<PAGE>
As filed with the Securities and Exchange Commission on April 13, 2000
Registration No. 333-35883
811-08361
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 4
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
---------------
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Exact Name of Registrant as Specified in Charter)
4900 Sears Tower
Chicago, Illinois 60606
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (312) 655-4400
Michael J. Richman
Goldman, Sachs & Co.
32 Old Slip - 19th Floor
New York, New York 10005
(Name and Address of Agent for Service)
copies to:
Jeffrey A. Dalke, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Prospectus
May 1, 2000
GOLDMAN SACHS VARIABLE INSURANCE TRUST
.Goldman Sachs Growth and Income Fund
.Goldman Sachs CORE/SM/ U.S. Equity Fund
.Goldman Sachs CORE/SM/ Large Cap Growth Fund
.Goldman Sachs CORE/SM/ Large Cap Value Fund
.Goldman Sachs CORE/SM/ Small Cap Equity Fund
.Goldman Sachs Capital Growth Fund
.Goldman Sachs Mid Cap Value Fund (formerly Mid Cap Equity)
.Goldman Sachs International Equity Fund
.Goldman Sachs Global Income Fund
(BACKGROUND LOGO APPEARS HERE)
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A PORTFOLIO IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A
PORTFOLIO INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
[LOGO OF GOLDMAN SACHS]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment Management
Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Growth and Income, CORE U.S. Equity, CORE Large Cap Growth,
CORE Large Cap Value, CORE Small Cap Equity, Capital Growth and Mid Cap Value
(formerly "Mid Cap Equity") Funds. Goldman Sachs Asset Management Interna-
tional ("GSAMI") serves as investment adviser to the International Equity and
Global Income Funds. GSAM and GSAMI are each referred to in this Prospectus
as the "Investment Adviser."
Goldman Sachs Variable Insurance Trust (the "Trust") offers shares of the
Funds to separate accounts of participating insurance companies for the pur-
pose of funding variable annuity contracts and variable life insurance poli-
cies. Shares of the Trust are not offered directly to the public. The
participating insurance companies, not the owners of the variable annuity
contracts or variable life insurance policies or participants therein, are
shareholders of a Fund. Each Fund pools the monies of these separate accounts
and invests these monies in a portfolio of securities pursuant to the Fund's
stated investment objectives.
The investment objectives and policies of the Funds are similar to the
investment objectives and policies of other mutual funds that the Investment
Adviser manages. Although the objectives and policies may be similar, the
investment results of the Funds may be higher or lower than the results of
such other mutual funds. The Investment Adviser cannot guarantee, and makes
no representation, that the investment results of similar funds will be com-
parable even though the funds have the same Investment Adviser.
Goldman Sachs' Investment Philosophies for the Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small Cap Equity,
Capital Growth, Mid Cap Value and International Equity Funds (the "Equity
Funds"):
EQUITY FUNDS
VALUE STYLE FUNDS
Goldman Sachs' Value Investment Philosophy:
Through intensive, hands-on research our portfolio team seeks to identify:
1. Attractive valuation opportunities where:
.The intrinsic value of the business is not reflected in the stock price
.The stock price is overdiscounted due to a temporary event
2. Well-positioned businesses that have:
.Attractive returns on capital
.Sustainable earnings and cash flow
.Strong company management focused on long-term returns to shareholders
Business quality, conservative valuation, and thoughtful portfolio construc-
tion are the key elements of our value approach.
- --------------------------------------------------------------------------------
GROWTH STYLE FUNDS
Goldman Sachs' Growth Investment Philosophy:
1. Invest as if buying the company/business, not simply trading its stock:
.Understand the business, management, products and competition.
.Perform intensive, hands-on fundamental research.
.Seek businesses with strategic competitive advantages.
.Over the long-term, expect each company's stock price ultimately to track
the growth in the value of the business.
2. Buy high-quality growth businesses that possess strong business fran-
chises, favorable long-term prospects and excellent management.
3. Purchase superior long-term growth companies at a favorable price--seek to
purchase at a fair valuation, giving the investor the potential to fully
capture returns from above-average growth rates.
Growth companies have earnings expectations that exceed those of the stock
market as a whole.
- --------------------------------------------------------------------------------
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two building
blocks of active management: stock selection and portfolio construction.
I. CORE Stock Selection
The CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value and CORE
Small Cap Equity Funds (the "CORE Funds") use the Goldman Sachs' proprietary
multifactor model ("Multifactor Model"), a rigorous computerized rating sys-
tem,
1
<PAGE>
to forecast the returns of securities held in each Fund's portfolio. The
Multifactor Model incorporates common variables covering measures of:
.Value (price-to-book, price-to-earnings, cash flow to enterprise value)
.Momentum (earnings momentum, price momentum, sustainable growth)
.Risk (market risk, company-specific risk, earnings risk)
.Research (fundamental research ratings of Goldman Sachs and other analysts)
All of the above factors are carefully evaluated within the Multifactor Model
since each has demonstrated a significant impact on the performance of the
securities and markets they were designed to forecast. Stock selection in
this process combines both our quantitative and qualitative analysis.
II. CORE Portfolio Construction
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return portfo-
lio given each CORE Fund benchmark. In this process, the Investment Adviser
manages risk by limiting deviations from the benchmark, running size and sec-
tor neutral portfolios.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good
foundations on which to build a portfolio.
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL STYLE FUND
Goldman Sachs' Active International Investment Philosophy:
<TABLE>
<CAPTION>
How the Investment
Belief Adviser Acts on Belief
- ---------------------------------------------
<C> <S>
.Equity markets Seeks excess return
are inefficient through team driven,
research intensive and
bottom-up stock
selection.
.Returns are Seeks to capitalize on
variable variability of market and
regional returns through
asset allocation
decisions.
.Corporate Seeks to conduct
fundamentals rigorous, first-hand
ultimately research of business and
drive share company management.
price
.A business' Seeks to realize value
intrinsic value through a long-term
will be investment horizon.
achieved over
time
.Portfolio risk Seeks to systematically
must be monitor and manage risk
carefully through diversification,
analyzed and multifactor risk models
monitored and currency management.
</TABLE>
The Investment Adviser attempts to manage risk in the Fund through disci-
plined portfolio construction and continual portfolio review and analysis. As
a result, bottom-up stock selection, driven by fundamental research, should
be a main driver of returns.
- --------------------------------------------------------------------------------
Goldman Sachs' Investment Philosophy for the Global Income Fund (the "Fixed
Income Fund"):
FIXED INCOME FUND
Goldman Sachs' Fixed Income Investing Philosophy:
Active Management Within A Risk-Managed Framework
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. Sector Allocation - The Investment Adviser assesses the relative value of
different investment sectors (such as U.S. corporate, asset-backed and
mortgage-backed securities) to create investment strategies that meet the
Fund's objectives.
2. Security Selection - In selecting securities for the Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including
fixed-income research professionals.
3. Yield Curve Strategies - The Investment Adviser adjusts the term structure
of the Fund based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
The Investment Adviser de-emphasizes interest rate predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
The Fixed Income Fund described in this Prospectus has a target duration. The
Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, the Fund will estimate the duration of obligations that
are subject to prepayment or redemption by the issuer, taking into account
the influence of interest rates on prepayments and coupon flows.
2
<PAGE>
This method of computing duration is known as "option-adjusted" duration. The
Fund will not be limited as to its maximum weighted average portfolio matu-
rity or the maximum stated maturity with respect to individual securities
unless otherwise noted.
The Fixed Income Fund also has credit rating requirements for the securities
it buys. The Fund will deem a security to have met its minimum credit rating
requirement if the security has the required rating at the time of purchase
from at least one nationally recognized statistical rating organization
("NRSRO") even though it has been rated below the minimum rating by one or
more other NRSROs. Unrated securities may be purchased by the Fund if they
are determined by the Investment Adviser to be of comparable quality. If a
security satisfies the Fund's minimum rating requirement at the time of pur-
chase and is subsequently downgraded below such rating, the Fund will not be
required to dispose of such security. This is so even if the downgrade causes
the average credit quality of the Fund to be lower than that stated in the
Prospectus. Furthermore, during this period, the Investment Adviser will only
buy securities at or above the Fund's average rating requirement. If a down-
grade occurs, the Investment Adviser will consider what action, including the
sale of such security, is in the best interests of the Fund and its share-
holders.
Fund Investment Objectives and Strategies
Goldman Sachs Growth and Income Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital and growth of income
Benchmark: S&P 500 Index
Investment
Focus: Large capitalization U.S. equity securities with an emphasis on
undervalued stocks
Investment Value
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and growth of income.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 65%
of its total assets in equity securities that the Investment Adviser consid-
ers to have favorable prospects for capital appreciation and/or dividend-pay-
ing ability. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securi-
ties, including securities of issuers in countries with emerging markets or
economies ("emerging countries") and securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations, that
offer the potential to further the Fund's investment objective.
Goldman Sachs CORE U.S. Equity Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: S&P 500 Index
Investment Large-cap U.S. equity securities
Focus:
Investment Quantitative, applied to large-cap growth and value (blend)
Style: stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of large-cap and
blue chip equity securities representing all major sectors of the U.S. econo-
my.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 90%
of its total assets in equity securities of U.S. issuers, including foreign
issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad repre-
sentation in most major sectors of the U.S. economy and a portfolio of compa-
nies with average long-term earnings growth expectations and dividend yields.
Other. The Fund's investments in fixed-income securities are limited to secu-
rities that are considered cash equivalents.
3
<PAGE>
Goldman Sachs CORE Large Cap Growth Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital; dividend income is a secondary
consideration
Benchmark: Russell 1000 Growth Index
Investment Large-cap, growth-oriented U.S. stocks
Focus:
Investment Quantitative, applied to large-cap growth stocks
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
U.S. issuers that are expected to have better prospects for earnings growth
than the growth rate of the general domestic economy. Dividend income is a
secondary consideration.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 90%
of its total assets in equity securities of U.S. issuers, including foreign
issuers that are traded in the United States.
The Investment Adviser emphasizes a company's growth prospects in analyzing
equity securities to be purchased by the Fund. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining
risk, style, capitalization and industry characteristics similar to the Rus-
sell 1000 Growth Index. The Fund seeks a portfolio comprised of companies
with above average capitalizations and earnings growth expectations and below
average dividend yields.
Other. The Fund's investments in fixed-income securities are limited to secu-
rities that are considered cash equivalents.
Goldman Sachs CORE Large Cap Value Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: Russell 1000 Value Index
Investment Diversified portfolio of equity securities of large-cap U.S.
Focus: issuers selling at low to modest valuations
Investment Quantitative, applied to large-cap value stocks
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of equity secu-
rities of large-cap U.S. issuers that are selling at low to modest valuations
relative to general market measures, such as earnings, book value and other
fundamental accounting measures, and that are expected to have favorable
prospects for capital appreciation and/or dividend-paying ability.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 90%
of its total assets in equity securities of U.S. issuers, including foreign
issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and low
to moderate valuations as measured by price/earnings ratios, book value and
other fundamental accounting measures.
Other. The Fund's investments in fixed-income securities are limited to secu-
rities that are considered cash equivalents.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs CORE Small Cap Equity Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Index
Investment Stocks of small capitalization U.S. companies
Focus:
Investment
Style: Quantitative, applied to small-cap growth and value (blend)
stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 90%
of its total assets in equity securities of U.S. issuers, including foreign
issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfolio
comprised of companies with small market capitalizations, strong expected
earnings growth and momentum, and better valuation and risk characteristics
than the Russell 2000 Index. If the issuer of a portfolio security held by
the Fund is no longer included in the Russell 2000 Index, the Fund may, but
is not required to, sell the security.
Other. The Fund's investments in fixed-income securities are limited to secu-
rities that are considered cash equivalents.
Goldman Sachs Capital Growth Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Large-cap U.S. equity securities that offer long-term capital
Focus: appreciation potential
Investment Growth
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least 90%
of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to have long-term capi-
tal appreciation potential. Although the Fund invests primarily in publicly
traded U.S. securities, it may invest up to 10% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
5
<PAGE>
Goldman Sachs Mid Cap Value Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark:
Russell Midcap Value Index
Investment Mid-capitalization U.S. stocks that are believed to be
Focus: undervalued or undiscovered by the marketplace
Investment Value
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all of its assets in equity securities and at least 65% of its total
assets in equity securities of mid-cap companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constitut-
ing the Russell Midcap Value Index at the time of investment (currently
between $300 million and $15 billion). If the capitalization of an issuer
decreases below $300 million or increases above $15 billion after purchase,
the Fund may, but is not required to, sell the securities. Dividend income,
if any, is an incidental consideration. Although the Fund will invest primar-
ily in publicly traded U.S. securities, it may invest up to 25% of its total
assets in foreign securities, including securities of issuers in emerging
countries and securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations.
Goldman Sachs International Equity Fund
FUND FACTS
------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark:
MSCI Europe, Australasia, Far East ("EAFE") Index (unhedged)
Investment Equity securities of companies organized outside the United
Focus: States or whose securities are principally traded outside the
United States
Investment Active International
Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65%, of its total assets in equity securities of
companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund intends to invest
in companies with public stock market capitalizations that are larger than $1
billion at the time of investment.
The Fund may allocate its assets among countries as determined by the Invest-
ment Adviser from time to time, provided the Fund's assets are invested in at
least three foreign countries.
The Fund expects to invest a substantial portion of its assets in the securi-
ties of issuers located in the developed countries of Western Europe and in
Japan. However, the Fund may also invest in the securities of issuers located
in Australia, Canada, New Zealand and in emerging countries. Currently,
emerging countries include, among others, most Latin American, African, Asian
and Eastern European nations.
Other. The Fund may also invest up to 35% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration Target = J.P.
(under Morgan Global
normal Government Bond
interest Index (hedged)
rate plus or minus
conditions): 2.5 years
Maximum = 7.5
years
Expected 6-year
Approximate government bond
Interest
Rate
Sensitivity:
Credit Minimum = BBB or
Quality: Baa at time of
purchase; At
least 50% of
total assets =
AAA or Aaa.
Securities will
either be rated
by a NRSRO or,
if unrated,
determined by
the Investment
Adviser to be of
comparable
quality
Benchmark: J.P. Morgan
Global
Government Bond
Index (hedged)
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
.Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
.Invest in securities of issuers in at least three countries
.Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan
and the United Kingdom as well as in the securities of U.S. issuers. Not more
than 25% of the Fund's total assets will be invested in securities of issuers
in any other single foreign country. The Fund may also invest up to 10% of
its total assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
.U.S. Government Securities and custodial receipts therefor
.Securities issued or guaranteed by a foreign government or any of its polit-
ical subdivisions, authorities, agencies, instrumentalities or by suprana-
tional entities
.Corporate debt securities
.Certificates of deposit and bankers' acceptances issued or guaranteed by, or
time deposits maintained at, U.S. or foreign banks (and their branches wher-
ever located) having total assets of more than $1 billion
.Commercial paper
.Mortgage-backed and asset-backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
7
<PAGE>
Other Investment Practices and Securities (Equity Funds)
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Equity Funds in seeking to achieve their
investment objectives. The table also highlights the differences among the
Funds in their use of these techniques and other investment practices and
investment securities. Numbers in this table show allowable usage only; for
actual usage, consult the Funds' annual and semi-annual reports. For more
information see Appendix A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Growth and CORE U.S. CORE Large CORE Large CORE Small International
Income Equity Cap Growth Cap Value Cap Equity Capital Mid Cap Equity
Fund Fund Fund Fund Fund Growth Fund Value Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
- --Not permitted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
Cross Hedging of
Currencies -- -- -- -- -- -- -- .
Currency Swaps* -- -- -- -- -- -- -- 15
Custodial receipts . . . . . . . .
Equity Swaps* 15 15 15 15 15 15 15 15
Foreign Currency
Transactions** . . . . . . . .
Futures Contracts and
Options on Futures
Contracts . ./1/ ./2/ ./2/ ./2/ . . .
Investment Company
Securities (including
exchange-traded funds) 10 10 10 10 10 10 10 10
Options on Foreign
Currencies/3/ . . . . . . . .
Options on Securities
and Securities
Indices/4/ . . . . . . . .
Repurchase Agreements . . . . . . . .
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
Short Sales Against the
Box 25 -- -- -- -- 25 25 25
Unseasoned Companies . . . . . . . .
Warrants and Stock
Purchase Rights . . . . . . . .
When-Issued and Forward
Commitments . . . . . . . .
- ----------------------------------------------------------------------------------------------------------------------
Investment Securities
American, European and
Global Depository
Receipts . ./5/ ./5/ ./5/ ./5/ . . .
Asset-Backed and
Mortgage-Backed
Securities/13/ . -- -- -- -- . . .
Bank
Obligations/13/,/14/ . . . . . . . ./14/
Convertible
Securities/6/ . . . . . . . .
Corporate Debt
Obligations/13/ . ./7/ ./7/ ./7/ ./7/ . . .
Equity Securities 65+ 90+ 90+ 90+ 90+ 90+ 65+ 65+
Emerging Country
Securities 25/12/ -- -- -- -- 10/12/ 25/12/ .
Fixed Income
Securities/8/ 35 10/7/ 10/7/ 10/7/ 10/7/ 10 35 35
Foreign Securities 25/12/ ./9/ ./9/ ./9/ ./9/ 10/12/ 25/12/ .
Foreign Government
Securities/13/ -- -- -- -- -- -- -- .
Non-Investment Grade
Fixed Income
Securities/13/ 10/10/ -- -- -- -- 10/10/ 10/11/ ./10/
Real Estate Investment
Trusts ("REITs") . . . . . . . .
Structured Securities* . . . . . . . .
Temporary Investments 100 35 35 35 35 100 100 100
U.S. Government
Securities/13/ . . . . . . . .
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** Limited by the amount the Fund invests in foreign securities.
/1/The CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index.
/2/The CORE Large Cap Growth, CORE Large Cap Value and CORE Small Cap Equity
Funds may enter into futures transactions only with respect to a represen-
tative index.
/3/The Funds may purchase and sell call and put options.
/4/The Funds may sell covered call and put options and purchase call and put
options.
/5/The CORE Funds may not invest in European Depository Receipts.
/6/The CORE Funds have no minimum rating criteria and all other Funds use the
same rating criteria for convertible and non-convertible debt securities.
/7/Cash equivalents only.
/8/Except as noted under "Non-Investment Grade Fixed Income Securities,"
fixed-income securities must be investment grade (i.e., BBB or higher by
Standard & Poor's or Baa or higher by Moody's).
/9/Equity securities of foreign issuers must be traded in the United States.
/10/May be BB or lower by Standard & Poor's or Ba or lower by Moody's.
/11/Must be B or higher by Standard and Poor's or B or higher by Moody's.
/12/Growth and Income, Capital Growth and Mid Cap Value Funds may invest in the
aggregate up to 25%, 10% and 25%, respectively, of their total assets in
foreign securities, including emerging country securities.
/13/Limited by the amount the Fund invests in fixed-income securities.
/14/Bank obligations may be issued by U.S. banks, or foreign banks, to the
extent that the Fund invests in foreign securities..
8
<PAGE>
Other Investment Practices and Securities continued
(Fixed Income Fund)
The table below identifies some of the investment techniques that may (but
are not required to) be used by the Fixed Income Fund in seeking to achieve
its investment objective. Numbers in this table show allowable usage only;
for actual usage, consult the Fund's annual/semi-annual reports. For more
information see Appendix A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
<TABLE>
<CAPTION>
Global
Income
Fund
-------------------------------------------------------------------
. No specific percentage limitation on usage; limited only by the
objectives and strategies of the Fund
--Not permitted
<S> <C>
Investment Practices
Borrowings 33 1/3
Credit and Interest Rate Swaps* .
Currency Options and Futures .
Cross Hedging of Currencies .
Currency Swaps* .
Financial Futures Contracts .
Forward Foreign Currency Exchange Contracts .
Interest Rate Floors, Caps and Collars .
Mortgage Dollar Rolls .
Mortgage Swaps* .
Options (including Options on Futures) .
Options on Foreign Currencies .
Repurchase Agreements .**
Securities Lending 33 1/3
Standby Commitments and Tender Option Bonds --
When-Issued and Forward Commitments .
-------------------------------------------------------------------
Investment Securities
Asset-Backed Securities .
Bank Obligations .
Convertible Securities --
Corporate Debt Obligations and Trust Preferred Securities .
Emerging Country Securities 10/2/
Foreign Securities/1/ 25
Loan Participations --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans .
Collateralized Mortgage Obligations .
Multiple Class Mortgage-Backed Securities .
Privately Issued Mortgage-Backed Securities .
Stripped Mortgage-Backed Securities .
Non-Investment Grade Fixed Income Securities --
Preferred Stock, Warrants and Rights --
Structured Securities* .
Taxable Municipal Securities --
Tax-Free Municipal Securities --
Temporary Investments .
U.S. Government Securities .
-------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** This Fund may enter into repurchase agreements collateralized by securi-
ties issued by foreign governments.
/1/Includes.issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
/2/Of.the Fund's investments in foreign securities, 10% of total assets may
be invested in emerging country securities.
9
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss
of your investment. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund will achieve its
investment objective.
. Applicable
--Not Applicable
<TABLE>
<CAPTION>
Call,
Extension
and U.S. Non- Small
Interest Credit/ Emerging Government Diversification Cap/
Fund Rate Default Foreign Countries Derivatives Management Liquidity Market Stock Securities and Geographic REIT
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and
Income . . . . . . . . . -- -- --
CORE U.S.
Equity . . . . . . . . . -- -- --
CORE Large Cap
Growth . . . . . . . . . -- -- --
CORE Large Cap
Value . . . . . . . . . -- -- --
CORE Small Cap
Equity . . . . . . . . . -- -- .
Capital Growth . . . . . . . . . -- -- --
Mid Cap Value . . . . . . . . . -- -- .
International
Equity . . . . . . . . . -- . --
Global Income . . . . . . . . -- . . --
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RISKS THAT APPLY TO ALL FUNDS:
.Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk
than short-term securities.
.Credit/Default Risk--The risk that an issuer or guarantor of fixed-income
securities held by a Fund (which may have low credit ratings) may default on
its obligation to pay interest and repay principal.
.Foreign Risk--The risk that when a Fund invests in foreign securities, it
will be subject to risks of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss
may also result from the imposition of exchange controls, confiscations and
other government restrictions. A Fund will also be subject to the risk of
negative foreign currency rate fluctuations. Foreign risks will normally be
greatest when a Fund invests in issuers located in emerging countries.
.Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as exten-
sive and frequent accounting, financial and other reporting requirements as
the securities markets of more developed countries. Further, investment in
equity securities of issuers located in Russia and certain other emerging
countries involves risk of loss resulting from problems in share registra-
tion and custody and substantial economic and political disruptions. These
risks are not normally associated with investments in more developed coun-
tries.
.Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
.Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
.Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests, or other
reasons. Funds that invest in non-investment grade fixed-income securities,
small capitalization stocks, REITs and emerging country issuers will be
especially subject to the risk that during cer-
10
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
tain periods the liquidity of particular issuers or industries, or all secu-
rities within these investment categories, will shrink or disappear suddenly
and without warning as a result of adverse economic market or political
events, or adverse investor perceptions whether or not accurate.
.Market Risk--The risk that the value of the securities in which a Fund
invests may go up or down in response to the prospects of individual compa-
nies and/or general economic conditions. Price changes may be temporary or
last for extended periods.
RISKS THAT APPLY PRIMARILY TO THE EQUITY FUNDS:
.Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high lev-
els. There is no guarantee that such levels will continue.
RISKS THAT APPLY PRIMARILY TO THE FIXED INCOME FUND:
.Call Risk--The risk that an issuer will exercise its right to pay principal
on an obligation held by the Fund (such as a mortgage-backed security) ear-
lier than expected. This may happen when there is a decline in interest
rates. Under these circumstances, the Fund may be unable to recoup all of
its initial investment and will also suffer from having to reinvest in lower
yielding securities.
.Extension Risk--The risk that an issuer will exercise its right to pay prin-
cipal on an obligation held by the Fund (such as a mortgage-backed security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease, and
the Fund will also suffer from the inability to invest in higher yielding
securities.
.U.S. Government Securities Risk--The risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
RISKS THAT ARE PARTICULARLY IMPORTANT FOR SPECIFIC FUNDS:
.Non-Diversification and Geographic Risks--The Global Income Fund is non-
diversified meaning that it is permitted to invest more of its assets in
fewer issuers than "diversified" mutual funds. Thus, it may be more suscep-
tible to adverse developments affecting any single issuer held in its port-
folio, and may be more susceptible to greater losses because of these
developments. In addition, it may invest more than 25% of its total assets
in the securities of corporate and governmental issuers located in each of
Canada, Germany, Japan and the United Kingdom, as well as in the securities
of U.S. issuers. Concentration of the investments of this or other Funds, in
issuers located in a particular country or region will subject the Funds, to
a greater extent than if investments were less concentrated, to risks of
adverse securities markets, exchange rates and social, political, regulatory
or economic events in that country or region.
.Small Cap Stock and REIT Risk--The securities of small capitalization stocks
and REITs involve greater risks than those associated with larger, more
established companies and may be subject to more abrupt or erratic price
movements. Securities of such issuers may lack sufficient market liquidity
to enable a Fund to effect sales at an advantageous time or without a sub-
stantial drop in price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
11
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of investing
in a Fund by showing: (a) changes in the performance of a Fund from year to
year; and (b) how the average annual returns of a Fund compares to those of
broad-based securities market indices. The bar chart and table assume rein-
vestment of dividends and distributions. A Fund's past performance is not
necessarily an indication of how the Fund will perform in the future. Perfor-
mance reflects expense limitations in effect. If expense limitations were not
in place, a Fund's performance would have been reduced.
The CORE Large Cap Value Fund commenced operations on April 1, 1999. Since
this Fund has less than one calendar year's performance, no performance
information is provided in this section.
12
<PAGE>
FUND PERFORMANCE
Growth and Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q2 '999.18%
Worst
Quarter
Q3 '99-12.22%
[GRAPH]
1999
5.41%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
-------------------------------------------------
<S> <C> <C>
Fund (Inception 1/12/98) 5.41% 5.53%
S&P 500 Index* 21.04% 28.04%
-------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
13
<PAGE>
CORE U.S. Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '99 15.50%
Worst
Quarter
Q3 '99 -5.39%
[GRAPH]
1999
24.30%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
-------------------------------------------------
<S> <C> <C>
Fund (Inception 2/13/98) 24.30% 20.75%
S&P 500 Index* 21.04% 22.80%
-------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
14
<PAGE>
FUND PERFORMANCE
CORE Large Cap Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '99 23.76%
Worst
Quarter
Q3 '99 -2.74%
[GRAPH]
1999
35.42%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
---------------------------------------------------
<S> <C> <C>
Fund (Inception 2/13/98) 35.42% 27.69%
Russell 1000 Growth Index* 33.15% 33.11%
---------------------------------------------------
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index of common stock prices.
The Index figures do not reflect any fees or expenses.
15
<PAGE>
CORE Small Cap Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '9916.51%
Worst
Quarter
Q1 '99-8.41%
[GRAPH]
1999
17.54%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
-------------------------------------------------
<S> <C> <C>
Fund (Inception 2/13/98) 17.54% 3.46%
Russell 2000 Index* 21.26% 7.34%
-------------------------------------------------
</TABLE>
* The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
16
<PAGE>
FUND PERFORMANCE
Capital Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '99 19.82%
Worst
Quarter
Q3 '99 -6.10%
[GRAPH]
1999
27.13%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
-------------------------------------------------
<S> <C> <C>
Fund (Inception 4/30/98) 27.13% 24.43%
S&P 500 Index* 21.04% 19.78%
-------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
17
<PAGE>
Mid Cap Value Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q2 '99 19.62%
Worst
Quarter
Q3 '99 -16.40%
[GRAPH]
1999
-0.95%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
----------------------------------------------------
<S> <C> <C>
Fund (Inception 5/1/98) -0.95% -8.87%
Russell Midcap Value Index* -0.10% -2.42%
Russell Midcap Index** 18.23% 9.94%
----------------------------------------------------
</TABLE>
* The Russell Midcap Value Index, an unmanaged index of common stock prices,
is replacing the Russell Midcap Index as the Mid Cap Value Fund's perfor-
mance benchmark. The Russell Midcap Value Index includes more value-ori-
ented stocks and, therefore, is expected to be a better benchmark
comparison for the Fund's performance. The Index figures do not reflect any
fees or expenses.
** The Russell Midcap Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
18
<PAGE>
FUND PERFORMANCE
International Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '99 21.73%
Worst
Quarter
Q1 '99 1.01%
[GRAPH]
1999
31.85%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
-----------------------------------------------------------------------------
<S> <C> <C>
Fund (Inception 1/12/98) 31.85% 26.26%
MSCI EAFE (unhedged)* 27.29% 25.90%
FT/S&P Actuaries Europe & Pacific Index (unhedged)** 30.27% 26.96%
-----------------------------------------------------------------------------
</TABLE>
* The MSCI EAFE Index, an unmanaged index of common stock prices, is replac-
ing the FT/S&P Actuaries Europe & Pacific Index ("EuroPac") as the Interna-
tional Equity Fund's performance benchmark. The MSCI EAFE Index is widely
used throughout the investment management industry to represent the invest-
ment opportunities available to a large cap, developed country interna-
tional equity strategy and, in the Investment Adviser's opinion, is a more
appropriate benchmark against which to measure the performance of the
International Equity Fund. The Index figures do not reflect any fees or
expenses.
** The unmanaged FT/S&P EuroPac Index is a market capitalization-weighted com-
posite of approximately 1,500 stocks from 20 countries in Europe and the
Asia-Pacific region. From the inception of the Fund until November 30,
1999, the Fund was managed using the unhedged EuroPac as a benchmark. The
Index figures do not reflect any fees or expenses.
19
<PAGE>
Global Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter
Q4 '99 0.35%
Worst
Quarter
Q2 '99-1.55%
[GRAPH]
1999
-1.01%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
----------------------------------------------------------------------------
<S> <C> <C>
Fund (Inception 1/12/98) -1.01% 3.59%
J.P. Morgan Global Government Bond Index (hedged)* 0.72% 5.23%
----------------------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
20
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Advisers Fund
--------------------------------------------
<S> <C>
Goldman Sachs Asset
Management ("GSAM") Growth and Income
32 Old Slip CORE U.S. Equity
New York, New York
10005 CORE Large Cap Growth
CORE Large Cap Value
CORE Small Cap Equity
Capital Growth
Mid Cap Value
--------------------------------------------
Goldman Sachs Asset
Management
International International Equity
("GSAMI") Global Income
Procession House
55 Ludgate Hill
London EC4A M7JW
England
--------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSAMI. Goldman Sachs registered as an investment
adviser in 1981. GSAMI, a member of the Investment Management Regulatory
Organization Limited since 1990 and a registered investment adviser since
1991, is an affiliate of Goldman Sachs. The Goldman Sachs Group, L.P., which
controlled the Investment Advisers, merged into the Goldman Sachs Group, Inc.
as a result of an initial public offering. As of December 31, 1999, GSAM and
GSAMI, along with other units of IMD, had assets under management of $258.5
billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions for
the Funds and places purchase and sale orders for the Funds' portfolio trans-
actions in U.S. and foreign markets. As permitted by applicable law, these
orders may be directed to any brokers, including Goldman Sachs and its affil-
iates. While the Investment Adviser is ultimately responsible for the manage-
ment of the Funds, it is able to draw upon the research and expertise of its
asset management affiliates for portfolio decisions and management with
respect to certain portfolio securities. In addition, the Investment Adviser
has access to the research and certain proprietary technical models developed
by Goldman Sachs, and may apply quantitative and qualitative analysis in
determining the appropriate allocations among categories of issuers and types
of securities.
The Investment Adviser also performs the following additional services for
the Funds:
.Supervises all non-advisory operations of the Funds
.Provides personnel to perform necessary executive, administrative and cleri-
cal services to the Funds
.Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information ("Additional
Statement") and other reports filed with the Securities and Exchange Commis-
sion (the "SEC") and other regulatory authorities
.Maintains the records of each Fund
.Provides office space and all necessary office equipment and services
The Investment Adviser, Distributor, and/or their affiliates may, from time
to time, pay compensation from their own assets (and not as an additional
charge to the Funds) to participating insurance companies for administrative
services that such companies provide to their variable annuity and variable
life insurance contract owners who are invested in the Funds. In addition,
the Investment Advisers Distributor, and/or their affiliates may, from time
to time, pay compensation from their own assets (and not as an additional
charge to the Funds) to various securities dealers (including affiliates of
participating insurance companies) that distribute variable annuity contracts
and/or variable life insurance contracts of such companies in connection with
the sale, distribution and/or servicing of such contracts and, subject to
applicable National Association of Securities Dealers rules, contribute to
various cash and non-cash incentive arrangements to promote the sale of such
contracts.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and pay-
able monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Other Expenses
(after applicable
GSAM: Contractual Rate limitation)*
----------------------------------------------------------
<S> <C> <C>
Growth and Income 0.75% 0.25%
CORE U.S. Equity 0.70% 0.20%
CORE Large Cap Growth 0.70% 0.20%
CORE Large Cap Value 0.70% 0.20%
CORE Small Cap Equity 0.75% 0.25%
Capital Growth 0.75% 0.25%
Mid Cap Value 0.80% 0.25%
----------------------------------------------------------
GSAMI:
----------------------------------------------------------
International Equity 1.00% 0.35%
Global Income 0.90% 0.25%
----------------------------------------------------------
</TABLE>
* The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest, brokerage fees,
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed the percentage stated in the table above (as calculated
per annum) of each Fund's respective average daily net assets. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis. The
Investment Adviser may discontinue or modify any limitations in the future at
its discretion.
21
<PAGE>
VALUE TEAM
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981, Mr. Hillenbrand
has been President of Commodities Corporation LLC, of which Goldman Sachs is
the parent company. Over the course of his 19-year career at Commodities
Corporation, Mr. Hillenbrand has had extensive experience in dealing with
internal and external investment managers who have managed a range of futures
and equities strategies across multiple markets, using a variety of styles.
.Thirteen portfolio managers/analysts compose the Investment Adviser's value
investment team
.Multi-sector focus provides a balanced perspective
.Across all value products, the Investment Adviser leverages the industry
research expertise of its small-, mid- and large-cap investment teams
------------------------------------------------------------------------------
Value Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the Investment Adviser as a
Vice President Mid Cap Value 1998 research analyst in 1993. She became a portfolio
manager in 1996.
------------------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the Investment Adviser as a
Vice President Mid Cap Value 1998 research analyst in 1995 and became a portfolio
manager in 1996. From 1994 to 1995, he worked in
the Investment Banking Division of Goldman Sachs
in Australia. From 1991 to 1994, Mr. McLennan
worked at Queensland Investment Corporation in
Australia.
------------------------------------------------------------------------------------------------------------
Eileen Rominger Senior Portfolio Manager-- Since Ms. Rominger joined the Investment Adviser as a
Managing Director Growth and Income 1999 senior portfolio manager in 1999. From 1981 to
Mid Cap Value 1999 1999, she worked at Oppenheimer Capital, most
recently as a senior portfolio manager.
------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
SERVICE PROVIDERS
QUANTITATIVE EQUITY TEAM
.A stable and growing team supported by an extensive internal staff
.Access to the research ideas of Goldman Sachs' renowned Global Investment
Research Department
.More than $29 billion in equities currently under management
------------------------------------------------------------------------------
Quantitative Equity Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the Investment Adviser as a
Vice President and CORE U.S. Equity 1998 portfolio manager in 1998. From 1984 to 1998, she
Product Manager for CORE Large Cap Growth 1998 was the director of Quantitative Equity Research
Quantitative Equities CORE Large Cap Value 1999 and served on the Investment Policy Committee at
CORE Small Cap Equity 1998 Prudential Securities.
-------------------------------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the Investment Adviser as a
Managing Director and CORE U.S. Equity 1998 portfolio manager in the quantitative equity
Director of Quantitative CORE Large Cap Growth 1998 management team in 1992.
Research CORE Large Cap Value 1999
CORE Small Cap Equity 1998
-------------------------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the Investment Adviser as a
Managing Director and CORE U.S. Equity 1998 portfolio manager in 1989.
Head of Quantitative CORE Large Cap Growth 1998
Equities CORE Large Cap Value 1999
CORE Small Cap Equity 1998
-------------------------------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the Investment Adviser as a
Vice President and Head CORE U.S. Equity 1998 research analyst in 1990. He became a portfolio
of Portfolio CORE Large Cap Growth 1998 manager in 1992.
Construction CORE Large Cap Value 1999
CORE Small Cap Equity 1998
-------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GROWTH EQUITY INVESTMENT TEAM
.19 year consistent investment style applied through diverse and complete
market cycles
.More than $20 billion in equities currently under management
.More than 300 client account relationships
.A portfolio management and analytical team with more than 160 years combined
investment experience
------------------------------------------------------------------------------
Growth Equity Investment Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
George D. Adler Senior Portfolio Manager-- Since Mr. Adler joined the Investment Adviser as a
Vice President Capital Growth 1998 portfolio manager in 1997. From 1990 to 1997, he
was a portfolio manager at Liberty Investment
Management, Inc. ("Liberty") and its predecessor
firm, Eagle Asset Management ("Eagle").
-----------------------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the Investment Adviser as a
Vice President Capital Growth 1998 portfolio manager and Co-Chair of the Growth
Equity Investment Committee in 1997. From 1991 to
1997, he was a portfolio manager at Liberty and
its predecessor firm, Eagle.
-----------------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the Investment Adviser as a
Managing Director Capital Growth 1998 senior portfolio manager and Chief Investment
Officer of the Growth Equity Team in 1997. From
1994 to 1997, he was the Chief Investment Officer
and Chairman of Liberty. From 1984 to 1994, he
was a portfolio manager and President at
Liberty's predecessor firm, Eagle Asset
Management.
-----------------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the Investment Adviser as
Vice President Capital Growth 1998 portfolio manager and Co-Chair of the Growth
Equity Investment Committee in 1997. From 1990 to
1997, he was a portfolio manager at Liberty and
its predecessor firm, Eagle.
-----------------------------------------------------------------------------------------------------------------
Scott Kolar Portfolio Manager-- Since Mr. Kolar joined the Investment Adviser as an
Associate Capital Growth 1999 equity analyst in 1997 and became a portfolio
manager in 1999. From 1994 to 1997, he was an
equity analyst and information systems specialist
at Liberty.
-----------------------------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the Investment Adviser as a
Vice President Capital Growth 1998 portfolio manager in 1997. From 1987 to 1997, he
was a portfolio manager at Liberty and its
predecessor firm, Eagle.
-----------------------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Senior Portfolio Manager-- Since Mr. Segundo joined the Investment Adviser as a
Vice President Capital Growth 1998 portfolio manager in 1997. From 1992 to 1997, he
was a portfolio manager at Liberty and its
predecessor firm, Eagle.
-----------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
SERVICE PROVIDERS
INTERNATIONAL EQUITY MANAGEMENT TEAM
.Global portfolio teams based in London, Singapore, Tokyo, New York and Tam-
pa. Local presence is a key to the Investment Adviser's fundamental research
capabilities
.Team manages over $44.7 billion in international equities for retail, insti-
tutional and high net worth clients
.Focus on bottom-up stock selection as main driver of returns, though the
team leverages the asset allocation, portfolio construction and risk manage-
ment capabilities of the Investment Adviser
------------------------------------------------------------------------------
London-Based Management Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David Dick Senior Portfolio Manager-- Since Mr. Dick joined the Investment Adviser as
Executive Director International Equity 1998 a senior portfolio manager on the European
Equity team in 1998. From 1990 to 1998, he
was with Mercury Asset Management, where
he was a portfolio manager for European
equity and was head of Mercury's European
sector strategy.
------------------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the Investment Adviser as
Executive Director International Equity 1998 a senior portfolio manager and head of the
European Equity team in October 1997. From
1986 to 1997, she worked at Fleming
Investment Management in London, where she
most recently was Portfolio Management
Director for the European equity
investment strategy and process.
------------------------------------------------------------------------------------------------------
Andrew Orchard Senior Portfolio Manager-- Since Andrew joined the Investment Adviser as a
Executive Director International Equity 1999 portfolio manager in 1999. From 1994 to
1999 he was a portfolio manager at Morgan
Grenfell Asset Management where he managed
global equity portfolios and chaired
Morgan Grenfell's Global Sector Committee.
------------------------------------------------------------------------------------------------------
Robert Stewart Senior Portfolio Manager-- Since Robert joined the Investment Adviser as a
Executive Director International Equity 1999 portfolio manager in 1996. He is a member
of the European Equity Team. From 1996 to
1998 he was a portfolio manager in Japan
where he managed Japanese Equity
Institutional Portfolios. Prior to that
Robert was a portfolio manager at CINMan
from 1989 to 1996 where he managed
international equities.
------------------------------------------------------------------------------------------------------
Danny Truell Senior Portfolio Manager-- Since Mr. Truell joined the Investment Adviser
Executive Director International Equity 1998 as a senior portfolio manager and head of
UK equities in 1998. From 1992 to 1996, he
was Investment Banking Executive Director
for SBC Warburg and Chief Asian Equity
Strategist.
------------------------------------------------------------------------------------------------------
Singapore-Based Management Team
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the Investment Adviser as a
Vice President International Equity 1999 portfolio manager in 1990.
------------------------------------------------------------------------------------------------------
Ravi Shanker Senior Portfolio Manager-- Since Mr. Shanker joined the Investment Adviser
Vice President International Equity 1999 as an operations manager in 1997. From
July 1996 to 1997, he worked for Goldman
Sachs in Singapore as a strategic adviser
for transactions involving infrastructure
industries in Asia. From 1988 to 1996, he
worked for Goldman Sachs as an investment
banker in the Investment Banking Division.
------------------------------------------------------------------------------------------------------
Siew-Hua Thio Portfolio Manager-- Since Ms. Thio joined the Investment Adviser as
Vice President International Equity 1998 a portfolio manager in 1998. From 1997 to
1998, she was Head of Research for
Indosuez WI Carr in Singapore. From 1993
to 1997, she was a research analyst at the
same firm.
------------------------------------------------------------------------------------------------------
Tokyo-Based Management Team
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shogo Maeda Senior Portfolio Manager-- Since Mr. Maeda joined the Investment Adviser as
Managing Director International Equity 1998 a portfolio manager in 1994. From 1987 to
1994, he worked at Nomura Investment
Management Incorporated as a Senior
Portfolio Manager.
------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
FIXED INCOME INVESTMENT TEAM
.The fixed-income portfolio management team is comprised of a deep team of
sector specialists
.The team strives to maximize risk-adjusted returns by de-emphasizing inter-
est rate anticipation and focusing on security selection and sector alloca-
tion
.The team manages approximately $50.5 billion in fixed-income assets for
retail, institutional and high net worth clients
------------------------------------------------------------------------------
Global Fixed Income Investment Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephen Fitzgerald Senior Portfolio Manager-- Since Mr. Fitzgerald joined the Investment Adviser
Managing Director and Global Income 1998 in 1992 as a portfolio manager.
Chief Investment Officer
for International Fixed
Income
--------------------------------------------------------------------------------------------------------------
Philip Moffitt Portfolio Manager-- Since Philip joined the Investment Adviser in 1999
Executive Director; Global Income 2000 as a portfolio manager. Prior to joining the
Senior Investment Adviser he worked for three years
Currency Portfolio as a proprietary trader for Tokai Asia Ltd
Manager in Hong Kong. Before that Philip spent ten
years with Bankers Trust Asset Management in
Australia, where he was a Managing Director
responsible for all active global fixed
income funds as well as a member of the
Asset Allocation Committee.
--------------------------------------------------------------------------------------------------------------
Andrew Wilson Portfolio Manager-- Since Mr. Wilson joined the Investment Adviser in
Managing Director Global Income 1998 1995 as a portfolio manager. Prior to his
current position, he spent three years as an
Assistant Director at Rothschild Asset
Management, where he was responsible for
managing global and international bond
portfolios with specific focus on the U.S.,
Canadian, Australian and Japanese economies.
--------------------------------------------------------------------------------------------------------------
Jennifer Youde Portfolio Manager-- Since Jennifer joined the Investment Adviser in
Executive Director; Global Income 2000 1996 as a portfolio manager and is a member
Senior of the Global Bond Team. Prior to this, she
Portfolio Manager was at CINMan for thirteen years, where she
ran the Japanese and Far Eastern equity
portfolios for six years, before taking over
the management of the global bond and index-
linked portfolios.
--------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
SERVICE PROVIDERS
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affiliates
in the management of, or their interest in, other accounts and other activi-
ties of Goldman Sachs may present conflicts of interest with respect to a
Fund or limit a Fund's investment activities. Goldman Sachs and its affili-
ates engage in proprietary trading and advise accounts and funds which have
investment objectives similar to those of the Funds and/or which engage in
and compete for transactions in the same type of securities, currencies and
instruments as the Funds. Goldman Sachs and its affiliates will not have any
obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds. The
results of a Fund's investment activities, therefore, may differ from those
of Goldman Sachs and its affiliates, and it is possible that a Fund could
sustain losses during periods in which Goldman Sachs and its affiliates and
other accounts achieve significant profits on their trading for proprietary
or other accounts. In addition, the Funds may, from time to time, enter into
transactions in which other clients of Goldman Sachs have an adverse inter-
est. A Fund's activities may be limited because of regulatory restrictions
applicable to Goldman Sachs and its affiliates, and/or their internal poli-
cies designed to comply with such restrictions.
YEAR 2000
Goldman Sachs spent a total of approximately $185 million over the past sev-
eral years to address the potential hardware, software and other computer and
technology issues and related concerns associated with the transition to Year
2000 and to confirm that its service providers did the same. As a result of
those efforts, Goldman Sachs has not experienced any material disruptions in
its operations in connection with, or following, the transition to the Year
2000.
27
<PAGE>
Dividends Shareholder Guide
Dividends from net investment income and capital gain net income are declared
and paid by each Fund at least annually. Over the course of the year, accrued
and paid dividends will equal all or substantially all of each Fund's net
investment income and capital gain net income. Each Fund will also pay divi-
dends from net realized capital gains, reduced by available capital losses,
annually. All dividends will be automatically reinvested in additional shares
of a Fund at the net asset value ("NAV") of such shares on the payment date,
unless an insurance company's separate account is permitted to hold cash and
elects to receive payment in cash. From time to time, a portion of a Fund's
dividends may constitute a return of capital.
The following section will provide you with answers to some of the most often
asked questions regarding buying and selling the Funds' shares.
How Can I Purchase Or Sell Shares Of The Funds?
Shares of the Funds are not sold directly to the public. Instead, Fund shares
are sold to unaffiliated separate accounts that fund variable annuity and
variable life insurance contracts issued by participating insurance compa-
nies. You may purchase or sell (redeem) shares of the Funds through variable
annuity contracts and variable life insurance policies offered through the
separate accounts. The variable annuity contracts and variable life insurance
policies are described in the separate prospectuses issued by the participat-
ing insurance companies. You should refer to those prospectuses for informa-
tion on how to purchase a variable annuity contract or variable life
insurance policy, how to select specific Funds as investment options for your
contract or policy and how to redeem monies from the Funds.
The separate accounts of the participating insurance companies place orders
to purchase and redeem shares of the Funds based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annu-
ity contracts and variable life insurance policies issued by the participat-
ing insurance companies) to be effected on that day pursuant to variable
annuity contracts and variable life insurance policies.
The separate accounts of unaffiliated participating insurance companies may
purchase shares of the Funds. The sale of Fund shares to these unaffiliated
separate accounts may present certain conflicts of interests among variable
annuity owners, variable life insurance policy owners and plan investors. The
Trust's Board of Trustees will monitor the Trust for the existence of any
material irreconcilable conflict of interest. The Trust currently does not
foresee any disadvantages to the holders of variable annuity contracts and
variable life insurance policies arising from the fact that interests of the
holders of variable annuity contracts and variable life insurance policies
may differ due to differences of tax treatment or other considerations or due
to conflicts among the unaffiliated participating insurance companies. If,
however, a material unreconcilable conflict arises between the holders of
variable annuity contracts and variable life insurance policies of unaffili-
ated participating insurance companies, a participating insurance company may
be required to withdraw the assets allocable to some or all of the separate
accounts from the Funds. Any such withdrawal could disrupt orderly portfolio
management to the potential detriment of such holders.
28
<PAGE>
SHAREHOLDER GUIDE
Shares of the Funds (and other existing and new Funds that might be added to
the Trust) may also be offered to:
.Unregistered separate accounts of various participating insurance companies
through which variable annuity contracts and variable life insurance poli-
cies are sold in non-public offerings.
.Unregistered separate accounts of various participating insurance companies
through which variable annuity contracts and variable life insurance poli-
cies are offered exclusively to qualified pension and profit-sharing plans
and/or certain governmental plans.
.Qualified pension and profit-sharing plans. The Trust does not currently
anticipate offering shares directly to such plans.
How Are Shares Priced?
Shares of a Fund are purchased and sold at the Fund's NAV. The Funds calcu-
late NAV as follows:
NAV = (Value of Assets of the Fund)--(Liabilities of the Fund)
Number of the Fund's Outstanding Shares
The Funds' investments are valued based on market quotations or, if accurate
quotations are not readily available, the fair value of the Funds' invest-
ments may be determined in good faith under procedures established by the
Trustees.
.NAV per share of each Fund is calculated by the Fund's custodian on each
business day as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time). Fund shares will not be priced
on any day the New York Stock Exchange is closed.
.Shares are purchased and redeemed at the NAV next calculated after an order
is received in proper form by the Trust.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is closed.
As a result, if the Fund holds foreign securities, its NAV may be impacted on
days when its shares may not be purchased or redeemed.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities (for example, in foreign
markets), but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in a Fund's next determined NAV
unless the Trust, in its discretion, makes an adjustment in light of the
nature and materiality of the event, its effects on Fund operations and other
relevant factors.
Do I Have To Pay Any Fees When Purchasing Or Selling Shares Of The Funds?
The Funds themselves do not charge any fees when they sell or redeem their
shares. Surrender charges, mortality and expense risk fees and other charges
may be assessed by participating insurance companies under the variable annu-
ity contracts or variable life insurance policies. These fees should be
described in the participating insurance companies' prospectuses.
What Else Should I Know About Share Purchases And Redemptions?
The Trust reserves the right to:
.Suspend the right of redemption under certain extraordinary circumstances in
accordance with the rules of the SEC.
.Suspend the offering of shares for a period of time.
.Reject any purchase order.
.Close a Fund to new investors from time to time and reopen any such Fund
whenever it is deemed appropriate by a Fund's Investment Adviser.
Orders received by the Trust are effected on business days. The separate
accounts purchase and redeem shares of each Fund at the Fund's NAV per share
calculated as of the day an order is received by a Fund although such pur-
chases and redemptions may be executed the next morning. Redemption proceeds
paid by wire transfer will normally be wired in federal funds on the next
business day after the Trust receives actual notice of the redemption order,
but may be paid up to three business days after receipt of actual notice of
the order.
What Types Of Reports Will I Be Sent Regarding Investments In The Funds?
As a holder of a variable annuity contract or variable life insurance policy,
you will receive annual reports containing audited financial statements and
semiannual reports from your participating insurance company.
What Are The Funds' Voting Procedures?
Participating insurance companies, not the owners of the variable annuity
contracts or variable life insurance policies or participants therein, are
shareholders of a Fund. To the extent required by law:
.The participating insurance companies will vote Fund shares held in the sep-
arate accounts in a manner consistent with timely voting instructions
received from the holders of variable annuity contracts and variable life
insurance policies.
.The participating insurance companies will vote Fund shares held in the sep-
arate accounts for which no timely instructions are received from the hold-
ers of variable annuity contracts and variable life insurance policies, as
well as shares they own, in the same proportion as those shares for which
voting instructions are received.
It is anticipated that Fund shares held by unregistered separate accounts or
qualified plans generally will be voted for or against any proposition in the
same proportion as all other Fund shares are voted unless the unregistered
separate account's participating insurance company or the plan makes other
arrangements.
Additional information concerning voting rights of the participants in the
separate accounts is more fully set forth in the prospectus relating to those
accounts issued by the participating insurance companies.
29
<PAGE>
Taxation
Each Fund is treated as a separate corporate entity for federal tax purposes.
Each Fund intends to elect to be treated as a regulated investment company
and to qualify for such treatment for each taxable year under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). In addition, each
Fund intends to qualify under the Code with respect to the diversification
requirements related to variable contracts. Provided that a Fund and a sepa-
rate account investing in the Fund satisfy applicable tax requirements, the
Fund will not be subject to federal tax and any distributions from the Fund
to the separate account will be exempt from current federal income taxation
to the extent that such distributions accumulate in a variable annuity con-
tract or a variable life insurance contract.
Persons investing in variable annuity or variable life insurance contracts
should refer to the prospectuses with respect to such contracts for further
information regarding the tax treatment of the contracts and the separate
accounts in which the contracts are invested.
30
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS
To the extent they invest in equity securities, the Funds will be subject to
the risks associated with equity securities. "Equity securities" may include
common stocks, preferred stocks, interests in real estate investment trusts,
convertible debt obligations, convertible preferred stocks, equity interests
in trusts, partnerships, joint ventures, limited liability companies and sim-
ilar enterprises, warrants and stock purchase rights. In general, stock val-
ues fluctuate in response to the activities of individual companies and in
response to general market and economic conditions. Accordingly, the value of
the stocks that a Fund holds may decline over short or extended periods. The
stock markets tend to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. The volatility of equity
securities means that the value of your investment in the Funds may increase
or decrease. As of the date of this Prospectus, certain stock markets were
trading at or close to record high levels and there can be no guarantee that
such levels will continue.
To the extent they invest in fixed-income securities, the Funds will be sub-
ject to the risks associated with fixed-income securities. These risks
include interest rate risk, credit risk and call/extension risk. In general,
interest rate risk involves the risk that when interest rates decline, the
market value of fixed-income securities tends to increase than other debt
securities (although many mortgage related securities will have less poten-
tial than other debt securities for capital appreciation during periods of
declining rates). Conversely, when interest rates increase, the market value
of fixed-income securities tends to decline. Credit risk involves the risk
that the issuer could default on its obligations, and a Fund will not recover
its investment. Call risk and extension risk are normally present in adjust-
able rate mortgage loans ("ARMs"), mortgage-backed securities and asset-
backed securities. For example, homeowners have the option to prepay their
mortgages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). In general, if
interest rates on new mortgage loans fall sufficiently below the interest
rates on existing outstanding mortgage loans, the rate of prepayment would be
expected to increase. Conversely, if mortgage loan interest rates rise above
the interest rates on existing outstanding mortgage loans, the rate of pre-
payment would be expected to decrease. In either case, a change in the pre-
payment rate can result in losses to investors.
The Investment Adviser will not consider the portfolio turnover rate a limit-
ing factor in making investment decisions for a Fund. A high rate of portfo-
lio turnover (100% or more) involves correspondingly greater expenses which
must be borne by a Fund and its shareholders, and is also likely to result in
higher short-term capital gains taxable to shareholders. The portfolio turn-
over rate is calculated by dividing the lesser of the dollar amount of sales
or purchases of portfolio securities by the average monthly value of a Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. See "Financial Highlights" in Appendix B for a
statement of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of your
then current financial position and needs.
