Capital Management L.P. as Portfolio Manager to the Series designated on Schedule A of this Agreement (each a "Series") for the periods and on the terms set forth in this Agreement. The Portfolio Manager accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. In the event the Trust designates one or more series other than the Series with respect to which the Trust and the Manager wish to retain the Portfolio Manager to render investment advisory services hereunder, they shall promptly notify the Portfolio Manager in writing. If the Portfolio Manager is willing to render such services, it shall so notify the Trust and Manager in writing, whereupon such series shall become a Series hereunder, and be subject to this Agreement. 2. PORTFOLIO MANAGEMENT DUTIES. Subject to the supervision of the Trust's Board of Trustees and the Manager, the Portfolio Manager will provide a continuous investment program for each Series' portfolio and determine the composition of the assets of each Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Portfolio Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of each Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of each Series should be held in the various securities and other investments in which it may invest, and the Portfolio Manager is hereby authorized to execute and perform such services on behalf of each Series. To the extent permitted by the investment policies of the Series, the Portfolio Manager shall make decisions for the Series as to foreign currency matters and make determinations as to and execute and perform foreign currency exchange contracts on behalf of the Series. The Portfolio Manager will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission (the "SEC"), as from time to time amended, copies of which shall be sent to the Portfolio Manager by the Manager upon filing with the SEC. The Portfolio Manager further agrees as follows: 1 (a) The Portfolio Manager will (1) manage each Series so that no action or omission on the part of the Portfolio Manager will cause a Series to fail to meet the requirements to qualify as a regulated investment company specified in Section 851 of the Internal Revenue Code (other than the requirements for the Trust to register under the 1940 Act and to file with its tax return an election to be a regulated investment company, both of which shall not be the responsibility of the Portfolio Manager), (2) manage each Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with the diversification requirements of Section 817(h) of the Internal Revenue Code and regulations issued thereunder, and (3) use reasonable efforts to manage the Series so that no action or omission on the part of the Portfolio Manager shall cause a Series to fail to comply with any other rules and regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. The Manager will notify the Portfolio Manager promptly if the Manager believes that a Series is in violation of any requirement specified in the first sentence of this paragraph. The Manager or the Trust will notify the Portfolio Manager of any pertinent changes, modifications to, or interpretations of Section 817(h) of the Internal Revenue Code and regulations issued thereunder and of rules or regulations pertaining to investment vehicles underlying variable annuity or variable life insurance policies. (b) The Portfolio Manager will perform its duties hereunder pursuant to the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of Trustees of which the Portfolio Manager has been notified in writing, and the provisions of the Registration Statement of the Trust under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of which the Portfolio Manager has received a copy ("Registration Statement"). The Manager or the Trust will notify the Portfolio Manager of pertinent provisions of applicable state insurance law with which the Portfolio Manager must comply under this Paragraph 2(b). (c) On occasions when the Portfolio Manager deems the purchase or sale of a security to be in the best interest of a Series as well as of other investment advisory clients of the Portfolio Manager or any of its affiliates, the Portfolio Manager may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Portfolio Manager in a manner that is fair and equitable in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust and to such other clients, subject to review by the Manager and the Board of Trustees. (d) In connection with the purchase and sale of securities for a Series, the Portfolio Manager will arrange for the transmission to the custodian and portfolio accounting agent for the Series on a daily basis, such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Sedol, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian and portfolio accounting agent to perform its administrative and recordkeeping responsibilities with respect to the Series. With respect to portfolio securities to be purchased or sold through the Depository Trust Company, the Portfolio Manager will arrange for the automatic transmission of the confirmation of such trades to the Trust's custodian and portfolio accounting agent. (e) The Portfolio Manager will assist the portfolio accounting agent for the Trust in determining or confirming, consistent with the procedures and policies stated in the Registration Statement for the Trust, the value of any portfolio securities or other assets of the Series for which the portfolio accounting agent seeks assistance from or identifies for review by the Portfolio Manager, and the parties agree that the Portfolio Manager shall not bear responsibility or liability for the determination or accuracy of the valuation of any portfolio securities and other assets of the Series except to the extent that the Portfolio Manager exercises judgment with respect to any such valuation. 2 (f) The Portfolio Manager will make available to the Trust and the Manager, promptly upon request, all of the Series' investment records and ledgers maintained by the Portfolio Manager (which shall not include the records and ledgers maintained by the custodian and portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Manager to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as well as other applicable laws. The Portfolio Manager will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services which may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations. (g) The Portfolio Manager will provide reports to the Trust's Board of Trustees for consideration at meetings of the Board on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Trust's Board of Trustees with respect to the Series such periodic and special reports as the Trustees and the Manager may reasonably request. (h) In rendering the services required under this Agreement, the Portfolio Manager may, from time to time, employ or associate with itself such person or persons as it believes necessary to assist it in carrying out its obligations under this Agreement. However, the Portfolio Manager may not retain as subadviser any company that would be an "investment adviser," as that term is defined in the 1940 Act, to the Series unless the contract with such company is approved by a majority of the Trust's Board of Trustees and a majority of Trustees who are not parties to any agreement or contract with such company and who are not "interested persons," as defined in the 1940 Act, of the Trust, the Manager, or the Portfolio Manager, or any such company that is retained as subadviser, and is approved by the vote of a majority of the outstanding voting securities of the applicable Series of the Trust to the extent required by the 1940 Act. The Portfolio Manager shall be responsible for making reasonable inquiries and for reasonably ensuring that any employee of the Portfolio Manager, any subadviser that the Portfolio Manager has employed or with which it has associated with respect to the Series, or any employee thereof has not, to the best of the Portfolio Manager's knowledge, in any material connection with the handling of Trust assets: (i) been convicted, in the last ten (10) years, of any felony or misdemeanor arising out of conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, involving violations of Sections 1341, 1342, or 1343 of Title 18, United States Code, or involving the purchase or sale of any security; or (ii) been found by any state regulatory authority, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or (iii) been found by any federal or state regulatory authorities, within the last ten (10) years, to have violated or to have acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation. 3. BROKER-DEALER SELECTION. The Portfolio Manager is responsible for decisions to buy and sell securities and other investments for each Series' portfolio, broker-dealer selection, and negotiation of brokerage commission rates. The Portfolio Manager's primary consideration in effecting a security transaction will be to obtain the best execution for the Series, taking into account the factors specified in the prospectus and/or statement of additional information for the Trust, which include price (including the applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the security, the timing of the transaction, the reputation, the experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, and the execution capabilities and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. Accordingly, the price to the Series in any transaction may be less favorable than that available from another broker- dealer if the difference is reasonably justified, in the judgment of the Portfolio Manager in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Trustees may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager shall not be deemed to have acted 3 unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Series to pay a broker-dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker- dealer would have charged for effecting that transaction, if the Portfolio Manager or its affiliate determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker- dealer, viewed in terms of either that particular transaction or the Portfolio Manager's or its affiliate's overall responsibilities with respect to the Series and to their other clients as to which they exercise investment discretion. To the extent consistent with these standards, the Portfolio Manager is further authorized to allocate the orders placed by it on behalf of the Series to the Portfolio Manager if it is registered as a broker-dealer with the SEC, to its affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material, or other services to the Series, the Portfolio Manager, or an affiliate of the Portfolio Manager. Such allocation shall be in such amounts and proportions as the Portfolio Manager shall determine consistent with the above standards, and the Portfolio Manager will report on said allocation regularly to the Board of Trustees of the Trust indicating the broker-dealers to which such allocations have been made and the basis therefor. 4. DISCLOSURE ABOUT PORTFOLIO MANAGER. The Portfolio Manager has reviewed the post-effective amendment to the Registration Statement for the Trust filed with the SEC that contains disclosure about the Portfolio Manager, and represents and warrants that, with respect to the disclosure about or information relating, directly or indirectly, to the Portfolio Manager, to the Portfolio Manager's knowledge, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. The Portfolio Manager further represents and warrants that it is a duly registered investment adviser under the Advisers Act, or alternatively that it is not required to be a registered investment adviser under the Advisers Act to perform the duties described in this Agreement, and that it is a duly registered investment adviser in all states in which the Portfolio Manager is required to be registered. 5. EXPENSES. During the term of this Agreement, the Portfolio Manager will pay all expenses incurred by it and its staff and for their activities in connection with its portfolio management duties under this Agreement. The Manager or the Trust shall be responsible for all the expenses of the Trust's operations including, but not limited to: (a) Expenses of all audits by the Trust's independent public accountants; (b) Expenses of the Series' transfer agent, registrar, dividend disbursing agent, and shareholder recordkeeping services; (c) Expenses of the Series' custodial services including recordkeeping services provided by the custodian; (d) Expenses of obtaining quotations for calculating the value of each Series' net assets; (e) Expenses of obtaining Portfolio Activity Reports and Analyses of International Management Reports (as appropriate) for each Series; (f) Expenses of maintaining the Trust's tax records; (g) Salaries and other compensation of any of the Trust's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the Portfolio Manager or an affiliate of the Portfolio Manager; (h) Taxes levied against the Trust; (i) Brokerage fees and commissions in connection with the purchase and sale of portfolio securities for the Series; (j) Costs, including the interest expense, of borrowing money; (k) Costs and/or fees incident to meetings of the Trust's shareholders, the preparation and mailings of prospectuses and reports of the Trust to its shareholders, the filing of reports 4 with regulatory bodies, the maintenance of the Trust's existence, and the regulation of shares with federal and state securities or insurance authorities; (l) The Trust's legal fees, including the legal fees related to the registration and continued qualification of the Trust's shares for sale; (m) Costs of printing stock certificates representing shares of the Trust; (n) Trustees' fees and expenses to trustees who are not officers, employees, or stockholders of the Portfolio Manager or any affiliate thereof; (o) The Trust's pro rata portion of the fidelity bond required by Section 17(g) of the 1940 Act, or other insurance premiums; (p) Association membership dues; (q) Extraordinary expenses of the Trust as may arise including expenses incurred in connection with litigation, proceedings, and other claims (unless the Portfolio Manager is responsible for such expenses under Section 14 of this Agreement), and the legal obligations of the Trust to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; and (r) Organizational and offering expenses. 6. COMPENSATION. For the services provided, the Manager will pay the Portfolio Manager a fee, payable as described in Schedule B. 7. SEED MONEY. The Manager agrees that the Portfolio Manager shall not be responsible for providing money for the initial capitalization of the Series. 8. COMPLIANCE. (a) The Portfolio Manager agrees that it shall promptly notify the Manager and the Trust (1) in the event that the SEC or other governmental authority has censured the Portfolio Manager; placed limitations upon its activities, functions or operations; suspended or revoked its registration, if any, as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Internal Revenue Code or the regulations thereunder. The Portfolio Manager further agrees to notify the Manager and the Trust promptly of any material fact known to the Portfolio Manager respecting or relating to the Portfolio Manager that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto, and is required to be stated therein or necessary to make the statements therein not misleading, or of any statement contained therein that becomes untrue in any material respect. (b) The Manager agrees that it shall immediately notify the Portfolio Manager (1) in the event that the SEC has censured the Manager or the Trust; placed limitations upon either of their activities, functions, or operations; suspended or revoked the Manager's registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, (2) upon having a reasonable basis for believing that the Series has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, or (3) upon having a reasonable basis for believing that the Series has ceased to comply with the diversification provisions of Section 817(h) of the Internal Revenue Code or the Regulations thereunder. 9. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all records which it maintains for the Series are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Manager's request, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Portfolio Manager further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by 5 Rule 31a-l(b)(2)(iii), (5), (6), (7), (9) and (10) under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. 10. COOPERATION. Each party to this Agreement agrees to cooperate with each other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC and state insurance regulators) in connection with any investigation or inquiry relating to this Agreement or the Trust. 11. REPRESENTATIONS RESPECTING PORTFOLIO MANAGER. (a) During the term of this Agreement, the Trust and the Manager agree to furnish to the Portfolio Manager at its principal offices prior to use thereof copies of all Registration Statements and amendments thereto, prospectuses, proxy statements, reports to shareholders, sales literature or other material prepared for distribution to shareholders of the Trust or any Series or to the public that refer or relate in any way to the Portfolio Manager, Alliance Capital Management L.P. or any of its affiliates (other than the Manager), or that use any derivative of the name Alliance Capital Management L.P. or any logo associated therewith. The Trust and the Manager agree that they will not use any such material without the prior consent of the Portfolio Manager, which consent shall not be unreasonably withheld. In the event of the termination of this Agreement, the Trust and the Manager will furnish to the Portfolio Manager copies of any of the above-mentioned materials that refer or relate in any way to the Portfolio Manager; (b) the Trust and the Manager will furnish to the Portfolio Manager such information relating to either of them or the business affairs of the Trust as the Portfolio Manager shall from time to time reasonably request in order to discharge its obligations hereunder; (c) the Manager and the Trust agree that neither the Trust, the Manager, nor affiliated persons of the Trust or the Manager shall give any information or make any representations or statements in connection with the sale of shares of the Series concerning the Portfolio Manager or the Series other than the information or representations contained in the Registration Statement, prospectus, or statement of additional information for the Trust, as they may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved in advance by the Portfolio Manager, except with the prior permission of the Portfolio Manager. 12. CONTROL. Notwithstanding any other provision of the Agreement, it is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement and reserve the right to direct, approve, or disapprove any action hereunder taken on its behalf by the Portfolio Manager. 13. SERVICES NOT EXCLUSIVE. It is understood that the services of the Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent the Portfolio Manager (or its affiliates) from providing similar services to other clients, including investment companies (whether or not their investment objectives and policies are similar to those of the Series) or from engaging in other activities. 14. LIABILITY. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Manager agree that the Portfolio Manager, any affiliated person of the Portfolio Manager, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Portfolio Manager's duties, or by reason of reckless disregard of the Portfolio Manager's obligations and duties under this Agreement. 15. INDEMNIFICATION. (a) Notwithstanding Section 14 of this Agreement, the Manager agrees to indemnify and hold harmless the Portfolio Manager, any affiliated person of the Portfolio Manager (other than the Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls ("controlling person") the Portfolio Manager (all of such persons being referred to as 6 "Portfolio Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Portfolio Manager Indemnified Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the Internal Revenue Code, under any other statute, at common law or otherwise, arising out of the Manager's responsibilities to the Trust which (1) may be based upon any misfeasance, malfeasance, or nonfeasance by the Manager, any of its employees or representatives or any affiliate of or any person acting on behalf of the Manager or (2) may be based upon any untrue statement or alleged untrue statement of a material fact supplied by, or which is the responsibility of, the Manager and contained in the Registration Statement or prospectus covering shares of the Trust or a Series, or any amendment thereof or any supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Manager and was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Manager or the Trust or to any affiliated person of the Manager by a Portfolio Manager Indemnified Person; provided however, that in no case shall the indemnity in favor of the Portfolio Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its reckless disregard of obligations and duties under this Agreement. (b) Notwithstanding Section 14 of this Agreement, the Portfolio Manager agrees to indemnify and hold harmless the Manager, any affiliated person of the Manager (other than the Portfolio Manager), and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls ("controlling person") the Manager (all of such persons being referred to as "Manager Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Manager Indemnified Person may become subject under the 1933 Act, 1940 Act, the Advisers Act, the Internal Revenue Code, under any other statute, at common law or otherwise, arising out of the Portfolio Manager's responsibili ties as Portfolio Manager of the Series which (1) may be based upon any misfeasance, malfeasance, or nonfeasance by the Portfolio Manager, any of its employees or representatives, or any affiliate of or any person acting on behalf of the Portfolio Manager, (2) may be based upon a failure to comply with Section 2, Paragraph (a) of this Agreement, or (3) may be based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or prospectus covering the shares of the Trust or a Series, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact known or which should have been known to the Portfolio Manager and was required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Manager, the Trust, or any affiliated person of the Manager or Trust by the Portfolio Manager or any affiliated person of the Portfolio Manager; provided, however, that in no case shall the indemnity in favor of a Manager Indemnified Person be deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under this Agreement. (c) The Manager shall not be liable under Paragraph (a) of this Section 15 with respect to any claim made against a Portfolio Manager Indemnified Person unless such Portfolio Manager Indemnified Person shall have notified the Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Portfolio Manager Indemnified Person (or after such Portfolio Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Manager of any such claim shall not relieve the Manager from any liability which it may have to the Portfolio Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 15. In case any such action is brought against the Portfolio Manager Indemnified Person, the Manager will be entitled to participate, at its own expense, in the defense thereof or, after 7 notice to the Portfolio Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Portfolio Manager Indemnified Person. If the Manager assumes the defense of any such action and the selection of counsel by the Manager to represent both the Manager and the Portfolio Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Portfolio Manager Indemnified Person, adequately represent the interests of the Portfolio Manager Indemnified Person, the Manager will, at its own expense, assume the defense with counsel to the Manager and, also at its own expense, with separate counsel to the Portfolio Manager Indemnified Person, which counsel shall be satisfactory to the Manager and to the Portfolio Manager Indemnified Person. The Portfolio Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Manager shall not be liable to the Portfolio Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Portfolio Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Portfolio Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Portfolio Manager Indemnified Person. (d) The Portfolio Manager shall not be liable under Paragraph (b) of this Section 15 with respect to any claim made against a Manager Indemnified Person unless such Manager Indemnified Person shall have notified the Portfolio Manager in writing within a reasonable time after the summons, notice, or other first legal process or notice giving information of the nature of the claim shall have been served upon such Manager Indemnified Person (or after such Manager Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Portfolio Manager of any such claim shall not relieve the Portfolio Manager from any liability which it may have to the Manager Indemnified Person against whom such action is brought otherwise than on account of this Section 15. In case any such action is brought against the Manager Indemnified Person, the Portfolio Manager will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Manager Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Manager Indemnified Person. If the Portfolio Manager assumes the defense of any such action and the selection of counsel by the Portfolio Manager to represent both the Portfolio Manager and the Manager Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Manager Indemnified Person, adequately represent the interests of the Manager Indemnified Person, the Portfolio Manager will, at its own expense, assume the defense with counsel to the Portfolio Manager and, also at its own expense, with separate counsel to the Manager Indemnified Person which counsel shall be satisfactory to the Portfolio Manager and to the Manager Indemnified Person. The Manager Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Portfolio Manager shall not be liable to the Manager Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Manager Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Portfolio Manager shall not have the right to compromise on or settle the litigation without the prior written consent of the Manager Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Manager Indemnified Person. (e) The Manager shall not be liable under this Section 15 to indemnify and hold harmless the Portfolio Manager and the Portfolio Manager shall not be liable under this Section 15 to indemnify and hold harmless the Manager with respect to any losses, claims, damages, liabilities, or litigation that first become known to the party seeking indemnification during any period that the Portfolio Manager is, within the meaning of Section 15 of the 1933 Act, a controlling person of the Manager. 16. DURATION AND TERMINATION. This Agreement shall become effective on the date first indicated above. Unless terminated as provided herein, the Agreement shall remain in full force and effect for two (2) years from such date and continue on an annual basis thereafter with respect to each 8 Series; provided that such annual continuance is specifically approved each year by (a) the vote of a majority of the entire Board of Trustees of the Trust, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of each Series, and (b) the vote of a majority of those Trustees who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The Portfolio Manager shall not provide any services for such Series or receive any fees on account of such Series with respect to which this Agreement is not approved as described in the preceding sentence. However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. Notwithstanding the foregoing, this Agreement may be terminated for each or any Series hereunder: (a) by the Manager at any time without penalty, upon sixty (60) days' written notice to the Portfolio Manager and the Trust, (b) at any time without payment of any penalty by the Trust, upon the vote of a majority of the Trust's Board of Trustees or a majority of the outstanding voting securities of each Series, upon sixty (60) day's written notice to the Manager and the Portfolio Manager, or (c) by the Portfolio Manager at any time without penalty, upon sixty (60) days written notice to the Manager and the Trust. In addition, this Agreement shall terminate with respect to a Series in the event that it is not initially approved by the vote of a majority of the outstanding voting securities of that Series at a meeting of shareholders at which approval of the Agreement shall be considered by shareholders of the Series. In the event of termination for any reason, all records of each Series for which the Agreement is terminated shall promptly be returned to the Manager or the Trust, free from any claim or retention of rights in such records by the Portfolio Manager, although the Portfolio Manager may, at its own expense, make and retain a copy of such records. The Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described above, the Sections or Paragraphs numbered 2(f), 9, 10, 11, 14, 15, and 18 of this Agreement shall remain in effect, as well as any applicable provision of this Paragraph numbered 16. 17. AMENDMENTS. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by an affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Series, and (ii) the Trustees of the Trust, including a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law. 18. USE OF NAME. (a) It is understood that the name "Directed Services, Inc." or any derivative thereof or logo associated with that name is the valuable property of the Manager and/or its affiliates, and that the Portfolio Manager has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Manager is Manager to the Trust and/or the Series. Upon termination of the Management Agreement between the Trust and the Manager, the Portfolio Manager shall as soon as is reasonably possible cease to use such name (or derivative or logo). (b) It is understood that the name "Alliance Capital Management L.P." or any derivative thereof or logo associated with that name is the valuable property of the Portfolio Manager and its affiliates and that the Trust and/or the Series have the right to use such name (or derivative or logo) in offering materials of the Trust with the approval of the Portfolio Manager and for so long as the Portfolio Manager is a portfolio manager to the Trust and/or the Series. Upon termination of this Agreement between the Trust, the Manager, and the Portfolio Manager, 9 the Trust shall as soon as is reasonably possible cease to use such name (or derivative or logo). 19. AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST. A copy of the Amended and Restated Agreement and Declaration of Trust for the Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Amended and Restated Agreement and Declaration of Trust has been executed on behalf of the Trust by Trustees of the Trust in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, or shareholder of the Trust individually. 20. MISCELLANEOUS. (a) This Agreement shall be governed by the laws of the State of Delaware, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) To the extent permitted under Section 16 of this Agreement, this Agreement may only be assigned, as that term is defined in the 1940 Act, by any party with the prior written consent of the other parties. The Portfolio Manager hereby agrees to notify the Manager and the Trust of any change in the membership of its general partners within a reasonable time after such change. (d) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable. (e) Nothing herein shall be construed as constituting the Portfolio Manager as an agent of the Manager, or constituting the Manager as an agent of the Portfolio Manager. 10 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. THE GCG TRUST Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman ------------------- --------------------- Title: Assistant Secretary Title: Secretary ------------------- --------- DIRECTED SERVICES, INC. Attest /s/ Marilyn Talman By: /s/ Myles R. Tashman ------------------- --------------------- Title: President and Assistant Title: Executive Vice ----------------------- ------------------- Secretary President ALLIANCE CAPITAL MANAGEMENT L.P. By: Alliance Capital Management Corporation, General Partner Attest /s/ David M. Lesser By: /s/ Mark R. Maley -------------------- -------------------- Title: Admistrative Officer Title: Assistant Secretary --------------------- -------------------- 11 SCHEDULE A The Series of The GCG Trust, as described in Section 1 of the attached Portfolio Management Agreement, to which Alliance Capital Management L.P. shall act as Portfolio Manager are as follows: Growth & Income Series SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by Alliance Capital Management L.P. to the following Series of The GCG Trust, pursuant to the attached Portfolio Management Agreement, the Manager will pay the Portfolio Manager a fee, computed daily and payable monthly, based on the average daily net assets of the Series at the following annual rates of the average daily net assets of the Series: Growth & Income Series 0.75% on first $10 million in assets; 0.625% on next $10 million; 0.50% on next $20 million; 0.375% on next $20 million; and 0.25% on amounts in excess of $60 million. 12 EX-99.D2O 9 T. ROWE PORTFOLIO MANAGEMENT AGREEMENT AMENDED SCHEDULES EXHIBIT (d)(2)(O) AMENDED SCHEDULE A The Series of The GCG Trust, as described in Section 1 of the attached Portfolio Management Agreement, to which T. Rowe Price Associates, Inc. shall act as Portfolio Manager is as follows: Fully Managed Series Equity Income Series IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the 26th day February, 1999. THE GCG TRUST Attest /s/Marilyn Talman By: /s/ Myles R. Tashman ----------------- --------------------- Title: Assistant Secretary Title: Secretary ------------------- --------- DIRECTED SERVICES, INC. Attest /s/Marilyn Talman By: /s/ Myles R. Tashman ------------------ -------------------- Title: Vice President Title: Executive Vice President ----------------------- ------------------------ and Assistant Secretary T. ROWE PRICE ASSOCIATES, INC. Attest /s/ Catherine Berkenkemper By: /s/ Darrell Braman -------------------------- ------------------ Title: Assistant Vice President Title: Vice President ------------------------ -------------- A-1 AMENDED SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by T. Rowe Price Associates, Inc. ("Portfolio Manager") to the following Series of The GCG Trust, pursuant to the attached Portfolio Management Agreement, the Manager will pay the Portfolio Manager a fee, payable monthly, based on the average daily net assets of the Series at the following annual rate of the average daily net assets of the Series: SERIES RATE ------ ---- Fully Managed Series 0.50% Equity Income Series 0.40% IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the 26th day February, 1999. THE GCG TRUST Attest /s/Marilyn Talman By: /s/ Myles R. Tashman ----------------- -------------------- Title: Assistant Secretary Title: Secretary ------------------- --------- DIRECTED SERVICES, INC. Attest /s/Marilyn Talman By: /s/ Myles R. Tashman ------------------ -------------------- Title: Vice President Title: Executive Vice President ----------------------- ------------------------ and Assistant Secretary T. ROWE PRICE ASSOCIATES, INC. Attest /s/ Catherine Berkenkemper By: /s/ Darrell Braman -------------------------- ------------------ Title: Assistant Vice President Title: Vice President ------------------------ -------------- B-1 EX-99.D2P 10 EII PORTFOLIO MANAGEMENT AGREEMENT AMENDED SCHEDULE B EXHIBIT (d)(2)(O) AMENDED SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by EII Realty Securities, Inc. ("Portfolio Manager") to the following Series of The GCG Trust, pursuant to the attached Portfolio Management Agreement, the Manager will pay the Portfolio Manager a fee, payable monthly, based on the average daily net assets of the Series at the following annual rate of the average daily net assets of the Series: SERIES RATE Real Estate Series 0.50% on first $70 million; and 0.40% on assets in excess of $70 million. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the 26th day February, 1999. THE GCG TRUST /s/Marily Talman By:/s/Myles R. Tashman - -------------------------------- ------------------------------- Attest Assistant Secretary Secretary - -------------------------------- ---------------------------------- Title Title DIRECTED SERVICES, INC. /s/Marily Talman By:/s/Myles R. Tashman - -------------------------------- ------------------------------- Attest Vice President & Assistant Secretary Secretary - -------------------------------- ---------------------------------- Title Title EII REALTY SECURITIES, INC. /s/Lynn Marinaccio By:/s/Cydney C. Donnell - -------------------------------- ------------------------------- Attest Director of Client Services Managing Director - -------------------------------- ---------------------------------- Title Title EX-99.D(3) 11 FOR FUND FOR LIFE ADMINISTRATION SERVICES AGREMEEMENT ADMINISTRATIVE SERVICES AGREEMENT AGREEMENT made this _____ day of ____________________, 1991, between The GCG Trust ("the Trust"), a Massachusetts business trust, and Directed Services, Inc. (the "Administrator" or "DSI"), a New York corporation (the "Agreement"). WHEREAS, the Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act");and WHEREAS, the Administrator is engaged in the business of rendering consulting, administrative, and other services with respect to financial services and products; and WHEREAS, the Trust initially established seven series designated as the Liquid Asset Series, the Limited Maturity Bond Series, the All- Growth Series, the Natural Resources Series, the Real Estate Series, the Fully Managed Series, and the Multiple Allocation Series (collectively, the "Initial Series"), and the Trust has entered into a Management Agreement with DSI under which DSI provides management and administrative series to each of the Initial Series; and WHEREAS, the Trust intends to offer shares in additional series shown in the attached "Schedule A" (the Series), and the Trust may offer shares of additional series in the future; WHEREAS, the Trust desires to avail itself of the services of the Administrator for the provision of administrative and other services for the Series; and WHEREAS, the Administrator is willing to render such services to the Series; NOW THEREFORE, in consideration of the premises, the promises and mutual covenants herein contained, it is agreed between the parties as follows: 1. Appointment. The Trust hereby appoints the Administrator to provide administrative services, as described herein, with respect to the Series designated on Schedule A of this Agreement (each a "Series") subject to the direction of the Board of Trustees for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to render the services herein set forth for the compensation herein provided. In the event the Trust establishes one or more series other than the Series with respect to which it desires to retain the Administrator to render administrative services hereunder, it shall notify the Administrator in writing. If the Administrator is willing to render such services it shall notify the Trust in writing, whereupon such series shall become a Series hereunder. 2. Services of the Administrator. Subject to the general supervision of the Board of Trustees of the Trust, the Administrator shall provide the following administrative and other services with respect to the Series; (a) Coordinate all matters relating to the functions of the Series' investment adviser, sub-adviser, if any, custodian, transfer agent, dividend disbursing agent, recordkeeping agent (including pricing and valuation of the Series' portfolios), accountants, attorneys, and other parties performing services or operational functions for the Series; (b) Provide the Series, at the Administrator's expense, with the services of the sufficient number of persons competent to perform such administrative and clerical functions as are necessary to provide effective supervision and administration of the Series; (c) Maintain or supervise, as the case may be, the maintenance by the investment adviser, sub-adviser, or third parties approved by the Trust of such books and records of the Series as may be required by applicable federal or state law; (d) Prepare or supervise the preparation by third parties approved by the Trust of all federal, state, and local tax returns and reports of the Series required by applicable law; (e) Prepare, file and arrange for the distribution of proxy materials and periodic reports to shareholders of the Trust as required by applicable law: (f) Prepare and arrange for the filing of such registration statements and other documents with the Securities and Exchange Commission ("SEC") and other federal and state regulatory authorities as may be required by applicable law; -2- (g) Take such other action with respect to the Series, as may be required by applicable law, including without limitation the rules and regulations of the SEC and other regulatory agencies; (h) Provide the Series at the Administrator's expense, with adequate personnel, office space, communications facilities, and other facilities necessary for its operations as contemplated in this Agreement; (i) Render to the Board of Trustees of the Trust such periodic and special reports respecting the Series as the Board may reasonably request; and (j) Make available its officers and employees to the Board of Trustees and officers of the Trust for consultation and discussions regarding the administration of the Series. 