As filed with the Securities and Exchange Commission on April 13, 2001
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 72 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 74 ( X )
(Check appropriate box or boxes)
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GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-655-4400
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Howard B. Surloff, Esq. Copies to:
Goldman Sachs Asset Management Jeffrey A. Dalke, Esq.
32 Old Slip Drinker Biddle & Reath LLP
New York, New York 10005 One Logan Square
18/th/ and Cherry Streets
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
(x) On May 1, 2001 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.
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Prospectus
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Class A, B
and C Shares
May 1, 2001
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GOLDMAN SACHS SPECIALTY FUNDS
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n
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Goldman
Sachs Internet Tollkeeper Fund
SM
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n
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Goldman
Sachs Real Estate Securities Fund
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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.
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AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
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NOT FDIC-INSURED
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May Lose Value
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No Bank Guarantee
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Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the Internet Tollkeeper and Real Estate Securities Funds. Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
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GROWTH STYLE FUNDS—INTERNET TOLLKEEPER FUND
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THE FUND INVESTS IN “INTERNET TOLLKEEPER” COMPANIES, AND ITS NET ASSET VALUE (NAV) MAY FLUCTUATE SUBSTANTIALLY
OVER TIME. BECAUSE THE FUND CONCENTRATES ITS INVESTMENTS IN INTERNET TOLLKEEPER COMPANIES, THE FUND’S PERFORMANCE MAY BE SUBSTANTIALLY DIFFERENT FROM THE RETURNS OF THE BROADER STOCK MARKET AND OF “PURE” INTERNET FUNDS. PAST
PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS AND, DEPENDING ON THE TIMING OF YOUR INVESTMENT, YOU MAY LOSE MONEY EVEN IF THE FUND’S PAST RETURNS HAVE BEEN POSITIVE. THE FUND’S PARTICIPATION IN THE INITIAL PUBLIC OFFERING (IPO) MARKET
DURING ITS INITIAL START-UP PHASE MAY HAVE HAD A MAGNIFIED IMPACT ON THE FUND’S PERFORMANCE BECAUSE OF ITS RELATIVELY SMALL ASSET BASE. AS THE FUND’S ASSETS CONTINUE TO GROW, IT IS PROBABLE THAT THE EFFECT OF IPO INVESTMENTS ON THE
FUND’S FUTURE PERFORMANCE WILL NOT BE AS SIGNIFICANT.
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Goldman Sachs’ Growth Investment Philosophy:
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1.
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Invest as if buying the company/business, not simply trading its stock:
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n
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Understand the business, management, products and competition.
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n
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Perform intensive, hands-on fundamental research.
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n
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Seek businesses with strategic competitive advantages.
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n
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Over the long-term, expect each company’s stock price ultimately to track the growth in the value of the
business.
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2.
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Buy high-quality growth businesses that possess strong business franchises, favorable long-term prospects
and excellent management.
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3.
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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.
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Growth companies have earnings expectations that exceed those of the stock market as a whole.
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REAL ESTATE SECURITIES FUND
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Goldman Sachs’ Real Estate Securities Investment Philosophy:
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When choosing the Fund’s securities, the Investment Adviser:
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n
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Selects stocks based on quality of assets, experienced management and a sustainable competitive advantage.
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n
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Seeks to buy securities at a discount to the intrinsic value of the business (assets and management).
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n
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Seeks a team approach to decision making.
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Over time, REITs (which stands for Real Estate Investment Trusts) have offered investors important diversification and
competitive total returns versus the broad equity market.
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Internet Tollkeeper Fund
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FUND FACTS
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Objective:
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Long-term growth of capital
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Benchmarks:
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S&P 500® Index
NASDAQ Composite Index
Goldman Sachs Internet Index
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Investment Focus:
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U.S. equity securities that offer long-term capital appreciation
with a primary focus on the media, telecommunications, technology and Internet sectors |
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Investment Style:
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Growth
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INVESTMENT OBJECTIVE
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The Fund seeks long-term growth of capital.
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PRINCIPAL INVESTMENT STRATEGIES
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Equity Securities.
The Fund invests, under normal circumstances, at least 90% of its total assets in equity securities and at least 65% of its total assets in equity securities of “Internet Tollkeeper” companies (as described
below), which are companies in the media, telecommunications, technology and Internet sectors which provide access, infrastructure, content and services to Internet companies and Internet users. The Fund seeks to achieve its investment objective by
investing in equity securities of companies that the Investment Adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. The Fund may also invest up
to 35% of its total assets in other companies whose rapid adoption of an Internet strategy is expected to improve their cost structure, revenue opportunities or competitive advantage and Internet-based companies that the Investment Adviser believes
exhibit a sustainable business model. Although the Fund invests primarily 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 markets or countries
(“emerging countries”) and securities quoted in foreign currencies.
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The Internet.
The Internet is a global collection of connected computers that allows commercial and professional organizations, educational institutions, government agencies, and individuals to communicate electronically, access
and share information, and conduct business.
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The Internet has had, and is expected to continue to have, a significant impact on the global economy, as it changes the way
many companies operate. Benefits of the Internet for businesses may include global scalability, acquisition of new clients, new revenue sources and increased efficiencies.
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Internet Tollkeepers.
The Fund intends to invest a substantial portion of its assets in companies the Investment Adviser describes as Internet Tollkeepers. In general, the Investment Adviser defines a tollkeeper as a company with
predictable, sustainable or recurring revenue streams. Like a toll collector for a highway or bridge, these tollkeeper companies may grow revenue by increasing “traffic,” or customers and sales, and raising “tolls,” or prices.
The Investment Adviser believes that the characteristics of many of these tollkeepers, including dominant market share and strong brand name, should enable them to consistently grow their business. An Internet Tollkeeper is a company that has
developed or is seeking to develop predictable, sustainable or recurring revenue streams by applying the above characteristics to the growth of the Internet. The Investment Adviser does not define companies that merely have an Internet site or sell
some products over the Internet as Internet Tollkeepers (although the Investment Adviser may invest in such companies as part of the Fund’s 35% basket of securities which are not or may not be Internet Tollkeepers).
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Internet Tollkeepers are media, telecommunications, technology and Internet companies which provide access, infrastructure,
content and services to Internet companies and Internet users. The following represent examples of each of these types of companies, but should not be construed to exclude other types of Internet Tollkeepers:
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n
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Access providers enable individuals and businesses to connect to the Internet through, for example, cable systems or the
telephone network.
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n
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Infrastructure companies provide items such as servers, routers, software and storage necessary for companies to participate
in the Internet.
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n
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Media content providers own copyrights, distribution networks and/or programming. Traditional media companies stand to
benefit from an increase in advertising spending by Internet companies. Copyright owners stand to benefit from a new distribution channel for their music and video properties. They also will benefit from increasing demand for traditional items like
CDs and DVDs driven by aggressive competition among Internet retailers.
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n
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Service providers may facilitate transactions, communications, security, computer programming and back-office functions for
Internet businesses. For
example, Internet companies may contract out advertising sales or credit card clearing to service providers.
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Our Approach to Investing in the Internet.
While the Internet is clearly a significant force in shaping businesses and driving the economy, many Internet-based companies have not shown sustainable growth in the past, and the Investment Adviser
believes that others will not show sustainable growth in the future. Many Internet-based companies that are engaged in electronic commerce are focused on driving sales volume and competing with other Internet-based companies. Often, this competition
is based on price, and if these companies do not own strong franchises, then the Investment Adviser believes there could be significant uncertainty regarding their long-term profitability.
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The Investment Adviser believes that another attractive way to invest in the Internet sector is to invest in businesses
participating in the growth of the Internet that potentially have long-lasting strategic advantages. Characteristics of these companies may include: dominant market share, strong brand names, recurring revenue streams, cost advantages, economies of
scale, financial strength, technological advantages and strong, experienced management teams.
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Beneficiaries of the Internet that may meet the above criteria include those companies (Internet Tollkeepers) providing
access, infrastructure, content, and services to Internet companies and Internet users. The Fund will also invest in companies whose rapid adoption of an Internet strategy is expected to improve their cost structure or competitive advantage.
Internet-based companies that exhibit a sustainable business model may also be candidates for purchase by the Fund. The Investment Adviser pays careful attention to the stock prices of these companies, seeking to purchase them at a discount to their
intrinsic value.
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Because of its narrow industry focus, the Fund’s investment performance will be closely tied to many factors which
affect the Internet and Internet-related industries. These factors include intense competition, consumer preferences, problems with product compatibility and government regulation. Internet and Internet-related securities may experience significant
price movements caused by disproportionate investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result, the Fund’s NAV is more likely to have greater fluctuations than that of a Fund which invests in
other industries.
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Real Estate Securities Fund
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FUND FACTS
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Objective:
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Total return comprised of long-term growth of capital and dividend income
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Benchmark:
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Wilshire Real Estate Securities Index
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Investment Focus:
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REITs and real estate industry companies
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Investment Style:
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Growth at a discount
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INVESTMENT OBJECTIVE
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The Fund seeks total return comprised of long-term growth of capital and dividend income.
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PRINCIPAL INVESTMENT STRATEGIES
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Equity Securities.
The Fund invests, under normal circumstances, substantially all and at least 80% of its total assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real
estate industry. The Fund expects that a substantial portion of its assets will be invested in REITs and real estate industry companies.
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A “real estate industry company” is a company that derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management or sale of commercial, industrial or residential real estate or interests therein.
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The Fund’s investment strategy is based on the premise that property market fundamentals are the primary determinant of
growth, underlying the success of companies in the real estate industry. The Investment Adviser focuses on companies that can achieve sustainable growth in cash flow and dividend paying capability. The Investment Adviser attempts to purchase
securities so that its underlying portfolio will be diversified geographically and by property type. Although the Fund will invest primarily in publicly traded U.S. securities, it may invest up to 15% of its total assets in foreign securities,
including securities of issuers in emerging countries and securities quoted in foreign currencies.
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FUND INVESTMENT OBJECTIVES AND STRATEGIES
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Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs. Mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skill, may not be
diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax free pass-through of income and failing to maintain their exemptions
from investment company registration. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions.
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REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a
REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable
rate mortgage loans are reset periodically, yields on a REIT’s investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate obligations.
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The REIT investments of the Real Estate Securities Fund often do not provide complete tax information to the Fund until after
the calendar year-end. Consequently, because of the delay, it may be necessary for the Fund to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
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Other.
The Fund may invest up to 20% of its total assets in fixed-income securities, such as government, corporate debt and bank obligations, that offer the potential to further the Fund’s investment
objective.
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The table below identifies some of the investment techniques that may (but are not required to) be used by the Funds in seeking to achieve their investment objectives.
The table also highlights the differences between 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.
10
Percent of total assets
(italic
type)
10
Percent of net assets (roman type)
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Ÿ
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No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
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Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
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|---|---|---|---|---|---|
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| Investment Practices | |||||
| Borrowings |
33
1
/
3
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33
1
/
3
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| Credit, Currency, Index, Interest Rate and Mortgage Swaps* | — | 15 | |||
| Cross Hedging of Currencies | Ÿ | Ÿ | |||
| Custodial Receipts | Ÿ | Ÿ | |||
| Equity Swaps* | 15 | 15 | |||
| Foreign Currency Transactions** | Ÿ | Ÿ | |||
| Futures Contracts and Options on Futures Contracts | Ÿ | Ÿ | |||
| Interest Rate Caps, Floors and Collars | — | Ÿ | |||
| Investment Company Securities (including exchange-traded funds) | 10 | 10 | |||
| Mortgage Dollar Rolls | — | Ÿ | |||
| Options on Foreign Currencies 1 | Ÿ | Ÿ | |||
| Options on Securities and Securities Indices 2 | Ÿ | Ÿ | |||
| Repurchase Agreements | Ÿ | Ÿ | |||
| Securities Lending |
33
1
/
3
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33
1
/
3
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| Short Sales Against the Box | 25 | 25 | |||
| Unseasoned Companies | Ÿ | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | Ÿ | |||
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*
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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.
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**
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Limited by the amount each Fund may invest in foreign securities.
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1
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The Funds may purchase and sell call and put options.
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2
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The Funds may sell covered call and put options and purchase call and put options.
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OTHER INVESTMENT PRACTICES AND SECURITIES
10
Percent of total assets
(italic
type
)
10
Percent of net assets (roman type)
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Ÿ
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No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
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*
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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.
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3
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Limited by the amount the Fund invests in fixed-income securities.
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4
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Convertible securities purchased by the Funds use the same rating criteria for convertible and non-convertible debt
securities.