B. OTHER PORTFOLIO RISKS
Risks of Investing in Small Capitalization Companies and REITs. Investments
in small capitalization companies and REITs involve greater risk and portfo-
lio price volatility than investments in larger capitalization stocks. Among
the reasons for the greater price volatility of these investments are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Small capitalization companies
and REITs may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain peri-
ods the liquidity of particular issuers or industries, or all securities in
these investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions whether or not accurate. Because of the lack of suffi-
cient market liquidity, a Fund may incur losses because it will be required
to effect sales at a disadvantageous time and only then at a substantial drop
in price. Small capitalization companies and REITs include "unseasoned"
issuers that do not have an established financial history; often have limited
product lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of bank-
ruptcy. Transaction costs for these investments are often higher than those
of larger capitalization companies. Investments in small capitalization com-
panies and REITs may be more diffi-
31
<PAGE>
cult to price precisely than other types of securities because of their char-
acteristics and lower trading volumes.
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken the issuers'
capacity to pay interest and repay principal. A security will be deemed to
have met a rating requirement if it receives the minimum required rating from
at least one such rating organization even though it has been rated below the
minimum rating by one or more other rating organizations, or if unrated by
such rating organizations, determined by the Investment Adviser to be of com-
parable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominately speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will present greater speculative risks than those associated
with investment in investment grade bonds. Also, to the extent that the rat-
ing assigned to a security in a Fund's portfolio is downgraded by a rating
organization, the market price and liquidity of such security may be
adversely affected.
Risks of Derivative Investments. A Fund's transactions in options, futures,
options on futures, swaps, interest rate caps, floors and collars, structured
securities, inverse floating-rate securities, stripped mortgage-backed secu-
rities and currency transactions involve additional risk of loss. Loss can
result from a lack of correlation between changes in the value of derivative
instruments and the portfolio assets (if any) being hedged, the potential
illiquidity of the markets for derivative instruments, or the risks arising
from margin requirements and related leverage factors associated with such
transactions. The use of these management techniques also involves the risk
of loss if the Investment Adviser is incorrect in its expectation of fluctua-
tions in securities prices, interest rates or currency prices. Each Fund may
also invest in derivative investments for non-hedging purposes (that is, to
seek to increase total return). Investing for non-hedging purposes is consid-
ered as a speculative practice and presents even greater risk of loss.
Derivative mortgage-backed securities (such as principal-only ("POs"), inter-
est-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments adversely
affects IOs, super floaters and premium priced mortgage-backed securities.
The risk of slower than anticipated prepayments generally adversely affects
POs, floating-rate securities subject to interest rate caps, support tranches
and discount priced mortgage-backed securities. In addition, particular
derivative securities may be leveraged such that their exposure (i.e., price
sensitivity) to interest rate and/or prepayment risk is magnified.
Some floating-rate derivative debt securities can present more complex types
of derivative and interest rate risks. For example, range floaters are sub-
ject to the risk that the coupon will be reduced below market rates if a des-
ignated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to lower prices in the
event of an unfavorable change in the spread between two designated interest
rates.
Risks of Foreign Investments. Foreign investments involve special risks that
are not typically associated with U.S. dollar denominated or quoted securi-
ties of U.S. issuers. Foreign investments may be affected by changes in cur-
rency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and changes in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S. dol-
lar before such income is distributed as dividends to shareholders or con-
verted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates for
currencies being converted into the euro; the fluctuation of the
32
<PAGE>
APPENDIX A
euro relative to non-euro currencies during the transition period from Janu-
ary 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax
and labor regimes of European countries participating in the euro will con-
verge over time; and whether the conversion of the currencies of other coun-
tries that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
foreign assets held by certain of the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to invest-
ment in international securities markets generally are more expensive than in
the United States. In addition, clearance and settlement procedures may be
different in foreign countries and, in certain markets, such procedures have
been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
a U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S. secu-
rities markets and securities of many foreign issuers are
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibil-
ity of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
the Funds, and political or social instability or diplomatic developments
which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or pay interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may result
in the volatility of market prices of sovereign debt, and in turn a Fund's
NAV, to a greater extent than the volatility inherent in debt obligations of
U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay inter-
est in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency 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 sovereign debtor's
policy toward international lenders, and the political constraints to which a
sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts evidencing an arrangement with a non-U.S. bank. EDRs
and GDRs are not necessarily quoted in the same currency as the underlying
security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe, Latin
and South America and Africa. A Fund's purchase and sale of portfolio securi-
ties in certain emerging countries may be constrained by limitations as to
daily changes in the prices of listed securities, periodic trading or settle-
ment volume and/or limitations on aggregate holdings of foreign investors.
Such limitations may be computed based on the aggregate trading volume by or
holdings of a Fund, the Investment Adviser, its affiliates and their respec-
tive clients and other service providers. A Fund may not be able to sell
securities in circumstances where price, trading or settlement volume limita-
tions have been reached.
Foreign investment in the securities markets of certain emerging countries is
restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In addi-
tion, certain
33
<PAGE>
countries may restrict or prohibit investment opportunities in issuers or
industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be pur-
chased by a Fund. The repatriation of both investment income and capital from
certain emerging countries is subject to restrictions such as the need for
governmental consents. Due to restrictions on direct investment in equity
securities in certain Asian countries, it is anticipated that a Fund may
invest in such countries through other investment funds in such countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of those emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been and
may continue to be affected adversely by the economies of their trading part-
ners, trade barriers, exchange controls, managed adjustments in relative cur-
rency values and other protectionist measures imposed or negotiated by the
countries with which they trade.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of mil-
itary coups, while governments in other emerging countries have periodically
used force to suppress civil dissent. Disparities of wealth, the pace and
success of democratization, and ethnic, religious and racial disaffection,
among other factors, have also led to social unrest, violence and/or labor
unrest in some emerging countries. Unanticipated political or social develop-
ments may result in sudden and significant investment losses. Investing in
emerging countries involves greater risk of loss due to expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and on repatriation of capital invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed and
reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addition,
significant delays are common in certain markets in registering the transfer
of securities. Settlement or registration problems may make it more difficult
for a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations. The creditworthiness of the local securities firms
used by a Fund in emerging countries may not be as sound as the creditworthi-
ness of firms used in more developed countries. As a result, the Fund may be
subject to a greater risk of loss if a securities firm defaults in the per-
formance of its responsibilities.
The small size and inexperience of the securities markets in certain emerging
countries and the limited volume of trading in securities in those countries
may make a Fund's investments in such countries less liquid and more volatile
than investments in countries with more developed securities markets (such as
the United States, Japan and most Western European countries). A Fund's
investments in emerging countries are subject to the risk that the liquidity
of a particular investment, or investments generally, in such countries will
shrink or disappear suddenly and without warning as a result of adverse eco-
nomic, market or political conditions, or adverse investor perceptions,
whether or not accurate. Because of the lack of sufficient market liquidity,
a Fund may incur losses because it will be required to effect sales at a dis-
advantageous time and then only at a substantial drop in price. Investments
in emerging countries may be more difficult to price precisely because of the
characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
.Both domestic and foreign securities that are not readily marketable
.Certain municipal leases and participation interests
.Certain stripped mortgage-backed securities
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
.Certain structured securities and all swap transactions
.Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
34
<PAGE>
APPENDIX A
Investing in 144A Securities may decrease the liquidity of a Fund's portfolio
to the extent that qualified institutional buyers become for a time uninter-
ested in purchasing these restricted securities. The purchase price and sub-
sequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable secu-
rities for which a liquid market exists.
Non-Diversification and Geographic Risks. The Global Income Fund is regis-
tered as a "non-diversified" fund under the Act and is, therefore, more sus-
ceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments. In addition, the Global Income Fund, and certain other Funds,
may invest more than 25% of their total assets in the securities of corporate
and governmental issuers located in a particular foreign country or region.
Concentration of a Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in that country or region.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
.U.S. government securities
.Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
.Certificates of deposit
.Bankers' acceptances
.Repurchase agreements
.Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
C. PORTFOLIO SECURITIES AND TECHNIQUES
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. Government Securities. Each Fund may invest in U.S. Government Securi-
ties. U.S. Government Securities include U.S. Treasury obligations and obli-
gations issued or guaranteed by U.S. government agencies, instrumentalities
or sponsored enterprises. U.S. Government Securities may be supported by (a)
the full faith and credit of the U.S. Treasury (such as the Government
National Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to
borrow from the U.S. Treasury (such as securities of the Student Loan Market-
ing Association); (c) the discretionary authority of the U.S. government to
purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corpora-
tion ("Freddie Mac")); or (d) only the credit of the issuer. U.S. Government
Securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. Government Securities, where the interest and principal compo-
nents of stripped U.S. Government Securities are traded independently.
Custodial Receipts. Certain Funds may invest in custodial receipts. Interests
in U.S. Government Securities may be purchased in the form of custodial
receipts that evidence ownership of future interest payments, principal pay-
ments or both on certain notes or bonds issued or guaranteed as to principal
and interest by the U.S. government, its agencies, instrumentalities, politi-
cal subdivisions or authorities. For certain securities law purposes, custo-
dial receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed secu-
rities. Mortgage-backed securities represent direct or indirect participa-
tions in, or are collateralized by and payable from, mortgage loans secured
by real property. Mortgage-backed securities can be backed by either fixed
rate mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued mortgage-
backed securities are normally structured with one or more types of "credit
enhancement." However, these mortgage-backed securities typically do not have
the same credit standing as U.S. government guaranteed mortgage-backed secu-
rities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Invest-
ment Conduit ("REMIC") pass-through or participation certificates. CMOs pro-
vide an investor with a specified interest in the cash flow from a pool of
underlying mortgages or of other mortgage-backed securities. CMOs are issued
in multiple classes. In many cases, payments of principal are applied to the
CMO classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. A REMIC is a CMO that qual-
ifies for special tax treatment under the Code and invests in certain mort-
gages principally secured by interests in real property and other permitted
investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured
35
<PAGE>
with two different classes: one that receives substantially all of the inter-
est payments and the other that receives substantially all of the principal
payments from a pool of mortgage loans. The market value of SMBS consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on SMBS that receive all or most of the
interest from mortgage loans are generally higher than prevailing market
yields on other mortgage-backed securities because their cash flow patterns
are more volatile and there is a greater risk that the initial investment
will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securities.
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card receiv-
ables, leases, installment contracts and personal property. Asset-backed
securities are often subject to more rapid repayment than their stated matu-
rity date would indicate as a result of the pass-through of prepayments of
principal on the underlying loans. During periods of declining interest
rates, prepayment of loans underlying asset-backed securities can be expected
to accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. Asset-backed securities present credit risks
that are not presented by mortgage-backed securities. This is because asset-
backed securities generally do not have the benefit of a security interest in
collateral that is comparable to mortgage assets. There is the possibility
that, in some cases, recoveries on repossessed collateral may not be avail-
able to support payments on these securities. In the event of a default, a
Fund may suffer a loss if it cannot sell collateral quickly and receive the
amount it is owed.
Bank Obligations. Each Fund may invest in obligations issued or guaranteed by
U.S. or foreign banks. Bank obligations include time deposits, bankers'
acceptances and certificates of deposit, may be general obligations of the
parent bank or may be limited to the issuing branch by the terms of the spe-
cific obligations or by government regulation. Banks are subject to extensive
but different governmental regulations which may limit both the amount and
types of loans which may be made and interest rates which may be charged. In
addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds for the purpose of financing lending oper-
ations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial diffi-
culties of borrowers play an important part in the operation of this indus-
try.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. Certain Funds may invest in corporate debt obligations, trust preferred
securities and convertible securities. Corporate debt obligations include
bonds, notes, debentures, commercial paper and other obligations of corpora-
tions to pay interest and repay principal, and include securities issued by
banks and other financial institutions. Certain Funds may invest in corporate
debt obligations issued by U.S. and certain non-U.S. issuers which issue
securities denominated in the U.S. dollar (including Yankee and Euro obliga-
tions). In addition to obligations of corporations, corporate debt obliga-
tions include securities issued by banks and other financial institutions and
supranational entities (i.e., the World Bank, the International Monetary
Fund, etc.). A trust preferred security is a long dated bond (for example, 30
years) with preferred features. The preferred features are that payment of
interest can be deferred for a specified period without initiating a default
event. The securities are generally senior in claim to standard preferred
stock but junior to other bondholders.
Certain Funds may invest in convertible securities. Convertible securities
are preferred stock or debt obligations that are convertible into common
stock. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. Convertible secu-
rities in which a Fund invests are subject to the same rating criteria as its
other investments in fixed-income securities. Convertible securities have
both equity and fixed-income risk characteristics. Like all fixed-income
securities, the value of convertible securities is susceptible to the risk of
market losses attributable to changes in interest rates. Generally, the mar-
ket value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price of the convertible security, the convertible
security tends to reflect the market price of the underlying common stock. As
the market price of the underlying common stock declines, the convertible
security, like a fixed-income security, tends to trade increasingly on a
yield basis, and thus may not decline in price to the same extent as the
underlying common stock.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Certain Funds may invest in zero coupon, deferred interest, pay-in-kind and
capital appreciation bonds. Zero coupon, deferred interest, pay-in-kind and
capital appreciation bonds are issued at a discount from their face value
because interest payments are typically postponed until maturity. Pay-in-kind
securities are securities that have interest payable by the delivery of addi-
tional securities. The market
36
<PAGE>
APPENDIX A
prices of these securities generally are more volatile than the market prices
of interest-bearing securities and are likely to respond to a greater degree
to changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
Rating Criteria. The rating requirements for the Fixed Income Fund are stated
above. Except as noted below, the Equity Funds (other than the CORE Equity
Funds, which may only invest in debt instruments that are cash equivalents)
may invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. The Growth and
Income, Capital Growth and International Equity Funds may invest up to 10%,
10% and 35%, respectively, of their total assets in debt securities which are
rated in the lowest rating categories by Standard & Poor's or Moody's (i.e.,
BB or lower by Standard & Poor's or Ba or lower by Moody's), including secu-
rities rated D by Moody's or Standard & Poor's. The Mid Cap Value Fund may
invest up to 10% of its total assets in below investment grade debt securi-
ties rated B or higher by Standard & Poor's or Moody's. Fixed-income securi-
ties rated BB or Ba or below (or comparable unrated securities) are commonly
referred to as "junk bonds," are considered predominately speculative and may
be questionable as to principal and interest payments as described above.
Structured Securities and Inverse Floaters. Each Fund may invest in struc-
tured securities. Structured securities are securities whose value is deter-
mined by reference to changes in the value of specific currencies, interest
rates, commodities, indices or other financial indicators (the "Reference")
or the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. Structured
securities may be positively or negatively indexed, so that appreciation of
the Reference may produce an increase or decrease in the interest rate or
value of the security at maturity. In addition, changes in the interest rates
or the value of the security at maturity may be a multiple of changes in the
value of the Reference. Consequently, structured securities may present a
greater degree of market risk than other types of securities, and may be more
volatile, less liquid and more difficult to price accurately than less com-
plex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
the degree of leverage of an inverse floater, the greater the volatility of
its market value.
Foreign Currency Transactions. Each Fund may, to the extent consistent with
its investment policies, purchase or sell foreign currencies on a cash basis
or through forward contracts. A forward contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, certain Funds may also enter
into such transactions to seek to increase total return, which is considered
a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of corre-
lation between the two currencies. A Fund may hold foreign currency received
in connection with investments in foreign securities when, in the judgment of
the Investment Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date (e.g., the Investment Adviser may anticipate
that the foreign currency will appreciate against the U.S. dollar).
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
The market in forward foreign currency exchange contracts, currency swaps and
other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or could force the Fund to cover
its purchase or sale commitments, if any, at the current market price.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the
37
<PAGE>
right to sell, and the writer (seller) of the option the obligation to buy,
the underlying instrument during the option period. A call option gives the
purchaser of the option the right to buy, and the writer (seller) of the
option the obligation to sell, the underlying instrument during the option
period. Certain Funds may write (sell) covered call and put options and pur-
chase put and call options on any securities in which it may invest or on any
securities index comprised of securities in which it may invest. A Fund may
also, to the extent that it invests in foreign securities, purchase and sell
(write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is consid-
ered a speculative activity). The successful use of options depends in part
on the ability of the Investment Adviser to manage future price fluctuations
and the degree of correlation between the options and securities (or curren-
cy) markets. If the Investment Adviser is incorrect in its expectation of
changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded on
either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-
counter options will present greater possibility of loss because of their
greater illiquidity and credit risks.
Yield Curve Options. Certain Funds may enter into options on the yield
"spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options,
a yield curve option is based on the difference between the yields of desig-
nated securities, rather than the prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profit-
able to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options present
a risk of loss even if the yield of one of the underlying securities remains
constant, or if the spread moves in a direction or to an extent which was not
anticipated.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or purchase
of a specified financial instrument or currency at a future time at a speci-
fied price. An option on a futures contract gives the purchaser the right
(and the writer of the option the obligation) to assume a position in a
futures contract at a specified exercise price within a specified period of
time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase total
return or to hedge against changes in interest rates, securities prices or,
to the extent a Fund invests in foreign securities, currency exchange rates,
or to otherwise manage its term structure, sector selection and duration in
accordance with its investment objectives and policies. The Funds may also
enter into closing purchase and sale transactions with respect to such con-
tracts and options. A Fund will engage in futures and related options trans-
actions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums paid on the Fund's outstanding positions in futures and related options
entered into for the purpose of seeking to increase total return would exceed
5% of the market value of the Fund's net assets.
Futures contracts and related options present the following risks:
.While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
.Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
.The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
.Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
.As a result of the low margin deposits normally required in futures trading,
a relatively small price movement in a futures contract may result in sub-
stantial losses to a Fund.
.Futures contracts and options on futures may be illiquid, and
38
<PAGE>
APPENDIX A
exchanges may limit fluctuations in futures contract prices during a single
day.
.Foreign exchanges may not provide the same protection as U.S. exchanges.
Preferred Stock, Warrants and Rights. Certain Funds may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent an
ownership interest providing the holder with claims on the issuer's earnings
and assets before common stock owners but after bond owners. Unlike debt
securities, the obligations of an issuer of preferred stock, including divi-
dend and other payment obligations, may not typically be accelerated by the
holders of such preferred stock on the occurrence of an event of default or
other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in other investment compa-
nies (including SPDRs and WEBS, as defined below and other exchange-traded
funds) subject to statutory limitations prescribed by the Act. These limita-
tions include a prohibition on any Fund acquiring more than 3% of the voting
shares of any other investment company, and a prohibition on investing more
than 5% of a Fund's total assets in securities of any one investment company
or more than 10% of its total assets in securities of all investment compa-
nies. A Fund will indirectly bear its proportionate share of any management
fees and other expenses paid by such other investment companies. Exchange-
traded funds such as SPDRs and WEBS are shares of unaffiliated investment
companies which are traded like traditional equity securities on a national
securities exchange or the NASDAQ National Market System.
.Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
.World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its assets
in securities included in the MSCI indices for specified countries. WEBS are
listed on the AMEX and were initially offered to the public in 1996. The
market prices of WEBS are expected to fluctuate in accordance with both
changes in the NAVs of their underlying indices and supply and demand of
WEBS on the AMEX. To date, WEBS have traded at relatively modest discounts
and premiums to their NAVs. However, WEBS have a limited operating history
and information is lacking regarding the actual performance and trading
liquidity of WEBS for extended periods or over complete market cycles. In
addition, there is no assurance that the requirements of the AMEX necessary
to maintain the listing of WEBS will continue to be met or will remain
unchanged. In the event substantial market or other disruptions affecting
WEBS should occur in the future, the liquidity and value of a Fund's shares
could also be substantially and adversely affected. If such disruptions were
to occur, a Fund could be required to reconsider the use of WEBS as part of
its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments in
unseasoned companies are more speculative and entail greater risk than do
investments in companies with an established operating record.
Risks of Investing in Non-Investment Grade Fixed-Income Securities. Certain
Funds may invest in non-investment grade fixed-income securities. Non-invest-
ment grade fixed-income securities and unrated securities of comparable
credit quality (commonly known as "junk bonds") are considered predominantly
speculative by traditional investment standards. In some cases, these obliga-
tions may be highly speculative and have poor prospects for reaching invest-
ment grade standing. Non-investment grade fixed-income securities are subject
to the increased risk of an issuer's inability to meet principal and interest
obligations. These securities, also referred to as high yield securities, may
be subject to greater price volatility due to such factors as specific corpo-
rate developments, interest rate sensitivity, negative perceptions of the
junk bond markets generally and less secondary market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to
39
<PAGE>
expand. Such issuers are often highly leveraged and generally less able than
more established or less leveraged entities to make scheduled payments of
principal and interest in the event of adverse developments or business con-
ditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its invest-
ment objectives may depend to a greater extent on the Investment Adviser's
judgment concerning the creditworthiness of issuers than funds which invest
in higher-rated securities. Issuers of non-investment grade fixed-income
securities may not be able to make use of more traditional methods of financ-
ing and their ability to service debt obligations may be affected more
adversely than issuers of higher rated securities by economic downturns, spe-
cific corporate or financial developments or the issuer's inability to meet
specific projected business forecasts. Negative publicity about the junk bond
market and investor perceptions regarding lower rated securities, whether or
not based on fundamental analysis, may depress the prices for such
securities.
A holder's risk of loss from default is significantly greater for non-invest-
ment grade fixed-income securities than is the case for holders of other debt
securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities
poses additional risk of loss should nonpayment of principal and interest
continue in respect of such securities. Even if such securities are held to
maturity, recovery by a Fund of its initial investment and any anticipated
income or appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is con-
centrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could shrink or disappear suddenly and without warning as a result of adverse
market or economic conditions, independent of any specific adverse changes in
the condition of a particular issuer. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and then only at a substantial drop in price.
These factors may have an adverse effect on the market price, and a Fund's
ability to dispose of particular portfolio investments. A less liquid second-
ary market also may make it more difficult for a Fund to obtain precise valu-
ations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of non-
investment grade securities and, therefore, may not fully reflect the true
risks of an investment. In addition, credit rating agencies may or may not
make timely changes in a rating to reflect changes in the economy or in the
conditions of the issuer that affect the market value of the security. Conse-
quently, credit ratings are used only as a preliminary indicator of invest-
ment quality.
Equity Swaps. Certain Funds may invest in equity swaps. Equity swaps allow
the parties to a swap agreement to exchange the dividend income or other com-
ponents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are derivatives and their value can be very volatile. To the
extent that the Investment Adviser does not accurately analyze and predict
the potential relative fluctuation of the components swapped with another
party, a Fund may suffer a loss. The value of some components of an equity
swap (such as the dividends on a common stock) may also be sensitive to
changes in interest rates. Furthermore, a Fund may suffer a loss if the
counterparty defaults.
When-Issued Securities and Forward Commitments.
Each Fund may purchase when-issued securities and enter into forward commit-
ments. When-issued securities are securities that have been authorized, but
not yet issued. When-issued securities are purchased in order to secure what
is considered to be an advantageous price and yield to the Fund at the time
of entering into the transaction. A forward commitment involves the entering
into a contract to purchase or sell securities for a fixed price at a future
date beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
before the settlement date. Conversely, the sale of securities on a forward
commitment basis involves the risk that the value of the securities sold may
increase before the
40
<PAGE>
APPENDIX A
settlement date. Although a Fund will generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring secu-
rities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. Certain Funds may also
enter into repurchase agreements involving certain foreign government securi-
ties.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and other
collateral held by the Fund are less than the repurchase price and the Fund's
costs associated with delay and enforcement of the repurchase agreement. In
addition, in the event of bankruptcy of the seller, a Fund could suffer addi-
tional losses if a court determines that the Fund's interest in the collat-
eral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents, U.S.
Government Securities or letters of credit in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in
cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market depreciation
or appreciation, and the Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund (in-
cluding the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities or a capital loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Mortgage Dollar Rolls. Certain Funds may enter into "mortgage dollar rolls."
A mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and matu-
rity) but not identical securities on a specified future date. During the
roll period, the Fund loses the right to receive principal and interest paid
on the securities sold. However, the Fund benefits to the extent of any dif-
ference between (a) the price received for the securities sold and (b) the
lower forward price for the future purchase and/or fee income plus the inter-
est earned on the cash proceeds of the securities sold. Unless the benefits
of a mortgage dollar roll exceed the income, capital appreciation and gain or
loss due to mortgage prepayments that would have been realized on the securi-
ties sold as part of the roll, the use of this technique will diminish a
Fund's investment performance.
Successful use of mortgage dollar rolls depends upon the Investment Adviser's
ability to predict correctly interest rates and mortgage prepayments. If the
Investment Adviser is incorrect in its prediction, a Fund may experience a
loss. For financial reporting and tax purposes, the Funds treat mortgage dol-
lar rolls as two separate transactions: one involving the purchase of a secu-
rity and a separate transaction involving a sale. The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
financing, and do not treat them as borrowings.
Borrowings and Reverse Repurchase Agreements.
Each Fund can borrow money from banks and certain Funds may enter into
reverse repurchase agreements with banks and other financial institutions in
amounts not exceeding one-third of their total assets. A Fund may not make
additional investments if borrowings exceed 5% of its total assets. Reverse
repurchase agreements involve the sale of securities held by a Fund subject
to the Fund's agreement to repurchase them at a mutually agreed upon date and
price (including interest). These transactions may be entered into as a tem-
porary measure for emergency purposes or to meet redemption requests. Reverse
repurchase agreements may also be entered into when the
41
<PAGE>
Investment Adviser expects that the interest income to be earned from the
investment of the transaction proceeds will be greater than the related
interest expense. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by a Fund decline in value while these
transactions are outstanding, the NAV of the Fund's outstanding shares will
decline in value by proportionately more than the decline in value of the
securities. In addition, reverse repurchase agreements involve the risk that
any interest income earned by a Fund (from the investment of the proceeds)
will be less than the interest expense of the transaction, that the market
value of the securities sold by a Fund will decline below the price the Fund
is obligated to pay to repurchase the securities, and that the securities may
not be returned to the Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Certain Funds may invest in interest rate
swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps,
floors and collars. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest,
such as an exchange of fixed rate payments for floating rate payments. Mort-
gage swaps are similar to interest rate swaps in that they represent commit-
ments to pay and receive interest. The notional principal amount, however, is
tied to a reference pool or pools of mortgages. Credit swaps involve the
receipt of floating or fixed rate payments in exchange for assuming potential
credit losses of an underlying security. Credit swaps give one party to a
transaction the right to dispose of or acquire an asset (or group of assets),
or the right to receive or make a payment from the other party, upon the
occurrence of specified credit events. Currency swaps involve the exchange of
the parties' respective rights to make or receive payments in specified cur-
rencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payment of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor enti-
tles the purchaser, to the extent that a specified index falls below a prede-
termined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund may enter into swap transactions for hedging purposes or to seek to
increase total return. The use of interest rate, mortgage, credit and cur-
rency swaps, as well as interest rate caps, floors and collars, is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Adviser is incorrect in its forecasts of market value, interest
rates and currency exchange rates, the investment performance of a Fund would
be less favorable than it would have been if these investment techniques were
not used.
REITs. Certain Funds may invest in REITs. REITs are pooled investment vehi-
cles that invest primarily in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the proper-
ties owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the REITs
under applicable regulatory requirements for favorable income tax treatment.
REITs are also subject to risks generally associated with investments in real
estate including possible declines in the value of real estate, general and
local economic conditions, environmental problems and changes in interest
rates. To the extent that assets underlying a REIT are concentrated geograph-
ically, by property type or in certain other respects, these risks may be
heightened. A Fund will indirectly bear its proportionate share of any
expenses, including management fees, paid by a REIT in which it invests.
42
<PAGE>
[This page intentionally left blank]
43
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance since its commencement of operations. Certain informa-
tion reflects financial results for a single Fund share. The total returns in
the table represent the rate that an investor would have earned or lost on an
investment in a Fund (assuming reinvestment of all dividends and distribu-
tions). This information has been audited by Arthur Andersen LLP, whose
report, along with a Fund's financial statements, is included in the Fund's
annual report (available upon request without charge).
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
--------------------------- ------------------------------
Net asset Net realized In excess From
value at Net and From net of net net
beginning investment unrealized investment investment realized
of period income gain (loss) income income gain
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund
For the year ended
December 31, 1999 $10.45 $ 0.12 $ 0.44 $(0.12) $ -- $ --
For the period ended
December 31, 1998(f) 10.00 0.09 0.45 (0.09) -- --
----------------------------------------------------------------------------------------------
CORE U.S. Equity Fund
For the year ended
December 31, 1999 11.42 0.05 2.72 (0.05) -- (0.16)
For the period ended
December 31, 1998(f) 10.00 0.05 1.42 (0.05) -- --
----------------------------------------------------------------------------------------------
CORE Large Cap Growth
Fund
For the year ended
December 31, 1999 11.68 0.02 4.12 (0.02) -- --
For the period ended
December 31, 1998(f) 10.00 0.02 1.68 (0.02) -- --
----------------------------------------------------------------------------------------------
CORE Large Cap Value
Fund
For the period ended
December 31, 1999(e) 10.00 0.09 0.81 (0.09) (0.01) (0.19)
----------------------------------------------------------------------------------------------
CORE Small Cap Equity
Fund
For the year ended
December 31, 1999 9.04 0.02 1.56 (0.02) -- --
For the period ended
December 31, 1998(f) 10.00 0.02 (0.95) (0.02) (0.01) --
----------------------------------------------------------------------------------------------
Capital Growth Fund
For the year ended
December 31, 1999 11.31 0.01 3.04 (0.01) -- (0.34)
For the period ended
December 31, 1998(f) 10.00 0.03 1.31 (0.03) -- --
----------------------------------------------------------------------------------------------
Mid Cap Value Fund
For the year ended
December 31, 1999 8.57 0.07 (0.15) (0.07) -- --
For the period ended
December 31, 1998(f) 10.00 0.07 (1.43) (0.07) -- --
----------------------------------------------------------------------------------------------
International Equity
Fund
For the year ended
December 31, 1999 11.91 0.07 3.66 (0.07) (0.13) (0.97)
For the period ended
December 31, 1998(f) 10.00 0.02 1.98 -- -- (0.09)
----------------------------------------------------------------------------------------------
Global Income Fund
For the year ended
December 31, 1999 10.32 0.39 (0.50) (0.33) -- (0.05)
For the period ended
December 31, 1998(f) 10.00 0.45 0.38 (0.40) -- (0.11)
----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) CORE Large Cap Value commenced operations on April 1, 1999.
(f) Growth and Income, International Equity and Global Income commenced
operations on January 12, 1998; CORE U.S. Equity, CORE Large Cap Growth
and CORE Small Cap Equity commenced operations on February 13, 1998;
Capital Growth and Mid Cap Value commenced operations on April 30, 1998
and May 1, 1998, respectively.
44
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Net
Net assets Ratio of Ratio of
increase at end Ratio of net Ratio of net
(decrease) Net asset of net investment net investment
in net value, period expenses income expenses income (loss) Portfolio
asset end of Total (in to average to average to average to average turnover
value period return(b) 000s) net assets net assets net assets net assets rate
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.44 $10.89 5.41% $25,989 0.90% 1.44% 1.65% 0.69% 121%
0.45 10.45 5.47(d) 13,814 0.90(c) 1.85(c) 2.69(c) 0.06(c) 88(d)
-----------------------------------------------------------------------------------------------------
2.56 13.98 24.30 52,058 0.80 0.70 1.52 (0.02) 70
1.42 11.42 14.73(d) 9,809 0.80(c) 0.70(c) 2.83(c) (1.33)(c) 75(d)
-----------------------------------------------------------------------------------------------------
4.12 15.80 35.42 24,349 0.80 0.15 1.85 (0.90) 70
1.68 11.68 16.99(d) 8,214 0.80(c) 0.20(c) 2.87(c) (1.87)(c) 69(d)
-----------------------------------------------------------------------------------------------------
0.61 10.61 8.99(d) 3,456 0.80(c) 1.04(c) 5.61(c) (3.77)(c) 48(d)
-----------------------------------------------------------------------------------------------------
1.56 10.60 17.54 13,488 0.90 0.35 4.22 (2.97) 101
(0.96) 9.04 (9.30)(d) 4,841 0.90(c) 0.30(c) 3.92(c) (2.72)(c) 74(d)
-----------------------------------------------------------------------------------------------------
2.70 14.01 27.13 10,450 0.90 0.04 3.13 (2.19) 34
1.31 11.31 13.40(d) 4,463 0.90(c) 0.42(c) 4.92(c) (3.60)(c) 20(d)
-----------------------------------------------------------------------------------------------------
(0.15) 8.42 (0.95) 21,882 0.95 1.30 2.19 0.06 103
(1.43) 8.57 (13.56)(d) 5,604 0.95(c) 1.74(c) 4.79(c) (2.10)(c) 38(d)
-----------------------------------------------------------------------------------------------------
2.56 14.47 31.85 20,159 1.25 0.41 2.57 (0.91) 87
1.91 11.91 20.07(d) 11,206 1.25(c) 0.23(c) 2.97(c) (1.49)(c) 76(d)
-----------------------------------------------------------------------------------------------------
(0.49) 9.83 (1.01) 6,924 1.05 4.23 3.51 1.77 200
0.32 10.32 8.29(d) 5,741 1.05(c) 4.59(c) 3.30(c) 2.34(c) 203(d)
-----------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INVESTMENT MANAGEMENT APPROACH .................................. 1
FUND INVESTMENT OBJECTIVES AND STRATEGIES................................ 3
Goldman Sachs Growth and Income Fund..................................... 3
Goldman Sachs CORE U.S. Equity Fund...................................... 3
Goldman Sachs CORE Large Cap Growth Fund................................. 4
Goldman Sachs CORE Large Cap Value Fund.................................. 4
Goldman Sachs CORE Small Cap Equity Fund................................. 5
Goldman Sachs Capital Growth Fund........................................ 5
Goldman Sachs Mid Cap Value Fund......................................... 6
Goldman Sachs International Equity Fund.................................. 6
Goldman Sachs Global Income Fund......................................... 7
OTHER INVESTMENT PRACTICES AND SECURITIES................................ 8
PRINCIPAL RISKS OF THE FUNDS............................................. 10
FUND PERFORMANCE......................................................... 12
SERVICE PROVIDERS........................................................ 21
DIVIDENDS................................................................ 28
SHAREHOLDER GUIDE........................................................ 28
TAXATION................................................................. 30
APPENDIX A--ADDITIONAL INFORMATION ON PORTFOLIO RISKS, SECURITIES AND
TECHNIQUES............................................................... 31
APPENDIX B--FINANCIAL HIGHLIGHTS......................................... 44
</TABLE>
<PAGE>
Goldman Sachs Variable Insurance Trust
Prospectus
Shares of the Trust are offered to separate accounts of participating life
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Shares of the Trust are not offered
directly to the general public. A particular Fund may not be available under
the variable annuity contract or variable life insurance policy which you
have chosen. The prospectus of your specific insurance product will indicate
which Funds are available and should be read in conjunction with this pro-
spectus. Inclusion in this prospectus of a Fund which is not available under
your contract or policy is not to be considered a solicitation.
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during their
last fiscal year.
Your insurance company will provide you with annual and semi-annual reports
if those Funds serve as the investment vehicle for your variable annuity con-
tract or variable life insurance policy.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).
VITPRO
The Additional Statement is available free upon request by calling Goldman
Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of Trust documents are located online
and may be downloaded from: SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Trust documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Trust
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference room
may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Trust's investment company registration number is 811-08361.
CORE/SM/ is a service mark of Goldman, Sachs & Co.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE(SM) U.S. EQUITY FUND
GOLDMAN SACHS CORE(SM) LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE(SM) LARGE CAP VALUE FUND
GOLDMAN SACHS CORE(SM) SMALL CAP EQUITY FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP VALUE FUND
(FORMERLY, GOLDMAN SACHS MID CAP EQUITY FUND)
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(PORTFOLIOS OF GOLDMAN SACHS VARIABLE INSURANCE TRUST)
4900 Sears Tower
Chicago, Illinois 60606-6303
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the prospectus for Goldman Sachs Growth and Income Fund, Goldman Sachs CORE U.S.
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE Large
Cap Value Fund, Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs Mid Cap Value Fund, Goldman Sachs International
Equity Fund, and Goldman Sachs Global Income Fund dated May 1, 2000 as amended
and/or supplemented from time to time (the "Prospectus"), which may be obtained
without charge from Goldman, Sachs & Co. by calling the telephone number, or
writing to one of the addresses, listed below.
The audited financial statements and related report of Arthur Andersen LLP,
former independent public accountants, for each Fund contained in each Fund's
1999 Annual Report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Funds' Annual Report are incorporated
herein by reference. Ernst & Young LLP, independent public accountants, have
been selected as auditors of the Funds of the Trust for the fiscal year ending
December 31, 2000.
CORE(SM) is a service mark of Goldman, Sachs & Co.
The date of this Additional Statement is May 1, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
INTRODUCTION............................................. B-1
INVESTMENT POLICIES...................................... B-2
INVESTMENT RESTRICTIONS.................................. B-54
MANAGEMENT............................................... B-56
PORTFOLIO TRANSACTIONS AND BROKERAGE..................... B-78
NET ASSET VALUE.......................................... B-83
PERFORMANCE INFORMATION.................................. B-85
SHARES OF THE TRUST...................................... B-90
TAXATION................................................. B-94
OTHER INFORMATION........................................ B-99
FINANCIAL STATEMENTS..................................... B-100
APPENDIX A............................................... 1-A
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO............... 1-B
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
Investment Adviser to: Distributor
Goldman Sachs Growth and Income Fund 85 Broad Street
Goldman Sachs CORE U.S. Equity Fund New York, New York 10004
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE Large Cap Value Fund GOLDMAN SACHS ASSET
Goldman Sachs CORE Small Cap Equity Fund MANAGEMENT INTERNATIONAL
Goldman Sachs Capital Growth Fund Investment Adviser to:
Goldman Sachs Mid Cap Value Fund Goldman Sachs International
Equity Fund
32 Old Slip Goldman Sachs Global Income
Fund
New York, New York 10005 133 Peterborough Court
London, England EC4A 2BB
</TABLE>
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, IL 60606
Toll free.......800-292-4726
-ii-
<PAGE>
INTRODUCTION
Goldman Sachs Variable Insurance Trust (the "Trust") is an open-end,
management investment company. Shares of the Trust may be purchased and held by
the separate accounts ("Separate Accounts") of participating life insurance
companies ("Participating Insurance Companies") for the purpose of funding
variable annuity contracts and variable life insurance policies. Shares of the
Trust are not offered directly to the general public. The following series of
the Trust are described in this Additional Statement: Goldman Sachs Growth and
Income Fund ("Growth and Income Fund"), Goldman Sachs CORE U.S. Equity Fund
("CORE U.S. Equity Fund"), Goldman Sachs CORE Large Cap Growth Fund ("CORE Large
Cap Growth Fund"), Goldman Sachs CORE Large Cap Value Fund ("CORE Large Cap
Value Fund"), Goldman Sachs CORE Small Cap Equity Fund ("CORE Small Cap Equity
Fund"), Goldman Sachs Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs
Mid Cap Value Fund ("Mid Cap Value Fund"), Goldman Sachs International Equity
Fund ("International Equity Fund"), (collectively referred to herein as the
"Equity Funds"), and Goldman Sachs Global Income Fund ("Global Income Fund")
(collectively referred to herein as the "Fixed Income Funds" and collectively
with the Equity Funds referred to herein as the "Funds"). Other series of the
Trust are described in a separate Additional Statement.
Each Fund is a series of Goldman Sachs Variable Insurance Trust, which was
formed under the laws of the state of Delaware on September 16, 1997. The
Trustees have authority under the Trust's charter to create and classify shares
of beneficial interests in separate series and to classify and reclassify any
series or portfolio of shares into one or more classes, without further action
by shareholders. Additional series may be added in the future.
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment Management
Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment
adviser to the Growth and Income, CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity, Capital Growth, and Mid Cap Value Funds.
Goldman Sachs Asset Management International ("GSAMI"), an affiliate of Goldman
Sachs, serves as the investment adviser to the International Equity and Global
Income Funds. GSAM and GSAMI are sometimes individually referred to as an
"Investment Adviser" and collectively herein as the "Investment Advisers." In
addition, Goldman Sachs serves as each Fund's distributor and transfer agent.
Each Fund's custodian is State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
each Fund's investment policies in the Prospectus. See the Prospectus for a more
complete description of the Funds' investment objectives and policies. There is
no assurance that a Fund will achieve its objective.
INVESTMENT POLICIES
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. Each Fund (except the
Global Income Fund) is a
B-1
<PAGE>
diversified open-end management company as defined in the Investment Company Act
of 1940, as amended (the "Act"). The Global Income Fund is a non-diversified
open-end management company.
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
General Information Regarding All Equity Funds.
- ----------------------------------------------
The Investment Adviser may purchase for the Equity Funds common stocks,
preferred stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess operations
and to meet decision-makers. The Investment Adviser may also use macro analysis
of numerous economic and valuation variables to anticipate changes in company
earnings and the overall investment climate. The Investment Adviser is able to
draw on the research and market expertise of the Goldman Sachs Global Investment
Research Department (the "Research Department") and other affiliates of the
Investment Adviser, as well as information provided by other securities dealers.
Equity securities in a Fund's portfolio will generally be sold when the
Investment Adviser believes that the market price fully reflects or exceeds the
securities' fundamental valuation or when other more attractive investments are
identified.
Value Style Funds. The Growth and Income Fund and Mid Cap Value Fund are
managed using a value oriented approach. The Investment Adviser evaluates
securities using fundamental analysis and intends to purchase equity securities
that are, in its view, underpriced relative to a combination of such company's
long-term earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which the
company operates, the existence of a management team with a record of success,
the position of the company in the markets in which it operates, the level of
the company's financial leverage and the sustainable return on capital invested
in the business. The Funds may also purchase securities of companies that have
experienced difficulties and that, in the opinion of the Investment Adviser, are
available at attractive prices.
Growth Style Funds. The Capital Growth Fund is managed using a growth
equity oriented approach. Equity securities for this Fund are selected based on
their prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion, at
a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a lesser
extent, in companies in which significant further growth is not anticipated but
whose market value per share is thought
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to be undervalued. In order to determine whether a security has favorable growth
prospects, the Investment Adviser ordinarily looks for one or more of the
following characteristics in relation to the security's prevailing price:
prospects for above average sales and earnings growth per share; high return on
invested capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics that
will enable the company to compete successfully in its marketplace.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, and CORE Small Cap Equity (the "CORE Equity Funds") are managed
using both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for CORE U.S. Equity, CORE Large Cap Growth, CORE Large
Cap Value and CORE Small Cap Equity Funds (the "CORE U.S. Equity Funds"). As
described more fully below, the Investment Adviser uses a proprietary
multifactor model (the "Multifactor Model") to forecast the returns of different
markets, currencies and individual securities. In the case of an equity security
followed by the Research Department, a rating is assigned based upon the
Research Department's evaluation. In the discretion of the Investment Adviser,
ratings may also be assigned to equity securities based on research ratings
obtained from other industry sources.
In building a diversified portfolio for each CORE Equity Fund, the
Investment Adviser utilizes optimization techniques to seek to maximize the
Fund's expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily composed of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies and
individual equity securities according to fundamental investment
characteristics. The CORE U.S. Equity Funds use one Multifactor Model to
forecast the returns of securities held in each Fund's portfolio. Multifactor
Models incorporate common variables covering measures of value, growth, momentum
and risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability. All of the factors used in the Multifactor Models have been shown to
significantly impact the performance of the securities and markets they were
designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that
considers each factor's historical performance in different market environments.
As such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the Investment
Adviser believes that all the Multifactor Models are broader in scope and
provide a more
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thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics. By using a variety of relevant
factors to select securities, currencies or markets, the Investment Adviser
believes that the Fund will be better balanced and have more consistent
performance than an investment portfolio that uses only one or two factors to
select such investments.
The Investment Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities or markets are selected for or
weighted in a Fund. Such changes (which may be the result of changes in the
Multifactor Model or the method of applying the Multifactor Model) may include:
(i) evolutionary changes to the structure of the Multifactor Model (e.g., the
addition of new factors or a new means of weighting the factors); (ii) changes
in trading procedures (e.g., trading frequency or the manner in which a Fund
uses futures); or (iii) changes in the method by which securities, currencies or
markets are weighted in a Fund. Any such changes will preserve a Fund's basic
investment philosophy of combining qualitative and quantitative methods of
selecting securities using a disciplined investment process.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from "recommended
for purchase" to "likely to under perform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Model) and a
qualitative (i.e., research enhanced) method of selecting securities, each CORE
Equity Fund seeks to capitalize on the strengths of each discipline.
Other Information. Since normal settlement for equity securities is three
trading days (for certain international markets settlement may be longer), the
Funds will need to hold cash balances to satisfy shareholder redemption
requests. Such cash balances will normally range from 2% to 5% of a Fund's net
assets. CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index and the CORE Large Cap Growth, CORE Large Cap Value
and CORE Small Cap Equity Funds may enter into futures transactions only with
respect to a representative index in order to keep a Fund's effective equity
exposure close to 100%. CORE Small Cap Equity Fund may purchase other types of
futures contracts. For example, if cash balances are equal to 5% of the net
assets, the Fund may enter into long futures contracts covering an amount equal
to 5% of the Fund's net assets. As cash balances fluctuate based on new
contributions or withdrawals, a Fund may enter into additional contracts or
close out existing positions.
Additional Information About International Equity Fund
- ------------------------------------------------------
The International Equity Fund is managed using an active international
approach, which utilizes a consistent process of stock selection undertaken by
portfolio management teams located within each of the major investment regions,
including Europe, Japan, Asia and the
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<PAGE>
United States. In selecting securities, the Investment Adviser uses a long-term,
bottom-up strategy based on first-hand fundamental research that is designed to
give broad exposure to the available opportunities while seeking to add return
primarily through stock selection. Equity securities for this Fund are evaluated
based on three key factors--the business, the management and the valuation. The
Investment Adviser ordinarily seeks securities that have, in the Investment
Adviser's opinion, superior earnings growth potential, sustainable franchise
value with management attuned to creating shareholder value and relatively
discounted valuations. In addition, the Investment Adviser uses a multi-factor
risk model which seeks to assure that deviations from the benchmark are
justifiable.
The International Equity Fund will seek to achieve its investment objective
by investing primarily in equity securities of companies that are organized
outside the United States or whose securities are principally traded outside the
United States. Because research coverage outside the United States is
fragmented and relatively unsophisticated, many foreign companies that are well-
positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for the International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets."
A Rigorous Process of Stock Selection. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for the International Equity Fund's portfolio through a
three-stage investment process. Because the International Equity Fund is a
long-term holder of stocks, the portfolio managers adjust the Fund's portfolio
only when expected returns fall below acceptable levels or when the portfolio
managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the Investment Adviser
seeks to identify attractive industries around the world. Such industries are
expected to have favorable underlying economics and allow companies to generate
sustainable and predictable high returns. As a rule, they are less economically
sensitive, relatively free of regulation and favor strong franchises.
Within these industries the Investment Adviser seeks to identify well-run
companies that enjoy a stable competitive advantage and are able to benefit from
the favorable dynamics of the industry. This stage includes analyzing the
current and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of
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<PAGE>
foreign investments in sustained periods of dollar appreciation and to add
returns by seeking to take advantage of foreign exchange fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAMI's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
Global Income Fund
- ------------------
The Global Income Fund is designed for investors seeking high total return,
emphasizing current income, and, to a lesser extent, opportunities for capital
appreciation. However, investing in the Fund involves certain risks and there
is no assurance that the Fund will achieve its investment objective. The
securities in which the Fund invests will be rated, at the time of investment,
at least BBB or Baa by an NRSRO or, if unrated, will be determined by the
Investment Adviser to be of comparable quality. However, at least 50% of the
Fund's total assets will be invested in securities having a rating from an NRSRO
of AAA or Aaa at the time of investment. Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their issuers'
capability to pay interest and repay principal.
In selecting securities for the Fund, portfolio managers consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. In determining the
countries and currencies in which the Fund will invest, the Fund's portfolio
managers form opinions based primarily on the views of Goldman Sachs' economists
as well as information provided by securities dealers, including information
relating to factors such as interest rates, inflation, monetary and fiscal
policies, taxation, and political climate. The portfolio managers apply the
Black-Litterman Model (the "Model") to their views to develop a portfolio that
produces, in the view of the Investment Adviser, the optimal expected return for
a given level of risk. The Model factors in the opinions of the portfolio
managers, adjusting for their level of confidence in such opinions, with the
views implied by an international capital asset pricing formula. The Model is
also used to maintain the level of portfolio risk within the guidelines
established by the Investment Adviser.
High Total Return. The Global Income Fund's portfolio managers will seek
out the highest yielding bonds in the global fixed-income market that meet the
Global Income Fund's credit quality standards and certain other criteria.
Capital Appreciation. Investing in the foreign bond markets offers the
potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic
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<PAGE>
strength. However, there is a risk of capital depreciation as a result of
unanticipated interest rate and currency fluctuations.
Portfolio Management Flexibility. The Global Income Fund is actively
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the Fund's investment guidelines and often have strong currencies
and stable economies and in securities that they believe offer favorable
performance prospects.
Relative Stability of Principal. The Global Income Fund may be able to
reduce principal fluctuation by investing in foreign countries with economic
policies or business cycles different from those of the United States and in
foreign securities markets that do not necessarily move in the same direction or
magnitude as the U.S. market. Investing in a broad range of U.S. and foreign
fixed-income securities and currencies reduces the dependence of the Fund's
performance on developments in any particular market to the extent that adverse
events in one market are offset by favorable events in other markets. The
Fund's policy of investing primarily in high quality securities may also reduce
principal fluctuation. However, there is no assurance that these strategies
will always be successful.
Professional Management. Individual U.S. investors may prefer professional
management of their global bond and currency portfolios because a well-
diversified portfolio requires a large amount of capital and because the size of
the global market requires access to extensive resources and a substantial
commitment of time.
Corporate Debt Obligations
- --------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
The CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, and CORE
Small Cap Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capacity to pay interest and
repay principal. Medium to lower rated and comparable non-rated securities tend
to offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Investment Advisers will
attempt to reduce these risks through portfolio diversification and by analysis
of each issuer and its ability to make
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<PAGE>
timely payments of income and principal, as well as broad economic trends and
corporate developments.
Trust Preferreds. The Global Income Fund may invest in trust preferred
securities. A trust preferred or capital security is a long dated bond (for
example 30 years) with preferred features. The preferred features are that
payment of interest can be deferred for a specified period without initiating a
default event. From a bondholder's viewpoint, the securities are senior in
claim to standard preferred but are junior to other bondholders. From the
issuer's viewpoint, the securities are attractive because their interest is
deductible for tax purposes like other types of debt instruments.
High Yield Securities. Bonds rated BB or below by Standard & Poor's Ratings
Group ("Standard & Poor's") or Ba or below by Moody's Investor Service, Inc.
("Moody's") (or comparable rated and unrated securities) are commonly referred
to as "junk bonds" and are considered speculative. The ability of their issuers
to make principal and interest payments may be questionable. In some cases, such
bonds may be highly speculative, have poor prospects for reaching investment
grade standing and be in default. As a result, investment in such bonds will
entail greater risks than those associated with investment grade bonds (i.e.,
bonds rated AAA, AA, A or BBB by Standard and Poor's or Aaa, Aa, A or Baa by
Moody's). Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and the
ability of a Fund to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities. See Appendix A to this Additional Statement for a
description of the corporate bond and preferred stock ratings by Standard &
Poor's, Moody's, Fitch IBCA, Inc. and Duff & Phelps.
The amount of high yield, fixed-income securities proliferated in the 1980s
and early 1990s as a result of increased merger and acquisition and leveraged
buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest.
The market values of high yield, fixed-income securities tend to reflect
individual corporate developments to a greater extent than do those of higher
rated securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of such high yield securities are often highly
leveraged, and may not be able to make use of more traditional methods of
financing. Their ability to service debt obligations may be more adversely
affected than issuers of higher rated securities by economic downturns, specific
corporate developments or the issuers' inability to meet specific projected
business forecasts. These non-investment grade securities also tend to be more
sensitive to economic conditions than higher-rated securities. Negative
publicity about the junk bond market and investor perceptions regarding lower-
rated securities, whether or not based on fundamental analysis, may depress the
prices for such securities.
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<PAGE>
Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which the Growth and Income,
Capital Growth, Mid Cap Value and International Equity Funds invest, the yields
and prices of such securities may tend to fluctuate more than those for higher-
rated securities. In the lower quality segments of the fixed-income securities
market, changes in perceptions of issuers' creditworthiness tend to occur more
frequently and in a more pronounced manner than do changes in higher quality
segments of the fixed-income securities market, resulting in greater yield and
price volatility.
Another factor which causes fluctuations in the prices of high yield,
fixed-income securities is the supply and demand for similarly rated
securities. In addition, the prices of fixed-income securities fluctuate in
response to the general level of interest rates. Fluctuations in the prices of
portfolio securities subsequent to their acquisition will not affect cash income
from such securities but will be reflected in a Fund's net asset value.
The risk of loss from default for the holders of high yield, fixed-income
securities is significantly greater than is the case for holders of other debt
securities because such high yield, fixed-income securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in already defaulted
securities poses an additional risk of loss should nonpayment of principal and
interest continue in respect of such securities. Even if such securities are
held to maturity, recovery by a Fund of its initial investment and any
anticipated income or appreciation is uncertain. In addition, a Fund may incur
additional expenses to the extent that it is required to seek recovery relating
to the default in the payment of principal or interest on such securities or
otherwise protect its interests. A Fund may be required to liquidate other
portfolio securities to satisfy a Fund's annual distribution obligations in
respect of accrued interest income on securities which are subsequently written
off, even though the Fund has not received any cash payments of such interest.
The secondary market for high yield, fixed-income securities is
concentrated in relatively few markets and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as and is more volatile than the secondary market for higher-rated
securities. In addition, the trading volume for high-yield, fixed-income
securities is generally lower than that of higher rated securities and the
secondary market for high yield, fixed-income securities could shrink or
disappear suddenly and without warning as a result of adverse market or economic
conditions independent of any specific adverse changes in the condition of a
particular issuer. Because of the lack of sufficient market liquidity, a Fund
may incur losses because it will be required to effect sales at a
disadvantageous time and then only at a substantial drop in price. Prices
realized upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating a Fund's net
asset value. A less liquid secondary market also may make it more difficult for
a Fund to obtain precise valuations of the high yield securities in its
portfolio.
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Certain proposed and recently enacted federal laws could adversely affect
the secondary market for high yield securities and the financial condition of
issuers of these securities. The form of proposed legislation and the
probability of such legislation being enacted is uncertain.