3. Conformity with Applicable Law. The Administrator, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Registration Statement of the Trust and with the instructions and directions of the Board of Trustees of the Trust and will conform to, and comply with, the requirements of the 1940 Act and all other applicable federal and state laws and regulations. 4. Exclusivity. The services of the Administrator to the Series under this Agreement are not to be deemed exclusive, and the Administrator, or any affiliate thereof, shall be free to render similar services to other investment companies and other clients (whether or not their investment objectives and policies are similar to those of any of the Series) and to engage in other activities, so long as its services hereunder are not impaired thereby. 5. Records. The Administrator agrees to maintain and to preserve for the periods prescribed under the 1940 Act any such records as are required to be maintained by the Adminstrator with respect to the Series by the 1940 Act. The Administrator further agrees that all records which it maintains for the Series are the property of the Trust and it will promptly surrender any of such records upon request. 6. Expenses. During the term of this Agreement, the Administrator will pay all expenses incurred by it in connection with its activities under this Agreement, except such expenses as -3- are assumed by the Trust or Series under this Agreement and such expenses as are assumed by the investment adviser under an investment advisory agreement or a sub-adviser under a sub-advisory agreement. The Administrator further agrees to pay all salaries, fees and expenses of any officer or director of the Trust who is an officer, director or employee of the Administrator or any of its affiliates. The Trust or Series, as appropriate, shall be responsible for all of the expenses of its operations including, but not limited to, the following expenses: (a) Expenses of all audits by the Trust's independent public accountants; (b) Expenses of the Series' transfer agent, registrar, dividend disbursing agent, and shareholder recordkeeping services; (c) Expenses of the Series' custodial services including recordkeeping services provided by the custodian; (d) Expenses of obtaining quotations for calculating the value of each Series' net assets; (e) Expenses of obtaining Portfolio Activity Reports and Analyses of International Management Reports (as appropriate) for each Series; (f) Expenses of maintaining the Trust's tax records; (g) Salaries and other compensation of any of the Trust's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the investment adviser, sub- adviser, if any, the Administrator or an affiliate thereof; (h) Taxes levied against the Trust; (i) Brokerage fees and commissions in connection with the purchase and sale of portfolio securities for the Trust; (j) Costs, including the interest expense, of borrowing money; (k) Costs and/or fees incident to meetings of the Trust's shareholders, the preparation and mailings of prospectuses and reports of the Trust to its shareholders, the filing of reports with regulatory bodies, the maintenance of the -4- Trust's existence, and the registration of shares with federal and state securities or insurance authorities; (l) The Trust's legal fees, including the legal fees related to the registration and continued qualification of the Trust's shares or sale; (m) Costs of printing stock certificates representing shares of the Trust; (n) Trustee' fees and expenses to trustees who are not officers, employees, or stockholders of the investment adviser, sub-adviser, the Administrator or any affiliate thereof; (o) The Trust's pro rata portion of the fidelity bond required by Section 17 (g) of the 1940 Act, or other insurance premiums; (p) Association membership dues; (q) Extraordinary expenses as may arise, including expenses incurred in connection with litigation, proceedings, and other claims (unless the Administrator is responsible for such expenses under Section 8 of this Agreement, the investment adviser is responsible for such expenses under an investment advisory agreement with the Trust, or the sub-adviser agreement), and the legal obligations of the Trust to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; and (r) Organizational and offering expenses and, if applicable, reimbursement (with interest) of underwriting discounts and commissions; (s) Fees and expenses of data processing, recordkeeping, and financial accounting services rendered to the Trust; 7. Compensation. For the services provided and the expenses borne by the Administrator pursuant to Section 2 of this Agreement, the Trust shall pay to the Administrator the fee stated in the attached Schedule B. 8. Liability of the Administrator. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Trust and the Administrator agree that the Administrator, any affiliated person of the Administrator, -5- and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls the Administrator, shall not be liable for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Administrator's duties, or by reason of reckless disregard of the Administrator's obligations and duties under this Agreement. 9. Continuation and Termination. This Agreement shall take effect as of the date first written above, and shall continue in effect, unless sooner terminated as provided herein, for two (2) years from such date and shall continue from year to year thereafter with respect to each Series so long as such continuance is specifically approved at least annually (i ) by the vote of a majority of the Board of Trustees of the Trust, and (ii) by the vote of a majority of the Board of Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of the Trust or the Administrator, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated, in its entirety or with regard to any Series hereunder, by the Trust at any time, without the payment of any penalty, by vote of a majority of the Board of Trustees of the Trust on sixty (60) days' written notice to the Administrator, or by the Administrator at any time, without the payment of any penalty, on sixty (60) days' written notice to the Trust. 10. Assignment. This Agreement may be assigned by either party only upon the prior written consent of the other party. 11. Independent Contractor. The Administrator shall for all purposes herein by deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Board of Trustees of the Trust from time to time, have not authority to act or represent the Trust in any way or otherwise be deemed its agent. 12. Notice. Notices of any kind to be given to the Administrator by the Trust shall be in writing and shall be duly given if mailed or delivered to the Administrator at 909 Third Avenue, New York, New York 10022, or at such other address or to such individual as shall be specified by the Administrator to the Trust. Notices of any kind to be given to the Trust by the -6- Administrator shall be in writing and shall be duly given if mailed or delivered to 909 Third Avenue, New York, New York 10022 or at such other address or to such individual as shall be specified by the Trust to the Administrator. 13. Trust Obligation. A copy of the Trust's Agreement and Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby given that the Agreement has been executed on behalf of the Trust by the Trustee of the Trust in his or her capacity as Trustee and not individually. The obligations of this Agreements shall only be binding upon the assets and property of the Trust and shall not be binding upon any trustee, officer, or shareholder of the Trust individually. 14. Counterparts. The Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. 15. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of New York, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act, or any rules or order of the SEC thereunder. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (c) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. -7- IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their afficers designated below on the day and year first above written. THE GCG TRUST By: - -------------------------------- ------------------------------- Attest Title Title DIRECTED SERVICES, INC. By: - -------------------------------- ------------------------------- Attest Title Title -8- SCHEDULE A TO THE ADMINISTRATION SERVICES AGREMEEMENT The Series of The GCG Trust, as described in Section 1 of the attached Administration Services Agremeement, to which Directed Services, Inc. shall act as Administrator, are as follows: The Masters Series The Intermediate Bond Series The Fund For Life Series -9- SCHEDULE B COMPENSATION FOR SERVICES TO SERIES For the services provided by Directed Services, Inc. (the "Administrator") to the following Series of The GCG Trust, pursuant to the attached Administrative Services Agreement, the Trust will pay the Administrator a fee, accrued daily and payable monthly, based on the average daily net assets of the Series at the following annual rates of the average daily net assets of the Series: SERIES FEE The Masters Series .20% The Intermediate Bond Series .20% The Fund For Life Series .20% -10- EX-99.D(4) 12 ADMINISTRATION AND FUND ACCOUNTING AGREEMENT ADMINISTRATION AND FUND ACCOUNTING AGREEMENT THIS ADMINISTRATION AGREEMENT is made as of January 1, 1995, among THE SHAREHOLDERS SERVICES GROUP, INC. a Massachusetts corporation ("TSSG"), DIRECTED SERVICES, INC., a New York corporation ("DSI") and The GCG Trust, a Massachusetts business trust (the "Trust"). WHEREAS, DSI has entered into a management agreement (the "GoldenSelect Management Agreement"), dated October 1, 1993, with the Trust on behalf of the Multiple Allocation Series, Fully Managed Series, Limited Maturity Bond Series, Natural Resources Series, Real Estate Series, All-Growth Series, Capital Appreciation Series, Rising Dividends Series, Emerging Markets Series, Liquid Asset Series, Market Manager Series, and Value Equity Series; WHEREAS, the Trust is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Trust currently offers shares of beneficial interest in separate series and intends to offer shares of additional series in the future; WHEREAS, pursuant to the GoldenSelect Management Agreement, the Trust has availed itself of the services of DSI for the provision of advisory, management, administrative, and other services for the Trust on behalf of the Multiple Allocation Series, Fully Managed Series, Limited Maturity Bond Series, Natural Resources Series, Real Estate Series, All-Growth Series, Capital Appreciation Series, Rising Dividends Series, Emerging Markets Series, Liquid Asset Series, Market Manager Series, and Value Equity Series; WHEREAS, DSI and the Trust desire to retain TSSG to render certain administrative and fund accounting services and TSSG is willing to render such services; WITNESSETH: NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. DSI and the Trust hereby appoint TSSG as Administrator and Accounting Services Agent to furnish administrative services and fund accounting services on the terms set forth in this Agreement with respect to series of the Trust identified on Schedule A to this Agreement, such series together with all other series subsequently established by the Trust for which the Trust, and/or DSI desire to retain TSSG and for which TSSG is willing to do so being herein collectively referred to as the "Series." TSSG agrees to render the services herein set forth for the compensation herein provided. 2. Delivery of Documents. DSI has furnished TSSG with copies, properly certified or authenticated by the Trust, of each of the following: (a) Resolutions of the Trust's Board of Trustee authorizing the appointment of DSI as the Manager of the Trust and the Series identified on Schedule A to provide advisory, management, administration and other services with respect to the Series, and to the extent applicable, authorizing DSI to retain service providers, such as TSSG. (b) The Trustee's Declaration of Trust filed with the Secretary of State to the Commonwealth of Massachusetts on August 3, 1988, and all amendments thereto (the "Declaration of Trust"). (c) The Trust's By-Laws and all amendments thereto (the "By-Laws"); (d) The Custody Agreement between Bankers Trust Company (the "Custodian") and the Trust dated as of March 2, 1992 and as amended October 1, 1993 and all amendments thereto (the "Custody Agreement"). (e) The various Portfolio Management Agreements currently in effect as of the date of this agreement between the Trust, DSI and the various sub-advisers and all amendments thereto. (f) The Trust's Registration Statement on Form N-1A (the "Registration Statement") under the Securities Act of 1993 and under the 1940 Act (File Nos. 33-23512 and 811-5629), as declared effective by the Securities and Exchange Commission ("SEC") on October 3, 1994, relating to the Trust's shares of beneficial interest, and all amendments thereto; (g) The Trust's most recent prospectus (including all Series except The Fund For Life and the Market Manager Series (the "Trust Prospectus"). (h) The GoldenSelect Management Agreement, and all amendments thereto. DSI, as it deems appropriate, will furnish TSSG from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing. Furthermore, DSI will provide TSSG with any other documents that TSSG may reasonably request and will notify TSSG as soon as possible of any matter materially affecting the performance of TSSG of its services under this Agreement. 3. Duties of Administrator and Accounting Services Agent. Subject to the supervision and direction of DSI and the Board of Trustees of the Trust, TSSG undertakes to perform the following specific services set forth herein. TSSG also undertakes upon request to perform the services described in Schedule C. (a) Maintaining office facilities (which may be in the offices of TSSG or a corporate affiliate); 2 (b) Furnishing statistical and research, data processing services, clerical services, and internal legal, executive and administrative services and stationery and office supplies in connection with the foregoing; (c) Furnishing financial information and assisting DSI in the preparation of materials for Board of Trustees meetings; (d) Accounting and bookkeeping services (including the maintenance of such accounts, books and records of the series as may be required by Section 31(a) of the 1940 Act and the rules thereunder); (e) Internal auditing; (f) Valuing the Series' assets and calculating the net asset value of the shares of the Series at the close of trading on the New York Stock Exchange daily and at such other times as the Board of Trustees may reasonably request and reporting such net asset value to such persons as may reasonably be requested; (g) Preparing reports, for DSI approval, to the Trust's shareholders of record and the SEC including, but not necessarily limited to, Annual Reports and Semi-Annual Reports on Form N-SAR; (h) Preparing and filing with DSI approval, various reports or other documents required by federal, state and other applicable laws and regulations and by stock exchanges on which the shares of the fund are listed, other than those filed or required to be filed by DSI; (i) Preparing the Series' tax returns, including any supporting schedules, necessary for the timely filing thereof; (j) Developing compliance procedures for the Trust which will include, among other matters, procedures in monitoring compliance with the Series investment objectives, policies, restrictions, tax matters and applicable laws and regulations including, but not limited to, Section 817(h) and Subchapter M of the Internal Revenue Code of 1986, as amended. Preparation and analysis of applicable compliance tests each month-end and notification of results to DSI to assist in DSI's role as monitor of the Trust's compliance. (k) Preparing and furnishing each Series (at its request) with performance information (including yield and total return information) calculated in accordance with applicable U.S. securities laws and reporting to external databases such information as may reasonably be requested. In performing all services under this Agreement, TSSG shall act in conformity with any documents and other information provided by DSI to TSSG including but not limited to the Trust's Articles and By-Laws; the 1940 Act and the Investment Advisers Act of 1940, as the same may be amended from time to time; and the investment objective, investment policies and other practices and policies set forth in the Registration Statement of the Trust as such Registration Statement and practices and policies may be amended from time to time and policies, procedures, and guidelines 3 adopted by the Board of Trustees. TSSG shall also satisfactorily meet the performance standards as described in Schedule E and incorporated herein, or else provide cause for which DSI may seek termination as specified in Section 6(b) of this Agreement. 4. Allocation of Expenses. TSSG shall bear all expenses in connection with the performance of its services under this Agreement. (a) During the term of this Agreement, DSI will pay all expenses incurred by it in connection with its activities under the GoldenSelect management agreement and shall be responsible for the expenses of rendering services to the Trust, as provided therein. The Trust shall be responsible for the expenses specified in the GoldenSelect management agreement. TSSG shall not be responsible for any expenses for which either DSI or the Trust is responsible, as specified in the GoldenSelect management agreement. (b) For the services to be provided by TSSG pursuant to this Agreement, DSI will pay TSSG a fee at an annual rate equal to a percentage of the aggregate value of the average daily net assets of all the series identified on Schedule A. These fees shall be computed and accrued daily and payable monthly, on the basis shown on Schedule C to this Agreement. (c) For each Series identified on Schedule A, the fee for the period from the date at which TSSG becomes the Administrator and Accounting Services Agent record for that series, shall be prorated according to the proportion that such period bears to the full monthly period. For any additional series added to Schedule A after the date of this Agreement, the fee due to TSSG shall be prorated in accordance with this system. The proration period shall be the period between the date the series is added to Schedule A and the end of the month in which that date falls. Upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be prorated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to TSSG, the value of the Trust's net assets shall be computed at the times and in the manner specified in the Registration Statement. (d) DSI will compensate TSSG for its services rendered pursuant to this Agreement in accordance with the fees set forth in Schedule C. Such fees do not include out-of-pocket disbursements of TSSG for which TSSG shall be entitled to bill separately at its cost. Out-of-pocket disbursements shall include the items specified in Schedule D, annexed hereto and incorporated herein. The schedule may only be modified by TSSG upon not less than thirty days' prior written notice to DSI for out-of-pocket disbursements incurred specifically for the administration of this contract on behalf of DSI and which fall outside of TSSG's normal cost of operations. 4 5. Limitation of Liability. (a) TSSG shall exercise reasonable care in connection with its responsibilities under this Agreement. TSSG shall not be liable for any error of judgment or for any loss suffered by DSI, Golden American or The Trust in connection with the performance of its obligations and duties under this Agreement, except a loss or damages resulting from TSSG's misfeasance, malfeasance, nonfeasance, or negligence in the performance of such obligations and duties or by reason of its disregard thereof. TSSG shall indemnify and hold harmless DSI, the Trust, and Golden American for any damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit resulting from the misfeasance, malfeasance, nonfeasance or negligence of TSSG in the performance of TSSG's obligations or duties or by reason of its disregard thereof. (b) DSI will indemnify TSSG against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel and fees and expenses) resulting from any claim, demand, action or suit not resulting from the misfeasance, malfeasance, nonfeasance or negligence of TSSG or the failure of TSSG to exercise reasonable care in the performance of such obligations and duties or by reason of its disregard thereof. (c) The indemnifying party, on its own or upon the request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (1) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against such settlement or judgment. 6. Term and Termination (a) This Agreement shall be effective on the date first written above and shall continue for a period of three (3) years (the "Initial Term"), unless earlier terminated pursuant to the terms of this Agreement, and shall continue from year-to-year thereafter with respect to the Trust so long as such continuance is specifically approved at least annually by vote of the majority of the Board of Trustees. (b) Any party may terminate this Agreement, upon cause, not less than ninety (90) days or more than one hundred eighty (180) days prior written notice to the other party. 5 (c) Notwithstanding the provisions of Sections 6(a) and 6(b) hereof, this Agreement shall be coterminus with the GoldenSelect Management Agreement. (d) In the event a termination notice is given by DSI, all expenses associated with movement of records and materials and conversion thereof will be borne at cost by DSI. 7. Amendment to this Agreement. No provision of this Agreement may be changed, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge of termination is sought. 8. Miscellaneous. (a) Any notice of other instrument authorized or required by this Agreement to be given in writing to DSI or TSSG shall be sufficiently given if addressed to the party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To DSI: Directed Services, Inc. 280 Park Avenue, 14 West New York, New York 10017 Attention: Mary Bea Wilkinson Bernard R. Beckerlegge, Esq. To TSSG: The Shareholder Services Group. Inc. Exchange Place - 025-004B Boston, Massachusetts 02109 Attention: Patricia L. Bickimer, Esq. (b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. (e) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts. (d) This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. (e) The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 9. Confidentiality. All books, records, information and data pertaining to the business of the Trust that are exchanged or received pursuant to the performance 6 of TSSG's duties under this Agreement shall remain confidential and shall not be voluntarily disclosed to any other person, except as specifically authorized by the Trust or by DSI, or as may be required by law. 10. Trust Obligation. A copy of the Trust's Agreement and Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby given that the Agreement has been executed on behalf of the Trust by an officer of the Trust in his or her capacity as trustee and not individually. The obligations of this Agreement shall only be binding on the assets and property of the Trust and shall not be binding on any Trustee, officer, or shareholder of the Trust individually. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers of the date first written above. THE SHAREHOLDER SERVICES GROUP, INC. By: /s/ Richard W. Ingram ---------------------------------- Name: Richard W. Ingram Title: Vice President and Division Manager DIRECTED SERVICES, INC. By: /s/ Mary Bea Wilkinson ---------------------------------- Name: Mary Bea Wilkinson Title: Senior Vice President THE GCG TRUST By: /s/ Barnett Chernow ---------------------------------- Name: Barnett Chernow Title: Vice President 7 SCHEDULE A SERIES OF THE GCG TRUST Series Effective Date Multiple Allocation Series January 1, 1994 Fully Managed Series January 1, 1994 Limited Maturity Bond January 1, 1994 Series Natural Resources Series January 1, 1994 Real Estate Series January 1, 1994 All-Growth Series January 1, 1994 Liquid Asset Series January 1, 1994 Capital Appreciation Series January 1, 1994 Rising Dividends Series January 1, 1994 Emerging Markets Series January 16, 1994 Market Manager Series January 1, 1994 Value Equity Series January 1, 1994 8 SCHEDULE B FUND ACCOUNTING FUNCTIONS o FINANCIAL ACCOUNTING AND RECORDKEEPING o Maintenance of Fund's accounting records. o Journalizing the investment, capital share and income and expense activities. o Maintaining individual ledgers and tax lots for investment holdings. o Posting to and preparing the Fund's Balance Sheet and Statement of Operations. o Determining the Fund's net income, capital gains and losses, and foreign exchange gains and losses. o Determining the Fund's dividend distribution. o Computing the net asset value of the Fund and disseminating to recipients designated by DSI. o PRICING AND CORPORATE ACTIONS o Obtaining security market quotes and exchange rates from appropriate pricing services. o Calculating the market value and the cost value of the investment holdings. o Determining the appreciation/depreciation of the Fund's portfolio. o Determining the applicable foreign exchange gains and losses on the Fund's payables and receivables. o Researching and recommending portfolio accounting and tax treatment for unique security types. o Transmitting or mailing various portfolio management reports to the investment advisor of the Fund. o DAILY INTERFACE WITH ADVISOR AND GLOBAL CUSTODIAN o Coordinating with the Custodian to ensure that advisors receive beginning local and U.S. currency balances available for investment purposes. o Verifying investment buy/sell trade tickets upon receipt from the investment advisor. o Reconciling investment transactions, holdings, and cash with the custodian. o Providing tax lot detail of the Fund's portfolio holdings. 9 ADMINISTRATIVE FUNCTIONS COMPLIANCE o Monitoring compliance of the Fund with Subchapter M of the Internal Revenue Code to determine its status as a Regulated Investment Company. o Monitoring compliance of the Fund with Section 817(h) of the Internal Revenue Code. o Assistance in developing corrective measures should such measures be required, before the expiration of any 30 day window period. FINANCIAL REPORTING o Preparing Annual and Semi-Annual Shareholders Reports including: Schedule of Investments Financial Statements Supplementary Per Share Information All required footnotes o Prepare Monthly Financial Statement o Quarterly presentation to Fund's Board of Directors o Calculating and disseminating Fund performance data such as 7 and 30-day yields, total returns, expense ratios, and weighted average maturity. o Coordinating printing of shareholder reports and their filing with the SEC. o Communicating all relevant statistical information to the applicable reporting service, including, but not limited to, Lipper, Morningstar and ICI. REGISTRATION AND REPORTING FOR COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940 o Assist in the preparation of the annual filing of the Fund's Registration Statement N-1A, including providing all financial related information. o N-SAR Filings Preparing Semi-Annual Reports with the SEC on Form N-SAR File N-SAR electronically with the SEC via the EDGAR system o Filing 24(e)-2 and (f)-2 notices with the SEC relating to the registration of proceeds from Fund shares sold. 10 o Attending all board meetings and making the required presentations. TAXES o Preparation of Federal income tax return o Preparation of any required state income/franchise tax returns o Determining and recommending required amount of distribution from ordinary income and capital gains to avoid Federal income tax. o Monitoring custodian to ensure tax reclaims are collected on a timely basis. o SUPPORT SERVICES o Acting as liaison with the Fund's independent public accountants and providing account analyses, fiscal year summaries, and other audit related schedules. o Providing accounting and tax support for all aspects of a Fund's operation including the effects of any change in the Fund's structure. 11 SCHEDULE C TSSG COMPENSATION A CHARGES (Excluding the Market Manager Series) First $1 billion of net assets 6 Basis Points Next $1 billion of net assets 5 Basis Points Next $1 billion of net assets 4 Basis Points Next $7 billion of net assets 1 Basis Point Excess over $10 billion 0.8 Basis Point In computing these charges, "net assets" shall mean the value of the average daily net assets of all the series identified on Schedule A and Separate Account D (excluding the Market Manager Series). DSI will pay a percentage of the total charges equal to the portion of total average daily net assets that the series identified on Schedule A represent; and Separate Account D will pay percentages of the total charges equal to their respective portions of the total average daily net assets per their separate agreements. Net assets for future series established for The GCG Trust and other regulated investment companies administered by DSI or its affiliates will be incorporated into Schedule A for purposes of calculating total charges. B CHARGES (For the Market Manager Series) Market Manager will be priced at the lower of: 1) The additional charge that would be incurred if Market Managers were included in Schedule A; or 2) Assets priced separately according to the following fee table: First $500 million of net assets 4 Basis Points Excess of $500 million of net assets 2 Basis Points C OUT-OF POCKET EXPENSES 1) Securities valuation (pricing) services. 2) Travel to and from Board Meetings for individuals other than Trust officers. 12 SCHEDULE D SIGNIFICANT EVENTS One or more of the following significant events will allow DSI, upon its discretion, to exercise without penalty, the ninety day termination clause as referenced in Section 6(b) of this Agreement within one year of occurrence of the event. - Divestiture of a controlling interest by First Data Corporation (FDC) in TSSG or its fund accounting operations. - Acquisition of a controlling interest in FDC by any person or entity. - Reduction in FDC's debt-rating to below investment grade, two consecutive years of operating losses, or any contingent legal action or other event which threatens the solvency of FDC or TSSG. - 30% reduction in the $41.8 billion asset base serviced by TSSG's fund accounting operations due to a decline in clients serviced and not a drop in market value of the asset base. - Failure of FDC/TSSG to maintain adequate liability insurance as represented in its response to the Request for Proposal for Golden American Life Insurance Company, dated August 26, 1994. PERFORMANCE STANDARDS o Violation of one or more of the following performance standards will allow DSI, upon notice, to exercise without penalty, the ninety day termination clause as referenced in Section 6(b) of this Agreement. o Errors or delays not solely attributable to TSSG will not be counted towards the measurement of performance. o All percentages will be calculated on a semi-annual basis for the six months ending June 30 and December 31. A. Daily NAV Computations: Completed by 6:00 PM more than 98% of the time 99.5% or better accuracy rate No NAV errors solely attributable to TSSG shall go undetected more than 48 hours. 13 B. Daily Accounting: 99.5% or better accuracy rate: Complete and accurate daily posting of capital stock activity. Production of an accurate trial balance and supporting reports. C. Financial Reporting and SEC Filings: Completed within two business days of a schedule agreed to in advance by TSSG and DSI, and free from any error or delays that cause the Trust to miss any filing deadline. Resolution of any management letter comments as provided by the Trust's independent auditors in their evaluation of the system of internal controls by the dates agreed to by TSSG and the Fund's auditors. D. Pricing: Securities will be priced accurately according to the requirements of the "1940 Act," as well as the policies set by the Board of Trustees at least 99.5% of the time. E. Taxes: Distributions prepared and executed according to the requirements of the 1986 Internal Revenue Code, as amended, and related regulations, resulting in no income tax payable from undistributed investment company taxable income. All required federal and state returns prepared in compliance with relevant laws, by their required filing dates, with extensions, including reasonable time for DSI review. F. Compliance: Monthly preparation and analysis of tests that determine the Series' compliance with Sec. IRS, and prospectus requirements regarding the type, quantity and diversification of the Trust's assets and income. Prompt communication of test results to DSI, at least five business days prior to the expiration of any quarterly window period. Identify new compliance issues that may affect the Trust no later than the next monthly compliance report. G. Performance Data: Providing required performance data to outside services (i.e., Lipper, Morningstar) by their respective due dates. 14 H. Other Services Timely and accurate preparation of financial statements and other reports for presentation to the Trust's Board or DSI's management. I. Historical Financial Records Maintenance of historical financial records as required by the "1940 Act" and Internal Revenue Code or other regulatory bodies. 15 AMENDMENT NO. 1 TO THE ADMINISTRATION AND FUND ACCOUNTING AGREEMENT This Amendment No. 1 dated as of November 1, 1997, is entered into by DIRECTED SERVICES, INC. ("DSI"), THE GCG TRUST (the "Trust") and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services Group") (formerly known as The Shareholder Services Group, Inc.). WHEREAS, DSI, the Trust and Investor Services Group entered into an Administration and Fund Accounting Agreement dated as of January 1, 1995 (the "Agreement"); WHEREAS, DSI, the Trust and Investor Services Group wish to amend the Agreement to amend certain provisions of the Agreement; NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, hereby agree as follows: I. All capitalized terms used and not otherwise defined shall have the meanings ascribed to them in the Agreement. II. The Fee Schedule attached to the Agreement as Schedule C is hereby deleted in full and replaced with the attached Schedule C. III. Except to the extent amended hereby, the Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects as amended hereby. IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 as of the date and year first written above. DIRECTED SERVICES, INC. By: /s/ David L. Jacobson --------------------------------- THE GCG TRUST By: /s/ Terry L. Kendall --------------------------------- FIRST DATA INVESTOR SERVICES GROUP, INC. By:/s/ James Fox --------------------------------- SCHEDULE C INVESTOR SERVICES GROUP COMPENSATION A. CHARGES Complex Average Net Assets First $2 billion of average net assets 5.0 Basis Points From $2 to $3 billion of average net assets 3.5 Basis Points From $3 to $10 billion of average net assets 2.0 Basis Points Excess over $10 billion of average net assets 1.0 Basis Points Minimum Fee for the complex $1,000,000 per annum (for each new Series generated, the minimum fee will increase by $30,000 per annum) A $3,000 fee will apply to each additional share class per annum In computing these charges, "net assets" shall mean the value of the average daily net assets of the "Complex." The "Complex" shall be defined as all portfolios or series of The GCG Funds Trust, The Market Manager Series and The Equi-Select Series Trust. B. OUT-OF-POCKET EXPENSES -Securities valuation (pricing) services -Travel to and from Board Meetings outside the city of Boston (subject to the prior approval of DSI) -Postage for Board meeting materials and other materials to the Trust's Board members and service providers (including overnight or other courier services) -Telephone and telecommunication charges (including fax) with respect to communications with the Trust's Trustees, officers and service providers -Duplicating charges with respect to filings with Federal and state authorities and Board meeting materials -Courier services -Forms and supplies for preparation of Board meeting and other materials for the Trust -Programming costs for special requests at a rate of $100 per hour -Any other unusual expenses in association with services such as excessive duplicating charges EX-99.G1 13 CUST. AGMT AND FORM ADDENDA Exhibit (g)(1) CUSTODIAN AGREEMENT AGREEMENT dated as of March 2, 1992 between BANKERS TRUST COMPANY (the "Custodian") and The GCG Trust (the "Customer"). 1. Employment of Custodian. The Customer hereby employs the Custodian as custodian of all assets of the Customer which are delivered to and accepted by the Custodian or any of its subcustodians (as that term is defined in Section 5) anywhere in the world (the "Property") pursuant to the terms and conditions set forth herein and, if applicable, to mutually acceptable operating instructions (including any amendments and modifications thereto) which upon agreement by the parties herto shall be deemed to be part of and incorporated into this Agreement as it set forth in full herein. Hereinafter, references to "this Agreement," "herein" or words of similar effect shall refer to this Agreement and any mutually acceptable operating instructions then in effect. Without limitation, such Property shall include stocks and other equity interests of every type, evidences of indebtedness, other instruments representing same or rights or obligations to receive, purchase, deliver or sell same and other non-cash investment property of the Customer ("Securities") and cash from whatever source and in whatever currency ("Cash"). The Custodian shall not be responsible for any property of the Customer held or received by the Customer or others and not delivered to the Custodian or any of its subcustodians. 2. Custody Account. The Custodian agrees to establish and maintain a custody account in the name of the Customer (the "Account") for any and all Property from time to time received and accepted by the Custodian or any of its subcustodians for the account of the Customer. The Customer acknowledges its responsibility as a principal for all of its obligations to the Custodian arising under or in connection with this Agreement, notwithstanding that it may be acting on behalf of other persons and warrants its authority to deposit in the Account any Property received therefor by the Custodian or its subcustodian and to give, and authorize others to give, instructions relative thereto. The Customer further agrees that the Custodian shall not be subject to, nor shall its rights and obligations under this Agreement or with respect to the Account be affected by, any agreement between the Customer and any other person. The Custodian shall hold, keep safe and protect as custodian in the Account, on behalf of the Customer, all Property. All transactions, including, but not limited to, foreign exchange transactions, involving the Property shall be executed or settled solely in accordance with Instructions (as that term is defined in Section 10), except that until the Custodian receives Instructions to the contrary, the Custodian will: (a) collect all interest and dividends and all other income and payments, whether paid in cash or in kind, on the Property, as the same become payable and credit the same to the Account; -1- (b) present for payment all Securities held in the Account which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation and hold the cash received in the Account pursuant to this Agreement; (c) exchange Securities where the exchange is purely ministerial (including, without limitation, the exchange of temporary securities for those in definitive from and the exchange of warrants, or other documents of entitlement to securities, for the Securities themselves); (d) whenever notification of a rights entitlement or a fractional interest resulting from a rights issue, stock dividend or stock split is received for the Account and such rights entitlement or fractional interest bears an expiration date, if after endeavoring to obtain Instructions such Instructions are not received in time for the Custodian to make timely action, sell in the discretion of the Custodian (which sale the Customer hereby authorizes the Custodian to make) such rights entitlement or fractional interest and credit the Account with the net proceeds of such sale; (e) execute in the Customer's name for the Account, whenever the Custodian deems it appropriate, such ownership and other certificates as may be required to obtain the payment of income from the Property; and (f) pay for the Account, any and all taxes and levies in the nature of taxes imposed on income on the Property by any governmental authority. In the event there is insufficient Cash available in the Account to pay such taxes and levies, the Custodian shall notify the Customer of the amount of the shortfall and the Customer, at its option, may deposit additional Cash in the Account or take steps to have sufficient Cash available. The Customer agrees, when and if requested by the Custodian and required in connection with the payment of any such taxes to cooperate with the Custodian in furnishing information, executing documents or otherwise. The Custodian shall deliver subject to Section 12 below any or all Property in the Account in accordance with Instructions and in connection therewith, the Customer will accept delivery of Securities of the same class and denomination in place of those contained in the Account. Neither the Custodian nor any subcustodian shall have any duty or responsibility to see to the application of any Property withdrawn from the Account upon Instructions. Except as otherwise may be agreed upon by the parties hereto, the Custodian shall not be required to comply with Instructions to settle the purchase of any Securities for the Account unless othere is sufficient Cash in the Account at the time or to settle the sale of any Securities in the Account unless such Securities are in deliverable form. Notwithstanding the foregoing, -2- if the purchase price of such Securities exceeds the amount of Cash in the Account at the time of such purchase, the Custodian may, in its sole discretion, advance the amount of the difference in order to settle the purchase of such Securities. The amount of any such advance shall be deemed a loan from the Custodian to the Customer payable on demand and bearing interest accruing from the date such loan is made to but not including the date such loan is repaid at a rate per annum customarily charged by the Custodian on similar loans. 