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5
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The Internet Tollkeeper and Real Estate Securities Funds may invest in the aggregate up to 25% and 15%,
respectively, of their total assets in foreign securities, including emerging country securities.
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6
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May be BB or lower by Standard & Poor’s or Ba or lower by Moody’s.
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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.
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Ÿ
Applicable
— Not applicable |
Internet
Tollkeeper Fund |
Real
Estate Securities Fund |
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|---|---|---|---|---|---|
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| Internet | Ÿ | — | |||
| Credit/Default | Ÿ | Ÿ | |||
| Foreign | Ÿ | Ÿ | |||
| Emerging Countries | Ÿ | Ÿ | |||
| Industry Concentration | Ÿ | Ÿ | |||
| Stock | Ÿ | Ÿ | |||
| Derivatives | Ÿ | Ÿ | |||
| Interest Rate | Ÿ | Ÿ | |||
| IPO | Ÿ | Ÿ | |||
| Management | Ÿ | Ÿ | |||
| Market | Ÿ | Ÿ | |||
| Liquidity | Ÿ | Ÿ | |||
| REIT | Ÿ | Ÿ | |||
| Small Cap | Ÿ | Ÿ | |||
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PRINCIPAL RISKS OF THE FUNDS
All Funds:
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n
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Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by a Fund may
default on its obligation to pay interest and repay principal.
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n
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Foreign Risk
—The risk that when a Fund invests in foreign securities, it will be subject to risk 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.
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n
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Emerging Countries Risk
—The securities markets of Asian, Latin and South American, Eastern European,
African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not subject to as extensive 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
registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
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n
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Industry Concentration Risk
—The risk that each of the Funds concentrates its investments in specific
industry sectors that have historically experienced substantial price volatility. Each Fund is subject to greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different
industry sectors. Securities of issuers held by the Funds may lack sufficient market liquidity to enable a Fund to sell the securities at an advantageous time or without a substantial drop in price.
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n
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Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
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n
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Derivatives Risk
—The risk that loss may result from a Fund’s investments in options, futures, swaps,
structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to a Fund.
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n
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Interest Rate Risk
—The risk that when interest rates increase, 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 fixed-income securities.
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n
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IPO Risk
—The risk that the market value of IPO shares will fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk
and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s
assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the Fund’s performance.
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n
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Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
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n
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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 companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods.
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n
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Liquidity Risk
—The risk that a Fund will not be able to pay redemption proceeds 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 or emerging
country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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. The Goldman Sachs Asset Allocation Portfolios (the “Asset Allocation Portfolios”) expect to invest a significant percentage
of their assets in the Real Estate Securities Fund and other funds for which Goldman Sachs now or in the future acts as investment adviser or underwriter. Redemptions by an Asset Allocation Portfolio of its position in a Fund may further increase
liquidity risk and may impact a Fund’s NAV.
|
|
n
|
REIT Risk
—Investing in REITs involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions. The securities of 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 of an
advantageous time or without a substantial drop in price.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 substantial drop in price.
|
Internet Tollkeeper Fund:
|
n
|
Internet Risk
—The risk that the stock prices of Internet and Internet-related companies will experience
significant price movements as a result of intense market volatility, worldwide competition, consumer preferences, product compatibility, product obsolescence, government regulation, excessive investor optimism or pessimism, or other
factors.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
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HOW THE FUNDS HAVE PERFORMED
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The bar charts and tables below provide an indication of the risks of investing in a Fund by showing: (a) changes in the
performance of a Fund’s Class A Shares from year to year; and (b) how the average annual returns of a Fund’s Class A, B and C Shares compare to those of broad-based securities market indices. The bar chart and table assume reinvestment of
dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. The average annual total return calculation reflects a maximum initial sales charge of 5.5% for Class A Shares,
the assumed contingent deferred sales charge (“CDSC”) for Class B Shares (5% maximum declining to 0% after six years), and the assumed CDSC for Class C Shares (1% if redeemed within 12 months of purchase). The bar chart does not reflect
the sales loads applicable to Class A Shares. If the sales loads were reflected, returns would be less. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s performance would have been
reduced.
|
FUND PERFORMANCE
Internet Tollkeeper Fund
SM
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q1 ’00
+
5.56%
Worst Quarter
Q4 ’00
-
31.83%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | ||||
|---|---|---|---|---|---|---|
|
|
||||||
| Class A (Inception 10/1/99) | ||||||
| Including Sales Charges | (40.70)% | 11.15 | % | |||
| S&P 500 Index* | (9.10)% | 3.51 | % | |||
| NASDAQ Composite Index** | (39.29)% | (8.08 | )% | |||
| Goldman Sachs Internet Index*** | (74.50)% | (52.00 | )% | |||
|
|
||||||
| Class B (Inception 10/1/99) | ||||||
| Including CDSC | (40.77)% | 12.28 | % | |||
| S&P 500 Index* | (9.10)% | 3.51 | % | |||
| NASDAQ Composite Index** | (39.29)% | (8.08 | )% | |||
| Goldman Sachs Internet Index*** | (74.50)% | (52.00 | )% | |||
|
|
||||||
| Class C (Inception 10/1/99) | ||||||
| Including CDSC | (38.30)% | 15.33 | % | |||
| S&P 500 Index* | (9.10)% | 3.51 | % | |||
| NASDAQ Composite Index** | (39.29)% | (8.08 | )% | |||
| Goldman Sachs Internet Index*** | (74.50)% | (52.00 | )% | |||
|
|
||||||
*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.
**The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ National Market and Small-Cap stocks. The Index figures do not
reflect any fees or expenses.
***The Goldman Sachs Internet Index is a capitalization-weighted index of selected Internet companies. The Index figures do not reflect any fees or
expenses.
Real Estate Securities Fund
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q2 ’99
+
12.80%
Worst Quarter
Q3 ’99
-
10.19%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Class A (Inception 7/27/98) | |||||
| Including Sales Charges | 24.54% | 6.02% | |||
| Wilshire Real Estate Securities Index* | 30.74% | 5.29% | |||
|
|
|||||
| Class B (Inception 7/27/98) | |||||
| Including CDSC | 25.86% | 6.53% | |||
| Wilshire Real Estate Securities Index* | 30.74% | 5.29% | |||
|
|
|||||
| Class C (Inception 7/27/98) | |||||
| Including CDSC | 30.10% | 7.76% | |||
| Wilshire Real Estate Securities Index* | 30.74% | 5.29% | |||
|
|
|||||
|
*
|
The Wilshire Real Estate Securities Index is an unmanaged index of publicly traded REITs and real estate operating
companies. The Index figures do not reflect any fees or expenses.
|
This table describes the fees and expenses that you would pay if you buy and hold Class A, Class B, or Class C Shares of a Fund.
|
Internet Tollkeeper Fund
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Fund Operating Expenses | ||||||||||
| (expenses that are deducted from Fund assets): 6 | ||||||||||
| Management Fees | 1.00% | 1.00% | 1.00% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 0.25% | 0.25% | 0.25% | |||||||
|
|
||||||||||
| Total Fund Operating Expenses* | 1.50% | 2.25% | 2.25% | |||||||
|
|
||||||||||
|
See page 19 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Fund which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total Fund
Operating Expenses” may increase without shareholder approval.
|
|
Internet Tollkeeper Fund
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 6 | |||||||
| Management Fees | 1.00% | 1.00% | 1.00% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.25% | 0.25% | 0.25% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after
current expense limitations) |
1.50% | 2.25% | 2.25% | ||||
|
|
|||||||
Fund Fees and Expenses
continued
|
Real Estate Securities Fund
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Fund Operating Expenses | ||||||||||
| (expenses that are deducted from Fund assets): 6 | ||||||||||
| Management Fees | 1.00% | 1.00% | 1.00% | |||||||
| Distribution and Service (12b-1) Fees | 0.50% | 7 | 1.00% | 1.00% | ||||||
| Other Expenses 8 | 0.49% | 0.49% | 0.49% | |||||||
|
|
||||||||||
| Total Fund Operating Expenses* | 1.99% | 2.49% | 2.49% | |||||||
|
|
||||||||||
|
See page 19 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Fund which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Real Estate Securities Fund
|
||||||||
|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||
|
|
||||||||
| Annual Fund Operating Expenses | ||||||||
| (expenses that are deducted from Fund assets): 6 | ||||||||
| Management Fees | 1.00% | 1.00% | 1.00% | |||||
| Distribution and Service (12b-1) Fees | 0.25% | 7 | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | |||||
|
|
||||||||
|
Total Fund Operating Expenses (after
current waivers and expense limitations) |
1.44% | 2.19% | 2.19% | |||||
|
|
||||||||
FUND FEES AND EXPENSES
|
1
|
The maximum sales charge is a percentage of the offering price. A contingent deferred sales charge
(“CDSC”) of 1% is imposed on certain redemptions (within 18 months of purchase) of Class A Shares sold without an initial sales charge as part of an investment of $1 million or more.
|
|
2
|
The maximum CDSC is a percentage of the lesser of the NAV at the time of the redemption or the NAV when the shares
were originally purchased.
|
|
3
|
A CDSC is imposed upon Class B Shares redeemed within six years of purchase at a rate of 5% in the first year,
declining to 1% in the sixth year, and eliminated thereafter.
|
|
4
|
A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of purchase.
|
|
5
|
A transaction fee of $7.50 may be charged for redemption proceeds paid by wire.
|
|
6
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
7
|
The Distributor has voluntarily agreed not to impose a portion of the distribution and service fee on Class A
Shares of the Real Estate Securities Fund equal to 0.25% of the Fund’s Class A average daily net assets. The waiver may be terminated at any time at the option of the Distributor.
|
|
8
|
“Other Expenses” include transfer agency fees and expenses equal, on an annualized basis, to 0.19% of the
average daily net assets of each Fund’s Class A, B and C Shares, plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees,
distribution and service fees, transfer agency fees and expenses, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentages of each Fund’s average daily net assets,
respectively:
|
| Fund |
Other
Expenses |
||
|---|---|---|---|
|
|
|||
| Internet Tollkeeper | 0.06% | ||
| Real Estate Securities | 0.00% | ||
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Class A, B or C Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Internet Tollkeeper | |||||||||
| Class A Shares | $694 | $ 998 | $1,323 | $2,242 | |||||
| Class B Shares | |||||||||
|
– Assuming complete redemption at end
of period |
$728 | $1,003 | $1,405 | $2,396 | |||||
| – Assuming no redemption | $228 | $ 703 | $1,205 | $2,396 | |||||
| Class C Shares | |||||||||
|
– Assuming complete redemption at end
of period |
$328 | $ 703 | $1,205 | $2,585 | |||||
| – Assuming no redemption | $228 | $ 703 | $1,205 | $2,585 | |||||
|
|
|||||||||
| Real Estate Securities | |||||||||
| Class A Shares | $741 | $1,140 | $1,564 | $2,739 | |||||
| Class B Shares | |||||||||
|
– Assuming complete redemption at end
of period |
$752 | $1,076 | $1,526 | $2,703 | |||||
| – Assuming no redemption | $252 | $ 776 | $1,326 | $2,703 | |||||
| Class C Shares | |||||||||
|
– Assuming complete redemption at end
of period |
$352 | $ 776 | $1,326 | $2,826 | |||||
| – Assuming no redemption | $252 | $ 776 | $1,326 | $2,826 | |||||
|
|
|||||||||
The hypothetical example assumes that a CDSC will not apply to redemptions of Class A Shares within the first 18 months. Class B Shares convert to Class A Shares eight
years after purchase; therefore, Class A expenses are used in the hypothetical example for the Real Estate Securities Fund and the Internet Tollkeeper Fund after year eight.