Non-investment grade or high-yield, fixed-income securities also present
risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the issuer to call
or repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, a Fund may have to replace such security with
a lower-yielding security, resulting in a decreased return for investors. In
addition, if a Fund experiences unexpected net redemptions of its shares, it may
be forced to sell its higher-rated securities, resulting in a decline in the
overall credit quality of the Fund's portfolio and increasing the exposure of
the Fund to the risks of high yield securities.
Credit ratings issued by credit rating agencies are designed to evaluate
the safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in non-investment grade
and comparable unrated obligations will be more dependent on the Investment
Adviser's credit analysis than would be the case with investments in investment-
grade debt obligations. The Investment Adviser employs its own credit research
and analysis, which includes a study of existing debt, capital structure,
ability to service debt and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the current trend of earnings.
The Investment Adviser monitors the investments in a Fund's portfolio and
evaluates whether to dispose of or to retain non-investment grade and comparable
unrated securities whose credit ratings or credit quality may have changed.
Because the market for high yield securities is still relatively new and
has not weathered a major economic recession, it is unknown what affects such a
recession might have on such securities. A widespread economic downturn could
result in increased defaults and losses.
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Obligations of the United States, Its Agencies, Instrumentalities and Sponsored
- -------------------------------------------------------------------------------
Enterprises
- -----------
Each Fund may invest in U.S. government securities, which are obligations
issued or guaranteed by the U.S. government and its agencies, instrumentalities
or sponsored enterprises ("U.S. Government Securities"). Some U.S. Government
Securities (such as Treasury bills, notes and bonds, which differ only in their
interest rates, maturities and times of issuance) are supported by the full
faith and credit of the United States of America. Others, such as obligations
issued or guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises, are supported either by (a) the right of the issuer to borrow from
the Treasury (such as securities of Federal Home Loan Banks), (b) the
discretionary authority of the U.S. government to purchase the agency's
obligations (such as securities of Federal National Mortgage Association
("Fannie Mae")) or (c) only the credit of the issuer (such as securities of the
Financing Corporation). The U.S. government is under no legal obligation, in
general, to purchase the obligations of its agencies, instrumentalities or
sponsored enterprises. No assurance can be given that the U.S. government will
provide financial support to the U.S. government agencies, instrumentalities or
sponsored enterprises in the future.
U.S. Government Securities include (to the extent consistent with the Act),
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government, or its agencies,
instrumentalities or sponsored enterprises. U.S. Government Securities also
include (to the extent consistent with the Act) participations in loans made to
foreign governments or their agencies that are guaranteed as to principal and
interest by the U.S. government or its agencies, instrumentalities or sponsored
enterprises. The secondary market for certain of these participations is
extremely limited. In the absence of a suitable secondary market, such
participations are regarded as illiquid.
Each Fund may also purchase U.S. Government Securities in private
placements and may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury that are
traded independently under the separate trading of registered interest and
principal of securities program ("STRIPS").
Bank Obligations
- ----------------
Each Fund (other than Short Duration Government Fund) may invest in debt
obligations issued or guaranteed by U.S. or foreign banks. Bank obligations,
including without limitation, time deposits, bankers' acceptances and
certificates of deposit, may be general obligations of the parent bank or may be
limited to the issuing branch by the terms of the specific obligations or by
government regulation. Banks are subject to extensive but different
governmental regulations which may limit both the amount and types of loans
which may be made and interest rates which may be charged. In addition, the
profitability of the banking industry is largely dependent upon the availability
and cost of funds for the purpose of financing lending operations under
prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operation of this industry.
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Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds
- -------------------------------------------------------------
The Global Income Fund may invest in deferred interest and capital
appreciation bonds and pay-in-kind ("PIK") securities. Deferred interest and
capital appreciation bonds are debt securities issued or sold at a discount from
their face value and which do not entitle the holder to any periodic payment of
interest prior to maturity or a specified date. The original issue discount
varies depending on the time remaining until maturity or cash payment date,
prevailing interest rates, the liquidity of the security and the perceived
credit quality of the issuer. These securities also may take the form of debt
securities that have been stripped of their unmatured interest coupons, the
coupons themselves or receipts or certificates representing interests in such
stripped debt obligations or coupons. The market prices of deferred interest,
capital appreciation bonds and PIK securities generally are more volatile than
the market prices of interest bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest bearing securities
having similar maturities and credit quality.
PIK securities may be debt obligations or preferred shares that provide the
issuer with the option of paying interest or dividends on such obligations in
cash or in the form of additional securities rather than cash. Similar to zero
coupon bonds and deferred interest bonds, PIK securities are designed to give an
issuer flexibility in managing cash flow. PIK securities that are debt
securities can either be senior or subordinated debt and generally trade flat
(i.e., without accrued interest). The trading price of PIK debt securities
generally reflects the market value of the underlying debt plus an amount
representing accrued interest since the last interest payment.
Deferred interest, capital appreciation and PIK securities involve the
additional risk that, unlike securities that periodically pay interest to
maturity, a Fund will realize no cash until a specified future payment date
unless a portion of such securities is sold and, if the issuer of such
securities defaults, a Fund may obtain no return at all on its investment. In
addition, even though such securities do not provide for the payment of current
interest in cash, the Funds are nonetheless required to accrue income on such
investments for each taxable year and generally are required to distribute such
accrued amounts (net of deductible expenses, if any) to avoid being subject to
tax. Because no cash is generally received at the time of the accrual, a Fund
may be required to liquidate other portfolio securities to obtain sufficient
cash to satisfy federal tax distribution requirements applicable to the Fund. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. See "Taxation."
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Zero Coupon Bonds
- -----------------
A Fund's investments in fixed-income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. 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 than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations. See "Taxation."
Variable and Floating Rate Securities
- -------------------------------------
The interest rates payable on certain fixed income securities in which a
Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
The Short Duration Government and Global Income Funds may invest in
"leveraged" inverse floating rate debt instruments ("inverse floaters"),
including "leveraged inverse floaters." The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
the degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity. Certain inverse floaters may be
deemed to be illiquid securities for purposes of each Fund's 15% limitation on
investments in such securities.
Custodial Receipts
- ------------------
Each Fund may invest in custodial receipts in respect of securities issued
or guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities, political subdivisions or authorities. Such custodial
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued or guaranteed as to principal and interest
by the U.S. Government, its agencies, instrumentalities, political subdivisions
or authorities. These custodial receipts are known by various names, including
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"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Mortgage Loans and Mortgage-Backed Securities
- ---------------------------------------------
General Characteristics. Each Fund (other than the CORE U.S. Equity, CORE
Large Cap Growth, CORE Large Cap Value, and CORE Small Cap Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed-
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent that a Fund invests in mortgage-backed securities, its
Investment Adviser may seek to manage these potential risks by investing in a
variety of mortgage-backed securities and by using certain hedging techniques.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs generally provide for a fixed
initial mortgage interest rate for a specified period of time. Thereafter, the
interest rates (the "Mortgage Interest Rates") may be subject to periodic
adjustment based on changes in the applicable index rate (the "Index Rate"). The
adjusted rate would be equal to the Index Rate plus a fixed percentage spread
over the Index Rate established for each ARM at the time of its origination.
ARMs allow a Fund to participate in increases in interest rates through periodic
increases in the securities coupon rates. During periods of declining interest
rates, coupon rates may readjust downward resulting in lower yields to a
Fund.
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Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In
the event that a monthly payment is not sufficient to pay the interest accruing
on a Negatively Amortizing ARM, any such excess interest is added to the
principal balance of the loan, causing negative amortization, and will be repaid
through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to build up equity and may increase the
likelihood of default by such borrowers. In the event that a monthly payment
exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate
and the principal payment which would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
(or "accelerated amortization") further reduces the principal balance of the
ARM. Negatively Amortizing ARMs do not provide for the extension of their
original maturity to accommodate changes in their Mortgage Interest Rate. As a
result, unless there is a periodic recalculation of the payment amount (which
there generally is), the final payment may be substantially larger than the
other payments. These limitations on periodic increases in interest rates and
on changes in monthly payments protect borrowers from unlimited interest rate
and payment increases.
ARMs also have the risk of prepayments. The rate of principal prepayments
with respect to ARMs has fluctuated in recent years. As with fixed-rate
mortgage loans, ARMs may be subject to a greater rate of principal repayments in
a declining interest rate environment resulting in lower yields to a Fund. For
example, if prevailing interest rates fall significantly, ARMS could be subject
to higher prepayment rates (than if prevailing interest rates remain constant or
increase) because the availability of low fixed-rate mortgages may encourage
mortgagors to refinance their ARMs to "lock-in" a fixed-rate mortgage.
Conversely, if prevailing interest rates rise significantly, ARMs may prepay
more slowly. As with fixed-rate mortgages, ARM prepayment rates vary in both
stable and changing interest rate environments.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury bill rate,
the 180-day Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate, the prime rate of a specific bank or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District
Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market
rate levels and tend to be somewhat less volatile. The degree of volatility in
the market value of each Fund's portfolio and, therefore, in the net asset value
of each Fund's shares will
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be a function of the length of the interest rate reset periods and the degree of
volatility in the applicable indices.
Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans included in
a mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple interest at
fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-Rate Mortgage Loans generally provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain Fixed-Rate Mortgage Loans provide for a large final "balloon"
payment upon maturity.
Legal Considerations of Mortgage Loans. The following is a discussion of
certain legal and regulatory aspects of the mortgage loans in which the Funds
may invest. These regulations may impair the ability of a mortgage lender to
enforce its rights under the mortgage documents. These regulations may adversely
affect the Funds' investments in mortgage-backed securities (including those
issued or guaranteed by the U.S. government, its agencies or instrumentalities)
by delaying the Funds' receipt of payments derived from principal or interest on
mortgage loans affected by such regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed due
-----------
to compliance with statutory notice or service of process provisions,
difficulties in locating necessary parties or legal challenges to the
mortgagee's right to foreclose. Depending upon market conditions, the
ultimate proceeds of the sale of foreclosed property may not equal the
amounts owed on the mortgage-backed securities.
Furthermore, courts in some cases have imposed general equitable principles
upon foreclosure generally designed to relieve the borrower from the legal
effect of default and have required lenders to undertake affirmative and
expensive actions to determine the causes for the default and the likelihood
of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage loan,
--------------------
the borrower and foreclosed junior lienors are given a statutory period in
which to redeem the property, which right may diminish the mortgagee's
ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure a default on a mortgage loan,
including a payment default. The court in certain instances may also
reduce the monthly payments due under such mortgage loan, change the rate of
interest, reduce the principal balance of the loan to the then-current
appraised value of the related mortgaged property, alter the mortgage loan
repayment schedule and grant priority of certain liens over the lien of the
mortgage loan. If a court relieves a borrower's obligation to repay amounts
otherwise due on a mortgage loan, the mortgage loan servicer will not be
required to advance such amounts, and any loss may be borne by the holders
of securities backed by such loans. In
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<PAGE>
addition, numerous federal and state consumer protection laws impose
penalties for failure to comply with specific requirements in connection
with origination and servicing of mortgage loans.
4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a so-called
------------------------
"due-on-sale" clause permitting acceleration of the maturity of the mortgage
loan if the borrower transfers the property. The Garn-St. Germain
Depository Institutions Act of 1982 sets forth nine specific instances in
which no mortgage lender covered by that Act may exercise a "due-on-sale"
clause upon a transfer of property. The inability to enforce a "due-on-sale"
clause or the lack of such a clause in mortgage loan documents may result in
a mortgage loan being assumed by a purchaser of the property that bears an
interest rate below the current market rate.
5. Usury Laws. Some states prohibit charging interest on mortgage loans in
----------
excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.
Government Guaranteed Mortgage-Backed Securities. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), other collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie
Mac").
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
Fannie Mae Certificates. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the
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Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). However, the Mortgage Loans in Fannie Mae Pools are
primarily conventional Mortgage Loans. The lenders originating and servicing the
Mortgage Loans are subject to certain eligibility requirements established by
Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
Freddie Mac Certificates. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled
principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
Conventional Mortgage Loans. The conventional mortgage loans underlying the
Freddie Mac and Fannie Mae Certificates consist of adjustable rate or fixed rate
mortgage loans with original terms to maturity of between five and thirty years.
Substantially all of these mortgage loans are secured by first liens on one to
four family residential properties or multi-family projects. Each mortgage loan
must meet the applicable standards set forth in the law creating Freddie Mac or
Fannie Mae. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans, undivided interests in whole loans and
participations comprising another Freddie Mac Certificate Group.
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<PAGE>
Mortgage Pass-Through Securities. Each Fund (other than the CORE U.S.
Equity, CORE Large Cap Growth, CORE Large Cap Value and CORE Small Cap Equity
Funds) may invest in both government guaranteed and privately issued mortgage
pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or adjustable
rate mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
Description of Certificates. Mortgage Pass-Throughs may be issued in
one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--- ----
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--- ----
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--- ----
such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.
Ratings. The ratings assigned by a rating organization to Mortgage
Pass-Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to
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make payments required by such certificates. A rating organization's ratings on
such certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans. In addition, the rating assigned by a
rating organization to a certificate does not address the remote possibility
that, in the event of the insolvency of the issuer of certificates where a
subordinated interest was retained, the issuance and sale of the senior
certificates may be recharacterized as a financing and, as a result of such
recharacterization, payments on such certificates may be affected.
Credit Enhancement. Credit support falls generally into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pools of mortgages, the provision of a reserve fund, or a
combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection against
losses resulting from default ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such credit support can be provided
by among other things, payment guarantees, letters of credit, pool insurance,
subordination, or any combination thereof.
Subordination; Shifting of Interest; Reserve Fund. In order to
achieve ratings on one or more classes of Mortgage Pass-Throughs, one or more
classes of certificates may be subordinate certificates which provide that the
rights of the subordinate certificate-holders to receive any or a specified
portion of distributions with respect to the underlying mortgage loans may be
subordinated to the rights of the senior certificate-holders. If so structured,
the subordination feature may be enhanced by distributing to the senior
certificate-holders on certain distribution dates, as payment of principal, a
specified percentage (which generally declines over time) of all principal
payments received during the preceding prepayment period ("shifting interest
credit enhancement"). This will have the effect of accelerating the amortization
of the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due to them and
will protect the senior certificate-holders against certain
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losses; however, in certain circumstances the Reserve Fund could be depleted and
temporary shortfalls could result. In the event that the Reserve Fund is
depleted before the subordinated amount is reduced to zero, senior certificate-
holders will nevertheless have a preferential right to receive current
distributions from the mortgage pool to the extent of the then outstanding
subordinated amount. Unless otherwise specified, until the subordinated amount
is reduced to zero, on any distribution date any amount otherwise distributable
to the subordinate certificates or, to the extent specified, in the Reserve Fund
will generally be used to offset the amount of any losses realized with respect
to the mortgage loans ("Realized Losses"). Realized Losses remaining after
application of such amounts will generally be applied to reduce the ownership
interest of the subordinate certificates in the mortgage pool. If the
subordinated amount has been reduced to zero, Realized Losses generally will be
allocated pro rata among all certificate-holders in proportion to their
--- ----
respective outstanding interests in the mortgage pool.
Alternative Credit Enhancement. As an alternative, or in addition to
the credit enhancement afforded by subordination, credit enhancement for
Mortgage Pass-Throughs may be provided by mortgage insurance, hazard insurance,
by the deposit of cash, certificates of deposit, letters of credit, a limited
guaranty or by such other methods as are acceptable to a rating agency. In
certain circumstances, such as where credit enhancement is provided by
guarantees or a letter of credit, the security is subject to credit risk because
of its exposure to an external credit enhancement provider.
Voluntary Advances. Generally, in the event of delinquencies in
payments on the mortgage loans underlying the Mortgage Pass-Throughs, the
servicer agrees to make advances of cash for the benefit of certificate-holders,
but only to the extent that it determines such voluntary advances will be
recoverable from future payments and collections on the mortgage loans or
otherwise.
Optional Termination. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time if the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
Obligations. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
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<PAGE>
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The
obligations of Fannie Mae or Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only
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accrue interest at a specified rate until all other certificates having an
earlier final distribution date have been retired and are converted thereafter
to an interest-paying security, and planned amortization class ("PAC")
certificates, which are parallel pay REMIC Certificates that generally require
that specified amounts of principal be applied on each payment date to one or
more classes or REMIC Certificates (the "PAC Certificates"), even though all
other principal payments and prepayments of the Mortgage Assets are then
required to be applied to one or more other classes of the Certificates. The
scheduled principal payments for the PAC Certificates generally have the highest
priority on each payment date after interest due has been paid to all classes
entitled to receive interest currently. Shortfalls, if any, are added to the
amount payable on the next payment date. The PAC Certificate payment schedule is
taken into account in calculating the final distribution date of each class of
PAC. In order to create PAC tranches, one or more tranches generally must be
created that absorb most of the volatility in the underlying mortgage assets.
These tranches tend to have market prices and yields that are much more volatile
than other PAC classes.
Stripped Mortgage-Backed Securities. The Global Income Funds may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
Asset-Backed Securities
- -----------------------
Each Fund (except the CORE U.S. Equity, CORE Large Cap Growth, CORE Large
Cap Value, and CORE Small Cap Equity Funds) may invest in asset-backed
securities. Asset-backed securities represent participation in, or are secured
by and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other categories
of receivables. Such assets are securitized through the use of trusts and
special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in
B-23
<PAGE>
market interest rates generally and the differentials in yields among various
kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Futures Contracts and Options on Futures Contracts
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. The CORE Large Cap Growth, CORE Large Cap
Value and CORE Small Cap Equity Funds may only enter into such transactions with
respect to a representative index. The CORE U.S. Equity Fund may enter into
futures transactions only with respect to the S&P 500 Index. The other Funds may
purchase and sell futures contracts based on various securities (such as U.S.
Government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions, only for bona fide hedging purposes as defined below or
for purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). Futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges. Neither the
CFTC, National Futures Association nor any domestic exchange regulates
activities of any foreign exchange or boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement of
the rules of a foreign exchange or board of trade or any applicable foreign law.
This is true even if the exchange is formally linked to a domestic market so
that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, persons who trade 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. In
particular, a Fund's investments in foreign futures or foreign options
transactions may not be provided the same protections in respect of transactions
on United States futures exchanges.
B-24
<PAGE>
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When interest rates are falling or securities
prices are rising, a Fund, through the purchase of futures contracts, can
attempt to secure better rates or prices than might later be available in the
market when it effects anticipated purchases. Similarly, each Fund (other than
the CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small
Cap Equity and Short Duration Government Funds) can purchase and sell futures
contracts on a specified currency in order to seek to increase total return or
to hedge against changes in currency exchange rates. Each Fund (other than the
CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, and CORE Small
Cap Equity Funds) can purchase futures contracts on foreign currency to
establish the price in U.S. dollars of a security quoted or denominated in such
currency that such Fund has acquired or expects to acquire. The Global Income
Funds may also use futures contracts to manage their term structure, sector
selection and duration in accordance with their investment objectives and
policies.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities or currency will
usually be liquidated in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures on securities or currencies are traded guarantees
that, if still open, the sale or purchase will be performed on the settlement
date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that a Fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are denominated or quoted. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than the CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value
and CORE Small Cap Equity Funds) foreign currency rates that would adversely
affect U.S. dollar value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by a
Fund or securities with characteristics similar to those of a Fund's portfolio
securities. Similarly, each Fund (other than the CORE U.S. Equity, CORE Large
Cap Growth, CORE Large Cap Value, and CORE Small Cap Equity Funds) may sell
futures contracts on any currencies in which its portfolio securities are quoted
or denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the applicable Investment Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments,
B-25
<PAGE>
securities indices or other indices, a Fund may also enter into such futures
contracts as part of its hedging strategy. Although under some circumstances
prices of securities in a Fund's portfolio may be more or less volatile than
prices of such futures contracts, the Investment Advisers will attempt to
estimate the extent of this volatility difference based on historical patterns
and compensate for any such differential by having a Fund enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting a Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This may be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract if the option is exercised, which may have a value higher than
the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that a Fund intends to purchase. However, a Fund becomes
obligated upon exercise of the option to purchase a futures contract if the
option is exercised, which may have a value lower than the exercise price. Thus,
the loss incurred by a Fund in writing options on futures is potentially
unlimited and may exceed the amount of the premium received. A Fund will incur
transaction costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
Other Considerations. Each Fund will engage in futures transactions and
related options transactions only for bona fide hedging as defined in the
regulations of the CFTC or to seek to increase total return to the extent
permitted by such regulations.
In addition to bona fide hedging, a CFTC regulation permits a Fund to
engage in other futures transactions if the aggregate initial margin and
premiums required to establish such positions in futures contracts and options
on futures do not exceed 5% of the net asset value of
B-26
<PAGE>
such Fund's portfolio, after taking into account unrealized profits and losses
on any such positions and excluding the amount by which such options were in-
the-money at the time of purchase. Transactions in futures contracts and related
options may also be limited by certain requirements that must be met in order
for a Fund to qualify as a regulated investment company for federal income tax
purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in certain cases, require the Fund to
segregate cash or liquid assets in an amount equal to the underlying value of
such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
In addition, it is not possible for a Fund to hedge fully or perfectly against
currency fluctuations affecting the value of securities quoted or denominated in
foreign currencies because the value of such securities is likely to fluctuate
as a result of independent factors not related to currency fluctuations. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of its Investment Adviser to analyze correctly the
futures markets.
Options on Securities and Securities Indices
- --------------------------------------------
Writing Covered Options. Each Fund may write (sell) covered call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. A Fund may purchase and write
such options on securities that are listed on national domestic securities
exchanges or foreign securities exchanges or traded in the over-the-counter
market. A call option written by a Fund obligates such Fund to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. All call options written by a
Fund are covered, which means that such Fund will own the securities subject to
the option as long as the option is outstanding or such Fund will use the other
methods described below. A Fund's purpose in writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, a Fund may forego the opportunity to profit from
an increase in the market price of the underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund will segregate cash or
liquid assets with a value at least equal to the exercise price of the
B-27
<PAGE>
put option or will use the other methods described below. The purpose of writing
such options is to generate additional income for the Fund. However, in return
for the option premium, each Fund accepts the risk that it may be required to
purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund or by an offsetting forward contract which, by virtue of its exercise price
or otherwise, reduces a Fund's net exposure on its written option position.
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement 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.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration which has
been segregated by the Fund) upon conversion or exchange of other securities in
its portfolio. A Fund may also cover call and put options on a securities index
by segregating cash or liquid assets with a value equal to the exercise price or
by using the other methods described above.
A Fund may terminate its obligations under an exchange-traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. Each Fund may purchase put and call options on any
securities in which it may invest or options on any securities index composed of
securities in which it may invest. A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
A Fund may purchase call options in anticipation of an increase, or put
options in anticipation of a decrease ("protective puts"), in the market value
of securities of the type in which it may invest. The purchase of a call option
would entitle a Fund, in return for the premium paid, to purchase specified
securities at a specified price during the option period. A Fund would
ordinarily realize a gain on the purchase of a call option if, during the option
period, the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise such a Fund would realize either
no gain or a loss on the purchase of the call option. The purchase of a put
option would entitle a Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. The purchase of
protective puts is designed to offset or hedge against a decline in the market
value of a Fund's securities. Put options may also be purchased by a Fund for
the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. A Fund would
B-28
<PAGE>
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to more
than cover the premium and transaction costs; otherwise the Fund would realize
either no gain or a loss on the purchase of the put option. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of the underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
Yield Curve Options. The Global Income Fund may enter into options on the
yield "spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
The Global Income Fund may purchase or write yield curve options for the
same purposes as other options on securities. For example, the Global Income
Fund may purchase a call option on the yield spread between two securities if
any such Fund owns one of the securities and anticipates purchasing the other
security and wants to hedge against an adverse change in the yield spread
between the two securities. The Global Income Fund may also purchase or write
yield curve options in an effort to increase their current income if, in the
judgment of the Investment Adviser, the Funds will be able to profit from
movements in the spread between the yields of the underlying securities. The
trading of yield curve options is subject to all of the risks associated with
the trading of other types of options. In addition, however, such options
present risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent which
was not anticipated.
Yield curve options written by the Global Income Fund will be "covered." A
call (or put) option is covered if the Fund holds another call (or put) option
on the spread between the same two securities and segregates cash or liquid
assets sufficient to cover the Fund's net liability under the two options.
Therefore, the Fund's liability for such a covered option is generally limited
to the difference between the amount of the Fund's liability under the option
written by the Fund less the value of the option held by the Fund. Yield curve
options may also be covered in such other manner as may be in accordance with
the requirements of the counterparty with which the option is traded and
applicable laws and regulations. Yield curve options are traded over-the-
counter, and the trading markets for these options may not be as developed as
the markets for other types of options.
Risks Associated with Options Transactions. There is no assurance that a
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of segregated assets until the options expire or are exercised.
B-29
<PAGE>
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by each Fund in options will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities governing the maximum number of options in each class which may be
written or purchased by a single investor or group of investors acting in
concert. Thus, the number of options which a Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Investment Advisers. An exchange, board of trade or other trading facility
may order the liquidation of positions found to be in excess of these limits,
and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the Investment Adviser's ability to predict future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
B-30
<PAGE>
Warrants and Stock Purchase Rights
- ----------------------------------
Each Fund other than the Global Income Fund may invest in warrants or
rights (in addition to those acquired in units or attached to other securities)
which entitle the holder to buy equity securities at a specific price for a
specific period of time. A Fund will invest in warrants and rights only if such
securities are deemed appropriate by the Investment Adviser for investment by
the Fund. Warrants and rights have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
Foreign Investments
- -------------------
Each Fund may invest in securities of foreign issuers. The Growth and
Income, Capital Growth, Mid Cap Value, and Global Income Funds may invest in the
aggregate up to 25%, 10%, 25% and 25%, respectively, of their total assets in
foreign securities, including securities of issuers located in emerging
countries. The International Equity Fund invests, under normal circumstances,
substantially all, and at least 65% of its total assets in foreign securities,
including securities of issuers located in emerging countries. With respect to
the CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value and CORE Small
Cap Equity Funds, equity securities of foreign issuers must be traded in the
United States.
Investments in foreign securities may offer potential benefits that are not
available from investing exclusively in U.S. dollar-denominated domestic issues.
Such benefits may include the opportunity to invest in foreign issuers that
appear, in the opinion of the applicable Investment Adviser, to offer the
potential for long-term growth of capital and income, the opportunity to invest
in foreign countries with economic policies or business cycles different from
those of the United States and the opportunity to reduce fluctuations in
portfolio value by taking advantage of foreign securities markets that do not
necessarily move in a manner parallel to U.S. markets.
Investing in foreign securities also involves, however, certain special
risks, including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. The International Equity and Global Income Funds may be
subject to currency exposure independent of their securities positions. To the
extent that a Fund is fully invested in foreign securities while also
maintaining currency positions, it may be exposed to greater combined risk.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
B-31
<PAGE>
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States. For example, there may
be no comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund other than the Global Income Fund may invest in foreign
securities which take the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and Global Depository Receipts ("GDRs") and (except for the
CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small Cap
Equity, and Global Income Funds) European Depository Receipts ("EDRs") or other
similar instruments representing securities of foreign issuers (together,
"Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a correspondent bank. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
B-32
<PAGE>
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments. Investment in Depository Receipts does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipts and the underlying securities are quoted.
However, by investing in Depository Receipts, such as ADRs, that are quoted in
U.S. dollars, a Fund may avoid currency risks during the settlement period for
purchases and sales.
As described more fully below, each Fund (except CORE U.S. Equity, CORE
Large Cap Growth, CORE Large Cap Value, and CORE Small Cap Equity Funds) may
invest in countries with emerging economies or securities markets. Political
and economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Certain of such countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the risks
of nationalization or expropriation of assets, may be heightened. See "Investing
in Emerging Markets" below.
Investing in Emerging Markets. The International Equity Funds are intended
for long-term investors who can accept the risks associated with investing
primarily in equity and equity-related securities of foreign issuers, including
emerging country issuers, as well as the risks associated with investments
quoted or denominated in foreign currencies. The Growth and Income, Mid Cap
Value and Capital Growth Funds may invest, to a lesser extent, in equity and
equity-related securities of foreign issuers, including emerging country
issuers. The Global Income Fund may invest in debt securities of foreign
issuers, including issuers in emerging countries, and in fixed income securities
quoted or denominated in a currency other than U.S. dollars.
Investments in debt securities of emerging market issuers involve special
risks. The development of a market for such securities is a relatively recent
phenomenon, and each of the securities markets of the emerging countries is less
liquid and subject to greater price volatility and has a smaller market
capitalization than the U.S. securities markets. In certain countries, there
may be few publicly traded securities, and the market may be dominated by a few
issues or sectors. Issuers and securities markets in such countries are not
subject to as extensive and frequent accounting, financial and other reporting
requirements or as comprehensive government regulations as are issuers and
securities markets in the U.S. In particular, the assets and profits appearing
on the financial statements of emerging country issuers may not reflect their
financial position or results of operations in the same manner as financial
statements for U.S. issuers. Substantially less information may be publicly
available about emerging country issuers than is available about issuers in the
United States.
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Emerging country securities markets are typically marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain emerging countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in emerging countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. The limited size of many of these securities markets can
cause prices to be erratic for reasons apart from factors that affect the
soundness and competitiveness of securities issues. For example, prices may be
unduly influenced by traders who control large positions in these markets.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The limited liquidity of emerging country
securities may also affect a Fund's ability to accurately value its portfolio
securities or to acquire or dispose of such securities at the price and times it
wishes to do so.
Transaction costs, including brokerage commissions or dealer mark-ups, in
emerging countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in emerging countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
With respect to investments in certain emerging market countries, archaic
legal systems may have an adverse impact on a Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain emerging
market countries. Similarly, the rights of investors in emerging market
companies may be more limited than those of shareholders of U.S. corporations.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees. These restrictions may limit a
Fund's investment in certain emerging countries and may increase the expenses of
the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of the company available for purchase by nationals. In addition, the
repatriation of both investment income and capital from several of the emerging
countries is subject to restrictions which require government consents or
prohibit repatriation entirely for a period of time. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operation of a Fund. A Fund may be required
to establish special custodial or other arrangements before investing in certain
emerging countries.
Each of the emerging countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. This instability may result
from, among other things, the following: (i) authoritarian
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governments or military involvement in political and economic decision making,
including changes or attempted changes in governments through extra-
constitutional means; (ii) popular unrest associated with demands for improved
political, economic or social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; (v) ethnic, religious and racial
disaffection or conflict; and (vi) the absence of developed legal structures
governing foreign private investments and private property. Such economic,
political and social instability could disrupt the principal financial markets
in which the Funds may invest and adversely affect the value of the Funds'
assets. A Fund's investments could in the future be adversely affected by any
increase in taxes or by political, economic or diplomatic developments. Certain
Funds may seek investment opportunities within the former "east bloc" countries
in Eastern Europe. See "Investment Objective and Policies" in the prospectus.
All or a substantial portion of such investments may be considered "not readily
marketable" for purposes of the limitations set forth below. For example, most
Eastern European countries have had a centrally planned, socialist economy since
shortly after World War II. The governments of a number of Eastern European
countries currently are implementing reforms directed at political and economic
liberalization, including efforts to decentralize the economic decision-making
process and move towards a market economy. However, business entities in many
Eastern European countries do not have any recent history of operating in a
market-oriented economy, and the ultimate impact of Eastern European countries'
attempts to move toward more market-oriented economies is currently unclear. In
addition, any change in the leadership or policies of Eastern European countries
may halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and adversely affect existing investment opportunities.
The economies of emerging countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
emerging countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many emerging countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some emerging countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates.
Foreign markets may also have different clearance and settlement procedures
and in certain U.S. markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of a Fund's assets remain uninvested and no
return is earned thereon. Inability to make intended security purchases or
sales due to settlement problems could result either in losses to the Fund due
to subsequent declines in value of the portfolio securities or, if the Fund has
entered into a contract to sell the
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<PAGE>
securities, could result in possible liability of the Fund to the purchaser. The
creditworthiness of the local securities firms used by a Fund in Emerging
Countries may not be as sound as the creditworthiness of firms used in more
developed countries, thus subjecting the Fund to a greater risk of loss if a
securities firm defaults in the performance of its responsibilities.
Sovereign Debt Obligations. The International Equity and Global Income
Funds may invest in sovereign debt obligations. Investments in sovereign debt
obligations involve special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and a Fund may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and a Fund's net asset value, may be more volatile than prices of debt
obligations of U.S. issuers. In the past, the governments of certain emerging
markets have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of the third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts.
Brady Bonds. Certain foreign debt obligations, customarily referred to as
"Brady Bonds," are created through the exchange of existing commercial bank
loans to foreign 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 may be fully or partially
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar denominated). In the event of a default on collateralized
Brady Bonds for which obligations are accelerated, the collateral for the
payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held
by the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of the
Brady Bonds and, among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds may be speculative.
Forward Foreign Currency Exchange Contracts. The Growth and Income, Mid Cap
Value and Capital Growth Funds may enter into forward foreign currency exchange
contracts for hedging purposes. The International Equity and Global Income Funds
may enter into forward
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<PAGE>
foreign currency exchange contracts for hedging purposes and to seek to increase
total return. A forward foreign currency exchange contract involves an
obligation to purchase or sell 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. These contracts are traded
in the interbank market between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are often, but not always, effected with the currency trader who is a
party to the original forward contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when the Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars,
of the amount of foreign currency involved in the underlying transactions, the
Fund may attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Investment Adviser 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 to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of such Fund's portfolio securities quoted or denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
The International Equity and Global Income Funds may engage in cross-
hedging by using forward contracts in one currency to hedge against fluctuations
in the value of securities quoted or denominated in a different currency if the
Investment Adviser determines that there is a pattern of correlation between the
two currencies. The International Equity and Global Income Funds may also
purchase and sell forward contracts to seek to increase total return
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<PAGE>
when the Investment Adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio.
Unless otherwise covered, cash or liquid assets will be segregated in an
amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts requiring the Fund
to purchase foreign currencies and forward contracts entered into to seek to
increase total return. The segregated assets will be marked-to-market. If the
value of the segregated assets declines, additional cash or liquid assets will
be segregated so that the value of the account will equal the amount of a Fund's
commitments with respect to such contracts. Although the contracts are not
presently regulated by the CFTC, the CFTC may in the future assert authority to
regulate these contracts. If this happens, a Fund's ability to utilize forward
foreign currency exchange contracts may be restricted. The Global Income Fund
will not enter into a forward contract with a term of greater than one year.
While a Fund may enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Forward contracts are subject to the risk that the
counterparty to such contract will default on its obligation. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits, transaction costs or the benefits of a currency hedge or force the Fund
to cover its purchase or sale commitments, if any, at the current market price.
Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. A Fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Investment Adviser.
Writing and Purchasing Currency Call and Put Options. Each Fund (except
CORE U.S. Equity, CORE Large Cap Value, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may write covered put and call options and purchase put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign portfolio securities and against increases in
the U.S. dollar cost of foreign securities to be acquired. As with other kinds
of option transactions, however, the writing of an option on
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<PAGE>
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. If and when a Fund seeks to close out an option, the Fund
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against exchange rate fluctuations;
however, in the event of exchange rate movements adverse to a Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies written or purchased by a Fund will be
traded on U.S. and foreign exchanges or over-the-counter.
The International Equity and Global Income Funds may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to seek to hedge against changes in exchange rates for a different
currency with a pattern of correlation. In addition, International Equity and
Global Income Funds may purchase call or put options on currency to seek to
increase total return when the Investment Adviser anticipates that the currency
will appreciate or depreciate in value, but the securities quoted or denominated
in that currency do not present attractive investment opportunities and are not
included in the Fund's portfolio.
A call option written by a Fund obligates the Fund to sell a specified
currency to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. A put option written by a
Fund obligates the Fund to purchase a specified currency from the option holder
at a specified price if the option is exercised at any time before the
expiration date. The writing of currency options involves a risk that a Fund
will, upon exercise of the option, be required to sell currency subject to a
call at a price that is less than the currency's market value or be required to
purchase currency subject to a put at a price that exceeds the currency's market
value. For a description of how to cover written put and call options, see
"Writing Covered Options" above.
A Fund may terminate its obligations under a written call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund may enter into closing
sale transactions in order to realize gains or minimize losses on purchased
options.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by the Fund are quoted or denominated. The purchase
of a call option would entitle a Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise, the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of the currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell a specified currency
at a specified price during the option period. The purchase of protective
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<PAGE>
puts is designed merely to offset or hedge against a decline in the U.S. dollar
value of a Fund's portfolio securities due to currency exchange rate
fluctuations. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise,
the Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend to
be offset by countervailing changes in the value of underlying currency or
portfolio securities.
In addition to using options for the hedging purposes described above, the
International Equity and Global Income Funds may use options on currency to seek
to increase total return. The International Equity and Global Income Funds may
write (sell) covered put and call options on any currency in order to realize
greater income than would be realized on portfolio securities transactions
alone. However, in writing covered call options for additional income, the
International Equity and Global Income Funds may forego the opportunity to
profit from an increase in the market value of the underlying currency. Also,
when writing put options, the International Equity and Global Income Funds
accept, in return for the option premium, the risk that they may be required to
purchase the underlying currency at a price in excess of the currency's market
value at the time of purchase.
Special Risks Associated With Options on Currency. An exchange traded
option position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options, no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a Fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it may not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
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Mortgage Dollar Rolls
- ---------------------
Global Income Fund may enter into mortgage "dollar rolls" in which a Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity), but not identical securities on a specified future date. During the
roll period, a Fund loses the right to receive principal and interest paid on
the securities sold. However, a Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for the applicable Fund. Each Fund will segregate
until the settlement date cash or liquid assets, as permitted by applicable law,
in an amount equal to its forward purchase price.
For financial reporting and tax purposes, the Global Income Fund treat
mortgage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Global Income
Fund do not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
Mortgage dollar rolls involve certain risks including the following: if the
broker-dealer to whom a Fund sells the security becomes insolvent, a Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which a Fund is
required to repurchase may be worth less than an instrument which a Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Investment Adviser's ability to manage a Fund's interest rate and mortgage
prepayments exposure. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
Convertible Securities
- ----------------------
Each Fund (except the Global Income Fund) may invest in convertible
securities. Convertible securities include corporate notes or preferred stock
but are ordinarily long-term debt obligations of the issuer convertible at a
stated exchange rate into common stock of the issuer. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's
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common stock. In evaluating a convertible security, the Investment Adviser will
give primary emphasis to the attractiveness of the underlying common stock.
Convertible debt securities are equity investments for purposes of each Fund's
investment policies.
Preferred Securities
- --------------------
Each Fund (except the Global Income Fund) may invest in preferred
securities. Unlike debt securities, the obligations of an issuer of preferred
stock, including dividend and other payment obligations, may not typically be
accelerated by the holders of such preferred stock on the occurrence of an event
of default (such as a covenant default or filing of a bankruptcy petition) or
other non-compliance by the issuer with the terms of the preferred stock.
Often, however, on the occurrence of any such event of default or non-compliance
by the issuer, preferred stockholders will be entitled to gain representation on
the issuer's board of directors or increase their existing board representation.
In addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
Currency Swaps, Mortgage Swaps, Credit Swaps and Interest Rate Swaps, Caps,
- ---------------------------------------------------------------------------
Floors and Collars
- ------------------
The International Equity and Global Income Funds may enter into currency
swaps for both hedging purposes and to seek to increase total return. In
addition, the Global Income Fund may enter into mortgage, credit and interest
rate swaps and other interest rate swap arrangements such as rate caps, floors
and collars, for hedging purposes or to seek to increase total return. Currency
swaps involve the exchange by a Fund with another party of their respective
rights to make or receive payments in specified currencies. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Mortgage swaps are similar to interest
rate swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Credit swaps involve the receipt of floating or fixed rate payments
in exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or acquire
an asset (or group of assets), or the right to receive or make a payment from
the other party, upon the occurrence of specified credit events. The purchase
of an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest on a
notional principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling the interest
rate floor. An interest rate collar is the combination of a cap and a floor
that preserves a certain return within a predetermined range of interest rates.
A Fund will enter into interest rate and mortgage swaps only on a net basis,
which means that the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments.
Interest rate and mortgage swaps do not involve the delivery of securities,
other underlying assets or principal. Accordingly, the risk of loss with
respect to interest rate and mortgage swaps is limited to the net amount of
interest payments that
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the Fund is contractually obligated to make. If the other party to an interest
rate or mortgage swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that the Fund is contractually entitled to receive.
In contrast, currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire principal value of a currency
swap is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. To the extent that the Fund's potential
exposure in a transaction involving a swap or an interest rate floor, cap or
collar is covered by the segregation of cash or liquid assets or otherwise, the
Funds and the Investment Advisers believe that transactions do not constitute
senior securities under the Act and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions.
The International Equity Fund will not enter into swap transactions unless
the unsecured commercial paper, senior debt or claims paying ability of the
other party thereto is considered to be investment grade by the Investment
Adviser. The Global Income Fund will not enter into any currency swap
transactions unless the unsecured commercial paper senior debt or claims-paying
ability of the other party thereto is rated investment grade by Standard &
Poor's or Moody's or their equivalent ratings or, if unrated by such rating
agencies, determined to be of comparable quality by the applicable investment
adviser. If there is a default by the other party to such a transaction, a Fund
will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market. The Investment
Advisers, under the supervision of the Board of Trustees, are responsible for
determining and monitoring the liquidity of the Funds' transactions in swaps,
caps, floors and collars.
The use of interest rate, mortgage, credit and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Investment Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of a Fund would be less favorable
than it would have been if this investment technique were not used.
Equity Swaps
- ------------
The Growth and Income, CORE U.S. Equity, CORE Large Cap Growth, CORE Large
Cap Value, CORE Small Cap Equity, Capital Growth, Mid Cap Value, and
International Equity Funds may enter into equity swap contracts to invest in a
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. Equity swaps may also be used for hedging purposes or to seek to
increase total return. The counterparty to an equity swap contract will
typically be a bank, investment banking firm or broker/dealer. Equity swap
transactions may be structured in different ways. For example, a counterparty
may agree to pay the Fund the amount, if any, by which the notional amount of
the equity swap contract would have increased in value had it been
B-43
<PAGE>
invested in the particular stocks or an index of stocks, plus the dividends that
would have been received on those stocks. In these cases, the Fund may agree to
pay to the counterparty a floating rate of interest on the notional amount of
the equity swap contract plus the amount, if any, by which that notional amount
would have decreased in value had it been invested in such stocks. Therefore,
the return to the Fund on the equity swap contract should be the gain or loss on
the notional amount plus dividends on the stocks less the interest paid by the
Fund on the notional amount. In other cases, the counterparty and the Fund may
each agree to pay the other the difference between the relative investment
performances that would have been achieved if the notional amount of the equity
swap contract had been invested in different stocks (or indices of stocks).
A Fund will enter into equity swaps only on a net basis, which means that
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Payments may be made
at the conclusion of an equity swap contract or periodically during its term.
Equity swaps do not involve the delivery of securities or other underlying
assets. Accordingly, the risk of loss with respect to equity swaps is limited
to the net amount of payments that a Fund is contractually obligated to make.
If the other party to an equity swap defaults, a Fund's risk of loss consists of
the net amount of payments that such Fund is contractually entitled to receive,
if any. Inasmuch as these transactions are entered into for hedging purposes or
are offset by segregated cash or liquid assets to cover the Fund's potential
obligations, the Funds and their Investment Advisers believe that transactions
do not constitute senior securities under the Act and, accordingly, will not
treat them as being subject to a Fund's borrowing restrictions.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party is considered to
be investment grade by the Investment Adviser.
Real Estate Investment Trusts
- -----------------------------
The Equity Funds may invest in shares of REITs. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interests. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Similar to investment companies such
as the Funds, REITs are not taxed on income distributed to shareholders provided
they comply with certain requirements under the Code. A Fund will indirectly
bear its proportionate share of expenses incurred by REITs in which it invests
in addition to the expenses incurred directly by the Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of
B-44
<PAGE>
financing projects. REITs are subject to heavy cash flow dependency, default by
borrowers, self-liquidation, and the possibilities of failing to qualify for the
exemption from tax for distributed income under the Code and failing to maintain
their exemptions from the Act. REITs (especially mortgage REITs) are also
subject to interest rate risks.
Lending of Portfolio Securities
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities or letters of credit maintained on a current basis
at an amount at least equal to the market value of the securities loaned. A
Fund would be required to have the right to call a loan and obtain the
securities loaned at any time on five days' notice. For the duration of a loan,
a Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
from investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Investment Advisers to be of
good standing, and when, in the judgment of the Investment Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Investment Advisers determine to make
securities loans, it is intended that the value of the securities loaned would
not exceed one-third of the value of the total assets of a Fund (including the
loan collateral).
Cash received as collateral for securities lending transactions may be invested
in other investment eligible securities. Investing the collateral subjects it
to market depreciation or appreciation, and the Fund is responsible for any loss
that may result from its investment of the borrowed collateral.
When-Issued Securities and Forward Commitments
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will generally
purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as a
matter of investment strategy, however, a Fund may dispose of or negotiate a
commitment after entering into it. A Fund may also sell securities it has
committed to purchase before those securities are delivered to the Fund on the
settlement date. The Funds may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued
B-45
<PAGE>
or forward commitment securities will be calculated from the commitment date. A
Fund is generally required to segregate, until three days prior to the
settlement date, cash and liquid assets in an amount sufficient to meet the
purchase price unless the Fund's obligations are otherwise covered. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date.
Investment in Unseasoned Companies
- ----------------------------------
Each Fund may invest in companies (including predecessors) which have
operated less than three years. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
Other Investment Companies
- --------------------------
Each Fund reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase in the securities of other investment
companies (including, SPDRs, WEBS (as defined below) and other exchange-traded
funds) but, may not invest more than 5% of its total assets in the securities of
any one investment company or acquire more than 3% of the voting securities of
any other investment company. Pursuant to an exemptive order obtained from the
SEC, the Funds may invest in money market funds for which an Investment Adviser
or any of its affiliates serves as investment adviser. A Fund will indirectly
bear its proportionate share of any management fees and other expenses paid by
investment companies in which it invests in addition to the advisory and other
fees paid by the Fund. However, to the extent that the Fund invests in a money
market fund for which an Investment Adviser or any of its affiliates acts as
investment adviser, the management fees payable by the Fund to an Investment
Adviser or its affiliates will be reduced by an amount equal to the Fund's
proportionate share of the management fees paid by such money market fund to the
Investment Adviser or any of its affiliates. Exchange-traded funds are shares
of unaffiliated investment companies which are traded like traditional equity
securities on a national securities exchange or the NASDAQ National Market
System.
Each Fund may invest in SPDRs. SPDRs are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
B-46
<PAGE>
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs.
Each Fund (other then CORE U.S. Equity, CORE Large Cap Growth, CORE Large
Cap Value and CORE Small Cap Equity ) may also purchase shares of investment
companies investing primarily in foreign securities, including "country funds."
Country funds have portfolios consisting primarily of securities of issuers
located in one foreign country or region. Each Fund may, subject to the
limitations stated above, invest in World Equity Benchmark Shares ("WEBS") and
similar securities that invest in securities included in foreign securities
indices.
Repurchase Agreements
- ---------------------
Each Fund may enter into repurchase agreements with dealers in U.S.
government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or, market price to the amount of
their repurchase obligation. The CORE International Equity, International
Equity and Global Income Funds may also enter into repurchase agreements
involving certain foreign government securities. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by a Fund's custodian. The repurchase
price may be higher than the purchase price, the difference being income to a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price on repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not always clear whether a court would consider the
security purchased by a Fund subject to a repurchase agreement as being owned by
a Fund or as being collateral for a loan by a Fund to the seller. In the event
of commencement of bankruptcy or insolvency proceedings with respect to the
seller of the security before repurchase of the security under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Such a delay may involve loss of interest or a decline in the
value of the security. If the court characterizes the transaction as a loan and
a Fund has not perfected a security interest in the security, a Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of
B-47
<PAGE>
the seller. As an unsecured creditor, a Fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
The Investment Adviser seeks to minimize the risk of loss from repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the security. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the security subject to the
repurchase agreement becomes less than the repurchase price (including accrued
interest), a Fund will direct the seller of the security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price. Certain repurchase agreements
which provide for settlement in more than seven days can be liquidated before
the nominal fixed term on seven days or less notice. Such repurchase agreements
will be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having management agreements with the Investment Advisers or their affiliates,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
Reverse Repurchase Agreements
- -----------------------------
A Fund may borrow money by entering into transactions called reverse
repurchase agreements. Under these arrangements, a Fund will sell portfolio
securities to dealers in U.S. Government Securities or members of the Federal
Reserve System, with an agreement to repurchase the security on an agreed date,
price and interest payment. The Global Income Fund may also enter into reverse
repurchase agreements involving certain foreign government securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities a Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. Borrowings may magnify the potential for gain or
loss on amounts invested resulting in an increase in the speculative character
of a Fund's outstanding shares.
When a Fund enters into a reverse repurchase agreement, it segregates cash
or liquid assets that have a value equal to or greater than the repurchase
price. The account is then continuously monitored by the Investment Adviser to
make sure that an appropriate value is maintained. Reverse repurchase agreements
are considered to be borrowings under the Act.
Restricted and Illiquid Securities
- ----------------------------------
Each Fund may purchase securities that are not registered or offered in an
exempt non-public offering ("Restricted Securities") under the Securities Act of
1933, as amended ("1933 Act"), including securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act.
However, a Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, certain municipal leases and participation
interests, certain over-the-counter options, repurchase agreements and time
deposits with a notice or demand period of more than seven days, and certain
Restricted Securities, unless it is determined, based upon a
B-48
<PAGE>
continuing review of the trading markets for the specific instrument, that such
instrument is liquid. Certain commercial paper issued in reliance on Section
4(2) of the 1933 Act is treated like Rule 144A Securities. The Trustees have
adopted guidelines under which the Investment Advisers determine and monitor the
liquidity of the Funds' portfolio securities. This investment practice could
have the effect of increasing the level of illiquidity in a Fund to the extent
that qualified institutional buyers become for a time uninterested in purchasing
these instruments.
The purchase price and subsequent valuation of Restricted Securities may
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction may make them less liquid. The amount of
the discount from the prevailing market price is expected to vary depending upon
the type of security, the character of the issuer, the party who will bear the
expenses of registering the Restricted Securities and prevailing supply and
demand conditions.
Non-Diversified Status
- ----------------------
Since the Global Income Fund is "non-diversified" under the Act, it is
subject only to certain federal tax diversification requirements. Under federal
tax laws, Global Income Fund may, with respect to 50% of its total assets,
invest up to 25% of its total assets in the securities of any issuer (except
that this limitation does not apply to U.S. Government Securities). With
respect to the remaining 50% of the Fund's total assets, (1) the Fund may not
invest more than 5% of its total assets in the securities of any one issuer
(other than the U.S. Government), and (2) the Fund may not acquire more than 10%
of the outstanding voting securities of any one issuer. These tests apply at
the end of each quarter of its taxable year and are subject to certain
conditions and limitations under the Code.
Portfolio Turnover
- ------------------
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for fixed-
income securities, or for other reasons. It is anticipated that the portfolio
turnover rate of each Fund will vary from year to year.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is
B-49
<PAGE>
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by, a Fund. With respect to the Funds' fundamental investment
restriction no. 3, asset coverage of at least 300% (as defined in the Act),
inclusive of any amounts borrowed, must be maintained at all times.
As a matter of fundamental policy, a Fund may not:
(1) make any investment inconsistent with the Fund's classification as
a diversified company under the Act. This restriction does not,
however, apply to any Fund classified as a non-diversified company
under the Act;
(2) invest 25% or more of its total assets in the securities of one or
more issuers conducting their principal business activities in the
same industry (excluding the U.S. government or any of its
agencies or instrumentalities). (For the purposes of this
restriction, state and municipal governments and their agencies,
authorities and instrumentalities are not deemed to be industries;
telephone companies are considered to be a separate industry from
water, gas or electric utilities; personal credit finance
companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities of
their parents). This restriction does not apply to investments in
municipal securities which have been pre-refunded by the use of
obligations of the U.S. government or any of its agencies or
instrumentalities;
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by applicable
law, borrow up to an additional 5% of its total assets for
temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law and
(e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings;
(4) make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law;
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting;
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts and
mortgage-related securities and may hold
B-50
<PAGE>
and sell real estate acquired by a Fund as a result of the
ownership of securities;
(7) invest in commodities or commodity contracts, except that the Fund
may invest in currency and financial instruments and contracts
that are commodities or commodity contracts; or
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same investment objective,
restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management;
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements with a notice or demand period of more
than seven days, securities which are not readily marketable and
restricted securities not eligible for resale pursuant to Rule 144A
under the 1933 Act;
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets; or
(d) Make short sales of securities, except short sales against the box.
MANAGEMENT
The Trustees of the Trust are responsible for deciding matters of general
policy and reviewing the actions of the Investment Adviser, distributor and
transfer agent. The officers of the Trust conduct and supervise each Fund's
daily business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below together with their respective positions and a brief statement of
their principal occupations during the past five years. Trustees and officers
deemed to be "interested persons" of the Trust for purposes of the Act are
indicated by an asterisk.
B-51
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
Ashok N. Bakhru, 58 Chairman Chairman of the Board and Trustee -
P.O. Box 143 & Trustee Goldman Sachs Trust (registered
Lima, PA 19037 investment company) (since January
1992); President, ABN Associates (July
1994 -March 1996 and November 1998 to
present); Executive Vice
President-Finance and Administration and
Chief Financial Officer, Coty Inc.
(manufacturer of fragrances and
cosmetics) (April 1996-November 1998);
Senior Vice President of Scott Paper
Company (until June 1994); Director of
Arkwright Mutual Insurance Company
(1984-1999); Trustee of International
House of Philadelphia (since 1989);
Member of Cornell University Council
(since 1992); Trustee of the Walnut
Street Theater (since 1992); Director,
Private Equity Investors - III (since
November 1998); and Trustee, Citizens
Scholarship Foundation of America (since
1998).
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
*David B. Ford, 54 Trustee Trustee - Goldman Sachs Trust
32 Old Slip (registered investment company) (since
New York, NY 10005 September 1994); Director, Commodities
Corp. LLC (futures and commodities
traders) (since April 1997); Managing
Director, J. Aron & Company (commodity
dealer and risk management adviser)
(since November 1996); Managing
Director, Goldman Sachs & Co. Investment
Banking Division (since November 1996);
Chief Executive Officer and Director,
CIN Management (investment adviser)
(since August 1996); Chief Executive
Officer & Managing Director and
Director, Goldman Sachs Asset Management
International (since November 1995 and
December 1994, respectively); Co-Head,
Goldman Sachs Asset Management (since
November 1995); Co-Head and Director,
Goldman Sachs Funds Management, L.P.
(since November 1995 and December 1994,
respectively); and Chairman and
Director, Goldman Sachs Asset Management
Japan Limited (since November 1994).