3. Records, Ownership of Property and Statements. The ownership of the Property whether Securities, Cash and/or other property, and whether held by the Custodian or a subcustodian or in a securities depository or clearing agency as hereinafter authorized, shall be clearly recorded on the Custodian's books as belonging to the Account and not for the Custodian's own interest. The Custodian shall keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions for the Account. All accounts, books and records of the Custodian relating thereto shall be open to inspection and audit at all reasonable times during normal business hours by any person designated by the Customer. All such accounts shall be maintained and preserved in accordance with Section 31 of the Investment Company Act of 1940 and Rules 31a-1 and 31a-2 thereunder. The Custodian will supply to the Customer from time to time, as mutually agreed upon, a statement in respect to any Property in the Account held by the Custodian or by a subcustodian. In the absence of the filing in writing with the Custodian by the Customer of exceptions or objections to any such statement within sixty (60) days of the mailing thereof, the Customer shall be deemed to have approved such statement and such statement shall be presumed to be for all purposes correct with respect to all information set forth therein absent manifest error or omissions. 4. Maintenance of Property Outside of the United States. Securities in the Account may be held in a country or other jurisdiction outside of the United States as may be specified from time to time in Instructions; provided that such country or other jurisdiction shall be one in which the principal trading market for such Securities is located or in which such Securities are to be presented for payment or are acquired for the Account. Cash in the Account shall be credited to an account maintained with a subcustodian in such amounts and in such countries or other jurisdictions as shall be specified from time to time in Instructions. Instructions received by the Custodian pursuant to the provisions hereof to settle purchases and sales of Securities in a jurisdiction specified therein shall be deemed to be Instructions furnished by the Customer to the Custodian under this Section 4 authorizing the holding of such Securities and Cash in such jurisdiction and shall further be deemed to be a representation by the Customer that such jurisdiction has been authorized by the Customer pursuant to Rule 17(f)-5 ("Rule 17(f)-5") under the Investment Company Act of 1940 as a jurisdiction in which the Customers' Securities and Cash may be held; it being understood that the Custodian shall have no liability or responsibility for determining whether such authorization has been proper under such Rule 17(f)-5 or for the consequences of the settlement of transactions pursuant to such Instructions in countries or with subcustodians in countries which have not been approved by the Customer pursuant to such Rule 17(f)-5. -3- 5. Subcustodians and Securities Depositories. The Custodian may, subject to the provisions set forth below, employ, directly or indirectly, one or more subcustodians to assist in the performance of its obligations hereunder; provided, however, that the employment of any such subcustodian (other than any such subcustodian which is a securities depository or clearing agency) shall not relieve the Custodian of its responsibilities or liabilities hereunder; provided further, that with respect to a subcustodian which is a securities depository or clearing agency the Custodian shall only be responsible or liable for losses arising from such employment caused by the Custodian's own failure to exercise reasonable care. The Customer authorizes and instructs the Custodian to hold the Property in the Account in custody accounts which have been established by the Custodian with one of its branches, a branch of another U.S. bank, a majority owned non U.S. subsidiary of a U.S. bank or bank holding company acting as custodian, a foreign bank or trust company acting as custodian or a securities depository in which the Custodian or subcustodian participates. The employment of any of the foregoing shall be determined by the Custodian in its discretion; provided that in each case in which a United States third party agent is employed, such third party agent complies with the provisions of Rule 17f-2 or Rule 17f-4 under the Investment Company Act of 1940 provided further, that in each case in which a non United States third party agent is employed, (i) such third-party agent is an "eligible foreign custodian" within the meaning or Rule 17f-5 or such third party agent is the subject of an order granted by the United States Securities and Exchange Commission exempting such agent or the subcustody arrangements with respect thereto from all or part of the provisions of Rule 17f-5 and (ii) such employment and the agreement between the Custodian and such third party agent related thereto (other than the agreement with any such third party agent which is a securities depository in which another third party agent with which the Custodian has an agreement approved by the Customer as hereinafter provided participates) have been approved by the Customer pursuant to Instructions pursuant to Rule 17(f)- 5; it being understood that the Custodian shall have no liability or responsibility for determining whether such approval has been proper under such Rule 17(f)-5. Hereinafter, the term "subcustodian" will refer to any third- party agent referred to in the first sentence of this paragraph which has satisfied, where applicable, the conditions set forth in the proviso in such sentence. The Custodian agrees to cease the employment of any one or more of such subcustodians upon receipt of Instructions requesting that a particular subcustodian cease to be employed as such due to the fact that such subcustodian no longer meets the requirements of Rule 17f-5. Upon request of the Customer, the Custodian shall deliver to the Customer annually at such time as may be mutually agreeable to the parties hereto a certificate stating: (i) the identify of each non United States subcustodian then acting on behalf of the Custodian; (ii) the countries in which each such non United States subcustodian is then holding Cash and/or Securities in the Account; and (iii) such other information relating to such non United States subcustodian as may reasonably be requested by the Customer to ensure compliance with Rule 17f-5. 6. Use of Subcustodian. With respect to Securities in the Account which are maintained by the Custodian in the custody of a subcustodian employed pursuant to Section 5: -4- (a) The Custodian will identify on its books as belonging to the Customer any Securities held by such subcustodian. (b) In the event that a subcustodian permits any of the Securities placed in its care to be held in a securities depository or clearing agency, such subcustodian will be required by its agreement with the Custodian to identify on its books such Securities as being held for the account of the Custodian for its customers. (c) Any Securities in the Account, except Securities held by a subcustodian on a segregated basis on behalf of the Customer, held by a subcustodian will be subject only to the instructions of the Custodian or its agents unless specifically otherwise authorized by the Custodian on a exception basis; and any Securities held in a securities depository or clearing agency for the account of the Custodian or a subcustodian will be subject only to the instructions of the Custodian or such subcustodian, as the case may be. (d) Securities deposited with a subcustodian will be maintained in an account holding only assets for customers of the Custodian. (e) Any agreement the Custodian shall enter into with a subcustodian with respect to the holding of Securities shall require that (i) the Securities are not subject to any right, charge, security interest, lien or claim of any kind in favor of such subcustodian except a claim for payment in accordance with such agreement for their safe custody or administration and expenses related thereto, (ii) beneficial ownership of such Securities be freely transferable without the payment of money or value other than for safe custody or administration and expenses related thereto, (iii) adequate records will be maintained identifying the Property held pursuant to such Agreement as belonging to the Customer and (iv) officers of or auditors employed by, or other representatives of or designated by, the Custodian, including the independent public accounts of or designated by, the Customer be given access to the books and records of such subcustodian relating to its actions under its agreement pertaining to any Property held by it thereunder or confirmation of or pertinent information contained in such books and records be furnished to such persons designated by the Custodian. 7. Holding of Securities, Nominees, etc. Securities in the Account which are held by the Custodian or any subcustodian may be held by such entity in the name of the Customer, in its own name, in the name of its nominee or in bearer form. Securities which are held by a subcustodian or which are eligible for deposit in a securities depository as provided above may be maintained with the depository in an account for the Custodian's or subcustodian's customers. The Custodian or subcustodian, as the case may be, may combine certificates representing -5- Securities held in the Account with certificates of the same issue held by it as fiduciary or as a custodian. In the event that any Securities in the name of the Custodian or its nominee or held by one of its subcustodians and registered in the name of such subcustodian or its nominee called for partial redemption by the issuer of such Security, the Custodian may, subject to the rules or regulations pertaining to allocation of any securities depository in which such Securities have been deposited, allot, or cause to be allotted, the called portion to the respective beneficial holders of such class of security in any manner the Custodian deems to be fair and equitable. 8. Proxies, etc. With respect to any proxies, notices, reports or other communications relative to any Securities in the Account, the Custodian shall perform such services relative thereto as may be agreed upon between the Custodian and the Customer. Neither the Custodian nor its nominees or agents shall vote upon or in respect of any of the Securities in the account, execute any form of proxy to vote thereon, or give any consent or take any action (except as provided in Section 2) with respect thereto except upon the receipt of Instructions relative thereto. 9. Settlement Procedures. Settlement and payment for Securities received for the accouint and delivery of Securities maintained for the Account may be effected in accordance with the customary or established securities traded or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering Securities to the purchaser thereof or to a dealer thereof (or an agent for such purchaser of dealer) against a receipt with the expectation of receiving later payment for such Securities from such purchaser or dealer, and in accordance with the standard operating procedures of the Custodian in effect from time to time for that jurisdiction or market. 10. Instruction. The term "Instructions" means instructions from the Customer in respect of any of the Custodian's duties hereunder which have been received by the Custodian at its address set forth in Section 15 below in writing or by tested telex signed or given by such one or more person or persons as the Customer shall have from time to time authorized to give the particular class of Instructions in question and whose name and (if applicable) signature and office address have been filed with the Custodian, or upon receipt of such other form of instructions as the Customer may from time to time authorize in writing and which the Custodian agrees to accept. The Custodian shall have the right to assume in the absence of notice to the contrary from the Customer that any person whose name is on file with the Custodian pursuant to this Section 10 has been authorized by the Customer to give the Instructions in question and that such authorization has not been revokesd. 11. Standard of Care. The Custodian shall responsible for the performance of only such duties as are set forth herein or contained in Instructions given to the Custodian which are not contrary to the provisions of this Agreement. The Custodian will use reasonable care with respect to safekeeping of Securities in the Account and in carrying out its obligations under this Agreement. So long as and to the extent that it has exercised reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any Property or other property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall -6- be held harmless in acting upon, and may conclusively rely on, without liability for any loss resulting therefrom, any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed or furnished by the proper party or parties, including, without limitation, Instructions, and shall be indemnified by the Customer for any losses, damages, costs and expenses (including, without limitation, the fees and expenses of counsel) incurred by the Custodian and arisong out of action taken or omitted in good faith by Customer for any loss which shall occur directly as the result of the failure of a subcustodian (other than any subcustodian which is a securities depositary or clearing agency the actions or ommissions for which the Custodian's liability and responsibility is set forth in the last proviso of the first paragraph of Section 5) to exercise reasonable care with respect to the safekeeping of such Securities. In the event of any loss to the Customer by reason of the failure of the Custodian or its subcustodian to utilize reasonable care, the Custodian shall be liable to the Customer to the extent of the Customer's actual damages at the time such loss was discovered without reference to any special conditions or circumstances. In on event shall the Custodian be liable for any consequential or special damages. The Custodian shall be entitled to rely, and may act, on advice of counsel (who may be counsel for the Customer) on all matters and shall be without liability for any action reasonably taken of omitted purusant to such advice. All collections of funds or other property paid or distributed in respect of Securities in the Account, including funds involved in third- party foreign exchange transactions, shall be made at the risk of the Customer. The Custodian shall have no liability for any loss occassioned by delay in the actual receipt of notice by the Custodian or by its subcustodian of any payment, redemption or other transaction regarding Securities in the Account in respect of which the Custodian has agreed to take action as provided in Section 2 hereof. The Custodian shall not be liable for any loss resulting from, or caused by, or resulting from acts of governmental authorities (whether de jure or de facto), including, without limitation, nationalization, expropriation, and the imposition of currency restrictions; acts of war, terrorism, insurrection or revolution; strikes or work stoppages; the inability of a local clearing and settlement system to settle transactions for reasons beyond the control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion, fission or radioactivity, or other acts of God. The provisions of this Section shall survive termination of this Agreement. 12. Fees and Expense. The Customer agrees to pay to the Custodian such compensation for its services pursuant to this Agreement as may be mutually agreed upon in writing from time to time and the Custodian's out-of-pocket or incidental expenses, including (but withou limitation) legal fees. The Customer hereby agrees to hold the Custodian harmless from any liability or loss resulting from any taxes or other governmental charges, and any expense related thereto, which may be imposed, or assessed with respect to any Property in the Account and also agrees to hold the Custodian, its subcustodians, and their respective nominees harmless from any liability as a record holder of Property in the Account. The Custodian is authorized to charge any account of the Customer for such items. The provisions of this Section shall survive the termination of this Agreement. -7- 13. Amendment, Modifications, etc. No provisions of this Agreement may be amended, modified or waived except in a writing signed by the parties hereto. 14. Termination. This Agreement may be terminated by the Customer or the Custodian by ninety (90) days' notice to the other; provided that notice by the Customer shall specify the names of the persons to whom the Custodian shall deliver the Securities in the Account and to whom the Cash in the Account shall be paid. If notice of termination is given by the Custodian, the Customer shall, within ninety (90) days following the giving of such notice, deliver to the Custodian a written notice specifying the names of the persons to whom the Custodian shall deliver the Securities in the Account and to whom the Cash in the Account shall be paid. In either case, the Custodian will deliver such Securities and Cash to the persons so specified, after deducting therefrom any amounts which the Custodian determines to be owed to it under Section 12. In addition, the Custodian may in its discretion withhold from such delivery such Cash and Securities as may be necessary to settle transactions pending at the time of such delivery. If within ninety (90) days following the giving of a notice of termination by the Custodian, the Custodian does not receive from the Customer a written notice specifying the names of the persons to whom the Custodian shall deliver the Securities in the Account and to whom the Cash in the Account shall be paid, the Custodian, at its election, may deliver such Securities and pay such Cash to a bank or trust company doing business in the State of New York to be held and disposed of pursuant to the provisions of this Agreement, or may continue to hold such Securities and Cash until a written notice as aforesaid is delivered to the Custodian. 15. Notices. Except as otherwise provided in this Agreement, all request, demands or other communications between the parties or notices in connection herewith (a) shall be in writing, hand delivered or sent by telex, telegram or cable, addressed, if to the Customer, to its address set forth on the signature page hereof and, if to the Custodian, to: c/o BTNY Services, Inc., 34 Exchange Place, Jersey City, New Jersey 07032, Attention: Global Securities Services, (Telex No. 420066 Area 19), Answerback: BANTRUS, or in with case to such other address as shall have been furnished to the receiving party pursuant to the provisions hereof and (b) shall be deemed effective when received, or, in the case of a telex, when sent to the proper number and acknowledged by a proper answerback. 16. Security for Payment. To secure payment of all fees and expenses payable to Custodian hereunder, including, but not limited to amounts payable pursuant to indemnification provisions and to the last paragraph of Section 2, the Customer hereby grants to Custodian a continuing security interest in and right of setoff against the Account and all Property held therein from time to time in the full amount of such obligations; provided that, if the Account consists of more than one portfolio and the obligations secured pursuant to this Section 16 can be allocated to a specific portfolio, such security interest and right of setoff will be limited to Property held for the account of such portfolio only. Should the Customer fail to pay promptly any amounts owed hereunder, Custodian shall be entitled to use available Cash in the Account or applicable portion thereof held for a specific portfolio, as the case may be, and to dispose of Securities in the Account of such applicable portion thereof as is necessary. In the event Securities in the Account or such applicable portion thereof are insufficient to discharge such obligations, the Customer hereby grants Custodian a continuing security interest in and right of -8- setoff against the balance from time to time in any non-custodian account of the Customer (the "Pledged Balances"), and Custodian may, at any time from time to time as Custodian's sole option and without notice, appropriate and apply toward the payment of such obligations, the Pledged Balances. If at any time Property in the Account or such applicable porition thereof and the Pledged Balances are insufficient to fully collateralize such obligations, Customer shall provide to Custodian additional collateral in form and amount satisfactory to Custodian and shall grant to Custodian a continuing security interest in and right of setoff against such collateral. In any such case and without limiting the foregoing, Custodian shall be entitled to take such other action(s) or exercise such other options, powers and rights as Custodian now or hereafter has as a secured creditor under the New York Uniform Commercial Code or any other applicable law. 17. Governing Law and Successors and Assigns. This Agreement shall be governed by the State of New York and shall not be assignable by either party, but shall bind the successors in interest of the Customer and the Custodian. 18. Publicity. Customer shall furnish to Custodian at its office referred to in Section 15 above, prior to any distribution thereof, copies of any material prepared for distribution to any persons who are not parties hereto that refer in any way to Custodian. Customer shall not distribute or permit the distribution of such materials if Custodian reasonably objects in writing within ten (10) business days of receipt thereof (or such other time as may be mutually agreed) after receipt thereof. The provisions of this Section shall survive the termination of this Agreement. 19. Submission to Jurisdiction. Any suit, action or proceeding arising out of this Agreement may be instituted in any State or Federal court sitting in the City of New York, State of New York, United States of America, and the Customer irrevocably submits to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding and waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding was brought in an inconvenient forum. 20. Headings. The headings of the paragraphs hereof are included for convenience of reference only and do not form a part of this Agreement. By: /s/ ---------------------------------- Title(s): CFO ---------------------------------- Address for record: 909 Third Ave (19th Fl) ---------------------------------- New York NY 10022 ---------------------------------- BANKERS TRUST COMPANY By: /s/Frank Parelli ---------------------------------- Title: Vice President ---------------------------------- -9- GCG TRUST AND EQUI-SELECT TRUST FEE SCHEDULE DOMESTIC CUSTODY HOLDINGS PRICE Maintenance $80.00 per account Dep. Bonds/Stock 1.50 Vault Bonds/Stock 3.00 Cedel Asset Value .0333 Euro CD Asset Value .0033 TRANSACTIONS PRICE FBE Automated 10.00 FBE Manual 13.00 PTC Automated 16.00 PTC Manuel 25.00 DTC Automated 7.00 DTC Manual 11.00 DTC ID 5.00 Physical-Auto 18.00 Physical-Manual 23.00 Physical Govt. Auto 23.00 Physical Govt. Manual 30.00 Euro/CD Cedel 50.00 P&I Payments 8.00 Reorganization 38.00 Private Paydown 10.00 Private Placement Income 10.00 Money Movements In/Out 8.00 Polaris-Maintenance 25.00 per portfolio GLOBAL CUSTODY I MONTHLY MAINTENANCE $350.00 per account II. ASSET AND TRANSACTION FEES ANNUAL TRANSACTION ASSET CHARGES CHARGES UNITED STATES (Global Portfolio) .5BP (Same as Domestic) TIER I 2.5 BP $25 Cedel Euroclear TIER II 3BP $25 Australia United Kingdom Japan Switzerland Italy TIER III 5BP $25 Austria Belgium Denmark France Hong Kong Ireland Mexico Netherlands New Zealand Norway Sweden TIER IV 8 BP $25 Malaysia Philippines Singapore Thailand EMERGING MARKETS MARKETS ANNUAL TRANSACTION ASSET CHARGES CHARGES Argentina 35BP $100 Bangladesh 40BP $150 Brazil 35BP $50 Chile 30BP $80 Columbia 35BP $100 Czech 20BP $70 Egypt 45BP $80 Finland 10BP $75 Ghana 50BP $150 Greece 35BP $120 Hungary 45BP $150 Israel 40BP $50 India 60BP 40BP Jordan 30BP $100 Kenya 50BP $150 Morocco 30BP $130 Peru 50BP $100 Pakistan 30BP $150 Portugal 5BP $75 Slovakia 25BP $100 Poland 45BP $100 Russia 50BP $300 South Africa 3BP $50 South Korea 15BP $50 Sri Lanka 12 BP $60 Tunisia 45BP $50 Turkey 15BP $50 Venezuela 35BP $100 Zimbabwe 50BP $150 WIRES PRICE US $15.00 Non-US $25.00 REIMBUSEMENTS (i.e., couriers, tapes, legal fees) At Cost NOTES o The standard Global Custody service includes: asset safekeeping, trade settlement, income collection, corporate action processing (including proxy voting) and tax reclaims. o All income receipts and tax reclaim refunds are credited to client accounts net of agents' collection fees (where applicable) o The client will be responsible for all out of pocket expense associated with security execution and registration in Russia. Additionally, due to the uncertainty of transaction settlement efficiencies in the market, contractual settlement of trades and posting of income will not be offered. o Third party FX transactions and other cash movements with no associated security transaction (e.g. free payments/receipts) are charged at $15 per U.S. wire and $25 per non U.S. wire. No fee is levied for FX transactions executed with Bankers Trust. o The above fees are inclusive of the provision and installation of Bankers Trust proprietary software (Polaris, Globe*View) software but the client is responsible for the provision of a suitable PC, printer and modem, together with all associated telecommunication charges. o USD Balances will earn Fed Funds - 25 basis point (Global and Domestic Portfolios) and Overdrafts will be assessed at Prime + 1 basis point. GCG TRUST AND EQUI-SELECT TRUST BANKERS TRUST COMPANY /s/ /s/ - ------------------------------ ---------------------------------- Signature Signature Secretary Thadeus Dudinowski, VP - ------------------------------ ---------------------------------- Name Name 4/9/98 3/27/98 - ------------------------------ ---------------------------------- Date Date ADDENDUM TO CUSTODIAN AGREEMENT The Custodian Agreement ("Agreement") between The GCG Trust (the"Trust"), a Massachusetts business trust having its principal place of business at 1001 Jefferson Street, 4th Floor, Suite 400, Wilmington, DE 19803, and Bankers Trust Company (the "Custodian"), a New York banking corporation having its principal place of business at One Bankers Trust Plaza, New York, New York 10006, dated March 2, 1992, and amended by Addenda among the Trust, Directed Services, Inc., and the Custodian dated October 1, 1993, November 7, 1994 and December 29, 1995, is hereby amended by the addition of the provisions set forth in this Addendum to the Agreement, entered into by the Trust, Directed Services, Inc., and Bankers Trust Company, which is made this 19th day of August, 1997. WITNESSETH: WHEREAS, the Trust is authorized to issue separate Series, each of which will offer a separate class of shares of beneficial interest, each Series having its own investment objective or objectives, policies, or limitations; and WHEREAS, the Trust currently offers shares in multiple Series, may offer shares of additional Series in the future, and intends to offer shares of additional Series in the future; and WHEREAS, pursuant to a Management Agreement, effective as of August 13, 1996, the Trust has retained Directed Services, Inc. (the "Manager") to render advise advisory, management, administrative, and other services necessary for the ordinary operation of many of the Trust's Series; and WHEREAS, the Trust has appointed Bankers Trust Company to serve as Custodian for one or more Series of the Trust under the terms and conditions set forth in the Custodian Agreement dated March 2, 1992; and WHEREAS, the Trust, the Manager, and the Custodian have agreed to amend the Custodian Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Addendum, it is agreed between the parties hereto as follows: In addition to its responsibilities as specified in the Agreement, the Trust t hereby constitutes and appoints Bankers Trust Company as Custodian with respect to the Mid-Cap Growth Series, Total Return Series, Research Series, Growth & Income Series, Value + Growth Series, Global Fixed Income Series, Growth Opportunities Series, and Developing World Series which, together with all other Series previously established by the Trust, shall be Series under the Agreement as provided in Paragraph 1 of the Agreement and Appendix A thereto. IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their officers designated below on the date indicated above. THE GCG TRUST ___________________________ By:__________________________ Attest ___________________________ __________________________ Title Title DIRECTED SERVICES, INC. ___________________________ By:__________________________ Attest ___________________________ __________________________ Title Title BANKERS TRUST COMPANY . ___________________________ By:__________________________ Attest ___________________________ __________________________ Title Title EX-99.H1A 14 TRANSFER AGENCY AND SERVICE AGREEMENT Exhibit (h)(1)(A) TRANSFER AGENCY AND SERVICE AGREEMENT between WESTERN CAPITAL SPECIALTY MANAGERS TRUST and STATE STREET BANK AND TRUST COMPANY ASA 05/86 Standard Series Trust TABLE OF CONTENTS PAGE Article 1 Terms of Appointment; Duties of the Bank. . . 2 Article 2 Fees and Expenses . . . . . . . . . . . . . . 5 Article 3 Representations and Warranties of the Bank. . 5 Article 4 Representations and Warranties of the Fund. . 6 Article 5 Indemnification. . . . . . . . . . . . . . . 7 Article 6 Covenants of the Fund and the Bank. . . . . . 9 Article 7 Termination of Agreement. . . . . . . . . . . 10 Article 8 Additional Funds. . . . . . . . . . . . . . . 11 Article 9 Assignment. . . . . . . . . . . . . . . . . . 11 Article 10 Amendment . . . . . . . . . . . . . . . . . . 11 Article 11 Massachusetts Law to Apply. . . . . . . . . . 12 Article 12 Merger of Agreement . . . . . . . . . . . . . 12 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the _______ day of ____, 198__, by and between Western Capital Specialty Managers Trust a Massachusetts business trust, having its principal office and place of business at 1925 Century Park East, Suite 2350, Los Angeles, CA 90067 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts Trust Company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WITNESSETH WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate Portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in eight series, The Liquid Asset Series, The Limited Maturity Bond Series, The All-Growth Series, The Natural Resources Series, The Real Estate Series, The Fully Managed Series, The Multiple Allocation Series, and The Fundamental Value Series, (each such series together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Article 8, being herein referred to, as a Portfolio, and collectively to the "Portfolios"; WHEREAS, the Fund, on behalf of the Portfolios desires to appoint the Bank as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and the Bank desires to accept such appointment; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 TERM OF APPOINTMENT; DUTIES OF THE BANK 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to act as, and the Bank agrees to act as transfer agent for the authorized and issued shares of beneficial interest of the Fund representing interests in each of the respective Portfolios ("Shares"), dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of each of the respective Portfolios of the ("Shareholder") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund on behalf of the applicable Portfolio, including without limitation any periodic investment plan or periodic withdrawal program. 1.02 Than Bank agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund on behalf of each of the Portfolios, as applicable, and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation therefor to the Custodian of the Fund authorized pursuant to the - 2 - Declaration of Trust of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance, redemption requests and redemption directions and deliver the appropriate documentation therefor to the Custodian; (iv) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (v) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vi) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio; and (vii) Maintain records of account for and advise the Fund and its Shareholders as to the forgoing. (viii)Record the issuance of Shares and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of Shares which are author- ized, based upon data provided to it by the Fund, as issued and out- standing. Bank shall also provide the Fund on a regular basis with - 3 - the total number of Shares which are authorized and issued and out- standing and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and not in lieu of the services set forth in the above paragraph (a), the Bank shall: (i) perform all of the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plans (including withdrawal program); including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all registered Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and - 4 - (ii) Provide a system which will enable the Fund to monitor the total number of Shares sold in each State. (c) In addition the Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt for the blue sky reporting to the Fund for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and the Bank. Article 2 FEES AND EXPENSES 2.01 For performance by the Bank pursuant to this Agreement, the Fund agrees on behalf of each of the Portfolios, to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees on behalf of each of the Portfolios, to reimburse the Bank for out- - 5 - of-pocket expenses or advances incurred by the Bank for the items set out in the schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund on behalf of the applicable Portfolio. 2.03 The Fund agrees on behalf of each of the Portfolios, to pay all fees and reimbursable expenses within five days following the mailing of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all Shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. Article 3 REPRESENTATIONS AND WARRANTIES OF THE BANK The Bank represents and warrants to the Fund that: 3.01 It is a trust company duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.02 It is duly qualified to carry on its business in the Commonwealth of Massachusetts. 3.03 It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement. 3.04 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.05 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to the Bank that: - 6 - 4.01 It is a business trust duly organized and existing and in good standing under the laws of 4.02 It is empowered under applicable laws and by its Declaration of Trust and By-Laws to enter into and perform this Agreement. 4.03 All corporate proceedings required by said Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end and diversified investment company registered under the Investment Company Act of 1940. 4.05 A registration statement under the Securities Act of 1933 on behalf of each of the Portfolios, is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares being offered for sale. Article 5 INDEMNIFICATION 5.0 The Bank shall not be responsible for, and the Fund shall on be- half of the applicable Portfolio, indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's refusal or failure to comply with the terms of this Agreement, or which arise out of the Fund's lack of good faith, - 7 - negligence, or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records and documents which (i) are received by the Bank or its agents or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have been prepaid and/or maintained by the Fund or any other person or firm on behalf of the Fund. (d) Th reliance on, or the carrying out by the Bank or its agent or subcontractors of any instructions or requests of the Fund on behalf of the applicable Portfolio. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. 5.02 The Bank shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributed to any action or failure or omission to act by the Bank as a result of the Bank's lack of good faith , negligence or willful misconduct. 5.03 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the - 8 - Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund on behalf of the applicable Portfolio, for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT, data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officer of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co-registrar. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. - 9 - 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act of failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 6 COVENANTS OF THE FUND AND THE BANK 6.01 The Fund shall, on behalf of each of the Portfolios, promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Board of Directors of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Declaration of Trust and By-Laws of the Fund and all amendments thereto. 6.02 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if - 10 - any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 6.03 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered to the Fund on and in accordance with its request. 6.04 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.05 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. - 11 - Article 7 TERMINATION OF AGREEMENT 7.01 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 7.02 Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund, on behalf of the applicable Portfolios. Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of three (3) months' fees. Article 8 ADDITIONAL FEES 8.01 In the event that the Fund establishes one or more series of Shares in addition to The Liquid Asset Series, The Limited Maturity Bond Series, The All-Growth Series, The Natural Resources Series, The Real Estate Series, The Fully Managed Series, The Multiple Allocation Series, and The Fundamental Value Series, with respect to which it desires to have the Bank render services as transfer agent under the terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. Article 9 ASSIGNMENT 9.01 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 9.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. - 12 - Article 10 AMENDMENT 10.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Trustees of the Fund. Article 11 MASSACHUSETTS LAW TO APPLY 11.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. Article 12 MERGER OF AGREEMENT 12.01 This Agreement constitutes the entire agreement between the parties hereto and supercedes any prior agreement with respect to the subject hereof whether oral or written. IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers, as of the day and year first above written. WESTERN CAPITAL SPECIALTY MANAGERS TRUST By:__________________________________________ Attest:______________________________________ STATE STREET BANK AND TRUST COMPANY By:__________________________________________ Vice President Attest:______________________________________ Assistant Secretsry EX-99.H2A 15 ORGANIZATIONAL AGREEMENT FOR GOLDEN AMERICAN Exhibit (h)(2)(A) 1 ORGANIZATIONAL AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST AND WESTERN CAPITAL VARIABLE ADVISORS CORP. AND GOLDEN AMERICAN LIFE INSURANCE COMPANY Agreement dated as of December 28, 1988 (the "Agreement"), by and among Western Capital Specialty Managers Trust ("Trust"), Western Capital Variable Advisors Corp. ("Western Capital") and Golden American Life Insurance Company ("Golden American"), on its own behalf and on behalf of any separate accounts of Golden American shown on exhibit A hereto (the "Variable Accounts"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940 ("ICA"), as amended, and shares of the portfolios of the Trust are registered under the Securities Act of 1933 ("Securities Act"), as amended, and the Trust will initially consist of seven separate series; and WHEREAS, shares of the series of the Trust shown on Exhibit B ("Series") will be sold to the Variable Accounts to fund benefits under variable life insurance policies, which may include variable life insurance policies classified as modified endowment contracts, and variable annuity contracts (all of such life insurance policies and annuity contracts referred to collectively as the "Policies") to be issued by Golden American through the Variable Accounts after the Trust's Registration Statement is declared effective by the Securities and Exchange Commission (SEC"); and WHEREAS, Western Capital will act as the Trust's Manager, pursuant to a Management Agreement, a copy of which is attached hereto as Exhibit C, to be entered into by Western Capital and the Trust; and WHEREAS, Western Capital is, and for the duration of this Agreement, will remain if required by applicable law, duly registered as an investment adviser under the Investment Advisers Act of 1940. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants hereinafter set forth, the parties hereby agree as follows: 2 1. Western Capital and the Trust will take all such actions as are necessary to permit the sale of the shares of each Series to the Variable Accounts including, but not limited to, organization of the Trust as a Massachusetts business trust and registration of the Trust under the ICA and registration of the shares of each Series under the Securities Act. Western Capital and the Trust shall amend the Registration Statement for the Trust from time to time as required in order to effect the continuous offering of shares of each Series of the Trust. The Trust's responsibility to make shares of the Series available to the Variable Accounts shall be governed by the Settlement Agreement among the Trust, the Variable Accounts and Western Capital Financial Group. 2. Western Capital will pay, on behalf of the Trust, all expenses of the Trust incurred on or prior to the commencement of operations of the Trust, including, but not limited to, legal fees, auditing fees, SEC registration fees, and organizational fees, that are determined to be "organizational costs" of the Trust (the "Organizational Costs"). 3. Such Organizational Costs will be recovered by Western Capital from the Trust over a period of not less than five years. 4. Golden American agrees that prior to the effective date of the Registration Statement for the Trust, Golden American or an affiliate shall invest $100,000 in the Trust subject to the understanding that at such time Golden American or its affiliate has no current intention of reselling the shares so acquired. All redemptions by Golden American or its affiliate of any part of its investment in the Trust will g\]be effected in accordance with any applicable legal standards. 5. With respect to any of the Policies funded by the Variable Accounts, Golden American agrees as follows: a. That any prospectus offering a life insurance contract funded by one of the Variable Accounts where it is reasonably probably that such contract would be a "modified endowment contract," as that term is defined in Section 7702A of the Internal Revenue Code of 1986, as amended (the "Code"), will identify such a contract as a modified endowment contract (or policy); and b. That Golden American will take all necessary steps to ensure that any contract described in its prospectus as a life insurance contract (or policy), including life insurance policies classified as modified 3 endowment contract, and funded by one of the Variable Accounts will qualify as a life insurance contract under Section 7702 of the Code, and Golden American will immediately notify the Trust and Western Capital upon having a reasonable basis for believing that the Policies have ceased to be so treated or that they might not be so treated in the future; and c. That Golden American will take all necessary steps to ensure that any contract described in its prospectus as an annuity and funded by one of the Variable Accounts will qualify as an annuity under Section 72 of the Code. 6. Golden American will take all necessary steps to ensure that the Policies will be registered under the Securities Act during the term of this Agreement and that the Policies will be issued in compliance with all applicable federal and state laws. Golden American shall amend the Registration Statements respecting the Policies from time to time as required to effect the continuous offerings of the Policies. Golden American represents and warrants that it is an insurance company duly organized and in good standing under Minnesota law, that it has established each Variable Account shown on Exhibit A as a duly organized, validly existing segregated asset account, established by resolutions of the Board of Directors of Golden American; and that the Variable Accounts are, and will be during the term of this Agreement, duly registered unit investment trusts under the ICA to serve as segregated investment accounts for the Policies. Golden American will pay all expenses in connection with organizing the Variable Accounts, developing the Policies and preparing and filing with the SEC Registration Statements for the Policies, obtaining authorizations to offer the Policies in the various states and other initial expenses associated with the Policies. 7. Golden American shall vote shares of each Series of the Trust held in a Variable Account or a division thereof at regular and special meetings of the Trust in accordance with instructions timely received by Golden American (or its designated agent) from owners of Policies funded by such Variable Account or division thereof having a voting interest in the Series. Golden American shall vote shares of a Series of the Trust held in a Variable Account or a division thereof that are attributable to the Policies and owned beneficially by Golden American, in the same proportion as the votes 4 cast by owners of the Policies funded by that Variable Account or division thereof having a voting interest in the Series from whom instructions have been timely received. Golden American shall vote shares of each Series of the Trust held in its general account, if any, in the same proportion as the votes cast with respect to the shares of the Series held in all Variable Accounts of Golden American or divisions thereof, in the aggregate. In the event of a shareholder meeting, Golden American agrees to provide the Trust and/or Western Capital with a list of the names and addresses of owners of the Policies within five (5) days of receipt of a written request for such a list. The party requesting such list shall bear the reasonable cost incurred by Golden American in preparing and providing such list, which shall be paid upon delivery of the list. Golden American further agrees to provide notice to the Trust and to Western Capital if Golden American or an affiliate has reason to know about a meeting of owners of the Policies or shareholders of the Trust. In the event that a vote of shareholders of the Trust is held prior to the sale of any Policies, Golden American or its affiliate will vote shares of the Trust acquired with its investment of $100,000 and any other amounts invested for initial capitalization as instructed by Western Capital. 8. Western Capital and the Trust will use reasonable efforts to manage each Series of the Trust so that each such Series will qualify as a "Regulated Investment Company" under Subchapter M of the Code and will use reasonable efforts to maintain such qualification and will notify Golden American immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to so qualify or might not so qualify in the future. Golden American shall also notify the Trust and Western Capital immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to qualify as a Regulated Investment Company or might not so qualify in the future, provided however, that Golden American's agreement to notify Western Capital and the Trust with respect to any matter contained in this paragraph will in no way alleviate or relieve Western Capital's and the Trust's responsibility under this Section 8. 9. Western Capital and the Trust will take all necessary steps to ensure that the Trust (and each Series thereof) will comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for variable life insurance policies and variable annuity contracts and any prospective amendments or other modifications to 5 Section 817 or regulations thereunder and will notify Golden American immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to comply. Golden American shall notify the Trust and Western Capital immediately upon having a reasonable basis for believing the Trust (or any Series thereof) has ceased to comply with the diversification provisions of Section 817(h) of the Code or the regulations issued thereunder and any prospective amendments or other modifications to Section 817 or regulations thereunder, provided however, that Golden American's agreement to notify Western Capital and the Trust with respect to the above matter contained in this Section 9 will in no way alleviate or relieve Western Capital's and the Trust's responsibility under this Section 9. Western Capital or the Trust or both of them shall be entitled to receive and act upon advice of counsel to Western Capital or the Trust to meet the requirements specified in Section 8 and 9 and shall be without liability for any action taken or thing done (or for any omission to act) in reliance upon such advice. Golden American shall promptly notify the Trust and Western Capital of any pertinent changes, modifications to, or interpretations of Section 817(h) of the Code and the regulations issued thereunder and any successor thereto, or any prospective amendments or other modifications to Section 817 or regulations thereunder. For purposes of monitoring whether the Trust and the Variable Accounts are eligible for the start-up period during which the Variable Accounts shall be considered to be adequately diversified under paragraph (c)(2)(i) of Tres. Reg. 1.817-5T (or any successor thereto), Golden American shall monitor amounts allocated to the Variable Accounts (or divisions thereof) ("Allocated Amounts") by owners of Policies funded by the Variable Accounts (or divisions thereof) during the first year after any amount received under one of the Policies is first allocated to any Variable Account (or division thereof) ("First Year") to ensure that no more than thirty (30) percent of the amount allocated to any Variable Account (or division thereof), as of any date during such year, is attributable to premium and investment income that was received more than one year before such date (the percentage of such Allocated Amount being referred to hereafter as the "Old Money Percentage"). `For this purpose, premium income and investment income shall be treated as received as provided in Tres. Reg. 1.817-5(T) (or any successor thereto) or other applicable law and determinations under this provision shall be made consistent with Tres. 6 Reg. 1.817-5T(c)(2) or any successor thereto. Golden American will notify Western Capital immediately in the event that the Old Money Percentage equals or exceeds twenty (20) percent as of any date during the First Year, determined as prescribed above; and in the event that the Old Money Percentage equals or exceeds thirty (30) percent during the First Year, shall notify Western Capital and the Trust immediately and advise such parties that the Variable Accounts shall no longer be considered adequately diversified during the First Year under paragraph (c)(2)(i) of Regulation 1.817-5T. Golden American agrees that Western Capital and the Trust shall not be liable for failure to meet their responsibilities under this Section 9 during the First Year if Golden American fails to comply with the monitoring and notice responsibilities specified in this Section 9. 10. The Trust and Western Capital agree that separate accounts of Golden American and of other insurance companies acceptable to the Trust and Western Capital will have the right to purchase and sell shares of the Series of the Trust. The Variable Accounts agree that they will invest only in shares of the Trust. 11. Western Capital and the Trust will provide Golden American and its auditors with any information it may reasonably request, and with access to such books and records that relate to the ordinary operating expenses of the Trust. 12. The Trust will not sell or permit the sale of shares of the Trust to separate accounts of life insurance companies that are not affiliates of Golden American without first obtaining an appropriate exemptive order from the SEC, unless the rules under the ICA are amended to permit "shared funding" without first obtaining individual exemptive relief. With respect to serving as the common investment vehicle for (1) both variable annuity contracts and variable life insurance policies, or (2) for variable life insurance policies of one insurer and variable life insurance policies and/or variable annuity contracts of another insurer, the parties agree to comply with any conditions imposed under any exemptive order issued by the Securities and Exchange Commission, or as specified in Rule 6e-2 or Rule 6e-3(T) under the ICA, or, if permanently adopted, Rule 6e-3, as amended, whichever is applicable. 13. Each party hereto shall cooperate with each other party and all appropriate governmental authorities having jurisdiction (including without limitation, the SEC, the NASD and state insurance regulators) and shall permit 7 such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Golden American agrees that neither it nor any of its affiliates shall give any information or make any representations or statements on behalf of the Trust or concerning the Trust in connection with the offer or sale of the Policies other than the information or representations contained in the Registration Statement for the Trust's shares, as such Registration Statement may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust or Western Capital, except with the written permission of the Trust or Western Capital. Western Capital agrees that neither it nor any of its affiliates shall give any information or make any representations or statements on behalf of the Policies or concerning the Policies in connection with their offer or sale, other than the information or representations contained in the Registration Statement for the Policies, as such Registration Statement may be amended or supplemented from time to time, or in reports for the Policies or in sales literature or other promotional material approved by Golden American or its affiliates, except with the written permission of Golden American or its affiliates. 14. Western Capital shall, at its own expense or, if appropriate, the expense of the Trust, provide Golden American with at least three complete copies of all registration statements, prospectuses, statements of additional information, sales literature and other promotional materials, applications for exemptions, requests for no- action letters, and any and all amendments to the foregoing, that relate to the Trust or its shares, promptly after the filing of such document with SEC or other regulatory authorities or the submission of such document to the SEC staff, whichever is applicable. Golden American or its affiliate shall, at its own expense, provide Western Capital with at least three complete copies of all registration statements, prospectuses, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and any and all amendments to the foregoing, that relate to the Policies, promptly after the filing of such document with the SEC or other regulatory authorities or the submission of such document to the SEC staff, whichever is applicable. 8 15. a. Subject to the limitations of subparagraphs (b) and (c) of this Section 17 of this Agreement, Western Capital agrees to indemnify and hold harmless Golden American and each of its directors, officers, and employees and each person, if any who controls Golden American within the meaning of Section 15 of the Securities Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Western Capital) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are related to the operation of the Trust, and: (i) arise as a result of any failure by Western Capital to provide the services and furnish the materials under the terms of this Agreement to which it is subject (including a failure to meet its responsibilities under Sections 8 and 9 of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by Western Capital in this Agreement or arise out of or result from any other material breach of this Agreement by Western Capital. b. Western Capital shall not be liable under Section 15(a) of this Agreement with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties, or by reason of such Indemnified Party's reckless disregard to obligations and duties under this Agreement or to Golden American or the Variable Accounts, whichever is applicable. c. Western Capital shall not be liable under Section 15(a) of this Agreement with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Western Capital in writing within a reasonable time after the summons or other first legal process giving the information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Western Capital of any such 9 claim shall not relieve Western Capital from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of Section 15(a) of this Agreement. In case any action is brought against the Indemnified Parties, Western Capital will be entitled to participate, at its own expense, in the defense thereof. Western Capital also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party of Western Capital's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Western Capital shall not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. d. Subject to the limitations of subparagraphs (e) and (f) of this Section 15 of this Agreement, the Trust agrees to indemnify and hold harmless Golden American and each of its directors, officers, and employees and each person, if any, who controls Golden American within the meaning of Section 15 of the Securities act (collectively, the "Indemnified Parties") against any and all losses, claims damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are related to the operation of the Trust, and: (i) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement to which it is subject (including a failure to meet its responsibilities under Sections 8 and 9 of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust. e. The Trust shall not be liable under Section 15(d) of this Agreement with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified 10 Party's duties, or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Golden American or the Variable Account, whichever is applicable. f. The Trust shall not be liable under Section 15(d) of this Agreement with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve the Trust of any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of Section 15(d) of this Agreement. In case any such action is brought against the Indemnified Parties, the Trust will be entitled to participate at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party of the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and shall not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 16. a. Subject to the limitations of subsections (b) and (c) of this Section 16, Golden American agrees to indemnify and hold harmless Western Capital and the Trust and each of their trustees, directors, officers, employees and each person, if any, who controls Western Capital or the Trust within the meaning of Section 15 of the Securities Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Golden American) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) 11 or settlements are related to the operation of any of the Variable Accounts or the Trust and: (i) arise as a result of any failure by Golden American or any of its affiliates to provide the services and furnish the materials under the terms of this Agreement (including a failure to meet its responsibilities under Sections 5 and 9 of this Agreement); or (ii) arise out of or result from any material breach by Golden American or any of its affiliates of any representation or warranty made by Golden American in this Agreement or arise out of or result from any other material breach of this Agreement by Golden or any of its affiliates. b. Golden American shall not be liable under this Section 16 with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Western Capital or the Trust, whichever is applicable. c. Golden American shall not be liable under this Section 16 with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Golden American, in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Golden American of any such claim shall not relieve Golden American or its affiliates from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 16. In case any such action is brought against the Indemnified Parties, Golden American will be entitled to participate, at its own expense, in the defense thereof. Golden American also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party of Golden American's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Golden American shall not be liable to such 12 party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 17. Each party to this Agreement agrees to promptly notify the other parties of the commencement of any litigation or proceedings against it or any of its officer, trustees, directors or employees in connection with this Agreement, the issuance or sale of the Policies, the operation of a Variable Account, or the sale or acquisition of shares of the Trust. 18. This Agreement may be terminated without cause by any of the parties upon giving one hundred and twenty (120) days' written notice to the other parties, provided however, that if any party fails to carry out its responsibilities enumerated under this Agreement in any material respect, the other parties shall have the right to terminate this Agreement immediately and further provided, in the event the Trust is made available to separate accounts of insurance companies other than Golden American, that if a majority of the disinterested Trustees determine that an irreconcilable material conflict exists among the interests of contract owners and policyowners of segregated asset accounts or the interests of persons for which the Trustees are required to monitor under the conditions referred to in Section 12 of this Agreement, then any party shall have the right to terminate this Agreement immediately. Upon termination of this Agreement, all authorizations, rights and obligations under this Agreement, except for the provisions contained in Sections 15 and 16 hereof, shall cease. 19. Unless earlier terminated pursuant to Section 18 hereof, this Agreement shall remain in effect for a one year period beginning on its date of execution and will continue thereafter in effect from year to year. Upon termination of this Agreement, all authorizations, rights and obligations imposed on the parties under this Agreement except for the indemnification provisions contained in Sections 15 and 16 above shall cease. The parties further agree that in the event of a termination of this Agreement, each party shall cooperate with the other parties to ensure that existing policyowners will not suffer any adverse consequences resulting from such termination. 20. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 13 21. This Agreement shall be subject to the provisions of the Securities Act, the Securities Exchange Act of 1934 and the ICA and the rules, regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. The term "affiliate" as used in this Agreement shall mean an "affiliated person" as defined in Section 2(a)(3) of the Investment Company Act. This Agreement may not be assigned by any party without the written consent of the other parties to this Agreement. 22. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 23. Any notice shall be sufficiently given when sent by registered or certified mail to the other parties at the address of such parties set forth below or at such other address as such party may from time to time specify in writing to the other parties: To: Golden American Life Insurance Company 909 Third Avenue, 19th Floor New York, NY 10022 To: Western Capital Specialty Managers Trust 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 With a copy to: Jeffrey S. Puretz Dechert Price & Rhoads 1500 K Street, N.W. Washington, DC 20005 To: Western Capital Variable Advisors Corp. 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 24. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state or federal laws. 25. A copy of the Trust's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Declaration of Trust has been executed on behalf of the Trust by certain Trustees in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall 14 be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, Officer, employee or shareholder of the Trust individually. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. WESTERN CAPITAL SPECIALTY MANAGERS TRUST By: /s/ Charles F. Parisi ----------------------------------------- Charles F. Parisi President Attest:/s/ William C. Richardson ----------------------------------------- Name: William C. Richardson Title: President WESTERN CAPITAL VARIABLE ADVISORS CORP. By: /s/ Charles F. Parisi ----------------------------------------- Charles F. Parisi President Attest:/s/ William C. Richardson ----------------------------------------- Name: William C. Richardson Title: President GOLDEN AMERICAN LIFE INSURANCE COMPANY By: /s/ Fred H. Davidson ----------------------------------------- Fred H. Davidson President Attest:/s/ Bernard R. Beckerlegge ----------------------------------------- Name: Bernard R. Beckerlegge Title: Secretary GOLDEN AMERICAN LIFE INSURANCE COMPANY On behalf of the Variable Accounts By: /s/ Fred H. Davidson ----------------------------------------- Fred H. Davidson President Attest:/s/ Bernard R. Beckerlegge ----------------------------------------- Name: Bernard R. Beckerlegge Title: Secretary EXHIBIT A TO ORGANIZATION AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST AND WESTERN CAPITAL VARIABLE ADVISORS CORP. AND GOLDEN AMERICAN LIFE INSURANCE COMPANY The Western Capital Specialty Managers Separate Account A The Western Capital Specialty Managers Separate Account B EXHIBIT B TO ORGANIZATION AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST AND WESTERN CAPITAL VARIABLE ADVISORS CORP. AND GOLDEN AMERICAN LIFE INSURANCE COMPANY Multiple Allocation Series Fully Managed Series Limited Maturity Bond Series Natural Resources Series Real Estate Series All-Growth Series Liquid Asset Series EX-99.H2B 16 ASSIGNMENT AGREEMENT FOR ORGANIZATIONAL AGREEMENT Exhibit (h)(2)(B) Assignment Agreement for Organizational Agreement (for Golden American Life Insurance Company) ASSIGNMENT AGREEMENT FOR ORGANIZATIONAL AGREEMENT AGREEMENT, made this 20th day of March, 1991, by and among Specialty Advisors Corp. ("SAC") (formerly Western Capital Variable Advisors Corp.), a California corporation; Directed Services, Inc. ("DSI"), a New York corporation; Golden American Life Insurance Company ("Golden American"), a stock life insurance company incorporated under the laws of the State of Minnesota, on its own behalf and on behalf of any separate accounts of Golden American shown on Exhibit A of the Organizational Agreement, as defined below; and The Specialty Managers Trust, a Massachusetts business trust ("Trust"). WHEREAS, the Trust is registered with the Securities and Exchange Commission as an open-end management investment company under the Investment Company Act of 1940, as amended ("Act"), and the Trust issues shares in several different classes, each of which is known as a "Series"; and WHEREAS, the Trust, SAC, and Golden American entered into an Organizational Agreement dated December 28, 1988 ("Organizational Agreement"); and WHEREAS, SAC has served as Manager to the Trust pursuant to a Management Agreement between the Trust and SAC dated November 1, 1988; and WHEREAS, the Trust and SAC have terminated the Management Agreement with SAC, effective at the close of business on March 20, 1991; and WHEREAS, commencing March 21, 1991, DSI has agreed to serve as Manager to the Trust pursuant to a new Management Agreement between the Trust and DSI dated March 20, 1991; and WHEREAS, SAC, Golden American and the Trust desire to assign SAC's interest in the Organizational Agreement to DSI and DSI desires to be the assignee of SAC's interest. NOW, THEREFORE, it is agreed as follows: 1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby assigns to DSI all of its interest in the Organizational Agreement. 2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees to perform all of SAC's duties and obligations under the Organizational Agreement and be subject to all of the terms and conditions of said Agreement as if they applied to SAC. DSI shall not be responsible for any claim or demand arising under the Organizational Agreement from services rendered prior to the effective date of this Assignment Agreement unless otherwise agreed by DSI, and SAC shall not be responsible for any claim or demand arising under the Organizational Agreement from services - 2 - rendered after the effective date of this Assignment Agreement unless otherwise agreed by SAC. 3. REPRESENTATION OF DSI. DSI represents and warrants that it is registered as an investment adviser under the Investment Advisers Act of 1940 and will remain registered as long as required by applicable law. 4. CONSENT. The Trust and Golden American hereby consent to this assignment by SAC of its rights under the Organizational Agreement to DSI and the assumption by DSI of SAC's interest in such Agreement and the duties and obligations thereunder, and agree, subject to the terms and conditions of said Agreement, to look to DSI for the performance of the duties and obligations formerly owed by SAC under said Agreement. - 3 - IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their authorized officers hereunto duly attested as of the date and year written above. SPECIALTY ADVISORS CORP. /s/Jeffery S. Puretz By: Charles F. Parisi - --------------------- ------------------- Attest Outside Counsel President - --------------------- ---------------------- Title Title DIRECTED SERVICES, INC. /s/E. A. Nabi By: F. H. Davidson - --------------------- ------------------- Attest Exec. Vice Pres. Exec. Vice President - --------------------- ---------------------- Title Title - 4 - GOLDEN AMERICAN LIFE INSURANCE COMPANY /s/E. A. Nabi By: F. H. Davidson - --------------------- ------------------- Attest Exec. Vice Pres. President - --------------------- ---------------------- Title Title THE SPECIALTY MANGERS TRUST /s/Jeffery S. Puretz By: F. H. Davidson - --------------------- ------------------- Attest Outside Counsel President - --------------------- ---------------------- Title Title - 5 - EX-99.H2C 17 ORGANIZATIONAL AGREEMENT FOR MUTUAL EXHIBIT (h)(2)(c) ORGANIZATINAL AGREEMENT FOR THE MUTUAL BENEFIT LIFE INSURANCE COMPANY ORGANIZATIONAL AGREEMENT AMONG THE SPECIALTY MANAGERS TRUST AND SPECIALTY ADVISORS CORP. AND THE MUTUAL BENEFIT LIFE INSURANCE COMPANY Agreement dated as of May 21, 1990, (the "Agreement"), by and among The Specialty Managers Trust ("Trust"), Variable Advisors Corp. ("Advisors Corp.") and The Mutual Benefit Life Insurance Company ("MBL"), on its own behalf and on behalf of Mutual Benefit Variable Contract Account - 11 ("Account"). WHEREAS, MBL is a mutual life insurance company incorporated under the laws of the State of New Jersey; and WHEREAS, the Account is registered as a unit investment trust under the Investment Company Act of 1940 ("1940 Act") and interests in the Policies, as hereinafter defined, are registered under the Securities Act of 1933 ("1933 Act"); and WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act, and shares of the portfolios of the Trust are registered under the 1933 Act, and the Trust will initially consist of seven separate series and is authorized to create additional series in the future; and WHEREAS, shares of the series of the Trust shown on Exhibit A ("Series") will be sold to the Account to fund benefits under variable annuity contracts (collectively "Policies") to be issued by MBL through the Account after the Trust's Registration Statement is declared effective by the Securities and Exchange Commission ("SEC"); and WHEREAS, Advisors Corp. will act as the Trust's Manager, pursuant to a Management Agreement, a copy of which is attached hereto as Exhibit B, entered into by Advisors Corp. and the Trust; and WHEREAS, Advisors Corp. is, and for the duration of this Agreement, will remain if required by applicable law, duly registered as an investment adviser under the Investment Advisers Act of 1940. 2 NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants hereinafter set forth, the parties hereby agree as follows: 1. Advisors Corp. and the Trust will take all such actions as are necessary to permit the sale, redemption and exchange of the shares of each Series of the Trust for the shares of any other Series of the Trust to the Account including, but not limited to, organization of the Trust, as a Massachusetts business Trust and registration of the Trust under the 1940 Act and registration of the shares of each Series under the 1933 Act. Advisors Corp. and the Trust shall amend the Registration Statement for the Trust from time to time as required in order to effect the continuous offering of shares of each Series of the Trust. The Trust's responsibility to make shares of the Series available to the Account shall be governed by the Settlement Agreement among the Trusts, the Account and Western Capital Financial Group. 2. Advisors Corp. will pay, on behalf of the Trust, all expenses of the Trust incurred on or prior to the commencement of operations of the Trust, including, but not limited to, legal fees, auditing fees, SEC registration fees, and organizational fees, that are determined to be "organization costs" of the Trust (the "Organizational Costs"). 3. Such Organizational Costs will be recovered by Advisors Corp. from the Trust over a period not more than five years. 4. The parties agrees that MBL shall not be required to invest any "seed money" in the Trust. 5. With respect to any of the Policies funded by the Account, MBL agrees that MBL will take all necessary steps to ensure that any contract described in its prospectus as an annuity and funded by the Account will qualify as an annuity under Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"). 6. MBL represents and warrants: (1) that it will take all necessary steps to ensure that the Policies will be registered under the 1933 Act during the term of this Agreement; (2) that the Policies will be issued in compliance with all applicable federal and state laws; (3) that it shall amend the Registration Statement respecting the Policies from time to time as required to effect the continuous offerings of the Policies; (4) that it is an insurance company duly organized and in 3 good standing under New Jersey law; (5) that it has established the Account as a duly organized, validly existing segregated asset account, established by resolutions of its Board of Directors; and (6) that the Account is, and will be during the term of this Agreement, a duly registered unit investment trust under the 1940 Act to serve as segregated investment account for the Policies. MBL will pay all expenses in connection with organizing the Account, developing the Policies and preparing and filing with the SEC a Registration Statement for the Policies, obtaining authorizations to offer the Polices in the various states and other initial expenses associated with the Policies. 7. MBL shall vote shares of each Series of the Trust held in the Account or a division thereof at regular and special meetings of the Trust in accordance with instructions timely received by MBL (or its designated agent) from owners of Policies funded by the Account or division thereof having a voting interest in the Series. MBL shall vote shares of a Series of the Trust held in a the Account or a division thereof that are attributable to the Policies as to which no timely instructions are received, as well as shares not attributable to the Policies and owned beneficially by MBL in the same proportion as the votes cast by owners of the Policies funded by that Variable Account or division thereof having a voting interest in the Series from whom instructions have been timely received. MBL shall vote shares of each Series of the Trust held in its general account, if any, in the same proportion as the votes cast with respect to shares of the Series held in all the Variable Accounts of MBL or divisions thereof, in the aggregate. In the event of a shareholder meeting, MBL agrees to provide the Trust and/or Advisors Corp. with a list of the names and addresses of owners of the Policies within five (5) days of receipt of a written request for such list. The party requesting such list shall bear the reasonable cost incurred by MBL in preparing and providing such list, which shall be paid upon delivery of the list. MBL further agrees to provide notice to the Trust and to Advisors Corp. if MBL or an affiliate has reason to know about a meeting of owners of the Policies or shareholders of the Trust. The trust agrees to bear all costs associates with the preparation of its proxy statement, and agrees to reimburse MBL for costs, if any, incurred by MBL in connection with the printing, mailing, and solicitation of the proxies and proxy statements. 4 8. Advisors Corp. and the Trust will use reasonable efforts to manage each Series of the Trust so that each such Series will qualify as a "Regulated Investment Company" under Subchapter M of the Code and will use reasonable efforts to maintain such qualification and will notify MBL immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to so qualify or might not so qualify in the future. MBL shall also notify the Trust and Advisors Corp. immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to qualify as a Regulated Investment Company or might not so qualify in the future, PROVIDED HOWEVER, that MBL's agreement to notify Advisors Corp. and the Trust with respect to any matter contained in this paragraph will in no way alleviate or relieve Advisors Corp.'s and the Trust's responsibility under this Section 8. 9. Advisors Corp. and the Trust will take all necessary steps to ensure that the Trust (and each Series thereof) will comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for variable annuity contracts and any prospective amendments or other modifications to Section 817 or regulations thereunder and will notify MBL immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to comply. MBL shall notify the Trust and Advisors Corp. immediately upon having a reasonable basis for believing that the Trust (or any Series thereof) has ceased to comply with the diversification provisions of Section 817(h) of the Code or the regulations issued thereunder and any prospective amendments or other modifications to Section 817 or regulations thereunder, PROVIDED HOWEVER, that MBL's agreement to notify Advisors Corp. and the Trust with respect to the above matter contained in this Section 9 will in no way alleviate or relieve Advisors Corp.'s and the Trust's responsibility under this Section 9. MBL shall promptly notify the Trust and Advisors Corp. of any pertinent changes, modifications to, or interpretations of Section 817(h) of the Code and the regulations issued thereunder and any successor thereto, or any prospective amendments or other modifications to Section 817 or regulations thereunder. 5 For purposes of monitoring whether the Trust and the Account are eligible for the start-up period during which the Account shall be considered to be adequately diversified under paragraph (c)(2)(i) of Tres. Reg. 1.817-5 (or any successor thereto), MBL shall monitor amounts allocated to the Account or (divisions thereof) ("Allocated Amounts") by owners of Policies funded by the Account (or divisions thereof) during the first year after any amount received under one of the Policies is first allocated to the Account (or division thereof) ("First Year") to ensure that no more than thirty (30) percent of the amount allocated to the Account (or division thereof), as of any date during such year, is attributable to premium an investment income that was received more than one year before such date (the percentage of such Allocated Amount being referred to hereafter as the "Old Money Percentage"). For this purpose, premium income and investment income shall be treated as received as provided in Tres. Reg. 1.817-5(T) (or any successor thereto) or other applicable law and determinations under this provision shall be made consistent with Tres. Reg. 1.817-5(c)(2) or any successor thereto. MBL will notify Advisors Corp. immediately in the event that the Old Money Percentage equals or exceeds twenty (20) percent as of any date during the First Year, determined as prescribed above; and in the event that the Old Money Percentage equals or exceeds thirty (30) percent during the First Year, shall notify Advisors Corp. and the Trust immediately and advise such parties that the Account shall no longer be considered adequately diversified during the First Year under paragraph (c)(2)(i) of Regulation 1.817-5. MBL agrees that Advisors Corp. and the Trust shall not be liable for failure to meet their responsibilities under this Section 9 during the First Year if MBL fails to comply with the monitoring and notice responsibilities specified in this Section 9. 