Certain institutions that sell Fund shares and/or their salespersons may receive other compensation in connection with the sale and distribution of Class A, Class B and
Class C Shares for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “What Should I Know When I Purchase Shares Through An Authorized Dealer?” in the Prospectus and
“Other Information” in the Statement of Additional Information (“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | |||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | |||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
makes the investment decisions for the Funds and places purchase and sale orders for the Funds’ portfolio transactions in U.S. and foreign markets. As permitted by applicable law, these orders may be directed to any brokers, including Goldman
Sachs and its affiliates. While the Investment Adviser is ultimately responsible for the management 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 will 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:
|
|
n
|
Supervises all non-advisory operations of the Funds
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Funds
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | 1.00% | 1.00% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.00% | |||
|
|
|||||
|
FUND MANAGERS
|
|
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. Mr. Hillenbrand joined
Goldman Sachs in 1997 upon its acquisition of Commodities Corporation, LLC where he was, and continues as, President. Over the course of his 20-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.
|
|
Growth Equity Investment Team
|
|
n
|
20-year consistent investment style applied through diverse and complete market cycles
|
|
n
|
More than $20 billion in equities currently under management
|
|
n
|
A portfolio management and analytical team with more than 200 years combined investment experience
|
SERVICE PROVIDERS
Growth Equity Investment Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
George D. Adler
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Adler joined the Investment Adviser
as a portfolio manager in 1997. From 1990 to 1997, he was a portfolio manager at Liberty Investment Management, Inc. (“Liberty”). Liberty became part of Goldman Sachs Asset Management on January 1, 1997 as a result of an acquisition. Prior to 1994, Liberty was known as Eagle Asset Management. |
||||
|
|
|||||||
|
Steve Barry
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Barry joined the Investment
Adviser as a portfolio manager in 1999. From 1988 to 1999, he was a portfolio manager at Alliance Capital Management. |
||||
|
|
|||||||
|
Kenneth T. Berents
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
2000 |
Mr. Berents joined the Investment
Adviser as a portfolio manager in 2000. From 1992 to 1999, he was Director of Research and head of the Investment Committee at Wheat First Union. |
||||
|
|
|||||||
|
Robert G. Collins
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Collins joined the Investment
Adviser as a portfolio manager and Co-Chair of the Growth Equity Investment Committee in 1997. From 1991 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
Herbert E. Ehlers
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
|||||||
|
Gregory H. Ekizian
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ekizian joined the Investment
Adviser as a portfolio manager and Co- Chair of the Growth Equity Investment Committee in 1997. From 1990 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
Scott Kolar
Vice President |
Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Kolar joined the Investment
Adviser as an 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. |
||||
|
|
|||||||
|
Ernest C. Segundo, Jr.
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Segundo joined the Investment
Adviser as a portfolio manager in 1997. From 1992 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
David G. Shell
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Shell joined the Investment
Adviser as a portfolio manager in 1997. From 1987 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
Real Estate Securities Team
The Real Estate Securities portfolio management team includes individuals with backgrounds in:
|
n
|
Fundamental real estate acquisition, development and operations
|
|
n
|
Real estate capital markets
|
|
n
|
Mergers and acquisitions
|
|
n
|
Asset management
|
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Herbert E. Ehlers
Managing Director |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
|||||||
|
Mark Howard-
Johnson Vice President |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Howard-Johnson joined the
Investment Adviser as a portfolio manager in 1998. His previous experience includes 15 years in the real estate finance business. From 1996 to 1998, he was the senior equity analyst for Boston Financial, responsible for the Pioneer Real Estate Shares Fund. Prior to joining Boston Financial, from 1994 to 1996, Mr. Howard-Johnson was a real estate securities analyst for The Penobscot Group, Inc., one of only two independent research firms in the public real estate securities business. |
||||
|
|
|||||||
|
Greg Poole
Associate |
Portfolio Manager—
Real Estate Securities |
Since
2000 |
Mr. Poole joined the Investment
Adviser as a real estate securities analyst in 1998 and became portfolio manager in 2000. His previous experience includes investment analysis and financial structuring for the Real Estate Principal Investment Group of the Investment Banking Division of Goldman Sachs, which he joined in 1996. He received his B.A. in Honours Economics from the University of Western Ontario in 1996. |
||||
|
|
|||||||
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to a Fund or limit a Fund’s investment activities. Goldman Sachs and its affiliates 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 types 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 interest. A Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the statement of additional information (the “Additional Statement”).
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | Annually | Annually | |||
|
|
|||||
| Real Estate Securities | Quarterly | Annually | |||
|
|
|||||
From time to time a portion of a Fund’s dividends may constitute a return of capital.
When you purchase shares of a Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
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 Class A, Class B And Class C Shares Of The Funds?
|
|
You may purchase shares of the Funds through:
|
|
n
|
Goldman Sachs;
|
|
n
|
Authorized Dealers; or
|
|
n
|
Directly from Goldman Sachs Trust (the “Trust”).
|
|
In order to make an initial investment in a Fund, you must furnish to the Fund, Goldman Sachs or your Authorized Dealer the
information in the Account Application.
|
|
To Open an Account:
|
|
n
|
Complete the Account Application
|
|
n
|
Mail your payment and Account Application to:
|
|
Your Authorized Dealer
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to your Authorized Dealer
|
|
–
|
Your Authorized Dealer is responsible for forwarding payment promptly (within three business days) to the Fund
|
|
or
|
|
Goldman Sachs Funds c/o National Financial Data Services, Inc.
(“NFDS”)
, P.O. Box 219711,
Kansas City, MO 64121-9711
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to Goldman Sachs Funds – (Name of Fund
and
Class of Shares)
|
|
–
|
NFDS will not accept a check drawn on a foreign bank, a third-party check, cash, money orders, travelers cheques or credit
card checks
|
|
–
|
Federal funds wire, Automated Clearing House Network (“ACH”) transfer or bank wires should be sent to State Street
Bank and Trust Company (“State Street”) (each Fund’s custodian). Please call the Funds at 1-800-526-7384 to get detailed instructions on how to wire your money.
|
|
What Is My Minimum Investment In The Funds?
|
| Initial | Additional | ||||
|---|---|---|---|---|---|
|
|
|||||
| Regular Accounts | $1,000 | $50 | |||
|
|
|||||
|
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) |
$250 | $50 | |||
|
|
|||||
|
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts |
$250 | $50 | |||
|
|
|||||
| 403(b) Plan Accounts | $200 | $50 | |||
|
|
|||||
| SIMPLE IRAs and Education IRAs | $50 | $50 | |||
|
|
|||||
| Automatic Investment Plan Accounts | $50 | $50 | |||
|
|
|||||
|
What Alternative Sales Arrangements Are Available?
|
|
The Funds offer three classes of shares through this Prospectus.
|
|
|
|||||
|
Maximum Amount You Can
Buy In The Aggregate Across Funds |
Class A | No limit | |||
|
|
|||||
| Class B | $250,000 | ||||
|
|
|||||
| Class C | $1,000,000 | ||||
|
|
|||||
| Initial Sales Charge | Class A |
Applies to purchases of less than $1 million—
varies by size of investment with a maximum of 5.5% |
|||
|
|
|||||
| Class B | None | ||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
| CDSC | Class A |
1.00% on certain investments of $1 million or
more if you sell within 18 months |
|||
|
|
|||||
| Class B | 6 year declining CDSC with a maximum of 5% | ||||
|
|
|||||
| Class C |
1% if shares are redeemed within 12 months
of purchase |
||||
|
|
|||||
| Conversion Feature | Class A | None | |||
|
|
|||||
| Class B |
Class B Shares convert to Class A Shares after
8 years |
||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Refuse to open an account if you fail to (i) provide a social security number or other taxpayer identification number; or
(ii) certify that such number is correct (if required to do so under applicable law).
|
|
n
|
Reject or restrict any purchase or exchange order by a particular purchaser (or group of related purchasers). This may occur,
for example, when a pattern of
frequent purchases, sales or exchanges of shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of a Fund.
|
|
n
|
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.
|
|
n
|
Modify or waive the minimum investment
amounts.
|
|
n
|
Modify the manner in which shares are offered.
|
|
n
|
Modify the sales charge rates applicable to future purchases of shares.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange shares is the Fund’s next determined NAV. Each class
calculates its NAV as follows:
|
| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
|
|
||
| Number of Outstanding Shares of the Class |
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each share class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form, plus any
applicable sales charge.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper form, less any
applicable CDSC.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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 investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
SHAREHOLDER GUIDE
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
|
|
What Is The Offering Price Of Class A Shares?
|
|
The offering price of Class A Shares of each Fund is the next determined NAV per share plus an initial sales charge paid
to Goldman Sachs at the time of purchase of shares.
The sales charge varies depending upon the amount you purchase. In some cases, described below, the initial sales charge may be eliminated altogether, and the offering price will be the NAV per
share. The current sales charges and commissions paid to Authorized Dealers are as follows:
|
|
Amount of Purchase
(including sales charge, if any) |
Sales Charge as
Percentage of Offering Price |
Sales Charge
as Percentage of Net Amount Invested |
Maximum Dealer
Allowance as Percentage of Offering Price* |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Less than $50,000 | 5.50 | % | 5.82 | % | 5.00 | % | ||||
| $50,000 up to (but less than) $100,000 | 4.75 | 4.99 | 4.00 | |||||||
| $100,000 up to (but less than) $250,000 | 3.75 | 3.90 | 3.00 | |||||||
| $250,000 up to (but less than) $500,000 | 2.75 | 2.83 | 2.25 | |||||||
| $500,000 up to (but less than) $1 million | 2.00 | 2.04 | 1.75 | |||||||
| $1 million or more | 0.00 | ** | 0.00 | ** | *** | |||||
|
|
||||||||||
|
*
|
Dealer’s allowance may be changed periodically. During special promotions, the entire sales charge may be
allowed to Authorized Dealers. Authorized Dealers to whom substantially the entire sales charge is allowed may be deemed to be “underwriters” under the Securities Act of 1933.
|
|
**
|
No sales charge is payable at the time of purchase of Class A Shares of $1 million or more, but a CDSC of 1% may be
imposed in the event of certain redemptions within 18 months of purchase.
|
|
***
|
The Distributor may pay a one-time commission to Authorized Dealers who initiate or are responsible for purchases
of $1 million or more of shares of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the next $2 million, and 0.25% thereafter. The Distributor may also pay, with respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate or are responsible for purchases of $500,000 or more by certain Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or
other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations investing in the Funds which satisfy the criteria set forth below in “When Are Class A Shares Not
Subject To A Sales Load?” or $1 million or more by certain “wrap” accounts. Purchases by such plans will be made at NAV with no initial sales charge, but if all of the shares held are redeemed within 18 months after the end of the
calendar month in which such purchase was made, a CDSC of 1% may be imposed upon the plan sponsor or the third party administrator. In addition, Authorized Dealers will remit to the Distributor such payments received in connection with
“wrap” accounts in the event that shares are redeemed within 18 months after the end of the calendar month in which the purchase was made.
|
|
What Else Do I Need To Know About Class A Shares’ CDSC?
|
|
Purchases of $1 million or more of Class A Shares will be made at NAV with no initial sales charge. However, if you redeem
shares within 18 months after the end of the calendar month in which the purchase was made, excluding any period of time in which the shares were exchanged into and remained invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if your Authorized Dealer enters into an agreement with the Distributor to return all or an applicable prorated portion of its commission to the Distributor. The CDSC is waived on redemptions in certain
circumstances. See “In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?” below.
|
|
When Are Class A Shares Not Subject To A Sales Load?
|
|
Class A Shares of the Funds may be sold at NAV without payment of any sales charge to the following individuals and
entities:
|
|
n
|
Goldman Sachs, its affiliates or their respective officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner, any Trustee or officer of the Trust and designated family members of any of these individuals;
|
|
n
|
Qualified retirement plans of Goldman Sachs;
|
|
n
|
Trustees or directors of investment companies for which Goldman Sachs or an affiliate acts as sponsor;
|
|
n
|
Any employee or registered representative of any Authorized Dealer or their respective spouses, children and
parents;
|
|
n
|
Banks, trust companies or other types of depository institutions investing for their own account or investing for
discretionary or non-discretionary accounts;
|
|
n
|
Any state, county or city, or any instrumentality, department, authority or agency thereof, which is prohibited by applicable
investment laws from paying a sales charge or commission in connection with the purchase of shares of a Fund;
|
|
n
|
Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or other employee
benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations (“Retirement Plans”) that:
|
|
n
|
Buy shares of Goldman Sachs Funds worth $500,000 or more; or
|
|
n
|
Have 100 or more eligible employees at the time of purchase; or
|
|
n
|
Certify that they expect to have annual plan purchases of shares of Goldman Sachs Funds of $200,000 or more; or
|
|
n
|
Are provided administrative services by certain third-party administrators that have entered into a special service
arrangement with Goldman Sachs relating to such plans; or
|
SHAREHOLDER GUIDE
|
n
|
Have at the time of purchase aggregate assets of at least $2,000,000;
|
|
n
|
“Wrap” accounts for the benefit of clients of broker-dealers, financial institutions or financial planners,
provided they have entered into an agreement with GSAM specifying aggregate minimums and certain operating policies and standards;
|
|
n
|
Registered investment advisers investing for accounts for which they receive asset-based fees;
|
|
n
|
Accounts over which GSAM or its advisory affiliates have investment discretion;
|
|
n
|
Shareholders receiving distributions from a qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA;
|
|
n
|
Shareholders who roll over distributions from any tax-qualified retirement plan or tax-sheltered annuity to an IRA which
invests in the Goldman Sachs Funds if the tax-qualified retirement plan or tax-sheltered annuity receives administrative services provided by certain third-party administrators that have entered into a special service arrangement with Goldman Sachs
relating to such plan or annuity; or
|
|
n
|
Other exemptions may be stated from time to time in the Additional Statement.
|
|
You must certify eligibility for any of the above exemptions on your Account Application and notify the Fund if you no
longer are eligible for the exemption.