*Douglas C. Grip, 37 Trustee Trustee and President - Goldman Sachs
32 Old Slip & President Trust (registered investment company)
New York, NY 10005 (since 1997); Trustee, Trust for Credit
Unions (registered investment company)
(since March 1998); Managing Director,
Goldman Sachs Asset Management Group
(since November 1997); President,
Goldman Sachs Funds Group (since April
1996); and President, MFS Retirement
Services Inc., of Massachusetts
Financial Services (prior thereto).
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
*John P. McNulty, 47 Trustee Trustee - Goldman Sachs Trust
32 Old Slip (registered investment company) (since
New York, NY 10005 January 1997); Managing Director,
Goldman Sachs (since November 1996);
Head of Investment Management Division
(since September 1999); General Partner,
J. Aron & Company (since November 1995);
Director and Co-Head, Goldman Sachs
Funds Management L.P.. (since November
1995); Director, Goldman Sachs Asset
Management International (since January
1996); Co-Head, GSAM (November
1995-September 1999); Director, Global
Capital Reinsurance (insurance) (since
1989); Director, Commodities Corp. LLC
(since April 1997); Limited Partner of
Goldman Sachs (1994 - November 1995);
and Trustee, Trust for Credit Unions
(registered investment company) (January
1996).
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
Mary P. McPherson, 64 Trustee Trustee - Goldman Sachs Trust
The Andrew W. (registered investment company) (since
Mellon Foundation 1997); Vice President, The Andrew W.
140 East 62/nd/ Street Mellon Foundation (provider of grants
New York, NY 10021 for conservation, environmental and
educational purposes) (since October
1997); President of Bryn Mawr College
(1978-1997); Director, Smith College
(since 1998); Director, Josiah Macy, Jr.
Foundation (health educational programs)
(since 1977); Director, the Philadelphia
Contributionship (insurance) (since
1985); Director Emeritus, Amherst
College (1986-1998); Director, Dayton
Hudson Corporation (general retailing
merchandising) (1988-1997); Director,
The Spencer Foundation (educational
research) (since 1993); member of PNC
Advisory Board (banking) (since 1993);
and Director, American School of
Classical Studies in Athens (since 1997).
*Alan A. Shuch, 50 Trustee Trustee - Goldman Sachs Trust
32 Old Slip (registered investment company) (since
New York, NY 10005 October 1989); Limited Partner, Goldman
Sachs (since December 1994). Consultant
to GSAM (since December 1994).
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
Jackson W. Smart, Jr., 69 Trustee Trustee - Goldman Sachs Trust
One Northfield Plaza, Suite 218 (registered investment company) (since
Northfield, IL 60093 May 1997); President, Board Member and
Senior Adviser, Smart Properties, Inc.
(since January 2000); Chairman,
Executive Committee and Director, First
Commonwealth, Inc. (a managed dental
care company) (since January 1996-August
1999); Chairman and Chief Executive
Officer, MSP Communications Inc. (a
company engaged in radio broadcasting)
(October 1988 - December 1997);
Director, Federal Express Corporation
(NYSE) (since 1976); Director, Evanston
Northwestern Healthcare (since 1980).
William H. Springer, 70 Trustee Trustee - Goldman Sachs Trust
701 Morningside Drive (registered investment company) (since
Lake Forest, IL 60045 April 1989); Director, The Walgreen Co.
(a retail drug store business) (April
1988-January 2000); Director of Baker,
Fentress & Co. (a closed-end,
non-diversified management investment
company) (April 1992 - present); and
Chairman and Trustee, Northern
Institutional Funds (since April 1984).
</TABLE>
B-56
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
Richard P. Strubel, 60 Trustee Trustee - Goldman Sachs Trust
500 Lake Cook Road (registered investment company) (since
Suite 150 December 1987); President and COO,
Deerfield, IL 60015 UNext.com (provider of educational
services via the internet) (since 1999);
Director, Gildan Activewear Inc. (since
February 1999); Director of Kaynar
Technologies Inc. (since March 1997);
Managing Director, Tandem Partners, Inc.
(1990-1999); President and Chief
Executive Officer, Microdot, Inc. (a
diversified manufacturer of fastening
systems and connectors) (January 1984 -
October 1994); Trustee, Northern
Institutional Funds (since December
1982); and Director, Cantilever
Technologies, Inc. (since 1999).
*Nancy L. Mucker, 50 Vice President Vice President - Goldman Sachs Trust
4900 Sears Tower (registered investment company); Vice
Chicago, IL 60606 President and Co-Manager of Funds Group
Shareholder Servicing, Goldman Sachs
(since April 1985).
*John M. Perlowski, 35 Treasurer Treasurer - Goldman Sachs Trust
32 Old Slip (registered investment company); Vice
New York, NY 10005 President, Goldman Sachs (since July
1995); Banking Director, Investors Bank
and Trust (November 1993 - July 1995).
*James A. Fitzpatrick, 39 Vice President Vice President - Goldman Sachs Trust
4900 Sears Tower (registered investment company) (since
Chicago, IL 60606 October 1997); Managing Director,
Goldman Sachs (since October 1999); Vice
President of GSAM (April 1997-December
1999); and Vice President and General
Manager, First Data Corporation -
Investor Services Group (1994 to 1997).
</TABLE>
B-57
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
*Jesse Cole, 36 Vice President Vice President - Goldman Sachs Trust
4900 Sears Tower (registered investment company) (since
Chicago, IL 60606 1998); Vice President, GSAM (since June
1998); Vice President, AIM Management
Group, Inc. (investment adviser) (April
1996-June 1998); and Assistant Vice
President, the Northern Trust Company
(June 1987-April 1996).
*Philip V. Giuca , Jr., 37 Assistant Treasurer Assistant Treasurer - Goldman Sachs
32 Old Slip Trust (registered investment company)
New York, NY 10005 (since 1997); and Vice President,
Goldman Sachs (May 1992-Present).
*Dee Moran, 33 Assistant Treasurer Assistant Treasurer - Goldman Sachs
32 Old Slip Trust (registered investment company)
New York, NY 10005 (since 1999); Vice President, Mutual
Fund Administration, GSAM (since 1995).
*Michael J. Richman, 39 Secretary Secretary - Goldman Sachs Trust
85 Broad Street (registered investment company); General
New York, NY 10004 Counsel of the Funds Group of GSAM
(since December 1997); Associate General
Counsel of GSAM (February 1994 -
December 1997); Counsel to the Funds
Group, GSAM (June 1992 - December 1997);
Associate General Counsel, Goldman Sachs
(since December 1998); Vice President of
Goldman Sachs (since June 1992); and
Assistant General Counsel of Goldman
Sachs (June 1992 to December 1998).
</TABLE>
B-58
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
*Howard B. Surloff, 34 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Trust (registered investment company)
New York, NY 10004 (since 1993); Assistant General Counsel,
GSAM and General Counsel to the U.S.
Funds Group (since December 1997);
Assistant General Counsel and Vice
President, Goldman Sachs (since November
1993 and May 1994, respectively);
Counsel to the Funds Group, GSAM
(November 1993-December 1997); and
Associate of Shereff, Friedman, Hoffman
& Goodman (October 1990 to November
1993).
*Valerie A. Zondorak, 34 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Trust (registered investment company);
New York, NY 10004 Assistant General Counsel, GSAM and
Assistant General Counsel to the Funds
Group (since December 1997); Vice
President and Assistant General Counsel,
Goldman Sachs (since March 1997);
Counsel to the Funds Group, GSAM (March
1997 - December 1997); and Associate of
Shereff, Friedman, Hoffman & Goodman
(September 1990 to February 1997).
*Deborah A. Farrell, 28 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Trust (registered investment company)
New York, NY 10004 (since 1996); Legal Products Analyst,
Goldman Sachs (since December 1998);
Legal Assistant, Goldman Sachs (January
1996 - December 1998); Assistant
Secretary to the Funds Group (1996 to
present); Executive Secretary, Goldman
Sachs (January 1994 - January 1996); and
Legal Secretary, Cleary, Gottlieb, Steen
and Hamilton (September 1990 - January
1994).
</TABLE>
B-59
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------------------------------- ------------------- -----------------------------------------
<S> <C> <C>
*Kaysie P. Uniacke, 39 Assistant Secretary Assistant Secretary - Goldman Sachs
32 Old Slip Trust (registered investment company);
New York, NY 10005 Managing Director, GSAM (since 1997);
and Vice President and Senior Portfolio
Manager, GSAM (1988 to 1997).
*Elizabeth D. Anderson, 30 Assistant Secretary Assistant Secretary - Goldman Sachs
32 Old Slip Trust (registered investment company);
New York, NY 10005 Portfolio Manager, GSAM (since April
1996); Junior Portfolio Manager, GSAM
(1995 - April 1996); Funds Trading
Assistant, GSAM (1993 - 1995); and
Compliance Analyst, Prudential Insurance
(1991 - 1993).
*Amy E. Belanger, 30 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Trust (registered investment company)
New York, NY 10004 (since 1999); Vice President, Goldman
Sachs (since June 1999); Counsel,
Goldman Sachs (since 1998); and
Associate, Dechert Price & Rhoads
(September 1996-1998).
</TABLE>
Each interested Trustee and officer of the Trust holds comparable positions
with certain other investment companies of which Goldman Sachs, GSAM or one of
their affiliates is the investment adviser, administrator and/or distributor.
As of March 17, 2000, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of beneficial interest of each Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
The Trust, its Investment Advisers and principal underwriter have adopted
codes of ethics under Rule 17j-1 of the 1940 Act that permit personnel subject
to their particular code of ethics to invest in securities, including securities
that may be purchased or held by the Funds.
B-60
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended December 31,
1999:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman Sachs
Aggregate Accrued as Funds Complex
Compensation Part of (including the
Name of Trustee from the Funds/2/ Trust's Expenses Trust)/3/
- --------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Ashok N. Bakhru/1/ $23,884 --- $ 159,884
David B. Ford --- --- ---
Douglas C. Grip --- --- ---
John P. McNulty --- --- ---
Mary P. McPherson 17,716 --- 118,716
Alan A. Shuch --- --- ---
Jackson W. Smart 17,716 --- 118,716
William H. Springer 17,716 --- 118,716
Richard P. Strubel 17,716 --- 118,716
</TABLE>
______________
1. Includes compensation as Chairman of the Board of Trustees.
2. Reflects amount paid by the Funds described in this Additional
Statement during the fiscal year ended December 31, 1999.
3. The Goldman Sachs Funds complex consists of Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted
of 51 mutual funds, on December 31, 1999. Goldman Sachs Variable
Insurance Trust consisted of 16 mutual funds on December 31,
1999.
B-61
<PAGE>
Management Services
- -------------------
GSAM, 32 Old Slip, New York, New York, a separate operating division of
Goldman Sachs, serves as Investment Adviser to the Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small Cap Equity,
Capital Growth, and Mid Cap Value Funds. GSAMI, 133 Peterborough Court, London,
England, EC4A 2BB serves as Investment Adviser to the International Equity and
Global Income Funds. See "Service Providers" in the Funds' Prospectus for a
description of the applicable Investment Adviser's duties to the Funds.
The Goldman Sachs Group, L.P. which controlled the Funds' Investment Advisers
merged into the Goldman Sachs Group, Inc. as a result of an initial public
offering.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan,
Montreal, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments. Goldman Sachs has agreed to permit
the Funds to use the name "Goldman Sachs" or a derivative thereof as part of
each Fund's name for as long as a Fund's management agreement ("Management
Agreement") is in effect.
The Investment Advisers are able to draw on the substantial research and
market expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. The Goldman Sachs Global Investment Research
Department covers approximately 2,200 companies, including approximately 1,000
U.S. corporations in 60 industries. The in-depth information and analyses
generated by Goldman Sachs' research analysts are available to the Investment
Advisers. The Investment Advisers manage money for some of the world's largest
institutional investors.
For more than a decade, Goldman Sachs has been among the top-ranked firms in
Institutional Investor's annual "All-America Research Team" survey. In
addition, many of Goldman Sachs' economists, securities analysts, portfolio
strategists and credit analysts have consistently been highly ranked in
respected industry surveys conducted in the U.S. and abroad. Goldman Sachs is
also among the leading investment firms using quantitative analytics (now used
by a growing number of investors) to structure and evaluate portfolios. For
example, Goldman Sachs' options evaluation model analyzes each security's term
and call option, providing an overall analysis of the security's value relative
to its interest risk.
B-62
<PAGE>
In managing the Investment Funds, the Advisers have access to Goldman Sachs'
economics research. The Economics Research Department, based in London,
conducts economic, financial and currency markets research which analyzes
economic trends and interest and exchange rate movement worldwide. The
Economics Research Department tracks factors such as inflation and money supply
figures, balance of trade figures, economic growth, commodity prices, monetary
and fiscal policies, and political events that can influence interest rates and
currency trends. The success of Goldman Sachs' international research team has
brought wide recognition to its members. The team has earned top rankings in
various external surveys such as Extel, Institutional Investors and Reuters.
These rankings acknowledge the achievements of the Firms economists, strategists
and equity analysts.
The Investment Adviser expects to utilize Goldman Sachs' sophisticated option-
adjusted analytics to help make strategic asset allocations within the markets
for U.S. government, Mortgage-Backed and other securities and to employ this
technology periodically to re-evaluate a Fund's investments as market conditions
change. Goldman Sachs has also developed a prepayment model designed to
estimate mortgage prepayments and cash flows under different interest rate
scenarios. Because a mortgage-backed security incorporates the borrower's right
to prepay the mortgage, the Investment Adviser uses a sophisticated option-
adjusted spread (OAS) model to measure expected returns. A security's OAS is a
function of the level and shape of the yield curve, volatility and the
Investment Adviser's expectation of how a change in interest rates will affect
prepayment levels. Since the OAS model assumes a relationship between
prepayments and interest rates, the Investment Adviser considers it a better way
to measure a security's expected return and absolute and relative values than
yield to maturity. In using OAS technology, the Investment Adviser will first
evaluate the absolute level of a security's OAS considering its liquidity and
its interest rate, volatility and prepayment sensitivity. The Investment
Adviser will then analyze its value relative to alternative investments and to
its own investments. The Investment Adviser will also measure a security's
interest rate risk by computing an option adjusted duration (OAD). The
Investment Adviser believes a security's OAD is a better measurement of its
price sensitivity than cash flow duration, which systematically misstates
portfolio duration. The Investment Adviser also evaluates returns for different
mortgage market sectors and evaluates the credit risk of individual securities.
This sophisticated technical analysis allows the Investment Adviser to develop
portfolio and trading strategies using Mortgage-Backed Securities that are
believed to be superior investments on a risk-adjusted basis and which provide
the flexibility to meet the respective Fund's duration targets and cash flow
pattern requirements.
Because the OAS is adjusted for the differing characteristics of the
underlying securities, the OAS of different mortgage-backed securities can be
compared directly as an indication of their relative value in the market. The
Investment Advisers also expect to use OAS-based pricing methods to calculate
projected security returns under different, discrete interest rate scenarios,
and Goldman Sachs' proprietary prepayment model to generate yield estimates
under these scenarios. The OAS, scenario returns, expected returns, and yields
of securities
B-63
<PAGE>
in the mortgage market can be combined and analyzed in an optimal risk-return
matching framework.
The Investment Advisers will use OAS analytics to choose what they believe is
an appropriate portfolio of investments for a Fund from a universe of eligible
investments. In connection with initial portfolio selections, in addition to
using OAS analytics as an aid to meeting each Fund's particular composition and
performance targets, the Investment Advisers will also take into account
important market criteria like the available supply and relative liquidity of
various mortgage securities in structuring the portfolio.
The Investment Advisers also expect to use OAS analytics to evaluate the
mortgage market on an ongoing basis. Changes in the relative value of various
mortgage-backed securities could suggest tactical trading opportunities for the
Funds. The Investment Advisers will have access to both current market analysis
as well as historical information on the relative value relationships among
different mortgage-backed securities. Current market analysis and historical
information is available in the Goldman Sachs database for most actively traded
mortgage-backed securities.
Goldman Sachs has agreed to provide the Investment Advisers, on a non-
exclusive basis, use of its mortgage prepayment model, OAS model and any other
proprietary services which it now has or may develop, to the extent such
services are made available to other similar customers. Use of these services
by the Investment Advisers with respect to a Fund does not preclude Goldman
Sachs from providing these services to third parties or using such services as a
basis for trading for its own account or the account of others.
The fixed-income research capabilities of Goldman Sachs available to the
Investment Advisers include the Goldman Sachs Fixed-Income Research Department
and the Credit Department. The Fixed-Income Research Department monitors
developments in U.S. and foreign fixed-income markets, assesses the outlooks for
various sectors of the markets and provides relative value comparisons, as well
as analyzes trading opportunities within and across market sectors. The Fixed-
Income Research Department is at the forefront in developing and using computer-
based tools for analyzing fixed-income securities and markets, developing new
fixed income products and structuring portfolio strategies for investment policy
and tactical asset allocation decisions. The Credit Department tracks specific
governments, regions and industries and from time to time may review the credit
quality of a Fund's investments.
In addition to fixed-income research and credit research, the Investment
Adviser, in managing the Global Income Fund, is supported by Goldman Sachs'
economics research. The Economics Research Department, based in London,
conducts economic, financial and currency markets research which analyzes
economic trends and interest and exchange rate movements worldwide. The
Economics Research Department tracks factors such as inflation and money supply
figures, balance of trade figures, economic growth, commodity prices, monetary
and fiscal policies, and political events that can influence interest rates and
currency trends. The success of Goldman Sachs' international research team has
brought wide recognition to its members. The team has earned top rankings in
various external surveys such as Extel,
B-64
<PAGE>
Institutional Investor and Reuters. These rankings acknowledge the achievements
of the firm's economists, strategists and equity analysts.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities, the Investment Advisers will have access
to the Global Asset Allocation Model. The model is based on the observation that
the prices of all financial assets, including foreign currencies, will adjust
until investors globally are comfortable holding the pool of outstanding assets.
Using the model, the Investment Advisers will estimate the total returns from
each currency sector which are consistent with the average investor holding a
portfolio equal to the market capitalization of the financial assets among those
currency sectors. These estimated equilibrium returns are then combined with
the expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
The Funds' Management Agreement provides that the Investment Advisers may
render similar services to others as long as the services provided thereunder
are not impaired thereby.
The Management Agreement with respect to the Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, International Equity and
Global Income Funds was initially approved by the Trustees, including a majority
of the Trustees who are not parties to the management agreement or "interested
persons" (as such term is defined in the Act) of any party thereto (the "non-
interested Trustees"), on October 21, 1997. The Management Agreement with
respect to the CORE Large Cap Value Fund was initially approved by the Trustees,
including a majority of the non-interested Trustees, on January 22, 1999. The
Funds' Management Agreement was most recently approved by the Trustees,
including a majority of the Trustees who are not parties to the Management
Agreement or "interested persons" of any party thereto on April 27, 1999. The
arrangement was approved by the sole shareholder of the Growth and Income, CORE
U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity, International Equity
and Global Income Funds on September 26, 1997, and by the sole shareholder of
the CORE Large Cap Value Fund on February 3, 1999, by consent action to satisfy
conditions imposed by the SEC in connection with the registration of shares of
the Funds. The management agreement will remain in effect with respect to each
Fund until June 30, 2000 and from year to year thereafter provided such
continuance is specifically approved at least annually by (a) the vote of a
majority of the outstanding voting securities of such Fund or a majority of the
Trustees, and (b) the vote of a majority of the non-interested Trustees, cast in
person at a meeting called for the purpose of voting on such approval. The
management agreement will terminate automatically with respect to each Fund if
assigned (as defined in the Act) and is terminable at any time without penalty
by the Trustees or by vote of a majority of the outstanding voting securities of
the affected Fund on 60 days' written notice to the Investment Adviser and by
the Investment Adviser on 60 days' written notice to the Trust.
Pursuant to the Management Agreements, the Investment Advisers are
entitled to receive the fees listed below, payable monthly of such Fund's
average daily net assets.
B-65
<PAGE>
Management
Fund Fee
- ---- ---
GSAM
Growth and Income Fund .75%
CORE U.S. Equity Fund .70%
CORE Large Cap Growth Fund .70%
CORE Large Cap Value Fund .70%
CORE Small Cap Equity Fund .75%
Capital Growth Fund .75%
Mid Cap Value Fund .80%
GSAMI
International Equity Fund 1.00%
Global Income Fund .90%
For the fiscal years ended December 31, 1999 and December 31, 1998, the
amount of the investment advisory fees incurred by each Fund then in existence
were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Growth and Income Fund/1/ $145,858 $47,801
CORE U.S. Equity Fund/2/ 142,551 41,825
CORE Large Cap Growth Fund/2/ 98,207 37,366
CORE Large Cap Value Fund/3/ 17,243 N/A
CORE Small Cap Equity Fund/2/ 46,304 32,003
Capital Growth Fund/4/ 47,162 17,067
Mid Cap Value Fund/5/ 90,695 18,776
International Equity Fund/1/ 138,806 85,560
Global Income Fund/1/ 56,181 46,434
</TABLE>
- ------------------
1 Commenced operations on January 12, 1998.
2 Commenced operations on February 13, 1998.
3 Commenced operations on April 1, 1999.
4 Commenced operations on April 30, 1998.
5 Commenced operations on May 1, 1998.
B-66
<PAGE>
Under the Management Agreement, each Investment Adviser also: (i)
supervises all non-advisory operations of each Fund that it advises; (ii)
provides personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective administration of each
Fund; (iii) arranges for at each Fund's expense (a) the preparation of all
required tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
by Goldman Sachs. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts and
other activities of Goldman Sachs may present conflicts of interest with respect
to the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Advisers and their advisory affiliates, have proprietary interests
in, and may manage or advise with respect to, accounts or funds (including
separate accounts and other funds and collective investment vehicles) which have
investment objectives similar to those of the Funds and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Funds. Goldman Sachs and its affiliates are major participants in the global
currency, equities, swap and fixed income markets, in each case both on a
proprietary basis and for the accounts of customers. As such, Goldman Sachs and
its affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest, which could have an
adverse impact on each Fund's performance. Such transactions, particularly in
respect of proprietary accounts or customer accounts other than those included
in the Investment Advisers' and their advisory affiliates' asset management
activities, will be executed independently of the Funds' transactions and thus
at prices or rates that may be more or less favorable. When the Investment
Advisers and their advisory affiliates seek to purchase or sell the same assets
for their managed accounts, including the Funds, the assets actually purchased
or sold may be allocated among the accounts on a basis determined in the good
faith discretion of such entities to be equitable. In some cases, this system
may adversely affect the size or the price of the assets purchased or sold for
the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Investment Advisers and/or their
affiliates will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Advisers
and/or their affiliates are performing services or when position limits have
been reached.
In connection with their management of the Funds, the Investment Advisers
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman
B-67
<PAGE>
Sachs and other affiliates. The Investment Advisers will not be under any
obligation, however, to effect transactions on behalf of the Funds in accordance
with such analysis and models. In addition, neither Goldman Sachs nor any of its
affiliates will have any obligation to make available any information regarding
their proprietary activities or strategies, or the activities or strategies used
for other accounts managed by them, for the benefit of the management of the
Funds and it is not anticipated that the Investment Advisers will have access to
such information for the purpose of managing the Funds. The proprietary
activities or portfolio strategies of Goldman Sachs and its affiliates or the
activities or strategies used for accounts managed by them or other customer
accounts could conflict with the transactions and strategies employed by the
Investment Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Investment Advisers and their affiliates for
their proprietary accounts or accounts (including investment companies or
collective investment vehicles) managed or advised by them. It is possible that
Goldman Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by a Fund. Moreover, it is possible that a Fund will sustain losses during
periods in which Goldman Sachs and its affiliates achieve significant profits on
their trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Funds in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities,
currencies and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Investment Advisers are also principals or employees of Goldman Sachs or their
affiliated entities. As a result, the performance by these principals and
employees of their obligations to such other entities may be a consideration of
which investors in the Funds should be aware.
Each Investment Adviser may enter into transactions and invest in
currencies or instruments on behalf of a Fund in which customers of Goldman
Sachs serve as the counterparty, principal or issuer. In such cases, such
party's interests in the transaction will be adverse to the interests of a Fund,
and such party may have no incentive to assure that the Funds obtain the best
possible prices or terms in connection with the transactions. Goldman Sachs and
its affiliates may also create, write or issue derivative instruments for
customers of Goldman Sachs or its
B-68
<PAGE>
affiliates, the underlying securities, currencies or instruments of which may be
those in which a Fund invests or which may be based on the performance of a
Fund. The Funds may, subject to applicable law, purchase investments which are
the subject of an underwriting or other distribution by Goldman Sachs or its
affiliates and may also enter transactions with other clients of Goldman Sachs
or its affiliates where such other clients have interests adverse to those of
the Funds. At times, these activities may cause departments of Goldman Sachs or
its affiliates to give advice to clients that may cause these clients to take
actions adverse to the interests of the Funds. To the extent affiliated
transactions are permitted, the Funds will deal with Goldman Sachs and its
affiliates on an arms-length basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Investment Advisers may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Funds.
Distributor and Transfer Agent
- ------------------------------
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of shares of the Funds pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
each Fund. Shares of the Funds are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. Under the distribution agreement, each Fund is
responsible for, among other things, the payment of all fees and expenses in
connection with the preparation and filing of any registration statement and
prospectus covering the issue and sale of shares, and the registration and
qualification of shares for sale with the SEC and in the various states,
including registering the Fund as a broker or dealer. Each Fund will also pay
the fees and expenses of preparing, printing and mailing prospectuses annually
to existing shareholders and any notice, proxy statement, report, prospectus or
other communication to shareholders of the Fund, printing and mailing
confirmations of purchases of shares, any issue taxes or any initial transfer
taxes, a portion of toll-free telephone service for shareholders, wiring funds
for share purchases and redemptions (unless paid by the shareholder who
initiates the transaction), printing and postage of business reply envelopes and
a portion of the computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for, among other things, printing and distributing
prospectuses or reports prepared for its use in connection with the offering of
the shares to variable annuity and
B-69
<PAGE>
variable insurance accounts and preparing, printing and mailing any other
literature or advertising in connection with the offering of the shares to
variable annuity and variable insurance accounts. The Distributor will pay all
fees and expenses in connection with its qualification and registration as a
broker or dealer under federal and state laws, a portion of the toll-free
telephone service and of computer terminals, and of any activity which is
primarily intended to result in the sale of shares issued by each Fund.
As agent, the Distributor currently offers shares of each Fund on a
continuous basis to the separate accounts of Participating Insurance Companies
in all states in which such Fund may from time to time be registered or where
permitted by applicable law. The underwriting agreements provide that the
Distributor accepts orders for shares at net asset value without sales
commission or load being charged. The Distributor has made no firm commitment
to acquire shares of any Fund.
Goldman Sachs, 4900 Sears Tower, Chicago, IL 60606, serves as the Trust's
transfer agent. Under its transfer agency agreement with the Trust, Goldman
Sachs has undertaken with the Trust with respect to each Fund to: (i) record
the issuance, transfer and redemption of shares, (ii) provide purchase and
redemption confirmations and quarterly statements, as well as certain other
statements, (iii) provide certain information to the Trust's custodian and the
relevant sub-custodian in connection with redemptions, (iv) provide dividend
crediting and certain disbursing agent services, (v) maintain shareholder
accounts, (vi) provide certain state Blue Sky and other information, (vii)
provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquires, and (ix) render certain
other miscellaneous services. For fiscal years ended December 31, 1999 and
December 31, 1998, the amounts paid to Goldman Sachs by each Fund then in
existence were as follows under the fee schedules then in effect:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Growth and Income Fund/1/ $10,539 $26,530
CORE U.S. Equity Fund/2/ 7,018 26,705
CORE Large Cap Growth Fund/2/ 8,825 25,676
CORE Large Cap Value Fund/3/ 14,665 N/A
CORE Small Cap Equity Fund/2/ 11,754 26,065
Capital Growth Fund/4/ 9,073 21,905
Mid Cap Value Fund/5/ 7,834 18,123
International Equity Fund/1/ 8,348 28,662
Global Income Fund/1/ 9,243 27,998
</TABLE>
- ----------------
1 Commenced operations on January 12, 1998.
2 Commenced operations on February 13, 1998.
B-70
<PAGE>
3 Commenced operations on April 1, 1999.
4 Commenced operations on April 30, 1998.
5 Commenced operations on May 1, 1998.
EXPENSES
The Trust is responsible for the payment of its expenses. The expenses
include, without limitation, management fees, custodial and transfer agency
fees; brokerage fees and commissions; filing fees for the registration or
qualification of the Trust's shares under federal or state securities laws;
organizational expenses; fees and expenses incurred by the Trust in connection
with membership in investment company organizations; taxes; interest; costs of
liability insurance, fidelity bonds or indemnification; any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Trust for violation of any law; legal and auditing fees
and expenses; expenses of preparing and setting in type prospectuses, Additional
Statements, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities;
compensation and expenses of the Trust's "non-interested" Trustees; and
extraordinary expenses, if any, incurred by the Trust.
The imposition of the Investment Adviser's fee, as well as other operating
expenses, will have the effect of reducing the total return to investors. From
time to time, the Investment Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering that Fund's overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
The Investment Adviser voluntarily agreed to limit "Other Expenses"
(excluding management fees, taxes, interest, brokerage, litigation,
indemnification costs and other extraordinary expenses) for the following Funds
to the extent such expenses exceed the following percentage of average daily
net assets:
Other Expenses
B-71
<PAGE>
<TABLE>
<S> <C>
Growth and Income Fund 0.25%
CORE U.S. Equity Fund 0.20
CORE Large Cap Growth Fund 0.20
CORE Large Cap Value Fund 0.20
CORE Small Cap Equity Fund 0.25
Capital Growth Fund 0.25
Mid Cap Value Fund 0.25
International Equity Fund 0.35
Global Income Fund 0.25
</TABLE>
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the Investment Adviser in its
discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the Investment Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
REIMBURSEMENT
For the fiscal year ended December 31, 1999, the amounts of certain "Other
Expenses" of each Fund that were reduced or otherwise limited were as follows
under the expense limitations that were then in effect:
<TABLE>
<CAPTION>
Fiscal year ended
December 31, 1999
-----------------
<S> <C>
Growth and Income Fund $128,807
CORE U.S. Equity Fund 128,768
CORE Large Cap Growth Fund 130,849
CORE Large Cap Value Fund1 107,542
CORE Small Cap Equity Fund 187,581
Capital Growth Fund 123,027
Mid Cap Value Fund 123,421
International Equity Fund 166,436
Global Income Fund 136,499
</TABLE>
- --------------------------
1 Commenced operations on April 1, 1999.
Custodian
- ----------
B-72
<PAGE>
State Street, 1776 Heritage Drive, North Quincy, Massachusetts 02110, is
the custodian of the Trust's portfolio securities and cash. State Street also
maintains the Trust's accounting records. State Street may appoint domestic and
foreign sub-custodians from time to time to hold certain securities purchased by
the Trust in foreign securities and to hold cash and currencies for the Trust.
Independent Public Accountants
- ------------------------------
For the fiscal year ended December 31, 1999, Arthur Andersen LLP, former
independent public accountants, 225 Franklin Place, Boston, Massachusetts 02110,
served as auditors of the Funds. Ernst & Young LLP, independent public
accountants, 787 Seventh Avenue, New York, New York 10019, have been selected as
auditors of the Funds of the Trust for the fiscal year ending December 31, 2000.
In addition to audit services, Ernst & Young LLP will prepare the Funds' federal
and state tax returns, and will provide consultation and assistance on
accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Advisers are responsible for decisions to buy and sell
securities, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The portfolio transactions for the Fixed Income Funds are generally
effected at a net price without a broker's commission (i.e., a dealer is dealing
with a Fund as principal and receives compensation equal to the spread between
the dealer's cost for a given security and the resale price of such security).
In certain foreign countries, debt securities in which the Global Income Fund
may invest are traded on exchanges at fixed commission rates.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
execution and net price available. This means that an Investment Adviser will
seek to execute each transaction at a price and commission, if any, which
provides the most favorable total cost or proceeds reasonably attainable in the
circumstances. As permitted by Section 28(e) of the Securities Exchange Act of
1934, the Fund may pay a broker who provides brokerage and research services an
amount of disclosed commission in excess of the commission which another broker
would have charged for
B-73
<PAGE>
effecting that transaction. Such practice is subject to (i) a good faith
determination by the Trustees that such commission is reasonable in light of the
services provided; and (ii) to such policies as the Trustees may adopt from time
to time. While the Investment Advisers generally seek reasonably competitive
spreads or commissions, a Fund will not necessarily be paying the lowest spread
or commission available. Within the framework of this policy, the Investment
Advisers will consider research and investment services provided by brokers or
dealers who effect or are parties to portfolio transactions of a Fund, the
Investment Advisers and their affiliates, or their other clients. Such research
and investment services are those which brokerage houses customarily provide to
institutional investors and include research reports on particular industries
and companies, economic surveys and analyses, recommendations as to specific
securities and other products or services (e.g., quotation equipment and
computer related costs and expenses), advice concerning the value of securities,
the advisability of investing in, purchasing or selling securities, the
availability of securities or the purchasers or sellers of securities,
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts,
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement) and providing lawful and appropriate
assistance to the Investment Advisers in the performance of their decision-
making responsibilities. Such services are used by the Investment Advisers in
connection with all of their investment activities, and some of such services
obtained in connection with the execution of transactions for a Fund may be used
in managing other investment accounts. Conversely, brokers furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of a Fund, and the
services furnished by such brokers may be used by the Investment Advisers in
providing management services for the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Investment Advisers. This policy does not imply a
commitment to execute all portfolio transactions through all broker-dealers that
sell shares of the Fund.
On occasions when an Investment Adviser deems the purchase or sale of a
security to be in the best interest of a Fund as well as its other customers
(including any other fund or other investment company or advisory account for
which such Investment Adviser acts as investment adviser or subadviser), the
Investment Adviser, to the extent permitted by applicable laws and regulations,
may aggregate the securities to be sold or purchased for the Fund with those to
be sold or purchased for such other customers in order to obtain the best net
price and most favorable execution under the circumstances. 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 applicable Investment Adviser
in the manner it considers to be equitable and consistent with its fiduciary
obligations to such Fund and such other customers. In some instances, this
procedure may adversely affect the price and size of the position obtainable for
a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of
B-74
<PAGE>
generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Trustees.
Subject to the above considerations, the Investment Advisers may use
Goldman Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for each Fund, the commissions, fees or other
remuneration received by Goldman Sachs must be reasonable and fair compared to
the commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar instruments being purchased or
sold on an exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-75
<PAGE>
For the fiscal year ended December 31, 1999, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
----------- ------------- ---------------- -----------
Fiscal Year Ended
December 31, 1999:
<S> <C> <C> <C> <C>
Growth and Income Fund $70,445 (5.7%)1 (7.5%)2
CORE U.S. Equity Fund 23,244 (5.9%)1 (9.0%)2
CORE Large Cap Growth Fund 10,664 (3.4%)1 (18.3%)2
CORE Large Cap Value Fund3 2,872 (0%)1 (3.2%)
CORE Small Cap Equity Fund 17,948 (2.7%)1 (21.8%)
Capital Growth Fund 7,643 (3.2%)1 (15.5%)2
Mid Cap Value Fund 79,753 (6.9%)1 (9.0%)2
International Equity Fund 48,817 (0.3%)1 (13.0%)2
Global Income Fund 0
</TABLE>
- ----------------------------
1 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
2 Percentage of total commissions paid.
3 The CORE Large Cap Value Fund commenced operations on April 1, 1999.
B-76
<PAGE>
For the fiscal year ended December 31, 1998, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
----------- ------------ ------------ -----------
Fiscal Year Ended
December 31, 1998:/1/
<S> <C> <C> <C> <C>
Growth and Income Fund $27,909 (15.7%)2 (6.1%)3 N/A
CORE U.S. Equity Fund 9,120 (24.4%)2 (32.1%)3 N/A
CORE Large Cap Growth Fund 10,573 (22.1%)2 (35.9%)3 N/A
CORE Large Cap Value Fund/4/ N/A N/A N/A N/A
CORE Small Cap Equity Fund 19,041 (20.8%)2 (43.2%)3 N/A
Capital Growth Fund 5,429 (0.3%)2 (18.6%)3 N/A
Mid Cap Value Fund 12,803 (6.8%)2 (3.6%)3 N/A
International Equity Fund 47,226 (10.4%)2 (2.6%)3 N/A
Global Income Fund N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 The Growth and Income, International Equity and Global Income Funds
commenced operations on January 12, 1998; the CORE U.S. Equity, CORE Large
Cap Growth and CORE Small Cap Equity Funds commenced operations on February
13, 1998; the Capital Growth and Mid Cap Value Funds commenced operations
on April 30, 1998 and May 1, 1998, respectively.
2 Percentage of total commissions paid.
3 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
4 Not operational during the fiscal year ended December 31, 1998. The CORE
Large Cap Value Fund commenced operations on April 1, 1999.
B-77
<PAGE>
During the fiscal year ended December 31, 1999, the Trust acquired and sold
securities of its regular broker-dealers. As of December 31, 1999, the Trust
held the following amounts of securities of its regular broker-dealers, as
defined in Rule 10b-1 under the Act, or their parents ($ in thousands):
Fund Broker/Dealer Amount
- ---- ------------- ------
CORE Large Cap Growth Fund Morgan Stanley Dean Witter & Co. $ 28,550
Merrill Lynch & Co. 200,400
Bear Stearns Co. 34,200
Global Income Fund Merrill Lynch & Co. 96,903
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith
the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net asset value per share of each Fund is
calculated by determining the value of the net assets attributable to that Fund
and dividing by the number of outstanding shares. All securities are valued as
of the close of regular trading on the New York Stock Exchange (normally, but
not always, 3:00 p.m. Chicago time and 4:00 p.m. New York time) on each Business
Day. The term "Business Day" means any day the New York Stock Exchange is open
for trading which is Monday through Friday except for holidays. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of a Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") will be valued at the last sale price on the
exchange or system in which they are principally traded on the valuation date.
If there is no sale on the valuation day, securities traded will be valued at
the closing bid price, or if a closing bid price is not available, at either the
exchange or system defined close price on the exchange or system in which such
securities are principally traded. If the relevant exchange or system has not
closed by the above-mentioned time for determining the Fund's net
B-78
<PAGE>
asset value, the securities will be valued at the last sale price or, if not
available at the bid price at the time the net asset value is determined; (b)
over-the-counter securities not quoted on NASDAQ will be valued at the last sale
price on the valuation day or, if no sale occurs, at the last bid price at the
time net asset value is determined; (c) equity securities for which no prices
are obtained under sections (a) or (b) hereof, including those for which a
pricing service supplies no exchange quotation or a quotation that is believed
by the portfolio manager/trader to be inaccurate, will be valued at their fair
value in accordance with procedures approved by the Board of Trustees; (d)
fixed-income securities with a remaining maturity of 60 days or more for which
accurate market quotations are readily available will normally be valued
according to dealer-supplied bid quotations or bid quotations from a recognized
pricing service (e.g., Merrill Lynch, J.J. Kenny, Muller Data Corp., Bloomberg,
EJV, Reuters or Standard & Poor's); (e) fixed-income securities for which
quotations are not readily available are valued by the Investment Adviser based
on valuation models that take into account spread and daily yield changes on
government securities in the appropriate market (i.e. matrix pricing); (f) debt
securities with a remaining maturity of 60 days or less are valued by the
Investment Adviser at amortized cost, which the Trustees have determined to
approximate fair value; and (g) all other instruments, including those for which
a pricing service supplies no exchange quotation or a quotation that is believed
by the portfolio manager/trader to be inaccurate, will be valued at fair value
in accordance with the valuation procedures approved by the Board of
Trustees.
The value of all assets and liabilities expressed in foreign currencies
will be converted into U.S. dollar values at current exchange rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. The impact of events that occur after the publication of
market quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be reflected in
a Fund's next determined net asset value unless the Trust, in its discretion,
makes an adjustment in light of the nature and materiality of the event, its
effect on Fund operations and other relevant factors.
The proceeds received by each Fund of the Trust from the issue or sale of
its shares, and all net investment income, realized and unrealized gain and
proceeds thereof, subject only to the rights of creditors, will be specifically
allocated to such Fund and constitute the underlying assets of that Fund. The
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect of such Fund and with a share of the
general liabilities of
B-79
<PAGE>
the Trust. Expenses of the Trust with respect to the Funds and the other series
of the Trust are generally allocated in proportion to the net asset values of
the respective Funds or series except where allocations of direct expenses can
otherwise be fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return, yield
and/or distribution rate information in advertisements, shareholder reports or
sales literature. Average annual total return and yield are computed pursuant
to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period.
Each Fund may advertise total return on a cumulative, average, year-by-year
or other basis for various specified periods by means of quotations, charts,
graphs or schedules. In addition to the above, each Fund may from time to time
advertise its performance relative to certain averages, performance rankings,
indices, or other information prepared by mutual fund statistical services and
investments for which reliable performance information is available.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a Fund relative to
B-80
<PAGE>
the total market. A beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is standard deviation. Standard deviation
is used to measure variability of net asset value or total return around an
average, over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise a
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) Donoghues' Money Fund Report (which provides industry averages for 7-day
annualized and compounded yields of taxable, tax-free and U.S. Government money
funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the NASDAQ OTC
Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell 2000 Index
- - Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the Value-Line
Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-Actuaries Europe
and Pacific Index; (s) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan
Stanley (including the EAFE Indices, the Morgan Stanley Capital International
Combined Asia ex Japan Free Index and the Morgan Stanley Capital International
Emerging Markets Free Index), Salomon Brothers, Merrill Lynch, Donaldson Lufkin
and Jenrette or other providers of such data; (t) CDA/Wiesenberger Investment
Companies Services or Wiesenberger Investment Companies Service; (u) The Goldman
Sachs Commodities Index; (v) information produced by Micropal, Inc; (w) the
Shearson Lehman Government/Corporate (Total) Index; (x) Shearson Lehman
Government Index; (y) Merrill Lynch 1-3 Year Treasury Index; (z) Merrill Lynch
2-Year
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<PAGE>
Treasury Curve Index; (aa) the Salomon Brothers Treasury Yield Curve Rate of
Return Index; (bb) the Payden & Rygel 2-Year Treasury Note Index; (cc) 1 through
3 year U.S. Treasury Notes; (dd) constant maturity U.S. Treasury yield indices;
(ee) the London Interbank Offered Rate; (ff) historical data concerning the
performance of adjustable and fixed-rate mortgage loans; and (gg) the Tokyo
Price Index. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of the Fund's portfolio. These indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may not be identical to the formulas used by a Fund to
calculate its performance figures.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta
and standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, taxable money market funds, U.S. Treasury securities,
adjustable rate
B-82
<PAGE>
mortgage securities, government securities and municipal bonds) over
time. However, the characteristics of these securities are not identical
to, and may be very different from, those of a Fund;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on
a global basis;
. performance of securities markets of specific countries and regions;
. value of a dollar amount invested in a particular market or type of
security over different periods of time;
. volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500 Index, IBC/Donoghue's Money Fund Average/
All Taxable Index) over varying periods of time;
. credit ratings of domestic government bonds in various countries;
. price volatility comparisons of types of securities over different
periods of time; and
. price and yield comparisons of a particular security over different
periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
B-83
<PAGE>
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming expense Assuming no
Fund Time Period reimbursements expense reimbursements
- ---- ----------- ----------------- -----------------------
<S> <C> <C> <C>
Growth and Income Fund 1/1/99 - 12/31/99 - One year 5.41% 4.63%
1/12/98 - 12/31/99 - Since inception 5.53% 4.21%
CORE U.S. Equity Fund 1/1/99 - 12/31/99 - One year 24.30% 23.42%
2/13/98 - 12/31/99 - Since inception 20.75% 19.17%
CORE Large Cap Growth Fund 1/1/99 - 12/31/99 - One year 35.42% 34.02%
2/13/98 - 12/31/99 - Since inception 27.69% 25.78%
CORE Large Cap Value Fund 4/1/99 - 12/31/99 - Since inception* 8.99% 5.15%
CORE Small Cap Equity Fund 1/1/99 - 12/31/99 - One year 17.54% 13.74%
2/13/98 - 12/31/99 - Since inception 3.46% 0.22%
Capital Growth Fund 1/1/99 - 12/31/99 - One year 27.13% 24.38%
4/30/98 - 12/31/99 - Since inception 24.43% 20.86%
Mid Cap Value Fund 1/1/99 - 12/31/99 - One year (0.95)% (2.17)%
5/1/98 - 12/31/99 - Since inception (8.87)% (10.96)%
International Equity Fund 1/1/99 - 12/31/99 - One year 31.85% 30.16%
1/12/98 - 12/31/99 - Since inception 26.26% 24.39%
Global Income Fund** 1/1/99 - 12/31/99 - One year (1.01)% (3.42)%
1/12/98 - 12/31/99 - Since inception 3.59% 1.18%
</TABLE>
________________________
All returns are average annual total returns.
*Represents an aggregate total return (not annualized) since this fund has not
completed a full twelve months of operations.
**The 30-day yield for the Global Income Fund, assuming expense reimbursements,
was 4.01% for the period ended December 31, 1999. Assuming no expense
reimbursements, the 30-day yield was 2.25% for the period ended December 31,
1999.
B-84
<PAGE>
From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived by an investment in the Fund.
Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Investment
Adviser's views as to markets, the rationale for a Fund's investments and
discussions of a Fund's current asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not
be intended to indicate future performance. A Fund's total return, yield and
distribution rate will vary based on market conditions, portfolio expenses,
portfolio investments and other factors. The value of a Fund's shares will
fluctuate and an investor's shares may be worth more or less than their original
cost upon redemption. The Trust may also, at its discretion, from time to time
make a list of a Fund's holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Variable Insurance Trust, which was
formed under the laws of the state of Delaware on September 16, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or portfolio
of shares into one or more classes.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares are freely transferable and have no preemptive,
subscription or conversion rights.
B-85
<PAGE>
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of trustees from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. In the event that a meeting of shareholders
is held, each share of the Trust will be entitled, as determined by the
Trustees, either to one vote for each share or to one vote for each dollar of
net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The Trustees will call a special
meeting of shareholders for the purpose of electing Trustees if, at any time,
less than a majority of Trustees holding office at the time were elected by
shareholders. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees and
officers of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, acting on behalf of
any affected series, must, upon request by such shareholder, assume the defense
of any claim made against such shareholder for any act or obligation of the
series and satisfy any judgment thereon from the assets of the series.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors and
B-86
<PAGE>
events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any successor series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, series or class or affecting assets of the type in which it
invests; or (iii) economic developments or trends having a significant adverse
impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the Growth and Income
Fund: Sun Life of Canada, P.O. Box 9134, Boston, MA 02117-9134 (19%); Life of
Virginia, 6610 West Broad Street, Richmond, VA 23230-1799 (42%); COVA Financial
Services Life Insurance Company, 4700 Weston Parkway, Suite 200, West Des
Moines, IA 50266-6718 (22%); and The Ohio National Life Insurance Company, One
Financial Way, Cincinnati, OH 45242-5851 (13%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the CORE U.S. Equity
Fund: The Goldman Sachs Group, Seed Account, 85 Broad Street, 10/th/ Floor, New
York, NY 10004-2434 (9%); Sun Life of Canada, P.O. Box 9134, Boston, MA 02117-
9134 (22%); The Ohio National Life Insurance Company, One Financial Way,
Cincinnati, OH 45242-5851 (8%); IDS Life Insurance Company A/C 1, Investment
Accounting - Managed Assets, 1646 AXP Financial Center, Minneapolis, MN 55474-
0001 (32%); and IDS Life Insurance Company A/C 2, Investment Accounting -
Managed Assets, 1646 AXP Financial Center, Minneapolis, MN 55474-0001
(25%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the CORE Large Cap Growth
Fund: The Goldman Sachs
B-87
<PAGE>
Group, Seed Account, 85 Broad Street, 10/th/ Floor, New York, NY 10004-2434
(28%); and Sun Life of Canada, P.O. Box 9134, Boston, MA 02117-9134 (69%).
As of March 17, 2000, the following entity owned of record or beneficially
more than 5% of the outstanding shares of the CORE Large Cap Value Fund:
Goldman Sachs Seed Acct, 4900 Sears Tower, Chicago, IL 60606-6391 (99%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the CORE Small Cap Equity
Fund: The Goldman Sachs Group, Seed Account, 85 Broad Street, 10/th/ Floor, New
York, NY 10004-2434 (27%); Sun Life of Canada, P.O. Box 9134, Boston, MA 02117-
9134 (12%); IDS Life Insurance Company A/C 1, Investment Accounting -Managed
Assets, 1646 AXP Financial Center, Minneapolis, MN 55474-0001 (31%); and IDS
Life Insurance Company A/C 2, Investment Accounting - Managed Assets, 1646 AXP
Financial Center, Minneapolis, MN 55474-0001 (21%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the Capital Growth Fund:
The Goldman Sachs Group, Seed Account, 85 Broad Street, 10/th/ Floor, New York,
NY 10004-2434 (34%); The Ohio National Life Insurance Company, One Financial
Way, Cincinnati, OH 45242-5851 (48%); and Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, KS 66636-0001 (12%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the Mid Cap Value Fund:
Life of Virginia, 6610 West Broad Street, Richmond, VA 23230-1799 (70%); IDS
Life Insurance Company A/C 1, Investment Accounting - Managed Assets, 1646 AXP
Financial Center, Minneapolis, MN 55474-0001 (13%); and IDS Life Insurance
Company A/C 2, Investment Accounting - Managed Assets, 1646 AXP Financial
Center, Minneapolis, MN 55474-0001 (11%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the International Equity
Fund: The Goldman Sachs Group, Seed Account, 85 Broad Street, 10/th/ Floor, New
York, NY 10004-2434 (52%); COVA Financial Services Life Insurance Company, 4700
Weston Parkway, Suite 200, West Des Moines, IA 50266-6718 (16%); and Sun Life of
Canada (US), P.O. Box 9134, Boston, MA 02117-9134 (18%).
As of March 17, 2000, the following entities owned of record or
beneficially more than 5% of the outstanding shares of the Global Income Fund:
the Goldman Sachs Group, 85 Broad Street, 10/th/ Floor, New York, NY 10004-2434
(76%); COVA Financial Services Life Insurance Company, 4700 Weston Parkway,
Suite 200, West Des Moines, IA 50266-6718 (5%); and the Ohio National Life
Insurance Company, One Financial Way, Cincinnati, OH 45242-5851 (11%).
B-88
<PAGE>
Shareholder and Trustee Liability
- ---------------------------------
Under Delaware law, the shareholders of the Funds are not generally subject
to liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust provides for indemnification by the relevant
Fund for all loss suffered by a shareholder as a result of an obligation of the
series. The Declaration of Trust also provides that a series shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the series and satisfy any judgment thereon. In view of
the above, the risk of personal liability of shareholders of a Delaware business
trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of such claim. The Trustees will be entitled to retain
counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the
Fund for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
TAXATION
Shares of the Funds are offered only to Separate Accounts that fund
variable annuity contracts and variable insurance policies issued by
Participating Insurance Companies. See the Prospectus for such contracts for a
discussion of the special taxation of insurance companies with respect to the
Separate Accounts, the variable annuity contracts, variable insurance policies,
and the holders thereof.
B-89
<PAGE>
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Trust. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his or her own tax adviser with
respect to the specific federal, state, local and foreign tax consequences of
investing in each Fund. The summary is based on the laws in effect on the date
of this Additional Statement, which are subject to change.
General
- -------
The following is only a summary of certain additional tax considerations
generally affecting each Fund that are not described in the Prospectus. The
discussions below and in the Prospectus are not intended as substitutes for
careful tax planning.
The holders of variable life insurance policies or annuity contracts should
not be subject to tax with respect to distributions made on, or redemptions of,
Fund shares, assuming that the variable life insurance policies and annuity
contracts qualify under the Code, as life insurance or annuities, respectively,
and that the shareholders are treated as owners of the Fund shares. Thus, this
summary does not describe the tax consequences to a holder of a life insurance
policy or annuity contract as a result of the ownership of such policies or
contracts. Policy or contract holders must consult the prospectuses of their
respective policies or contracts for information concerning the federal income
tax consequences of owning such policies or contracts. This summary also does
not describe the tax consequences applicable to the owners of the Fund shares
because the Fund shares will be sold only to insurance companies. Thus,
purchasers of Fund shares must consult their own tax advisers regarding the
federal, state, and local tax consequences of owning Portfolio shares.
Each Fund is a separate taxable entity. Each of the Funds intends to
qualify for each taxable year as a regulated investment company under Subchapter
M of the Code.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activities in some types of
instruments. Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) such Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of such
Fund's total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government
B-90
<PAGE>
securities and securities of other regulated investment companies) or two or
more issuers controlled by the Fund and engaged in the same, similar or related
trades or businesses. For purposes of the 90% gross income test, income that a
Fund earns from equity interests in certain entities that are not treated as
corporations (e.g., partnerships or trusts) for U.S. tax purposes will generally
have the same character for such Fund as in the hands of such an entity;
consequently, a Fund may be required to limit its equity investments in such
entities that earn fee income, rental income, or other nonqualifying income. In
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal to a
percentage of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute for each taxable
year to its shareholders all or substantially all of its investment company
taxable income, net capital gain and any net tax-exempt interest. Exchange
control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the International Equity or Global Income Funds and
may therefore make it more difficult for such a Fund to satisfy the distribution
requirements described above, as well as the excise tax distribution
requirements described below. However, each Fund generally expects to be able
to obtain sufficient cash to satisfy such requirements from new investors, the
sale of securities or other sources. If for any taxable year a Fund does not
qualify as a regulated investment company, it will be taxed on all of its
investment company taxable income and net capital gain at corporate rate without
any deduction for dividends paid, and its
B-91
<PAGE>
distributions to shareholders will be taxable as ordinary dividends to the
extent of its current and accumulated earnings and profits.
As of December 31, 1999, the following Funds had capital loss carryforwards
for U.S. federal tax purposes.
<TABLE>
<CAPTION>
Year of
Amount Expiration
-------- ----------
<S> <C> <C>
Growth and Income Fund $599,984 2006-2007
CORE Small Cap Equity Fund 198,691 2006
Global Income Fund 136,949 2007
Mid Cap Value Fund 149,174 2006-2007
</TABLE>
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss.
Each Fund intends to comply with the diversification requirements imposed
by Section 817(h) of the Code and the regulations thereunder. Under Code
Section 817(h), a variable life insurance or annuity contract will not be
treated as a life insurance policy or annuity contract, respectively, under the
Code, unless the segregated asset account upon which such contract or policy is
based is "adequately diversified." A segregated asset account will be
adequately diversified if it satisfies one of two alternative tests set forth in
the Treasury Regulations. Specifically, the Treasury Regulations provide that,
except as permitted by the "safe harbor" discussed below, as of the end of each
calendar quarter (or within 30 days thereafter) no more than 55% of the
segregated asset account's total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. As a safe harbor, a segregated asset account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
are cash and cash items, U.S. Government securities and securities of other
regulated investment companies. In addition, a segregated asset account with
respect to a variable life insurance contract is treated as adequately
diversified to the extent of its investment in securities issued by the United
States Treasury.