10. The Trust and Advisors Corp. agree that separate accounts of MBL and of other insurance companies acceptable to the Trust and Advisors Corp. will have the right to purchase and sell shares of the Series of the Trust. 11. Advisors Corp. and the Trust will provide MBL and its auditors with any information it may reasonable request, and with access to such books and records that relate to the ordinary operating expenses of the Trust. 6 12. The Trust will not sell or permit the sale of shares of the Trust to separate accounts of life insurance companies that are not affiliates of MBL without first obtaining an appropriate exemptive order from the SEC, unless the rules under the 1940 Act are amended to permit "shared funding" without first obtaining individual exemptive relief. With respect to serving as the common investment vehicle for (1) both variable annuity contracts and variable life insurance policies, or (2) for variable life insurance policies of one insurer and variable life insurance policies and/or variable annuity contracts of another insurer, the parties agree to comply with any conditions imposed under any exemptive order issued by the Securities and Exchange Commission, or as specified in Rule 6e-2 or Rule 6e-3(T) under the 1940 Act or, if permanently adopted, Rule 6e-3, as amended, whichever is applicable. 13. Each party hereto shall cooperate with each other party and all appropriate governmental authorities having jurisdiction (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. MBL agrees that neither it nor any of its affiliates shall give any information or make any representations or statements on behalf of the Trust or concerning the Trust in connection with the offer or sale of the Policies other than the information or representations contained in the Registration statement for the Trust's shares, as such Registration Statement may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust or Advisors Corp., except with the written permission of the Trust or Advisors Corp. Advisors Corp. agrees that neither it nor any of its affiliates shall give any information or make any representations or statements on behalf of the Policies or concerning the Policies in connection with their offer or sale other than the information or representations contained in the Registration Statement for the Account, as such Registration Statement may be amended or supplemented from time to time, or in reports for the Polices or in sales literature or other promotional material approved by MBL or its affiliates, except with the written permission of MBL or its affiliates. 7 14. No later than 15 working days prior to filing with the SEC: (a) any post-effective amendment to the Trust's registration statement, (b) an application for exemption, (c) a request for a no-action letter, or, (d) any special request or amendment, ((a), (b), (c), and (d) collectively referred to as "Trust document(s)"), the Trust shall forward a draft of the Trust document, marked to show changes, to MBL for MBL's review. MBL shall complete its review and send comments to the Trust within 5 working days of receipt of such draft. Following receipt of such comments, the Trust shall promptly discuss the comments with MBL, and will promptly transmit to MBL a draft of any further changes to the Trust document via facsimile transmission, messenger or overnight express mail, prior to filing with the SEC. No later than 15 working days prior to filing with the SEC: (a) any post-effective amendment to the registration statement of the Account, (b) an application for exemption, (c) a request for a no-action letter, or (d) any special request or amendment ((a), (b), (c), and (d), collectively referred to as "MBL document(s)"), MBL shall forward a draft of the MBL document, marked to show changes, to the Trust for the Trust's review. The Trust shall complete its review and send comments to MBL within 5 working days of receipt of such draft. Following receipt of such comments, MBL shall promptly discuss the comments to the Trust a draft of any further changes to the MBL document via facsimile transmission, messenger, or overnight express mail, prior to the filing with the SEC. 15. (a) Subject to the limitations of subparagraphs (b)and (c) of this Section 17 of this Agreement, Advisors Corp. agrees to indemnify and hold harmless MBL and each of its directors, officers, and employees and each person, if any, who controls MBL within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Advisors Corp.) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are related to the operation of the Trust, and; (i) arise as a result of any failure by Advisors Corp. to provide the services and furnish the materials under the terms of this Agreement to which it is subject (including a failure to meet its responsibilities under Sections 8 8 and 9 of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by Advisors Corp. in this Agreement or arise out of or result from any other material breach of this Agreement by Advisors Corp. (b) Advisors Corp. shall not be liable under Section 15(a) of this Agreement with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties, or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to MBL or the Account, whichever is applicable. (c) Advisors Corp. shall not be liable under Section 15(a) of this Agreement with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Advisors Corp. in writing within a reasonable time after the summons or other first legal process giving the information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Advisors Corp. of any such claim shall not relieve Advisors Corp. from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of Section 15(a) of this Agreement. In case any action is brought against the Indemnified Parties, Advisors Corp. will be entitled to participate, at its own expense, in the defense thereof. Advisors Corp. also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party Advisors Corp.'s election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, Advisors Corp. shall not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Subject to the limitations of subparagraphs (e) and (f) of this Section 15 of this Agreement, the Trust agrees to indemnify and hold harmless MBL and each of its directors, officers, and employees and each person, if any, who controls MBL within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, 9 liabilities (including amounts paid in settlement with the written consent of the Trust) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are related to the operation of the Trust, and; (i) arise as a result of any failure of the Trust to provide the services and furnish the materials under the terms of this Agreement to which it is subject (including a failure to meet its responsibilities under Sections 8 and 9 of this Agreement); or (ii) arise out of or result from any material breach of any representation or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust. (e) The Trust shall not be liable under Section 15(d) of this Agreement with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties, or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to MBL or the Account, whichever is applicable. (f) The Trust shall not be liable under Section 15(d) of this Agreement with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving the information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of Section 15(d) of this Agreement. In case any action is brought against the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, Advisors Corp. shall not be liable to such party under this Agreement for any 10 legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 16. (a) Subject to the limitations of subsections (b) and (c) of this Section 16, MBL agrees to indemnify and hold harmless Advisors Corp. and the Trust and each of its trustees, directors, officers, and employees and each person, if any, who controls Advisors Corp. or the Trust within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of MBL) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are related to the operation of the Account or the Trust, and: (i) arise as a result of any failure of MBL or any of its affiliates to provide the services and furnish the materials under the terms of this Agreement (including a failure to meet its responsibilities under Sections 5 and 9 of this Agreement); or (ii) arise out of or result from any material breach by MBL or any of its affiliates of any representation or warranty made by MBL in this Agreement or arise out of or result from any other material breach of this Agreement by MBL or any of its affiliates. (b) MBL shall not be liable under Section 16 of this Agreement with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties, or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Advisors Corp. or the Trust, whichever is applicable. (c) MBL shall not be liable under Section 16 of this Agreement with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified MBL in writing within a reasonable time after the summons or other first legal process giving the information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify MBL of any such claim shall not relieve MBL or its affiliates from any liability which it may have to the 11 Indemnified Party against whom such action is brought otherwise than on account of Section 16. In case any action is brought against the Indemnified Parties, MBL will be entitled to participate, at its own expense, in the defense thereof. MBL also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, and, after notice to such party MBL's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, MBL shall not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 17. Each party to this Agreement agrees to promptly notify the other parties of the commencement of any litigation or proceedings against it or any of its officers, trustees, directors or employees in connection with this Agreement, the issuance or sale of the Policies, the operation of the Account, or the sale or acquisition of shares of the Trust. 18. This Agreement may be terminated without cause by any of the parties upon giving one hundred and twenty (120) days' written notice of the other parties, PROVIDED HOWEVER, that if any party fails to carry out its responsibilities enumerated under this Agreement in any material respect, the other parties shall have the right to terminate this Agreement within sixty days of notification to the party so failing to carry out its responsibilities, and further provided, in the event the Trust is made available to separate accounts of insurance companies other than MBL, that if a majority of the disinterested Trustees determine that an irreconcilable material conflict exists among the interests of contract owners and policyowners of segregated asset accounts or the interests of persons for which the Trustees are required to monitor under the conditions referred to in Section 12 of this Agreement, then any party shall have the right to terminate this Agreement immediately. Upon termination of this agreement, all authorizations, rights and obligations under this Agreement, except for the provisions contained in Sections 15 and 16 hereof, shall cease. This Agreement shall terminate upon the termination of the "Variable Life and Annuity Agreement" between MBL and the Golden Financial Group, Inc. ("GFG"), dated May 31, 1989, whereby GFG is to provide certain services to MBL with regard to the design, regulatory approval and administrations of the Policies. 12 This Agreement shall also terminate: (i) at the option of MBL upon the institution of formal proceedings against the Trust, Advisors Corp. or an affiliate by the NASD, the SEC, or any state securities or insurance department of any other regulatory body provided that MBL determines in good faith, in MBL's sole judgment, that such institution will have a material adverse impact on the Trust's, Advisors Corp.'s or the affiliate's ability to perform its obligations under this Agreement; or (ii) at the option of the Trust or Advisors Corp. upon the institution of formal proceedings against MBL brought by the NASD, the SEC, or any formal proceedings involving a material matter brought by any state securities or state insurance department or any other regulatory body regarding MBL provided that the Trust or Advisors Corp. determines in good faith, in its sole judgment, that such institution will have a material adverse impact on MBL's ability to perform its obligations under this Agreement; or (iii) at the option of either the Trust, Advisors Corp. or MBL, upon the filing of a voluntary or involuntary petition in bankruptcy, or any equivalent state court proceeding, concerning any party, or upon appointment of a receiver by a regulatory body having appropriate jurisdiction over any party, or upon the occurrence of any party's failing to meet the minimum net capital requirements, if any, applicable to it under appropriate insurance or securities laws; or (iv) at the option of the Trust, Advisors Corp., or MBL if the Management Agreement between the Trust and its Manager is terminated, or the Organizational Agreement among MBL, the Trust and the Trust's Manager terminates, or the Settlement Agreement among MBL, the Trust and Western Capital Financial Group terminates. 19. Unless earlier terminated pursuant to Section 18 hereof, this Agreement shall remain in effect for a one year period beginning on its date of execution and will continue thereafter in effect from year to year. Upon termination of this Agreement, all authorizations, 13 rights and obligations impose on the parties under this Agreement except for the indemnification provisions contained in Section 15 and 16 above shall cease. The parties further agree that in the event of a termination of this Agreement, each party shall cooperate with the other parties to ensure that existing policyowners will not suffer any adverse consequences resulting from such termination. 20. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 21. This Agreement shall be subject to the provisions of the 1933 Act, the Securities Exchange Act of 1934 and the 1940 Act and the rules, regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted an construed in accordance therewith. The term "affiliate" as used in this Agreement shall mean an "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. This Agreement may not be assigned by any party without the written consent of the other parties to this Agreement. 22. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 23. Any notice shall be sufficiently given when sent by registered or certified mail to the other parties at the address of such parties set forth below or at such other address as such party may from time to time specify in writing to the other parties: To: The Mutual Benefit Life Insurance Company 520 Broad Street Newark, New Jersey 07102-3184 Attn: Frank D. Casciano Vice President and Deputy General Counsel To: The Specialty Managers Trust 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 with a copy to Jeffrey S. Puretz Dechert Price & Rhoads 1500 K Street, N.W. Washington, D.C. 20005 14 To: Specialty Advisors Corp. 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 24. The rights remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state or federal laws. 25. A copy of the Trust's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Declaration of Trust has been executed on behalf of the Trust by certain Trustees in their capacity as Trustees of the Trust and not individually. The obligations of this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, Officer, employee or shareholder of the Trust individually. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. THE SPECIALTY MANAGERS TRUST By: /s/Charles F. Parisi --------------------- Charles F. Parisi President Attest: /s/Randolph J. Leavenworth ------------------------- Name: R.J. Leavenworth Title: Vice President SPECIALTY ADVISORS CORP. By: /s/Charles F. Parisi --------------------- Charles F. Parisi President Attest: /s/Randolph J. Leavenworth ------------------------- Name: R.J. Leavenworth Title: Vice President 15 THE MUTUAL BENEFIT LIFE INSURANCE COMPANY By: /s/Michael H. Berkowitz ------------------------ Michael H. Berkowitz Senior Vice President Attest: /s/Frank D. Casciano -------------------------- Frank D. Casciano Vice President and Deputy General Counsel THE MUTUAL BENEFIT LIFE INSURANCE COMPANY on behalf of the Account By: /s/Michael H. Berkowitz ------------------------ Michael H. Berkowitz Senior Vice President Attest: /s/Frank D. Casciano -------------------------- Frank D. Casciano Vice President and Deputy General Counsel 16 EXHIBIT A TO ORGANIZATIONAL AGREEMENT AMONG THE SPECIALTY MANAGERS TRUST and VARIABLE ADVISORS CORP. and THE MUTUAL BENEFIT LIFE INSURANCE COMPANY Multiple Allocation Series Fully Managed Series Limited Maturity Bond Series Natural Resources Series Real Estate Series All-Growth Series Liquid Asset Series EX-99.H2D 18 ASSIGNMENT AGREEMENT FOR ORGANIZATIONAL AGREEMENT Exhibit (h)(2)(d) ASSIGNMENT AGREEMENT FOR ORGANIZATIONAL AGREEMENT (for the mutual benefit life insurance company) ASSIGNMENT AGREEMENT FOR ORGANIZATIONAL AGREEMENT AGREEMENT, made this 20th day of March, 1991, by and among Specialty Advisors Corp. ("SAC") (formerly Variable Advisors Corp.), a California corporation; Directed Services, Inc. ("DSI"), a New York corporation; The Mutual Benefit Life Insurance Company ("MBL"), a mutual life insurance company incorporated under the laws of the State of New Jersey, on its own behalf and on behalf of Mutual Benefit Variable Contract Account-11; and The Specialty Managers Trust, a Massachusetts business trust ("Trust"). WHEREAS, the Trust is registered with the Securities and Exchange Commission as an open-end management investment company under the Investment Company Act of 1940, as amended ("Act"), and the Trust issues shares in several different classes, each of which is known as a "Series"; and WHEREAS, the Trust, SAC and MBL entered into an Organizational Agreement dated May 21, 1990 ("Organizational Agreement"); and WHEREAS, SAC has served as Manager to the Trust pursuant to a Management Agreement between the Trust and SAC dated November 1, 1988; and WHEREAS, the Trust and SAC have terminated the Management Agreement with SAC, effective at the close of business on March 20, 1991; and WHEREAS, commencing March 21, 1991, DSI has agreed to serve as Manager to the Trust pursuant to a new Management Agreement between the Trust and DSI dated March 20, 1991; and WHEREAS, SAC, MBL and the Trust desire to assign SAC's interest in the Organizational Agreement to DSI, and DSI desires to be the assignee of SAC's interest. NOW, THEREFORE, it is agreed as follows: 1. ASSIGNMENT. Effective as of March 21, 1991, SAC hereby assigns to DSI all of its interest in the Organizational Agreement. 2. PERFORMANCE OF DUTIES. DSI hereby assumes and agrees to perform all of SAC's duties and obligations under the Organizational Agreement and be subject to all of the terms and conditions of said Agreement as if they applied to SAC. DSI shall not be responsible for any claim or demand arising under the Organizational Agreement from services rendered prior to the effective date of this Assignment Agreement unless otherwise agreed by DSI, and SAC shall not be responsible for any claim or demand arising under the Organizational Agreement from services rendered after the effective date of this Assignment Agreement unless otherwise agreed by SAC. -2- 3. REPRESENTATION OF DSI. DSI represents and warrants that it is registered as an investment adviser under the Investment Advisers Act of 1940 and will remain registered as long as required by applicable law. 4. CONSENT. The Trust and MBL hereby consent to this assignment by SAC of its rights under the Organizational Agreement to DSI and the assumption by DSI of SAC's interest in such Agreement and the duties and obligations thereunder, and agree, subject to the terms and conditions of said Agreement, to look to DSI for the performance of the duties and obligations formerly owed by SAC under said Agreement. -3- IN WITNESS WHEREOF, the parties hereto have cause this Assignment Agreement to be executed by their duly authorized officers hereunto duly attested as of the date and year written above. SPECIALTY ADVISORS CORP. _______________________ By: _______________________________ Attest _______________________ _______________________________ Title Title DIRECTED SERVICES, INC. _______________________ By: _______________________________ Attest _______________________ _______________________________ Title Title -4- THE MUTUAL BENEFIT LIFE INSURANCE COMPANY /s/Jeffery S. Puretz By: /s/Frank D. Casciano - -------------------------- -------------------------- Attest Ass't Secretary Vice President and Deputy General Counsel - -------------------------- -------------------------- Title Title THE SPECIALTY MANAGERS TRUST /s/Jeffery S. Puretz By: /s/F. H. Davidson - -------------------------- -------------------------- Attest Outside Counsel Vice President - -------------------------- -------------------------- Title Title -5- EX-99.H2F 19 ADDENDUM TO ORGANZATIONAL AGREEMENT EXHIBIT (h)(2)(f) ADDENDUM TO ORGANIZATION AGREEMENT ADDENDUM TO ORGANZATIONAL AGREEMENT The Organizational Agreement, made the 28th day of December, 1988 among The GCG Trust (the "Trust"), Directed Services, Inc. ("DSI"), and Golden American Life Insurance Company ("Golden American") (the "Organizational Agreement"), as amended by the Assignment Agreement to the Organizational Agreement dated March 20, 1991, and Addenda to the Organizational Agreement dated October 1, 1993, and November 7, 1993 is hereby amended by the addition of the provisions set forth in this Addendum to the Organizational Agreement, which is dated as of the 29th day of September, 1995. WITNESSETH: WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, or limitations; WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; WHEREAS, the Trust has established a new series designated as the Strategic Equity Series; and WHEREAS, the Trust and Golden American desire that the Strategic Equity Series be sold to the separate accounts of Golden American to fund benefits under variable life insurance policies and variable annuity contracts issued by Golden American. NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Addendum, it is agreed between the parties hereto as follows: 1. The Strategic Equity Series, together with all other Series listed on Exhibit B to the Organizational Agreement, shall be series under the Organizational Agreement. 2. Exhibit B to the Organizational Agreement shall be replaced with a new Exhibit B, a copy of which is attached hereto. IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed as of the date indicated above. THE GCG TRUST /s/Graydon W. Wilcox By: /s/Mary Bea Wilkinson - -------------------------- -------------------------- Attest Asst. Treasurer Treasurer - -------------------------- -------------------------- Title Title DIRECTED SERVICES, INC. /s/Graydon W. Wilcox By: /s/David L. Jacobson - -------------------------- -------------------------- Attest Director-Mutual Fund Acctng Senior Vice President - -------------------------- -------------------------- Title Title GOLDEN AMERICAN LIFE INSURANCE COMPANY /s/Graydon W. Wilcox By: /s/Todd A. McGrath - -------------------------- -------------------------- Attest Director-Mutual Fund Acctng Vice President - -------------------------- -------------------------- Title Title - 2 - EXHIBIT B TO ORGANIZATIONAL AGREEMENT AMONG THE GCG TRUST and DIRECTED SERVICES, INC. and GOLDEN AMERICAN LIFE INSURANCE COMPANY Multiple Allocation Series Fully Managed Series Limited Maturity Bond Series Natural Resources Series Real Estate Series All-Growth Series Liquid Asset Series Capital Appreciation Series The Fund For Life Emerging Markets Series Rising Dividends Series Market Manager Series Value Equity Series Strategic Equity Series EX-99.H3A 20 GOLDEN AMERICAN SETTLEMENT AGREEMENT EXHIBIT (h)(3)(A) SETTLEMENT AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP AND GOLDEN AMERICAN LIFE INSURANCE COMPANY This Agreement is dated as of December 28, 1988, by and between Western Capital Specialty Managers Trust, a Massachusetts business trust (the "Trust"), Western Capital Financial Group ("Western Capital"), a California corporation, and Golden American Life Insurance Company ("Golden American") on its own behalf and on behalf of any separate accounts of Golden American shown on Exhibit A (the "Variable Accounts"). WHEREAS, the Variable Accounts are segregated asset accounts established by resolution of the Board of Directors of Golden American pursuant to the laws of the State of Minnesota to set aside and invest assets attributable to variable life insurance policies and variable annuity contracts ("Policies") to be issued by Golden American; and WHEREAS, the Variable Accounts are registered as unit investment trusts under the Investment Company Act of 1940 ("Investment Company Act"), as amended; and WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act and its shares will be registered under the Securities Act of 1933 ("Securities Act"), as amended, and will initially consist of seven portfolios; and WHEREAS, Western Capital, pursuant to a written agreement, is the distributor for shares of the portfolios of the Trust and is registered as a broker-dealer with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934 ("Exchange Act"), as amended, and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, Golden American intends to purchase shares in the portfolios of the Trust shown on Exhibit B (hereinafter "Series") on behalf of the Variable Accounts to serve as an investment medium for the Policies, 2 and Western Capital is authorized to sell such shares and agrees to make shares of the Series available to the Variable Accounts. NOW, THEREFORE, Western Capital, Golden American and the Trust, in consideration of the premises and the mutual covenants and promises hereinafter set forth, hereby agree as follows: 1. Subject to paragraph 3, Western Capital will sell shares of the Series to the Variable Accounts and will execute such orders on days that the Trust values its shares as described in its prospectus in such amounts as shall be requested. Such sales will be made at the "net asset value" next computed after an order to purchase shares is received by the Trust, its transfer agent or its designee, and no commission on such sales shall be due or payable to Western Capital. The Variable Accounts shall not be under any obligation to purchase shares of the Series at any time or in any amount other than for which its has a bona fide order. 2. Solely for the purposes of paragraph 1, the Trust agrees that Golden American shall be the designee of the Trust's transfer agent for receipt of such orders from the Variable Accounts (but not the General Account of Golden American), and receipt by such agent shall constitute receipt by the Trust, provided that the Trust receives notice of such order by 12:00 noon on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading or any day on which the Trust is required to calculate its net asset value pursuant to the rules promulgated by the Commission. The provisions of this paragraph 2 shall apply solely to orders based upon purchases of interests under the Policies, and shall not apply to any other orders, including those orders based upon investment by Golden American for its own account. 3. Western Capital and the Trust agree to make shares of each Series available for purchase by Golden American on behalf of the Variable Accounts at the applicable net asset value per share on those days on which the Trust calculates such net asset value per share, pursuant to the rules promulgated by the Commission, and the Trust shall use its reasonable efforts to calculate such net asset value on each day the New York Stock Exchange is open for trading or any day on which the Trust is required to calculate its net asset value pursuant to the rules promulgated by the Commission; provided, however, that the Board of Trustees of the Trust may refuse to sell shares of the Series of the Trust to any person or suspend or terminate the offering of shares of any Series if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of such Trustees acting in good faith and in 3 light of their fiduciary duties under applicable law, necessary in the best interests of the shareholders of the Trust. The Trust shall take such steps as may be necessary to provide a sufficient number of shares to meet the orders of the Variable Account. 4. The parties agree that no shares of the Series will be sold directly to the general public. Shares of the Trust will be available only to general and separate accounts of life insurance companies issuing variable life insurance policies and variable annuity contracts for which the Trust serves as an investment vehicle. It is further agreed among the parties that the Policies will be distributed to the public only by broker-dealers that are registered under the Exchange Act as broker- dealers and are members of the NASD ("retail broker- dealers") and that enter into a written agreement ("Sales Agreement") with Golden American or an affiliate of Golden American and that any such Sales Agreement shall provide, that as partial consideration for the right to offer to sell the Policies for which the Trust serves as an investment vehicle, and as a condition precedent to the effectiveness of the Sales Agreement, the retail broker- dealer shall enter into an agreement with Western Capital in the form of the Participation Rights Agreement provided in Schedule A or shall enter into an agreement that contains all of the provisions contained in the agreement in Schedule A. 5. The Trust will redeem, at Golden American's request, any full or fractional shares tendered for redemption by the Variable Account at the net asset value next computed after such request is received in good order by the Trust, its transfer agent or its designee. No Series shall change the terms and conditions for the redemption of its shares as set forth in the most recent effective Registration Statement for the Trust without the prior approval of the parties hereto. 6. For purposes of paragraph 5, and solely for transactions caused by redemptions of Policies underlying the Trust, the Trust agrees that Golden American shall be the designee of the Trust's transfer agent for receipt of such orders from the Variable Accounts and receipt by such agent shall constitute receipt by the Trust, provided that the Trust receives notice of such order by 12:00 noon New York time on the next following Business Day. The provisions of this paragraph 6 shall apply solely to tenders for redemptions based upon redemptions of interests under the Policies, and shall not apply to any other tenders or requests for redemptions, including those based upon investment by Golden American for its own account. 4 7. All transactions involving the purchase of shares of the Series shall be settled the same day the Trust executes an order for the purchase of shares of the Series, as provided in Paragraph 1 of this Agreement. Transactions involving the redemption of shares of the Series shall ordinarily be settled the same day that the Trust effects the redemption as provided in Paragraph 5 of this Agreement, except that the Trust reserves the right to delay settlement upon redemption, but in not event may such settlement be delayed longer than the period as permitted under Section 22(e) of the Investment Company Act. All funds used for purchase of redemption transactions shall be in Federal Funds transmitted by wire transfer. Issuance and transfer of shares of the Series will be by book entry only, unless otherwise agreed by all parties. Stock certificates will not be issued to Golden American or the Variable Accounts. Shares of the Series ordered from the Trust will be recorded in appropriate ledgers for the Variable Accounts. 8. The Trust shall instruct its recordkeeping agent that on each day the net asset value of the shares of any Series is required to be calculated pursuant to the requirements of the Investment Company Act, the Trust shall provide The Golden Financial Group, Inc. (a New York corporation acting on behalf of Golden American pursuant to an Administrative Services Agreement) with the net asset value of such shares of the Series by 5:30 p.m. New York time, or as soon thereafter as practicable. The Trust shall also provide Directed Services, Inc., a subsidiary of The Golden Financial Group, Inc. that is also distributor for the Policies, daily with any and all financial information that is deemed reasonably necessary for Directed Services to comply with its responsibilities as distributor for the Policies. This financial information shall also be provided to Golden American or its designated agent, The Golden Financial Group, Inc. by 5:30 p.m. New York time or as soon thereafter as practicable on each day on which such net asset value is calculated, unless circumstances make compliance with such schedule impracticable, in which event the Trust or its agent will provide the information as soon as reasonably practicable. 9. It is understood by the parties that this Agreement shall apply to additional series created for the Trust unless a party to this Agreement notifies the other parties of its obligation in accordance with the notification provisions contained in paragraph 15. 10. (a) Golden American agrees to indemnify and hold harmless Western Capital and the Trust and each of their Trustees, officers, employees, and each person, if any, who controls Western Capital or the Trust within the meaning of Section 15 of the Securities Act and each person who is an affiliated person of Western Capital or the Trust within the 5 meaning of Section 2(a)(3) of the Investment Company Act of 1940 (collectively, the "Indemnified Parties" for purposes of this paragraph 10) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Golden American), or litigation expenses (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof), or settlements are related to the sale or acquisition of the Policies or the Trusts' shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus for the Policies or contained in the Policies or sales literature for the Policies (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Golden American or its affiliates by or on behalf of Western Capital, the Trust or an affiliate of either, for use in the registration statement or prospectus for the Policies or in the Policies or sales literature (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the Policies or the Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, or sales literature of the Trust not supplied by Golden American or persons under its control) or wrongful conduct of Golden American, its officers, directors, employees or persons under its control, with respect to the sale or distribution of the Policies or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or 6 sales literature for the Trust or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Trust by or on behalf of Golden American, its officers, directors, employees, or affiliated persons thereof; or (iv) arise as a result of any failure by Golden American to provide the services and to furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by Golden American in this Agreement or arise out of or result from any other material breach of this Agreement by Golden American, as limited by and in accordance with the provisions of subparagraphs (b) and (c) of this paragraph 10. (b) Golden American shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Trust, whichever is applicable. (c) Golden American shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Golden American of any such claim shall not relieve Golden American from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, Golden American shall be entitled to participate, at its own expense, in the defense of such action. Golden American also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the Action. 7 After notice from Golden American to such party of Golden American's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Golden American will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Indemnified Parties will promptly notify Golden American of the commencement of any litigation or proceedings against them in connection with the issuance or sale of Trust shares or the Policies or the operation of the Trust. 11. (a) The Trust, and Western Capital, or both of them, as appropriate, agree to indemnify and hold harmless Golden American and each of its directors, officers, employees, and each person, if any, who controls Golden American within the meaning of Section 15 of the Securities Act and each person who is an affiliated person of Golden American within the meaning of Section 2(a)(3) of the Investment Company Act of 1940 (collectively, the "Indemnified Parties" for purposes of this Paragraph 11) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares and: (i) arise out of or are based upon an untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus for the Trust or sales literature for the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Western Capital or the Trust by or on behalf of Golden American or an affiliate thereof for use in the registration statement or prospectus for the Trust or in sales 8 literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or the Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, or sales literature for the Policies not supplied by the Trust, Western Capital or persons under their control) or wrongful conduct of the Trust or Western Capital, their officers, directors, employees or persons under their control, with respect to the sale of the Policies or Trust shares: or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature for the Policies, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Golden American by or on behalf of the Trust or Western Capital; or (iv) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Trust or Western Capital in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust or Western Capital, as limited by and in accordance with the provisions of subparagraphs (b) and (c) of this Paragraph 11. (b) Neither the Trust nor Western Capital shall be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless 9 disregard of obligations and duties under this Agreement or to Golden American or the Variable Accounts, whichever is applicable. (c) Neither the Trust nor Western Capital shall be liable under this indemnification provision with respect to any claim made against any Indemnified Party unless such Indemnified Party shall have notified Western Capital and/or the Trust, as appropriate, in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust or Western Capital of any such claim shall not relieve the Trust or Western Capital from any liability which either of them may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Trust and Western Capital will be entitled to participate, at their expense, in the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Trust and/or Western Capital to such party of the Trust's and/or Western Capital's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Trust and Western Capital will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) Golden American agrees to promptly notify the Trust and Western Capital of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Policies or the operation of the Variable Accounts. 12. Golden American shall provide the Trust and Western Capital with copies of all written complaints received and responses thereto sent by Golden American or its affiliates or agents that pertain to the purchase or sale of the Policies or to the operation of the Trust. Such copies shall be sent to the Trust and Western Capital concurrently with the mailing of the response to any such complaint. 10 The Trust and Western Capital shall provide Golden American with copies of all written complaints received by either of them that pertain to the purchase or sale of the Policies or to the operation of the Variable Accounts. 13. This Agreement may be terminated by any of the parties upon giving one hundred twenty (120) days written notice to the other parties provided, however, that if any party fails to carry out its responsibilities enumerated under this Agreement in any material respect, the other parties shall have the right to terminate this Agreement immediately and if for any reason shares of the Series are not available Golden American shall have the right to terminate this Agreement immediately. 14. Unless earlier terminated pursuant to Paragraph 13 hereof, this Agreement shall remain in effect for a one year period beginning on the effective date of this Agreement and will continue thereafter in effect from year to year. Upon termination of this Agreement, all authorizations, rights and obligations imposed on the parties under this Agreement except for the indemnification provisions contained in Paragraphs 10 and 11 above shall cease. Notwithstanding the foregoing, in the event of termination and unless otherwise agreed to by the parties, transactions for existing policyowners will continue to be executed under the terms of this Agreement. 