The Fund will grant you an exemption subject to confirmation of your entitlement. You may be charged a fee if you effect your transactions through a broker or agent.
|
|
How Can The Sales Charge On Class A Shares Be Reduced?
|
|
n
|
Right of Accumulation:
When buying Class A Shares in Goldman Sachs Funds, your current aggregate
investment determines the initial sales load you pay. You may qualify for reduced sales charges when the current market value of holdings (shares at current offering price), plus new purchases, reaches $50,000 or more. Class A Shares of any of the
Goldman Sachs Funds may be combined under the Right of Accumulation. To qualify for a reduced sales load, you or your Authorized Dealer must notify the Funds’ Transfer Agent at the time of investment that a quantity discount is applicable. Use
of this service is subject to a check of appropriate records. The Additional Statement has more information about the Right of Accumulation.
|
|
n
|
Statement of Intention:
You may obtain a reduced sales charge by means of a written Statement of
Intention which expresses your non-binding commitment to invest in the aggregate $50,000 or more (not counting reinvestments of dividends and distributions) within a period of 13 months in Class A Shares of one
or more Goldman Sachs Fund. Any investments you make during the period will receive the discounted sales load based on the full amount of your investment commitment. If the investment commitment of the Statement of Intention is not met prior to the
expiration of the 13-month period, the entire amount will be subject to the higher applicable sales charge. By signing the Statement of Intention, you authorize the Transfer Agent to escrow and redeem Class A Shares in your account to pay this
additional charge. The Additional Statement has more information about the Statement of Intention, which you should read carefully.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
|
|
What Is The Offering Price Of Class B Shares?
|
|
You may purchase Class B Shares of the Funds at the next determined NAV without an initial sales charge. However, Class B
Shares redeemed within six years of purchase will be subject to a CDSC at the rates shown in the table below based on how long you held your shares.
|
|
The CDSC schedule is as follows:
|
| Year Since Purchase |
CDSC as a
Percentage of Dollar Amount Subject to CDSC |
||
|---|---|---|---|
|
|
|||
| First | 5% | ||
| Second | 4% | ||
| Third | 3% | ||
| Fourth | 3% | ||
| Fifth | 2% | ||
| Sixth | 1% | ||
| Seventh and thereafter | None | ||
|
|
|||
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class B Shares, including the payment of compensation to Authorized Dealers. A commission equal to 4% of the amount invested is paid to
Authorized Dealers.
|
|
What Should I Know About The Automatic Conversion Of Class B Shares?
|
|
Class B Shares of a Fund will automatically convert into Class A Shares of the same Fund at the end of the calendar quarter
that is eight years after the purchase date.
|
SHAREHOLDER GUIDE
|
If you acquire Class B Shares of a Fund by exchange from Class B Shares of another Goldman Sachs Fund, your Class B Shares
will convert into Class A Shares of such Fund based on the date of the initial purchase and the CDSC schedule of that purchase.
|
|
If you acquire Class B Shares through reinvestment of distributions, your Class B Shares will convert into Class A Shares
based on the date of the initial purchase of the shares on which the distribution was paid.
|
|
The conversion of Class B Shares to Class A Shares will not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is unlikely. If conversions do not occur as a result of possible taxability, Class B Shares would continue to be subject to higher expenses than Class A Shares for an
indeterminate period.
|
|
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
|
|
What Is The Offering Price Of Class C Shares?
|
|
You may purchase Class C Shares of the Funds at the next determined NAV without paying an initial sales charge. However,
if you redeem Class C Shares within 12 months of purchase, a CDSC of 1% will normally be deducted from the redemption proceeds; provided that in connection with purchases by Retirement Plans, where all of the Class C Shares are redeemed within 12
months of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third-party administrator.
|
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class C Shares, including the payment of compensation to Authorized Dealers. An amount equal to 1% of the amount invested is normally paid by the
Distributor to Authorized Dealers.
|
|
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B AND C SHARES
|
|
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
|
|
n
|
The CDSC is based on the lesser of the NAV of the shares at the time of redemption or the original offering price (which is
the original NAV).
|
|
n
|
No CDSC is charged on shares acquired from reinvested dividends or capital gains distributions.
|
|
n
|
No CDSC is charged on the per share appreciation of your account over the initial purchase price.
|
|
n
|
When counting the number of months since a purchase of Class B or Class C Shares was made, all payments made during a month
will be combined and considered to have been made on the first day of that month.
|
|
n
|
To keep your CDSC as low as possible, each time you place a request to sell shares, the Funds will first sell any shares in
your account that do not carry a CDSC and then the shares in your account that have been held the longest.
|
|
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?
|
|
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC may be waived or reduced if the redemption relates
to:
|
|
n
|
Retirement distributions or loans to participants or beneficiaries from Retirement Plans;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
“Code”)) of a participant or beneficiary in a Retirement Plan;
|
|
n
|
Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
|
|
n
|
Satisfying the minimum distribution requirements of the Code;
|
|
n
|
Establishing “substantially equal periodic payments” as described under Section 72(t)(2) of the Code;
|
|
n
|
The separation from service by a participant or beneficiary in a Retirement Plan;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is made within one
year of the event;
|
|
n
|
Excess contributions distributed from a Retirement Plan;
|
|
n
|
Distributions from a qualified Retirement Plan invested in the Goldman Sachs Funds which are being rolled over to a Goldman
Sachs IRA; or
|
|
n
|
Redemption proceeds which are to be reinvested in accounts or non-registered products over which GSAM or its advisory
affiliates have investment discretion.
|
|
In addition, Class A, B and C Shares subject to a systematic withdrawal plan may be redeemed without a CDSC. The Funds
reserve the right to limit such redemptions, on an annual basis, to 12% each of the value of your Class B and C Shares and 10% of the value of your Class A Shares.
|
SHAREHOLDER GUIDE
|
How Do I Decide Whether To Buy Class A, B Or C Shares?
|
|
The decision as to which Class to purchase depends on the amount you invest, the intended length of the investment and
your personal situation.
|
|
n
|
Class A Shares.
If you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares.
|
|
n
|
Class B Shares.
If you plan to hold your investment for at least six years and would prefer not
to pay an initial sales charge, you might consider purchasing Class B Shares. By not paying a front-end sales charge, your entire investment in Class B Shares is available to work for you from the time you make your initial investment. However, the
distribution and service fee paid by Class B Shares will cause your Class B Shares (until conversion to Class A Shares) to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid) than
Class A Shares. A maximum purchase limitation of $250,000 in the aggregate normally applies to Class B Shares. Individual purchases exceeding $250,000 will be rejected.
|
|
n
|
Class C Shares.
If you are unsure of the length of your investment or plan to hold your
investment for less than six years and would prefer not to pay an initial sales charge, you may prefer Class C Shares. By not paying a front-end sales charge, your entire investment in Class C Shares is available to work for you from the time you
make your initial investment. However, the distribution and service fee paid by Class C Shares will cause your Class C Shares to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares (or Class B Shares after conversion to Class A Shares).
|
|
Although Class C Shares are subject to a CDSC for only 12 months, Class C Shares do not have the automatic eight year
conversion feature applicable to Class B Shares and your investment may pay higher distribution fees indefinitely.
|
|
A maximum purchase limitation of $1,000,000 in the aggregate normally applies to purchases of Class C Shares. Individual
purchases exceeding $1,000,000 will be rejected.
|
|
Note: Authorized Dealers may receive different compensation for selling Class A, Class B or Class C
Shares.
|
|
In addition to Class A, Class B and Class C Shares, each Fund also offers other classes of shares to investors. These other
share classes are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Each Fund will redeem
its shares upon request on any business day at the NAV next determined after receipt of such request in proper form, subject to any applicable CDSC.
You may request that redemption proceeds be sent to you by check or by wire (if the wire
instructions are on record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Obtain a signature guarantee (see details below) | |||
|
n
Mail your request to:
Goldman Sachs Funds c/o NFDS P.O. Box 219711 Kansas City, MO 64121-9711 |
|||
|
|
|||
| By Telephone: |
If you have not declined the telephone redemption
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
n
You may redeem up to $50,000 of your shares
within any 7 calendar day period |
|||
|
n
Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the $50,000 limit |
|||
|
|
|||
|
When Do I Need A Signature Guarantee To Redeem Shares?
|
|
A signature guarantee is required if:
|
|
n
|
You are requesting in writing to redeem shares in an amount over $50,000;
|
|
n
|
You would like the redemption proceeds sent to an address that is not your address of record; or
|
|
n
|
You would like to change the bank designated on your Account Application.
|
|
A signature guarantee must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot
provide a signature guarantee. Additional documentation may be required for executors, trustees or corporations or when deemed appropriate by the Transfer Agent.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. The Trust may accept telephone redemption instructions from any person identifying himself or herself as the owner of an account or the owner’s
registered representative where the owner has not declined in writing to use this service. Thus, you risk possible losses if a telephone redemption is not authorized by you.
|
|
In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs and NFDS each
employ reasonable procedures specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Proceeds of telephone redemption requests will be sent only to your address of record or authorized bank account designated
in the Account Application (unless you provide written instructions and a signature guarantee, indicating another address or account) and exchanges of shares normally will be made only to an identically registered account.
|
|
n
|
Telephone redemptions by check to your address of record will not be accepted during the 30-day period following any change
in your address of record.
|
|
n
|
The telephone redemption option does not apply to shares held in a “street name” account. “Street name”
accounts are accounts maintained and serviced by your Authorized Dealer. If your account is held in “street name,” you should contact your registered representative of record, who may make telephone redemptions on your behalf.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
A transaction fee of $7.50 may be charged for payments of redemption proceeds by wire. Your bank may also charge wiring fees.
You should contact your bank directly to learn whether it charges such fees.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions (with your signature
guaranteed) to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect to receive your redemption proceeds by check. Redemption proceeds paid by check will
normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance is less than $50 as a result of a redemption. The Funds will not redeem your
shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Funds will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of
the Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interests of the
Trust.
|
SHAREHOLDER GUIDE
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional shares of the same class of the Fund
that pays the distribution. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs Fund?
|
|
You may redeem shares of a Fund and reinvest a portion or all of the redemption proceeds (plus any additional amounts needed
to round off purchases to the nearest full share) at NAV. To be eligible for this privilege, you must hold the shares you want to redeem for at least 30 days and you must reinvest the share proceeds within 90 days after you redeem. You may reinvest
as follows:
|
|
n
|
Class A or B Shares—Class A Shares of the same Fund or any other Goldman Sachs Fund
|
|
n
|
Class C Shares—Class C Shares of the same Fund or any other Goldman Sachs Fund
|
|
n
|
You should obtain and read the applicable prospectuses before investing in any other Funds.
|
|
n
|
If you pay a CDSC upon redemption of Class A or Class C Shares and then reinvest in Class A or Class C Shares as described
above, your account will be credited with the amount of the CDSC you paid. The reinvested shares will, however, continue to be subject to a CDSC. The holding period of the shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subsequent redemption. For Class B Shares, you may reinvest the redemption proceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemption of the Class B Shares will
not be credited to your account.
|
|
n
|
The reinvestment privilege may be exercised at any time in connection with transactions in which the proceeds are reinvested
at NAV in a tax-sheltered retirement plan. In other cases, the reinvestment privilege may be exercised once per year upon receipt of a written request.
|
|
n
|
You may be subject to tax as a result of a redemption. You should consult your tax adviser concerning the tax consequences of
a redemption and reinvestment.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange shares of a Fund at NAV without the imposition of an initial sales charge or CDSC at the time of exchange
for shares of the same class or an equivalent class of any other Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
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|
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| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount you want to exchange | |||
| n Obtain a signature guarantee (see details above) | |||
| n Mail the request to: | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| P.O. Box 219711 | |||
| Kansas City, MO 64121-9711 | |||
| or for overnight delivery— | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| 330 West 9th St. | |||
| Poindexter Bldg., 1st Floor | |||
| Kansas City, MO 64105 | |||
|
|
|||
| By Telephone: |
If you have not declined the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
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You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
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Currently, there is no charge for exchanges, although a Fund may impose a charge in the future.