For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be entitled
to "look through" the regulated investment company to its pro rata portion of
the regulated investment company's assets, provided that the shares of such
regulated investment company are held only by insurance companies and certain
fund managers (a "Closed Fund"). Each Fund will be a Closed Fund.
B-92
<PAGE>
If the segregated asset account upon which a variable contract is based is
not "adequately diversified" under the foregoing rules for each calendar
quarter, then (a) the variable contract is not treated as a life insurance
contract or annuity contract under the Code for all subsequent periods during
which such account is not "adequately diversified" and (b) the holders of such
contract must include as ordinary income the "income on the contract" for each
taxable year. Further, the income on a life insurance contract for all prior
taxable years is treated as received or accrued during the taxable year of the
policyholder in which the contract ceases to meet the definition of a "life
insurance contract" under the Code. The "income on the contract" is, generally,
the excess of (i) the sum of the increase in the net surrender value of the
contract during the taxable year and the cost of the life insurance protection
provided under the contract during the year, over (ii) the premiums paid under
the contract during the taxable year. In addition, if a Fund did not constitute
a Closed Fund, the holders of the contracts and annuities which invest in the
Fund through a segregated asset account might be treated as owners of Fund
shares and might be subject to tax on distributions made by the Fund.
In order to avoid a 4% federal excise tax, each Fund may be required to
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its taxable ordinary income for such year, at least 98% of
the excess of its capital gains over its capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year), and all
taxable ordinary income and the excess of capital gains over capital losses for
the previous year that were not distributed for such year and on which the Fund
paid no federal income tax. For federal income tax purposes, dividends declared
by a Fund in October, November or December to shareholders of record on a
specified date in such a month and paid during January of the following year are
taxable to such shareholders as if received on December 31 of the year declared.
The Funds anticipate that they will generally make timely distributions of
income and capital gains in compliance with these requirements so that they will
generally not be required to pay the excise tax.
Certain of the Funds will be subject to foreign taxes on their income
(possibly including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
B-93
<PAGE>
State and Local
- ---------------
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities.
OTHER INFORMATION
As described in the Prospectus, shares of the Funds are sold and redeemed
at their net asset value as next determined after receipt of the purchase or
redemption order. Each purchase is confirmed to the Separate Account in a
written statement of the number of shares purchased and the aggregate number of
shares currently held.
Each Fund will normally redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
(The Trust may also suspend or postpone the recordation of the transfer of
shares upon the occurrence of any of the foregoing conditions.)
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
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Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen LLP,
former independent public accountants for each Fund, contained in each Fund's
1999 Annual Report are hereby incorporated by reference. Copies of the Annual
Report may be obtained upon request and without charge by calling Goldman, Sachs
& Co. toll free at 800-292-4726. No other portions of the Funds' Annual Report
are incorporated herein by reference.
Ernst & Young LLP have been selected as auditors of the Funds of the Trust
for the fiscal year ending December 31, 2000.
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APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current opinion of
the creditworthiness of an obligor with respect to financial obligations having
an original maturity of no more than 365 days. The following summarizes the
rating categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign obligations may
be lower than its capacity to repay obligations in its local currency due to the
sovereign government's own relatively lower capacity
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to repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identify those instances where sovereign risks make them different for the same
issuer.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
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"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates uncertain capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic
conditions.
"C" - Securities possess high default risk. This designation indicates
a capacity for meeting financial commitments which is highly uncertain and
solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
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Thomson Financial BankWatch short-term ratings assess the likelihood
of an untimely payment of principal and interest of debt instruments with
original maturities of one year or less. The following summarizes the ratings
used by Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as non-
investment grade and therefore speculative.
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
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Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
p - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
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default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* - Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and interest-
only and principal-only mortgage securities. The absence of an 'r' symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations
of issuers outside the United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are 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
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unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (...) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. This is the
lowest investment grade category.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
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To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
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"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
`NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
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<PAGE>
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
- ----------------------
A Standard and Poor's note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
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Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-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 designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
Our client's interests always come first. Our experience shows that if we
serve our clients well, our own success will follow.
Our assets are our people, capital and reputation. If any of these is ever
diminished, the last is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
We take great pride in the professional quality of our work. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
We stress creativity and imagination in everything we do. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
We make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.
We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find limits to the responsibility
that our best people are able to assume. Advancement depends solely on ability,
performance and contribution to the Firm's success, without regard to race,
color, religion, sex, age, national origin, disability, sexual orientation, or
any other impermissible criterion or circumstance.
We stress teamwork in everything we do. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the Firm and its clients.
The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think
that this is an important part of our success.
Our profits are a key to our success. They replenish our capital and
attract and keep our best people. It is our practice to share our profits
generously with all who help create them. Profitability is crucial to our
future.
We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to
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maintain the loyalty, the intimacy and the esprit de corps that we all treasure
and that contribute greatly to our success.
We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to extinction.
We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.
Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must
never denigrate other firms.
Integrity and honesty are the heart of our business. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
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GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman Sachs is a leading financial services firm traditionally known on
Wall Street and around the world for its institutional and private client
services.
With thirty-seven offices around the world Goldman Sachs employs over
11,000 professionals focused on opportunities in major markets.
The number one underwriter of all international equity issues from 1989-
1997.
The number one lead manager of U.S. common stock offerings for the past
nine years (1989-1997).*
The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1997).
______________________
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
Investment Trust and Rights.
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GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman, Sachs & Co. joins New York Stock Exchange
1906 Goldman, Sachs & Co. takes Sears Roebuck & Co. public (at 93 years,
the firm's longest-standing client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman, Sachs & Co. finances Warner Brothers, producer of the first
talking film
1956 Goldman, Sachs & Co. co-manages Ford's public offering, the largest to
date
1970 Goldman, Sachs & Co. opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman, Sachs & Co. takes Microsoft public
1988 Goldman Sachs Asset Management is formally established
1991 Goldman, Sachs & Co. provides advisory services for the largest
privatization in the region of the sale of Telefonos de Mexico
1995 Goldman Sachs Asset Management introduces Global Tactical Asset
Allocation Program
Dow Jones Industrial Average breaks 5000
1996 Goldman, Sachs & Co. takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs Asset Management increases assets under management by
100% over 1996
1998 Goldman Sachs Asset Management reaches $195.5 billion in assets under
Management
Dow Jones Industrial Average breaks 9000
1999 Goldman Sachs becomes a public company
4-B
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST GROWTH AND INCOME FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 86.3%
Airlines - 0.5%
8,600 Southwest Airlines Co. $ 139,213
---------------------------------------------------------
Alcohol - 0.9%
1,500 Anheuser-Busch Cos., Inc. 106,313
2,700 The Seagram Co. Ltd. 121,331
----------
227,644
---------------------------------------------------------
Banks - 5.8%
7,600 Bank of America Corp. 381,425
7,100 Citigroup, Inc. 394,494
2,000 First Union Corp. 65,625
5,000 Mellon Financial Corp. 170,313
4,800 National City Corp. 113,700
2,200 The Chase Manhattan Corp. 170,912
5,100 Wells Fargo Co. 206,231
----------
1,502,700
---------------------------------------------------------
Chemicals - 1.6%
1,900 E.I. du Pont de Nemours & Co. 125,163
2,300 Minnesota Mining &
Manufacturing Co. 225,112
600 The Dow Chemical Co. 80,175
----------
430,450
---------------------------------------------------------
Clothing - 0.4%
2,200 The Gap, Inc. 101,200
---------------------------------------------------------
Computer Hardware - 4.8%
4,300 Cisco Systems, Inc.* 460,637
5,700 Compaq Computer Corp. 154,256
3,200 Dell Computer Corp.* 163,200
1,100 EMC Corp.* 120,175
1,800 Hewlett-Packard Co. 205,088
1,800 Sun Microsystems, Inc.* 139,388
----------
1,242,744
---------------------------------------------------------
Computer Software - 8.8%
5,600 Computer Associates
International, Inc. 391,650
4,900 International Business
Machines, Inc. 529,200
10,200 Microsoft Corp.* 1,190,850
1,600 Oracle Corp.* 179,300
----------
2,291,000
---------------------------------------------------------
Defense/Aerospace - 0.2%
1,700 Raytheon Co.* 42,181
---------------------------------------------------------
Department Store - 3.7%
5,400 Federated Department Stores, Inc.* 273,037
7,000 The May Department Stores Co. 225,750
6,900 Wal-Mart Stores, Inc. 476,962
----------
975,749
---------------------------------------------------------
Drugs - 5.5%
2,400 Bristol-Myers Squibb Co. 154,050
2,400 Eli Lilly & Co. 159,600
4,300 Merck & Co., Inc. 288,369
4,500 Pfizer, Inc. 145,969
4,500 Pharmacia & Upjohn, Inc. 202,500
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Drugs - (continued)
4,300 Schering-Plough Corp. $ 181,406
3,500 Warner-Lambert Co. 286,781
----------
1,418,675
-------------------------------------------------------
Electrical Equipment - 3.6%
5,400 Lucent Technologies, Inc. 403,987
1,400 Motorola, Inc. 206,150
3,200 Nortel Networks Corp. 323,200
----------
933,337
-------------------------------------------------------
Electrical Utilities - 3.0%
10,000 Entergy Corp. 257,500
4,600 FPL Group, Inc. 196,937
5,000 PG&E Corp. 102,500
7,000 Unicom Corp. 234,500
----------
791,437
-------------------------------------------------------
Energy Resources - 5.0%
8,792 Exxon Mobil Corp. 708,305
5,700 Occidental Petroleum Corp. 123,263
7,800 Royal Dutch Petroleum Co. ADR 471,412
----------
1,302,980
-------------------------------------------------------
Environmental Services - 0.5%
7,400 Waste Management, Inc. 127,188
-------------------------------------------------------
Financial Services - 5.0%
6,500 Federal Home Loan Mortgage Corp. 305,906
3,500 Federal National Mortgage Assoc. 218,531
5,100 General Electric Co. 789,225
----------
1,313,662
-------------------------------------------------------
Food & Beverage - 2.8%
13,620 Archer-Daniels-Midland Co. 165,993
6,700 ConAgra, Inc. 151,169
2,000 H.J. Heinz Co. 79,625
3,700 PepsiCo, Inc. 130,425
3,300 The Coca-Cola Co. 192,225
----------
719,437
-------------------------------------------------------
Forest - 0.9%
4,000 International Paper Co. 225,750
-------------------------------------------------------
Grocery - 1.8%
4,600 Safeway, Inc.* 163,588
12,700 The Kroger Co.* 239,712
1,100 Unilever NV 59,881
----------
463,181
-------------------------------------------------------
Heavy Electrical - 0.8%
3,400 Emerson Electric Co. 195,075
-------------------------------------------------------
Home Products - 1.5%
3,500 The Gillette Co. 144,156
2,300 The Procter & Gamble Co. 251,994
----------
396,150
-------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Industrial Parts - 0.8%
1,500 Ingersoll-Rand Co. $ 82,594
1,700 Textron, Inc. 130,369
----------
212,963
------------------------------------------------------------------
Information Services - 1.6%
3,000 America Online, Inc.* 226,313
1,600 Automatic Data Processing, Inc. 86,200
1,500 Electronic Data Systems Corp. 100,406
----------
412,919
------------------------------------------------------------------
Leisure - 0.3%
1,100 Eastman Kodak Co. 72,875
------------------------------------------------------------------
Media - 3.2%
4,400 CBS Corp.* 281,325
900 Clear Channel Communications, Inc.* 80,325
2,100 MediaOne Group, Inc.* 161,306
5,000 The Walt Disney Co. 146,250
2,100 Time Warner, Inc. 152,119
----------
821,325
------------------------------------------------------------------
Medical Products - 1.9%
2,800 Baxter International, Inc. 175,875
6,300 Becton, Dickinson & Co. 168,525
1,500 Johnson & Johnson 139,687
----------
484,087
------------------------------------------------------------------
Medical Providers - 0.4%
4,000 Columbia/HCA Healthcare Corp. 117,250
------------------------------------------------------------------
Mining - 0.4%
1,200 Alcoa, Inc.* 99,600
------------------------------------------------------------------
Motor Vehicle - 0.6%
2,900 Ford Motor Co. 154,969
------------------------------------------------------------------
Oil Refining - 0.7%
1,400 Texaco, Inc. 76,038
4,800 USX-Marathon Group 118,500
----------
194,538
------------------------------------------------------------------
Property Insurance - 3.3%
2,800 American International Group, Inc. 302,750
4,500 The Hartford Financial Services Group, Inc. 213,188
6,500 XL Capital Ltd. 337,187
----------
853,125
------------------------------------------------------------------
Publishing - 0.6%
3,300 The New York Times Co. 162,113
------------------------------------------------------------------
Railroads - 0.8%
8,800 Burlington Northern Santa Fe Corp. 213,400
------------------------------------------------------------------
Restaurants - 0.4%
2,700 Tricon Global Restaurants, Inc.* 104,288
------------------------------------------------------------------
Security/Asset Management - 0.7%
1,200 Morgan Stanley Dean Witter & Co. 171,300
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Semiconductors - 3.0%
7,600 Intel Corp. $ 625,575
1,600 Texas Instruments, Inc. 155,000
-----------
780,575
-------------------------------------------------
Specialty Retail - 1.3%
3,800 CVS Corp. 151,763
2,700 The Home Depot, Inc. 185,119
-----------
336,882
-------------------------------------------------
Telephone - 8.2%
4,927 AT&T Corp. 250,045
3,700 Bell Atlantic Corp. 227,781
6,000 BellSouth Corp. 280,875
4,200 GTE Corp. 296,363
5,100 MCI WorldCom, Inc.* 270,619
6,784 SBC Communications, Inc. 330,720
5,000 Sprint Corp. 336,562
1,800 U.S. West, Inc. 129,600
-----------
2,122,565
-------------------------------------------------
Tobacco - 0.4%
5,000 Philip Morris Cos., Inc. 115,938
-------------------------------------------------
Wireless - 0.6%
700 ALLTEL Corp. 57,881
900 Sprint Corp. (PCS Group)* 92,250
-----------
150,131
-------------------------------------------------
TOTAL COMMON STOCKS
(Cost $20,895,534 ) $22,420,596
-------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreements - 13.1%
Joint Repurchase Agreement Ac-
count II/\
$3,400,000 3.16% 01/03/2000 $ 3,400,000
---------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,400,000) $ 3,400,000
---------------------------------------------
TOTAL INVESTMENTS
(Cost $24,295,534) $25,820,596
---------------------------------------------
</TABLE>
* Non-income producing security.
/\ A portion of this security is segregated as collateral for initial margin
requirements on future transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
------------------------------------------------------------------------------
Investment Abbreviation:
ADR--American Depository Receipt
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM U.S. EQUITY FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 85.6%
Airlines - 0.5%
2,600 Delta Air Lines, Inc. $ 129,512
1,400 UAL Corp.* 108,588
-----------
238,100
------------------------------------------------------------
Alcohol - 0.1%
1,700 The Seagram Co. Ltd. 76,394
------------------------------------------------------------
Apparel - 0.2%
2,400 NIKE, Inc. Class B 118,950
------------------------------------------------------------
Banks - 5.5%
5,100 AmSouth Bancorp. 98,494
9,631 Bank of America Corp. 483,356
18,900 Citigroup, Inc. 1,050,131
500 Fifth Third Bancorp 36,688
6,900 Firstar Corp. 145,762
1,800 FleetBoston Financial Corp. 62,662
3,000 PNC Bank Corp. 133,500
1,500 SouthTrust Corp. 56,719
3,500 SunTrust Banks, Inc. 240,844
600 The Bank of New York Co., Inc. 24,000
5,500 The Chase Manhattan Corp. 427,281
600 U.S. Bancorp 14,288
800 UnionBanCal Corp. 31,550
1,000 Wells Fargo Co. 40,437
-----------
2,845,712
------------------------------------------------------------
Chemicals - 1.2%
6,800 Air Products & Chemicals, Inc. 228,225
600 Avery Dennison Corp. 43,725
2,700 The Dow Chemical Co. 360,787
-----------
632,737
------------------------------------------------------------
Clothing - 0.9%
3,100 Intimate Brands, Inc. 133,687
5,900 The Limited, Inc. 255,544
2,900 The TJX Cos., Inc. 59,269
-----------
448,500
------------------------------------------------------------
Computer Hardware - 6.7%
1,700 Apple Computer, Inc.* 174,781
14,400 Cisco Systems, Inc.* 1,542,600
2,100 Dell Computer Corp.* 107,100
2,000 EMC Corp.* 218,500
2,000 Gateway, Inc.* 144,125
3,900 Hewlett-Packard Co. 444,356
2,700 Lexmark International Group, Inc.* 244,350
3,600 Pitney Bowes, Inc. 173,925
5,600 Sun Microsystems, Inc.* 433,650
-----------
3,483,387
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Computer Software - 7.7%
2,500 Adobe Systems, Inc. $ 168,125
1,800 Computer Associates International, Inc. 125,888
7,200 International Business Machines, Inc. 777,600
17,400 Microsoft Corp.* 2,031,450
4,950 Oracle Corp.* 554,709
1,100 Unisys Corp.* 35,131
2,250 VERITAS Software Corp.* 322,031
-----------
4,014,934
-------------------------------------------------------------------
Consumer Durables - 0.5%
4,100 Whirlpool Corp. 266,756
-------------------------------------------------------------------
Defense/Aerospace - 1.0%
5,500 General Dynamics Corp. 290,125
2,425 Honeywell International, Inc. 139,892
1,400 Northrop Grumman Corp. 75,688
-----------
505,705
-------------------------------------------------------------------
Department Store - 3.0%
1,000 Costco Wholesale Corp.* 91,250
1,500 Dayton Hudson Corp. 110,156
6,900 Federated Department Stores, Inc.* 348,881
14,900 Wal-Mart Stores, Inc. 1,029,963
-----------
1,580,250
-------------------------------------------------------------------
Drugs - 5.0%
1,000 Allergan, Inc. 49,750
3,300 American Home Products Corp. 130,144
6,800 Amgen, Inc.* 408,425
1,600 Biogen, Inc.* 135,200
7,800 Bristol-Myers Squibb Co. 500,662
13,600 Merck & Co., Inc. 912,050
7,400 Pfizer, Inc. 240,038
3,300 Pharmacia & Upjohn, Inc. 148,500
2,000 Schering-Plough Corp. 84,375
-----------
2,609,144
-------------------------------------------------------------------
Electrical Equipment - 5.1%
1,600 CIENA Corp.* 92,000
800 Corning, Inc. 103,150
2,200 Eaton Corp. 159,775
1,700 Harris Corp. 45,369
400 Johnson Controls, Inc. 22,750
8,600 Lucent Technologies, Inc. 643,387
2,000 Motorola, Inc. 294,500
3,400 Nortel Networks Corp. 343,400
2,400 QUALCOMM, Inc. 422,700
2,900 Qwest Communications International, Inc.* 124,700
1,900 Scientific-Atlanta, Inc. 105,688
3,000 Solectron Corp.* 285,375
-----------
2,642,794
-------------------------------------------------------------------
Electrical Utilities - 1.2%
700 Dominion Resources, Inc. 27,475
3,000 Duke Energy Corp. 150,375
-------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM U.S. EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Electrical Utilities - (continued)
10,500 Edison International $ 274,969
600 Entergy Corp. 15,450
2,000 FPL Group, Inc. 85,625
1,600 Texas Utilities Co. 56,900
1,400 The Southern Co. 32,900
-----------
643,694
----------------------------------------------------------
Energy Resources - 3.7%
3,100 Amerada Hess Corp. 175,925
2,500 Apache Corp. 92,344
400 Atlantic Richfield Co. 34,600
1,100 Chevron Corp. 95,288
2,500 Enron Corp. 110,937
8,956 Exxon Mobil Corp. 721,518
10,500 Royal Dutch Petroleum Co. ADR 634,593
600 Vastar Resources, Inc. 35,400
-----------
1,900,605
----------------------------------------------------------
Entertainment - 0.6%
2,600 Carnival Corp. 124,312
2,600 Metro-Goldwyn-Mayer, Inc.* 61,263
2,600 Royal Caribbean Cruises Ltd. 128,212
-----------
313,787
----------------------------------------------------------
Financial Services - 5.4%
400 American Express Co. 66,500
890 Associates First Capital Corp. 24,420
1,200 Federal Home Loan Mortgage Corp. 56,475
5,100 Federal National Mortgage Assoc. 318,431
13,700 General Electric Co. 2,120,075
2,400 Marsh & McLennan Cos., Inc. 229,650
-----------
2,815,551
----------------------------------------------------------
Food & Beverage - 2.8%
2,600 Bestfoods 136,662
7,200 ConAgra, Inc. 162,450
3,000 IBP, Inc. 54,000
11,900 Nabisco Group Holdings Corp. 126,437
2,700 Nabisco Holdings Corp. 85,388
7,300 PepsiCo, Inc. 257,325
4,300 Supervalu, Inc. 86,000
6,000 The Coca-Cola Co. 349,500
7,600 The Pepsi Bottling Group, Inc. 125,875
3,500 Tyson Foods, Inc. 56,875
-----------
1,440,512
----------------------------------------------------------
Forest - 1.2%
4,800 Georgia-Pacific Group 243,600
400 Kimberly-Clark Corp. 26,100
4,900 Weyerhaeuser Co. 351,881
-----------
621,581
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Gas Utilities - 0.3%
3,400 El Paso Energy Corp. $ 131,963
-----------------------------------------------------------------------
Gold - 0.5%
2,000 Barrick Gold Corp. 35,375
9,900 Freeport-McMoRan Copper & Gold, Inc. Class B 209,138
------------
244,513
-----------------------------------------------------------------------
Grocery - 0.2%
300 Albertson's, Inc. 9,675
1,000 Safeway, Inc.* 35,563
3,200 The Kroger Co.* 60,400
------------
105,638
-----------------------------------------------------------------------
Heavy Electrical - 0.0%
400 Emerson Electric Co. 22,950
-----------------------------------------------------------------------
Home Products - 2.3%
2,800 Colgate-Palmolive Co. 182,000
4,200 Fortune Brands, Inc. 138,863
7,800 The Procter & Gamble Co. 854,587
------------
1,175,450
-----------------------------------------------------------------------
Industrial Parts - 1.3%
1,400 Caterpillar, Inc. 65,888
1,100 Ingersoll-Rand Co. 60,569
2,900 Parker-Hannifin Corp. 148,806
8,550 Tyco International Ltd. 332,381
1,200 United Technologies Corp. 78,000
------------
685,644
-----------------------------------------------------------------------
Industrial Services - 0.1%
1,000 The Hertz Corp. 50,125
-----------------------------------------------------------------------
Information Services - 2.9%
8,300 America Online, Inc.* 626,131
2,400 Automatic Data Processing, Inc. 129,300
1,000 DST Systems, Inc.* 76,313
1,600 Electronic Data Systems Corp. 107,100
1,900 First Data Corp. 93,694
1,000 Yahoo!, Inc.* 432,687
700 Young & Rubicam, Inc. 49,525
------------
1,514,750
-----------------------------------------------------------------------
Leisure - 1.1%
4,900 Eastman Kodak Co. 324,625
3,800 Harley-Davidson, Inc. 243,437
1,200 Hasbro, Inc. 22,875
------------
590,937
-----------------------------------------------------------------------
Life Insurance - 0.5%
2,500 Aetna, Inc. 139,532
1,500 AFLAC, Inc. 70,781
400 American General Corp. 30,350
900 Hartford Life, Inc. 39,600
------------
280,263
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM U.S. EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Media - 2.3%
6,500 AT&T Corp.-Liberty Media Group* $ 368,875
700 Clear Channel Communications, Inc.* 62,475
3,800 Cox Communications, Inc.* 195,700
1,200 General Motors Corp. Class H* 115,200
2,600 Infinity Broadcasting Corp.* 94,087
3,900 MediaOne Group, Inc.* 299,569
500 Time Warner, Inc. 36,219
----------
1,172,125
--------------------------------------------------------------------
Medical Products - 2.1%
2,800 Abbott Laboratories 101,675
300 Bausch & Lomb, Inc. 20,531
3,000 Baxter International, Inc. 188,438
8,600 Johnson & Johnson 800,875
----------
1,111,519
--------------------------------------------------------------------
Medical Providers - 0.7%
3,300 Columbia/HCA Healthcare Corp. 96,731
4,600 United HealthCare Corp. 244,375
----------
341,106
--------------------------------------------------------------------
Mining - 0.2%
1,300 Alcoa, Inc. 107,900
--------------------------------------------------------------------
Motor Vehicle - 0.6%
5,500 Ford Motor Co. 293,906
500 General Motors Corp. 36,344
----------
330,250
--------------------------------------------------------------------
Oil Refining - 0.0%
300 Texaco, Inc. 16,294
--------------------------------------------------------------------
Oil Services - 0.3%
2,500 Schlumberger Ltd. 140,625
485 Transocean Sedco Forex, Inc. 16,338
----------
156,963
--------------------------------------------------------------------
Property Insurance - 2.4%
6,043 American International Group, Inc. 653,399
4,300 Loews Corp. 260,956
1,400 MGIC Investment Corp. 84,263
1,800 The Allstate Corp. 43,200
1,400 The Hartford Financial Services Group, Inc. 66,325
3,600 Travelers Property Casualty Corp. 123,300
----------
1,231,443
--------------------------------------------------------------------
Publishing - 0.3%
2,100 Dow Jones & Co., Inc. 142,800
--------------------------------------------------------------------
Railroads - 0.1%
2,200 Burlington Northern Santa Fe Corp. 53,350
--------------------------------------------------------------------
Security/Asset Management - 2.2%
3,500 AXA Financial, Inc. 118,563
2,700 Lehman Brothers Holdings, Inc. 228,656
5,600 Merrill Lynch & Co., Inc. 467,600
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Security/Asset Management - (continued)
1,500 Morgan Stanley Dean Witter & Co. $ 214,125
3,000 The Charles Schwab Corp. 115,125
-----------
1,144,069
----------------------------------------------------------------
Semiconductors - 4.4%
1,500 Applied Materials, Inc.* 190,031
1,100 Applied Micro Circuits Corp.* 139,975
3,800 Conexant Systems, Inc.* 252,225
900 E-Tek Dynamics, Inc.* 121,163
2,600 Integrated Device Technology, Inc.* 75,400
9,700 Intel Corp. 798,431
2,200 JDS Uniphase Corp.* 354,887
500 Linear Technology Corp. 35,781
800 LSI Logic Corp.* 54,000
2,500 Texas Instruments, Inc. 242,188
1,000 Xilinx, Inc.* 45,469
-----------
2,309,550
----------------------------------------------------------------
Specialty Retail - 1.6%
6,200 Circuit City Stores-Circuit City Group 279,387
1,200 Tandy Corp. 59,025
6,300 The Home Depot, Inc. 431,944
600 Tiffany & Co. 53,550
-----------
823,906
----------------------------------------------------------------
Telephone - 5.7%
16,965 AT&T Corp. 860,974
3,100 BCE, Inc. 279,581
2,200 Bell Atlantic Corp. 135,438
2,500 BellSouth Corp. 117,031
14,850 MCI WorldCom, Inc.* 787,978
12,222 SBC Communications, Inc. 595,822
2,700 Sprint Corp. 181,744
-----------
2,958,568
----------------------------------------------------------------
Tobacco - 0.1%
2,100 Philip Morris Cos., Inc. 48,694
----------------------------------------------------------------
Wireless - 1.1%
300 ALLTEL Corp. 24,806
1,100 Nextel Communications, Inc.* 113,438
2,000 Telephone & Data Systems, Inc. 252,000
2,000 United States Cellular Corp.* 201,875
-----------
592,119
----------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $39,158,682) $44,541,982
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM U.S. EQUITY FUND
Statement of Investments (continued)
December 31, 1999
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 11.7%
Joint Repurchase Agreement Account II
$6,100,000 3.16% 01/03/2000 $ 6,100,000
-----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $6,100,000) $ 6,100,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $45,258,682) $50,641,982
-----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/\ A portion of this security is segregated as collateral for initial margin
requirements on futures transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
------------------------------------------------------------------------------
Investment Abbreviations:
ADR--American Depository Receipt
------------------------------------------------------------------------------
12
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP GROWTH FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 94.1%
Alcohol - 0.3%
700 Anheuser-Busch Cos., Inc. $ 49,613
800 The Seagram Co. Ltd. 35,950
----------
85,563
--------------------------------------------------------------
Apparel - 0.6%
2,900 NIKE, Inc. Class B 143,731
--------------------------------------------------------------
Banks - 0.6%
2,250 Citigroup, Inc. 125,016
1,200 Firstar Corp. 25,350
----------
150,366
--------------------------------------------------------------
Chemicals - 0.7%
1,200 The Dow Chemical Co. 160,350
--------------------------------------------------------------
Clothing - 0.4%
1,600 Intimate Brands, Inc. 69,000
1,100 Ross Stores, Inc. 19,731
----------
88,731
--------------------------------------------------------------
Computer Hardware - 11.2%
400 Apple Computer, Inc.* 41,125
12,100 Cisco Systems, Inc.* 1,296,212
1,900 Dell Computer Corp.* 96,900
2,100 EMC Corp.* 229,425
2,400 Hewlett-Packard Co. 273,450
2,800 Lexmark International Group, Inc.* 253,400
6,800 Sun Microsystems, Inc.* 526,575
----------
2,717,087
--------------------------------------------------------------
Computer Software - 12.0%
900 Adobe Systems, Inc. 60,525
100 CheckFree Holdings Corp.* 10,450
200 Inktomi Corp.* 17,750
5,800 International Business Machines, Inc. 626,400
500 Intuit, Inc.* 29,969
100 Macromedia, Inc.* 7,312
12,700 Microsoft Corp.* 1,482,725
200 Networks Associates, Inc.* 5,338
1,600 Novell, Inc.* 63,900
3,250 Oracle Corp.* 364,203
100 RealNetworks, Inc.* 12,031
200 Sterling Commerce, Inc.* 6,813
400 Synopsys, Inc.* 26,700
1,000 Unisys Corp.* 31,937
300 USWeb Corp.* 13,331
1,200 VERITAS Software Corp.* 171,750
----------
2,931,134
--------------------------------------------------------------
Consumer Durables - 0.4%
1,600 Whirlpool Corp. 104,100
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Department Store - 2.7%
1,800 Dayton Hudson Corp. $ 132,188
2,900 Federated Department Stores, Inc.* 146,631
5,400 Wal-Mart Stores, Inc. 373,275
----------
652,094
-----------------------------------------------------------
Drugs - 9.2%
1,600 Allergan, Inc. 79,600
600 American Home Products Corp. 23,663
7,800 Amgen, Inc.* 468,487
1,400 Biogen, Inc.* 118,300
8,000 Bristol-Myers Squibb Co. 513,500
1,300 Chiron Corp.* 55,088
600 Eli Lilly & Co. 39,900
900 Genzyme Corp.* 40,500
7,400 Merck & Co., Inc. 496,262
6,000 Pfizer, Inc. 194,625
1,600 Pharmacia & Upjohn, Inc. 72,000
2,300 Schering-Plough Corp. 97,031
500 Warner-Lambert Co. 40,969
----------
2,239,925
-----------------------------------------------------------
Electrical Equipment - 9.1%
800 AVX Corp. 39,950
1,200 CIENA Corp.* 69,000
200 Comverse Technology, Inc.* 28,950
900 Level 3 Communications, Inc.* 73,688
7,400 Lucent Technologies, Inc. 553,612
1,100 Motorola, Inc. 161,975
2,500 Nortel Networks Corp. 252,500
2,800 QUALCOMM, Inc. 493,150
2,300 Qwest Communications
International, Inc.* 98,900
2,100 Scientific-Atlanta, Inc. 116,813
3,100 Solectron Corp.* 294,887
700 Waters Corp.* 37,100
----------
2,220,525
-----------------------------------------------------------
Electrical Utilities - 0.2%
800 Calpine Corp.* 51,200
-----------------------------------------------------------
Energy Resources - 0.0%
300 Apache Corp. 11,081
-----------------------------------------------------------
Entertainment - 0.6%
800 Carnival Corp. 38,250
600 Royal Caribbean Cruises Ltd. 29,588
1,400 Viacom, Inc. Class B* 84,612
----------
152,450
-----------------------------------------------------------
Environmental Services - 0.2%
3,000 Republic Services, Inc. 43,125
900 Waste Management, Inc. 15,469
----------
58,594
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Financial Services - 6.3%
9,200 General Electric Co. $1,423,700
400 Marsh & McLennan Cos., Inc. 38,275
900 Providian Financial Corp. 81,956
----------
1,543,931
--------------------------------------------------------
Food & Beverage - 2.6%
600 Coca-Cola Enterprises, Inc. 12,075
3,900 ConAgra, Inc. 87,994
1,200 H.J. Heinz Co. 47,775
3,900 IBP, Inc. 70,200
8,500 Nabisco Group Holdings Corp. 90,312
400 Nabisco Holdings Corp. 12,650
1,900 PepsiCo, Inc. 66,975
3,700 The Coca-Cola Co. 215,525
2,000 U.S. Foodservice, Inc.* 33,500
----------
637,006
--------------------------------------------------------
Forest - 0.6%
2,900 Georgia-Pacific Group 147,175
--------------------------------------------------------
Grocery - 0.8%
1,600 Safeway, Inc.* 56,900
1,600 The Kroger Co.* 30,200
1,875 Unilever NV 102,070
----------
189,170
--------------------------------------------------------
Heavy Electrical - 0.1%
600 Emerson Electric Co. 34,425
--------------------------------------------------------
Home Products - 2.8%
600 Fortune Brands, Inc. 19,837
6,000 The Procter & Gamble Co. 657,375
----------
677,212
--------------------------------------------------------
Hotels - 0.3%
2,500 Marriott International, Inc. 78,906
--------------------------------------------------------
Industrial Parts - 0.6%
1,400 Pall Corp. 30,188
2,600 Tyco International Ltd. 101,075
200 United Technologies Corp. 13,000
----------
144,263
--------------------------------------------------------
Industrial Services - 1.0%
400 Cintas Corp. 21,250
4,200 The Hertz Corp. 210,525
----------
231,775
--------------------------------------------------------
Information Services - 5.4%
7,400 America Online, Inc.* 558,237
500 At Home Corp.* 21,438
1,800 Automatic Data Processing, Inc. 96,975
300 CMGI, Inc.* 83,062
200 CNET, Inc.* 11,350
300 Computer Sciences Corp.* 28,388
100 DoubleClick, Inc.* 25,306
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Information Services - (continued)
100 eBay, Inc.* $ 12,519
600 Electronic Data Systems Corp. 40,162
600 Exodus Communications, Inc.* 53,287
400 First Data Corp. 19,725
115 go.com* 2,738
100 InfoSpace.com, Inc.* 21,400
200 Lycos, Inc.* 15,913
100 Network Solutions, Inc.* 21,756
100 Priceline.com, Inc.* 4,738
100 PSINet, Inc.* 6,175
100 TMP Worldwide, Inc.* 14,200
1,200 Valassis Communications, Inc.* 50,700
200 Verio, Inc.* 9,238
200 VeriSign, Inc.* 38,188
400 Yahoo!, Inc.* 173,075
----------
1,308,570
-----------------------------------------------------------
Leisure - 0.9%
3,200 Eastman Kodak Co. 212,000
500 Hasbro, Inc. 9,531
----------
221,531
-----------------------------------------------------------
Media - 2.4%
2,700 AT&T Corp.-Liberty Media Group* 153,225
1,700 Comcast Corp. 85,956
900 Fox Entertainment Group, Inc.* 22,444
2,500 General Motors Corp. Class H* 240,000
200 RCN Corp.* 9,700
700 Time Warner, Inc. 50,706
400 Tribune Co. 22,025
----------
584,056
-----------------------------------------------------------
Medical Products - 3.4%
2,800 Abbott Laboratories 101,675
2,400 Baxter International, Inc. 150,750
5,700 Johnson & Johnson 530,812
1,200 Medtronic, Inc. 43,725
----------
826,962
-----------------------------------------------------------
Medical Providers - 0.6%
1,800 United HealthCare Corp. 95,625
600 Wellpoint Health Networks, Inc.* 39,563
----------
135,188
-----------------------------------------------------------
Oil Services - 0.5%
1,572 Schlumberger Ltd. 88,425
1,005 Transocean Sedco Forex, Inc. 33,855
----------
122,280
-----------------------------------------------------------
Property Insurance - 0.9%
1,376 American International Group, Inc. 148,780
600 The PMI Group, Inc. 29,288
1,100 Travelers Property Casualty Corp. 37,675
----------
215,743
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP GROWTH FUND
Statement of Investments (continued)
December 31,1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Publishing - 0.2%
1,000 The New York Times Co. $ 49,125
---------------------------------------------------------------
Restaurants - 0.2%
1,100 Tricon Global Restaurants, Inc.* 42,488
---------------------------------------------------------------
Security/Asset Management - 2.1%
2,200 A.G. Edwards, Inc. 70,537
100 Ameritrade Holding Corp.* 2,169
500 E*TRADE Group, Inc.* 13,063
400 Legg Mason, Inc. 14,500
500 Lehman Brothers Holdings, Inc. 42,344
2,400 Merrill Lynch & Co., Inc. 200,400
200 Morgan Stanley Dean Witter & Co. 28,550
700 Paine Webber Group, Inc. 27,169
800 The Bear Stearns Cos., Inc. 34,200
2,100 The Charles Schwab Corp. 80,587
----------
513,519
---------------------------------------------------------------
Semiconductors - 6.8%
800 Altera Corp.* 39,650
900 Analog Devices, Inc.* 83,700
300 Applied Materials, Inc.* 38,006
200 Broadcom Corp.* 54,475
300 Conexant Systems, Inc.* 19,913
1,100 Integrated Device Technology, Inc.* 31,900
9,400 Intel Corp. 773,737
1,200 JDS Uniphase Corp.* 193,575
900 LSI Logic Corp.* 60,750
2,100 Texas Instruments, Inc. 203,437
700 Vishay Intertechnology, Inc.* 22,138
3,000 Xilinx, Inc.* 136,406
----------
1,657,687
---------------------------------------------------------------
Specialty Retail - 3.8%
500 Amazon.com, Inc.* 38,063
1,900 Barnes & Noble, Inc.* 39,187
800 BJ's Wholesale Club, Inc.* 29,200
2,700 Circuit City Stores-Circuit City Group 121,669
1,500 CVS Corp. 59,906
600 Lands' End, Inc.* 20,850
600 Lowe's Cos., Inc. 35,850
1,300 Tandy Corp. 63,944
5,700 The Home Depot, Inc. 390,806
1,300 Tiffany & Co. 116,025
----------
915,500
---------------------------------------------------------------
Telephone - 2.7%
1,800 AT&T Corp. 91,350
1,600 CenturyTel, Inc. 75,800
200 Covad Communications Group, Inc.* 11,188
1,000 GTE Corp. 70,562
5,586 MCI WorldCom, Inc.* 296,407
300 NEXTLINK Communications, Inc.* 24,919
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Telephone - (continued)
100 Rhythms NetConnections, Inc.* $ 3,100
1,400 SBC Communications, Inc. 68,250
200 Sprint Corp. 13,462
-----------
655,038
-------------------------------------------------------
Tobacco - 0.3%
3,400 Philip Morris Cos., Inc. 78,838
-------------------------------------------------------
Wireless - 0.3%
800 ALLTEL Corp. 66,150
-------------------------------------------------------
Miscellaneous - 0.3%
500 SPDR Trust ADR Series 1 73,438
-------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $16,881,525) $22,916,907
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 4.9%
Joint Repurchase Agreement Account II +
1,200,000 3.16% 01/03/2000 $ 1,200,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,200,000) $ 1,200,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $18,081,525) $24,116,907
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ A portion of this security is segregated as collateral for initial margin
requirements on future transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
------------------------------------------------------------------------------
Investment Abbreviations:
ADR--American Depository Receipt
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP VALUE FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 101.0%
Airlines - 0.9%
200 America West Holdings Corp. Class B* $ 4,150
100 Delta Air Lines, Inc. 4,981
300 UAL Corp.* 23,269
----------
32,400
-------------------------------------------------------------
Alcohol - 0.4%
100 Adolph Coors Co. Class B 5,250
100 Anheuser-Busch Cos., Inc. 7,088
----------
12,338
-------------------------------------------------------------
Apparel - 0.1%
100 Springs Industries, Inc. 3,994
-------------------------------------------------------------
Banks - 14.6%
1,500 Bank of America Corp. 75,281
300 Bank One Corp. 9,619
2,100 Citigroup, Inc. 116,681
600 Comerica, Inc. 28,013
100 Cullen/Frost Bankers, Inc. 2,575
200 First Security Corp. 5,106
500 First Union Corp. 16,406
1,200 Firstar Corp. 25,350
1,000 FleetBoston Financial Corp. 34,813
200 J.P. Morgan & Co., Inc. 25,325
100 Mellon Financial Corp. 3,406
200 National City Corp. 4,738
600 SunTrust Banks, Inc. 41,287
100 The Bank of New York Co., Inc. 4,000
700 The Chase Manhattan Corp. 54,381
300 U.S. Bancorp 7,144
500 UnionBanCal Corp. 19,719
800 Wells Fargo Co. 32,350
----------
506,194
-------------------------------------------------------------
Chemicals - 3.3%
100 Air Products & Chemicals, Inc. 3,356
200 Avery Dennison Corp. 14,575
33 E.I. du Pont de Nemours & Co. 2,174
100 Kerr-McGee Corp. 6,200
100 Minnesota Mining & Manufacturing Co. 9,787
300 Praxair, Inc. 15,094
200 Rohm & Haas Co. 8,138
400 The Dow Chemical Co. 53,450
----------
112,774
-------------------------------------------------------------
Clothing - 0.1%
105 Intimate Brands, Inc. 4,528
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Computer Hardware - 2.8%
100 Apple Computer, Inc.* $ 10,281
100 Cisco Systems, Inc.* 10,712
100 Diebold, Inc. 2,350
400 Hewlett-Packard Co. 45,575
200 Lexmark International Group, Inc.* 18,100
200 Seagate Technology, Inc.* 9,313
----------
96,331
--------------------------------------------------------------
Computer Software - 1.3%
400 International Business Machines, Inc. 43,200
--------------------------------------------------------------
Construction - 0.1%
100 USG Corp. 4,713
--------------------------------------------------------------
Consumer Durables - 0.2%
100 Whirlpool Corp. 6,506
--------------------------------------------------------------
Defense/Aerospace - 1.1%
200 General Dynamics Corp. 10,550
100 Litton Industries, Inc.* 4,987
400 The Boeing Co. 16,625
100 TRW, Inc. 5,194
----------
37,356
--------------------------------------------------------------
Department Stores - 0.7%
100 Dayton Hudson Corp. 7,344
200 Federated Department Stores, Inc.* 10,112
200 The May Department Stores Co. 6,450
----------
23,906
--------------------------------------------------------------
Drugs - 0.4%
300 Pharmacia & Upjohn, Inc. 13,500
--------------------------------------------------------------
Electrical Equipment - 1.9%
100 Eaton Corp. 7,262
400 Johnson Controls, Inc. 22,750
200 Motorola, Inc. 29,450
100 Scientific-Atlanta, Inc. 5,563
----------
65,025
--------------------------------------------------------------
Electrical Utilities - 5.5%
100 Calpine Corp.* 6,400
100 Central & South West Corp. 2,000
200 Consolidated Edison, Inc. 6,900
300 Dominion Resources, Inc. 11,775
600 DTE Energy Co. 18,825
500 Duke Energy Corp. 25,062
900 Entergy Corp. 23,175
700 FPL Group, Inc. 29,969
200 GPU, Inc. 5,987
300 PECO Energy Co. 10,425
300 Public Service Enterprise Group, Inc. 10,444
700 Texas Utilities Co. 24,894
400 The Montana Power Co. 14,425
----------
190,281
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Energy - 7.9%
700 Chevron Corp. $ 60,637
2,624 Exxon Mobil Corp. 211,396
----------
272,033
---------------------------------------------------------------------
Energy Resources - 1.4%
100 Atlantic Richfield Co. 8,650
200 Murphy Oil Corp. 11,475
100 Phillips Petroleum Co. 4,700
400 Royal Dutch Petroleum Co. ADR 24,175
----------
49,000
---------------------------------------------------------------------
Entertainment - 1.0%
200 Carnival Corp. 9,563
500 Royal Caribbean Cruises Ltd. 24,656
----------
34,219
---------------------------------------------------------------------
Financial Services - 3.0%
100 American Express Co. 16,625
100 Associates First Capital Corp. 2,744
100 Countrywide Credit Industries, Inc. 2,525
400 Federal National Mortgage Assoc. 24,975
100 General Electric Co. 15,475
100 Household International, Inc. 3,725
400 Marsh & McLennan Cos., Inc. 38,275
----------
104,344
---------------------------------------------------------------------
Food & Beverage - 1.8%
200 ConAgra, Inc. 4,513
100 Dean Foods Co. 3,975
900 IBP, Inc. 16,200
2,300 Nabisco Group Holdings Corp. 24,437
400 Nabisco Holdings Corp. 12,650
----------
61,775
---------------------------------------------------------------------
Forest - 1.2%
400 Georgia-Pacific Group 20,300
300 Weyerhaeuser Co. 21,544
----------
41,844
---------------------------------------------------------------------
Gas Utilities - 0.2%
200 El Paso Energy Corp. 7,763
---------------------------------------------------------------------
Gold - 0.9%
1,400 Freeport-McMoRan Copper & Gold, Inc. Class B 29,575
---------------------------------------------------------------------
Grocery - 0.2%
200 Albertson's, Inc. 6,450
---------------------------------------------------------------------
Heavy Electrical - 0.6%
100 Cummins Engine Co., Inc. 4,831
300 Emerson Electric Co. 17,213
----------
22,044
---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Home Products - 0.4%
100 Fortune Brands, Inc. $ 3,306
100 The Procter & Gamble Co. 10,956
----------
14,262
------------------------------------------------------------
Hotels - 0.1%
100 Harrah's Entertainment, Inc.* 2,644
------------------------------------------------------------
Industrial Parts - 1.9%
200 American Standard Cos., Inc.* 9,175
300 Ingersoll-Rand Co. 16,519
400 Pall Corp. 8,625
100 Parker-Hannifin Corp. 5,131
400 Tecumseh Products Co. 18,875
100 United Technologies Corp. 6,500
----------
64,825
------------------------------------------------------------
Industrial Services - 0.4%
300 The Hertz Corp. 15,037
------------------------------------------------------------
Information Services - 0.5%
200 Electronic Data Systems Corp. 13,388
100 First Data Corp. 4,931
----------
18,319
------------------------------------------------------------
Leisure - 1.6%
500 Brunswick Corp. 11,125
600 Eastman Kodak Co. 39,750
200 Hasbro, Inc. 3,812
----------
54,687
------------------------------------------------------------
Life Insurance - 2.7%
300 Aetna, Inc. 16,744
300 American General Corp. 22,762
200 CIGNA Corp. 16,113
200 Conseco, Inc. 3,575
500 Hartford Life, Inc. 22,000
100 Lincoln National Corp. 4,000
300 Nationwide Financial Services, Inc. 8,381
----------
93,575
------------------------------------------------------------
Media - 3.8%
400 AT&T Corp.-Liberty Media Group* 22,700
300 Cox Communications, Inc.* 15,450
400 General Motors Corp. Class H* 38,400
600 Infinity Broadcasting Corp.* 21,712
300 MediaOne Group, Inc.* 23,044
300 The Walt Disney Co. 8,775
----------
130,081
------------------------------------------------------------
Medical Products - 2.0%
100 Abbott Laboratories 3,631
200 Bausch & Lomb, Inc. 13,687
100 Baxter International, Inc. 6,281
400 Johnson & Johnson 37,250
600 Summit Technology, Inc.* 7,013
----------
67,862
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP VALUE FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Medical Providers - 1.4%
200 Columbia/HCA Healthcare Corp. $ 5,863
100 PacifiCare Health Systems, Inc.* 5,300
100 Trigon Healthcare, Inc.* 2,950
500 United HealthCare Corp. 26,562
100 Wellpoint Health Networks, Inc.* 6,594
----------
47,269
--------------------------------------------------------------------
Mining - 1.8%
800 Alcan Aluminum, Ltd. 32,950
200 Alcoa, Inc. 16,600
200 Ball Corp. 7,875
200 Inco Ltd. 4,700
----------
62,125
--------------------------------------------------------------------
Motor Vehicle - 2.3%
300 Cooper Tire & Rubber Co. 4,669
409 Delphi Automative Systems Corp. 6,442
700 Ford Motor Co. 37,406
300 General Motors Corp. 21,806
200 Navistar International Corp.* 9,475
----------
79,798
--------------------------------------------------------------------
Oil Refining - 0.8%
492 Conoco, Inc. Class B 12,238
200 Texaco, Inc. 10,863
100 The Coastal Corp. 3,544
----------
26,645
--------------------------------------------------------------------
Oil Services - 0.7%
300 Schlumberger Ltd. 16,875
258 Transocean Sedco Forex, Inc. 8,698
----------
25,573
--------------------------------------------------------------------
Property Insurance - 5.5%
200 Ambac Financial Group, Inc. 10,438
600 American International Group, Inc. 64,875
400 Loews Corp. 24,275
100 MBIA, Inc. 5,281
200 MGIC Investment Corp. 12,037
500 The Allstate Corp. 12,000
400 The Hartford Financial Services Group, Inc. 18,950
300 The PMI Group, Inc. 14,644
800 Travelers Property Casualty Corp. 27,400
----------
189,900
--------------------------------------------------------------------
Publishing - 0.9%
100 American Greetings Corp. 2,362
100 Deluxe Corp. 2,744
100 Knight-Ridder, Inc. 5,950
100 R.R. Donnelley & Sons Co. 2,481
200 The New York Times Co. 9,825
100 The Times Mirror Co. 6,700
----------
30,062
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Railroads - 0.9%
800 Burlington Northern Santa Fe Corp. $ 19,400
400 Canadian National Railway Co. 10,525
----------
29,925
---------------------------------------------------------------
Restaurants - 0.2%
200 Darden Restaurants, Inc. 3,625
200 Wendy's International, Inc. 4,125
----------
7,750
---------------------------------------------------------------
Security/Asset Management - 2.7%
300 Lehman Brothers Holdings, Inc. 25,406
300 Merrill Lynch & Co., Inc. 25,050
300 Morgan Stanley Dean Witter & Co. 42,825