15. Any notice shall be sufficiently given when sent by registered or certified mail to the other parties at the address of such parties as set forth below or at such other address as such party may from time to time specify in writing to the other parties: To: Western Capital Specialty Managers Trust 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 with a copy to: Jeffrey S. Puretz, Dechert Price & Rhoads 1500 K Street, Washington, D.C. 20005 To: Western Capital Financial Group 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 To: Golden American Life Insurance Company 909 Third Avenue, 19th Floor New York, NY 10022 11 16. This Agreement shall be construed with and the provisions hereof interpreted under an in accordance with the laws of the State of New York. 17. This Agreement shall be subject to the provisions of the Investment Company Act, the Securities Act and the Exchange Act and the rules, regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant and the terms hereof shall be interpreted and construed in accordance therewith. 18. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 19. A copy of the Trust's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Declaration of Trust has been executed on behalf of the Trust by the Trustees in their capacity as Trustees of the Trust and not individually. The obligations upon the Trust under this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, employee or shareholder of the Trust individually. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. WESTERN CAPITAL SPECIALTY MANAGERS TRUST BY: /s/ Charles F. Parisi ------------------------ Charles F. Parisi President ATTEST: /s/ William C. Richardson ------------------------ NAME: William C. Richardson TITLE: President WESTERN CAPITAL FINANCIAL GROUP BY: /s/ William C. Richardson ------------------------ William C. Richardson President ATTEST: /s/ Charles F. Parisi ------------------------ NAME: Charles F. Parisi TITLE: President, "Trust" GOLDEN AMERICAN LIFE INSURANCE COMPANY BY: /s/ Fred H. Davidson ------------------------ Fred H. Davidson President ATTEST: /s/ Bernard R. Beckenlegge ---------------------------- NAME: Bernard R. Beckenlegge TITLE: Secretary EXHIBIT A TO SETTLEMENT AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP, AND GOLDEN AMERICAN LIFE INSURANCE COMPANY THE WESTERN CAPITAL SPECIALTY MANAGERS SEPARATE ACCOUNT A THE WESTERN CAPITAL SPECIALTY MANAGERS SEPARATE ACCOUNT B EXHIBIT B TO SETTLEMENT AGREEMENT AMONG SETTLEMENT AGREEMENT AMONG WESTERN CAPITAL SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP, AND GOLDEN AMERICAN LIFE INSURANCE COMPANY MULTIPLE ALLOCATION SERIES FULLY MANAGER SERIES LIMITED MATURITY BOND SERIES NATURAL RESOURCES SERIES REAL ESTATE SERIES ALL-GROWTH SERIES LIQUID ASSET SERIES SCHEDULE A PARTICIPATION RIGHTS AGREEMENT This Agreement, dated as of __________, 1988, by and between Western Capital Financial Group ("Western Capital"), a California corporation registered as a broker-dealer under the Securities Exchange Act of 1934 and registered as a broker- dealer with the National Association of Securities Dealers, Inc. ("NASD"), and _________ ("General Agent"), also a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the NASD. WHEREAS, Western Capital is the distributor for the Western Capital Specialty Managers Trust (the "Trust"), and WHEREAS, the Trust as the investment vehicle for variable life insurance policies and variable annuity contracts ("Policies") to be issued by Golden American Life Insurance Company ("Golden American") through segregated asset accounts of Golden American identified on Schedule A ("Variable Accounts"); and WHEREAS, General Agent has entered or intends to enter into a Sales Agreement with Directed Services, Inc. ("DSI"), an affiliate of Golden American, under which General Agent will solicit applications for the sale of the Policies, and WHEREAS, a condition precedent to the effectiveness of the Sales Agreement with DSI is that General Agent enter into this agreement with Western Capital. NOW THEREFORE, Western Capital and General Agent, in consideration of these premises and of the mutual covenants and promises hereinafter set forth, and in partial consideration for the right of General Agent to solicit applications for sale of the Policies under the Sales Agreement between DSI and General Agent, the parties agree as follows: 1. Trust Prospectus. General Agent is authorized for the term of this Agreement to distribute the prospectus and, upon request from an investor, the statement of additional information for the Trust in connection with the solicitation of applications for sales of the Policies. 2. Unauthorized Representations. General Agent agrees that neither it nor any of its directors, partners, officers, employees, registered representatives, agents, or affiliated person will give any information or make any representations or statements, whether written or oral, on behalf of the Trust or concerning the Trust or Trust shares in connection with the offer or sale of the Policies other than information or representations contained in the prospectus, statement of additional information, or registration statement for the Trust shares, as they may be supplemented or amended from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material or information supplied or approved by (1) DSI and (2) the Trust, Western Capital or an affiliate of Western Capital. 3. Sales Literature. General Agent agrees that neither it nor any of its directors, partners, officers, employees, registered representatives, agents, or affiliated persons shall use any sales literature or other promotional material respecting the Policies or the Trust unless such material has been approved in advance by (1) DSI and (2) the Trust, Western Capital or an affiliate of Western Capital. 4. Policy Owner Names. General Agent acknowledges that Section 9 of the Organizational Agreement among Golden American, the Variable Accounts, the Trust and Western Capital Variable Advisors Corp. ("Western Advisory") provides, in pertinent part: "In the event of a shareholder meeting, Golden American agrees to provide the Trust and/or Western advisors with a list of the names and addresses of owners of the Policies within five (5) days of receipt of a written request for such list." General Agent agrees that DSI or Golden American may release the names and addresses of owners of the Policies under the terms of the Organizational Agreement and agrees that Western Capital may receive such information. Western Capital agrees to use such information only for purposes relating to meetings of shareholders including sending to the owners of the Policies notices of shareholder meetings and soliciting proxies from Policy owners in connection with shareholder meetings. General Agent agrees that, notwithstanding any provision in its Sales Agreement with DSI respecting the confidentiality of such information, it will hold harmless Golden American, DSI, Western Capital and the Trust for the release by Golden American of such information for such purposes. 5. Standard of Care. Western Capital and General Agent agree that each party shall be held to a standard of reasonable care in fulfilling its responsibilities under this Agreement. 6. Indemnification. General Agent agrees to indemnify and hold harmless the Trust, Western Capital, and each of their directors, Trustees, officers, employees, and affiliates, and each person, if any, who controls Western Capital, Western Advisors or the Trust within the meaning of Section 15 of the Securities Act of 1933 (collectively, the "Western Capital Indemnified Parties") against any and all losses, claims, damages, liabilities, or expenses (including legal and other expenses, litigation expenses, and amounts paid in settlement) that arise out of or as a result of any unauthorized use of the prospectus or statement of additional information for the Trust or any sales literature or other promotional material respecting the Trust or the Policies, or any verbal or written misrepresentations, or any unlawful sales practices concerning the Policies or the Trust shares by General Agent or any of its directors, partners, officers, employees, registered representatives, agents, or affiliated persons, provided, however, that General Agent shall not be liable in any such case to the extent that such loss, claim, damage, liability, or expense arises out of or is based upon (1) an untrue statement or representation contained in the registration statement, prospectus, or statement of additional information of the Trust, as amended or supplemented from time to time, in a proxy statement or periodic report of the Trust, or in sales literature or other promotional material approved in advance by the Trust, Western Capital, or an affiliate of Western Capital, (ii) an omission or alleged omission in the registration statement, prospectus, or statement of additional information of the Trust, as amended or supplemented from time to time, in a proxy statement or period report of the Trust, or in sales literature or other promotional material approved in advance by the Trust, Western Capital, or an affiliate of Western Capital, which was necessary, in the context of all information contained in such document, to make statements therein not misleading. This indemnity agreement will be in addition to any liability which General Agent may otherwise have. 7. Agent's Report. For each application for a Policy solicited by General Agent, General Agent agrees to complete an agent's report addressing the suitability of the Policy for the applicant. General Agent shall retain a copy of each such report, and shall provide Western Capital with a copy of any such report upon reasonable request from Western Capital. 8. Termination. This Agreement may be terminated at any time by either party upon a material breach of any provision of this Agreement by the other party. This Agreement may be terminated by either party upon 60 days written notice to the other, but not before the termination of the Sales Agreement between General Agent and DSI. Upon termination of this Agreement, all authorization, rights and obligations hereunder shall cease except (1) the indemnification provisions set forth in paragraph 6; and (2) the confidentiality provisions set forth in paragraph 4. 9. Miscellaneous. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of California. The work "affiliate" shall mean an affiliated person as defined in Section 2(a)(3) of the Investment Company Act of 1940. This Agreement is assignable by either party only upon the prior written consent of the other. Western Capital and General Agent agree that Golden American and DSI shall be third party beneficiaries under this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Western Capital Financial Group By: /s/ William C. Richardson ---------------------------- William C. Richardson Title: President Attest: /s/ Charles F. Parisi ---------------------- Charles F. Parisi General Agent By: ---------------------------- Title: Attest: --------------------- ACKNOWLEDGED: GOLDEN AMERICAN LIFE INSURANCE COMPANY /s/ Fred Davidson --------------------- Fred Davidson President Attest: /s/ Bernard R. Beckerlegge --------------------------- Bernard R. Beckerlegge Secretary EX-99.H3C 21 GOLDEN AMERICAN SETTLEMENT AGREEMENT Exhibit (h)(3)(C) 1 SETTLEMENT AGREEMENT AMONG THE SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP AND THE MUTUAL BENEFIT LIFE INSURANCE COMPANY This Agreement is dated as of May 21, 1990, by and between The Specialty Managers Trust, a Massachusetts business trust (the "Trust"), Western Capital Financial Group ("Western Capital"), a California corporation, and The Mutual Benefit Life Insurance Company ("MBL") on its own behalf and on behalf of Mutual Benefit Contract Account - 11 (the "Account"). WHEREAS, MBL is a mutual life insurance company incorporated under the laws of the State of New Jersey; and WHEREAS, the Account is a segregated asset account established by resolution of the Board of Directors of MBL to set aside and invest assets attributable to annuity contracts ("Policies") to be issued by MBL; and WHEREAS, the Account is registered as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"), as amended and interests in the Policies, as hereinafter defined, are registered under the Securities Act of 1933 ("1933 Act"), as amended; and WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act and its shares will be registered under the 1933 Act; and WHEREAS, Western Capital, pursuant to a written agreement, is the distributor for shares of the portfolios of the Trust and is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("1934 Act"), as amended, and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, MBL intends to purchase shares in the portfolios of the Trust shown on Exhibit A (hereinafter "Series") on behalf of the Account to serve as an investment medium for the Policies, and Western Capital is authorized to sell such shares and agrees to make shares of the Series available to the Account. 2 NOW, THEREFORE, Western Capital, MBL and the Trust, in consideration of the premises and the mutual covenants and promises hereinafter set forth, hereby agree as follows: 1. Subject to paragraph 3, Western Capital will sell shares of the Series to the Accounts and will execute such orders on days that the Trust values its shares as described in its prospectus in such amounts as shall be requested. Such sales will be made at the "net asset value" next computed after an order to purchase shares is received by the Trust, its transfer agent or its designee, and no commission on such sales shall be due or payable to Western Capital. The Accounts shall not be under any obligation to purchase shares of the Series at any time or in any amount other than for which its has a bona fide order. 2. Solely for the purposes of paragraph 1, the Trust agrees that MBL shall be the designee of the Trust's transfer agent for receipt of such orders from the Accounts (but not the General Account of MBL), and receipt by such agent shall constitute receipt by the Trust, provided that the Trust receives notice of such order by 12:00 noon on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading or any day on which the Trust is required to calculate its net asset value pursuant to the rules promulgated by the Commission. The provisions of this paragraph 2 shall apply solely to orders based upon purchases of interests under the Policies, and shall not apply to any other orders, including those orders based upon investment by MBL for its own account. 3. Western Capital and the Trust agree to make shares of each Series available for purchase by MBL on behalf of the Accounts at the applicable net asset value per share on those days on which the Trust calculates such net asset value per share, pursuant to the rules promulgated by the Commission, and the Trust shall use its reasonable efforts to calculate such net asset value on each day the New York Stock Exchange is open for trading or any day on which the Trust is required to calculate its net asset value pursuant to the rules promulgated by the Commission; provided, however, that the Board of Trustees of the Trust may refuse to sell shares of the Series of the Trust to any person or suspend or terminate the offering of shares of any Series if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of such Trustees acting in good faith and in light of their fiduciary duties under applicable law, necessary in the best interests of the shareholders of the Trust. The Trust shall take such steps as may be necessary to provide a sufficient number of shares to meet the orders of the Account. 3 4. The parties agree that no shares of the Series will be sold directly to the general public. Shares of the Trust Series will be available only to general and separate accounts of life insurance companies issuing variable life insurance policies and variable annuity contracts for which the Trust serves as an investment vehicle. It is further agreed among the parties that the Policies will be distributed to the public only by broker-dealers that are registered under the 1934 Act as broker-dealers and are members of the NASD ("retail broker-dealers") and that enter into a written agreement ("Sales Agreement") with Directed Services, Inc., two forms of which are attached hereto as Exhibits B & C. The parties further agree that all Sales Agreements will be in one of these two such forms. 5. The Trust will, at MBL's request, (a) redeem any full or fractional shares tendered for redemption by the Account, or (b) exchange shares of one Series for shares of another Series, at the net asset value next computed after such request is received in good order by the Trust, its transfer agent or its designee. No Series shall change the terms and conditions for the redemption of its shares as set forth in the most recent effective Registration Statement for the Trust without the prior approval of the parties hereto. 6. For purposes of paragraph 5, and solely for transactions caused by redemptions of Policies underlying the Trust, the Trust agrees that MBL shall be the designee of the Trust's transfer agent for receipt of such orders from the Accounts and receipt by such agent shall constitute receipt by the Trust, provided that the Trust receives notice of such order by 12:00 noon New York time on the next following Business Day. The provisions of this paragraph 6 shall apply solely to tenders for redemptions based upon redemptions of interests under the Policies, and shall not apply to any other tenders or requests for redemptions, including those based upon investment by MBL for its own account. 7. All transactions involving the purchase of shares of the Series shall be settled the same day the Trust executes an order for the purchase of shares of the Series, as provided in Paragraph 1 of this Agreement. Transactions involving the redemption of shares of the Series shall ordinarily be settled the same day that the Trust effects the redemption as provided in Paragraph 5 of this Agreement, except that the Trust reserves the right to delay settlement upon redemption, but in not event may such settlement be delayed longer than the period as permitted under Section 22(e) of the 1940 Act. All funds used for purchase of redemption transactions shall be in Federal Funds 4 transmitted by wire transfer. Issuance and transfer of shares of the Series will be by book entry only, unless otherwise agreed by all parties. Stock certificates will not be issued to MBL or the Accounts. Shares of the Series ordered from the Trust will be recorded in appropriate ledgers for the Account. 8. The Trust shall instruct its recordkeeping agent that on each day the net asset value of the shares of any Series is required to be calculated pursuant to the requirements of the Investment Company Act, the Trust shall provide The Golden Financial Group, Inc. (a New York corporation acting on behalf of MBL pursuant to an Administrative Services Agreement) with the net asset value of such shares of the Series by 5:30 p.m. New York time, or as soon thereafter as practicable. The Trust shall also provide Directed Services, Inc., a subsidiary of The Golden Financial Group, Inc. that is also distributor for the Policies, daily with any and all financial information that is deemed reasonably necessary for Directed Services to comply with its responsibilities as distributor for the Policies. This financial information shall also be provided to MBL or its designated agent, The Golden Financial Group, Inc. by 5:30 p.m. New York time or as soon thereafter as practicable on each day on which such net asset value is calculated, unless circumstances make compliance with such schedule impracticable, in which event the Trust or its agent will provide the information as soon as reasonably practicable. 9. It is understood by the parties that this Agreement shall apply to additional series created for the Trust unless agreed to by all parties hereto. 10. (a) MBL agrees to indemnify and hold harmless Western Capital and the Trust and each of their Trustees, officers, employees, and each person, if any, who controls Western Capital or the Trust within the meaning of Section 15 of the Securities Act and each person who is an affiliated person of Western Capital or the Trust within the meaning of Section 2(a)(3) of the Investment Company Act of 1940 (collectively, the "Indemnified Parties" for purposes of this paragraph 10) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of MBL), or litigation expenses (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof), or settlements are related to the sale or acquisition of the Policies or the Trusts' shares and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus for the Account or 5 the Policies or contained in the Policies or sales literature for the Policies (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to MBL or its affiliates by or on behalf of Western Capital, the Trust or an affiliate of either, for use in the registration statement or prospectus for the Policies or in the Policies or sales literature (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the Policies or the Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, or sales literature of the Trust not supplied by MBL or persons under its control) or wrongful conduct of MBL, its officers, directors, employees or persons under its control, with respect to the sale or distribution of the Policies or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature for the Trust or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Trust by or on behalf of MBL, its officers, directors, employees, or affiliated persons thereof; or (iv) arise as a result of any failure by MBL to provide the services and to furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty 6 made by MBL in this Agreement or arise out of or result from any other material breach of this Agreement by MBL, as limited by and in accordance with the provisions of subparagraphs (b) and (c) of this paragraph 10. (b) MBL shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Trust, whichever is applicable. (c) MBL shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify MBL of any such claim shall not relieve MBL from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, MBL shall be entitled to participate, at its own expense, in the defense of such action. MBL also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the Action. After notice from MBL to such party of MBL's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and MBL will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Indemnified Parties will promptly notify MBL of the commencement of any litigation or proceedings against them in connection with the issuance or sale of Trust shares or the Policies or the operation of the Trust. 11. (a) The Trust, and Western Capital, or both of them, as appropriate, agree to indemnify and hold harmless MBL and each of its directors, officers, employees, and each person, if any, who controls MBL within the meaning of Section 15 of the Securities Act and each person who is an affiliated person of MBL within the meaning of Section 2(a)(3) of the Investment Company Act of 1940 (collectively, 7 the "Indemnified Parties" for purposes of this Paragraph 11) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares and: (i) arise out of or are based upon an untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus for the Trust or sales literature for the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Western Capital or the Trust by or on behalf of MBL or an affiliate thereof for use in the registration statement or prospectus for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or the Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, or sales literature for the Policies not supplied by the Trust, Western Capital or persons under their control) or wrongful conduct of the Trust or Western Capital, their officers, directors, employees or persons under their control, with respect to the sale of the Policies or Trust shares: or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature for the Policies, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated 8 therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to MBL by or on behalf of the Trust or Western Capital; or (iv) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Trust or Western Capital in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust or Western Capital, as limited by and in accordance with the provisions of subparagraphs (b) and (c) of this Paragraph 11. (b) Neither the Trust nor Western Capital shall be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to MBL or the Accounts, whichever is applicable. (c) Neither the Trust nor Western Capital shall be liable under this indemnification provision with respect to any claim made against any Indemnified Party unless such Indemnified Party shall have notified Western Capital and/or the Trust, as appropriate, in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust or Western Capital of any such claim shall not relieve the Trust or Western Capital from any liability which either of them may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Trust and Western Capital will be entitled to participate, at their expense, 9 in the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Trust and/or Western Capital to such party of the Trust's and/or Western Capital's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Trust and Western Capital will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) MBL agrees to promptly notify the Trust and Western Capital of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Policies or the operation of the Account. 12. MBL shall provide the Trust and Western Capital with copies of all written complaints received and responses thereto sent by MBL or its affiliates or agents that pertain to the purchase or sale of the Policies or to the operation of the Trust. Such copies shall be sent to the Trust and Western Capital concurrently with the mailing of the response to any such complaint. The Trust and Western Capital shall provide MBL with copies of all written complaints received by either of them that pertain to the purchase or sale of the Policies or to the operation of the Account. 13. This Agreement may be terminated at any time by mutual consent of the parties, or without cause by any of the parties upon giving one hundred twenty (120) days written notice to the other parties provided, however, that if any party fails to carry out its responsibilities enumerated under this Agreement in any material respect, the other parties shall have the right to terminate this Agreement within sixty days of notification to the party so failing to carry out its responsibilities, and if for any reason shares of the Series are not available MBL shall have the right to terminate this Agreement immediately. This Agreement shall terminate upon the termination of the "Variable Life and Annuity Agreement" between MBL and GFG dated May 31, 1989, whereby GFG is to provide certain services to MBL with regard to the design, regulatory approval and administration of the Policies. 10 This Agreement shall also terminate: (i) at the option of MBL upon the institution of formal proceedings against the Trust, Western Capital or an affiliate by the NASD, the SEC, or any state securities or insurance department or any other regulatory body provided that MBL determines in good faith, in MBL's sole judgment, that such institution will have a material adverse impact on the Trust's, Western Capital's or the affiliate's ability to perform its obligations under this Agreement; or (ii) at the option of the Trust or Western Capital upon the institution of formal proceedings against MBL brought by the NASD, the SEC, or any formal proceedings involving a material matter brought by any state securities or state insurance department or any other regulatory body regarding MBL provided that the Trust or Western Capital determines in good faith, in its sole judgment, that such institution will have a material adverse impact on MBL's ability to perform its obligations under this Agreement; or (iii) at the option of either the Trust, Western Capital or MBL, upon the filing of a voluntary or involuntary petition in bankruptcy, or in any equivalent state court proceeding, concerning any party, or upon appointment of a receiver by a regulatory body having appropriate jurisdiction over any other party, or upon the occurrence of any party's failing to meet the minimum net capital requirements, if any, applicable to it under appropriate insurance or securities laws; or (iv) at the option of the Trust, Western Capital or MBL if the Management Agreement between the Fund and its Manager is terminated, or the Organizational Agreement among MBL, the Fund and the Fund's Manager terminates. 14. Unless earlier terminated pursuant to Paragraph 13 hereof, this Agreement shall remain in effect for a one year period beginning on the effective date of this Agreement and will continue thereafter in effect from year to year. Upon termination of this Agreement, all authorizations, rights and obligations imposed on the parties under this Agreement except for the indemnification provisions contained in Paragraphs 10 and 11 above shall cease. Notwithstanding the foregoing, in the event of termination and unless otherwise agreed to by the parties, transactions for 11 existing policyowners will continue to be executed under the terms of this Agreement. 15. Any notice shall be sufficiently given when sent by registered or certified mail to the other parties at the address of such parties as set forth below or at such other address as such party may from time to time specify in writing to the other parties: To: The Specialty Managers Trust 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 Attn: Charles F. Parisi with a copy to: Jeffrey S. Puretz, Dechert Price & Rhoads 1500 K Street, Washington, D.C. 20005 To: Western Capital Financial Group 1925 Century Park East, Suite 2350 Los Angeles, CA 90067 Attn: Charles F. Parisi To: The Mutual Benefit Life Insurance Company 520 Broad Street Newark, NJ 07102-3184 Attn: Michael H. Berkowitz, Senior Vice President With a copy to: Frank D. Casciano Vice President and Deputy General Counsel 16. This Agreement shall be construed with and the provisions hereof interpreted under an in accordance with the laws of the State of New York. 17. This Agreement shall be subject to the provisions of the 1940 Act, the 1933 Act and the 1934 Act and the rules, regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. 18. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 19. A copy of the Trust's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Declaration of Trust has been executed on behalf of the Trust by the Trustees in their capacity as Trustees of the Trust and not 12 individually. The obligations upon the Trust under this Agreement shall be binding upon the assets and property of the Trust and shall not be binding upon any Trustee, officer, employee or shareholder of the Trust individually. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. THE SPECIALTY MANAGERS TRUST By: /s/ Charles F. Parisi --------------------------- Charles F. Parisi President Attest: /s/ William C. Richardson --------------------------- Name: William C. Richardson Title: WESTERN CAPITAL FINANCIAL GROUP By: /s/ William C. Richardson --------------------------- William C. Richardson President Attest: /s/ Charles F. Parisi ----------------------- Name: Charles F. Parisi Title: THE MUTUAL BENEFIT LIFE INSURANCE COMPANY By: The Mutual Benefit Life Insurance Company By: /s/ Michael H. Berkowitz --------------------------- Michael H. Berkowitz Senior Vice President Attest: /s/ Frank D. Casciano ----------------------- Frank D. Casciano Vice President and Deputy General Counsel 13 EXHIBIT A TO SETTLEMENT AGREEMENT AMONG THE SPECIALTY MANAGERS TRUST, WESTERN CAPITAL FINANCIAL GROUP, and THE MUTUAL BENEFIT LIFE INSURANCE COMPANY Multiple Allocation Series Fully Manager Series Limited Maturity Bond Series Natural Resources Series Real Estate Series All-Growth Series Liquid Asset Series EX-99.H3D 22 INDEMNIFICATION AGREEMENT EXHIBIT (h)(3)(D) ASSIGNMENT AGREEMENT FOR SETTLEMENT AGREEMENT AGREEMENT, made this 20th day of March, 1991, by and among Western Capital Financial Group ("Western Capital"), a California corporation; Directed Services, Inc. ("DSI"), a New York corporation; The Mutual Benefit Life Insurance Company ("MBL"), a mutual life insurance company incorporated under the laws of the State of New Jersey, on its own behalf and on behalf of Mutual Benefit Variable Contract Account-11; and The Specialty Managers Trust, a Massachusetts business trust ("Trust"). WHEREAS, the Trust is registered with the Securities and Exchange Commission as an open-end management investment company under the Investment Company Act of 1940, as amended ("Act"); and WHEREAS, the Trust, Western Capital, and MBL entered into a Settlement Agreement dated May 21, 1990 ("Settlement Agreement"); and WHEREAS, Western Capital has served as Distributor to the Trust pursuant to a Distribution Agreement between the Trust and Western Capital dated December 28, 1988; and WHEREAS, the Trust and Western Capital have terminated the Distribution Agreement with Western Capital, effective at the close of business on March 20, 1991; and WHEREAS, commencing March 21, 1991, DSI has agreed to serve as Distributor to the Trust pursuant to a new Distribution Agreement between the Trust and DSI dated March 20, 1991; and WHEREAS, Western Capital, MBL and the Trust desire to assign Western Capital's interest in the Settlement Agreement to DSI and DSI desires to be the assignee of Western Capital's interest. NOW, THEREFORE, it is agreed as follows: 1. Assignment. Effective as of March 21, 1991, Western Capital hereby ---------- assigns to DSI all of its interest in the Settlement Agreement. 2. Performance of Duties. DSI hereby assumes and agrees to perform all --------------------- of Western Capital's duties and obligations under the Settlement Agreement and be subject to all of the terms and conditions of said Agreement as if they applied to Western Capital. DSI shall not be responsible for any claim or demand arising under the Settlement Agreement from services rendered prior to the effective date of this Assignment Agreement unless otherwise agreed by DSI, and 2 Western Capital shall not be responsible for any claim or demand arising under the Settlement Agreement from services rendered after the effective date ofthis Assignment Agreement unless otherwise agreed by Western Capital. 3. Representation of DSI. DSI represents and warrants that it is --------------------- registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). 4. Consent. The Trust and MBL hereby consent to this assignment by ------- Western Capital of its rights under the Settlement Agreement to DSI and the assumption by DSI of Western Capital's interest in such Agreement and the duties and obligations thereunder, and agree, subject to the terms and conditions of said Agreement, to look to DSI for the performance of the duties and obligations formerly owed by Western Capital under said Agreement. 3 IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their duly authorized officers hereunto duly attested as of the date and year written above. Western Capital Financial Group R. J. Leavenworth BY: /s/ Andrew D. Westhem - ------------------ ----------------------- Attest Andrew D. Westhem Vice President President - --------------- ---------- Title Title Directed Services, Inc. Bernard R. Beckerlegge BY: /s/ Fred H. Davidson - ---------------------- ---------------------- Attest Fred H. Davidson Secretary Executive Vice President - --------------- ------------------------- Title Title 4 The Mutual Benefit Life Insurance Company William Weiss BY: /s/ Frank D. Casciano - -------------- ----------------------- Attest Frank D. Casciano Assistant Secretary V.P. Deputy General Counsel - -------------------- ---------------------------- Title Title The Specialty Managers Trust Jeffrey S. Puretz BY: /s/ F.H. Davidson - ----------------- ------------------ Attest F.H. Davidson Outside Counsel Vice President - ------------------- --------------- Title Title 5 EX-99.H4 23 INDEMNIFICATION AGREEMENT EXHIBIT (h)(4) INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT This Indemnification Agreement is made this 20th day of March, 1991 between The Specialty Managers Trust (the "Trust"), a Massachusetts business trust registered with the Securities and Exchange Commission (the "SEC") as an open-end management investment company, and Directed Services, Inc. ("DSI") (whose name is scheduled to be changed to Golden Financial Group, Inc. on or about May 1, 1991), a New York corporation. WHEREAS, the Trust issues shares in several different classes, each class known as a Series; and WHEREAS, Specialty Advisors Corp. ("SAC"), a California corporation was the sponsor of the Trust and, pursuant to a Management Agreement between SAC and the Trust dated as of November 1, 1988, served as the Manager of Trust from the Trust's commencement of operations through March 20, 1991; and WHEREAS, Golden American and Golden American's parent company, The Mutual Benefit Life Insurance Company ("Mutual Benefit"), through certain of their separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, Golden American and Mutual Benefit issue variable annuity contracts and variable life insurance contracts (the "Variable Contracts") that are funded by the separate accounts that invest in the operating Series of the Trust; and WHEREAS, as a result of a routine examination of the Trust by the staff of the SEC in November of 1990 (the "SEC Examination"), the SEC staff has advised SAC and the Trust that the staff believes that there are several potential deficiencies relating to the Trust or to SAC as investment adviser, and the SEC staff has advised SAC that it may bring an enforcement action against SAC relating to the potential deficiencies; and WHEREAS, SAC is reviewing the potential deficiencies that have been identified by the SEC staff; and WHEREAS, by resolution adopted at a meeting on February 25, 1991, the Trust's Board of Trustees formed a Special Committee ("Special Committee") to consider and review issues raised as a result of the SEC Examination and to conduct such inquires as the Special Committee deems necessary and appropriate in furtherance of its consideration and review of such issues; and WHEREAS, SAC and the Trust entered into a Mutual Consent to Terminate the Management Agreement, pursuant to which the Management Agreement between SAC and the Trust will be terminated as of the close of business on March 20, 1991; and WHEREAS, pursuant to a new Management Agreement between Directed Services, Inc. and the Trust dated as of March 20, 1991, (the "Management Agreement") Directed Services, Inc. ("DSI"), an indirect subsidiary of Mutual Benefit, has agreed to serve as Manager for the operating Series of the Trust commencing on March 21, 1991. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties do hereby agree as follows: 1. GENERAL INDEMNIFICATION. In partial consideration for the Trust offering shares of its Series solely to separate accounts of Golden American and Mutual Benefit, DSI agrees to hold harmless and indemnify the Trust and the members of the Special Committee from and against any and all claims, suits, damages, costs, losses, expenses, liabilities, penalties, obligations of any kind arising out of or resulting from the SEC Examination, including, but not limited to, the following expenses: (i) fees and expenses of legal counsel to the Trust with respect to services rendered to the Trust; (ii) fees and expenses of legal counsel to the Special Committee with respect to services rendered to the Special Committee and the members thereof; (iii) fees and expenses of independent auditors of the Trust with respect to services rendered to the Trust and the Special Committee; (iv) costs of any formal or informal proceedings brought by the SEC with respect to the Trust or the members of the Special Committee and any settlement thereof; (v) costs of any formal or informal proceedings brought by any other persons for claims that arise directly or indirectly as a result of deficiencies or issues relating to the Trust - 2 - and indemnified by the SEC staff in connection with the SEC Examinations and any settlement thereof; (vi) the costs associated with compensating owners of Variable Contracts or making payments to the separate accounts for losses suffered as a result of any incorrect calculations identified as a result of the SEC Examination of the daily net asset value per share of any of the operating Series of the Trust; and (vii) expenses associated with appointment of DSI to replace SAC as Manager to the Trust's operating Series, including the expenses associated with a special meeting of the Board of Trustees to consider the Management Agreement with DSI and a special meeting of shareholders to seek approval of the Management Agreement. DSI agrees that the Trust will not bear any of the above mentioned expenses. The parties further agree that this Agreement Trust shall not be construed to render DSI responsible for expenses of SAC, arising from the SEC Examination of the Trust. 2. DURATION. This Agreement shall be effective as of the date indicated above (although the expenses covered by this Agreement may have arisen prior to such date) and continue in force for three calendar years from such date, unless modified by a written instrument executed by the parties hereto; provided however, that DSI shall continue to be obligated after such three-year period under the Agreement with respect to all matters that have been the subject of a claim made for indemnification during such period but which have not been finally determined or resolved by the parties. 3. SUCCESSORS. This Agreement shall be binding on and inure to the benefit of the heirs, executors, administrators and assigns of the respective parties hereto. This Agreement may not be assigned by DSI without the written consent of the Trust which may not be unreasonably withheld. 