|
|
n
|
The exchanged shares may later be exchanged for shares of the same class (or an equivalent class) of the original Fund at the
next determined NAV without the imposition of an initial sales charge or CDSC if the amount in the Fund resulting from such exchanges is less than the largest amount on which you have previously paid the applicable sales charge.
|
|
n
|
When you exchange shares subject to a CDSC, no CDSC will be charged at that time. The exchanged shares will be subject to the
CDSC of the shares originally held. For purposes of determining the amount of the applicable CDSC, the length of time you have owned the shares will be measured from the date you acquired the original shares subject to a CDSC and will not be
affected by a subsequent exchange.
|
SHAREHOLDER GUIDE
|
n
|
Eligible investors may exchange certain classes of shares for another class of shares of the same Fund. For further
information, call Goldman Sachs Funds at 1-800-526-7384 and see the Additional Statement.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund.
|
|
n
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Exchanges are available only in states where exchanges may be legally made.
|
|
n
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs and NFDS may use reasonable procedures described under “What Do I Need to Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account. Shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and accompanied by a signature guarantee.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered
together.
|
|
SHAREHOLDER SERVICES
|
|
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
|
|
You may be able to make systematic cash investments through your bank via ACH transfer or your checking account via bank
draft each month. Forms for this option are available from Goldman Sachs, your Authorized Dealer or you may check the appropriate box on the Account Application.
|
|
Can My Dividends From A Fund Be Invested In Other Funds?
|
|
You may elect to cross-reinvest dividends paid by a Fund in shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
|
|
n
|
Shares will be purchased at NAV.
|
|
n
|
No initial sales charge or CDSC will be imposed.
|
|
n
|
You may elect cross-reinvestment into an identically registered account or an account registered in a different name or with
a different address, social security number or taxpayer identification number provided that the account has been properly established, appropriate signature guarantees obtained and the minimum initial investment has been satisfied.
|
|
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
|
|
You may elect to exchange automatically a specified dollar amount of shares of a Fund for shares of the same class or an
equivalent class of any other Goldman Sachs Fund.
|
|
n
|
Shares will be purchased at NAV.
|
|
n
|
No initial sales charge is imposed.
|
|
n
|
Shares subject to a CDSC acquired under this program may be subject to a CDSC at the time of redemption from the Fund into
which the exchange is made depending upon the date and value of your original purchase.
|
|
n
|
Automatic exchanges are made monthly on the 15th day of each month or the first business day thereafter.
|
|
n
|
Minimum dollar amount: $50 per month.
|
|
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
|
|
Cross-reinvestments and automatic exchanges are subject to the following conditions:
|
|
n
|
You must hold $5,000 or more in the Fund which is paying the dividend or from which the exchange is being made.
|
SHAREHOLDER GUIDE
|
n
|
You must invest an amount in the Fund into which cross-reinvestments or automatic exchanges are being made that is equal to
that Fund’s minimum initial investment or continue to cross-reinvest or to make automatic exchanges until such minimum initial investment is met.
|
|
n
|
You should obtain and read the prospectus of the Fund into which dividends are invested or automatic exchanges are
made.
|
|
Can I Have Automatic Withdrawals Made On A Regular Basis?
|
|
You may draw on your account systematically via check or ACH transfer in any amount of $50 or more.
|
|
n
|
It is normally undesirable to maintain a systematic withdrawal plan at the same time that you are purchasing additional Class
A, Class B or Class C Shares because of the sales charge imposed on your purchases of Class A Shares or the imposition of a CDSC on your redemptions of Class A, Class B or Class C Shares.
|
|
n
|
You must have a minimum balance of $5,000 in a Fund.
|
|
n
|
Checks are mailed on or about the 25th day of each month.
|
|
n
|
Each systematic withdrawal is a redemption and therefore a taxable transaction.
|
|
n
|
The CDSC applicable to Class A, Class B or Class C Shares redeemed under the systematic withdrawal plan may be
waived.
|
|
What Types Of Reports Will I Be Sent Regarding My Investment?
|
|
You will be provided with a printed confirmation of each transaction in your account and an individual quarterly account
statement. A year-to-date statement for your account will be provided upon request made to Goldman Sachs. If your account is held in “street name” you may receive your statements and confirmations on a different schedule.
|
|
You will also receive an annual shareholder report containing audited financial statements and a semi-annual shareholder
report. If you have consented to the delivery of a single copy of shareholder reports, prospectuses and other information to all shareholders who share the same mailing address with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372. The Funds will begin sending individual copies to you within 30 days after receipt of your revocation.
|
|
The Funds do not generally provide sub-accounting services.
|
|
What Should I Know When I Purchase Shares Through An Authorized Dealer?
|
|
Authorized Dealers and other financial intermediaries may provide varying arrangements for their clients to purchase and
redeem Fund shares. They may charge additional fees not described in this Prospectus to their customers for such services.
|
|
If shares of a Fund are held in a “street name” account with an Authorized Dealer, all recordkeeping, transaction
processing and payments of distributions relating to your account will be performed by the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have no record of your transactions, you should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give instructions concerning the account or to obtain information about your account. The transfer of shares in a “street name” account to an account with another dealer
or to an account directly with the Fund involves special procedures and will require you to obtain historical purchase information about the shares in the account from the Authorized Dealer.
|
|
Authorized Dealers and other financial intermediaries may be authorized to accept, on behalf of the Trust, purchase,
redemption and exchange orders placed by or on behalf of their customers, and if approved by the Trust, to designate other intermediaries to accept such orders. In these cases:
|
|
n
|
A Fund will be deemed to have received an order that is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a business day, and the order will be priced at the Fund’s NAV per share (adjusted for any applicable sales charge) next determined after such acceptance.
|
|
n
|
Authorized Dealers and intermediaries are responsible for transmitting accepted orders to the Funds within the time period
agreed upon by them.
|
|
You should contact your Authorized Dealer or intermediary to learn whether it is authorized to accept orders for the
Trust.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Authorized Dealers and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
DISTRIBUTION SERVICES AND FEES
|
|
What Are The Different Distribution And Service Fees Paid By Class A, B and C Shares?
|
|
The Trust has adopted distribution and service plans (each a “Plan”) under which Class A, Class B and Class C
Shares bear distribution and service fees paid to Authorized Dealers and Goldman Sachs. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from these arrangements. Goldman Sachs pays
the distribution and service fees on a quarterly basis.
|
SHAREHOLDER GUIDE
|
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund for distribution services equal, on an annual
basis, to 0.25%, 0.75% and 0.75%, respectively, of a Fund’s average daily net assets attributed to Class A, Class B and Class C Shares. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time, these fees will
increase the cost of your investment and may cost you more than paying other types of such charges.
|
|
The distribution fees are subject to the requirements of Rule 12b-1 under the Act, and may be used (among other things)
for:
|
|
n
|
Compensation paid to and expenses incurred by Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives;
|
|
n
|
Commissions paid to Authorized Dealers;
|
|
n
|
Allocable overhead;
|
|
n
|
Telephone and travel expenses;
|
|
n
|
Interest and other costs associated with the financing of such compensation and expenses;
|
|
n
|
Printing of prospectuses for prospective shareholders;
|
|
n
|
Preparation and distribution of sales literature or advertising of any type; and
|
|
n
|
All other expenses incurred in connection with activities primarily intended to result in the sale of Class A, Class B and
Class C Shares.
|
|
In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.75% distribution fee as an ongoing
commission to Authorized Dealers after the shares have been held for one year.
|
|
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
|
|
Under the Plans, Goldman Sachs is also entitled to receive a separate fee equal on an annual basis to 0.25% of each
Fund’s average daily net assets attributed to Class A Shares (Real Estate Securities Fund only), Class B or Class C Shares. This fee is for personal and account maintenance services, and may be used to make payments to Goldman Sachs, Authorized
Dealers and their officers, sales representatives and employees for responding to inquiries of, and furnishing assistance to, shareholders regarding ownership of their shares or their accounts or similar services not otherwise provided on behalf of
the Funds. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from this arrangement.
|
|
In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.25% ongoing service fee to
Authorized Dealers after the shares have been held for one year.
|
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
|
|
DISTRIBUTIONS
|
|
Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of Fund
distributions and the sale of your Fund shares.
|
|
Distributions you receive from the Funds are generally subject to federal income tax, and may also be subject to state or
local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax purposes, the Funds’ income dividend distributions and short-term capital gain distributions are taxable to you
as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Fund shares.
|
|
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Funds’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Funds will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
|
|
Each Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Funds may deduct these taxes in computing their taxable income.
|
|
If you buy shares of a Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
|
TAXATION
|
SALES AND EXCHANGES
|
|
Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
|
|
OTHER INFORMATION
|
|
When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
|
Additional Information on Portfolio Risks, Securities and Techniques
|
A. General Portfolio Risks
|
|
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 similar enterprises, warrants
and stock purchase rights. In general, stock values 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. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
To the extent that a Fund invests in fixed-income securities, that Fund will also be subject to the risks associated with its
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
(although many mortgage-related securities will have less potential 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 an issuer or guarantor could default on its obligations, and a Fund will not recover its investment. Call risk and extension risk are normally present in 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 prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors. The same would be true of asset-backed securities such as securities backed by car loans.
|
APPENDIX A
|
The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for a
Fund. A high rate of portfolio 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 turnover 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 securities 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 Additional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however, that all investment objectives, and all investment 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 Internet and Internet-Related Companies.
Internet and Internet-related companies are
generally subject to a rate of change in technology which is higher than other industries and often requires extensive and sustained investment in research and development. As a result, Internet and Internet-related companies are exposed to the risk
of rapid product obsolescence. Changes in governmental policies, such as telephone and cable regulations and anti-trust enforcement, and the need for regulatory approvals may have an adverse effect on the products, services and securities of
Internet and Internet-related companies. Internet and Internet-related companies may also produce or use products or services that prove commercially unsuccessful. In addition, intense worldwide competitive pressures and changing demand, evolving
industry standards, challenges in achieving product capability, loss of patent protection or proprietary rights, reduction or interruption in the supply of key components, changes in strategic alliances, frequent mergers or acquisitions or other
factors can have a significant effect on the financial conditions of companies in these industries. Competitive pressures in the Internet and Internet-related industries may affect negatively the financial condition of Internet and Internet-related
companies. Internet and
Internet-related companies are also subject to the risk of service disruptions and the risk of losses arising out of litigation related to these disruptions. Many Internet companies have exceptionally high price-to-earnings ratios with little or no
earnings histories, and many Internet companies are currently operating at a loss and may never be profitable. In certain instances, Internet and Internet-related securities may experience significant price movements caused by disproportionate
investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result of these and other reasons, investments in the Internet and Internet-related industry can experience sudden and rapid appreciation and
depreciation.
|
|
Risks of IPOs.
The Funds may invest in IPOs. An IPO is a company’s first offering of stock to the public.
IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the
issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to
investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the
Fund’s performance. Because of the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of the Fund’s portfolio and may lead to increased expenses to the Fund,
such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of
time. There is no assurance that a Fund will be able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for a Fund to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal
shareholders.
|
|
Risks of Investing in Small Capitalization Companies and REITs.
Each Fund may invest in small capitalization
companies and REITs. Investments in small capitalization companies and REITs involve greater risk and portfolio 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 periods the liquidity of particular issuers or industries, or all
securities in these particular 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
sufficient 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 bankruptcy. Transaction costs
for these investments are often higher than those of larger capitalization companies. Investments in small capitalization companies and REITs may be more difficult to price precisely than other types of securities because of their characteristics
and lower trading volumes.
|
|
Risks of Foreign Investments.
Each Fund may make foreign investments. Foreign investments involve special risks
that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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. dollar before such income is distributed as dividends
to shareholders or converted 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 participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”) may have an
impact on the euro. Also, it is possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, 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 assets held by the Funds may be denominated in the euro.
|
|
Brokerage commissions, custodial services and other costs relating to investment 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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely 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 geographically concentrated.
|
|
Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary 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.
The 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 countries are gener
ally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. A Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the
prices of listed securities, periodic trading or settlement 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 respective clients and other service providers. A Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations 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 addition,
certain 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 purchased 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 securities in certain Asian and other
countries, it is anticipated that a Fund may invest in such countries through other investment funds in such countries.
|
|
Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
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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 military 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 developments 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. As an
example, in the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not occur
in Eastern Europe or other countries.
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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 countries to the Fund.
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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 because of theft or other reasons.
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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. As a result, the Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.
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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 economic, 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 disadvantageous
time and only then 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.
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APPENDIX A
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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 significant portion of the Funds’ currency exposure in emerging countries, if any, will be covered by such instruments.
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Risks of Derivative Investments.
A Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars, structured securities 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 fluctuations 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 considered a speculative practice and presents even greater risk of loss.