----------
93,281
---------------------------------------------------------------
Specialty Retail - 2.7%
300 Barnes & Noble, Inc.* 6,188
100 BJ's Wholesale Club, Inc.* 3,650
400 Circuit City Stores-Circuit City Group 18,025
200 CVS Corp. 7,988
100 Lands' End, Inc.* 3,475
100 Lowe's Cos., Inc. 5,975
100 Tandy Corp. 4,919
150 The Home Depot, Inc. 10,284
200 Tiffany & Co. 17,850
300 Zale Corp.* 14,512
----------
92,866
---------------------------------------------------------------
Telephone - 13.0%
2,550 AT&T Corp. 129,412
400 BCE, Inc. 36,075
800 Bell Atlantic Corp. 49,250
1,000 BellSouth Corp. 46,812
300 CenturyTel, Inc. 14,213
400 GTE Corp. 28,225
450 MCI WorldCom, Inc.* 23,878
100 NEXTLINK Communications, Inc.* 8,306
1,921 SBC Communications, Inc. 93,649
300 Sprint Corp. 20,194
----------
450,014
---------------------------------------------------------------
Thrifts - 0.7%
600 Golden West Financial Corp. 20,100
200 Washington Mutual, Inc. 5,200
----------
25,300
---------------------------------------------------------------
Tobacco - 0.6%
300 Philip Morris Cos., Inc. 6,956
600 UST, Inc. 15,113
----------
22,069
---------------------------------------------------------------
Wireless - 1.0%
200 Telephone & Data Systems, Inc. 25,200
100 United States Cellular Corp.* 10,094
----------
35,294
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Miscellaneous - 0.8%
200 SPDR Trust ADR Series 1 $ 29,375
------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,359,448) $3,490,631
------------------------------------------------
TOTAL INVESTMENTS
(Cost $3,359,448) $3,490,631
------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
------------------------------------------------------------------------------
Investment Abbreviations:
ADR--American Depository Receipt
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 83.3%
Airlines - 0.7%
800 Alaska Air Group, Inc.* $ 28,100
1,100 America West Holdings Corp. Class B* 22,825
500 Amtran, Inc.* 9,688
1,900 Frontier Airlines, Inc.* 21,612
400 SkyWest, Inc. 11,200
----------
93,425
-------------------------------------------------------------
Alcohol - 0.1%
500 The Robert Mondavi Corp.* 17,375
-------------------------------------------------------------
Apparel - 1.1%
1,400 K-Swiss, Inc. 26,009
1,500 Phillips-Van Heusen Corp. 12,469
700 Quiksilver, Inc.* 10,850
1,700 Springs Industries, Inc. 67,894
400 The Timberland Co.* 21,150
900 Wellman, Inc. 16,762
----------
155,134
-------------------------------------------------------------
Banks - 3.6%
600 BancFirst Ohio Corp. 13,800
3,200 BancWest Corp. 62,400
900 Banknorth Group, Inc. 24,075
500 Century South Banks Inc. 11,188
420 Commerce Bancorp, Inc. 16,984
700 Community Trust Bancorp, Inc. 14,000
1,109 F&M National Corp. 30,567
300 First Citizens BancShares, Inc. 20,925
1,100 First United Bancshares, Inc. 14,712
1,209 Hudson United Bancorp 30,905
600 Independence Community Bank Corp. 7,500
300 Investors Financial Services Corp. 13,800
955 NBT Bancorp, Inc. 14,802
300 Net.B@nk, Inc.* 5,550
1,400 OceanFirst Financial Corp. 24,237
400 One Valley Bancorp, Inc. 12,250
1,900 Republic Bancshares, Inc.* 23,750
1,459 Sky Financial Group, Inc. 29,362
1,000 Southwest Bancorp of Texas, Inc.* 19,812
1,800 Telebanc Financial Corp.* 46,800
500 United Bankshares, Inc. 11,938
1,400 United Community Financial Corp. 13,913
500 UST Corp. 15,875
----------
479,145
-------------------------------------------------------------
Chemicals - 1.9%
1,200 A. Schulman, Inc. 19,575
1,000 Airgas, Inc.* 9,500
1,600 Arch Chemicals, Inc. 33,500
700 ATMI, Inc.* 23,144
4,600 CK Witco Corp. 61,525
600 H.B. Fuller Co. 33,562
400 Ionics, Inc.* 11,250
1,000 Octel Corp.* 10,375
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Chemicals - (continued)
1,000 Spartech Corp. $ 32,250
700 The Dexter Corp. 27,825
----------
262,506
--------------------------------------------------------------
Clothing - 0.2%
300 AnnTaylor Stores Corp.* 10,331
1,300 The Cato Corp. 16,413
----------
26,744
--------------------------------------------------------------
Computer Hardware - 3.3%
600 Advanced Digital Information Corp.* 29,175
400 Ancor Communications, Inc.* 27,150
500 Auspex Systems, Inc. 5,125
300 Black Box Corp.* 20,100
800 CompuCom Systems, Inc.* 3,300
500 Daisytek International Corp.* 11,656
200 Digital River, Inc.* 6,663
400 Echelon Corp.* 7,825
300 Emulex Corp.* 33,750
1,000 Gerber Scientific, Inc. 21,937
200 Identix, Inc.* 1,813
1,000 Imation Corp.* 33,562
800 In Focus Systems, Inc.* 18,550
700 InaCom Corp.* 5,119
200 Intraware, Inc.* 15,987
300 Kronos, Inc.* 18,000
300 Merisel, Inc.* 394
600 MTI Technology Corp.* 22,125
100 Netopia, Inc.* 5,431
300 Network Equipment Technologies, Inc.* 3,544
300 Proxim, Inc.* 33,000
300 RadiSys Corp.* 15,300
400 RSA Security, Inc.* 31,000
400 SanDisk Corp.* 38,500
300 SoftNet Systems, Inc.* 7,538
400 Zebra Technologies Corp.* 23,400
----------
439,944
--------------------------------------------------------------
Computer Software - 9.8%
500 Actuate Corp.* 21,437
300 Advent Software, Inc.* 19,331
100 Allaire Corp.* 14,631
300 Aspect Development, Inc. 20,550
300 Aspen Technology, Inc.* 7,931
1,100 Avant! Corp.* 16,500
400 AVT Corp.* 18,800
600 Aware, Inc.* 21,825
400 Axent Technologies, Inc.* 8,400
500 BindView Development Corp.* 24,844
700 BroadVision, Inc.* 119,044
600 CACI International, Inc.* 13,575
300 Clarify, Inc.* 37,800
300 Concord Communications, Inc.* 13,313
300 CyberCash, Inc.* 2,775
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Computer Software - (continued)
600 Dendrite International, Inc.* $ 20,325
300 Entrust Technologies, Inc.* 17,981
200 Excalibur Technologies Corp.* 4,125
1,200 FileNET Corp.* 30,600
300 Genesys Telecommunication Laboratories, Inc.* 16,200
500 Harbinger Corp.* 15,906
300 HNC Software, Inc.* 31,725
900 Hyperion Solutions Corp.* 39,150
800 InfoCure, Corp.* 24,950
2,800 Informix Corp.* 32,025
300 Integrated Systems, Inc.* 10,069
300 Intergraph Corp.* 1,406
300 ISS Group, Inc.* 21,338
400 Learn2.com, Inc.* 1,313
300 MAPICS, Inc.* 3,788
3,100 Mentor Graphics Corp.* 40,881
400 Mercury Interactive Corp.* 43,175
200 Micromuse, Inc.* 34,000
500 MicroStrategy, Inc.* 105,000
800 Midway Games, Inc.* 19,150
800 National Computer Systems, Inc. 30,100
200 Net Perceptions, Inc.* 8,400
400 Open Market, Inc.* 18,050
400 Peregrine Systems, Inc.* 33,675
600 Progress Software Corp.* 34,050
400 Project Software & Development, Inc.* 22,200
800 Radiant Systems, Inc.* 32,150
400 Rare Medium Group, Inc.* 13,650
200 Razorfish, Inc.* 19,025
500 Remedy Corp.* 23,687
466 S1 Corp.* 36,406
300 Sagent Technology, Inc.* 8,981
200 Sanchez Computer Associates, Inc.* 8,238
300 Spyglass, Inc.* 11,377
300 SVI Holdings, Inc.* 3,600
1,300 Sybase, Inc.* 22,100
700 The Titan Corp.* 32,987
400 Transaction Systems Architects, Inc.* 11,200
700 Tyler Technologies, Inc.* 3,850
800 Unigraphics Solutions, Inc.* 21,600
200 USinternetworking, Inc.* 13,975
300 Verity, Inc.* 12,769
400 Visual Networks, Inc.* 31,700
----------
1,327,633
----------------------------------------------------------------------
Construction - 3.2%
2,700 D.R. Horton, Inc. 37,294
700 Dal-Tile International, Inc.* 7,087
1,300 EMCOR Group, Inc.* 23,725
1,100 Fleetwood Enterprises, Inc. 22,687
400 Florida Rock Industries, Inc. 13,775
700 Granite Construction, Inc. 12,906
600 Group Maintenance America Corp.* 6,413
2,300 Integrated Electrical Services, Inc.* 23,144
800 Jacobs Engineering Group, Inc.* 26,000
1,500 Kaufman & Broad Home Corp. 36,281
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Construction - (continued)
1,100 LNR Property Corp. $ 21,862
1,300 M.D.C. Holdings, Inc. 20,394
1,600 NCI Building Systems, Inc.* 29,600
400 NVR, Inc.* 19,100
800 Pulte Corp. 18,000
600 Quanta Services, Inc.* 16,950
2,400 Standard Pacific Corp. 26,400
1,900 Sunterra Corp.* 21,850
1,100 The Ryland Group, Inc. 25,369
700 U.S. Home Corp.* 17,894
----------
426,731
----------------------------------------------------------
Consumer Durables - 0.8%
600 Applied Power, Inc. 22,050
4,200 Fedders Corp. 23,100
900 Furniture Brands International, Inc.* 19,800
1,100 La-Z-Boy, Inc. 18,494
700 Salton, Inc.* 23,406
----------
106,850
----------------------------------------------------------
Defense/Aerospace - 0.1%
750 AAR Corp. 13,453
----------------------------------------------------------
Department Store - 0.3%
1,100 Shopko Stores, Inc.* 25,300
600 Value City Department Stores, Inc.* 9,075
----------
34,375
----------------------------------------------------------
Drugs - 4.2%
200 Affymetrix, Inc.* 33,938
1,700 Alpharma, Inc. 52,275
1,800 AmeriSource Health Corp.* 27,338
1,533 Bindley Western Industries, Inc. 23,091
700 Cambrex Corp. 24,106
400 Celgene Corp.* 28,000
700 ChiRex, Inc.* 10,238
1,200 Dura Pharmaceuticals, Inc.* 16,725
600 Gilead Sciences, Inc.* 32,475
3,700 Herbalife International, Inc. 53,187
300 Human Genome Sciences, Inc.* 45,787
1,000 Jones Pharma, Inc. 43,437
700 Medco Research, Inc.* 21,044
500 Millennium Pharmaceutical, Inc.* 61,000
1,700 NBTY, Inc.* 19,656
800 Neurogen Corp.* 13,200
2,900 Perrigo Co.* 23,200
300 Pharmacyclics, Inc.* 12,375
586 Priority Healthcare Corp. Class B* 16,957
300 Syncor International Corp.* 8,738
----------
566,767
----------------------------------------------------------
Electrical Equipment - 7.4%
1,200 Advanced Fibre Communications, Inc.* 53,625
700 Amphenol Corp.* 46,594
900 Andrew Corp.* 17,044
300 ANTEC Corp.* 10,950
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Electrical Equipment - (continued)
400 Artesyn Technologies, Inc.* $ 8,400
900 Aspect Communications Corp.* 35,212
3,000 BMC Industries, Inc. 14,625
600 C-Cube Microsystems, Inc.* 37,350
500 Checkpoint Systems, Inc.* 5,094
300 Credence Systems Corp.* 25,950
500 Dionex Corp.* 20,594
300 Hadco Corp.* 15,300
400 Harmonic, Inc.* 37,975
300 Innovex, Inc. 2,813
500 Inter-Tel, Inc. 12,500
1,300 InterDigital Communications Corp.* 97,500
700 KEMET Corp.* 31,544
700 Kimball International, Inc. Class B 11,550
500 Littelfuse, Inc.* 12,133
1,000 LTX Corp.* 22,375
700 Methode Electronics, Inc. 22,487
400 Molecular Devices Corp.* 20,800
600 MRV Communications, Inc.* 37,725
200 Optical Coating Laboratory, Inc. 59,200
1,000 PairGain Technologies, Inc.* 14,187
800 Park Electrochemical Corp. 21,250
400 Pinnacle Systems, Inc.* 16,275
1,000 Pioneer-Standard Electronics, Inc. 14,437
400 Power-One, Inc.* 18,325
500 Powerwave Technologies, Inc.* 29,187
700 Primex Technologies, Inc. 14,525
600 Roper Industries, Inc. 22,687
500 Sawtek, Inc.* 33,281
1,500 Sensormatic Electronics Corp.* 26,156
600 Tektronix, Inc. 23,325
500 Thermo BioAnalysis Corp.* 9,188
300 Trimble Navigation Ltd.* 6,488
100 Tut Systems, Inc.* 5,363
700 Vicor Corp.* 28,350
1,500 World Access, Inc.* 28,875
400 Xircom, Inc.* 30,000
----------
1,001,239
--------------------------------------------------------
Electrical Utilities - 1.1%
1,100 Eastern Utilities Associates 33,344
1,400 Hawaiian Electric Industries, Inc. 40,425
1,900 Public Service Co. of New Mexico 30,875
700 The United Illuminating Co. 35,962
300 TNP Enterprises, Inc. 12,375
----------
152,981
--------------------------------------------------------
Energy Resources - 0.7%
900 Berry Petroleum Co. 13,613
1,200 Forest Oil Corp.* 15,825
600 HS Resources, Inc.* 10,350
1,000 Mitchell Energy & Development Corp. 22,062
1,200 Southwestern Energy Co. 7,875
300 St. Mary Land & Exploration Co. 7,425
1,100 Tom Brown, Inc.* 14,713
----------
91,863
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Entertainment - 0.1%
700 Handleman Co.* $ 9,363
---------------------------------------------------------------
Financial Services - 1.9%
1,600 Advanta Corp. 29,200
1,200 AmeriCredit Corp.* 22,200
600 Arthur J. Gallagher & Co. 38,850
3,200 Credit Acceptance Corp.* 11,800
400 E.W. Blanch Holdings, Inc. 24,500
500 FiNet.com, Inc.* 656
1,600 First Sierra Financial, Inc.* 27,400
1,000 Hilb, Rogal & Hamilton Co. 28,250
800 Metris Cos., Inc. 28,550
400 NCO Group, Inc.* 12,050
1,900 Security Capital Group, Inc. Class B* 23,750
800 United Payors & United Providers, Inc.* 13,250
----------
260,456
---------------------------------------------------------------
Food & Beverage - 1.1%
300 Agribrands International, Inc.* 13,800
1,000 Corn Products International, Inc. 32,750
1,100 Fleming Cos., Inc. 11,275
600 J & J Snack Foods Corp.* 12,300
1,700 Pilgrim's Pride Corp. 14,131
900 Smithfield Foods, Inc.* 21,600
500 Suiza Foods Corp.* 19,813
1,100 The J.M. Smucker Co. 21,450
----------
147,119
---------------------------------------------------------------
Forest - 0.9%
1,600 ACX Technologies, Inc. 17,100
1,700 Lydall, Inc.* 11,263
800 P.H. Glatfeller Co. 11,650
2,600 Schweitzer-Mauduit International, Inc. 34,937
500 Trex Co., Inc.* 13,375
700 United Stationers, Inc.* 19,994
700 Wausau-Mosinee Paper Corp. 8,181
----------
116,500
---------------------------------------------------------------
Gas Utilities - 1.4%
1,400 AGL Resources, Inc. 23,800
600 Aquarion Co. 22,200
700 California Water Services Group 21,219
700 Cascade Natural Gas Corp. 11,288
1,100 Equitable Resources, Inc. 36,712
800 Laclede Gas Co. 17,300
1,300 Northwest Natural Gas Co. 28,519
900 Oneok, Inc. 22,612
400 UGI Corp. 8,175
----------
191,825
---------------------------------------------------------------
Grocery - 0.2%
1,200 The Great Atlantic & Pacific Tea Co., Inc. 33,450
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Heavy Electrical - 0.8%
1,700 A.O. Smith Corp. $ 37,188
600 Anicom, Inc.* 2,550
900 Belden, Inc. 18,900
900 Cable Design Technologies Corp.* 20,700
2,800 Foster Wheeler Corp. 24,850
----------
104,188
-----------------------------------------------------------
Heavy Machinery - 0.4%
400 NACCO Industries, Inc. 22,225
1,100 Trinity Industries, Inc. 31,281
----------
53,506
-----------------------------------------------------------
Home Products - 0.5%
800 Church & Dwight Co., Inc. 21,350
3,200 Nature's Sunshine Products, Inc. 25,600
1,100 Playtex Products, Inc.* 16,913
----------
63,863
-----------------------------------------------------------
Hotels - 0.4%
800 Argosy Gaming Co.* 12,450
2,000 Aztar Corp.* 21,750
2,700 Boyd Gaming Corp.* 15,694
----------
49,894
-----------------------------------------------------------
Industrial Parts - 2.6%
1,600 Blount International, Inc.* 25,500
1,200 Donaldson Co., Inc. 28,875
500 Helix Technology Corp. 22,406
4,800 JLK Direct Distribution, Inc.* 49,500
1,100 Kennametal, Inc. 36,987
700 Robbins & Myers, Inc. 15,838
900 The Manitowoc Co., Inc. 30,600
1,500 The Timken Co. 30,656
1,600 The Toro Co. 59,700
700 Thomas Industries, Inc. 14,306
700 Trigen Energy Corp. 12,163
1,700 Watts Industries, Inc. 25,075
----------
351,606
-----------------------------------------------------------
Industrial Services - 1.9%
800 Aaron Rents, Inc. 14,200
1,100 Avis Rent A Car, Inc.* 28,119
1,200 Chemed Corp. 34,350
2,800 Dollar Thrifty Automotive Group, Inc.* 67,025
700 Interim Services, Inc.* 17,325
1,000 Metamor Worldwide, Inc.* 29,125
2,800 Olsten Corp. 31,675
2,000 Rollins Truck Leasing Corp. 23,875
1,000 The Wackenhut Corp. 14,937
----------
260,631
-----------------------------------------------------------
Information Services - 5.2%
200 24/7 Media, Inc.* 11,250
600 Advo, Inc.* 14,250
500 American Management Systems, Inc.* 15,687
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Information Services - (continued)
300 Analysts International Corp. $ 3,750
700 Bell & Howell Co.* 22,269
300 Cognizant Technology Solutions Corp.* 32,794
500 Concentric Network Corp.* 15,406
500 Data Broadcasting Corp.* 4,125
300 Diamond Technology Partners, Inc.* 25,781
500 F.Y.I., Inc.* 17,000
500 Fair Isaac & Co., Inc. 26,500
300 Go2Net, Inc.* 26,100
1,300 infoUSA, Inc.* 18,119
100 InterVU, Inc.* 10,500
500 Iron Mountain, Inc.* 19,656
200 iVillage, Inc.* 4,050
1,100 Lason, Inc.* 12,100
200 Launch Media, Inc.* 3,788
100 MarketWatch.com Inc.* 3,650
300 MAXIMUS, Inc.* 10,181
800 MedQuist, Inc.* 20,650
200 Metricom, Inc.* 15,725
200 Mpath Interactive, Inc.* 5,325
200 Multex.com, Inc.* 7,525
1,500 Navigant Consulting, Inc.* 16,312
100 NBC Internet, Inc.* 7,725
1,100 NFO Worldwide, Inc.* 24,612
300 OneMain.com, Inc.* 4,500
300 Pegasus Systems, Inc.* 18,094
700 Pre-Paid Legal Services, Inc.* 16,800
200 Preview Travel, Inc.* 10,425
100 Proxicom, Inc.* 12,431
200 SportsLine.com, Inc.* 10,025
1,300 Staff Leasing, Inc.* 12,350
700 Technology Solutions Co.* 22,925
200 Telescan, Inc.* 4,938
400 The Profit Recovery Group International, Inc.* 10,625
700 True North Communications, Inc. 31,281
900 URS Corp.* 19,519
1,800 Veritas DGC, Inc.* 25,200
400 VerticalNet, Inc.* 65,600
1,200 West TeleServices Corp.* 29,325
200 WorldGate Communications, Inc.* 9,513
200 Ziff-Davis, Inc.-ZDNet* 4,200
----------
702,581
-----------------------------------------------------------------------
Leisure - 0.9%
1,100 Callaway Golf Co. 19,456
900 Dover Downs Entertainment, Inc. 16,875
300 Harman International Industries, Inc. 16,837
500 Hollywood Park, Inc.* 11,219
600 JAKKS Pacific, Inc.* 11,213
800 Russ Berrie & Co., Inc. 21,000
1,400 Station Casinos, Inc.* 31,412
----------
128,012
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Life Insurance - 0.5%
746 Delphi Financial Group, Inc. $ 22,380
1,000 FBL Financial Group, Inc. 20,000
900 The MONY Group, Inc. 26,269
----------
68,649
----------------------------------------------------------------
Media - 1.4%
1,700 Ascent Entertainment Group, Inc.* 21,569
500 Cumulus Media, Inc.* 25,375
300 Emmis Communications Corp. 37,392
400 Entercom Communications Corp.* 26,400
600 Playboy Enterprises, Inc. Class B* 14,587
800 Westwood One, Inc.* 60,800
----------
186,123
----------------------------------------------------------------
Medical Products - 1.7%
600 Analogic Corp. 19,800
1,100 Diagnostic Products Corp. 26,950
600 Haemonetics Corp.* 14,288
400 IDEC Pharmaceuticals Corp.* 39,300
700 Mentor Corp. 18,069
2,800 Owens & Minor, Inc. 25,025
500 Scott Technologies, Inc.* 9,438
1,800 Sola International, Inc.* 24,975
1,400 Summit Technology, Inc.* 16,362
600 The Cooper Cos., Inc. 18,075
600 Varian Medical Systems, Inc. 17,887
----------
230,169
----------------------------------------------------------------
Medical Providers - 0.8%
2,100 AmeriPath, Inc.* 17,194
1,500 Apria Healthcare Group, Inc.* 26,906
1,300 Quest Diagnostics, Inc.* 39,731
4,100 Sierra Health Services, Inc.* 27,419
----------
111,250
----------------------------------------------------------------
Mining - 2.1%
1,800 Arch Coal, Inc. 20,363
1,400 Commercial Metals Co. 47,512
2,100 CONSOL Energy, Inc. 21,262
3,300 National Steel Corp. Class B 24,544
1,100 Pitt-Des Moines, Inc. 27,087
1,500 Quanex Corp. 38,250
900 Reliance Steel & Aluminum Corp. 21,094
600 Ryerson Tull, Inc. 11,663
6,000 USEC, Inc. 42,000
2,000 Worthington Industries, Inc. 33,125
----------
286,900
----------------------------------------------------------------
Motor Vehicle - 0.8%
2,900 Collins & Aikman Corp. 16,675
1,304 Dura Automotive Systems, Inc.* 22,738
1,000 Group 1 Automotive, Inc.* 13,938
600 Superior Industries International, Inc. 16,088
1,500 Tower Automotive, Inc.* 23,156
900 Winnebago Industries, Inc. 18,056
----------
110,651
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Oil Refining - 0.5%
1,400 NorthWestern Corp. $ 30,800
2,300 TransMontaigne, Inc.* 16,100
1,100 Western Gas Resources, Inc. 14,506
----------
61,406
---------------------------------------------------------------
Oil Services - 0.9%
1,300 Helmerich & Payne, Inc. 28,356
6,000 Parker Drilling Co.* 19,125
1,900 Pride International, Inc.* 27,788
3,700 Seitel, Inc. 24,975
2,300 Varco International, Inc.* 23,431
----------
123,675
---------------------------------------------------------------
Property Insurance - 1.7%
715 ACE Ltd. 11,932
1,100 Argonaut Group, Inc. 21,862
500 Chicago Title Corp. 23,125
1,200 Enhance Financial Services Group, Inc. 19,500
1,600 LandAmerica Financial Group, Inc. 29,400
1,000 PMA Capital Corp. 19,875
700 Radian Group, Inc. 33,425
400 SCPIE Holdings, Inc. 12,850
1,500 Stewart Information Services Corp. 19,969
2,600 The First American Financial Corp. 32,337
400 The Midland Co. 8,300
----------
232,575
---------------------------------------------------------------
Publishing - 0.8%
1,700 Paxar Corp.* 14,344
1,000 Pulitzer, Inc. 40,312
800 The Standard Register Co. 15,500
900 Wallace Computer Services, Inc. 14,963
1,200 Ziff-Davis, Inc.-ZD* 18,975
----------
104,094
---------------------------------------------------------------
Restaurants - 0.8%
1,200 Buffets, Inc.* 12,000
300 CEC Entertainment, Inc.* 8,512
1,200 RARE Hospitality International, Inc.* 25,969
800 Ruby Tuesday, Inc. 14,550
2,100 Ryan's Family Steak Houses, Inc.* 17,850
850 Sonic Corp.* 24,225
----------
103,106
---------------------------------------------------------------
Security/Asset Management - 1.4%
1,600 Affiliated Managers Group, Inc.* 64,700
2,200 Jefferies Group, Inc. 48,400
1,710 Southwest Securities Group, Inc. 46,811
800 The John Nuveen Co. 28,850
----------
188,761
---------------------------------------------------------------
Semiconductors - 5.1%
500 Alpha Industries, Inc.* 28,656
1,400 Amkor Technology, Inc.* 39,550
500 ANADIGICS, Inc.* 23,594
700 Cohu, Inc. 21,700
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CORE SM SMALL CAP EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Semiconductors - (continued)
500 CTS Corp. $ 37,688
1,800 Cypress Semiconductor Corp.* 58,275
500 Dallas Semiconductor Corp. 32,219
400 Etec Systems, Inc.* 17,950
500 General Semiconductor, Inc.* 7,094
2,000 Integrated Device Technology, Inc.* 58,000
1,500 International Rectifier Corp.* 39,000
1,600 Kent Electronics Corp.* 36,400
600 Lam Research Corp.* 66,937
700 Lattice Semiconductor Corp.* 32,988
500 Maker Communications, Inc.* 21,375
400 NeoMagic Corp.* 4,375
700 PerkinElmer, Inc.* 29,181
500 The DII Group, Inc.* 35,484
400 TranSwitch Corp.* 29,025
300 TriQuint Semiconductor, Inc.* 33,375
1,000 Varian Semiconductor Equipment Associates, Inc.* 34,000
----------
686,866
-------------------------------------------------------------------------
Specialty Retail - 2.9%
1,800 Bandag, Inc. 45,000
300 barnesandnoble.com, Inc.* 4,256
400 Beyond.com Corp.* 3,125
1,100 Borders Group, Inc.* 17,669
300 CDnow, Inc.* 2,963
300 Cyberian Outpost, Inc.* 2,981
1,300 Genesco, Inc.* 16,900
1,200 Haverty Furniture Cos., Inc. 15,150
500 Hollywood Entertainment Corp.* 7,250
400 Insight Enterprises, Inc.* 16,250
600 InterTAN, Inc.* 15,675
3,400 Jo-Ann Stores, Inc.* 38,250
400 Lands' End, Inc.* 13,900
800 Michaels Stores, Inc.* 22,800
600 Micro Warehouse, Inc.* 11,100
5,600 OfficeMax, Inc.* 30,800
1,600 PETCO Animal Supplies, Inc.* 23,800
1,300 School Specialty, Inc.* 19,662
5,500 Spiegel, Inc.* 38,672
1,300 The Pep Boys-Manny, Moe & Jack 11,863
600 ValueVision International, Inc.* 34,387
----------
392,453
-------------------------------------------------------------------------
Telephone - 1.2%
600 CapRock Communications Corp.* 19,462
600 Dycom Industries, Inc.* 26,437
800 e.spire Communications, Inc. 4,650
700 Intermedia Communications, Inc.* 27,169
600 ITC DeltaCom, Inc.* 16,575
300 MGC Communications, Inc.* 15,225
200 NorthEast Optic Network, Inc.* 12,513
500 TALK.com, Inc.* 8,875
900 U.S. LEC Corp.* 29,025
----------
159,931
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Thrifts - 1.8%
800 Bank United Corp. $ 21,800
3,600 Bay View Capital Corp. 51,075
3,000 Capitol Federal Financial 29,250
900 Downey Financial Corp. 18,169
1,200 Oriental Financial Group, Inc. 26,475
500 Reliance Bancorp, Inc. 17,250
2,100 Republic Security Financial Corp. 15,028
2,200 Richmond County Financial Corp. 39,737
1,200 Staten Island Bancorp, Inc. 21,600
-----------
240,384
------------------------------------------------------------
Tobacco - 0.2%
1,000 Universal Corp. 22,813
------------------------------------------------------------
Truck Freight - 0.8%
900 Airborne Freight Corp. 19,800
1,100 American Freightways Corp.* 17,806
600 Landstar Systems, Inc.* 25,687
500 USFreightways Corp. 23,938
400 Werner Enterprises, Inc. 5,625
1,000 Yellow Corp.* 16,813
-----------
109,669
------------------------------------------------------------
Wireless - 1.1%
300 Aerial Communications, Inc.* 18,263
400 Leap Wireless International, Inc.* 31,400
300 Omnipoint Corp.* 36,187
400 Powertel, Inc.* 40,150
700 Price Communications Corp. 19,469
-----------
145,469
------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $9,797,770) $11,234,103
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 13.3%
Joint Repurchase Agreement Account II +
$1,800,000 3.16% 01/03/2000 $ 1,800,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,800,000) $ 1,800,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $11,597,770) $13,034,103
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ A portion of this security is segregated as collateral for initial margin
requirements on future transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CAPITAL GROWTH FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 99.0%
Banks - 2.9%
1,400 Bank of America Corp. $ 70,262
2,725 Citigroup, Inc. 151,408
500 The Bank of New York Co., Inc. 20,000
1,400 Wells Fargo Co. 56,613
----------
298,283
---------------------------------------------------------------
Chemicals - 1.8%
967 E.I. du Pont de Nemours & Co. 63,701
700 Minnesota Mining & Manufacturing Co. 68,513
400 The Dow Chemical Co. 53,450
----------
185,664
---------------------------------------------------------------
Computer Hardware - 6.6%
2,800 Cisco Systems, Inc.* 299,950
900 Dell Computer Corp.* 45,900
1,300 EMC Corp.* 142,025
2,600 Sun Microsystems, Inc.* 201,337
----------
689,212
---------------------------------------------------------------
Computer Software - 8.4%
600 CheckFree Holdings Corp.* 62,700
1,500 International Business Machines, Inc. 162,000
4,300 Microsoft Corp.* 502,025
1,400 Oracle Corp.* 156,887
----------
883,612
---------------------------------------------------------------
Consumer Services - 1.3%
2,700 Cendant Corp.* 71,719
1,500 Valassis Communications, Inc.* 63,375
----------
135,094
---------------------------------------------------------------
Department Store - 2.6%
3,900 Wal-Mart Stores, Inc. 269,587
---------------------------------------------------------------
Drugs - 7.2%
2,300 American Home Products Corp. 90,706
400 Amgen, Inc.* 24,025
2,900 Bristol-Myers Squibb Co. 186,144
600 Eli Lilly & Co. 39,900
1,200 Merck & Co., Inc. 80,475
3,800 Pfizer, Inc. 123,263
1,500 Schering-Plough Corp. 63,281
1,800 Warner-Lambert Co. 147,487
----------
755,281
---------------------------------------------------------------
Electrical Equipment - 5.0%
200 Corning, Inc. 25,787
500 General Instrument Corp.* 42,500
1,900 Lucent Technologies, Inc. 142,144
1,200 Nortel Networks Corp. 121,200
1,080 QUALCOMM, Inc. 190,215
----------
521,846
---------------------------------------------------------------
Electrical Utilities - 1.5%
2,100 The AES Corp.* 156,975
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Energy Resources - 4.5%
300 Atlantic Richfield Co. $ 25,950
600 Chevron Corp. 51,975
500 Enron Corp. 22,188
3,092 Exxon Mobil Corp. 249,099
1,900 Royal Dutch Petroleum Co. ADR 114,831
300 Unocal Corp. 10,069
----------
474,112
------------------------------------------------------------------
Financial Services - 8.8%
2,400 Federal Home Loan Mortgage Corp. 112,950
1,900 Federal National Mortgage Assoc. 118,631
2,800 General Electric Co. 433,300
4,000 MBNA Corp. 109,000
1,900 State Street Corp. 138,819
----------
912,700
------------------------------------------------------------------
Food & Beverage - 2.9%
3,700 Nabisco Group Holdings Corp. 39,312
2,400 PepsiCo, Inc. 84,600
2,400 The Coca-Cola Co. 139,800
500 Wm. Wrigley Jr. Co. 41,469
----------
305,181
------------------------------------------------------------------
Forest - 0.4%
400 International Paper Co. 22,575
300 Weyerhaeuser Co. 21,544
----------
44,119
------------------------------------------------------------------
Home Products - 4.2%
2,200 Avon Products, Inc. 72,600
2,800 Colgate-Palmolive Co. 182,000
3,200 Ralston-Ralston Purina Group 89,200
900 The Procter & Gamble Co. 98,606
----------
442,406
------------------------------------------------------------------
Hotels - 1.4%
1,600 Harrah's Entertainment, Inc.* 42,300
1,800 Marriott International, Inc. 56,812
2,000 Starwood Hotels & Resorts Worldwide, Inc. 47,000
----------
146,112
------------------------------------------------------------------
Information Services - 5.8%
2,200 America Online, Inc.* 165,962
1,116 At Home Corp.* 47,849
800 Automatic Data Processing, Inc. 43,100
2,500 First Data Corp. 123,281
600 Galileo International, Inc. 17,963
100 Network Solutions, Inc.* 21,756
500 VeriSign, Inc.* 95,469
200 Yahoo!, Inc.* 86,537
----------
601,917
------------------------------------------------------------------
Leisure - 0.1%
700 Hasbro, Inc. 13,344
------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Life Insurance - 0.4%
500 Hartford Life, Inc. $ 22,000
600 Nationwide Financial Services, Inc. 16,763
----------
38,763
------------------------------------------------------------
Media - 11.6%
3,200 A.H. Belo Corp. 61,000
1,200 AMFM, Inc.* 93,900
4,200 AT&T Corp.-Liberty Media Group* 238,350
800 Cablevision Systems Corp.* 60,400
1,800 CBS Corp.* 115,087
378 Clear Channel Communications, Inc.* 33,737
1,900 Comcast Corp. 96,069
600 EchoStar Communications Corp.* 58,500
1,900 Infinity Broadcasting Corp.* 68,756
2,000 MediaOne Group, Inc.* 153,625
900 The Walt Disney Co. 26,325
2,900 Time Warner, Inc. 210,069
----------
1,215,818
------------------------------------------------------------
Medical Products - 0.7%
800 Johnson & Johnson 74,500
------------------------------------------------------------
Medical Providers - 0.2%
2,500 Service Corp. International 17,344
------------------------------------------------------------
Mining - 0.2%
300 Alcoa, Inc. 24,900
------------------------------------------------------------
Motor Vehicle - 0.9%
1,000 Ford Motor Co. 53,437
500 General Motors Corp. 36,344
----------
89,781
------------------------------------------------------------
Oil Refining - 0.3%
600 Texaco, Inc. 32,588
------------------------------------------------------------
Oil Services - 1.1%
1,900 Schlumberger Ltd. 106,875
369 Transocean Sedco Forex, Inc. 12,417
----------
119,292
------------------------------------------------------------
Property Insurance - 1.1%
400 Ambac Financial Group, Inc. 20,875
847 American International Group, Inc. 91,582
----------
112,457
------------------------------------------------------------
Publishing - 2.2%
900 Central Newspapers, Inc. 35,437
800 Gannett Co., Inc. 65,250
1,500 The New York Times Co. 73,687
600 Tribune Co. 33,038
1,200 Ziff-Davis, Inc.* 18,975
----------
226,387
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Restaurants - 0.5%
1,200 McDonald's Corp. $ 48,375
-----------------------------------------------------------
Security/Asset Management - 0.4%
1,100 The Charles Schwab Corp. 42,213
-----------------------------------------------------------
Semiconductors - 2.8%
2,900 Intel Corp. 238,706
500 Texas Instruments, Inc. 48,438
-----------
287,144
-----------------------------------------------------------
Specialty Retail - 2.2%
600 CVS Corp. 23,963
600 Tandy Corp. 29,513
1,350 The Home Depot, Inc. 92,559
3,000 Walgreen Co. 87,750
-----------
233,785
-----------------------------------------------------------
Telephone - 4.4%
2,000 GTE Corp. 141,125
3,450 MCI WorldCom, Inc.* 183,066
2,800 SBC Communications, Inc. 136,500
-----------
460,691
-----------------------------------------------------------
Tobacco - 0.3%
1,500 Philip Morris Cos., Inc. 34,781
-----------------------------------------------------------
Wireless - 1.0%
2,400 Crown Castle International Corp.* 77,100
300 Sprint Corp. (PCS Group) 30,750
-----------
107,850
-----------------------------------------------------------
Miscellaneous - 3.3%
2,344 SPDR Trust ADR Series 1 344,275
-----------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $8,407,677) $10,346,389
-----------------------------------------------------------
TOTAL INVESTMENTS
(Cost $8,407,677) $10,346,389
-----------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST MID CAP VALUE FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 94.3%
Apparel - 0.7%
18,100 Reebok International Ltd.* $ 148,194
--------------------------------------------------------------
Banks - 6.7%
5,600 Comerica, Inc. 261,450
32,400 Pacific Century Financial Corp. 605,475
4,400 Republic of New York Corp.* 316,800
6,900 UnionBanCal Corp.* 272,119
-----------
1,455,844
--------------------------------------------------------------
Chemicals - 4.5%
17,100 IMC Global, Inc. 280,012
22,000 Millennium Chemicals, Inc. 434,500
5,800 Potash Corp. of Saskatchewan, Inc. 279,488
-----------
994,000
--------------------------------------------------------------
Clothing - 1.6%
18,900 Ross Stores, Inc. 339,019
--------------------------------------------------------------
Computer Hardware - 2.6%
20,600 Ingram Micro, Inc.* 270,375
11,400 Tech Data Corp.* 309,225
-----------
579,600
--------------------------------------------------------------
Computer Software - 1.0%
16,800 Mentor Graphics Corp.* 221,550
--------------------------------------------------------------
Construction - 5.0%
7,900 Equity Office Properties Trust 194,538
4,200 Equity Residential Properties Trust 179,288
9,100 Georgia-Pacific Corp. (Timber Group) 224,087
5,800 Spieker Properties, Inc. 211,337
16,400 Trizec Hahn Corp. 276,750
-----------
1,086,000
--------------------------------------------------------------
Consumer Durables - 1.0%
9,500 Herman Miller, Inc. 218,500
--------------------------------------------------------------
Defense/Aerospace - 1.6%
6,500 Northrop Grumman Corp. 351,406
--------------------------------------------------------------
Department Store - 2.0%
9,400 Dillard's, Inc. 189,763
5,000 Federated Department Stores, Inc.* 252,812
-----------
442,575
--------------------------------------------------------------
Drugs - 1.0%
25,000 Bergen Brunswig Corp. 207,813
--------------------------------------------------------------
Electrical Utilities - 9.2%
8,600 DTE Energy Co. 269,825
10,700 Entergy Corp. 275,525
2,400 FPL Group, Inc. 102,750
21,000 Northeast Utilities 431,812
25,800 Public Service Co. of New Mexico 419,250
13,100 SCANA Corp. 352,063
4,900 Unicom Corp. 164,150
-----------
2,015,375
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Energy Resources - 1.5%
7,900 Tosco Corp. $ 214,781
8,900 Union Pacific Resources Group, Inc. 113,475
-----------
328,256
--------------------------------------------------------------------
Environmental Services - 1.2%
18,900 Republic Services, Inc. 271,688
--------------------------------------------------------------------
Financial Services - 2.4%
3,300 Avalonbay Communities, Inc. 113,231
5,100 Public Storage, Inc. 115,707
11,793 Waddell & Reed Financial, Inc. Class B* 296,299
-----------
525,237
--------------------------------------------------------------------
Food & Beverage - 3.7%
21,995 Archer-Daniels-Midland Co. 268,064
25,100 Fleming Cos., Inc. 257,275
9,400 International Home Foods, Inc.* 163,325
10,700 Nabisco Group Holdings Corp. 113,688
-----------
802,352
--------------------------------------------------------------------
Gas Utilities - 0.9%
10,900 LG&E Energy Corp. 190,069
--------------------------------------------------------------------
Heavy Electrical - 3.3%
2,900 Phelps Dodge Corp. 194,662
30,000 UCAR International, Inc.* 534,375
-----------
729,037
--------------------------------------------------------------------
Heavy Machinery - 1.5%
24,300 AGCO Corp. 326,531
--------------------------------------------------------------------
Hotels - 2.0%
18,700 Starwood Hotels & Resorts Worldwide, Inc.* 439,450
--------------------------------------------------------------------
Industrial Parts - 1.7%
2,600 Parker-Hannifin Corp. 133,412
18,500 UNOVA, Inc.* 240,500
-----------
373,912
--------------------------------------------------------------------
Industrial Services - 1.6%
13,800 Modis Professional Services, Inc.* 196,650
6,600 Ryder System, Inc. 161,287
-----------
357,937
--------------------------------------------------------------------
Information Services - 0.5%
3,400 The Dun & Bradstreet Corp. 100,300
--------------------------------------------------------------------
Life Insurance - 2.0%
8,000 Aetna, Inc. 446,500
--------------------------------------------------------------------
Media - 2.9%
12,400 A.H. Belo Corp. 236,375
7,800 Media General, Inc. 405,600
-----------
641,975
--------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST MID CAP VALUE FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Medical Providers - 5.6%
27,700 Health Management Associates, Inc.* $ 370,487
24,400 Manor Care, Inc.* 390,400
4,200 Quest Diagnostics, Inc.* 128,363
14,100 Tenet Healthcare Corp.* 331,350
-----------
1,220,600
-------------------------------------------------------------
Mining - 2.4%
12,990 AK Steel Holding Corp. 245,186
17,800 Ispat International NV 287,025
-----------
532,211
-------------------------------------------------------------
Oil Refining - 1.3%
14,200 Valero Energy Corp. 282,225
-------------------------------------------------------------
Oil Services - 0.6%
2,000 Helmerich & Payne, Inc. 43,625
2,200 Tidewater, Inc. 79,200
-----------
122,825
-------------------------------------------------------------
Property Insurance - 6.3%
16,300 Everest Reinsurance Holdings, Inc. 363,694
3,800 Loews Corp. 230,613
22,900 Old Republic International Corp. 312,012
3,900 Radian Group, Inc.* 186,225
5,700 XL Capital Ltd.* 295,687
-----------
1,388,231
-------------------------------------------------------------
Publishing - 1.9%
7,300 R.R. Donnelley & Sons Co. 181,131
3,600 The Times Mirror Co. 241,200
-----------
422,331
-------------------------------------------------------------
Railroads - 1.2%
12,300 Canadian Pacific Ltd. 265,219
-------------------------------------------------------------
Restaurants - 1.3%
28,300 CBRL Group, Inc. 274,598
-------------------------------------------------------------
Security/Asset Management - 1.8%
9,410 The Bear Stearns Cos., Inc. 402,277
-------------------------------------------------------------
Semiconductors - 3.3%
8,000 Avnet, Inc. 484,000
7,662 Vishay Intertechnology, Inc.* 242,311
-----------
726,311
-------------------------------------------------------------
Specialty Retail - 1.1%
7,200 AutoZone, Inc.* 232,650
-------------------------------------------------------------
Thrifts - 2.2%
9,700 GreenPoint Financial Corp. 230,981
33,700 Sovereign Bancorp, Inc. 251,171
-----------
482,152
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Tobacco - 2.4%
11,033 R.J. Reynolds Tobacco Holdings, Inc. $ 194,457
12,800 UST, Inc. 322,400
-----------
516,857
--------------------------------------------------------------
Truck Freight - 0.8%
5,100 CNF Transportation, Inc. 175,950
--------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $20,986,159) $20,637,557
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 6.0%
Joint Repurchase Agreement Account II
$1,300,000 3.16% 01/03/2000 $ 1,300,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,300,000) $ 1,300,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $22,286,159) $21,937,557
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST INTERNATIONAL EQUITY FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - 86.2%
Australia - 2.7%
1,700 AMP Ltd. (Life Insurance) $ 18,783
2,800 Australia & New Zealand Banking Group Ltd. (Banks) 20,369
600 Brambles Industries Ltd. (Multi-Industrial) 16,592
4,100 Broken Hill Proprietary Co. Ltd. (Nonferrous Metals) 53,836
11,200 Cable & Wireless Optus Ltd.* (Telecommunications) 37,426
3,800 Coles Myer Ltd. (Specialty Retail) 19,628
2,500 Commonwealth Bank of Australia (Banks) 43,050
9,800 Foster's Brewing Group Ltd. (Food & Beverage) 28,115
1,868 Lend Lease Corp. Ltd. (Financial Services) 26,170
3,400 National Australia Bank (Banks) 52,008
3,700 News Corp. Ltd. (Media) 35,926
1,800 Pioneer International Ltd. (Construction) 5,424
2,300 Rio Tinto Ltd. (Mining) 49,407
2,950 Tab Corp. Holdings Ltd. (Entertainment) 19,975
7,000 Telstra Corp. (Utilities) 38,051
3,100 Westpac Banking Corp. (Banks) 21,383
3,400 WMC Ltd. (Mining) 18,750
4,300 Woodside Petroleum Ltd. (Oil Services) 31,758
4,300 Woolworths Ltd. (Specialty Retail) 14,792
-----------
551,443
------------------------------------------------------------------------------
Belgium - 0.6%
712 Dexia NPV (Banks) 117,985
712 Dexia NPV Strips* (Banks) 14
-----------
117,999
------------------------------------------------------------------------------
Britain - 17.3%
15,076 Allied Zurich PLC (Insurance) 177,772
3,004 AstraZeneca Group PLC (Health) 124,803
5,303 Barclays PLC (Banks) 152,388
21,824 BP Amoco PLC (Energy Resources) 220,299
10,363 British Aerospace PLC (Defense/Aerospace) 68,129
16,880 British Telecom PLC (Telecommunications) 408,994
2,874 Carlton Communications PLC (Media) 27,993
1,564 Colt Telecom Group PLC* (Telecommunications) 80,741
9,631 Diageo PLC (Tobacco) 76,851
1,410 Energis PLC* (Telecommunications) 67,758
9,974 Glaxo Wellcome PLC (Health) 282,587
11,937 HSBC Holdings PLC (Banks) 165,438
9,204 Lloyds TSB Group PLC (Banks) 114,329
9,745 Marconi PLC (Telecommunications) 171,893
6,379 Misys PLC (Business Services) 99,021
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Britain - continued
6,258 National Westminster Bank PLC (Banks) $ 134,444
15,430 Reckitt Benckiser PLC (Food & Beverage) 146,055
19,359 Reuters Group PLC (Business Services) 268,927
15,042 Shell Transport & Trading Co. (Energy Resources) 125,010
5,402 SmithKline Beecham (Health) 68,498
22,417 Stagecoach Holdings PLC (Railroads) 57,574
12,870 Thus PLC* (Telecommunications) 81,285
11,173 Unilever PLC (Food & Beverage) 82,117
55,525 Vodafone AirTouch PLC (Telecommunications) 276,773
-----------
3,479,679
-------------------------------------------------------------------------------
China - 0.5%
17,000 China Telecom Ltd.* (Telecommunications) 106,066
-------------------------------------------------------------------------------
Denmark - 0.3%
1,012 ISS International Service System Series B* (Business
Services) 68,070
-------------------------------------------------------------------------------
Finland - 2.6%
6,231 Merita PLC* (Banks) 36,656
2,736 Nokia Oyj (Telecommunications) 496,100
-----------
532,756
-------------------------------------------------------------------------------
France - 9.7%
1,265 Accor SA (Hotels) 61,128
767 Air Liquide SA (Chemicals) 128,412
3,342 Alstom (Electrical Equipment) 111,433
933 Axa (Insurance) 130,076
294 Carrefour SA (Specialty Retail) 54,227
2,116 Compagnie Generale des Etablissements Michelin (Auto) 83,131
1,013 Equant* (Computer Software) 115,004
7,386 Rhodia (Chemicals) 166,960
4,436 Rhone-Poulenc SA (Chemicals) 257,839
781 Societe Generale (Banks) 181,737
848 ST Microelectronics (Semiconductors) 130,527
2,278 Total Fina SA Class B (Energy Resources) 304,053
2,589 Vivendi (Business Services) 233,810
-----------
1,958,337
-------------------------------------------------------------------------------
Germany - 6.3%
380 Allianz AG (Property Insurance) 127,661
2,257 BASF AG (Chemicals) 115,953
520 Deutsche Bank AG (Banks) 43,922
1,669 Deutsche Telekom AG (Telecommunications) 118,866
2,366 Epcos* (Electronics Equipment) 177,563
797 HypoVereinsbank (Banks) 54,434
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Germany - continued
1,380 Mannesmann AG (Telecommunications) $ 332,939
194 Muenchener Rueckversicherungs-Gesellschaft AG
(Property Insurance) 49,208
1,988 Preussag AG (Multi-Industrial) 110,744
1,086 Siemens AG (Electrical Equipment) 138,170
-----------
1,269,460
---------------------------------------------------------------------------
Hong Kong - 2.4%
19,800 Cable & Wireless HKT Ltd. (Telecommunications) 57,183
5,000 Cheung Kong Holdings Ltd. (Real Estate) 63,356
5,000 CLP Holdings Ltd. (Utilities) 23,027
42,000 Giordano International Ltd. (Apparel) 43,224
3,000 Hang Seng Bank Ltd. (Banks) 34,251
22,000 Hong Kong & China Gas Co. Ltd. (Utilities) 30,141
13,000 Hutchison Whampoa Ltd. (Financial Services) 188,975
10,000 New World China Land Ltd.* (Real Estate) 3,698
15,000 New World Development Co. Ltd. (Real Estate) 33,769
-----------
477,624
---------------------------------------------------------------------------
Ireland - 0.4%
9,433 Bank of Ireland (Banks) 75,068
---------------------------------------------------------------------------
Italy - 2.6%
36,115 Banca di Roma (Banks) 46,422
13,175 ENI SpA (Energy Resources) 72,464
8,046 San Paolo-IMI SpA (Banks) 109,338
46,490 Seat Pagine Gialle SpA* (Media) 102,562
9,815 Telecom Italia SpA (Telecommunications) 138,420
12,821 Unicredito Italiano SpA (Banks) 63,026
-----------
532,232
---------------------------------------------------------------------------
Japan - 20.8%
2,300 Aderans Co. Ltd. (Specialty Retail) 85,544
1,000 Advantest Corp. (Electrical Equipment) 264,265
18,000 Asahi Chemical Industry Co. Ltd. (Chemicals) 92,493
12,000 Asahi Glass Co. Ltd. (Home Products) 92,904
3,000 Bridgestone Corp. (Auto) 66,066
3,000 Canon, Inc. (Computer Hardware) 119,213
20,000 Chiba Bank Ltd. (Banks) 110,796
4,000 Circle K Japan Co. (Specialty Retail) 164,040
5,000 Daiwa Securities Group, Inc. (Financial Services) 78,252
1,100 FANUC Ltd. (Electronics Equipment) 140,070
2,000 Fuji Photo Film Ltd. (Leisure) 73,016
3,000 Fujitsu Ltd. (Computer Hardware) 136,831
1,000 Honda Motor Co. Ltd. (Auto) 37,193
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Japan - continued
5,000 Kao Corp. (Food & Beverage) $ 142,654
9,000 Kirin Brewery Ltd. (Alcohol) 94,695
500 Konami Co. Ltd. (Computer Software) 89,312
22,000 Mitsui Marine & Fire (Insurance) 130,488
500 Nintendo Co. Ltd. (Entertainment) 83,097
17 Nippon Telephone & Telegraph Corp.
(Telecommunications) 291,181
5 NTT Mobile Communications Network, Inc.
(Telecommunications) 192,327
7,000 Ricoh Co. Ltd. (Computer Hardware) 131,957
800 Rohm Co. (Electrical Equipment) 328,864
3,000 Shin-Etsu Chemical Co. Ltd. (Chemicals) 129,196
700 SMC Corp. (Machinery) 154,908
1,200 Takefuji Corp. (Financial Services) 150,220
1,000 TDK Corp. (Computer Hardware) 138,103
4,000 Terumo Corp. (Medical Products) 106,881
11,000 The Bank of Tokyo-Mitsubishi (Banks) 153,313
6,000 The Fuji Bank Ltd. (Banks) 58,315
3,300 Tokyo Electric Power (Electrical Utilities) 88,500
2,700 Toppan Forms Co. Ltd. (Publishing) 72,673
5,000 Yamanouchi Pharmaceutical Co., Ltd. (Drugs) 174,709
1 Yoshinoya D&C Co. Ltd. (Restaurants) 17,618
-----------
4,189,694
------------------------------------------------------------------------------
Netherlands - 7.7%
1,001 Aegon NV (Financial Services) 96,702
3,157 Fortis Netherlands NV (Financial Services) 113,692
2,458 Getronics NV (Business Services) 196,104
2,798 ING Groep NV* (Financial Services) 168,945
1,952 Koninklijke Royal Philips Electronics NV (Appliance) 265,457
2,230 KPN NV (Telecommunications) 217,675
3,843 Libertel NV* (Telecommunications) 100,652
1,949 TNT Post Group NV (Business Services) 55,857
6,407 VNU NV (Media) 336,774
-----------
1,551,858
------------------------------------------------------------------------------
New Zealand - 0.1%
3,200 Telecom Corp. of New Zealand Ltd. (Utilities) 15,048
------------------------------------------------------------------------------
Singapore - 1.0%
3,000 Chartered Semiconductor Manufacturing Ltd.*
(Semiconductors) 16,391
1,000 City Developments (Real Estate) 5,854
6,489 DBS Group Holdings Ltd. (Banks) 106,364
7,000 First Capital Corp. Ltd. (Real Estate) 9,331
1,000 Singapore Airlines Ltd. (Airlines) 11,348
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Common Stocks - (continued)
Singapore - continued
1,000 Singapore Press Holdings Ltd. (Publishing) $ 21,675
14,000 Singapore Technologies Engineering Ltd. (Machinery) 21,687
6,000 Singapore Telecommunications Ltd.
(Telecommunications) 12,393
-----------
205,043
-----------------------------------------------------------------------------
Spain - 3.8%
2,243 Acerinox SA (Steel) 89,679
6,783 Altadis (ex Tabacalera SA) (Tobacco) 96,480
10,986 Banco Santander Central Hispano SA (Banks) 124,390
5,006 Endesa SA (Electrical Utilities) 99,394
13,863 Telefonica de Espana SA* (Telecommunications) 346,329
-----------
756,272
-----------------------------------------------------------------------------
Sweden - 4.1%
5,483 Ericsson Telecommunications Series B (Electrical
Equipment) 352,474
15,014 Nordbanken Holding AB (Banks) 88,224
12,395 Securitas AB Series B (Business Services) 224,331
5,205 Skandia Forsakring (Insurance) 157,208
-----------
822,237
-----------------------------------------------------------------------------
Switzerland - 3.3%
58 Nestle SA (Food & Beverage) 106,253
111 Novartis AG (Health) 162,983
14 Roche Holding AG (Health) 166,175
25 Swiss Re (Property Insurance) 51,356
636 UBS AG (Banks) 171,752
-----------
658,519
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $13,289,929) $17,367,405
-----------------------------------------------------------------------------
Preferred Stock - 1.0%
Germany - 1.0%
319 SAP AG (Computer Software) $ 192,164
-----------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $140,228) $ 192,164
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Short-Term Obligation - 11.5%
State Street Bank & Trust Euro Time Deposit/\
$2,311,000 4.00% 01/03/2000 $ 2,311,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $2,311,000) $ 2,311,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $15,741,157) $19,870,569
-----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/\ A portion of this security is segregated as collateral for initial margin
requirements on future transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Common and Preferred
Stock Industry As a % of
Classifications+ total net assets
<S> <C>
Airlines 0.1%
Alcohol 0.5
Apparel 0.2
Appliance 1.3
Auto 0.9
Banks 11.3
Business Services 5.7
Chemicals 4.4
Computer Hardware 2.6
Computer Software 2.0
Defense/Aerospace 0.3
Drugs 0.9
Electrical Equipment 5.9
Electrical Utilities 0.9
Electronics
Equipment 1.6
Energy Resources 3.6
Entertainment 0.5
Financial Services 4.1
Food & Beverage 2.5
Health 4.0
Home Products 0.5
Hotels 0.3
Insurance 2.9
Leisure 0.4
Life Insurance 0.1
Machinery 0.9
Media 2.5
Medical Products 0.5
Mining 0.3
Multi-Industrial 0.6
Nonferrous Metals 0.3
Oil Services 0.2
Property Insurance 1.1
Publishing 0.5
Railroads 0.3
Real Estate 0.6
Restaurants 0.1
Semiconductors 0.7
Specialty Retail 1.7
Steel 0.4
Telecommunications 17.6
Tobacco 0.9
Utilities 0.5
----------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 87.2%
----------------------------------------------------
</TABLE>
+ Industry concentrations greater than one tenth of one percent are
disclosed.
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST GLOBAL INCOME FUND
Statement of Investments
December 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount((Euro)) Rate Date Value
<C> <S> <C> <C>
Foreign Debt Obligations - 62.0%
Canadian Dollar - 2.0%
Government of Canada
CAD 200,000 6.00% 06/01/2008 $ 136,197
----------
$ 136,197
---------------------------------------------------------------------------------------------
Danish Krone - 1.3%
Kingdom of Denmark
DKK 600,000 8.00% 05/15/2003 $ 88,271
----------
$ 88,271
---------------------------------------------------------------------------------------------
Euro Currency - 28.5%
Federal Republic of Germany
EUR 150,000 3.00% 06/15/2001 $ 149,077
400,000 4.50 08/19/2002 403,524
50,000 5.25 01/04/2008 50,362
General Motors Acceptance Corp.+
100,000 5.00 01/18/2005 100,423
Government of France
100,000 4.00 10/25/2009 89,710
50,000 8.50 04/25/2023 65,970
150,000 5.50 04/25/2029 141,174
Lehman Brothers Holdings PLC
100,000 4.75 07/12/2004 96,383
Republic of Italy
400,000 4.50 04/15/2001 404,656
100,000 4.00 07/15/2004 96,524
100,000 6.50 11/01/2027 104,658
Royal Bank of Scotland Group PLC
100,000 4.88 03/26/2009 90,661
Standard Chartered Bank PLC
200,000 5.38 05/06/2009 183,499
----------
$1,976,621
---------------------------------------------------------------------------------------------
German Mark - 0.7%
Citicorp
DEM 100,000 5.50% 06/30/2010 $ 48,811
----------
$ 48,811
---------------------------------------------------------------------------------------------
Great Britain Pound - 9.8%
Abbey National Treasury
GBP 100,000 8.00% 04/02/2003 $ 165,166
GMAC Canada Ltd.