4. MODIFICATION. This Agreement may be modified only by an instrument in writing executed by the parties. - 3 - 5. GOVERNING LAW. This Agreement shall be governed by the law of New York. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below on the date first above written. THE SPECIALTY MANGERS TRUST /s/Jeffery S. Peuretz By: F. H. Davidson - --------------------- ------------------- Attest Outside Counsel President - --------------------- ---------------------- Title Title DIRECTED SERVICES, INC. /s/E. A. Nabi By: F. H. Davidson - --------------------- ------------------- Attest Exec. Vice Pres. Exec. Vice President - --------------------- ---------------------- Title Title - 4 - EX-99.H5A 24 FORM OF EXPENSE REIMBURSEMENT AGREEMENT EXHIBIT (h)(5)(A) EXPENSE REIMBURSEMENT AGREEMENT EXPENSE REIMBURSEMENT AGREEMENT This Agreement is entered into effective as of the 20th day of March, 1991, by and between The Specialty Managers Trust (the "Trust"), a Massachusetts business trust, and Directed Services, Inc. ("Manager"), a New York corporation, whose name is scheduled to be changed to The Golden Financial Group, Inc. on or about May 1, 1991. WHEREAS, the Trust is an open-end diversified management investment company issuing shares in several different classes, each class known as a Series; and WHEREAS, Golden American Life Insurance Company ("Golden American") and The Mutual Benefit Life insurance Company ("MBL"), through certain of their respective separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, the parties hereto wish to limit the ordinary operating expenses of the Trust borne by owners of the variable annuities and variable life insurance policies issued or to be issued by Golden American or MBL (the "Policies"): NOW, THEREFORE, the parties do hereby agree as follows: 1. TERM OF AGREEMENT. This Agreement shall commence as of the first day of May, 1991, and shall continue through the close of business on December 31, 1991, unless earlier terminated by mutual agreement of the parties, expressed in a writing signed by all of the parties hereto. 2. REIMBURSEMENT OF EXPENSES OF THE SERIES OF THE TRUST. In partial consideration for the Trust offering its shares solely to separate accounts of Golden American and MBL, Manager hereby agrees to pay the Trust the amount by which the ordinary operating expenses of each of the Series exceeds the percentage of the average daily net assets of each Series as set forth below: (i) Liquid Asset Series .80% (ii) Limited Maturity Bond Series .90% (iii) All Growth Series 1.50% (iv) Natural Resources Series 1.50% (v) Real Estate Series 1.50% (vi) Multiple Allocation Series 1.50% (vii) Fully Managed Series 1.50% In no event shall the Manager, under this Reimbursement Agreement, pay to the Trust any amount with respect to any extraordinary expenses of the Trust. 3. FREQUENCY OF REIMBURSEMENTS. The amount of reimbursement, if any, for each operating Series of the Trust shall be determined monthly. Manager hereby agrees to pay the Trust any amount due hereunder not later than the 15th day of the following calendar month. 4. PROVISION OF FINANCIAL STATEMENTS. For such period as the Manager is obligated to pay any of the ordinary operating expenses of the Trust pursuant to the provisions of this Agreement, Manager hereby agrees to provide the Board of Trustees of the Trust on a quarterly basis the unaudited financial statements of Manager and on an annual basis the audited financial statements of the Manager. 5. ASSIGNMENT AND MODIFICATION. This Agreement may be modified or assigned only by a writing signed by all of the parties. Page Two 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. DIRECTED SERVICES, INC. By: /s/F.H. Davidson ----------------------- THE SPECIALTY MANAGERS TRUST By: /s/ ----------------------- EX-99.H5B 25 EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 1 Exhibit (h)(5)(B) EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 1 This Amendment No. 1 to Expense Reimbursement Agreement ("Agreement") is entered into effect as of the 31st day of December 1991, by and between The Specialty Managers Trust (the "Trust"), a Massachusetts business trust whose name is scheduled to be changed to The GCG Trust on or about January 31, 1992, and Directed Services, Inc. ("Manager"), a New York corporation. WHEREAS, the Trust is an open-end diversified management investment company issuing shares in several different classes, each class known as a series; and WHEREAS, MB Variable Life Insurance Company, currently conducting business in certain jurisdictions as Golden American Life Insurance Company ("Golden American") and the Mutual Benefit Life Insurance Company in Rehabilitation, successor to The Mutual Benefit Life Insurance Company ("MBL"), through certain of their respective separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, the parties hereto wish to limit the ordinary operating expenses of the Trust borne by owners of the variable annuities and variable life insurance policies issued or to be issued by Golden American or MBL (the "Policies"); and WHEREAS, the parties have previously entered into the Agreement effective as of the 20th day of March, 1991, which Agreement continues through the close of business on December 31, 1991; and WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, the parties do hereby agree as follows: 1. Term of Agreement. The Agreement shall continue in full force and effect and upon the same terms and conditions as originally set forth through the close of business on April 30, 1992, except as set forth in Section 2 hereof. 2. Reimbursement of Expenses of the Series of the Trust. Commencing February 17, 1992, and continuing through the close of business on April 30, 1992, Manager hereby agrees to pay the Trust the amount by which the ordinary operating expenses of each of the Series exceeds the percentage of the average daily net assets of each Series as set forth below: (i) Liquid Asset Series .80% (ii) Limited Maturity Bond Series .90% (iii) All Growth Series 1.50% (iv) Natural Resources Series 1.50% (v) Real Estate Series 1.50% (vi) Multiple Allocation Series 1.20% (vii) Fully Managed Series 1.20% IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. DIRECTED SERVICES, INC. By: /s/ Bernard R. Beckerlegge ----------------------------------------- THE SPECIALTY MANAGERS TRUST By: /s/ Fred H. Davidson ----------------------------------------- EX-99.H5C 26 EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 2 Exhibit (h)(5)(C) EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 2 This Amendment No. 2 to Expense Reimbursement Agreement ("Agreement") is entered into effect as of the 1st day of May 1992, by and between The GCG Trust (formerly The Specialty Managers Trust) (the "Trust"), a Massachusetts business trust, and Directed Services, Inc. ("Manager"), a New York corporation. WHEREAS, the Trust is an open-end diversified management investment company issuing shares in several different classes, each class known as a series; and WHEREAS, Golden American Life Insurance Company (formerly MB Variable Life Insurance Company) ("Golden American") and the Mutual Benefit Life Insurance Company in Rehabilitation, successor to The Mutual Benefit Life Insurance Company ("MBL"), through certain of their respective separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, the parties hereto wish to limit the ordinary operating expenses of the Trust borne by owners of the variable annuities and variable life insurance policies issued or to be issued by Golden American or MBL (the "Policies"); and WHEREAS, the parties have previously entered into the Agreement effective as of the 20th day of March, 1991, as last amended on December 31, 1991; and WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, the parties do hereby agree as follows: 1. Term of Agreement. The Agreement shall continue in full force and effect and upon the same terms and conditions as originally set forth through the close of business on December 31, 1992, except as set forth in Section 2 hereof. 2. Reimbursement of Expenses of the Series of the Trust. Commencing May 1, 1992, and continuing through the close of business on December 31, 1992, Manager hereby agrees to pay the Trust the amount by which the ordinary operating expenses of each of the Series exceeds the percentage of the average daily net assets of each Series as set forth below: (i) Liquid Asset Series .75% (ii) Limited Maturity Bond Series .75% (iii) All Growth Series 1.50% (iv) Natural Resources Series 1.50% (v) Real Estate Series 1.50% (vi) Multiple Allocation Series 1.20% (vii) Fully Managed Series 1.20% (viii) Capital Appreciation Series 1.20% IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. DIRECTED SERVICES, INC. By: /s/ Bernard R. Beckerlegge ----------------------------------------- THE SPECIALTY MANAGERS TRUST By: /s/ Fred H. Davidson ----------------------------------------- EX-99.H5D 27 EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 3 Exhibit (h)(5)(D) EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 3 This Amendment No. 3 to Expense Reimbursement Agreement ("Agreement") is entered into effect as of the 1st day of November 1992, by and between The GCG Trust (formerly The Specialty Managers Trust) (the "Trust"), a Massachusetts business trust, and Directed Services, Inc. ("Manager"), a New York corporation. WHEREAS, the Trust is an open-end diversified management investment company issuing shares in several different classes, each class known as a series; and WHEREAS, Golden American Life Insurance Company (formerly MB Variable Life Insurance Company) ("Golden American"), through certain of its respective separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, the parties hereto wish to limit the ordinary operating expenses of the Trust borne by owners of the variable annuities and variable life insurance policies issued or to be issued by Golden American (the "Policies"); and WHEREAS, the parties have previously entered into the Agreement effective as of the 20th day of March, 1991, as last amended on May 1, 1992; and WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, the parties do hereby agree as follows: 1. Term of Agreement. The Agreement shall continue in full force and effect and upon the same terms and conditions as originally set forth through the close of business on December 31, 1993, except as set forth in Section 2 hereof. 2. Reimbursement of Expenses of the Series of the Trust. Commencing November 1, 1992, and continuing through the close of business on December 31, 1993, Manager hereby agrees to pay the Trust the amount by which the ordinary operating expenses of each of the Series exceeds the percentage of the average daily net assets of each Series as set forth below: (i) Liquid Asset Series .60% (ii) Limited Maturity Bond Series .60% (iii) All Growth Series 1.00% (iv) Natural Resources Series 1.00% (v) Real Estate Series 1.00% (vi) Multiple Allocation Series 1.00% (vii) Fully Managed Series 1.00% (viii) Capital Appreciation Series 1.00% IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. DIRECTED SERVICES, INC. By: /s/ Bernard R. Beckerlegge ----------------------------------------- THE SPECIALTY MANAGERS TRUST By: /s/ Fred H. Davidson ----------------------------------------- EX-99.H5E 28 EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 4 Exhibit (h)(5)(E) EXPENSE REIMBURSEMENT AGREEMENT AMENDMENT NO. 4 This Amendment No. 4 to Expense Reimbursement Agreement ("Agreement") is entered into effect as of the 22nd day of March, 1993, by and between The GCG (the "Trust"), a Massachusetts business trust, and Directed Services, Inc. ("Manager"), a New York corporation. WHEREAS, the Trust is an open-end diversified management investment company issuing shares in several different classes, each class known as a series; and WHEREAS, Golden American Life Insurance Company ("Golden American"), through certain of its respective separate accounts, invest in shares of the operating Series of the Trust; and WHEREAS, the parties hereto wish to limit the ordinary operating expenses of the Trust borne by owners of the variable annuities and variable life insurance policies issued or to be issued by Golden American (the "Policies"); and WHEREAS, the parties have previously entered into the Agreement effective as of the 20th day of March, 1991, as last amended on November 1, 1992; and WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, the parties do hereby agree as follows: 1. Term of Agreement. The Agreement shall continue in full force and effect and upon the same terms and conditions as originally set forth through the close of business on December 31, 1993, except as set forth in Section 2 hereof. 2. Reimbursement of Expenses of the Series of the Trust. Commencing March 22, 1993, and continuing through the close of business on December 31, 1993, Manager hereby agrees to pay the Trust the amount by which the ordinary operating expenses of each of the Series exceeds the percentage of the average daily net assets of each Series as set forth below: (i) Liquid Asset Series .60% (ii) Limited Maturity Bond Series .60% (iii) All Growth Series 1.00% (iv) Natural Resources Series 1.00% (v) Real Estate Series 1.00% (vi) Multiple Allocation Series 1.00% (vii) Fully Managed Series 1.00% (viii) Capital Appreciation Series 1.00% (ix) The Fund for Life Series .50% IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first written above. DIRECTED SERVICES, INC. By: /s/ Bernard R. Beckerlegge ----------------------------------------- THE SPECIALTY MANAGERS TRUST By: /s/ Fred H. Davidson ----------------------------------------- EX-99.B9BIX 29 FM OF ADDENDUM TO THE ORGANIZATIONAL AGMT ADDENDUM TO ORGANIZATIONAL AGREEMENT The Organizational Agreement, made the 28th day of December, 1988 among The GCG Trust (the "Trust"), Directed Services, Inc. ("DSI"), and Golden American Life Insurance Company ("Golden American") (the "Organizational Agreement"), as amended by the Assignment Agreement to the Organizational Agreement dated March 20, 1991 and Addenda to the Organizational Agreement dated October 1, 1993, November 7, 1994, December 29, 1995 and March 4, 1997 is hereby amended by the addition of the provisions set forth in this Addendum to the Organizational Agreement, which is dated as of the 19th day of August, 1997. WITNESSETH: WHEREAS, the Trust is authorized to issue separate series, each of which will offer a separate class of shares of beneficial interest, each series having its own investment objective or objectives, policies, or limitations; WHEREAS, the Trust currently offers shares in multiple series, may offer shares of additional series in the future, and intends to offer shares of additional series in the future; WHEREAS, the Trust has established a new series designated as the Mid-Cap Growth Series; Total Return Series, Research Series, Growth & Income Series, Value & Growth Series, Global Fixed Income Series, Growth Opportunities Series, and Developing World Series WHEREAS, the Trust and Golden American desire that the Mid-Cap Growth Series be sold to the separate accounts of Golden American to fund benefits under variable life insurance policies and variable annuity contracts issued by Golden American; NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Addendum, it is agreed between the parties hereto as follows: 1. The Mid-Cap Growth Series, Total Return Series, Research Series, Growth & Income Series, Value + Growth Series, Global Fixed Income Series, Growth Opportunities Series, and Developing World Series together with all other Series listed on Exhibit B to the Organizational Agreement, shall be series under the Organizational Agreement. 2. Exhibit B to the Organizational Agreement shall be replaced with a new Exhibit B, a copy of which is attached hereto. IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed as of the date indicated above. THE GCG TRUST ___________________________ By:__________________________ Attest ___________________________ ______________________________ Title Title DIRECTED SERVICES, INC. ___________________________ By:__________________________ Attest ___________________________ ______________________________ Title Title GOLDEN AMERICAN LIFE INSURANCE COMPANY ___________________________ By:__________________________ Attest ___________________________ _______________________________ Title Title EXHIBIT B The Series of The GCG Trust, as described in the attached Organizational Agreement, are as follows: Multiple Allocation Series Fully Managed Series Limited Maturity Bond Series Natural Resources Series Real Estate Series All-Growth Series Liquid Asset Series Capital Appreciation Series The Fund For Life Series Emerging Markets Series Rising Dividends Series Market Manager Series Value Equity Series Strategic Equity Series Small Cap Series Managed Global Series Mid-Cap Growth Series Total Return Series Research Series Growth & Income Series Value & Growth Series Global & Fixed Income Series Growth Opportunities Series Developing World Series EX-99.I 30 CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP [Sutherland Asbill & Brennan LLP Letterhead] CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP We consent to the reference to our firm under the heading "Legal Counsel" in the prospectuses and under "Counsel" in the statement of additional information included in Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A for The GCG Trust (File Nos. 33-23512, 811-5629). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. SUTHERLAND ASBILL & BRENNAN LLP By:/s/ David S. Goldstein ---------------------- David S. Goldstein Washington, D.C. April 29, 1999 EX-99.J 31 CONSENT OF ERNST & YOUNG LLP CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Independent Auditors" and "Financial Highlights" in each Prospectus and "Independent Auditors" in each Statement of Additional Information included in Post- Effective Amendment No. 40 to the Registration Statement (Form N-1A, No. 33-23512) of The GCG Trust. We also consent to the incorporation by reference of our reports dated February 26, 1999 for The GCG Trust and March 8, 1999 for the Fund For Life Series of The GCG Trust on the financial statements included in the 1998 Annual Report for The GCG Trust and in the 1998 Annual Financial Statements for the Fund For Life Series of The GCG Trust, respectively. /s/ERNST & YOUNG LLP Boston, Massachusetts April 28, 1999 . EX-99.L1 32 INITIAL CAPITAL AGREEMENT Exhibit l(1) INITIAL CAPITAL AGREEMENT _______________, 1988 Western Capital Specialty Managers Trust 1925 Century Bank East Los Angeles, CA 90067 Dear Sirs: It is our understanding that Western Capital Specialty Managers Trust (the "Trust") proposes to issue and sell shares of beneficial interest (the "Shares") pursuant to a registration statement on Form N-1A file with the Securities and Exchange Commission. In order to provide the Trust with a net worth of at least $100,000 as required by Section 14 of the Investment Company Act of 1940, as amended, we hereby offer to purchase _____ Shares at a price of $_____ per Share for an aggregate purchase price of $_____ ("Initial Capital"). We represent and warrant to the Trust that the Shares are being acquired by us for investment and not with a view to the resale or further distribution thereof and that we have no present intention to redeem or dispose of any of the Shares. We hereby agree that Shares representing the Initial Capital will not be redeemed unless the unredeemed portion of the Initial Capital exceeds the amount of any then unamortized organization expenses of the Trust. Please confirm that the foregoing correctly sets forth our agreement with the Trust. Very truly yours, Golden American Life Insurance Company By:_____________________ Title: Confirmed, as of the date first above mentioned WESTERN CAPITAL SPECIALTY MANAGERS TRUST By:_____________________ Title: EX-99.16 33 SUBSIDIARIES OF ING GROEP N.V. EXHIBIT (16) ING Bank N.V. Alegron Belegging B.V. ING Bank Ukraine ING Baring Securities (Romania) S.A. Amsterdam Exchanges N.V. Argencontrol Artolis B.V. Assurantiebedrijf ING Bank N.V. Assurantiekantdoor Honig & Hageman BV Noordster V.O.F. Volmachtbedrijf ING Bank B.V. Atlas Investeringsgroep N.V. Atlas Investors Partnership III C.V. B.V. Gemeenschappelijk Bezit Aandelen Necigef Bank Brussels Lambert S.A. ING Bank (Belgium) N.V./S.A. Bancard Company S.A. Cooperation Liquidation Terme Bourse S.C. Europay Belgium S.C. Institut De Reescompte S.C. Societe Belge D' Investissement International S.C. Society for Worldwide Interbank Financial Telecommunication S.C. Visa Belgium SC Bank Mendes Gans NV B.V. Deelnemings En Financieringsmaatschappij "Nova Zembla" B.V. Trust En Administratiekantoor Van Bank Mendes Gans N.V. Bank Mendes Gans Effectenbewaarbedrijf N.V. Brenko B.V. Cabel B.V. Handamar N.V. Handamar Corporation Intervest B.V. Intervest PPM B.V. Bank Slaski S.A. W Katowicach *Rodkowoeropejskie Centrum Ratingu I Analiz S.A. Bankowe Przedsi*Biorstwo Telekom. Telebank S.A. BSK Konsulting SP Z.O.O. BSK Leasing S.A. Centralna Tabela Ofert S.A. Dom Maklerski BSK S.A. Gie*Da Papierow Warto*Clowych S.A. ING BSK Asset Management S.A. Krajowa Izba Rozliczeniowa S.A. Biuro Informacji Kredytowe S.A. Mi*Dzvnarodowa Szko*A Bankowo*Ci I Finansow SP Z.O.O. Society for Worldwide Interbank Financial Telecommunication S.C. Banque Baring Brothers (Suisse) S.A. Benelux Investment Fund B.V. Berliner Handels - Und Frankfurter Bank A.G. Buenos Aires Equity Investments N.V. Emprendimiento Recoleta S.A. (ERSA) BPEP Holdings Limited Baring Asia (GP) Limited Baring European Fund Managers Limited Baring Latin America GP Limited Baring Latin America Partners Limited Baring Private Equity Partners (Asia) PTE. Limited Baring Private Equity Partners (China) Limited ING Barings Private Equity (China) Limited ING BPE (China) Advisers Limited Baring Private Equity Partners (India) Limited Baring Private Equity Partners GMBH Baring Private Equity Partners Limited Baring Venture Partners GMBH Baring Venture Partners S.A BHB Management Limited BPEP General Partner I Limited BPEP General Partner II Limited BPEP Management (UK) Limited BPEP Nominees Limited Quartz Capital Partners Limited Transtech Limited BCEE Advisers Limited BCEF Advisers Limited BHR Management Limited BI Advisers Limited Blac Holdings Inc. Blac Corp. Incorperated BPEP Management Limited Baring Mexico (GP) Limited Baring Private Equity Partners Espana S.A. Baring Private Equity Partners Mexico S.C. BVP Mexico S.A. Cavendish Nominees Limited BPEP Participations Limited Baring Vostok Capital Partners Limited Baring Vostok Fund Managers Limited ESD Managers Limited Easdaq S.A. International Private Equity Services Limited Polytechnos Venture Partners GMBH BVP Holdings Limited Baring Capricorn Ventures Limited Baring Communications Equity Limited BCEA Advisers Limited BCEA Management PTE. Limited Capricorn Venture Fund N.V. Procuritas Partners KB PAB Partner AB BVP Management Limited Capricorn Venture Partners N.V. Czech Venture Partners S.R.O. CI European Limited SCGF Advisers Limited BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis B' BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis' Amsterdamse Poort III B.V. Bijlmerplein Leasing BV Foppingadreef Leasing B.V. BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis A' BV Maatschappij Van Onroerende Goederen 'Het Middenstandshuis C' Grondpoort III B.V. C.V. Exploitatiemaatschappij Tunnel Onder De Noord Cardona B.V. Cedel International S.A. Centrum Cocarde B.V. Cene Bankiers N.V. Administratie & Trustkantoor Beleggingsfonds Protestants Nederland BV Amsterdam Exchanges N.V. Arma Beheer B.V. Beheer Administratie en Beleggingsmaatschappij Kant B.V. Bewaarbedrijf Cene Bankiers B.V. BV Algemene Beleggingsmaatschappij Cene Bankiers N.V. Beheermaatschappij Jansen Groenekan B.V. Copar B.V. Fidele Management B.V. Flexibel Beheer Utrecht B.V. Hercules Beheer B.V. Langosta B.V. Mercurius Beheer B.V. Nivo Investments B.V. Remazon B.V. Cene Bankiers Holdings N.V. Cene Asset Management N.V. Cene Management N.V. Tawny Owl Investment Company N.V. Cene Verzekeringen B.V. N.V. Instituut Voor Ziekenhuisfinanciering Utrechtse Participatiemaatschappij B.V. Cofiton B.V. Sterling Developments B.V. Brooks Equities Inc. Location 3 Ltd. SDC Properties Inc. Tripolis Vastgoed B.V. Tripolis A C.V. Tripolis B C.V. Tripolis C C.V. Combdring B.V. Compensadora Electronica S.A. Computer Centrum Twente B.V. Corporacion Financiera ING (Colombia) S.A. Credit Commercial De France S.A. Depositary Company ING Bank B.V. Destara B.V. ING Bank Ukraine ING Baring Securities (Romania) S.A. Effectenbeursvennootschap Van Brussel C.V. Effectenbewaarbedrijf ING Bank N.V. Euroclear Clearance System Public Limited Company European Investment Fund (Center 757) European Investment Fund (Center 920) Extra Clearing B.V. Amsterdam Exchanges N.V. Extra Clearing GMBH YVOF Floorbrokers B.V. Easdaq S.A. Financial Advisory & Consultancy Services B.V. Owen Stanley Financial S.A. Financial Facilities Management B.V. Finemij B.V. Gabela Belegging B.V. Hamgia Beheer B.V. ING Bank Urkraine ING Baring Securities (Romania)S.A. Ingvest III B.V. Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay) Interbank On-Line System Limited International Bankers S.A. Interpay Nederland B.V. Interunion Bank (Antilles) N.V. Interadvies N.V. Administratiekantoor De Leuve BV Crediet Service Bank B.V. Incassobureau Fiditon BV NV Nationale Volksbank Arenda B.V. Spaarfondsen Beheer B.V. Spaarfondsen Bewaar B.V. Welvaert Financieringen NV Welstand B.V. Internationale Nederlanden (U.S.) Funding Corporation ING (U.S.) Financial Holdings Corporation ING (U.S.) Capital Financial Holdings LLC ING (U.S.) Capital LLC ING (U.S.) Capital Management Company LLC ING (U.S.) Investment Corporation Alliance Precision Plastics Corporation Nitrogen Products, Inc. ING Furman Selz Asset Management LLC FSIP LLC Taurus Partners, L.P. The Corner Fund, L.P. Fairway Capital Partners, L.P. Anvers, L.P. Anvers II, L.P. Artemis Partners, L.P. Furman Selz Capital Management LLC Delta Asset Management NorthStar Asset Management ING Capital Advisors, LLC ING Capital Advisors Portfolio Management Corp. ING Capital Senior Secured High Income Fund, L.P. ING Emerging Markets Investors LLC ING Emerging Partners L.P. ING Equity Holdings, Inc. ING Equity Partners L.P. ING Realty Services, Inc. ING (U.S.) Financial Services Corporation ING Baring Grupo Financiero (Mexico) S.A. De C.V. ING Inmobiliaria (Mexico) S.A. de C.V. ING Bank (Mexico) S.A. ING Baring (Mexico), S.A. de C.V., Casa de Bolsa ING Baring (U.S.) Financial Holdings LLC ING Baring (U.S.) Capital Markets, LLC ING Baring (U.S.) Capital LLC ING (U.S.) Latin American Capital LLC Internationale Nederlanden (U.S.) Real Estate Finance, Inc. 1996 Olympic Corporation California Acquisition Partners I Coast Atlantic, Inc. Highridge ING Atlantic L.P. Apache Investments, Inc. Kokopelli Associates, Ltd. Blue Sky Properties Inc. Montague Court, LLC Calprop Portfolio, Inc. The Center at San Marcos Corporation Crow's Nest Corporation Genesee Corporation Algerine Inc. Genreo Corporation Northern Springs Portfolio, Inc Laketon Corporation Lucre Lake Corporation ING Real Estate Investors, Inc. Little Muddy Creek Corporation FN Realty Advisors, Inc. Mountain AMD L.P. First Ohio Service Corporation 5850 Corporation Colrad Development Corp. Evergreen Valley Development LFS Capital Corporation Lisle Center, Inc. Spectrum Holdings, Inc. Cardinal Mortgage Corporation E.N. One, Inc. Fairfield Village Mortgage Corporation Lincoln Ventures Corporation Pathway Lands Incorporated Amarak II Investments Corporation Pimco Corporation Baloo Corporation Can II, LLC Cap II Foreclosure Corporation Penn Mar Associates, LLC Calprop II Portfolio, Inc. Clear River Associates, Inc. Amarak Investments Corporation Great Lakes Management, Inc. Canadian Ventures I L.P. Falcon Gate, Inc. Long Ears Corporation Pleasantlake Corporation S G Investors Corporation Southgate Plaza, LLC Ventura Ridge Associates, Inc. Triangle Development Corporation 39 Vestry LLC Tech Air Corporation ING Barings Real Estate Acquisition Company Pentagon Parkway Corporation Artis Realty Advisors, Inc. Coconut Corp. Promontory Point, Inc. Promontory Point Partnership Seagate Development Corporation Able Gateway Plaza, LLC Mountain Creek Investors, Inc. Mountain Creek Company, LLC Telluride Mountain Village Ventures, LLC Nashpike Corporation Velocity One Inc. B&I Associates, LLC Brookhollow Associates, L.P. Courtyard Plaza Associates, L.P. Glen Harbor Associates, LLC Hightree Associates, LLC Lakebridge Partners, L.P. Kent Hospitality Associates, L.P. Northern Springs Limited Partnership Ventura Hospitality Partners, L.P. 40 East Associates, L.P. Springfield Corporate Center, LLC Fountain Park Partners, L.P. Westmoreland Associates, L.P. Green Neck, LLC Mallard Cove Investors, LLC Calshops, LLC BHI-Dover VII, L.P. BHI-Dover VIII, L.P. BHI-Dover X, L.P. BHI-Dover XI, L.P. Brickyard Investors, L.P. Eastgate Hospitality Partners, L.P. Festival Pasadena Associates, L.P. Golden Bear Homes I, L.P. Golden Bear Homes II, L.P. Golden Bear Homes III, L.P. Golden Bear Homes IV, L.P. SPA Partners, L.P. Miami Bay Hospitality Associates, L.P. Royal River Partners, L.P. Wildewood Holdings, LLC Madramp, LLC 201 Madison, LLC RTC Commercial Assets Trust, NP3-3 Boulders Phoenician Limited Partnership CPR Investments, Inc. Phoenician Investments, L.P. Wisconsin Option Inc. Hammer & Nails, Inc. RIB Residential LLC RBG Residential Investors, LLC RBG XXXV Corp. Centerline/RBG XXXV, L.P. RB Florida Partners, L.P. Center VII Corporation Center VIII Corporation Center X Corporation Fountain Park Corporation Royal Falls Corporation Woodward Investors Corporation Woodward First National LLC Qualco, Inc. Quality Fifth Avenue Hotel Associates, LLc Fifth Avenue Hospitality Associates, LLC Baldco, Inc. Sleepy Lake Corporation High Flyer Corporation Airport One Investors, LLC Lower Westside Development Corp. 359 West 11th Street, LLC Velocity Two, Inc. Baldwin Hospitality, LLC Sleepy Lake Partners, L.P. ING Merger Inc. Furman Selz Trust Company Furman Selz (Ireland) LLC Furman Selz Financial Services Unlimited Furman Selz Advisors LLC Furman Selz Capital LLC Furman Selz Management (BVI) Ltd. Furman Selz Investments LLC Furman Selz Investors, L.P. Furman Selz SBIC Investments LLC Furman Selz SBIC, L.P. ING Baring Furman Selz LLC Furman Selz Investment II Furman Selz Investors II, L.P. Furman Selz Parallel Fund Artisan Investment Management LLC Michelangelo Partners, L.P. Total Resources LLC Furman Selz Resources LLC Furman Selz Financial Services LLC Furman Selz Merchant Capital LLC Furman Selz Ventures, L.P. Karnak Partners, L.P. Saugatuck Partners, L.P. Crestwood Capital Partners, L.P. Crestwood Capital Partners II, L.P. Bridgewood Capital Partners, L.P. ING TT&S (U.S.) Holdings Corporation ING TT&S (U.S.) Securities, Inc. ING (U.S.) Securities, Futures & Options Inc. ING TT&S (U.S.) Capital Corporation Furman Selz Proprietary, Inc. ING (U.S.) Capital Investors Holdings, Inc. ING (U.S.) Capital Securities, Inc. Brecco, Inc. FSIC LLC Mutual Fund Funding 1994-1 Pacifica Funds Distributor, Inc. Furman Selz Residential Funding LLC FS Trust Company ING Bank (Chile) S.A. Edibank S.A. Sociedad Interbancaria De Depositos De Valores S.A. ING Bank (Eurasia) ING Bank (Hungary) Rt. Giro Elszamolasforgalmi Rt. ING Duna Ingatlanhasznositc KFT ING Bank (Luxembourg) S.A. CMF Advisory S.A.H. Euromix Advisory S.A.H. ING Bank Luxfund Management S.A. ING International Advisory S.A.H. ING International II Advisory S.A.H. ING Bank (Schweiz) A.G. Kredietbank S.A. Luxembourgeoise ING Bank (Uruguay) S.A. Bolsa Electronica De Valores Del Uruguay S.A. Compania Uruguaya De Medios De Procesamiento S.A. Red. De Intercomunicacion De Alta Seguridad S.R.L. ING Bank of Canada ING Bank Corporate Investments B.V. Entero B.V. Eruca Belegging B.V. ING Bank Mezzaninefonds B.V. ING Bank Participatie PPM B.V. MKB Beleggingen B.V. MKB Vliehors II B.V. Wijkertunnel Beheer II B.V. Wijkertunnel Beheer II Management B.V. MKB Vliehors III B.V. Small Business Publishing B.V. N&M Holding N.V. ING Bank Dutch Fund N.V. ING Bank Fondsen Beheer B.V. ING Bank Geldmarkt Fonds N.V. ING Bank Global Custody UK Nominees Limited ING Bank Global Fund N.V. ING Bank Guldem Fonds N.V. ING Bank I.T. Fund N.V. ING Bank Luxfund Management S.A. ING Bank Middutch Fund N.V. ING Bank Obligatie Fonds N.V. ING Bank Rentegroei Fonds N.V. ING Bank Spaardividend Fonds N.V. ING Bank Vastgoed Fonds B.V. ING Bank Verre Oosten Fonds N.V. ING Baring Capital Markets (C.R.), A.S. ING Baring Financial Products ING Baring Holding Nederland B.V. Atlas Capital (Thailand) Limited ("Atlas") ING Baring Securities (Thailand) Limited ING Baring Holdings Limited Baring Asset Management Holdings Ltd. Baring Asset Management Ltd. Baring International Investment Limited Baring International Investment Management Holdings Ltd. Baring Asset Management Inc. Baring International Investment (Canada) Limited Baring International Investment Management Limited Baring Asset Management Holdings Inc. Baring Asset Management UK Holdings Limited Baring Asset Management (Asia) Holdings Limited Austin Assets Limited Baring Asset Management (Asia) Limited Baring Asset Management (Australia) Limited Baring Asset Management (Japan) Limited Baring International Fund Managers (Bermuda) Limited Baring International Fund Managers Limited Baring International Investment (Far East) Limited Baring Pacific Investments Limited Baring Asset Management (C.I.) Limited Baring International Fund Managers (Ireland) Ltd. Baring Investment Services Inc. Baring Mutual Fund Management S.A. European and Asian Fund Management S.A. Baring Investment Management Ltd. Baring Quantative Management Ltd. Baring Global Fund Managers Limited Baring Private Asset Management Ltd. Baring Fund Managers Limited Baring Managed Funds Services Ltd. Baring Private Investment Management Ltd. Baring Trust Company Ltd. Baring Trustees (Guernsey) Limited Arnold Limited International Metal Trading Limited Barings (Isle of Man) Limited Control Management Limited Doyle Administration Limited International Metal Trading Limited ING Trust (Jersey) Ltd Saline Nominees Limited Truchot Limited Vivian Limited Barings (Guernsey) Limited Barfield Nominees Limited Barings Ireland Limited Guernsey International Fund Managers Limited Arnold Limited International Metal Trading Limited Control Management Limited Doyle Administration Limited International Metal Trading Limited International Fund Managers (Ireland) Ltd. International Securitisation Managers (Ireland) Ltd Saline Nominees Limited Truchot Limited Vivian Limited International Fund Managers UK Ltd. Ravensbourne Registration Services Ltd. Barings Investment Services Limited Baring Brothers Holdings Limited Baring (U.S.) Holdings Limited Abbotstone Investment Company Limited Baring Brothers Limited Baring Brothers (Finance) Limited Baring Brothers Argentina S.A. Baring Brothers International Limited Barings C.F. Holdings Limited B.B.A.H. Pty Limited Baring Brothers Burrows & Co. Limited Baring Brothers Burrows Securities Limited SAIPH Pty Limited BBHP Pty Limited Baring Brothers (Deutschland) GMBH Baring Brothers International GMBH Baring Brothers (Espana) S.A. Barings Brothers (Italia) SRL Baring Properties (London Wall) Limited Baring Properties Limited Outwich Finance Limited Outwich Limited Baring Warrants PLC Barings France S.A. Barings Nominees Limited Bishopscourt Holdings Limited Bishipscourt Leasing (Holdings) Limited Bishopscourt Asset Leasing Limited Bishopscourt Equipment Leasing Limited Bishopscourt Industrial Finance Limited Bishopscourt Limited Bishopscourt Securities Limited BVC Nominees Limited Cotton Nominees Limited ING Baring International Advisers Limited ING Baring Services (Eastern Europe) Limited ING Baring Services Limited The Mortgage Acceptance Corporation (Holdings) Limited The Mortgage Acceptance Corporation Limited Yealme Securities Limited ING Baring Financial Products ING Baring Securities Holdings Limited ING Baring Securities Limited ING Baring Securities (Andean Pact) Ltda ING Barings Peru S.A. ING Baring Securities Services Limited Baring Securities (Property Services) Ltd BS Property Services (Japan) Limited ING Baring Data Limited INGB Dormant Holding Company Limited Baring Securities (London) Limited Baring Securities (OTC Options) Limited ING Baring Management Services PTE Ltd ING Baring Research Limited ING Baring Securities (Overseas) Ltd. ING Baring Securities Management Services (Hong Kong) Ltd Maketravel Limited INGB Securities (International) Holdings Limited Baring Securities (Financial Services) Limited Barsec (International) Limited Baring Nominees (Australia) Pty Ltd Baring Research S.A. De C.V. Baring Securities (Australia) Limited Baring Securities (France) S.A. Baring Securities Pakistan (Private) Limited Barings Mauritius Limited ING Barings India Private Limited ING Baring Securities (India) Pvt. Ltd. Celtec Holdings S.A. ING Baring Corretora De Valores Mobiliarios S.A. Corinvest Limited Epcorp Limited Galax Limited Dropny B.V. ING Baring Chile Limitada ING Baring International PTE Ltd ING Baring Operational Services (Taiwan) Limited ING Baring Securities (Andean Pact) Ltda ING Baring Securities (Hong Kong) Ltd ING Baring Far East Nominees Limited ING Baring Securities (Philippines) Inc. ING Baring Securities (Singapore) PTE Ltd ING Baring Nominees (Singapore) PTE Ltd ING Baring Research (Malaysia) SDN. Bhd. ING Baring Securities (Taiwan) Limited (SICE) ING Baring Securities, Argentina S.A. ING Baring South Africa Limited ING Barings Southern Africa (Proprietary) Ltd Anodyne Nominees (Proprietary) Limited ING Barings Peru S.A. ING Futures & Options (Hong Kong) Limited ING UK Capital Limited Lokmaipattana Co. Limited PT ING Baring Securities Indonesia INGB Securities Client Services Limited Aliwall Limited Barings Securities Nominees Limited Brunera Limited Cereus Limited Dianthus Limited Eranthis Limited Francoa Limited Grassmere Limited Leacroft Limited Mountbatten Limited ING Baring Securities (Japan) Limited ING Baring Securities (Thailand) Limited ING Baring Investment (Eurasia) Zao ING Baring Securities (Hungary) Rt. ING Baring Securities (Poland) Holding B.V. ING Baring Securities (Romania) S.A. ING Baring Securities (Slovakia), S.R.O. Proctor & Gamble S.R.O. ING Barings Ecuador Casa De Valores S.A. ING BSK Asset Management S.A. ING Capital Markets (Hong Kong) Limited ING Compania De Inversiones Y Servicios Limitada Bolsa Electronica De Chile, Bolsa De Valores S.A. CISL Aruba A.E.C. ING Consultants Co., Ltd. ING Derivatives (London) Limited Belgian Futures & Options Exchange London Clearing House Limited Liffe (Holdings) PLC The International Petroleum Exchange of London Limited ING Empreendimentos E Participacaos Ltda. Guilder Corretora De Valores Mobiliarios S/A ING Guilder Distribuidora De Titulos E Valores Mobiliarios S/A ING Investment Management Ltda. ING Servicos Ltda. ING Finance (Ireland) Ltd ING Forex Corporation ING Futures & Options (Singapore) PTE Ltd ING Inversiones, Ltda. Corporacion Financiera ING (Colombia) S.A. ING Investment Management Holdings (Antilles) N.V. ING Lease Holding N.V. CW Lease Belgium NV CW Finance N.V. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. CW Lease Nederland BV Autolease OSS B.V. CW Finance N.V. CW Lease Belgium NV CW Finance N.V. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. CW Lease France S.N.C. CW Lease Luxembourg S.A. Dealer Lease Service Belgium N.V. Gothia Estate II B.V. Westment II B.V. International Driver Service B.V. Schade Herstel Bedrijf B.V. ING Aircraft Lease B.V. Fokker Brasil B.V. ING Lease (Belgium) N.V. Real Estate Lease SPC 1 N.V. Savin Lease N.V. ING Lease (Espana) EFC, SA ING Lease (France) S.A. ING Lease (France) S.N.C. ING Lease (Italia) SPA ING Lease (Nederland) B.V. Blauwe IRM B.V. Graphic Lease B.V. Groen Lease B.V. GIL 1997 (Windkracht) B.V. ING Lease Vastgoed B.V. Newco-One Corp. Ship Lease International B.V. ZIL '96 B.V. ING Lease (Polska) ING Lease Holding (Deutschland) GMBH CW Lease Deutschland GMBH CW Lease Berlin GMBH ING Lease Deutschland GMBH IFSC Beteiligungsgesellschaft GMBH ING Lease (Berlin) GMBH ING Lease Kran und Schwertransport GMBH ING Leasing Besitzgesellschaft MBH ING Leasing Geschaeftsfuhrungsgesellschaft MBH ING Leasing Gesellschaft Fur Beteiligungen MBH ING Leasing GMBH & Co. Golf KG ING Leasing GMBH & Co. Juliett KG ING Leasing Treuhandsgeselschaft GMBH ING Leasing Verwaltungsgesellschaft GMBH Uta Finanz und Leasing GMBH ING Lease Holdings (UK) Limited CW Lease UK Ltd CW Finance Ltd. Leasing Principals Limited ING Lease (UK) Limited ING Farm Finance Limited ING Farm Finance (June) Limited ING Farm Finance (March) Limited ING Farm Finance (September) Limited ING Lease (UK) Nine Limited ING Lease (UK) Six Limited ING Lease (UK) Three Limited MKL Rentals Limited ING Lease Interfinance B.V. CW Lease France S.N.C. ING Lease (Italia) SPA Real Estate Lease SPC 1 N.V. Runoto Belgium N.V. Diamond Lease ING Lease International Equipment Finance B.V. ING Aviation Lease B.V. Air Finance Holland B.V. Aviation Service Holland B.V. ING Lease (Far East 2) B.V. ING Lease (Far East) N.V. ING Lease (Ireland) B.V. ING Lease (France) S.N.C. ING Lease Structured Finance B.V. Esbelto B.V. Green Assets B.V. Hirando B.V. Hokabe Lease B.V. ING Bank Geldmarkt Fonds Beheer B.V. ING Lease Milieu B.V. Quadralock 2 B.V. SFING Europe B.V. Tropelia B.V. Virgula B.V. ING Lease International Equipment Management B.V. Air Finance Amsterdam B.V. Air Holland Leasing II B.V. ING (Holland Aircraft Lease) B.V. ING Lease Aircraft B.V. ING Lease Delaware, Inc. Noord Lease B.V. Postbank-Lease B.V. Renting De Equipos E Inmuebles SA Runoto Leasing BV Runoto Belgium N.V. Diamond Lease ING Mercantile Mutual Bank Limited ING Merchant Bank (Singapore) Limited Export Credit Insurance Corporation of Singapore Ltd ING Asset Management (Singapore) Ltd ING Nominees (Singapore) PTE Ltd ING Participation Dalrybbank B.V. ING Private Banking Beheer B.V. ING Bank Vastgoed Management B.V. ING Securities (Eurasia) Zao ING Servicios, C.A. ING Sociedad De Bolsa (Argentina), S.A. Mercado De Valores De Buenos Aires S.A. ING Sviluppo Sim S.P.A. ING Trust B.V. Ingress N.V. ING Management (Hong Kong) Ltd ING Nominees (Hong Kong) Ltd ING Trust (Antilles) NV Formid Management N.V. ING (Antilles) Portfolio Management N.V. Monna NV Jet NV Simbad N.V. ING Trust (Aruba) N.V. ING Trust (BVI) Ltd. ING Trust (Luxembourg) S.A. ING Trust (Nederland) B.V. ING Bank (Eurasia) ING Bank (Luxembourg) S.A. CMF Advisory S.A.H. Euromix Advisory S.A.H. ING Bank Luxfund Management S.A. ING International Advisory S.A.H. ING International II Advisory S.A.H. ING Baring Securities (Romania) S.A. ING Holdings Empreendimentos Participacao Ltda. Guilder Corretora De Valores Mobiliarios S/A Management Services ING Bank B.V. ING Bank (Eurasia) ING Baring Investment (Eurasia) Zao ING Securities (Eurasia) Zao Muteka BV ING Trust (Suisse) AG Trust Maatschappij ING Bank B.V. Anorga B.V. Corpovea B.V. N.V. Balmore Vastgoed U.S.A. Den Hamer Beheer B.V. Diagonac B.V. Henry F. Holding B.V. ING Aconto N.V. N.V. Balmore Vastgoed U.S.A. Mijcene B.V. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. N.V. Balmore Vastgoed U.S.A. Paramito B.V. Rescit I BV Storeria B.V. Tuvor B.V. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. Vitigudino B.V. N.V. Balmore Vastgoed U.S.A. Westward Capital II B.V. ING Valores (Venezuela) C.A. ING Vastgoed B B.V. ING Real Estate (BHS) B.V. ING Real Estate International Development B.V. Holland Park Sp. Zoo ING Real Estate Iberica SL ING Real Estate International Development (Liege) B.V. ING Real Estate Sp. Zoo ING Real Estate Vasco Da Gama B.V. London & Amsterdam Properties Ltd London and Amsterdam Development Ltd. London & Amsterdam Properties Ltd MBO Camargo SA Inmolor SA MBO La Farga SA Hospitalet Center, SL MBO Morisson Ltd Warsaw I B.V. 1300 Connecticut Avenue Joint Venture Ltd ING Real Estate International Investment II B.V. ING Real Estate International Investment III B.V. ING Vastgoed Financiering N.V. Bedrijfsgebouw MBO - Riho C.V. Groeneveld MBO C.V. M.B.O. Vastgoed Lease B.V. Lindenburgh C.V. Maria Hove C.V. MBO Brova C.V. MBO North America Finance B.V. Residential Financial Development LLC ING Vastgoed Fondsen B.V. Winkelfonds Nederland Management B.V. ING Vastgoed Ontwikkeling B.V. Amsterdamse Poort Holding IV B.V. Amsterdamse Poort IV B.V. Grondpoort IV B.V. Amsterdamse Poort II B.V. BV Bedrijvenpark G.P. CV Bedrijvenpark G.P. Grondpoort II B.V. Gulogulo B.V. Antibes Holding B.V. ING Vastgoed Arena B.V. Muller Bouwparticipatie B.V. V.O.F. Winkelcentrum Markt Noorderpromenade Drachten MBO - Ruijters B.V. Holding 'T Loon B.V. Vastgoed 'T Loon B.V. Wolfstreet Holding B.V. Wolfstreet B.V. Wolfstreet Grond B.V. MBO Brinkstraat Holding B.V. MBO Brinkstraat B.V. MBO Brinkstraat Grond B.V. MBO Catharijnesingel Holding B.V. MBO Catharijnesingel B.V. MBO Catharijnesingel Grond B.V. MBO De Centrale Holding B.V. MBO De Centrale B.V. MBO De Centrale Grond B.V. MBO Dommelstaete Holding B.V. MBO Dommestaete B.V. MBO Emmasingel Holding B.V. MBO Emmasingel B.V. MBO Emmasingel Grond B.V. MBO Guyotplein Holding B.V. MBO Guyotplein B.V. MBO Guyotplein Grond B.V. MBO Kousteensedijk Holding B.V. MBO Kousteensedijk B.V. MBO Kousteensedijk Grond B.V. MBO Kruseman Van Eltenweg Holding B.V. MBO Kruseman Van Eltenweg B.V. MBO Kruseman Van Eltenweg Grond B.V. MBO Marienburg B.V. Marienburg V.O.F. MBO Martinetsingel Holding B.V. MBO Martinetsingel B.V. MBO Martinetsingel Grond B.V. MBO Oranjerie Holding B.V. MBO Oranjerie B.V. MBO Oranjerie Grond B.V. MBO Pleintoren Holding b.V. MBO Pleintoren BV MBO Pleintoren Grond BV MBO Via Catarina B.V. Via Catarina "Empredimentos Imobiliarios" SA MBO Walburg Holding B.V. MBO Walburg B.V. MBO Walburg Grond B.V. MBO Willem II Singel Holding B.V. MBO Willem II Singel B.V. MBO Willem II Singel Grond B.V. Q-Park Bovenmaas I B.V. Q-Park N.V. Q-Park Nederland B.V. Q-Park Exploitatie B.V. Q-Park De Bijenkorf B.V. Q-Park Beheer B.V. Q-Park Brabant B.V. Q-Park Reserve I B.V. Q-Park Byzantium B.V. Q-Park City Holding B.V. Q-Park City B.V. Q-Park Schouwburg B.V. Q-Park De Klomp B.V. Q-Park Raadhuis B.V. Q-Park Reserve II B.V. Stadsherstel Historisch Rotterdam N.V. Supermarkt Krouwel B.V. V.O.F. Winkelcentrum Markt Noorderpromenade Drachten Vastgoed De Brink Holding B.V. Vastgoed De Brink B.V. Wilhelminahof MBO B.V. Zuidplein Beheer BV ING Verwaltung (Deutschland) GMBH A.G. Allgemeine Deutsche Direktbank AG BNL Beteiligungsgeselschaft Neue Laender GMBH & Co. KG Liquiditats-Konsortialbank GMBH ING-North East Asia Bank INIB N.V. Locura Belegging B.V. Luteola B.V. Melifluo B.V. Middenbank Curacao N.V. Advisory Company Luxembourg Altasec N.V. Corporacion Financiera ING (Colombia) S.A. Aralco N.V. Atlas Venture Fund I, L.P. Banco Latino-Americano De Exportaciones S.A. Cayman Islands Funds N.V. Corporacion Financiera ING (Colombia) S.A. Datasegur S.R.L. Fiseco N.V. Granity Shipping N.V. Institucion Financiera Externa Middenbank Curacao N.V. (Uruguay) ING Bank (Chile) S.A. Edibank S.A. Sociedad Interbancaria De Depositor De Valores S.A. ING Barings Ecuador Casa De Valores S.A. ING Compania De Inversiones Y Servicios Limitada Bolsa Electronica De Chile, Bolsa De Valores S.A. CISL Aruba A.E.C. ING Inversiones, Ltda. Corporacion Financiera ING (Colombia) S.A. ING Sociedad De Bolsa (Argentina), S.A. Mercado De Valores De Buenos Aires S.A. Kamadora Investments N.V. Corporacion Financiera ING (Colombia) S.A. Lerac Investment S.A. Red Rose Investments N.V. Unilarse Zermatt N.V. Miopia B.V. Multiaccess B.V. MKB Adviseurs B.V. MKB Card B.V. MKB Investments BV De Springelberg B.V. Het Dijkhuis B.V. Palino B.V. Tiberia B.V. MKB Punt B.V. Business Compass Holding B.V. N.V. Instituut Voor Ziekenhuisfinanciering Nationale-Nederlanden Financiele Diensten B.V. B.V. Financieringsmaatschappij Vola B.V. Kredietmaatschappij Vola Dealer Cash Plan B.V. Cash Plan B.V. Finantel B.V. Sentax Assurantie B.V. G. J. Van Geet Beheer B.V. Alegro Krediet B.V. Gelderse Discount Maatschappij B.V. Sentax Beheer B.V. Finam Krediet B.V. Sentax Lease B.V. Vola Geldleningen B.V. Nederlandse Bouwbank N.V. Nederlandse Financieringsmaatschappij Voor Ontwikkelingslanden N.V. Nedermex Limited N.V. Netherlands Caribbean Bank N.V. Nethworks Integrated Project Consultancy B.V. Nofegol Beheer B.V. NCM Holding N.V. NMB Equity Participaitons N.V. NMB-Heller Holding N.V. Handlowy-Heller SA Heller GMBH Heller Bank A.G. International Credit Service S.A.S. Heller Finanz GMBH Info-Und Beratungsunternehmen GMBH NMB-Heller Ltd. NMB-Heller N.V. Agpo Participatiemaatschappij B.V. Felix Tigris B.V. Inter Credit B.V. International Credit Service S.A.S. International Credit Service S.A.S. NMB-Heller Zweigniederlassung Neuss Zamenbrink B.V. Zamenterp B.V. OB Heller AS Okalia N.V. Olivacea B.V. Ontwikkelingsmaatschappij Noordrand B.V. Orcinus B.V. Oscar Smit's Bank N.V. Bouwmaatschappij Mecklenburgplein B.V. Kenau B.V. P.T. ING Indonesia Bank Parmola B.V. Paronyme B.V. Pendola B.V. Perotis B.V. Policy Extra Holdings Limited Postbank N.V. Amsterdam Exchanges N.V. Interpartes Incasso B.V. Postbank Aandelenfonds N.V. Postbank Beleggingsfonds N.V. Postbank Beleggingsfondsen Beheer B.V.. Postbank Beleggingsfondsen Bewaar B.V. Postbank Chipper Beheer B.V. Postbank Euro Aandelen Fonds N.V. Postbank Groen N.V. Postbank I.T. Fonds N.V. Postbank Interfinance B.V. Postbank Nederlandfonds N.V. Postbank Obligatie Fonds N.V. Postbank Obligatiefonds Beheer B.V. Postbank Vastgoedfonds N.V. Postbank Vermogensgroeifonds N.V. Postbank Wereldmerkenfonds N.V. Postkantoren B.V. Prena Belegging B.V. T Oye Deventer B.V. A. Van Der Molen Herenmode B.V. A. Van Der Pol Beleggingsmaatschappij Amsterdam B.V. A. Van Venrooy Beleggingen B.V. A. Van Weringh Beleggingen B.V. A.C.M. Nienhuis Houdstermaatschappij B.V. B.V. Raadgevend Bureau Nienhuis Consultans A.H. Blok Holding B.V. A.H.M. Habets Beheer B.V. A.J. Vos Makelaardij Onroerende Goederen B.V. Abades B.V. Abrocoma B.V. Ad Barnhard Holding B.V. Albranis B.V. Almenzor B.V. Altimira B.V. Ambito N.V. Aralar B.V. Atitlan B.V. B.V. Beheersmaatschappij Nuyt En Heikens B.V. Odripi B.V. Varen ABC B.V. Vulca Beleggingsmaatschappij Barbatus B.V. Barbuda B.V. Bebida B.V. Beheermaatschappij Van Der Reijnst B.V. Beheermaatschappij Van Het Beleggingsfonds Van De 7 B.V. Beheermaatschappij Darius B.V. Beheermaatschappij Stouwe B.V. Beheermaatschappij Van Putten B.V. Beheersmaatschappij Elma Schrijen B.V. Beheersmaatschappij K.G. Tjia B.V. Beheersmaatschappij Luco Zuidlaren B.V. Beheersmij A.J. Konst B.V. Belagua B.V. Bergara B.V. Bermillio B.V. Betulina B.V. Bidasoa B.V. Biporus B.V. Blarina B.V. Brasas B.V. Bravura B.V. Bremer-Van Mierlo Belegginsgmaatschappij B.V. Bustia B.V. C. J. Buyzen Beheer B.V. C. J. H. - En J. J. Heimeriks Holding B.V. Calando Belegging B.V. Camilo B.V. Castroverde B.V. Catoneria B.V. Cermanita B.V. Cicania B.V. Clacri B.V. Colocar B.V. OCB Beheer B.V. Concolor B.V. Cortada B.V. Cotranco B.V. Crescentes Prins B.V. Cumbras B.V. Cupula B.V. D'Eijk B.V. De Groninger Lederwaren Industrie B.V. Delta Nederland Beheer B.V. Dorsalis B.V. Dr. De Grood Beheer B.V. DKP Beheer B.V. Dick Kooiman Publication/Productions B.V. DSBV-Enserink B.V. DSBV-Ploeger B.V. E. Romar Beheer B.V. Omnium B.V. Empluma B.V. Entorno B.V. Epic Investments B.V. Ernsatus B.V. Esvice B.V. Exel Beheer B.V. Exploitatie En Beleggingsmaatschappij Alja Eindhoven B.V. F. R. Hoffschlag Beleggingen B.V. Familiale Investerings Maatschappij F.I.M. Farlita B.V. Flantua Beheer B.V. Fregenda B.V. Funjob Investments B.V. G. Laterveer Beheer B.V. Garlito B.V. Gebrema Beheer B.V. Gekrabeheer B.V. Germs Beleggingen B.V. Glabana B.V. Golpejas B.V. H. Van Duinen Beheer B.V. H. Mekenkamp Holding B.V. Mekenkamp Beheer B.V. H. Weterings Holding B.V. H. D. En L.B. Meijer Beheer B.V. H. G. Van Der Most Beheer B.V. Handelsonderneming E. Spee B.V. Hepec Beheer B.V. Hilschip BV Hispidus B.V. Hof En Frieling Beheer B.V. Hof & Frieling Onroerend Goed B.V. Holding Hoveling Beheer B.v. Holding J.W.G. Huijbregts B.V. Holding Schildersbedrijf West-Friesland B.V. Holding Schuiling B.V. Holding Th. A. Wellink B.V. Hotel-Restaurant Boerhave B.V. Huaco B.V. Humada B.V. Ignaro B.V. Imbricata B.V. Incoloro B.V. Indonea B.V. Allshoes Schoengroothandel B.V. ING Bank Spaardividend Fonds Beheer B.V. J & A Holding B.V. J. B. Van Den Brink Beleggingsmaatschappij B.V. J. G. Mekenkamp Holding B.V. Mekenkamp Beheer B.V. J. H. Moes Holding B.V. J. P. Korenwinder Beheer B.V. J. W. Th. M. Kohlen Beheer B.V. Jemaas Beheer B.V. Jongert Beheer B.V. K & M Beheer B.V. Kalliope B.V. Bacolac B.V. Kapellenberg B.V. Kijkgroep B.V. Koehorst Promotion Beheer B.V. KBM Maarssen B.V. L. Martens Beheer B.V. La Douce Vie Network B.V. Lagotis B.V. Larino B.V. Latourette B.V. Leaver B.V. Ledanca B.V. Lektura Tiel Beheer B.V. Licorera B.V. Liecene B.V. Lin Beheer B.V. Lomajoma Holdings B.V. Lorkendreef Beheer N.V. Lustroso B.V. M. B. Van Der Vlerk B.V. Madrigal B.V. Marres B.V. Masegoso B.V. Matthew Holding B.V. Mazairac Belegging B.V. Minnaar Holding B.V. Mirabilis B.V. Molenwiede B.V. Muguet B.V. Multicover B.V. Pulido B.V. Mustang B.V. Olseria B.V. Arend Broekhuis B.V. P. Nienhuis Houdstermaatschappij P. J. Heinrici Beheer B.V. Pastrana B.V. Pedralva B.V. Pemac B.V. Penuria B.V. Perola Belegging B.V. Pertusa B.V. Peter Trompalphen Aan Den Rijn Beheer B.V. Phobos Beleggingen Pinicola B.V. Pluijmen Holding B.V. Portelas B.V. Postigo B.V. Prestamo B.V. Pruis Elburg Beheer B.V. Puebla B.V. Pulido B.V. Rayhold Management En Deelneming B.V. Rescoldo B.V. Ressel B.v. Retrasos B.V. Rodeba Deurne B.v. Roelcene B.V. Rowanda B.V. Rudlolf & Peter Herenmode En Confectie B.V. Sabra Holding B.V. Valpacos B.V. Sacobel Beheer B.V. Schnieders Beheer B.V. Simonis Beheer B.V. Simonis Beleggingsmaatschappij B.V. Sipororo B.V. Spaleta B.V. Spatgens Beheer B.V. Stampida B.V. Stamveld B.V. Steendam Beleggingsmaatschappij Drachten B.V. Storm Beheer B.V. Beheermaatschappij Baarlo B.V. Strokkur B.V. Sunrise Investments B.V. Sustento B.V. Svalbard Beheer B.V. T. A. Lie Beheer B.V. T. M. D. Beheer B.V. Beheermaatschappij Baarlo B.V. Tadavia B.V. Beleggings - En Beheer Maatschappij Solina B.V. Refina B.V. Talboom Beheer B.V. Tapirus B.V. Tarsius B.V. Technisch Advies Bureau Jaba B.V. Ter Linden En Heijer Holding B.V. Tessara Zaanlandia B.V. Thecoar B.V. Theo Kentie Holding B.V. Theo Kentie Design B.V. Traslado B.V. Trasgo B.V. Treetop B.V. Trituris B.V. Truckstar Holding B.V. Tucupido B.V. Tricor B.V. U. Ringsma Beheer B.V. Unitres Holding B.V. Vaanhold & Van Zon Holding B.V. Van Den Heuvel Beheer B.V. Van Loon Beheer B.V. Van Roij Holding B.V. Van Zwamen Holding B.V. Vebe Olst B.V. Vegem Beheer B.V. Venidero B.V. Vette Consultants B.V. Vicar B.V. Vidriales B.V. W. Van Den Berg B.V. W. N. Van Twist Holding B.V. Wabemij B.V. Wiancini B.V. Rentista B.V. Reoco Limited Rutilus B.V. RL & T (International) N.V. Securo De Depositos S.A. Siam City Asset Management Co., Ltd Slivast B.V. Societe Financiere Du Libans. A.L. Society for Worldwide Interbank Financial Telecommunication S.C. Stichting Administratiekantoor ING Bank Global Custody Tablero B.V. Tolinea B.V. Tripudio B.V. Tunnel Onder De Noord B.V. C. V. Exploitatiemaatschappij Tunnel Onder De Noord Unidanmark A/S Verenigde Bankbedrijven N. V. Westland Utrecht Hypotheekbank N.V. Amstgeld Management AG Amstgeld N.V. Amstgeld Trust AG Bouw En Exploitatiemaatschappij Deska XXIII B.V. Charterhouse Vermogensbeheer B.V. Hypothecair Belang Gaasperdam I N.V. Assorti Beheer Amsterdam B.V. Muidergracht Onroerend Goed B.V. Amstel Gaasperdam B. V. Bouw-, Exploitatie En Administratie Maatschappij Amer IV B.V. N.V. Zeker Vast Gaasperdam Rijn Gaasperdam B.V. Juza Onroerend Goed B.V. Hazo Immobilia B.V. Kort Ambacht Maatschappij Tot Exploitatie Van Onroerende Goederen B.V. Utrechtse Financierings Bank N.V. Utrechtse Hypotheekbank N.V. Algemeene Waarborgmaatschappij N.V. Hypotheekbank Voor Nederland II N.V. Hypotheekbank Voor Nederland N.V. Standard Hypotheekbank N.V. ING Bank Hypotheken N.V. Nationale Hypotheekbank N.V. Hollandsche Hypotheekbank N.V. Zuid Nederlandsche Hypotheekbank N.V. Vermogensplanning N.B.I. B.V. W.U.H. Finanz A.G. Westland/Utrecht Leasing B.V. Berchem Onroerend Goed B.V. Berkelse Poort B.V. Beuke Poort B.V. Brasemer Poort B.V. Bruine Poort B.V. Denne Poort B.V. Doetichem Immobilia B.V. Dommelse Poort B.V. Drechtse Poort B.V. Eike Poort B.V. Esse Poort B.V. Frabu Immobilia B.V. Friese Poort B.V. Gelderse Poort B.V. Gele Poort B.V. Grijze Poort B.V. Groninger Poort B.V. Helo Immobilia B.V. Holendrecht Gemeenschappelijk Beheer B.V. Holendrecht Parking B.V. Hollandse Poort B.V. Iepe Poort B.V. Kager Poort B.V. Kilse Poort B.V. Lekse Poort B.V. Limburgse Waterpoort B.V. Lingese Poort B.V. Markse Poort B.V. Oranje Poort B.V. Paarse Poort B.V. Reggese Poort B.V. Roerse Poort B.V. Schepa Immobilia B.V. Sparre Poort B.V. Spoolde B.V. Spuise Poort B.V. Thames Poort B.V. Utrechtse Poort B.V. Vechtse Poort B.V. Vliestse Poort B.V. Westland/Utrecht Bouwonderneming Wubo VI B.V. Westland/Utrecht Bouwonderonderneming Wubo IV B.V. Wilge Poort B.V. Zeeuwse Poort B.V. Westland/Utrecht Verzekeringen B.V. Westlandsche Hypotheekbank N.V. Algemeene Hypotheekbank N.V. Hypotheekbank Maatschappij Voor Hypothecaire Crediet N.V. Groningsche Hypotheekbank N.V. Vaderlandsche Hypotheekbank N.V. Zeeuwsche Hypotheekbank N.V. Zuid-Hollandsche Hypotheekbank N.V. Zugut B.V. ING Verzekeringen N.V. ING Insurance International B.V. Nationale-Nederlanden Intervest II B.V. ING North America Real Estate Holdings Inc. ING Financial Services International (Asia) Ltd. Nationale-Nederlanden Intervest XIII B.V. Nationale-Nederlanden Intertrust B.V. N.N. US Realty Corp B.V. Nederlandsche Flatbouwmaatschappij NN Korea ING Continental Europe Holdings B.V. De Vaderlandsche N.V. Nationale Omnium N.V. De Vaderlandsche Spaarbank N.V. RVS Financial Services N.V. Fiducre N.V. Sodefina S.A. SA De Vaderlandsche Luxemburg Immo "De Hertoghe" NV Westland/Utrecht Hypotheekmaatschappij N.V. Intermediair Services N.V. RVS Verzekeringen N.V. Gefinac N.V. Proodos General Insurances S.A. NN Mutual Fund Management Co. The Seven Provinces International B.V. Nationale-Nederlanden Magyarorszagi Biztosito Rt NN Mutual Fund Services and Consulting Ltd. ING Management Services s.r.o. Prumy Penzijni fond a.s. Nationale-Nederlanden Polska S.A. Nationale-Nederlanden Poist'ovna S.A. ING Management Services Slovensko spol s.r.o. Nationale-Nederlanden Agencia de Valores S.A. NN Romania Asigurari de Viata S.A. Sviluppo Finanziaria ING Investment Management Italy NN Vida Compania de Seguros y Raeseguros S.A. NN Generales Compania e Seguros y Raeseguros Nationale-Nederlanden Pojistovna ING Latin American Holdings ING Insurance Chile Holdings Limitada ING Seguros de Vida S.A. NNOFIC Nationale-Nederlanden (UK) Ltd. NN (UK General) Ltd. The Orion Insurance ING Australia Limited Mercantile Mutual Holdings Ltd. Mercantile Mutual Funds Management Mercantile Mutual Global Ltd. Athelas Mercantile Mutual Insurance (Australia) Ltd. M.A.F.G. Ltd. Mercantile Equities Ltd. Greater Pacific (Leasing) Ltd. Amfas Australia Pty Ltd. Australian General Insurance Co. Ltd. "The Seven Provinces" Insurance Underwriters MM Investment Management Ltd. The Mercantile Mutual Life Insurance Co. Ltd. MML Properties Pty Ltd. Mercantile Mutual Deposits Ltd. Union Investment Co. Ltd. Mercantile Mutual Securities Ltd. Tazak Pty Ltd. Mercantile Mutual Custodians Pty. Ltd. Mercantile Mutual Casualty Insurance Ltd. Australian Brokers Holdings Ltd. Australian Brokers Ltd. Australian Community Insurance Ltd. Mercantile Mutual Insurance (Workers Compensation) Ltd. Mercantile Mutual Insurance (N.S.W. Workers Compensation) Ltd. Prosafe Investments Ltd. Dinafore Pty Ltd. Tongkang Pty Ltd. MM Investment Management ING Canada Holdings Inc. AFP Financial Services ING Canada Inc. The Halifax Insurance Company Western Union Insurance Company Wellington Insurance Company La Compagnie d'Assurances Belair The Commerce Group Insurance La Compagnie d'Assurances NN Life Insurance Company of Canada NN Funds Limited NN Capital Management NN Maple Leaf ING America Insurance Holdings Inc. Equitable of Iowa Companies Directed Services, Inc. Equitable Investment Services, Inc. Equitable Life Insurance Company of Iowa Equitable American Insurance Company Equitable Creative Services, Ltd. Equitable Companies CLC, Ltd. Equitable American Marketing Services, Inc. Equitable Marketing Services, Inc. Younkers Insurance & Investments, Ltd. USG Annuity & Life Company USGL Service Corporation Equitable of Iowa Companies Capital Trust Equitable of Iowa Companies Capital Trust II Equitable of Iowa Securities Network, Inc. Golden American Life Insurance Company First Golden American Life Insurance Company of New York Locust Street Securities, Inc. IFG Network Securities Shiloh Farming Company Tower Locust, Ltd. ING America Life Corporation Georgia US Capital Inc. Life Insurance Company of Georgia Springstreet Associates, Inc. Southland Life Insurance Co. Security Life of Denver Insurance Company First ING Life of New York First Secured Mortgage Deposit Corp. ING American Equities, Inc. Midwestern United Life Insurance Company Wilderness Associates Afore Bital ING, S.A. de C.V. Columbine Life Insurance Co. ING Fund Services Co., Inc. ING Investment Management, Inc. ING Investment Management LLC ING Mutual Funds Management LLC ING Funds Distributor Inc. ING Funds Services LLC ING North America Insurance Corporation ING Seguros Sociedad Anonima de Capital Variable Lion Custom Investments Inc. Lion Custom Investments II Inc. MIA Office Americas, Inc. Multi-Financial Group, Inc. Multi-Financial Securities Corporation Multi-Financial Securities Corporation Massachusetts Multi-Financial Securities Corporation of Ohio Multi-Financial Securities Corporation of Texas Orange Investment Enterprises Inc. Security Life Assignment Corp. ING Seguros S.A. de C.V. United Protective Company Security Life of Denver International Ltd. SLR Management (Bermuda) Ltd. VESTAX Capital Corporation, Inc. VESTAX Securities Corp. VTX Agency Inc. PMG Agency, Inc. VTX Agency of Michigan, Inc. ING US P&C Corporation Diversified Settlements, Inc. Peerless Insurance Company The Netherlands Insurance Company America First Insurance Company Alabama First Insurance Company Excelsior Insurance Company Indiana Insurance Consolidated Insurance Company Cooling-Grumme-Mumford Company, Inc. Blue Cross Medical Consultancy (Singapore) Pte. Ltd. ING Indonesia Insurance P.T. ING Life Insurance Japan Nederlandse Reassurantie Groep Holding N.V. Nederlandse Reassurantie Groep N.V. NRG London Levensherverzekering Algemene Levensherverzekering Maatschappij N.V. Vereenigde Assurantie Bedrijven "Nederland" N.V. Reassurantie Holding Nederland N.V. Internationale Reassurantie Maatschappij Nederland N.V. Reassurantie Maatschappij Nederland N.V. Ruckversicherungs-Clearing A.G. Reinsurers Marketing B.V. N.V. Beleggingsmaatschappij NRG Reassurantie Beleggingen N.V. NRG Woningbouw B.V. BMA Beleggingsmaatschappij "Alliance" B.V. "Traviata" Onroerend Goed B.V. The Victory Reinsurance Corporation of the Netherlands N.V. NRG Victory Holdings Ltd. NRG London Reinsurance Company Ltd. NRG Fenchurch Insurance Company Ltd. NRG Victory Australia Holdings Ltd. NRG Victory Australia Ltd. NRG Victory Reinsurance Corporation Ltd. The Victory Health Reinsurance Corporation Ltd. NRG Victory Management Ltd. European Life Marketing & Actuarial Consultancy Ltd. European Life Marketing & Actuarial Consultancy 92 Ltd. Medical Expenses Development and Insurance Consultancy Services Ltd. NRG Victory Management Services Ltd. General Reinsurance Syndicate Ltd. General Reinsurance Syndicate Ltd. (Trustee) London Reinsurance Comp. Ltd. NRG Victory Life and Health Services Ltd. NRG Victory Canada Management Ltd. NRG Victory Management (Hong Kong) Ltd. NRG America Holding Company Philadelphia Reinsurance Corporation NRG America Life Reassurance Corporation NRG American Management Corporation Market Run Off Services Ltd. NRG Antillean Holding N.V. NRG Antillean Reinsurance Company N.V. NRG Victory International Ltd. NRG Victory Management (Bermuda) Ltd. SRO Run-Off Ltd. Bermuda ING Life Insurance Co. (Phillippines) ING Penta Life Insurance Indonesia P.T. ING Insurance Consultants (HK) Ltd. ING Reinsurance International Holding Co. Ltd. ING Reinsurance International Nationale-Nederlanden Nederland B.V. Nationale-Nederlanden Schadeverzekering Maatschappij N.V. H. van Veeren B.V. Nationale-Nederlanden Greek General Insurance Company S.A. Nationale-Nederlanden Levensverzekering Maatschappij N.V. B.V. Beleggingsmaatschappij Berendaal Consortium Scheveninggen B.V. RVS Beroeps-en Bedrijfsfinanciering B.V. De Bossche Poort B.V. ING Vastgoed V B.V. ING Vastgoed Belegging B.V. B.V. Beleggingsmaatschappij Vinkendaal Muggenburg Beheer B.V. Muggenburg C.V. ING REI Investment U.K. B.V. Nationale-Nederlanden Real Estate Ltd. ING Vastgoed Beheer Maatschappij I B.V. ING Vastgoed Bewaar Maatschappij I B.V. Nationale-Nederlanden Intervest 52 B.V. Bouwfonds Nationale-Nederlanden B.V. Nationale-Nederlanden Bouwfonds 1975 B.V. Bouwfonds AVG B.V. Bouwfonds Nemavo B.V. Bouwfonds Anklaar-Apeldoorn 1967 B.V. Bouwfonds Bilthoven 1969 B.V. Bouwfonds Roveso B.V. RVS Bouwfonds B.V. Bouwfonds Utrecht 1967 B.V. Amersfoort Premiewoningen B.V. Bouwfonds Valken Staete B.V. Nationale-Nederlanden Bouwfonds 1976 B.V. ING Real Estate International Investment I B.V. ING REI Investment U.K. B.V. ING Vastgoed Fondsbelegging BV Jetta Vastgoed B.V. B.V. Algemene Beleggingsmaatschappij "Lapeg" ING Insurance Argentina Nationale-Nederlanden Greek Life Insurance Company S.A. RVS Levensverzekering N.V. RVS Schadeverzekering N.V. Tiel Utrecht Levensverzekering N.V. Tiel Utrecht Schadeverzekering N.V. Utrechtsche Algemeene Brandverzekering Maatschappij N.V. Assurantiekantoor A Brugmans B.V. Algemene Zeeuwse Verzekering Maatschappij N.V. Apollonia Levensverzekering N.V. N.V. Nationale Borg-Maatschappij N.V. Belegging- en Beheer Maatschappij Keizersgracht Antilliaanse Borg-Maatschappij N.V. Amfas Exploitatie Maatschappij B.V. AVG Exploitatie en Beheer B.V. Amfas Hypotheken N.V. Noordwester Hypotheken N.V. Amfinex II B.V. Westermij B.V. Amfico B.V. AVG Exploitatie I B.V. ING Bewaar Maatschappij IV B.V. S.C.P. AVG Investissement Assurantiemaatschappij "De Zeven Provincien" N.V. "Transatlantica" Herverzekering Maatschappij N.V. "The Seven Provinces" Insurance Underwriters Ltd. Ramus Insurance Ltd. Tiel Utrecht Verzekerd Sparen N.V. B.V. Algemene Beleggings Maatschappij Reigerdaal Oostermij B.V. Nationale-Nederlanden Pensioendiensten B.V. Nationale-Nederlanden Zorgvezekering N.V. B.V. Algemene Beleggingsmaatschappij "Kievietsdaal" NeSBIC-Postbank B.V. Nitido B.V. Podocarpus Beheer B.V. Parcom Ventures B.V. Parcom Beheer BV Parcom CV Parcom Services BV Postbank Schadeverzekering N.V. Maatschappij tot Exploitatie van Onroerende Goederen "Gevers Deynootplein" BV Maatschappij tot Exploitatie van Onroerende Goederen "Kurhaus" B.V. Postbank Levensverzekering N.V. RVS Beleggingen N.V. Netherlands Life Insurance Company Ltd. AO Artsen-Verzekeringen N.V. Grabenstrasse Staete B.V. ING Life Insurance International N.V. Nationale-Nederlanden Internationale Schadeverzekering N.V. Fatum Vermogensbeheer N.V. Surinaamse Verzekeringsagenturen Maatschappij Seguros Norman Moron N.V. N.V. Arubaanse Verzekeringsagenturen Maatschappij Nationale-Nederlanden Herverzekering Maatschappij N.V. AVG Exploitatie IX B.V. Jahnstrasze Gebaude B.V. Maatschappij tot Exploitatie van Onroerende Goederen "Palace" B.V. Nationale-Nederlanden Interfinance B.V. Maatschappij tot Exploitatie van Onroerende Goederen "Grand Hotel" B.V. N.V. Haagsche Herverzekering Maatschappij van 1836 Baring Central European Investments B.V. Baring Asian Flagship Investments B.V. ING Fund Management B.V. Wijkertunnel Beheer I B.V. Nationale-Nederlanden Beleggingsrekening N.V. Nationale-Nederlanden CSFR Real Estate v.o.s. ING Bewaar Maattschappij I B.V ING Vastgoed B.V. ING Real Estate (Asia) PTE Ltd. ING Real Estate North America Corporation Nationale-Nederlanden Intervest XII B.V. B.V. Algemene Beleggingsmaatschappij Van Markenlaan Kantoorgebouw Johan de Wittlaan B.V. Nationale-Nederlanden Holdinvest B.V. Nationale-Nederlanden International Investment Advisors B.V. B.V. Algemene Beleggingsmaatschappij Fazantendaal Maatschappij Stadhouderslaan B.V. DESKA LII B.V. J.H. Alta en Co. B.V. Westland/Utrecht Projektontwikkeling B.V. Bouwonderneming Amer LII B.V. ING Real Estate Colombo B.V. Loeffpleingarage B.V. B.V. Maatschappij tot Exploitatie van Onroerende Goederen Smeetsland B.V. Vastgoedmaatschappij "Combuta" B.V. Vastgoed Maatschappij "Promes" Beheer- en Exploitatiemaatschappij "De Vestingwachter" B.V. Nationale-Nederlanden Hypotheekbank N.V. N.V. Arnhemsche Hypotheekbank voor Nederland Nationale-Nederlanden Financiering Maatschappij B.V. B.V. Betaalzegelbedrijf "De Voorzorg" J. van Ouwel Nationale-Nederlanden Finance Corporation (Curacao) I.L. Nationale-Nederlanden Vermogensbeheer B.V. NeSBIC Nationale-Nederlanden B.V. BOZ B.V. ABV Staete B.V. B.V. "De Administratie" Maatschappij tot Exploitatie van Onroerende Goederen Amersfoort-Staete B.V. Arnhem Staete B.V. Belart Staete B.V. Belart S.A. N.V. Square Montgomery Steenstaete S.A. Berkel-Staete I B.V. Berkel-Staete II B.V. Blijenhoek Staete B.V. S.N.C. Blijenhoek Staete et Cie SNC Peau Bearn Brussel Staete B.V. Grote Markt Staete B.V. Hoogoorddreef I B.V. SNC Haven Trompenburg Parking B.V. Lena Vastgoed B.V. S.A. du 59 Avenue d'lena SNC le Murier Kleber Vastgoed B.V. S.A. du 42 Avenue Kleber B.V. De Oude Aa-Stroom Portefeuille Staete B.V. S.C.I. 1e Portefeuille S.C.I. le Michelet S.C.I. Roissy Bureaux International S.C.I. Square d'Asnieres SNC Le Dome B.V. Amiloh ING Vastgoed N.V. Immo Management Service S.A. S.A. Regent-Bruxelles Nationale-Nederlanden/Immobilier S.A.R.L. Immogerance S.A.R.L. Nationale-Nederlanden Intervest IV B.V. SAS Espace Daumesnil Nationale-Nederlanden V B.V. Nationale-Nederlanden VII B.V. ING Real Estate Espace Daumesnil B.V. ING Real Estate Parking Daumesnil Viaduc B.V. SAS Parking Daumesnil Viaduc Cadran Invest S.A. ING Bewaar Maatschappij II B.V. ING Bewaar Maatschappij III B.V. ING REI Investment Spain B.V. ING Inmeubles S.A. ING Bewaar Maatschappij V B.V. ING Asset Management B.V. Postbank Verzekeringen Beheer Maatschappij B.V. Postbank Verzekeringen Bewaar Maatschappij B.V. ING Vastergoed B.V. Nationale-Nederlanden Intervest IX B.V. Nationale-Nederlanden CSFR Intervest S.R.O. ING Real Estate Praha Housing a.s. Nationale-Nederlanden Praha Real Estate V.O.S. Nationale-Nederlanden Intervest XI B.V. Nationale-Nederlanden Hungary Real Estate KFT ING Investment Management (Hungary) Rt. ING Investment Management (Asia Pacific) Limited ING Investment Management (Czech Republic) S.A. IIM India (India) Private Ltd. EX-27.01 34 GCG TRUST MULTIPLE ALLOCATION SERIES
6 01 GCG Trust Multiple Allocation Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 255209603 275405425 2506131 651 162283 278074490 0 0 0 0 0 250328677 21955949 20218274 2473654 0 5076300 0 20195859 278074490 2631690 9780425 650 2637433 9775332 21152198 (9697386) 21230144 0 (9833207) (19438596) 0 1826179 (2422779) 2334275 13475737 2527112 3367115 0 0 2628164 0 2637433 269125358 13.09 .49 .58 (0.50) (0.99) 0 12.67 .98 0 0
EX-27.02 35 GCG TRUST FULLY MANAGED SERIES
6 02 GCG Trust Fully Managed Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 232592616 245042432 2635065 495 0 247677992 1367509 0 114833 1482342 0 227210873 16165041 10804338 1239785 0 5283538 0 12461454 246195650 2499204 5426371 31974 2045931 5911618 17323306 (12166269) 11068655 0 (5333418) (15405399) 0 4521295 (537671) 1377079 76208964 932261 3094955 0 0 2036662 0 2045931 208815209 15.73 .36 .55 (.36) (1.05) 0 15.23 .98 0 0
EX-27.03 36 GCG TRUST LTD MATURITY BOND SERIES
6 03 GCG Trust Ltd Maturity Bond Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 147570696 149109621 1874279 5716 633720 151623336 0 0 3197169 3197169 0 145825120 13900828 5224315 1161736 0 (99614) 0 1538925 148426167 8651 5346135 21538 563810 4812514 245793 981576 6039883 0 4592701 0 0 11075021 (2830765) 432257 94586948 940370 (343854) 0 0 554541 0 563810 93437975 10.31 .24 .47 (.34) 0 0 10.68 .60 0 0
EX-27.04 37 GCG TRUST HARD ASSETS SERIES
6 04 GCG Trust Hard Assets Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 35524506 30706816 604550 214560 0 31525926 995947 0 26 995973 0 43470357 3180057 3072210 190936 0 (8319952) 0 (4811388) 30529953 824034 296233 12958 379318 753907 (6237915) (7457697) (12941705) 0 (738546) (2062110) 0 1843131 (2033543) 298259 (15698649) 34617 121031 0 0 370049 0 379318 37821802 15.05 .26 (4.73) (.26) (.72) 0 9.60 1.00 0 0
EX-27.05 38 GCG TRUST REAL ESTATE SERIES
6 05 GCG Trust Real Estate Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 71206633 68170526 1659784 0 81073 69911383 0 0 0 0 0 69995999 5146603 4134084 1374315 0 1577176 0 (3036107) 69911383 4577076 143974 5582 750096 3976536 3671935 (19233132) (11584661) 0 (2940340) (6743350) 0 1326791 (1042917) 728645 (5618585) 664535 4322175 0 0 738372 0 750096 75580134 18.27 .83 (3.34) 0 (2.18) 0 13.58 .99 0 0
EX-27.06 39 GCG TRUST ALL-GROWTH SERIES
6 06 GCG Trust All-Growth Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 74435416 85081176 4152469 0 6228 89239873 5309505 0 44 5309549 0 68508288 5600724 5361887 0 0 4776276 0 10645760 83930324 65823 286208 0 732885 (380854) 6801674 732283 7153103 0 0 482429 0 1274223 (1069193) 33807 10073843 0 1542965 0 0 723616 0 732885 74118542 13.77 (0.07) 1.38 0 .09 0 14.99 .99 0 0
EX-27.07 40 GCG TRUST LIQUID ASSET SERIES
6 07 GCG Trust Liquid Asset Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 212882596 212882326 265966 0 971 213149263 0 0 1419443 1419443 0 211734322 211740203 59455281 0 0 (4232) 0 (270) 211729820 0 7484194 0 803783 6680411 (1797) (270) 6678344 0 (6680411) 0 0 674729499 (529157998) 6713421 152277004 0 0 0 0 796602 0 803783 135664815 1.00 0.05 0 (0.05) 0 0 1.00 0.59 0 0
EX-27.08 41 GCG TRUST CAPITAL APPRECIATION SERIES
6 08 GCG Trust Capital Apprec Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 211469873 266584934 678574 0 0 267263508 2091059 0 1858957 3950016 0 204134905 14559178 10988655 459203 0 3604323 0 55115061 263313492 3334223 963721 419 2179273 2119090 13189628 10657145 25965863 0 (1985719) (21481203) 0 3374720 (1113005) 1308808 69327884 336095 11885635 0 0 2170004 0 2179273 222429617 17.65 .15 2.07 0 (1.78) 0 18.09 .98 0 0
EX-27.09 42 GCG TRUST FUND FOR LIFE SERIES
6 09 GCG Trust Fund For Life Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 181333 230518 232 0 764 231514 0 0 4141 4141 0 166345 30492 27840 839 0 11004 0 49185 227373 6118 0 0 5279 839 11004 15703 27546 0 (2600) (17125) 0 0 (284) 2935 25448 0 19725 0 0 0 0 12179 0 7.25 0.06 0.85 (0.09) (0.62) 0 7.45 2.50 0 0
EX-27.10 43 GCG TRUST RISING DIVIDENDS SERIES
6 10 GCG Trust Rising Dividends Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 482944485 572788821 2527104 0 0 575315925 0 0 472760 472760 0 476113662 26115381 12585942 694837 0 8190330 0 89844336 574843165 5828886 1000474 19627 3943247 2905740 19244423 24693039 46843202 0 (2574608) (19104120) 0 13882960 (1327846) 974325 322652371 363705 8050027 0 0 3933978 0 3943247 404012387 20.04 0.10 2.74 (0.10) (0.77) 0 22.01 0.98 0 0
EX-27.11 44 GCG TRUST EMERING MARKETS SERIES
6 11 GCG Trust Emerging Markets Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 28185555 26279067 637947 0 11735 26928749 139659 0 760859 900518 0 48984506 3896288 4481305 (32732) 0 0 (20942152) (1981390) 26028231 669908 45517 133641 584267 264799 (10235843) 1111863 (8859181) 0 0 0 0 598485 (1183502) 0 (13407904) 0 0 (138391) (11316748) 559306 0 584267 31923575 8.80 0.06 (2.18) 0 0 0 6.68 1.83 0 0
EX-27.12 45 GCG TRUST MARKET MANAGER SERIES
6 12 GCG Trust Market Manager Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 3890281 8097182 4567 0 55634 8157383 0 0 17950 17950 0 3932814 414866 412444 0 0 0 (282) 4206901 8139433 0 199792 357 72336 127813 208771 1304268 1640852 0 128425 214064 0 0 (15632) 18054 1348383 612 5011 0 0 72140 0 72336 7194572 16.47 .32 3.69 0 (.86) 00 19.62 1.01 0 0
EX-27.13 46 GCG TRUST VALUE EQUITY SERIES
6 13 GCG Trust Value Equity Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 124121664 129671968 523548 0 7518 130203034 418425 0 112 418537 0 120086421 8174853 4963513 358723 0 1789049 0 5550304 129784497 2071593 539767 13055 1042584 1581831 2204365 (2973867) 812329 0 1388071 2501369 0 3450964 (487517) 247893 49736431 164963 2086053 0 0 1033315 0 1042584 105989385 16.13 .19 .06 0 (.50) 0 15.88 98 0 0
EX-27.14 47 GCG TRUST STRATEGIC EQUITY SERIES
6 14 GCG Strategic Equity Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 68542135 73445932 258821 7236 0 73711989 0 0 451376 451376 0 69001928 5713883 3799659 223959 0 0 824849 4859575 73260613 1030686 509287 4584 623707 920850 1514102 (2467677) (32725) 0 (857830) (3916382) 0 1951428 (420675) 383471 21472088 161924 1576446 0 0 614438 0 623707 62994771 13.63 .16 (.07) 0 (.90) 0 12.82 .99 0 0
EX-27.15 48 GCG TRUST SMALL CAP SERIES
6 15 GCG Small Cap Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 112269801 143673105 3982141 41447 0 147696693 0 0 247 247 0 119225126 9214924 5012692 0 0 0 (2931984) 31403304 147696446 240504 394591 551 935507 (299861) 1277047 20807299 21784485 0 0 0 0 5146630 (944398) 0 81300895 0 0 0 (4209031) 922032 0 935507 94686207 13.25 (0.03) 2.81 0 0 0 16.03 .99 0 0
EX-27.16 49 GCG TRUST MANAGED GLOBAL SERIES
6 16 GCG Trust Managed Global Series 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 108884178 134386101 1341201 0 33113 135760415 1669099 0 13528 1682627 0 102840394 9452024 9189817 0 (94561) 5824907 0 25507048 134077788 1087088 169688 28208 1485934 (200950) 11285119 19156582 30240751 0 (436006) (5137434) (391) 3771249 (3908600) 399558 28775215 84471 33527 0 0 1476351 0 1485934 118187366 11.46 (0.02) 3.37 (0.05) (0.57) 0 14.19 1.26 0 0
EX-27.17 50 GCG TRUST GROWTH OPPORTUNITIES SERIES
6 17 GCG Trust Growth Opportunities Series 11-MOS DEC-31-1998 FEB-18-1998 DEC-31-1998 7969882 8424737 190226 0 518580 9133543 42624 0 3 42627 0 9240102 936299 0 15917 0 (619958) 0 454855 9090916 97510 56124 0 82489 71145 (619950) 454855 (93950) 0 55236 0 0 1527372 (596918) 5845 9090916 0 0 0 0 78500 0 82489 8321001 10.00 .08 (.31) (.06) 0 0 9.71 1.15 0 0
EX-27.18 51 GCG TRUST DEVELOPING WORLD SERIES
6 18 GCG Trust Developing World Series 11-MOS DEC-31-1998 FEB-18-1998 DEC-31-1998 8260361 7618880 52330 0 1125770 8796980 0 0 12 12 0 10362689 1193535 0 285858 0 (1216827) 0 (634752) 8796968 104931 17557 14090 98910 37668 (965087) (634752) (1562171) 0 3550 0 2673 1565640 (372859) 484 8796968 0 0 0 0 94921 0 98910 6259044 10.00 .04 (2.67) 0 0 0 7.37 1.83 0 0
EX-27.19 52 GCG TRUST GROWTH & INCOME SERIES
6 19 GCG Trust Growth & Income Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 238996100 277859786 12427785 0 20767206 311054777 10932536 0 1283541 12216077 0 271785482 19128356 0 406306 0 (12264657) 0 38911569 298838700 1337940 1359962 188 1001011 1697079 (12238230) 38911569 28370418 0 1317200 0 0 19858158 (815498) 85696 298838700 0 0 0 0 994126 0 1001011 242591067 14.24 .09 1.36 0 (0.07) 0 15.62 1.08 0 0
EX-27.20 53 GCG TRUST RESEARCH SERIES
6 20 GCG Trust Research Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 536643640 619633633 4970223 2476 0 624606332 9923574 0 911356 10834930 0 538177083 30220490 0 0 0 (7371953) 0 82966272 613771402 1582329 576117 822 1734347 424921 (7265864) 82966272 76125329 0 (424921) 0 (189329) 31180535 (989817) 29772 613771402 0 0 0 0 1716605 0 1734347 479208946 17.75 0.02 2.56 (0.01) 0 (0.01) 20.31 0.94 0 0
EX-27.21 54 GCG TRUST TOTAL RETURN SERIES
6 21 GCG Trust Total Return Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 426381137 450527770 4418122 8222 0 454954114 1345085 0 516165 1861250 0 428847791 28678648 0 1240197 0 (1140503) 0 24145379 453092864 1563307 4125523 16938 1426092 4279676 (1151705) 24145379 27273350 0 3028277 0 0 28821730 (334518) 191436 453092864 0 0 0 0 1372818 0 1426092 383879519 14.88 .17 .86 (0.11) 0 0 15.80 .98 0 0
EX-27.22 55 GCG TRUST VALUE & GROWTH SERIES
6 22 GCG Trust Value & Growth Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 179954843 224738105 4958844 1576289 0 231273238 0 0 56857 56857 0 201010672 14800154 0 0 0 (14577553) 0 44783262 231216381 252224 87404 0 737073 (397445) (14577553) 44783262 29808264 0 0 0 0 15853169 (1053015) 0 231216381 0 0 0 0 728286 0 737073 177916853 13.63 (0.03) 2.02 0 0 0 15.62 1.09 0 0
EX-27.23 56 GCG TRUST GLOBAL FIXED INCOME SERIES
6 23 GCG Trust Global Fixed Income Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 19216118 20325148 844494 13561 762738 21945941 0 0 13934 13934 0 20945825 1963382 0 (155040) 0 (21282) 0 1162504 21932007 0 301889 0 127583 174306 (93077) 1162504 1243733 0 257551 0 0 3059210 1119052 23224 21932007 0 0 0 0 118137 0 127583 19446067 10.47 0.09 0.74 0 (0.13) 0 11.17 1.74 0 0
EX-27.24 57 GCG TRUST MID CAP GROWTH SERIES
6 24 GCG Trust Mid Cap Growth Series 5-MOS DEC-31-1998 AUG-14-1998 DEC-31-1998 226075563 252415235 2314427 0 0 254729662 2393634 0 314212 2707846 0 219861145 13925412 0 43708 0 5777291 0 26339672 252021816 113428 719231 (13) 717804 114842 7139551 26339672 33594065 0 (71134) (1362260) 0 15182332 (1338682) 81762 252021816 0 0 0 0 708271 0 717804 197720596 15.68 0.01 2.52 (0.01) (0.10) 0 18.10 .95 0 0
EX-99.P 58 POWERS OF ATTORNEY POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the each of the undersigned, being a duly elected Trustee and/or Officer of The GCG Trust (the "Trust"), individually constitutes and appoints Myles R. Tashman, and Marilyn Talman, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her in his or her name, place and stead, in any and all capacities, to sign on behalf of the Trust registration statements and applications for exemptive relief, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection there with, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as each might or could do in person, hereby ratifying and affirming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Trustees: J. Michael Earley /s/J. Michael Earley August 25, 1997 ------------------------ R. Barbara Gitenstein /s/R. Barbara Gitenstein August 25, 1997 ------------------------ Robert A. Grayson /s/Robert A. Grayson August 26, 1997 ------------------------ Stanley B. Seidler /s/Stanley B. Seidler August 26, 1997 ------------------------ Roger B. Vincent /s/Roger B. Vincent August 19, 1997 ------------------------ POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee and/or Officer of The GCG Trust (the "Trust"), constitute and appoint Myles R. Tashman, and Marilyn Talman, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her in his or her name, place and stead, in any and all capacities, to sign the Trust's registration statements and applications for exemptive relief, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as each might or could do in person, hereby ratifying and affirming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof. SIGNATURE TITLE DATE /s/ Barnett Chernow Vice-President February 24, 1999 - ---------------------- Trustee Barnett Chernow /s/ Myles R. Tashman Secretary February 24, 1999 - ---------------------- Myles R. Tashman /s/ Elizabeth J. Newell Trustee February 24, 1999 - ----------------------- Elizabeth J. Newell -----END PRIVACY-ENHANCED MESSAGE-----