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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:
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Both domestic and foreign securities that are not readily marketable
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Certain stripped mortgage-backed securities
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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Certain over-the-counter options
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Certain structured securities and all swap transactions
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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.
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Investing in 144A Securities may decrease the liquidity of a Fund’s portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of
comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Funds may include securities (including zero coupon bonds)
issued by the U.S. government (and its agencies,
instrumentalities and sponsored enterprises), domestic and foreign corporations, banks and other issuers. Further information is provided in the Additional Statement.
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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 their 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 comparable credit quality.
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The 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating 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.
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Temporary Investment Risks.
Each Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
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U.S. government securities
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Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
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Certificates of deposit
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Bankers’ acceptances
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Repurchase agreements
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Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
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When a Fund’s assets are invested in such instruments, the Fund may not be achieving its investment
objective.
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C. Portfolio Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Funds, including their associated risks.
Further information is provided in the Additional Statement, which is available upon request.
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Convertible Securities.
Each Fund 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 securities 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 market 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.
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Foreign Currency Transactions.
A 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.
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Each Fund 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. 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 the foreign currency to appreciate against the U.S. dollar).
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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.
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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.
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Structured Securities.
Each Fund may invest in structured securities. Structured securities are securities
whose value is determined 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 complex securities.
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REITs.
Each Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, 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.
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Fund may write (sell) covered call and put options and purchase
put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may invest. The Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and
call options on foreign currencies.
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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 considered 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 currency) 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.
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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 specified 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 transactions on U.S. and foreign exchanges.
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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 selections and
duration in accordance with its investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions 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
immediately thereafter the sum of the amount of initial margin deposits and premiums 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.
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Futures contracts and related options present the following risks:
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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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
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Because perfect correlation between a futures position and a portfolio position 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.
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The loss incurred by a Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
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Futures markets are highly volatile and the use of futures may increase the volatility of a Fund’s NAV.
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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 substantial losses to a Fund.
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Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
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Foreign exchanges may not provide the same protection as U.S. exchanges.
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Equity Swaps.
Each Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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.
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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, which may be substantial. 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. Because equity swaps are normally illiquid, a Fund may be unable to terminate its obligations when desired.
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APPENDIX A
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When-Issued Securities and Forward Commitments.
Each Fund may purchase when-issued securities and enter into
forward commitments. 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.
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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 settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser
deems it appropriate.
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Repurchase Agreements.
Repurchase agreements involve the purchase of securities 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.
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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 additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.
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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.
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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 loan 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 by a Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and a 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 (including the loan collateral).
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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.
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Short Sales Against-the-Box.
Each Fund may make short sales against-the-box. A short sale against-the-box means
that at all times when a short position is open the Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without payment of any further consideration, an equal amount of the securities of the
same issuer as the securities sold short.
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Preferred Stock, Warrants and Rights.
Each Fund 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 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 or other non-compliance by the issuer of the preferred stock.
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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.
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Other Investment Companies.
Each Fund may invest in securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares™, as defined below) subject to statutory limitations prescribed by the Act. These limitations 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 companies. 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 iShares™ are shares of unaffiliate investment companies
which are traded like traditional equity securities on a national securities exchange or the NASDAQ® National Market System.
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Standard &
Poor’s Depositary Receipts™.
The Funds may, consistent with their investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
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iShares™
(formerly World Equity Benchmark Shares or WEBS).
iShares are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and
regions. iShares are listed on the AMEX and were initially offered to the public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares
on the AMEX. To date, iShares have traded at relatively modest discounts and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or
other disruptions affecting iShares 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
iShares as part of its investment strategy.
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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.
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Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. Each Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial
institutions and supranational entities (
i.e.
, the World Bank, the International Monetary Fund, etc.).
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Bank Obligations.
Each Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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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U.S. Government Securities.
Each Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of the U.S.
government to purchase certain obligations of the issuer; 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 components of stripped U.S. government securities are traded independently.
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Custodial Receipts.
Each Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
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Mortgage-Backed Securities.
Each Fund may invest in mortgage-backed securities. Mortgage-backed securities
represent direct or indirect participations 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 securities.
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Mortgage-backed securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”) and Real Estate Mortgage Investment Conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real property and other
permitted investments.
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Mortgaged-backed securities also include stripped mortgage-backed securities (“SMBS”), which are derivative
multiple class mortgage-backed securities. SMBS are usually structured with two different classes: one that receives substantially all of the interest 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.
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Asset-Backed Securities.
Each Fund 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 receivables, leases, installment contracts and personal property. 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. 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. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on
repossessed collateral may not be available to support payments on the 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.
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Borrowings.
Each Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its total assets.
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Mortgage Dollar Rolls.
The Real Estate Securities Fund 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 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 (a) the price received for the securities sold
and (b) the lower forward price for the future purchase and/or fee income plus the interest 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 securities sold as part of the roll, the use of this technique will diminish the Fund’s 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 Fund treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Fund does not currently intend to enter into mortgage dollar rolls that are accounted for as a financing and does not treat them as borrowings.
|
|
Yield Curve Options.
The Real Estate Securities 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 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.
|
|
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. 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
The Real Estate Securities Fund may enter into swap transactions for hedging purposes or to seek to increase total return.
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 the 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 these investment
techniques were not used.
|
|
Inverse Floaters.
The Real Estate Securities Fund may invest in 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 an 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.
|
[This page intentionally left blank]
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). The information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with a Fund’s financial statements, is
included in the Funds’ annual report (available upon request). The information for all periods prior to the period ended December 31, 2000 has been audited by the Funds’ previous independent auditors.
|
|
INTERNET TOLLKEEPER FUND
|
|
Income (loss) from
investment operations |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, beginning of period |
Net
investment loss (c) |
Net realized
and unrealized gain (loss) |
Total
income (loss) from investment operations |
Total
distributions to shareholders from net realized gains |
||||||||||
|
|
||||||||||||||
| For the Year Ended December 31, | ||||||||||||||
| 2000 - Class A Shares | $19.25 | $(0.20) | $(6.94 | ) | $(7.14 | ) | $(0.21 | ) | ||||||
| 2000 - Class B Shares | 19.20 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Class C Shares | 19.19 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Institutional Shares | 19.25 | (0.13) | (6.94 | ) | (7.07 | ) | (0.21 | ) | ||||||
| 2000 - Service Shares | 19.23 | (0.21) | (6.93 | ) | (7.14 | ) | (0.21 | ) | ||||||
|
|
||||||||||||||
| For the Period Ended December 31, | ||||||||||||||
|
1999 - Class A Shares
(commenced October 1) |
10.00 | (0.05) | 9.30 | 9.25 | — | |||||||||
|
1999 - Class B Shares
(commenced October 1) |
10.00 | (0.08) | 9.28 | 9.20 | — | |||||||||
|
1999 - Class C Shares
(commenced October 1) |
10.00 | (0.08) | 9.27 | 9.19 | — | |||||||||
|
1999 - Institutional Shares
(commenced October 1) |
10.00 | (0.03) | 9.28 | 9.25 | — | |||||||||
|
1999 - Service Shares
(commenced October 1) |
10.00 | (0.05) | 9.28 | 9.23 | — | |||||||||
|
|
||||||||||||||
See page 76 for all footnotes
APPENDIX B
|
REAL ESTATE SECURITIES FUND
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total from
investment operations |
|||||||||
|
|
||||||||||||
| For the Years Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $8.68 | $0.44 | (c) | $2.28 | $2.72 | |||||||
| 2000 - Class B Shares | 8.73 | 0.40 | (c) | 2.27 | 2.67 | |||||||
| 2000 - Class C Shares | 8.66 | 0.39 | (c) | 2.27 | 2.66 | |||||||
| 2000 - Institutional Shares | 8.69 | 0.48 | (c) | 2.30 | 2.78 | |||||||
| 2000 - Service Shares | 8.69 | 0.44 | (c) | 2.30 | 2.74 | |||||||
|
|
||||||||||||
| 1999 - Class A Shares | 9.20 | 0.38 | (c) | (0.48 | ) | (0.10 | ) | |||||
| 1999 - Class B Shares | 9.27 | 0.28 | (c) | (0.45 | ) | (0.17 | ) | |||||
| 1999 - Class C Shares | 9.21 | 0.30 | (c) | (0.48 | ) | (0.18 | ) | |||||
| 1999 - Institutional Shares | 9.21 | 0.40 | (c) | (0.47 | ) | (0.07 | ) | |||||
| 1999 - Service Shares | 9.21 | 0.38 | (c) | (0.49 | ) | (0.11 | ) | |||||
|
|
||||||||||||
| For the Period Ended December 31, | ||||||||||||
| 1998 - Class A Shares (commenced July 27) | 10.00 | 0.15 | (0.80 | ) | (0.65 | ) | ||||||
| 1998 - Class B Shares (commenced July 27) | 10.00 | 0.14 | (c) | (0.83 | ) | (0.69 | ) | |||||
| 1998 - Class C Shares (commenced July 27) | 10.00 | 0.22 | (c) | (0.91 | ) | (0.69 | ) | |||||
| 1998 - Institutional Shares (commenced July 27) | 10.00 | 0.31 | (c) | (0.95 | ) | (0.64 | ) | |||||
| 1998 - Service Shares (commenced July 27) | 10.00 | 0.25 | (c) | (0.91 | ) | (0.66 | ) | |||||
|
|
||||||||||||
See page 76 for all footnotes
APPENDIX B
APPENDIX B
|
REAL ESTATE SECURITIES FUND (continued)
|
|
Ratios assuming
no expense reductions |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
Portfolio
turnover rate |
||||||||||||
|
|
||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||
| 2000 - Class A Shares | 1.44 | % | 4.43 | % | 1.99 | % | 3.88 | % | 49 | % | ||||||
| 2000 - Class B Shares | 2.19 | 3.93 | 2.49 | 3.63 | 49 | |||||||||||
| 2000 - Class C Shares | 2.19 | 3.90 | 2.49 | 3.60 | 49 | |||||||||||
| 2000 - Institutional Shares | 1.04 | 4.89 | 1.34 | 4.59 | 49 | |||||||||||
| 2000 - Service Shares | 1.54 | 4.46 | 1.84 | 4.16 | 49 | |||||||||||
|
|
||||||||||||||||
| 1999 - Class A Shares | 1.44 | 4.14 | 1.96 | 3.62 | 37 | |||||||||||
| 1999 - Class B Shares | 2.19 | 3.21 | 2.46 | 2.94 | 37 | |||||||||||
| 1999 - Class C Shares | 2.19 | 3.38 | 2.46 | 3.11 | 37 | |||||||||||
| 1999 - Institutional Shares | 1.04 | 4.43 | 1.31 | 4.16 | 37 | |||||||||||
| 1999 - Service Shares | 1.54 | 4.17 | 1.81 | 3.90 | 37 | |||||||||||
|
|
||||||||||||||||
| For the Period Ended December 31, | ||||||||||||||||
| 1998 - Class A Shares (commenced July 27) | 1.47 | (b) | 23.52 | (b) | 3.52 | (b) | 21.47 | (b) | 6 | |||||||
| 1998 - Class B Shares (commenced July 27) | 2.19 | (b) | 3.60 | (b) | 4.02 | (b) | 1.77 | (b) | 6 | |||||||
| 1998 - Class C Shares (commenced July 27) | 2.19 | (b) | 5.49 | (b) | 4.02 | (b) | 3.66 | (b) | 6 | |||||||
| 1998 - Institutional Shares (commenced July 27) | 1.04 | (b) | 8.05 | (b) | 2.87 | (b) | 6.22 | (b) | 6 | |||||||
| 1998 - Service Shares (commenced July 27) | 1.54 | (b) | 6.29 | (b) | 3.37 | (b) | 4.46 | (b) | 6 | |||||||
|
|
||||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
Index
| 21 | Service Providers | |||
| 26 | Dividends | |||
| 27 | Shareholder Guide | |||
| 27 | How To Buy Shares | |||
| 38 | How To Sell Shares | |||
| 48 | Taxation | |||
| 50 | Appendix A | |||
|
Additional Information on
Portfolio Risks, Securities and Techniques |
||||
| 72 | Appendix B | |||
| Financial Highlights | ||||
Specialty Funds
Prospectus
(Class A, B and C Shares)
|
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 the last fiscal year.
|
|
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).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are available free upon request by calling
Goldman Sachs at 1-800-526-7384.
|
|
To obtain other information and for shareholder inquiries:
|
|
By telephone – Call 1-800-526-7384
|
|
By mail – Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
Goldman Sachs – http://www.gs.com (Prospectus Only)
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Internet Tollkeeper Fund
SM
is a service mark of Goldman, Sachs & Co.