150,000 6.50 03/23/2004 235,632
United Kingdom Treasury
100,000 8.00 06/10/2003 169,848
50,000 9.00 08/06/2012 107,592
----------
$ 678,238
---------------------------------------------------------------------------------------------
Japanese Yen - 16.5%
Asian Development Bank
JPY30,000,000 5.63% 02/18/2002 $ 326,401
European Investment Bank
20,000,000 2.13 09/20/2007 204,984
Government of Japan
55,000,000 0.90 12/22/2008 499,377
Republic of Italy
10,000,000 3.80 03/27/2008 113,682
----------
$1,144,444
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount((Euro)) Rate Date Value
<S> <C> <C> <C>
Foreign Debt Obligations - (continued)
New Zealand Dollar - 1.5%
Government of New Zealand
NZD 100,000 5.50% 04/15/2003 $ 50,050
100,000 8.00 11/15/2006 54,390
----------
$ 104,440
---------------------------------------------------------------------------------------------
Swedish Krona - 1.7%
Kingdom of Sweden
SEK 1,000,000 5.00% 01/15/2004 $ 115,918
----------
$ 115,918
---------------------------------------------------------------------------------------------
TOTAL FOREIGN DEBT OBLIGATIONS
(Cost $4,368,003) $4,292,940
---------------------------------------------------------------------------------------------
Corporate Bonds - 11.1%
Automotive - 2.8%
Ford Motor Credit Corp.
USD 200,000 6.13% 04/28/2003 $ 193,510
----------
$ 193,510
---------------------------------------------------------------------------------------------
Finance Companies - 4.2%
Merrill Lynch Co., Inc.
USD 100,000 6.00% 02/12/2003 $ 96,903
Nederlandse Waterschapsbank
100,000 6.13 02/13/2008 93,592
Textron Financial Corp.
100,000 7.13 12/09/2004 98,796
----------
$ 289,291
---------------------------------------------------------------------------------------------
Insurance Companies - 1.3%
Prudential Insurance Company of America
USD 100,000 6.38% 07/23/2006 $ 92,490
----------
$ 92,490
---------------------------------------------------------------------------------------------
Yankee Bank - 2.8%
National Westminster Bank PLC
USD 200,000 7.38% 10/01/2009 $ 195,032
----------
$ 195,032
---------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $799,016) $ 770,323
---------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 17.9%
United States Treasury Bonds
200,000 6.75% 08/15/2026 $ 200,938
350,000 6.13 11/15/2027 325,717
United States Treasury Notes
200,000 5.88 11/15/2005 194,156
104,083 3.63 01/15/2008 99,107
300,000 4.75 11/15/2008 264,609
160,000 6.00 08/15/2009 155,000
---------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,273,845) $1,239,527
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST GLOBAL INCOME FUND
Statement of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount((Euro)) Rate Date Value
<S> <C> <C> <C>
Short-Term Obligation - 4.5%
State Street Bank & Trust Euro Time Deposit
314,000 4.00% 01/03/2000 $ 314,000
---------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $314,000) $ 314,000
---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $6,754,864) $6,616,790
---------------------------------------------------------------------------------------------
</TABLE>
((ETheuprincipalramountoof)each)security is stated in the currency in which
the bond is denominated. See below.
CAD = Canadian Dollar
JPY = Japanese Yen
DEM = German MarkNZD = New Zealand Dollar
DKK = Danish Krone
SEK = Swedish Krona
EUR = Euro Currency
USD = United States Dollar
GBP = Great Britain Pound
+ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market-value of Rule 144A securities amounted to $100,423 at December 31,
1999.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Variable Insurance
Trust
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Growth and Income Fund, CORE U.S. Equity Fund, CORE Large Cap
Growth Fund, CORE Large Cap Value Fund, CORE Small Cap Equity Fund, Capital
Growth Fund, Mid Cap Value Fund, CORE International Equity Fund, Interna-
tional Equity Fund, Short Duration Government Fund and Global Income Fund,
portfolios constituting the Goldman Sachs Variable Insurance Trust (a Dela-
ware Business Trust), including the statements of investments, as of December
31, 1999, and the related statements of operations and the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and the financial highlights are the responsibil-
ity of the Funds' management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of December 31, 1999 by correspondence with the custodian and brokers. An au-
dit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of each of the respective portfolios constituting the Goldman Sachs
Variable Insurance Trust as of December 31, 1999, the results of their opera-
tions, the changes in their net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting princi-
ples.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 2000
71
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
Growth and CORE U.S. CORE Large Cap CORE Large
Income Fund Equity Fund Growth Fund Cap Value Fund
Assets:
<S> <C> <C> <C> <C>
Investment in
securities, at value
(identified cost
$24,295,534,
$45,258,682,
$18,081,525, $3,359,448,
$11,597,770, $8,407,677,
$22,286,159,
$10,783,102,
$15,741,157,
$10,372,441, $6,754,864) $25,820,596 $50,641,982 $24,116,907 $3,490,631
Cash, at value 236,657 634,783 155,705 --
Receivables:
Investment securities
sold -- -- -- --
Dividends and interest,
at value 25,506 34,305 16,692 4,924
Fund shares sold 34,518 781,912 84,488 7,894
Forward foreign
currency exchange
contracts -- -- -- --
Variation margin 5,100 14,019 2,553 --
Reimbursement from
adviser 31,453 22,349 28,559 18,250
Deferred organization
expenses, net 12,549 12,912 12,912 --
Other assets 7,132 2,248 3,211 2,979
---------------------------------------------------------------------------------
Total assets 26,173,511 52,144,510 24,421,027 3,524,678
---------------------------------------------------------------------------------
Liabilities:
Due to Bank -- -- -- 9,835
Payables:
Investment securities
purchased 65,450 -- -- --
Fund shares repurchased 44,197 -- -- --
Amounts owed to
affiliates 24,173 34,176 21,465 12,314
Forward foreign
currency exchange
contracts -- -- -- --
Accrued expenses and
other liabilities 50,659 51,854 50,637 46,993
---------------------------------------------------------------------------------
Total liabilities 184,479 86,030 72,102 69,142
---------------------------------------------------------------------------------
Net Assets:
Paid-in capital 25,409,532 45,943,218 18,109,015 3,264,958
Accumulated
undistributed
(distributions in excess
of) net investment
income 226 -- 496 --
Accumulated net realized
gain (loss) on
investments, options,
futures and foreign
currency related
transactions (1,026,678) 627,665 167,355 59,395
Net unrealized gain
(loss) on investments,
options, futures and
translation of assets
and liabilities
denominated in foreign
currencies 1,605,952 5,487,597 6,072,059 131,183
---------------------------------------------------------------------------------
NET ASSETS $25,989,032 $52,058,480 $24,348,925 $3,455,536
---------------------------------------------------------------------------------
Total shares of
beneficial interest
outstanding, no par
value (unlimited shares
authorized) 2,387,172 3,723,503 1,540,670 325,555
Net asset value,
offering and redemption
price per share $ 10.89 $ 13.98 $ 15.80 $ 10.61
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
Mid Cap Value CORE Short Duration Global
CORE Small Cap Capital Fund (formerly International International Government Income
Equity Fund Growth Fund Mid Cap Equity) Equity Fund Equity Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
$13,034,103 $10,346,389 $21,937,557 $12,885,988 $19,870,569 $10,192,722 $6,616,790
139,155 100,856 99,410 9,639 67,433 91,079 15,809
15,551 20,459 614,671 38,145 -- -- --
6,030 5,538 34,804 9,573 6,547 57,807 132,918
278,681 21,524 239,937 2,265 15,637 3,018 30,996
-- -- -- -- 3,235 -- 185,333
33,600 -- -- 241,995 3,344 --
45,578 29,073 26,983 38,397 41,461 11,592 32,222
12,912 13,775 13,786 -- 12,549 -- 12,549
2,292 2,442 2,324 10,016 18,794 -- 2,288
--------------------------------------------------------------------------------------------------------
13,567,902 10,540,056 22,969,472 12,994,023 20,278,220 10,359,562 7,028,905
--------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- --
11,761 21,895 1,012,569 -- -- -- --
-- 11,195 -- -- -- -- 3,797
15,135 14,042 20,952 19,124 24,025 15,056 13,382
-- -- -- -- 34,097 -- 37,787
53,252 42,678 53,626 86,186 60,909 39,177 50,015
--------------------------------------------------------------------------------------------------------
80,148 89,810 1,087,147 105,310 119,031 54,233 104,981
--------------------------------------------------------------------------------------------------------
12,300,084 8,449,936 22,739,296 10,599,252 15,711,511 10,569,389 7,080,363
-- -- -- (4,061) (115,894) -- (21,641)
(330,712) 61,598 (508,392) 190,810 342,312 (114,383) (128,713)
1,518,382 1,938,712 (348,579) 2,102,712 4,221,260 (149,677) (6,085)
--------------------------------------------------------------------------------------------------------
$13,487,754 $10,450,246 $21,882,325 $12,888,713 $20,159,189 $10,305,329 $6,923,924
--------------------------------------------------------------------------------------------------------
1,272,177 745,953 2,599,069 1,052,429 1,393,042 1,058,716 704,257
$ 10.60 $ 14.01 $ 8.42 $ 12.25 $ 14.47 $ 9.73 $ 9.83
--------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Growth and CORE U.S.
Income Equity CORE Large Cap CORE Large Cap
Fund Fund Growth Fund Value Fund(a)
<S> <C> <C> <C> <C>
Investment income(b):
Dividends $ 325,084 $ 221,683 $ 107,786 $ 42,905
Interest 129,131 84,721 25,129 2,536
-----------------------------------------------------------------------------------
Total income 454,215 306,404 132,915 45,441
-----------------------------------------------------------------------------------
Expenses:
Management fees 145,858 142,551 98,207 17,243
Transfer agent fees 25,539 22,018 23,825 25,665
Custodian fees 61,045 58,263 52,693 31,915
Registration fees 702 1,512 1,567 884
Professional fees 52,813 50,087 50,086 39,898
Trustee fees 9,268 9,268 9,269 2,044
Amortization of deferred
organization expenses 4,107 4,107 4,108 --
Other 21,504 20,877 20,331 20,600
-----------------------------------------------------------------------------------
Total expenses 320,836 308,683 260,086 138,249
-----------------------------------------------------------------------------------
Less -- expenses
reimbursed and fees
waived (145,807) (145,768) (147,849) (118,542)
-----------------------------------------------------------------------------------
Net expenses 175,029 162,915 112,237 19,707
-----------------------------------------------------------------------------------
NET INVESTMENT INCOME 279,186 143,489 20,678 25,734
-----------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and for-
eign currency transactions:
Net realized gain (loss)
from:
Investment transactions (751,691) 1,039,589 819,457 122,667
Options written 14,887 -- -- --
Futures transactions 164,889 351,818 (24,451) --
Foreign currency related
transactions 38 (12) -- --
Net change in unrealized
gain (loss) on:
Investments 1,270,255 4,070,207 4,339,428 131,183
Futures 80,890 104,283 36,677 --
Translation of assets
and liabilities
denominated in foreign
currencies -- -- -- --
-----------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investment, options,
futures and foreign
currency transactions: 779,268 5,565,885 5,171,111 253,850
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $1,058,454 $5,709,374 $5,191,789 $ 279,584
-----------------------------------------------------------------------------------
</TABLE>
(a) Commenced operations on April 1, 1999.
(b) For the Growth and Income, CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity, Capital Growth, Mid Cap Value,
CORE International Equity, International Equity and Global Income Funds,
taxes withheld on dividends and interests were $2,996, $3,196, $2,731,
$50, $18, $100, $1,139, $23,295, $24,317 and $443, respectively.
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
Capital Mid Cap Value CORE Short Duration
CORE Small Cap Growth Fund (formerly International International Government Global Income
Equity Fund Fund Mid Cap Equity) Equity Fund(a) Equity Fund Fund(a) Fund
<S> <C> <C> <C> <C> <C> <C>
$ 65,007 $ 49,891 $ 176,561 $ 158,855 $ 196,239 $ -- $ --
12,108 9,517 78,099 13,651 34,477 464,480 329,897
------------------------------------------------------------------------------------------------------------
77,115 59,408 254,660 172,506 230,716 464,480 329,897
------------------------------------------------------------------------------------------------------------
46,304 47,162 90,695 69,908 138,806 41,965 56,181
26,754 24,073 22,834 25,660 23,348 25,619 24,243
102,232 42,059 51,296 131,397 108,151 27,219 51,334
1,510 865 706 2,831 2,352 2,831 1,569
50,087 49,304 49,304 39,898 49,782 39,898 52,162
9,268 9,268 9,268 2,044 9,268 2,044 9,268
4,108 4,107 4,107 -- 4,107 -- 4,107
19,879 19,783 19,911 20,726 21,130 20,599 20,179
------------------------------------------------------------------------------------------------------------
260,142 196,621 248,121 292,464 356,944 160,175 219,043
------------------------------------------------------------------------------------------------------------
(204,581) (140,027) (140,421) (201,868) (183,436) (106,765) (153,499)
------------------------------------------------------------------------------------------------------------
55,561 56,594 107,700 90,596 173,508 53,410 65,544
------------------------------------------------------------------------------------------------------------
21,554 2,814 146,960 81,910 57,208 411,070 264,353
------------------------------------------------------------------------------------------------------------
395,743 325,897 (347,009) 539,715 1,611,127 (110,029) (150,774)
-- -- 8,288 -- -- -- --
44,960 -- 53,358 -- 34,480 (4,354) --
-- -- (11) (34,674) (10,800) -- (1,252)
1,135,083 1,405,423 (236,347) 2,102,886 2,782,344 (179,719) (303,468)
82,049 -- -- -- 102,218 30,042 --
-- -- -- (174) (3,196) -- 133,633
------------------------------------------------------------------------------------------------------------
1,657,835 1,731,320 (521,721) 2,607,753 4,516,173 (264,060) (321,861)
------------------------------------------------------------------------------------------------------------
$1,679,389 $1,734,134 $(374,761) $2,689,663 $4,573,381 $ 147,010 $ (57,508)
------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Growth and CORE U.S. CORE Large Cap CORE Large Cap
Income Fund Equity Fund Growth Fund Value Fund(a)
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 279,186 $ 143,489 $ 20,678 $ 25,734
Net realized gain (loss)
on investment, options,
futures and foreign
currency related
transactions (571,877) 1,391,395 795,006 122,667
Net change in unrealized
gain (loss) on
investments, options,
futures and translation
of assets and
liabilities denominated
in foreign currencies 1,351,145 4,174,490 4,376,105 131,183
------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 1,058,454 5,709,374 5,191,789 279,584
------------------------------------------------------------------------------------
Distributions to share-
holders:
From net investment
income (279,186) (143,489) (20,678) (25,734)
In excess of net
investment income (3,919) (6,622) (3,612) (4,850)
From net realized gain
on investment, options,
futures and foreign
currency transactions -- (524,244) -- (58,422)
------------------------------------------------------------------------------------
Total distributions to
shareholders (283,105) (674,355) (24,290) (89,006)
------------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of
shares 16,777,010 39,589,353 11,571,355 3,293,945
Reinvestment of
dividends and
distributions 283,104 674,354 24,167 85,892
Cost of shares
repurchased (5,660,860) (3,049,107) (628,485) (114,879)
------------------------------------------------------------------------------------
Net increase in net
assets resulting from
share transactions 11,399,254 37,214,600 10,967,037 3,264,958
------------------------------------------------------------------------------------
TOTAL INCREASE 12,174,603 42,249,619 16,134,536 3,455,536
------------------------------------------------------------------------------------
Net assets:
Beginning of period 13,814,429 9,808,861 8,214,389 --
------------------------------------------------------------------------------------
End of period $25,989,032 $52,058,480 $24,348,925 $3,455,536
------------------------------------------------------------------------------------
Accumulated
undistributed
(distributions in excess
of) net investment
income $ 226 $ -- $ 496 $ --
------------------------------------------------------------------------------------
Summary of share trans-
actions:
Shares sold 1,534,847 3,061,033 883,252 327,984
Shares issued on
reinvestment of
dividends and
distributions 26,583 50,325 1,619 8,299
Shares repurchased (496,142) (246,857) (47,422) (10,728)
------------------------------------------------------------------------------------
Total 1,065,288 2,864,501 837,449 325,555
------------------------------------------------------------------------------------
</TABLE>
(a) Commenced operations on April 1, 1999.
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
Mid Cap Value CORE Short Duration
CORE Small Cap Capital Fund (formerly International International Government Global
Equity Fund Growth Fund Mid Cap Equity) Equity Fund(a) Equity Fund Fund(a) Income Fund
<S> <C> <C> <C> <C> <C> <C>
$ 21,554 $ 2,814 $ 146,960 $ 81,910 $ 57,208 $ 411,070 $ 264,353
440,703 325,897 (285,374) 505,041 1,634,807 (114,383) (152,026)
1,217,132 1,405,423 (236,347) 2,102,712 2,881,366 (149,677) (169,835)
-----------------------------------------------------------------------------------------------------------
1,679,389 1,734,134 (374,761) 2,689,663 4,573,381 147,010 (57,508)
-----------------------------------------------------------------------------------------------------------
(21,554) (2,814) (146,960) (64,631) (57,208) (411,070) (222,866)
(4,427) (5,555) (5,250) -- (187,931) (5,554) --
-- (239,526) -- (335,571) (1,219,801) -- (35,447)
-----------------------------------------------------------------------------------------------------------
(25,981) (247,895) (152,210) (400,202) (1,464,940) (416,624) (258,313)
-----------------------------------------------------------------------------------------------------------
7,372,445 4,867,045 27,018,313 10,269,336 10,914,867 10,525,682 1,586,871
23,889 249,170 151,832 394,437 1,464,935 413,063 254,444
(402,880) (615,262) (10,364,745) (64,521) (6,534,776) (363,802) (342,856)
-----------------------------------------------------------------------------------------------------------
6,993,454 4,500,953 16,805,400 10,599,252 5,845,026 10,574,943 1,498,459
-----------------------------------------------------------------------------------------------------------
8,646,862 5,987,192 16,278,429 12,888,713 8,953,467 10,305,329 1,182,638
-----------------------------------------------------------------------------------------------------------
4,840,892 4,463,054 5,603,896 -- 11,205,722 -- 5,741,286
-----------------------------------------------------------------------------------------------------------
$13,487,754 $10,450,246 $21,882,325 $12,888,713 $20,159,189 $10,305,329 $6,923,924
-----------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ (4,061) $ (115,894) $ -- $ (21,641)
-----------------------------------------------------------------------------------------------------------
775,824 383,533 3,033,801 1,024,244 865,376 1,052,325 155,968
2,661 18,609 18,699 33,915 106,930 42,453 25,884
(41,816) (50,626) (1,107,272) (5,730) (520,324) (36,062) (34,083)
-----------------------------------------------------------------------------------------------------------
736,669 351,516 1,945,228 1,052,429 451,982 1,058,716 147,769
-----------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Statements of Changes in Net Assets
For the Period Ended December 31, 1998(a)
<TABLE>
<CAPTION>
Growth and
Income Fund
<S> <C>
From operations:
Net investment income $ 117,677
Net realized gain (loss) on investments, futures and foreign
currency transactions (454,763)
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies 254,807
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (82,279)
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (117,677)
In excess of net investment income (3,441)
From net realized gain on investment transactions --
------------------------------------------------------------------------------
Total distributions to shareholders (121,118)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 14,318,816
Reinvestment of dividends and distributions 121,118
Cost of shares repurchased (522,108)
------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 13,917,826
------------------------------------------------------------------------------
TOTAL INCREASE 13,714,429
------------------------------------------------------------------------------
Net assets:
Beginning of period 100,000
------------------------------------------------------------------------------
End of period $13,814,429
------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income $ --
------------------------------------------------------------------------------
Summary of share transactions:
Shares sold 1,362,585
Shares issued on reinvestment of dividends and distributions 11,782
Shares repurchased (52,483)
------------------------------------------------------------------------------
TOTAL 1,321,884
------------------------------------------------------------------------------
</TABLE>
(a) The Growth and Income, International Equity and Global Income Funds
commenced operations on January 12, 1998; the CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds commenced operations on
February 13, 1998; the Capital Growth and Mid Cap Equity Funds commenced
operations on April 30, 1998 and May 1, 1998, respectively.
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
CORE U.S. CORE Large Cap CORE Small Cap Capital Mid Cap International Global
Equity Fund Growth Fund Equity Fund Growth Fund Equity Fund Equity Fund Income Fund
<S> <C> <C> <C> <C> <C> <C>
$ 41,873 $ 10,579 $ 12,998 $ 9,584 $ 40,774 $ 20,063 $ 236,855
(236,971) (627,651) (771,415) (23,325) (223,031) 59,153 23,945
1,313,107 1,695,954 301,250 533,289 (112,232) 1,339,894 163,750
------------------------------------------------------------------------------------------------
1,118,009 1,078,882 (457,167) 519,548 (294,489) 1,419,110 424,550
------------------------------------------------------------------------------------------------
(41,873) (10,579) (12,998) (9,584) (40,774) -- (213,231)
(1,567) (1,864) (1,946) (1,046) (2,334) -- --
-- -- -- -- -- (85,668) (57,323)
------------------------------------------------------------------------------------------------
(43,440) (12,443) (14,944) (10,630) (43,108) (85,668) (270,554)
------------------------------------------------------------------------------------------------
9,097,369 7,271,607 5,329,424 3,988,296 6,990,413 9,861,289 5,338,273
43,440 12,443 14,944 10,630 43,107 85,668 270,269
(406,517) (136,100) (31,365) (44,790) (1,092,027) (74,677) (21,252)
------------------------------------------------------------------------------------------------
8,734,292 7,147,950 5,313,003 3,954,136 5,941,493 9,872,280 5,587,290
------------------------------------------------------------------------------------------------
9,808,861 8,214,389 4,840,892 4,463,054 5,603,896 11,205,722 5,741,286
------------------------------------------------------------------------------------------------
-- -- -- -- -- -- --
------------------------------------------------------------------------------------------------
$9,808,861 $8,214,389 $4,840,892 $4,463,054 $ 5,603,896 $11,205,722 $5,741,286
------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ -- $ -- $ (12,690) $ (6,552)
------------------------------------------------------------------------------------------------
893,251 715,088 537,211 397,752 781,599 940,178 532,484
3,963 1,122 1,756 995 5,238 7,521 26,012
(38,212) (12,989) (3,459) (4,310) (132,996) (6,639) (2,008)
------------------------------------------------------------------------------------------------
859,002 703,221 535,508 394,437 653,841 941,060 556,488
------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
--------------------------- ------------------------------
Net asset Net realized In excess From
value at Net and From net of net net
beginning investment unrealized investment investment realized
of period income gain (loss) income income gain
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund
For the year ended
December 31, 1999 $10.45 $ 0.12 $ 0.44 $(0.12) $ -- $ --
For the period ended
December 31, 1998(f) 10.00 0.09 0.45 (0.09) -- --
------------------------------------------------------------------------------------------------
CORE U.S. Equity Fund
For the year ended
December 31, 1999 11.42 0.05 2.72 (0.05) -- (0.16)
For the period ended
December 31, 1998(f) 10.00 0.05 1.42 (0.05) -- --
------------------------------------------------------------------------------------------------
CORE Large Cap Growth
Fund
For the year ended
December 31, 1999 11.68 0.02 4.12 (0.02) -- --
For the period ended
December 31, 1998(f) 10.00 0.02 1.68 (0.02) -- --
------------------------------------------------------------------------------------------------
CORE Large Cap Value
Fund
For the period ended
December 31, 1999(e) 10.00 0.09 0.81 (0.09) (0.01) (0.19)
------------------------------------------------------------------------------------------------
CORE Small Cap Equity
Fund
For the year ended
December 31, 1999 9.04 0.02 1.56 (0.02) -- --
For the period ended
December 31, 1998(f) 10.00 0.02 (0.95) (0.02) (0.01) --
------------------------------------------------------------------------------------------------
Capital Growth Fund
For the year ended
December 31, 1999 11.31 0.01 3.04 (0.01) -- (0.34)
For the period ended
December 31, 1998(f) 10.00 0.03 1.31 (0.03) -- --
------------------------------------------------------------------------------------------------
Mid Cap Value Fund
For the year ended
December 31, 1999 8.57 0.07 (0.15) (0.07) -- --
For the period ended
December 31, 1998(f) 10.00 0.07 (1.43) (0.07) -- --
------------------------------------------------------------------------------------------------
CORE International
Equity Fund
For the period ended
December 31, 1999(e) 10.00 0.08 2.56 (0.06) -- (0.33)
------------------------------------------------------------------------------------------------
International Equity
Fund
For the year ended
December 31, 1999 11.91 0.07 3.66 (0.07) (0.13) (0.97)
For the period ended
December 31, 1998(f) 10.00 0.02 1.98 -- -- (0.09)
------------------------------------------------------------------------------------------------
Short Duration
Government Fund
For the period ended
December 31, 1999(e) 10.00 0.41 (0.27) (0.41) -- --
------------------------------------------------------------------------------------------------
Global Income Fund
For the year ended
December 31, 1999 10.32 0.39 (0.50) (0.33) -- (0.05)
For the period ended
December 31, 1998(f) 10.00 0.45 0.38 (0.40) -- (0.11)
------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) CORE Large Cap Value, CORE International Equity and Short Duration
Government commenced operations on April 1, 1999.
(f) Growth and Income, International Equity and Global Income commenced
operations on January 12, 1998; CORE U.S. Equity, CORE Large Cap Growth
and CORE Small Cap Equity commenced operations on February 13, 1998;
Capital Growth and Mid Cap Value commenced operations on April 30, 1998
and May 1, 1998, respectively.
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Net
Net assets Ratio of Ratio of
increase at end Ratio of net Ratio of net
(decrease) Net asset of net investment net investment
in net value, period expenses income expenses income (loss) Portfolio
asset end of Total (in to average to average to average to average turnover
value period return(b) 000s) net assets net assets net assets net assets rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.44 $10.89 5.41% $25,989 0.90% 1.44% 1.65% 0.69% 121%
0.45 10.45 5.47(d) 13,814 0.90(c) 1.85(c) 2.69(c) 0.06(c) 88(d)
-----------------------------------------------------------------------------------------------------
2.56 13.98 24.30 52,058 0.80 0.70 1.52 (0.02) 70
1.42 11.42 14.73(d) 9,809 0.80(c) 0.70(c) 2.83(c) (1.33)(c) 75(d)
-----------------------------------------------------------------------------------------------------
4.12 15.80 35.42 24,349 0.80 0.15 1.85 (0.90) 70
1.68 11.68 16.99(d) 8,214 0.80(c) 0.20(c) 2.87(c) (1.87)(c) 69(d)
-----------------------------------------------------------------------------------------------------
0.61 10.61 8.99(d) 3,456 0.80(c) 1.04(c) 5.61(c) (3.77)(c) 48(d)
-----------------------------------------------------------------------------------------------------
1.56 10.60 17.54 13,488 0.90 0.35 4.22 (2.97) 101
(0.96) 9.04 (9.30)(d) 4,841 0.90(c) 0.30(c) 3.92(c) (2.72)(c) 74(d)
-----------------------------------------------------------------------------------------------------
2.70 14.01 27.13 10,450 0.90 0.04 3.13 (2.19) 34
1.31 11.31 13.40(d) 4,463 0.90(c) 0.42(c) 4.92(c) (3.60)(c) 20(d)
-----------------------------------------------------------------------------------------------------
(0.15) 8.42 (0.95) 21,882 0.95 1.30 2.19 0.06 103
(1.43) 8.57 (13.56)(d) 5,604 0.95(c) 1.74(c) 4.79(c) (2.10)(c) 38(d)
-----------------------------------------------------------------------------------------------------
2.25 12.25 26.64(d) 12,889 1.10(c) 1.00(c) 3.55(c) (1.45)(c) 97(d)
-----------------------------------------------------------------------------------------------------
2.56 14.47 31.85 20,159 1.25 0.41 2.57 (0.91) 87
1.91 11.91 20.07(d) 11,206 1.25(c) 0.23(c) 2.97(c) (1.49)(c) 76(d)
-----------------------------------------------------------------------------------------------------
(0.27) 9.73 1.41(d) 10,305 0.70(c) 5.39(c) 2.10(c) 3.99(c) 152(d)
-----------------------------------------------------------------------------------------------------
(0.49) 9.83 (1.01) 6,924 1.05 4.23 3.51 1.77 200
0.32 10.32 8.29(d) 5,741 1.05(c) 4.59(c) 3.30(c) 2.34(c) 203(d)
-----------------------------------------------------------------------------------------------------
</TABLE>
Variable Insurance Trust--Tax Information (unaudited)
For the year ended December 31, 1999, 100.0%, 26.94%, 100.0%, 32.60%,
100.0%, 38.44% and 100.0% of the dividends paid from net investment income by
the Growth and Income, CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap
Value, CORE Small Cap Equity, Capital Growth and Mid Cap Value Funds respec-
tively, qualify for the dividends received deduction available to corpora-
tions.
Pursuant to Section 852 of the Internal Revenue Code, CORE U.S. Equity, Cap-
ital Growth and International Equity Funds designate $387,214, $157,845 and
$592,901 as a capital gain dividend for its year ended December 31, 1999.
81
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
Goldman Sachs Variable Insurance Trust (the "Trust") is a Delaware business
trust registered under the Investment Company Act of 1940, as amended ("the
Act") as an open-end, management investment company. The Trust includes
Goldman Sachs Growth and Income Fund ("Growth and Income"), Goldman Sachs
CORE U.S. Equity Fund ("CORE U.S. Equity"), Goldman Sachs CORE Large Cap
Growth Fund ("CORE Large Cap Growth"), Goldman Sachs CORE Large Cap Value
Fund ("CORE Large Cap Value"), Goldman Sachs CORE Small Cap Equity Fund
("CORE Small Cap Equity"), Goldman Sachs Capital Growth Fund ("Capital
Growth"), Goldman Sachs Mid Cap Value Fund ("Mid Cap Value") (formerly Mid
Cap Equity), Goldman Sachs CORE International Equity Fund ("CORE Interna-
tional Equity") Goldman Sachs International Equity Fund ("International Equi-
ty"), Goldman Sachs Short Duration Government Fund ("Short Duration
Government") and Goldman Sachs Global Income Fund ("Global Income"), collec-
tively, "the Funds" or individually a "Fund". Each Fund, except the Global
Income Fund, is diversified under the Act. The Global Income Fund is a "non-
diversified" Fund under the Act.
Shares of the Trust may be purchased and held by separate accounts of par-
ticipating life insurance companies for the purpose of funding variable annu-
ity contracts and variable life insurance policies. Shares of the Trust are
not offered directly to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Actual results
could differ from those estimates.
A. Investment Valuation -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded. If
no sale occurs, securities are valued at the last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker/dealer-
supplied valuations or matrix pricing systems. Unlisted equity and debt secu-
rities for which market quotations are available are valued at the last sale
price on valuation date, or if no sale occurs, at the last bid price. Short-
term debt obligations maturing in sixty days or less are valued at amortized
cost. Restricted securities, and other securities for which accurate quota-
tions are not readily available, are valued at fair value using methods ap-
proved by the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions
are recorded as of the trade date. Realized gains and losses on sales of
portfolio securities are calculated using the identified-cost basis. Dividend
income is recorded on the ex-dividend date. Dividends for which the fund has
the choice to receive either cash or stock are recognized as investment in-
come in an amount equal to the cash dividend. Interest income is determined
on the basis of interest accrued, premium amortized and discount earned.
Growth and Income, Short Duration Government and Global Income do not amor-
tize market premiums. In addition, it is the Funds' policy to accrue for es-
timated capital gains taxes on foreign securities held by the Funds, which
are subject to such taxes.
C. Foreign Currency Translations -- Amounts denominated in foreign currencies
are translated into U.S. dollars on the following basis: (i) investment valu-
ations, other assets and liabilities initially expressed in foreign curren-
cies are converted each business day into U.S. dollars based upon current
exchange rates; (ii) purchases and sales of foreign investments,
82
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
income and expenses are converted into U.S. dollars based upon currency ex-
change rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign currency exchange gains and losses from the sale
and holdings of foreign currencies and sale of investments (for fixed income
only); (ii) gains and losses between trade date and settlement date on in-
vestment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of interest and dividend
recorded and the amounts actually received.
D. Mortgage Dollar Rolls -- Global Income and Short Duration Government may
enter into mortgage "dollar rolls" in which the Fund sells securities in the
current month for delivery and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, the
Fund loses the right to receive principal and interest paid on the securities
sold. However, the Fund benefits to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase (often referred to as the "drop") or fee income plus the in-
terest earned on the cash proceeds of the securities sold until the settle-
ment date of the forward purchase. The Fund will hold and maintain in a
segregated account, until the settlement date, cash, liquid assets or high-
grade debt securities in an amount equal to the forward purchase price. For
financial reporting and tax reporting purposes, the Fund treats mortgage dol-
lar rolls as two separate transactions; one involving the purchase of a secu-
rity and a separate transaction involving a sale.
E. Federal Taxes -- It is each Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
and tax- exempt income to its shareholders. Accordingly, no federal tax pro-
visions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in-capital, de-
pending on the type of book/tax differences that may exist as well as timing
differences.
As of December 31, 1999, the following Funds had capital loss carryforwards
for U.S. federal tax purposes. This amount is available to be carried forward
to offset future capital gains to the extent permitted by applicable laws or
regulations.
<TABLE>
<CAPTION>
Year of
Fund Amount Expiration
----------------------------------------------------
<S> <C> <C>
Growth and Income Fund $599,984 2006-2007
----------------------------------------------------
CORE Small Cap Equity Fund 198,691 2006
----------------------------------------------------
Mid Cap Value Fund 149,174 2006-2007
----------------------------------------------------
Short Duration Government Fund 82,910 2007
----------------------------------------------------
Global Income Fund 136,949 2007
----------------------------------------------------
</TABLE>
83
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements (continued)
December 31, 1999
At December 31, 1999 the Funds' aggregate unrealized gains and losses based
on cost for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Fund Tax Cost Gain Loss Gain (Loss)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income $24,559,773 $2,502,777 $1,241,954 $1,260,823
-------------------------------------------------------------------------
CORE U.S. Equity 45,299,571 6,847,470 1,505,059 5,342,411
-------------------------------------------------------------------------
CORE Large Cap Growth 18,099,962 6,641,236 624,291 6,016,945
-------------------------------------------------------------------------
CORE Large Cap Value 3,359,464 366,552 235,385 131,167
-------------------------------------------------------------------------
CORE Small Cap Equity 11,647,743 2,075,941 689,581 1,386,360
-------------------------------------------------------------------------
Capital Growth 8,414,741 2,272,926 341,278 1,931,648
-------------------------------------------------------------------------
Mid Cap Value 22,495,722 978,495 1,536,660 (558,165)
-------------------------------------------------------------------------
CORE International Equity 10,793,723 2,580,234 487,969 2,092,265
-------------------------------------------------------------------------
International Equity 15,756,974 4,501,908 388,313 4,113,595
-------------------------------------------------------------------------
Short Duration Government 10,373,872 1,485 182,635 (181,150)
-------------------------------------------------------------------------
Global Income 6,758,186 152,785 294,181 (141,396)
-------------------------------------------------------------------------
</TABLE>
F. Deferred Organization Expenses -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years (with the excep-
tion of those funds which commenced operations in 1999).
The deferred organization costs for Growth and Income, International Equity
and Global Income Funds each have an unamortized period remaining through
January 12, 2003; the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds each have an unamortized period remaining through February
13, 2003; the Capital Growth and Mid Cap Value Funds have an unamortized pe-
riod remaining through April 30, 2003 and May 1, 2003, respectively.
G. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual portfolio of the Trust are generally allocated to the port-
folios on a straight-line or pro rata basis depending upon the nature of the
expense.
H. Segregation Transactions -- As set forth in the prospectus, certain Funds
may enter into derivative transactions to seek to increase total return. For-
ward foreign currency exchange contracts, futures contracts, written options,
mortgage dollar rolls, when issued securities and forward commitments are ex-
amples of such transactions. As a result of entering into those transactions,
the Funds are required to segregate liquid assets on the accounting records
equal to or greater than the market value of the corresponding transactions.
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management ("GSAM"), a separate unit of the Investment Management
Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment
adviser for Growth and Income, CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity, Capital Growth, Mid Cap Value, CORE
International Equity and Short Duration Government Funds. Goldman Sachs Asset
Management International ("GSAMI"), an affiliate of Goldman Sachs, serves as
the investment adviser for International Equity and Global Income. Under the
Agreement, the advisers, subject to the general supervision of the Trust's
Board of Trustees, manage the Funds' portfolios (GSAM and GSAMI are each re-
ferred to herein as the "investment adviser"). As compensation for the serv-
ices rendered pursuant to the Agreement, the assumption of the expenses
related thereto
84
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
and administering the Funds' business affairs, including providing facili-
ties, the adviser is entitled to a fee, computed daily and payable monthly at
an annual rate of the average daily net assets as follows:
<TABLE>
<CAPTION>
Fund Fee
------------------------------------------
<S> <C> <C>
Growth and Income Fund 0.75%
------------------------------------------
CORE U.S. Equity Fund 0.70
------------------------------------------
CORE Large Cap Growth Fund 0.70
------------------------------------------
CORE Large Cap Value Fund 0.70
------------------------------------------
CORE Small Cap Equity Fund 0.75
------------------------------------------
Capital Growth Fund 0.75
------------------------------------------
Mid Cap Value Fund 0.80
------------------------------------------
CORE International Equity Fund 0.85
------------------------------------------
International Equity Fund 1.00
------------------------------------------
Short Duration Government Fund 0.55
------------------------------------------
Global Income Fund 0.90
------------------------------------------
</TABLE>
The advisers have voluntarily agreed to limit certain "Other Expenses" of
the Funds (excluding management fees, taxes, interest, brokerage fees, liti-
gation and indemnification and other extraordinary expenses) to the extent
that such expenses exceed .15%, .10%, .10%, .10%, .15%, .15%, .15%, .25%,
.25%, .15% and .15% of the average daily net assets of Growth and Income,
CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small Cap
Equity, Capital Growth, Mid Cap Value, CORE International Equity, Interna-
tional Equity, Short Duration Government and Global Income, respectively.
For the year ended December 31, 1999, the adviser has voluntarily agreed to
reimburse other expenses and the Funds have entered into expense offset ar-
rangements with the custodian resulting in a reduction in expenses as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Transfer
Custody Fee Agent Fee
Fund Reimbursement Reduction Waiver Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income $129 $ 2 $15 $146
---------------------------------------------------------------------
CORE U.S. Equity 129 2 15 146
---------------------------------------------------------------------
CORE Large Cap Growth 131 2 15 148
---------------------------------------------------------------------
CORE Large Cap Value 108 -- 11 119
---------------------------------------------------------------------
CORE Small Cap Equity 188 2 15 205
---------------------------------------------------------------------
Capital Growth 123 2 15 140
---------------------------------------------------------------------
Mid Cap Value 123 2 15 140
---------------------------------------------------------------------
CORE International Equity 191 -- 11 202
---------------------------------------------------------------------
International Equity 166 2 15 183
---------------------------------------------------------------------
Short Duration Government 96 -- 11 107
---------------------------------------------------------------------
Global Income 136 2 15 153
---------------------------------------------------------------------
</TABLE>
85
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements (continued)
December 31, 1999
Goldman Sachs also serves as the transfer agent of the Funds and has volun-
tarily waived its fees. Goldman Sachs may discontinue or modify this waiver
in the future at its discretion. Goldman Sachs serves as the distributor of
each Fund's shares at no cost to the Funds.
At December 31, 1999, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Transfer
Management Agent
Fund Fees Fees Total
-----------------------------------------------------
<S> <C> <C> <C>
Growth and Income $16 $ 8 $24
-----------------------------------------------------
CORE U.S. Equity 26 8 34
-----------------------------------------------------
CORE Large Cap Growth 13 8 21
-----------------------------------------------------
CORE Large Cap Value 2 10 12
-----------------------------------------------------
CORE Small Cap Equity 7 8 15
-----------------------------------------------------
Capital Growth 6 8 14
-----------------------------------------------------
Mid Cap Value 13 8 21
-----------------------------------------------------
CORE International Equity 9 10 19
-----------------------------------------------------
International Equity 16 8 24
-----------------------------------------------------
Short Duration Government 5 10 15
-----------------------------------------------------
Global Income 5 8 13
-----------------------------------------------------
</TABLE>
As of December 31, 1999, Goldman Sachs was the beneficial owner of 14%,
33%, 92%, 39%, 41%, 95%, 61%, 94% and 77% of the outstanding shares of the
CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value, CORE Small Cap
Equity, Capital Growth, CORE International Equity, International Equity,
Short Duration Government and Global Income, respectively.
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended December 31, 1999, were as follows:
<TABLE>
<CAPTION>
Sales or Sales or Maturities
Purchases of Purchases Maturities of (excluding U.S.
U.S. Government (excluding U.S. U.S. Government Government and
and agency Government and and agency agency
obligations agency obligations) obligations obligations)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and
Income $ -- $29,443,106 $ -- $20,524,300
--------------------------------------------------------------------------------------
CORE U.S. Eq-
uity -- 43,428,985 -- 13,850,359
--------------------------------------------------------------------------------------
CORE Large
Cap Growth -- 19,108,541 -- 9,519,263
--------------------------------------------------------------------------------------
CORE Large
Cap Value -- 4,836,395 -- 1,599,615
--------------------------------------------------------------------------------------
CORE Small
Cap Equity -- 11,119,301 -- 6,251,391
--------------------------------------------------------------------------------------
Capital
Growth -- 6,432,230 -- 2,096,962
--------------------------------------------------------------------------------------
Mid Cap Value -- 27,631,952 -- 10,392,146
--------------------------------------------------------------------------------------
CORE Interna-
tional Equity -- 20,947,358 -- 10,704,104
--------------------------------------------------------------------------------------
International
Equity -- 13,958,020 -- 11,507,397
--------------------------------------------------------------------------------------
Short Dura-
tion Govern-
ment 22,793,313 3,042,138 15,035,246 507,143
--------------------------------------------------------------------------------------
Global Income 2,865,744 10,246,731 3,380,745 8,160,603
--------------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Option Accounting Principles -- When the Funds write call or put options, an
amount equal to the premium received is recorded as an asset and as an equiv-
alent liability. The amount of the liability is subsequently marked-to-market
to reflect the current market value of the option written. When a written op-
tion expires on its stipulated expiration date or the Funds enter into a
closing purchase transaction, the Funds realize a gain or loss without regard
to any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. When a written call option is exer-
cised, the Funds realize a gain or loss from the sale of the underlying secu-
rity, and the proceeds of the sale are increased by the premium originally
received. When a written put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Funds pur-
chase upon exercise. There is a risk of loss from a change in value of such
options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
For the year ended December 31, 1999, written call option transactions in
Growth and Income were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
--------------------------------------------------------------
<S> <C> <C>
Balance outstanding at beginning of year -- --
Options written 69 $ 14,887
Options expired (51) (12,167)
Options assigned (18) (2,720)
--------------------------------------------------------------
BALANCE OUTSTANDING, END OF YEAR -- $ --
--------------------------------------------------------------
</TABLE>
For the year ended December 31, 1999, written call option transactions in
Mid Cap Value were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
-------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding at beginning of year -- --
Options written 39 $10,747
Options expired (7) (2,127)
Options assigned (7) (3,742)
Options terminated in closing purchase transactions (25) (4,878)
-------------------------------------------------------------------------
BALANCE OUTSTANDING, END OF YEAR -- $ --
-------------------------------------------------------------------------
</TABLE>
87
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements (continued)
December 31, 1999
Forward Foreign Currency Exchange Contracts -- CORE International Equity, In-
ternational Equity, Global Income, Growth and Income, Capital Growth and Mid
Cap Value may enter into forward foreign currency exchange contracts for the
purchase or sale of a specific foreign currency at a fixed price on a future
date as a hedge or cross-hedge against either specific transactions or port-
folio positions. CORE International Equity, International Equity and Global
Income may also purchase and sell forward contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable trans-
lation rates. The Funds record realized gains or losses at the time the for-
ward contract is offset by entry into a closing transaction or extinguished
by delivery of the currency. Risks may arise upon entering into these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
At December 31, 1999, International Equity had outstanding forward foreign
currency exchange contracts as follows:
<TABLE>
<CAPTION>
Value on
Open Forward Foreign Currency Settlement Current Unrealized Unrealized
Purchase Contracts Date Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Currency expiring 1/26/2000 $ 108,400 $ 104,706 $ -- $ 3,694
------------------------------------------------------------------------------
TOTAL OPEN FORWARD FOREIGN
CURRENCY PURCHASE
CONTRACTS $ 108,400 $ 104,706 $ -- $ 3,694
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
Value on
Open Forward Foreign Currency Settlement Current Unrealized Unrealized
Sale Contracts Date Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen expiring 2/17/2000 $1,862,703 $1,869,008 $1,100 $ 7,405
Euro Currency expiring 3/15/2000 11,386 11,451 -- 65
Hong Kong Dollars expiring
6/8/2000 544,469 544,425 44 --
------------------------------------------------------------------------------
TOTAL OPEN FORWARD FOREIGN
CURRENCY SALE
CONTRACTS $2,418,558 $2,424,884 $1,144 $ 7,470
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
Closed but Unsettled Purchase Sale Realized Realized
Forward Currency Contracts Value Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Currency expiring 1/26/2000 $ 63,153 $ 64,062 $ 909 $ --
Euro Currency expiring 1/26/2000 312,600 311,756 -- 844
Euro Currency expiring 1/26/2000 421,000 422,182 1,182 --
Euro Currency expiring 3/15/2000 881,000 869,614 -- 11,386
Japanese Yen expiring 2/17/2000 862,000 851,297 -- 10,703
------------------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED
FORWARD FOREIGN CURRENCY
CONTRACTS $2,539,753 $2,518,911 $2,091 $22,933
------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
At December 31, 1999, Global Income had outstanding forward foreign cur-
rency exchange contracts as follows:
<TABLE>
<CAPTION>
Value on
Open Foreign Currency Settlement Current Unrealized Unrealized
Purchase Contracts Date Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars expiring
3/23/2000 $ 172,000 $ 177,649 $ 5,649 $ --
Canadian Dollars expiring
2/29/2000 117,724 120,164 2,440 --
Swedish Krona expiring 3/16/2000 38,482 38,042 -- 440
------------------------------------------------------------------------------
TOTAL OPEN FOREIGN CURRENCY
PURCHASE CONTRACTS $ 328,206 $ 335,855 $ 8,089 $ 440
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
Value on
Open Foreign Currency Settlement Current Unrealized Unrealized
Sale Contracts Date Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Danish Krones expiring 1/21/2000 $ 97,727 $ 91,738 $ 5,989 $ --
Euros expiring 1/26/2000 2,128,427 1,978,375 150,052 --
Euros expiring 3/6/2000 267,000 267,469 -- 469
British Pounds expiring 5/2/2000 622,580 627,802 -- 5,222
Japanese Yen expiring 2/17/2000 1,553,373 1,577,774 1,554 25,955
New Zealand Dollar expiring
10/18/2000 106,599 108,252 -- 1,653
------------------------------------------------------------------------------
TOTAL OPEN FOREIGN CURRENCY SALE
CONTRACTS $4,775,706 $4,651,410 $157,595 $33,299
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
Closed but Unsettled Purchase Sale Realized Realized
Forward Currency Contracts Value Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euros expiring 1/26/2000 $ 993,017 $1,012,666 $ 19,649 $ --
Euros expiring 2/17/2000 170,000 168,149 -- 1,851
Euros expiring 3/15/2000 170,000 167,803 -- 2,197
------------------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED
FORWARD CURRENCY CONTRACTS $1,333,017 $1,348,618 $ 19,649 $ 4,048
------------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At December 31,
1999, International Equity and Global Income had sufficient cash and/or secu-
rities to cover any commitments under these contracts.
The International Equity and Global Income Funds have recorded a "Receiv-
able for forward foreign currency exchange contracts" and "Payable for for-
ward foreign currency exchange contracts" resulting from "open" and "closed
but unsettled" forward foreign currency exchange contracts of $3,235 and
$34,097 and $185,333 and $37,787, respectively, in the accompanying State-
ments of Assets and Liabilities.
Futures Contracts -- The Funds may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the associated futures exchange. Subsequent payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Funds realize a gain or loss which is reported
in the Statements of Operations.
89
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements (continued)
December 31, 1999
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
strategies and potentially result in a loss.
At December 31, 1999 the following Futures contracts were open as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Market Unrealized
Fund Type Long (Short) Month Value Gain (Loss)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth and
Income S&P 500 Index 6 March 2000 $ 2,226,300 $ 80,890
-------------------------------------------------------------------------------------------
CORE U.S.
Equity S&P 500 Index 16 March 2000 $ 5,936,800 $104,283
-------------------------------------------------------------------------------------------
CORE Large
Cap Growth S&P 500 Index 3 March 2000 $ 1,113,150 $ 36,677
-------------------------------------------------------------------------------------------
CORE Small
Cap Equity Russell 2000 Index 7 March 2000 $ 1,784,825 $ 82,049
-------------------------------------------------------------------------------------------
International
Equity TOPIX Index 8 March 2000 $ 1,340,511 $ 58,138
DAX 30 Index 2 March 2000 353,932 37,587
FTSE 100 Index 2 March 2000 225,399 6,493
-------------------------------------------------------------------------------------------
$ 1,919,842 $102,218
-------------------------------------------------------------------------------------------
Short
Duration
Government 2 Year U.S. Treasury Note 24 March 2000 $ 4,766,625 $(27,896)
5 Year U.S. Treasury Note (7) March 2000 (686,109) 9,489
10 Year U.S. Treasury Note (5) March 2000 (479,297) 10,360
20 Year U.S. Treasury Bond (11) March 2000 (1,000,312) 38,089
-------------------------------------------------------------------------------------------
$ 2,600,907 $ 30,042
-------------------------------------------------------------------------------------------
</TABLE>
For the period ended December 31, 1999, the Trust paid Goldman Sachs ap-
proximately $11,000 of brokerage commissions from portfolio transactions.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having manage-
ment agreements with GSAM or their affiliates, transfer uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At December 31, 1999, Growth and Income, CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap, Mid Cap Value and Short Duration Government had undi-
vided interests in the repurchase agreements in the following joint account
which equaled $3,400,000, $6,100,000, $1,200,000, $1,800,000, $1,300,000 and
$200,000, respectively, in principal amount. At December 31, 1999, the fol-
lowing repurchase agreements held in this joint account were fully collater-
alized by Federal Agency obligations.
90
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities $700,000,000 3.10% 01/03/2000 $ 700,000,000
----------------------------------------------------------------------------
Chase Manhattan Bank 340,000,000 3.15 01/03/2000 340,000,000
----------------------------------------------------------------------------
Morgan Stanley & Co. 501,500,000 3.25 01/03/2000 501,500,000
----------------------------------------------------------------------------
TOTAL JOINT REPURCHASE
AGREEMENT ACCOUNT II $1,541,500,000
----------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Funds participated in a $250,000,000 uncommitted, unsecured revolving
line of credit facility which was terminated on April 30, 1999. Under the
most restrictive arrangement, each Fund must have owned securities having a
market value in excess of 300% of the total bank borrowings. Effective April
30, 1999, the Funds now participate in a $250,000,000 uncommitted and a
$250,000,000 committed, unsecured revolving line of credit facility. Under
the most restrictive arrangement, each Fund must own securities having a mar-
ket value in excess of 400% of the total bank borrowings. These facilities
are to be used solely for temporary or emergency purposes. The interest rate
on borrowings is based on the Federal Funds rate. The committed facility also
requires a fee to be paid by the Funds based on the amount of the commitment
which has not been utilized. During the year ended December 31, 1999, the
Funds did not have any borrowings under any of these facilities.
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Growth and Income has reclas-
sified $4,107 and $38 from paid in capital and accumulated net realized loss,
respectively, to accumulated undistributed net investment income. CORE U.S.
Equity has reclassified $4,107 and $2,515 from paid in capital and accumu-
lated net realized gain, respectively, to accumulated undistributed net in-
vestment income. CORE Large Cap Growth has reclassified $4,108 from paid in
capital to accumulated undistributed net investment income. CORE Large Cap
Value has reclassified $4,850 from accumulated net realized gain to accumu-
lated undistributed net investment income. CORE Small Cap Equity has reclas-
sified $4,427 from paid in capital to accumulated undistributed net
investment income. Capital Growth has reclassified $4,107 and $1,448 from
paid in capital and accumulated net realized gain, respectively, to accumu-
lated undistributed net investment income. Mid Cap Value has reclassified
$5,250 and $11 to accumulated undistributed net investment income and accumu-
lated net realized loss, respectively, from paid in capital. CORE Interna-
tional Equity has reclassified $21,340 from accumulated undistributed net
investment income to accumulated net realized gain. International Equity has
reclassified $4,107 and $80,620 from paid in capital and accumulated net re-
alized gain, respectively, to accumulated undistributed net investment in-
come. Short Duration Government reclassified $5,554 from paid in capital to
accumulated undistributed net investment income. Global Income has reclassi-
fied $4,040 and $56,576 from paid in capital and accumulated undistributed
net investment income, respectively to accumulated net realized loss. These
reclassifications have no impact on the net asset values of each Fund and are
designed to present each Fund's capital accounts on a tax basis.
91
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Notes to Financial Statements (continued)
December 31, 1999
9. CHANGE IN INDEPENDENT AUDITORS
On October 26, 1999 the Board of Trustees of the Funds, upon the recommenda-
tion of the Board's audit committee, determined not to retain Arthur Andersen
LLP and approved a change of the Funds' independent auditors to Ernst & Young
LLP. For the fiscal years ended December 31, 1999 and December 31, 1998, Ar-
thur Andersen LLP's audit reports contained no adverse opinion or disclaimer
of opinion; nor were their reports qualified or modified as to uncertainty,
audit scope, or accounting principles. Further, there were no disagreements
between the Funds and Arthur Andersen LLP on accounting principles or prac-
tices, financial statement disclosure or audit scope or procedure, which if
not resolved to the satisfaction of Arthur Andersen LLP would have caused
them to make reference to the disagreement in their report.
10. OTHER MATTERS
On February 3, 2000, the Board of Trustees of the CORE International Equity
and Short Duration Government Funds approved liquidation and termination of
such Funds, subject to all annuity contract owners exchanging or being for-
mally substituted out of such Funds.
92
<PAGE>
PART C - OTHER INFORMATION
Item 23 Exhibits
--------
(a) (1) Agreement and Declaration of Trust dated September 16, 1997
is incorporated herein by reference to exhibit (1) of the
Registration Statement on Form N-1A (No. 333-35883 and 811-
08361) filed with the Securities and Exchange Commission
("Commission") on September 18, 1997 (Accession No.
0000950130-97-004157) (the "Initial Registration
Statement").