SPECPROABC
518089
|
Prospectus
|
Institutional Shares
May 1, 2001
|
GOLDMAN SACHS SPECIALTY FUNDS
|
|
n
|
Goldman
Sachs Internet Tollkeeper Fund
SM
|
|
n
|
Goldman
Sachs Real Estate Securities Fund
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND Y0U MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the Internet Tollkeeper and Real Estate Securities Funds. Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
|
|
GROWTH STYLE FUNDS—INTERNET TOLLKEEPER FUND
|
|
THE FUND INVESTS IN “INTERNET TOLLKEEPER” COMPANIES, AND ITS NET ASSET VALUE (NAV) MAY FLUCTUATE SUBSTANTIALLY
OVER TIME. BECAUSE THE FUND CONCENTRATES ITS INVESTMENTS IN INTERNET TOLLKEEPER COMPANIES, THE FUND’S PERFORMANCE MAY BE SUBSTANTIALLY DIFFERENT FROM THE RETURNS OF THE BROADER STOCK MARKET AND OF “PURE” INTERNET FUNDS. PAST
PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS AND, DEPENDING ON THE TIMING OF YOUR INVESTMENT, YOU MAY LOSE MONEY EVEN IF THE FUND’S PAST RETURNS HAVE BEEN POSITIVE. THE FUND’S PARTICIPATION IN THE INITIAL PUBLIC OFFERING (IPO) MARKET
DURING ITS INITIAL START-UP PHASE MAY HAVE HAD A MAGNIFIED IMPACT ON THE FUND’S PERFORMANCE BECAUSE OF ITS RELATIVELY SMALL ASSET BASE. AS THE FUND’S ASSETS CONTINUE TO GROW, IT IS PROBABLE THAT THE EFFECT OF IPO INVESTMENTS ON THE
FUND’S FUTURE PERFORMANCE WILL NOT BE AS SIGNIFICANT.
|
|
Goldman Sachs’ Growth Investment Philosophy:
|
|
1.
|
Invest as if buying the company/business, not simply trading its stock:
|
|
n
|
Understand the business, management, products and competition.
|
|
n
|
Perform intensive, hands-on fundamental research.
|
|
n
|
Seek businesses with strategic competitive advantages.
|
|
n
|
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 franchises, 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.
|
|
REAL ESTATE SECURITIES FUND
|
|
Goldman Sachs’ Real Estate Securities Investment Philosophy:
|
|
When choosing the Fund’s securities, the Investment Adviser:
|
|
n
|
Selects stocks based on quality of assets, experienced management and a sustainable competitive advantage.
|
|
n
|
Seeks to buy securities at a discount to the intrinsic value of the business (assets and management).
|
|
n
|
Seeks a team approach to decision making.
|
|
Over time, REITs (which stands for Real Estate Investment Trusts) have offered investors important diversification and
competitive total returns versus the broad equity market.
|
Internet Tollkeeper Fund
|
FUND FACTS
|
|
|
Objective:
|
Long-term growth of capital
|
|
Benchmarks:
|
S&P 500® Index
NASDAQ Composite Index
Goldman Sachs Internet Index
|
|
Investment Focus:
|
U.S. equity securities that offer long-term capital appreciation
with a primary focus on the media, telecommunications, technology and Internet sectors |
|
Investment Style:
|
Growth
|
|
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 and at least 65% of its total assets in equity securities of “Internet Tollkeeper” companies (as described
below), which are companies in the media, telecommunications, technology and Internet sectors which provide access, infrastructure, content and services to Internet companies and Internet users. The Fund seeks to achieve its investment objective by
investing in equity securities of companies that the Investment Adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. The Fund may also invest up
to 35% of its total assets in other companies whose rapid adoption of an Internet strategy is expected to improve their cost structure, revenue opportunities or competitive advantage and Internet-based companies that the Investment Adviser believes
exhibit a sustainable business model. Although the Fund invests primarily 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 markets or countries
(“emerging countries”) and securities quoted in foreign currencies.
|
|
The Internet.
The Internet is a global collection of connected computers that allows commercial and professional organizations, educational institutions, government agencies, and individuals to communicate electronically, access
and share information, and conduct business.
|
|
The Internet has had, and is expected to continue to have, a significant impact on the global economy, as it changes the way
many companies operate. Benefits of the Internet for businesses may include global scalability, acquisition of new clients, new revenue sources and increased efficiencies.
|
|
Internet Tollkeepers.
The Fund intends to invest a substantial portion of its assets in companies the Investment Adviser describes as Internet Tollkeepers. In general, the Investment Adviser defines a tollkeeper as a company with
predictable, sustainable or recurring revenue streams. Like a toll collector for a highway or bridge, these tollkeeper companies may grow revenue by increasing “traffic,” or customers and sales, and raising “tolls,” or prices.
The Investment Adviser believes that the characteristics of many of these tollkeepers, including dominant market share and strong brand name, should enable them to consistently grow their business. An Internet Tollkeeper is a company that has
developed or is seeking to develop predictable, sustainable or recurring revenue streams by applying the above characteristics to the growth of the Internet. The Investment Adviser does not define companies that merely have an Internet site or sell
some products over the Internet as Internet Tollkeepers (although the Investment Adviser may invest in such companies as part of the Fund’s 35% basket of securities which are not or may not be Internet Tollkeepers).
|
|
Internet Tollkeepers are media, telecommunications, technology and Internet companies which provide access, infrastructure,
content and services to Internet companies and Internet users. The following represent examples of each of these types of companies, but should not be construed to exclude other types of Internet Tollkeepers:
|
|
n
|
Access providers enable individuals and businesses to connect to the Internet through, for example, cable systems or the
telephone network.
|
|
n
|
Infrastructure companies provide items such as servers, routers, software and storage necessary for companies to participate
in the Internet.
|
|
n
|
Media content providers own copyrights, distribution networks and/or programming. Traditional media companies stand to
benefit from an increase in advertising spending by Internet companies. Copyright owners stand to benefit from a new distribution channel for their music and video properties. They also will benefit from increasing demand for traditional items like
CDs and DVDs driven by aggressive competition among Internet retailers.
|
|
n
|
Service providers may facilitate transactions, communications, security, computer programming and back-office functions for
Internet businesses. For
example, Internet companies may contract out advertising sales or credit card clearing to service providers.
|
|
Our Approach to Investing in the Internet.
While the Internet is clearly a significant force in shaping businesses and driving the economy, many Internet-based companies have not shown sustainable growth in the past, and the Investment Adviser
believes that others will not show sustainable growth in the future. Many Internet-based companies that are engaged in electronic commerce are focused on driving sales volume and competing with other Internet-based companies. Often, this competition
is based on price, and if these companies do not own strong franchises, then the Investment Adviser believes there could be significant uncertainty regarding their long-term profitability.
|
|
The Investment Adviser believes that another attractive way to invest in the Internet sector is to invest in businesses
participating in the growth of the Internet that potentially have long-lasting strategic advantages. Characteristics of these companies may include: dominant market share, strong brand names, recurring revenue streams, cost advantages, economies of
scale, financial strength, technological advantages and strong, experienced management teams.
|
|
Beneficiaries of the Internet that may meet the above criteria include those companies (Internet Tollkeepers) providing
access, infrastructure, content, and services to Internet companies and Internet users. The Fund will also invest in companies whose rapid adoption of an Internet strategy is expected to improve their cost structure or competitive advantage.
Internet-based companies that exhibit a sustainable business model may also be candidates for purchase by the Fund. The Investment Adviser pays careful attention to the stock prices of these companies, seeking to purchase them at a discount to their
intrinsic value.
|
|
Because of its narrow industry focus, the Fund’s investment performance will be closely tied to many factors which
affect the Internet and Internet-related industries. These factors include intense competition, consumer preferences, problems with product compatibility and government regulation. Internet and Internet-related securities may experience significant
price movements caused by disproportionate investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result, the Fund’s NAV is more likely to have greater fluctuations than that of a Fund which invests in
other industries.
|
Real Estate Securities Fund
|
FUND FACTS
|
|
|
Objective:
|
Total return comprised of long-term growth of capital and dividend income
|
|
Benchmark:
|
Wilshire Real Estate Securities Index
|
|
Investment Focus:
|
REITs and real estate industry companies
|
|
Investment Style:
|
Growth at a discount
|
|
INVESTMENT OBJECTIVE
|
|
The Fund seeks total return comprised of long-term growth of capital and dividend income.
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
Equity Securities.
The Fund invests, under normal circumstances, substantially all and at least 80% of its total assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real
estate industry. The Fund expects that a substantial portion of its assets will be invested in REITs and real estate industry companies.
|
|
A “real estate industry company” is a company that derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management or sale of commercial, industrial or residential real estate or interests therein.
|
|
The Fund’s investment strategy is based on the premise that property market fundamentals are the primary determinant of
growth, underlying the success of companies in the real estate industry. The Investment Adviser focuses on companies that can achieve sustainable growth in cash flow and dividend paying capability. The Investment Adviser attempts to purchase
securities so that its underlying portfolio will be diversified geographically and by property type. Although the Fund will invest primarily in publicly traded U.S. securities, it may invest up to 15% of its total assets in foreign securities,
including securities of issuers in emerging countries and securities quoted in foreign currencies.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs. Mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skill, may not be
diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax free pass-through of income and failing to maintain their exemptions
from investment company registration. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions.
|
|
REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a
REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable
rate mortgage loans are reset periodically, yields on a REIT’s investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate obligations.
|
|
The REIT investments of the Real Estate Securities Fund often do not provide complete tax information to the Fund until after
the calendar year-end. Consequently, because of the delay, it may be necessary for the Fund to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
|
|
Other.
The Fund may invest up to 20% of its total assets in fixed-income securities, such as government, corporate debt and bank obligations, that offer the potential to further the Fund’s investment
objective.
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the Funds in seeking to achieve their investment objectives.
The table also highlights the differences between 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.
10
Percent of total assets
(italic
type)
10
Percent of net assets (roman type)
|
Ÿ
|
No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Investment Practices | |||||
| Borrowings |
33
1
/
3
|
33
1
/
3
|
|||
| Credit, Currency, Index, Interest Rate and Mortgage Swaps* | — | 15 | |||
| Cross Hedging of Currencies | Ÿ | Ÿ | |||
| Custodial Receipts | Ÿ | Ÿ | |||
| Equity Swaps* | 15 | 15 | |||
| Foreign Currency Transactions** | Ÿ | Ÿ | |||
| Futures Contracts and Options on Futures Contracts | Ÿ | Ÿ | |||
| Interest Rate Caps, Floors and Collars | — | Ÿ | |||
| Investment Company Securities (including exchange-traded funds) | 10 | 10 | |||
| Mortgage Dollar Rolls | — | Ÿ | |||
| Options on Foreign Currencies 1 | Ÿ | Ÿ | |||
| Options on Securities and Securities Indices 2 | Ÿ | Ÿ | |||
| Repurchase Agreements | Ÿ | Ÿ | |||
| Securities Lending |
33
1
/
3
|
33
1
/
3
|
|||
| Short Sales Against the Box | 25 | 25 | |||
| Unseasoned Companies | Ÿ | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | Ÿ | |||
|
|
|||||
|
*
|
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 each Fund may invest in foreign securities.
|
|
1
|
The Funds may purchase and sell call and put options.
|
|
2
|
The Funds may sell covered call and put options and purchase call and put options.
|
OTHER INVESTMENT PRACTICES AND SECURITIES
10
Percent of total assets
(italic
type
)
10
Percent of net assets (roman type)
|
Ÿ
|
No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Investment Securities | |||||
| American, European and Global Depository Receipts | Ÿ | Ÿ | |||
| Asset-Backed and Mortgage-Backed Securities 3 | Ÿ | Ÿ | |||
| Bank Obligations 3 | Ÿ | Ÿ | |||
| Convertible Securities 4 | Ÿ | Ÿ | |||
| Corporate Debt Obligations 3 | Ÿ | Ÿ | |||
| Equity Securities | 90+ | 80+ | |||
| Emerging Country Securities 5 | 25 | 15 | |||
| Fixed Income Securities | 10 | 20 | |||
| Foreign Securities 5 | 25 | 15 | |||
| Non-Investment Grade Fixed Income Securities | 10 6 | 20 6 | |||
| Real Estate Investment Trusts | Ÿ | Ÿ | |||
| Stripped Mortgage-Backed Securities *, 3 | — | Ÿ | |||
| Structured Securities 3 | Ÿ | Ÿ | |||
| Temporary Investments | Ÿ | Ÿ | |||
| U.S. Government Securities 3 | Ÿ | Ÿ | |||
| Yield Curve Options and Inverse Floating Rate Securities | — | Ÿ | |||
|
|
|||||
|
*
|
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.