(2) Amendment No. 1 dated October 21, 1997 to Agreement and
Declaration of Trust is incorporated herein by reference to
exhibit (1)(b) of Pre-Effective Amendment No. 1 of the
Registration Statement on Form N-1A (No. 333-35883 and 811-
08361) filed with the Commission on December 23, 1997
(Accession No. 0000950130-97-005710) ("Pre-Effective
Amendment No. 1").
(3) Amendment No. 2 dated January 22, 1999 to Agreement and
Declaration of Trust is incorporated herein by reference to
exhibit (a)(3) of Post-Effective Amendment No. 2 of the
Registration Statement on Form N-1A (No. 333-35883 and 811-
08361) filed with the Commission on February 26, 1999
(Accession No. 0000950130-99-001075) ("Post-Effective
Amendment No. 2").
(4) Amendment No. 3 dated April 28, 1999 to Agreement and
Declaration of Trust is incorporated herein by reference to
exhibit (a)(4) of Post-Effective Amendment No. 3 of the
Registration Statement on Form N-1A (No. 333-35883 and 811-
08361) filed with the Commission on January 31, 2000
(Accession No. 0000950130-00-000305).
(5) Amendment No.4 dated February 3, 2000 to Agreement and
Declaration of Trust.
C-1
<PAGE>
(b) By-Laws of Registrant dated September 16, 1997 are
incorporated herein by reference to exhibit (2) of the
Initial Registration Statement.
(c) Not Applicable.
C-2
<PAGE>
(d) (1) Management Agreement among Registrant, Goldman Sachs Asset
Management and Goldman Sachs Asset Management International
on behalf of the Growth and Income, CORE U.S. Equity, CORE
Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity,
Capital Growth, International Equity, Global Income and High
Yield Funds is incorporated herein by reference to exhibit
(5) of Pre-Effective Amendment No. 1.
(2) Amended Annex A to Management Agreement among Registrant,
Goldman Sachs Asset Management and Goldman Sachs Asset
Management International on behalf of the Growth and Income,
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap
Equity, Mid Cap Equity, Capital Growth, International
Equity, Global Income, High Yield, CORE Large Cap Value,
CORE International Equity, Short Duration Government and
Internet Tollkeeper Funds.
(3) Management Agreement among Registrant and Goldman Sachs
Asset Management on behalf of the Goldman Sachs Conservative
Strategy Portfolio, Goldman Sachs Balanced Strategy
Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio, Goldman Sachs Growth Strategy Portfolio and
Goldman Sachs Aggressive Growth Strategy Portfolio, (the
"Asset Allocation Portfolios") is incorporated herein by
reference to exhibit (d)(3) of Post-Effective Amendment No.
2.
(e) Amended and Restated Distribution Agreement between Registrant
and Goldman, Sachs & Co. dated February 3, 2000.
(f) Not Applicable.
(g) (1) Custodian Agreement between Registrant and State Street
Bank and Trust Company dated December 31, 1997 is
incorporated herein by reference to exhibit (8) of Post-
Effective Amendment No. 1 of the Registration Statement
on Form N-1A (No. 333-35883 and 811-08361) filed with the
Commission on November 18, 1998 (Accession No.
0000950130-
C-3
<PAGE>
98-005579) ("Post-Effective Amendment No. 1").
(2) Amended Fee Schedule relating to Custodian Agreement between
Registrant and State Street Bank and Trust Company, dated
January 22, 1999 (Goldman Sachs CORE Large Cap Value Fund,
Goldman Sachs CORE International Equity Fund and Goldman
Sachs Short Duration Government Fund) is incorporated herein
by reference to exhibit (g)(2) of Post-Effective Amendment
No. 2.
(3) Amended Fee Schedule relating to Custodian Agreement between
Registrant and State Street Bank and Trust Company, dated
January 22, 1999 (Asset Allocation Portfolios) is
incorporated herein by reference to exhibit (g)(3) of Post-
Effective Amendment No. 2.
(4) Letter Agreement relating to Custodian Agreement between
Registrant and State Street Bank and Trust Company, dated
January 21, 2000 (Internet Tollkeeper Fund).
(h) (1) Transfer Agency Agreement between Registrant and Goldman,
Sachs & Co. dated October 21, 1997 is incorporated herein by
reference to exhibit (9)(a) of Pre-Effective Amendment No.
1.
(2) Amended Fee Schedule relating to Transfer Agency Agreement
between Registrant and Goldman, Sachs & Co., dated January
22, 1999 (Goldman Sachs CORE Large Cap Value Fund, Goldman
Sachs Core International Equity Fund and Goldman Sachs Short
Duration Government Fund) is incorporated herein by
reference to exhibit (h)(2) of Post-Effective Amendment No.
2.
(3) Amended Fee Schedule relating to Transfer Agency Agreement
between Registrant and Goldman, Sachs & Co., dated January
22, 1999 (Asset Allocation Portfolios) is incorporated
herein by reference to exhibit (h)(3) of Post-Effective
Amendment No. 2.
C-4
<PAGE>
(4) Letter Agreement relating to Transfer Agency Agreement
between Registrant and Goldman, Sachs & Co.(Internet
Tollkeeper Fund).
(5) Form of Participation Agreement is incorporated herein by
reference to Exhibit (9)(b) of Pre-Effective Amendment No.
1.
(i) (1) Opinion and consent of counsel relating to the Goldman Sachs
Growth and Income, Goldman Sachs CORE U.S. Equity, Goldman
Sachs CORE Large Cap Growth, Goldman Sachs CORE Small Cap
Equity, Goldman Sachs Capital Growth, Goldman Sachs Mid Cap
Equity, Goldman Sachs International Equity, Goldman Sachs
Global Income and Goldman Sachs High Yield Funds is
incorporated herein by reference to exhibit (10)(a) of Pre-
Effective Amendment No. 1.
(2) Opinion and consent of counsel relating to the Goldman Sachs
CORE Large Cap Value Fund, Goldman Sachs CORE International
Equity Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Conservative Strategy Portfolio, Goldman Sachs
Balanced Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio
and Goldman Sachs Aggressive Growth Strategy Portfolio is
incorporated herein by reference to exhibit (i)(2) of Post-
Effective Amendment No. 2.
(j) (1). Consent of Independent Auditors.
(j) (2). Consent of Independent Auditors.
(k) Not Applicable.
(l) Purchase Agreement between Registrant and The Goldman Sachs
Group, L.P. dated December 12, 1997 is incorporated herein by
reference to exhibit (13) of Pre-Effective Amendment No 1.
(m) Not Applicable.
(n) None.
C-5
<PAGE>
(o) Not Applicable.
(q) Powers of Attorney of Messrs. Bakhru, Grip, Perlowski, Ford,
McNulty, Shuch, Smart, Springer and Strubel and Mmes. McPherson
are incorporated herein by reference to Post-Effective Amendment
No. 1.
Item 24 Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 25 Indemnification
---------------
Article IV of the Agreement and Declaration of Trust of Goldman Sachs
Variable Insurance Trust, a Delaware business trust (incorporated herein by
reference as Exhibit 23(a)(1) hereto), provides for indemnification of the
Trustees and officers of the Trust, subject to certain limitations.
Each Management Agreement provides that the applicable Investment
Adviser will not be liable for any error of judgement or mistake of law of for
any loss suffered by a Fund, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Investment Adviser or from
reckless disregard by the Investment Adviser of its obligations and duties under
the Management Agreement. The Management Agreement relating to the Growth and
Income, CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap
Equity, Capital Growth, International Equity, Global Income and High Yield Funds
is incorporated herein by reference to Exhibit 23(d)(1). The Management
Agreement relating to the Asset Allocation Portfolios is incorporated herein by
reference to Exhibit 23(d)(3).
Section 9 of the Amended and Restated Distribution Agreement between
the Registrant and Goldman, Sachs & Co. (included herewith as Exhibit 23(e)) and
Section 7 of the Transfer Agency Agreement between the Registrant and Goldman,
Sachs & Co. (incorporated herein by reference as Exhibit 23(h)(1) provide that
the Registrant will indemnify Goldman, Sachs & Co. against certain
liabilities.
Mutual fund and trustees and officers liability policies purchased
jointly by the Registrant, Goldman Sachs Trust, Trust for Credit Unions and The
Commerce Funds insure
C-6
<PAGE>
such persons and their respective trustees, partners, officers and employees,
subject to the policies' coverage limits and exclusions and varying deductibles,
against loss resulting from claims by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
Item 26 Business and Other Connections of Investment Adviser
----------------------------------------------------
The business and other connections of the officers and Managing
Directors of Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and
Goldman Sachs Asset Management International are listed on their respective
Forms ADV as currently filed with the Commission (File Nos. 801-16048, 801-37591
and 801-38157, respectively) the text of which are hereby incorporated by
reference.
Item 27 Principal Underwriter
---------------------
(a) Goldman, Sachs & Co. or an affiliate or a division thereof
currently serves as investment adviser and distributor of the units of Trust for
Credit Unions, for shares of Goldman Sachs Trust and for shares of Goldman Sachs
Variable Insurance Trust. Goldman, Sachs & Co. or a division thereof currently
serves as administrator and distributor of the units or shares of The Commerce
Funds.
C-7
<PAGE>
(b) Set forth below is certain information pertaining to the Managing
Directors of Goldman, Sachs & Co., the Registrant's principal underwriter, who
are members of Goldman, Sachs & Co.'s Management Committee. None of the members
of the Management committee holds a position or office with the Registrant,
except John P. McNulty who is a trustee of the Registrant.
GOLDMAN SACHS MANAGEMENT COMMITTEE
Name and Principal
Business Address Position
- ------------------ --------
Henry M. Paulson, Jr. (1) Chairman and Chief
Executive Officer
Robert J. Hurst (1) Vice Chairman
John A. Thain (1)(3) President and Co-Chief
Operating Officer
John L. Thornton (3) President and Co-Chief
Operating Officer
Lloyd C. Blankfein (1) Managing Director
Richard A. Friedman (1) Managing Director
Steven M. Heller (1) Managing Director
Robert S. Kaplan (1) Managing Director
Robert J. Katz (1) Managing Director
John P. McNulty (2) Managing Director
Michael P. Mortara (1) Managing Director
Daniel M. Neidich (1) Managing Director
Robin Neustein (2) Managing Director
Mark Schwartz (4) Managing Director
Robert K. Steel (2) Managing Director
Leslie C. Tortora (2) Managing Director
Patrick J. Ward (3) Managing Director
C-8
<PAGE>
Name and Principal
Business Address Principal
- ------------------- ---------
Gregory K. Palm (1) Counsel and Managing Director
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(4) ARK Mori Building, 12-32 Akasaka I-Chome Minato-KY, Tokyo 107-6019, Japan
(c) Not applicable.
Item 28 Location of Accounts and Records
--------------------------------
The Declaration of Trust, By-laws and minute books of the Registrant
and certain investment adviser records are in the physical possession of Goldman
Sachs Asset Management, 32 Old Slip, New York, New York 10005. All other
accounts, books and other documents required to be maintained under Section
31(a) of the Investment Company Act of 1940 and the Rule promulgated thereunder
are in the physical possession of State Street Bank and Trust Company, P.O. Box
1713, Boston, Massachusetts 02105 except for certain transfer agency and
underwriting records which are maintained by Goldman, Sachs & Co., 4900 Sears
Tower, Chicago, Illinois 60606.
Item 29 Management Services
-------------------
Not Applicable.
Item 30 Undertakings
------------
Not Applicable.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 4
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 4 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the 13th day of April, 2000
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Registrant
By: * Douglas C. Grip
----------------------------
Douglas C. Grip
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 to Registrant's Registration Statement has been signed
by the following persons in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
*Ashok N. Bakhru Chairman and April 13, 2000
- ------------------------ Trustee
Ashok N. Bakhru
*Douglas C. Grip President and April 13, 2000
- ------------------------ Trustee
Douglas C. Grip
*John M. Perlowski Principal Accounting April 13, 2000
- ------------------------ Officer and Principal
John M. Perlowski Financial Officer
*David B. Ford Trustee April 13, 2000
- ------------------------
David B. Ford
*John P. McNulty Trustee April 13, 2000
- ------------------------
John P. McNulty
*Mary P. McPherson Trustee April 13, 2000
- ------------------------
Mary P. McPherson
*Alan A. Shuch Trustee April 13, 2000
- ------------------------
Alan A. Shuch
*Jackson W. Smart, Jr. Trustee April 13, 2000
- ------------------------
Jackson W. Smart, Jr.
*William H. Springer Trustee April 13, 2000
- ------------------------
William H. Springer
C-10
<PAGE>
*Richard P. Strubel Trustee April 13, 2000
- ------------------------
Richard P. Strubel
*By: /s/ Michael J. Richman
-------------------------
Michael J. Richman
Attorney-in-Fact
*Pursuant to a power of attorney previously filed.
C-11
<PAGE>
EXHIBIT INDEX
(a)(5) Amendment No. 4 dated February 3, 2000 to Agreement and Declaration of
Trust.
(d)(2) Amended Annex A to Management Agreement among Registrant, Goldman Sachs
Asset Management and Goldman Sachs Asset Management International on
behalf of the Growth and Income, CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, Mid Cap Equity, Capital Growth,
International Equity, Global Income, High Yield, CORE Large Cap Value,
CORE International Equity, Short Duration Government and Internet
Tollkeeper Funds.
(e) Amended and Restated Distribution Agreement between Registrant and
Goldman, Sachs & Co. dated February 3, 2000.
(g)(4) Letter agreement relating to Custodian Agreement between Registrant and
State Street Bank and Trust Company, dated January 21, 2000 (Internet
Tollkeeper Fund).
(h)(4) Letter agreement relating to Transfer Agency Agreement between
Registrant and Goldman Sachs & Co. (Internet Tollkeeper Fund).
(j)(1) Consent of Independent Auditors.
(j)(2) Consent of Independent Auditors.
<PAGE>
EXHIBIT 99(a)(5)
GOLDMAN SACHS VARIABLE INSURANCE TRUST
AMENDMENT NO. 4 TO AGREEMENT
AND DECLARATION OF TRUST
The undersigned Secretary/Assistant Secretary of Goldman Sachs Variable
Insurance Trust hereby certifies that the following resolutions were duly
adopted by the Board of Trustees of said Trust on February 3, 2000:
RESOLVED, that the Agreement and Declaration of Trust of Goldman Sachs
Variable Insurance Trust dated September 16, 1997 (the "Declaration") be amended
as contemplated in Article V, Section 1 thereof by establishing and designating
an additional series of shares of beneficial interest of Goldman Sachs Internet
Tollkeeper Fund (the "Fund"), such series to have the relative rights and
preferences set forth in sections 2 through 6 of the Declaration and the
prospectus offering such class of shares; and
FURTHER RESOLVED, that the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer and any Assistant Treasurer of the Trust
be, and each of them hereby is, severally authorized to execute an instrument in
writing effecting the aforesaid amendment and to cause the same to be filed
wherever in the discretion of such officer such filing is appropriate.
As of February 3, 2000 /s/ Michael J. Richman
-----------------------------
Michael J. Richman
Title: Secretary
<PAGE>
EXHIBIT 99(d)(2)
Annex A
February 3, 2000
The division of investment adviser and administrator services and the
compensation for such services shall be as follows:
Goldman Sachs Asset Management Annual Rate (%)
- ------------------------------ ---------------
Goldman Sachs High Yield Fund 0.70
Goldman Sachs Growth and Income Fund 0.75
Goldman Sachs CORE Large Cap Growth Fund 0.70
Goldman Sachs Mid Cap Value Fund 0.80
Goldman Sachs CORE Small Cap Equity Fund 0.75
Goldman Sachs CORE U.S. Equity Fund 0.70
Goldman Sachs Capital Growth Fund 0.75
Goldman Sachs CORE Large Cap Value Fund 0.70
Goldman Sachs CORE International Equity Fund 0.85
Goldman Sachs Short Duration Government Fund 0.55
Goldman Sachs Internet Tollkeeper Fund 1.00
Goldman Sachs Asset Management International
- --------------------------------------------
Goldman Sachs Global Income Fund 0.90
Goldman Sachs International Equity Fund 1.00
<PAGE>
EXHIBIT E
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Amended and Restated Distribution Agreement
February 3, 2000
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Goldman Sachs Variable Insurance Trust (the
"Trust"), an open-end management investment company organized as a business
-----
trust under the laws of the State of Delaware, and consisting of one or more
separate series, has appointed you, the "Distributor," and that you shall be the
-----------
exclusive distributor in connection with the offering and sale of the shares of
beneficial interest, no par value per share (the "Shares"), corresponding to
------
each of the series of the Trust listed in Exhibit A, as the same may be
---------
supplemented from time to time (each such series, a "Fund"). Each Fund may
----
offer one or more classes of its shares (each a "Class") which Classes shall
-----
have such relative rights and conditions and shall be sold in the manner set
forth from time to time in the Trust's Registration Statements, as defined
below. The organization, administration and policies of each Fund are described
in its respective Prospectuses and SAIs (as those terms are defined below).
(This letter, as amended from time to time, shall be referred to hereinafter as
the "Agreement".)
---------
1. Definitions.
-----------
(a) The terms which follow, when used in this Agreement, shall have
the meanings indicated.
"Effective Date" shall mean the date that any Registration Statement
--------------
or any post-effective amendment thereto becomes effective.
"Preliminary Prospectus" shall mean any preliminary prospectus
----------------------
relating to the Shares of a Fund or Funds or one or more Classes included
in any Registration Statement or filed with the Securities and Exchange
Commission (the "Commission") pursuant to Rule 497(a).
----------
"Prospectus" shall mean any prospectus relating to the Shares of a
----------
Fund or Funds or one or more Classes, filed with the Commission pursuant to
Rule 497 or, if no filing pursuant to Rule 497 is required, the form of
final prospectus relating thereto included in
<PAGE>
any Registration Statement, in each case together with any amendments or
supplements thereto.
"Registration Statement" shall mean any registration statement on Form
----------------------
N-1A relating to the Shares of a Fund, including all exhibits thereto, as
of the Effective Date of the most recent post-effective amendment thereto.
The registration statements of the Trust may be separately filed with the
Commission according to its fixed income, equity and money market fund
offerings.
"Rule 497" refers to such rule (or any successor rule or rules) under
--------
the Securities Act (as defined in Section 2 below).
"SAI" shall mean any statement of additional information relating to
---
the Shares of a Fund or Funds or one or more Classes, filed with the
Commission pursuant to Rule 497 or, if no filing pursuant to Rule 497 is
required, the final statement of additional information included in any
Registration Statement.
The "Initial Acceptance Date" of any Fund shall mean the first date on
-----------------------
which the Trust sells Shares of such Fund pursuant to any Registration
Statement.
References in this Agreement to "Rules and Regulations" shall be
---------------------
deemed to be references to such rules and regulations as then in effect,
and references to this Agreement and the Fund Agreements (as defined in
Section 2 below), shall be deemed to be references to such agreements as
then in effect.
2. Representations and Warranties. The Trust represents and warrants to and
------------------------------
agrees with you, for your benefit, as set forth below in this Section 2.
Each of the representations, warranties and agreements made in this Section
2 shall be deemed made on the date hereof, on the date of any filing of any
Prospectus pursuant to Rule 497 and any Effective Date after the date
hereof, with the same effect as if made on each such date.
(a) The Trust meets the requirements for use of Form N-1A under the
Securities Act of 1933, as amended (the "Securities Act"), the Investment
--------------
Company Act of 1940, as amended (the "Investment Company Act"), and the
----------------------
Rules and Regulations of the Commission under each such Act and in respect
of said form (or of such successor form as the Commission may adopt). The
Trust has filed with the Commission an initial Registration Statement (File
Number 333-35883) on Form N-1A with respect to an indefinite number of
Shares of the Funds and is duly registered as an open-end management
investment company. The Registration Statement has become effective and no
stop order suspending its effectiveness has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission.
-2-
<PAGE>
(b) The Trust's notification of registration on Form N-8A (as amended)
complies with the applicable requirements of the Investment Company Act and
the Rules and Regulations thereunder.
(c) Each Registration Statement, Prospectus and SAI conform, and any
further amendments or supplements to any Registration Statement, Prospectus
or SAI will conform, in all material respects, with the Securities Act and
Investment Company Act and the Rules and Regulations thereunder; the
Prospectuses and the SAIs do not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and, on each Effective Date, the Registration
Statements did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; provided,
--------
however, that the Trust makes no representations or warranties as to the
-------
information contained in or omitted from any Registration Statement,
Prospectus or SAI in reliance upon and in conformity with information
furnished in writing to the Trust by you (with respect to information
relating solely to your role as distributor of the Shares of the Funds)
expressly for use therein.
(d) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Securities Act and the Rules and
Regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Trust by you (with respect to
information relating solely to your role as the exclusive distributor of
the Shares of the Funds) expressly for use therein.
(e) The Trust has been duly created and is lawfully and validly
existing as a business trust under the laws of the State of Delaware, and
has, on the date hereof, and will have, on and after the date hereof, full
power and authority to own its properties and conduct its business as
described in each Registration Statement, Prospectus and SAI, and is duly
qualified to do business under the laws of each jurisdiction which requires
such qualification wherein it owns or leases material properties or
conducts material business.
(f) The Trust's authorized capitalization is as set forth in the
Registration Statements. Issuance of the Shares of the Funds as
contemplated by this Agreement and by each Prospectus and SAI has been duly
and validly authorized, and the Shares of the Funds, when issued and paid
for as contemplated hereby and thereby, will be fully-paid and, except as
contemplated by the Prospectus and SAI, nonassessable and will conform to
the
-3-
<PAGE>
description thereof contained in the corresponding Prospectus and SAI. The
holders of outstanding shares of each Fund are not entitled to preemptive
or other rights to subscribe for the Shares of any Fund, other than as
contemplated by the Prospectus and SAI relating to each Fund.
(g) This Agreement has been duly authorized, executed and delivered by
the Trust.
(h) On or prior to the Initial Acceptance Date, all of the agreements
described in each Prospectus and SAI relating to the Fund or Funds whose
Shares are first being sold on such date (collectively, the "Fund
----
Agreements") will have been duly authorized, executed and delivered by the
----------
Trust, and will comply in all material respects with the Investment Company
Act and the Rules and Regulations thereunder.
(i) The Fund Agreements constitute or will constitute, on and after
the Initial Acceptance Date, assuming due authorization, execution and
delivery by the parties thereto other than the Trust, valid and legally
binding instruments, enforceable in accordance with their respective terms,
subject, as to enforceability, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(j) No consent, approval, authorization or order of any court or
governmental agency or body is or shall be required, as the case may be,
for the consummation from time to time of the transactions contemplated by
this Agreement and the Fund Agreements, except such as may be required (i)
under the Securities Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Investment Company Act, the Rules and Regulations
------------
under each of the foregoing or the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") (any of which that
----
were required before offers were made will have been obtained before such
offers were made and all of which will have been obtained, with respect to
each Fund, by the Effective Date of the post-effective amendment relating
to the Fund, except for those which become required under such acts or
rules or any other law or regulation after the Fund's Effective Date but
that were not required before such Effective Date, all of which shall be
obtained in a timely manner) or (ii) state securities laws of any
jurisdiction in connection with the issuance, offer or redemption of the
Shares of each Fund by the Trust.
(k) The operations and activities of the Trust and each Fund as
contemplated by the Prospectuses and the SAIs, the performance by the Trust
and each Fund of this Agreement and the Fund Agreements, the making of the
offer or the sale of Shares of each Fund and consummation from time to time
of such sales, the redemption of Shares of each Fund, or any other
transactions contemplated herein, in the Fund Agreements, in the
Prospectuses or in the SAIs, will not conflict with, result in a breach of,
or constitute a default under, the declaration of trust or the Trust's By-
laws or, in any material respect, the
-4-
<PAGE>
terms of any other agreement or instrument to which the Trust is a party or
by which it is bound, or any order or regulation applicable to the Trust of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Trust.
(l) There is not pending, or to the best knowledge of the Trust,
threatened, any action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator to which the Trust is (or, to
the best knowledge of the Trust, is threatened to be) a party, of a
character required to be described in any Registration Statement,
Prospectus or SAI which is not described as required.
(m) There is no contract or other document of a character required to
be described in any Registration Statement, Prospectus or SAI, or to be
filed as an exhibit, which is not described or filed as required.
(n) Except as stated or contemplated in the Registration Statements,
Prospectuses and SAIs, (i) the Trust has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions,
whether or not in the ordinary course of business, that are material to the
Trust, (ii) there has not been any material adverse change, or, any
development involving a prospective material adverse change, in the
condition (financial or other) of the Trust, (iii) there has been no
dividend or distribution paid or declared in respect of the Trust, and (iv)
the Trust has not incurred any indebtedness for borrowed money.
(o) Each Fund will elect or has elected to be treated as a regulated
investment company as defined in Section 851(a) of the Internal Revenue
Code of 1986 for its first taxable year and will operate so as to qualify
as such in its current and all subsequent taxable years.
(p) Except as stated or contemplated in any Prospectus or SAI, the
Trust owns all of its assets free and clear in all material respects of all
liens, security interests, pledges, mortgages, charges and other
encumbrances or defects.
3. Sales of the Shares; Other Services as Distributor.
--------------------------------------------------
(a) The Trust hereby grants to you exclusive authority to distribute
the Trust shares to insurance companies ("Participating Insurance
-----------------------
Companies") and their separate accounts ("Participating Accounts") to fund
----------------------
certain variable annuity contracts or variable life insurance policies (the
"Contracts") and to other persons or plans ("Participating Plans") that
--------- -------------------
qualify to purchase shares of the Trust under Section 817(h) of the
Internal Revenue Code and the regulations thereunder without impairing the
ability of the Participating Accounts to consider the portfolio investments
of the Trust as constituting investments of such Accounts for the purpose
of satisfying the diversification requirements of Section 817(h) (all such
persons being referred to herein as "Qualified Persons"). Such
-----------------
-5-
<PAGE>
authority shall include the right to select which Series or Classes of
Shares shall be made available to any Qualified Person. Such Shares shall
be made available to a Qualified Person (each purchasing Qualified Person
being referred to herein as a "Participating Investor") consistent with
----------------------
this Agreement, with the relevant Prospectus, and with the terms and
conditions of any exemptive order obtained by the Trust from the SEC or SEC
rule or regulation relied upon by the Trust and, in the case of a
Participating Insurance Company or a Participating Plan owning more than
10% of the Trust's Shares, pursuant to an agreement containing provisions
consistent with the form of Participation Agreement attached hereto. You
are hereby authorized to enter into Participation Agreements with Qualified
Persons, and in connection therewith to make such changes to the form of
Participation Agreement attached hereto as you deem appropriate in the
circumstances, provided that the executed agreement is consistent with the
form of Participation Agreement attached hereto and with any other
Participation Agreements then in effect. You shall have the right to
suspend or terminate the offering of Shares to any Participating Investor
subject to any applicable conditions in the Participation Agreement with
such investor. In any event, the Trust reserves the right in its sole
discretion to refuse to accept a request for the purchase of Shares.
(b) You acknowledge that the only information provided to you by the
Trust is that contained in each Registration Statement, Prospectus and SAI.
Neither you nor any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in
the relevant Registration Statement, Prospectus and SAI and any sales
literature approved by appropriate representatives of the Trust. You may
undertake or arrange for such advertising and promotion as you believe is
reasonable in connection with the solicitation of orders to purchase Shares
of a Fund; provided, however, that you will provide the Trust with and
-------- -------
obtain the Trust's approval of copies of any advertising and promotional
materials approved, produced or used by you prior to their use (unless
otherwise agreed by the parties hereto). You will file such materials with
the Commission and the NASD as may be required by the Exchange Act and the
Investment Company Act and the Rules and Regulations thereunder and by the
rules of the NASD.
(c) You agree to perform such services as are described in each
Registration Statement, Prospectus and SAI as to be performed by the
Distributor including, without limitation, distributing Account Information
Forms.
(d) All of your activities as distributor of the Shares of the Funds
shall comply, in all material respects, with all applicable laws, Rules and
Regulations, including, without limitation, all rules and regulations made
or adopted by the Commission or by any securities association registered
under the Exchange Act, including the NASD, as in effect from time to time.
-6-
<PAGE>
4. Offering by the Distributor.
---------------------------
(a) You will act as agent for the Trust in the distribution of Shares
of the Funds and you agree to use your best efforts to offer and sell
Shares of the Funds as provided for in Section 3 of this Agreement. You
may also subscribe for Shares of a Fund as principal for resale to
Participating Investors, provided you qualify as a Qualified Person. You
shall devote reasonable time and effort to effect sales of Shares of the
Funds, but you shall not be obligated to sell any specific number of
Shares. Nothing contained herein shall prevent you from entering into like
distribution arrangements with other investment companies. The Trust may
appoint Participating Insurance Companies that have entered into
Participation Agreements as an agent of the Trust for the limited purpose
of receiving purchase and redemption requests on behalf of their
Participating Account (but not with respect to any Trust shares that may be
held in the general account of such Company) for Shares of those Series or
Classes made available thereunder, based on allocations of amounts to the
Participating Account or subaccounts thereof under the Contracts, other
transactions relating to the Contracts or the Participating Account and
customary processing of the Contracts.
(b) The Trust shall redeem Shares of any Fund presented to it by
Participating Investors at the price determined in accordance with, and in
the manner set forth in, the Prospectus for such Fund and the Participation
Agreement with such investor, as applicable.
(c) Unless you are otherwise notified by the Trust, any right granted
to you to accept orders for Shares of any Fund or to make sales on behalf
of the Trust or to purchase Shares of any Fund for resale will not apply to
(i) Shares issued in connection with the merger or consolidation of any
other investment company with the Trust or its acquisition, by purchase or
otherwise, of all or substantially all of the assets of any investment
company or substantially all the outstanding securities of any such
company, and (ii) Shares that may be offered by the Trust to shareholders
by virtue of their being such shareholders.
5. Compensation.
------------
(a) It is not anticipated that any Shares will be subject to a sales
charge or a contingent deferred sales charge. In the event that any Shares
of a Class are subject to a sales charge or a contingent deferred sales
charge, you will be entitled to receive that portion of the sales charges
or contingent deferred sales charge applicable to sales of Shares of a
Class as set forth in the relevant Prospectus.
(b) The Trust may enter into Plans of Distribution pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1 Plans") with respect to certain
classes of certain Funds. The Trust shall pay to you as distributor of
such Classes the compensation pursuant to the Rule 12b-1 Plans as shall be
set forth from time to time in the Prospectuses and SAIs and provided for
under the Rule 12b-1 Plan.
-7-
<PAGE>
(c) The Trust shall not be obligated to pay you compensation with
respect to your distribution of Shares that are not subject to a sales
charge, contingent deferred sales charge or Rule 12b-1 Plan. The amounts
payable as compensation pursuant to this Section 5 shall be subject to the
limitations in Section 2830 of the Conduct Rules of the NASD, to the extent
applicable to the Trust.
6. Undertakings. The Trust agrees with you, for your benefit, that:
------------
(a) The Trust shall sell Shares of the Funds in accordance with the
terms of each Participation Agreement or otherwise so long as it has such
Shares available for sale and, in the case of sales covered by any
Participation Agreement, no suspensions or terminations thereunder are in
effect, and shall cause the transfer agent (the "Transfer Agent") to record
--------------
on its books the ownership of such Shares registered in such names and
amounts as you have requested in writing or other means, as promptly as
practicable in accordance with the terms and conditions of any
Participation Agreements and the relevant Prospectus. The Trust will make
such filings under the Investment Company Act with, and pay such fees to,
the Commission as are necessary or required to register Shares of any Fund
sold by you on behalf of the Trust. Prior to the termination of this
Agreement, the Trust will not file any amendment to any Registration
Statement or amendment or supplement to any Prospectus or SAI (whether
pursuant to the Securities Act, the Investment Company Act, or otherwise)
without prior notice to you; provided, however, that nothing contained in
-------- -------
this Agreement shall in any way limit the Trust's right to file such
amendments to any Registration Statement, or amendments or supplements to
any Prospectus or SAI as the Trust may deem advisable, such right being in
all respects absolute and unconditional, it being understood that this
proviso shall not relieve the Trust of its obligation to give prior notice
of any such amendment or supplement to you. Subject to the foregoing
sentence, if the filing of any Prospectus or SAI, as the case may be,
contained in any Registration Statement at the relevant Effective Date, or
any amendment or supplement thereto, is required under Rule 497, the Trust
will cause such Prospectus or SAI, and any amendment or supplement thereto,
to be filed with the Commission pursuant to the applicable paragraph of
Rule 497 within the time period prescribed and will, if requested, provide
evidence satisfactory to you of such timely filing. The Trust will
promptly advise you (i) when such Prospectus or SAI shall have been filed
(if required) with the Commission pursuant to Rule 497, (ii) when, prior to
termination of this Agreement, any amendment to any Registration Statement
shall have been filed or become effective, (iii) of any request by the
Commission for any amendment of any Registration Statement or amendment or
supplement to any Prospectus or SAI or for any additional information
relating to or that could affect disclosure in any of the foregoing, (iv)
of the issuance by the Commission of any order suspending the effectiveness
of any Registration Statement, or suspending the registration of the Trust
under the Investment Company Act, or the institution or (to the best
knowledge of the Trust) threatening of any proceeding for that purpose, and
(v) of the receipt by the Trust of any notification with respect to the
suspension of the qualification of the offer or sale of
-8-
<PAGE>
Shares of a Fund in any jurisdiction or the initiation or (to the best
knowledge of the Trust) threatening of any proceeding for such purpose. The
Trust will use its best efforts to prevent the issuance of any such order
or suspension and, if issued, to obtain as soon as possible the withdrawal
or suspension thereof.
(b) If, at any time when a Prospectus or SAI is required to be
delivered under the Securities Act, any event occurs as a result of which
such Prospectus or SAI would include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made not
misleading, or if it shall be necessary to amend any Registration Statement
or amend or supplement any Prospectus or SAI to comply with the Securities
Act, the Investment Company Act or the Rules and Regulations thereunder,
the Trust will notify you promptly of any such circumstance and promptly
will prepare and file with the Commission, subject to the third sentence of
Section 6(a), an amendment or supplement which will correct such statement
or omission or effect such compliance.
(c) As soon as practicable (giving effect to the normal periodic
reporting requirements under the Investment Company Act and the Rules and
Regulations thereunder), the Trust will make generally available to its
shareholders and, subject to Section 8 of this Agreement, to you, a report
containing the financial statements required to be included in such reports
under Section 30(d) of the Investment Company Act and Rule 30d-1
thereunder.
(d) Subject to Section 8 of this Agreement, the Trust will furnish to
you as many conformed copies of the Registration Statements including
exhibits thereto, on each Effective Date, as you may reasonably request for
yourself and, so long as delivery of a Prospectus or SAI by you may be
required by law, the number of copies of each Prospectus and each SAI as
you may reasonably request for yourself.
(e) Consistent with the practice of mutual funds whose shares are made
available only to Qualified Persons, the Trust shall undertake to comply
with the terms and conditions of relevant exemptions from the securities
laws of such of the 50 states of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Territory of Guam and such
other jurisdictions as you and the Trust may approve. To the extent that
exemptions from securities laws in any such jurisdiction are not available
to the Trust and its Shares, the Trust shall use its best efforts to comply
with the registration, notification or qualification requirements of such
laws in order for such Shares to be lawfully sold in such jurisdiction, and
will maintain any such registration, notification or qualifications in
effect as long as may be reasonably requested by you, provided that the
Trust shall not be required in connection herewith or as a condition hereto
to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction. You shall furnish such information
and other material relating to your affairs and activities as may be
required by the Trust in connection with such qualifications.
-9-
<PAGE>
(f) The Trust shall keep you fully informed with respect to its
affairs and, subject to Section 8 of this Agreement, the Trust, if so
requested, will furnish to you, as soon as they are available, copies of
all reports, communications and financial statements sent by the Trust to
its shareholders or filed by, or on behalf of, the Trust with the
Commission.
(g) The Trust, if so requested, shall furnish to you a copy of the
opinion of counsel for the Trust to the effect that the Shares issued by
the Trust are legally issued, fully paid and nonassessable. The Trust
further agrees that if, in connection with the filing of any post-effective
amendment to any Registration Statement after the date of this Agreement:
(i) a change is made to the statements under the caption
"Shares of the Fund" in any Prospectus or SAI that is deemed material
by you, the Trust, if so requested, shall furnish to you an opinion of
counsel for the Trust, dated the date of such post-effective
amendment, to the effect of Section 2 (to the extent it relates to the
description of the Shares);
(ii) the Fund Agreements are amended or modified in any manner,
the Trust, if so requested, shall furnish to you an opinion of counsel
for the Trust, dated the date of such post-effective amendment; or
(iii) any change is made to the statements under the caption
"Taxation" in any Prospectus or SAI, the Trust, if so requested, shall
furnish to you an opinion of counsel for the Trust, dated the date of
such post-effective amendment.
Any opinion or statement furnished pursuant to this Section 6(g) shall be
modified as necessary to relate to this Agreement and the Fund Agreements
and the Rules and Regulations as then in effect.
(h) The Trust, if so requested, shall furnish to you on each
subsequent Effective Date with respect to an amendment of a Registration
Statement which first includes certified financial statements for the
preceding fiscal year, in respect of a Fund, a copy of the report of the
Trust's independent public accountants with respect to the financial
statements and selected per share data and ratios relating to such Fund,
addressed to you. The Trust further agrees that the Trust, if so
requested, shall furnish to you (i) on each date on which the Trust,
pursuant to the preceding sentence, furnishes to you a report of its
independent public accountants, a certificate of its treasurer or assistant
treasurer in a form reasonably satisfactory to you describing in reasonable
detail how the figures included under the captions "Portfolio Transactions"
and "Performance Information" (or similar captions) in the Prospectus or
SAI of such Fund and the figures relating to the aggregate amounts of
remuneration paid to officers, trustees and members of the advisory board
and affiliated persons thereof (as required by Section 30(d)(5) of the
Investment Company Act) were
-10-
<PAGE>
calculated and confirming that such calculations are in conformity with the
Rules and Regulations under the Investment Company Act and (ii) on each
date the Trust files with the Commission the Trust's required semi-annual
financial statements, a certificate of its treasurer or assistant treasurer
in a form reasonably satisfactory to you, describing the manner in which
such financial statements were prepared and confirming that such financial
statements have been prepared in conformity with the Rules and Regulations
under the Investment Company Act.
7. Conditions to Your Obligations as Distributor and Principal Underwriter.
-----------------------------------------------------------------------
Your obligations as distributor of the Shares of the Funds shall be subject
to the accuracy of the representations and warranties on the part of the
Trust contained herein as of the dates when made or deemed to have been
made, to the accuracy in all material respects of the statements made in
any certificates, letters or opinions delivered pursuant to the provisions
of Sections 6 or 7 of this Agreement, to the performance by the Trust of
its obligations hereunder and to the following additional conditions:
(a) If filing of any Prospectus or SAI, or any amendment or supplement
to any Prospectus or SAI, or any other document is required pursuant to any
applicable provision of Rule 497, such Prospectus or SAI, or any such
amendment or supplement and other document will be filed in the manner and
within the time period required by the applicable provision of Rule 497;
and no order suspending the effectiveness of the amendment shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the best knowledge of the Trust, threatened and the Trust shall have
complied with any request of the Commission for additional information (to
be included in the relevant Registration Statement, Prospectus, SAI or as
the Commission otherwise shall have requested).
(b) At the Initial Acceptance Date with respect to each Fund, you
shall have received from counsel to the Distributor, if so requested, such
opinion or opinions, dated the Initial Acceptance Date, with respect to the
issuance and sale of the Shares, the relevant Registration Statement,
Prospectus and SAI and other related matters as you may reasonably require,
and the Trust shall have furnished to such counsel such documents as they
may request for the purpose of enabling them to pass upon such matters.
(c) There shall not have been any change, or any development involving
a prospective change, in or affecting the Trust the effect of which in any
case is, in your good faith judgment, so material and adverse as to make it
impractical or inadvisable to proceed with the offering of Shares of the
Funds as contemplated by this Agreement.
(d) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; (iii) the outbreak or escalation of
hostilities involving the United States or the declaration of a national
-11-
<PAGE>
emergency or war if the effect of any such event specified in this Clause
(iii) in your judgment makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares of a Fund on the
terms and in the manner contemplated in any Prospectus.
(e) The Trust shall have furnished to you such further information,
certificates and documents as you may have reasonably requested.
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions, certificates or letters mentioned above or
elsewhere in this Agreement shall not be in all material respects
reasonably satisfactory in form and substance to you, this Agreement and
all your obligations hereunder may be cancelled by you. In the event of
such cancellation, the Trust shall remain liable for the expenses set forth
in Section 8.
8. Expenses.
--------
(a) The Trust will pay (or will enter into arrangements, including
Participation Agreements, providing that parties other than you will pay)
all fees and expenses:
(1) in connection with the preparation, setting in type and
filing of the Registration Statements (including Prospectuses and
SAIs) under the Securities Act or the Investment Company Act, or
both, and any amendments or supplements thereto that may be made
from time to time;
(2) in connection with the exemption, registration,
notification and qualification of Shares of the Funds for sale in
the various jurisdictions in accordance with Section 6(c) of this
Agreement (including registering the Trust as a broker or dealer
or any officer of the Trust or other person as agent or salesman
of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any
notice, proxy statement, report, Prospectus, SAI or other
communication to shareholders in their capacity as such;
(4) of preparing, setting in type, printing and mailing
Prospectuses annually, and any supplements thereto, to existing
shareholders;
(5) in connection with the issue and transfer of Shares of
the Funds resulting from the acceptance by you of orders to
purchase Shares of the Funds placed with you by investors,
including the expenses of printing and mailing confirmations of
such purchase orders and the expenses of
-12-
<PAGE>
printing and mailing a Prospectus included with the confirmation
of such orders and, if requested by the purchaser, an SAI;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the
portion allocated to you in this Section 8;
(8) of wiring funds in payment of Share purchases or in
satisfaction of redemption or repurchase requests, unless such
expenses are paid for by the investor or shareholder who
initiates the transaction;
(9) of the cost of printing and postage of business reply
envelopes sent to shareholders;
(10) of one or more CRT terminals connected with the
computer facilities of the Transfer Agent other than the portion
allocated to you in this Section 8;
(11) permitted to be paid or assumed by any Fund or Funds or
any Class thereof pursuant to (a) a Rule 12b-1 Plan adopted by
such Fund or Funds in conformity with the requirements of Rule
12b-1 under the Investment Company Act ("Rule 12b-1") or any
----------
successor rule, notwithstanding any other provision to the
contrary herein or (b) any other plan adopted by a Fund providing
for account administration or shareholder liaison services (a
"Service Plan");
-------------
(12) of the expense of setting in type, printing and postage
of any periodic newsletter to shareholders other than the portion
allocated to you in this Section 8; and
(13) of the salaries and overhead of persons employed by you
as shareholder representatives other than the portion allocated
to you in this Section 8.
(b) Except as provided in any Rule 12b-1 Plan or Service Plan,
you shall pay or arrange for the payment of all fees and
expenses:
(1) of printing and distributing any Prospectuses or
reports prepared for your use in connection with the offering of
Shares of the Funds to the extent not paid for by the Trust or
any Participating Insurance Company under a Participation
Agreement;
-13-
<PAGE>
(2) of preparing, setting in type, printing and mailing any
other literature used by you in connection with the offering of
Shares of the Funds to the extent not paid for by the Trust or
any Participating Insurance Company under a Participation
Agreement;
(3) of advertising in connection with the offering of
Shares of the Funds to the extent not paid for by the Trust or
any Participating Insurance Company under a Participation
Agreement;
(4) incurred in connection with your registration as a
broker or dealer or the registration or qualification of your
officers, partners, directors, agents or representatives under
Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines
allocated to you on the basis of use by investors (but not
shareholders) who request information or Prospectuses;
(6) of that portion of the expense of setting in type,
printing and postage of any periodic newsletter to shareholders
attributable to promotional material included in such newsletter
at your request concerning investment companies other than the
Trust or concerning the Trust to the extent you are required to
assume the expense thereof pursuant to this Section 8, except
such material which is limited to information, such as listings
of other investment companies and their investment objectives,
given in connection with the exchange privilege as from time to
time described in the Prospectuses;
(7) of that portion of the salaries and overhead of persons
employed by you as shareholder representatives attributable to
the time spent by such persons in responding to requests from
investors, but not shareholders, for information about the Trust;
(8) of any activity which is primarily intended to result
in the sale of Shares of any Class of a Fund, unless a 12b-1 Plan
shall be in effect which provides that shares of such Classes
shall bear some or all of such expenses, in which case such Class
shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected
with the computer facilities of the Transfer Agent attributable
to your use of such terminal(s) to gain access to such of the
Transfer Agent's records as also serve as your records.
-14-
<PAGE>
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually
agreed upon from time to time, which procedures or formulae shall to
the extent practicable reflect studies of relevant empirical data.
9. Indemnification and Contribution.
--------------------------------
(a) The Trust will indemnify you and hold you harmless against any
losses, claims, damages or liabilities, to which you may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, Registration Statement,
Prospectus, or SAI or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse you for any legal or other expenses reasonably incurred by you in
connection with investigating or defending any such action or claim;
provided, however, that the Trust shall not be liable in any such case to
-------- -------
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any Registration Statement, any Preliminary
Prospectus, or any Prospectus or SAI in reliance upon and in conformity
with written information furnished to the Trust by you expressly for use
therein.
(b) You will indemnify and hold harmless the Trust against any losses,
claims, damages or liabilities to which the Trust may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof), arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, any Preliminary Prospectus, or any
Prospectus or SAI, or arise out of or are based upon 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, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Registration Statement, any Preliminary Prospectus, or any Prospectus or
SAI in reliance upon and in conformity with written information furnished
to the Trust by you expressly for use therein; and will reimburse the Trust
for any legal or other expenses reasonably incurred by the Trust in
connection with investigating or defending any such action or claim.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
-15-
<PAGE>
commencement thereof the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 9 is
unavailable to, or insufficient to hold harmless, an indemnified party
under subsection (a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Trust on the
one hand and you on the other from the offering of the Shares of the Fund
or Funds in respect of which such losses, claims, damages or liabilities
(or actions in respect thereof) arose. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law or
if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Trust on the one hand and you on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as
any other relative equitable considerations. The relative benefits
received by the Trust on the one hand and you on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of
the Shares of the relevant Funds (before deducting expenses) received by
the Trust bear to the total compensation received by you in selling Shares
of such Funds under this Agreement, including any sales charge as set forth
in the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Trust on the one hand or you on the
other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Trust and you agree that it would not be just and equitable if the
contributions pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), you shall not be
required to contribute any amount in excess of the
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<PAGE>
amount by which the total price at which the Shares of the relevant Funds
sold by you and distributed to the public were offered to the public
exceeds the amount of any damages which you have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Trust under this Section 9 shall be in
addition to any liability which the Trust may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls you within the meaning of the Securities Act; and your obligations
under this Section 9 shall be in addition to any liability which you may
otherwise have and shall extend, upon the same terms and conditions, to
each trustee or officer of the Trust (including any person who, with his
consent, is named in the relevant Registration Statement as about to become
a trustee of the Trust) and to each person, if any, who controls the Trust
within the meaning of the Securities Act.
10. Term.
----
(a) This Agreement shall commence on the date first set forth above
and continue in effect until June 30, 2000 and then for successive annual
periods after June 30, 2000, provided such continuance after the initial
term is specifically approved at least annually by (i) the Trustees of the
Trust or (ii) a vote of a majority (as defined in the Investment Company
Act) of the Fund's outstanding voting securities, provided that in either
event the continuance is also approved by a vote of a majority of the
Trustees of the Trust who are not interested persons (as defined in the
Investment Company Act) of the Trust or any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Trust authorizes you, if and when you so determine, to
assign to a third party any payments with respect to one or more Classes of
Shares that you are entitled to receive for your services hereunder,
including any payments of initial or deferred sales charges or payments in
accordance with a Rule 12b-1 or Service Plan so long as such Plan is in
effect, free and clear of any offset, defense or counterclaim the Trust may
have against you and except to the extent that any change or modification
after the date hereof of (x) the provisions of the Investment Company Act,
the Rules and Regulations thereunder or other applicable law or (y) any
interpretation of the Investment Company Act, the Rules and Regulations
thereunder or other applicable law shall restrict your right to make such
transfer free and clear of any offset, defense or counterclaim.
(b) The sale of Shares of the Funds in accordance with the terms of
this Agreement shall be subject to termination or suspension in the
absolute discretion of the Trust, by notice given to you as set forth in
Section 12 hereof.
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<PAGE>
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Investment Company Act).
11. Representation and Indemnities to Survive. The respective agreements,
-----------------------------------------
representations, warranties, indemnities and other statements of the Trust
and you set forth in or made pursuant to this Agreement will, to the extent
permitted by applicable law, remain in full force and effect, regardless of
any investigation made by or on behalf of you, any Authorized Dealer or the
Trust, or any of the controlling persons referred to in Section 9 hereof,
and will survive the offer of the Shares of the Funds. The provisions of
Section 8, 9 and 11 hereof and your right to receive any contingent
deferred sale charges shall, to the extent permitted by applicable law,
survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and effective
-------
only on receipt, and, if sent to you, mailed, delivered or telegraphed and
confirmed to you at Goldman, Sachs & Co., 85 Broad Street, New York, New
York 10004, Attention: Registration Department (Distributors - Goldman
Sachs Funds) or, if sent to the Trust, mailed, delivered or telegraphed and
confirmed to it at Goldman Sachs Trust, 4900 Sears Tower, Chicago, Ill.
60606, Attention: Secretary.
13. Affiliates. The Trust recognizes that your partners, officers and
----------
employees may from time to time serve as directors, trustees, officers and
employees of corporations and business entities (including other investment
companies), and that you or your affiliates may enter into distribution or
other agreements with other corporations and business entities.
14. Successors. This Agreement will inure to the benefit of and be binding
----------
upon the parties hereto and their respective successors and, to the extent
set forth herein, each of the officers, trustees and controlling persons
referred to in Section 9 hereof, and no other person will have any right or
obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Miscellaneous. The captions in 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. This Agreement
may be executed simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
The name "Goldman Sachs Variable Insurance Trust" is the designation of the
Trustees for the time being under an Agreement and Declaration of Trust
dated September 16, 1997, as amended from time to time, and all persons
dealing with the Trust must look solely to the property of the Trust for
the enforcement of any claims against the Trust as neither the
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<PAGE>
Trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Trust. No series of the Trust
shall be liable for any claims against any other series of the Trust.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between you and
the Trust, and, to the extent set forth herein, shall be for the benefit of each
Authorized Dealer.
Very truly yours,
GOLDMAN SACHS VARIABLE INSURANCE TRUST
/s/ Douglas C. Grip
By:___________________________________________
Name: Douglas C. Grip
Title: President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
/s/ David B. Ford
_____________________________________
(Goldman, Sachs & Co.)
Name: David B. Ford
Title: Managing Director
-19-
<PAGE>
AMENDED EXHIBIT A
------- ---------
February 3, 2000
Series ("Funds") of GOLDMAN SACHS VARIABLE INSURANCE TRUST, a
- -------------------------------------------------------------
Delaware business trust (the "Trust")
- -------------------------------------
GOLDMAN SACHS FIXED INCOME FUNDS:
- --------------------------------
Goldman Sachs Global Income Fund
Goldman Sachs High Yield Fund
Goldman Sachs Short Duration Government Fund
GOLDMAN SACHS EQUITY FUNDS:
- --------------------------
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE U.S. Equity Fund
Goldman Sachs CORE Small Cap Equity Fund
Goldman Sachs Growth and Income Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs International Equity Fund
Goldman Sachs Mid Cap Equity Fund
Goldman Sachs CORE Large Cap Value Fund
Goldman Sachs CORE International Equity Fund
Goldman Sachs Conservative Strategy Portfolio
Goldman Sachs Balanced Strategy Portfolio
Goldman Sachs Growth and Income Strategy Portfolio
Goldman Sachs Growth Strategy Portfolio
Goldman Sachs Aggressive Growth Strategy Portfolio
Goldman Sachs Internet Tollkeeper Fund
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<PAGE>
[LETTERHEAD OF GOLDMAN SACHS]
Exhibit (g)(4)
January 21, 2000
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Goldman Sachs Variable Insurance Trust; additional portfolio under the
contract
Ladies and Gentlemen:
This to advise you that Goldman Sachs Variable Insurance Trust (the "Fund") has
established a new series of shares to be known as Goldman Sachs Internet
Tollkeeper Fund (the "Portfolio"). In accordance with the Additional Funds
provision of Section 17 of the Custodian Contract dated as of December 31, 1997,
between the Fund and State Street Bank and Trust Company, the Fund hereby
requests that you act as Custodian of the Portfolios under the terms of the
contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Fund and retaining one copy for your
records.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
By: /s/ John Perlowski
------------------------------
Name: John Perlowski
Title: Treasurer
Agreed to this 17th day of February, 2000.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
------------------------------
Name: Ronald E. Logue
Title: Vice Chairman
<PAGE>
EXHBIT99(h)(4)
GOLDMAN, SACHS & CO.
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
GOLDMAN SACHS VARIABLE INSURANCE TRUST
--------------------------------------
on behalf of
Goldman Sachs Internet Tollkeeper Fund
GENERAL
- -------
Fees are based on an annual per shareholder account charge, transaction related
expenses, and out-of-pocket expenses (including those out-of-pocket expenses
payable to servicing agents).
- --------------------------------------------------------------------------------
Per Portfolio Charge $1,000 per month
- --------------------------------------------------------------------------------
Annual Fee Per Shareholder Account $7.50
- --------------------------------------------------------------------------------
OTHER FEES*
- ----------
- --------------------------------------------------------------------------------
Manually Entered Share and Maintenance Transactions $1.00 each
- --------------------------------------------------------------------------------
Telephone Calls $1.00 each
- --------------------------------------------------------------------------------
Manually Entered Trades $5.00 each
- --------------------------------------------------------------------------------
Correspondence $1.00 each
- --------------------------------------------------------------------------------
New Account Set-Up Charge $4.00 per new account
- --------------------------------------------------------------------------------
* Fees accrue to transfer agent or servicing agent based upon which party
performed the services.
Goldman, Sachs & Co. Goldman Sachs Variable Insurance Trust
On behalf of
Goldman Sachs Internet Tollkeeper Fund
By: [signature illegible]
-----------------------------------
By: [signature illegible] (Authorized Officer)
-------------------------
(Authorized Officer)
Date: 2-3-00
---------------------
Date: 2-11-00
---------------------
<PAGE>
EXHIBIT 99(J)(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Variable Insurance Trust dated February 10, 2000 (and all
references to our firm) included in or made a part of Post-Effective Amendment
No. 4 and Amendment No. 5 to Registration Statement File Nos. 333-35883 and
811-08361, respectively.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 7, 2000
<PAGE>
EXHIBIT 99(J)(2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm on the cover page of the Statement of
Additional Information and under the captions "Independent Public Accountants"
and "Financial Statements" in this Registration Statement (Form N-1A 33-35883)of
Goldman Sachs Variable Insurance Trust.
/s/ ERNST & YOUNG LLP
New York, New York
April 13, 2000