|
|
3
|
Limited by the amount the Fund invests in fixed-income securities.
|
|
4
|
Convertible securities purchased by the Funds use the same rating criteria for convertible and non-convertible debt
securities.
|
|
5
|
The Internet Tollkeeper and Real Estate Securities Funds may invest in the aggregate up to 25% and 15%,
respectively, of their total assets in foreign securities, including emerging country securities.
|
|
6
|
May be BB or lower by Standard & Poor’s or Ba or lower by Moody’s.
|
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.
|
Ÿ
Applicable
— Not applicable |
Internet
Tollkeeper Fund |
Real
Estate Securities Fund |
|||
|---|---|---|---|---|---|
|
|
|||||
| Internet | Ÿ | — | |||
| Credit/Default | Ÿ | Ÿ | |||
| Foreign | Ÿ | Ÿ | |||
| Emerging Countries | Ÿ | Ÿ | |||
| Industry Concentration | Ÿ | Ÿ | |||
| Stock | Ÿ | Ÿ | |||
| Derivatives | Ÿ | Ÿ | |||
| Interest Rate | Ÿ | Ÿ | |||
| IPO | Ÿ | Ÿ | |||
| Management | Ÿ | Ÿ | |||
| Market | Ÿ | Ÿ | |||
| Liquidity | Ÿ | Ÿ | |||
| REIT | Ÿ | Ÿ | |||
| Small Cap | Ÿ | Ÿ | |||
|
|
|||||
PRINCIPAL RISKS OF THE FUNDS
All Funds:
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by a Fund may
default on its obligation to pay interest and repay principal.
|
|
n
|
Foreign Risk
—The risk that when a Fund invests in foreign securities, it will be subject to risk 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.
|
|
n
|
Emerging Countries Risk
—The securities markets of Asian, Latin and South American, Eastern European,
African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not subject to as extensive 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
registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
|
|
n
|
Industry Concentration Risk
—The risk that each of the Funds concentrates its investments in specific
industry sectors that have historically experienced substantial price volatility. Each Fund is subject to greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different
industry sectors. Securities of issuers held by the Funds may lack sufficient market liquidity to enable a Fund to sell the securities at an advantageous time or without a substantial drop in price.
|
|
n
|
Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
n
|
Derivatives Risk
—The risk that loss may result from a Fund’s investments in options, futures, swaps,
structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to a Fund.
|
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, 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 fixed-income securities.
|
|
n
|
IPO Risk
—The risk that the market value of IPO shares will fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk
and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s
assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the Fund’s performance.
|
|
n
|
Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
|
|
n
|
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 companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods.
|
|
n
|
Liquidity Risk
—The risk that a Fund will not be able to pay redemption proceeds 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 or emerging
country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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. The Goldman Sachs Asset Allocation Portfolios (the “Asset Allocation Portfolios”) expect to invest a significant percentage
of their assets in the Real Estate Securities Fund and other funds for which Goldman Sachs now or in the future acts as investment adviser or underwriter. Redemptions by an Asset Allocation Portfolio of its position in a Fund may further increase
liquidity risk and may impact a Fund’s NAV.
|
|
n
|
REIT Risk
—Investing in REITs involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions. The securities of 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 of an
advantageous time or without a substantial drop in price.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 substantial drop in price.
|
Internet Tollkeeper Fund:
|
n
|
Internet Risk
—The risk that the stock prices of Internet and Internet-related companies will experience
significant price movements as a result of intense market volatility, worldwide competition, consumer preferences, product compatibility, product obsolescence, government regulation, excessive investor optimism or pessimism, or other
factors.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE FUNDS HAVE PERFORMED
|
|
The bar charts and tables below provide an indication of the risks of investing in a Fund by showing: (a) changes in the
performance of a Fund’s Institutional Shares from year to year; and (b) how the average annual returns of a Fund’s Institutional Shares compare to those of broad-based securities market indices. The bar chart and table assume reinvestment
of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s
performance would have been reduced.
|
FUND PERFORMANCE
Internet Tollkeeper Fund
SM
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ‘00
+
5.77%
Worst Quarter
Q4 ‘00
-
31.74%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 10/1/99) | (36.88)% | 16.79% | |||
| S&P 500 Index* | (9.10)% | 3.51% | |||
| NASDAQ Composite Index** | (39.29)% | (8.08)% | |||
| Goldman Sachs Internet Index*** | (74.50)% | (52.00)% | |||
|
|
|||||
|
*
|
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks prices. The Index figures do not reflect any fees or expenses.
|
|
**
|
The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ National Market and
Small-Cap stocks. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Goldman Sachs Internet Index is a capitalization-weighted index of selected Internet companies. The Index
figures do not reflect any fees or expenses.
|
Real Estate Securities Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’99
+
13.01%
Worst Quarter
Q3 ’99
-
10.07%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 7/27/98) | 32.45% | 8.95% | |||
| Wilshire Real Estate Securities Index* | 30.74% | 5.29% | |||
|
|
|||||
|
*
|
The Wilshire Real Estate Securities Index is an unmanaged index of publicly traded REITs and real estate operating
companies. The Index figures do not reflect any fees or expenses.
|
This table describes the fees and expenses that you would pay if you buy and hold Institutional Shares of a Fund.
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees | 1.00% | 1.00% | |||
| Distribution and Service (12b-1) Fees | None | None | |||
| Other Expenses 2 | 0.10% | 0.34% | |||
|
|
|||||
| Total Fund Operating Expenses* | 1.10% | 1.34% | |||
|
|
|||||
|
See page 18 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Funds which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total
Fund Operating Expenses” may increase without shareholder approval.
|
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees | 1.00% | 1.00% | |||
| Distribution and Service (12b-1) Fees | None | None | |||
| Other Expenses 2 | 0.10% | 0.04% | |||
|
|
|||||
|
Total Fund Operating Expenses (after
current expense limitations) |
1.10% | 1.04% | |||
|
|
|||||
Fund Fees and Expenses
continued
1
The Funds’ annual operating expenses are based on actual expenses.
2
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the
average daily net assets of each Fund’s Institutional Shares plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses”(excluding management fees, transfer
agency fees and expenses, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentages of each Fund’s average daily net assets:
| Fund |
Other
Expenses |
||
|---|---|---|---|
|
|
|||
| Internet Tollkeeper | 0.06% | ||
| Real Estate Securities | 0.00% | ||
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Institutional Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Internet Tollkeeper | $112 | $350 | $606 | $1,304 | |||||
|
|
|||||||||
| Real Estate Securities | $136 | $425 | $734 | $1,613 | |||||
|
|
|||||||||
Institutions that invest in Institutional Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain institutions that invest in Institutional Shares on behalf of their customers may receive other compensation in connection with the sale and distribution of
Institutional Shares or for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Statement
of Additional Information (“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | |||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | |||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
makes the investment decisions for the Funds and places purchase and sale orders for the Funds’ portfolio transactions in U.S. and foreign markets. As permitted by applicable law, these orders may be directed to any brokers, including Goldman
Sachs and its affiliates. While the Investment Adviser is ultimately responsible for the management 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 will 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:
|
|
n
|
Supervises all non-advisory operations of the Funds
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Funds
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | 1.00% | 1.00% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.00% | |||
|
|
|||||
|
FUND MANAGERS
|
|
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. Mr. Hillenbrand joined
Goldman Sachs in 1997 upon its acquisition of Commodities Corporation, LLC where he was, and continues as, President. Over the course of his 20-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.
|
|
Growth Equity Investment Team
|
|
n
|
20-year consistent investment style applied through diverse and complete market cycles
|
|
n
|
More than $20 billion in equities currently under management
|
|
n
|
A portfolio management and analytical team with more than 200 years combined investment experience
|
Growth Equity Investment Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
George D. Adler
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Adler joined the Investment Adviser
as a portfolio manager in 1997. From 1990 to 1997, he was a portfolio manager at Liberty Investment Management, Inc. (“Liberty”). Liberty became part of Goldman Sachs Asset Management on January 1, 1997 as a result of an acquisition. Prior to 1994, Liberty was known as Eagle Asset Management. |
||||
|
|
|||||||
|
Steve Barry
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Barry joined the Investment
Adviser as a portfolio manager in 1999. From 1988 to 1999, he was a portfolio manager at Alliance Capital Management. |
||||
|
|
|||||||
|
Kenneth T. Berents
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
2000 |
Mr. Berents joined the Investment
Adviser as a portfolio manager in 2000. From 1992 to 1999, he was Director of Research and head of the Investment Committee at Wheat First Union. |
||||
|
|
|||||||
|
Robert G. Collins
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Collins joined the Investment
Adviser as a portfolio manager and Co-Chair of the Growth Equity Investment Committee in 1997. From 1991 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
Herbert E. Ehlers
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
|||||||
|
Gregory H. Ekizian
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ekizian joined the Investment
Adviser as a portfolio manager and Co- Chair of the Growth Equity Investment Committee in 1997. From 1990 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
Scott Kolar
Vice President |
Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Kolar joined the Investment
Adviser as an 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. |
||||
|
|
|||||||
|
Ernest C. Segundo, Jr.
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Segundo joined the Investment
Adviser as a portfolio manager in 1997. From 1992 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
David G. Shell
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Shell joined the Investment
Adviser as a portfolio manager in 1997. From 1987 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
SERVICE PROVIDERS
Real Estate Securities Team
The Real Estate Securities portfolio management team includes individuals with backgrounds in:
|
n
|
Fundamental real estate acquisition, development and operations
|
|
n
|
Real estate capital markets
|
|
n
|
Mergers and acquisitions
|
|
n
|
Asset management
|
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Herbert E. Ehlers
Managing Director |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
|||||||
|
Mark Howard-
Johnson Vice President |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Howard-Johnson joined the
Investment Adviser as a portfolio manager in 1998. His previous experience includes 15 years in the real estate finance business. From 1996 to 1998, he was the senior equity analyst for Boston Financial, responsible for the Pioneer Real Estate Shares Fund. Prior to joining Boston Financial, from 1994 to 1996, Mr. Howard-Johnson was a real estate securities analyst for The Penobscot Group, Inc., one of only two independent research firms in the public real estate securities business. |
||||
|
|
|||||||
|
Greg Poole
Associate |
Portfolio Manager—
Real Estate Securities |
Since
2000 |
Mr. Poole joined the Investment
Adviser as a real estate securities analyst in 1998 and became portfolio manager in 2000. His previous experience includes investment analysis and financial structuring for the Real Estate Principal Investment Group of the Investment Banking Division of Goldman Sachs, which he joined in 1996. He received his B.A. in Honours Economics from the University of Western Ontario in 1996. |
||||
|
|
|||||||
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to a Fund or limit a Fund’s investment activities. Goldman Sachs and its affiliates 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 types 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 interest. A Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the statement of additional information (the “Additional Statement”).
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | Annually | Annually | |||
|
|
|||||
| Real Estate Securities | Quarterly | Annually | |||
|
|
|||||
From time to time a portion of a Fund’s dividends may constitute a return of capital.
When you purchase shares of a Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Institutional Shares.
|
|
How Can I Purchase Institutional Shares Of The Funds?
|
|
You may purchase Institutional Shares on any business day at their NAV next determined after receipt of an order. No sales
load is charged. You should place an order with Goldman Sachs at 1-800-621-2550 and either:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian) on the next business day;
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
|
|
In order to make an initial investment in a Fund, you must furnish to the Fund or Goldman Sachs the Account Application.
Purchases of Institutional Shares must be settled within three business days of receipt of a complete purchase order.
|
|
In certain instances, the Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
How Do I Purchase Shares Through A Financial Institution?
|
|
Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders placed by or on behalf of their customers, and may designate other intermediaries to accept such
orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or
intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
SHAREHOLDER GUIDE
|
n
|
Authorized institutions and intermediaries will be responsible for transmitting accepted orders and payments to the Trust
within the time period agreed upon by them.
|
|
You should contact your institution or intermediary to learn whether it is authorized to accept orders for the
Trust.
|
|
These institutions may receive payments from the Funds or Goldman Sachs for the services provided by them with respect to the
Funds’ Institutional Shares. These payments may be in addition to other payments borne by the Funds.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
In addition to Institutional Shares, each Fund also offers other classes of shares to investors. These other share classes
are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Institutional Shares. Information regarding these other share classes may be obtained
from your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What is My Minimum Investment in the Funds?
|
| Type of Investor | Minimum Investment | ||
|---|---|---|---|
|
|
|||
|
n
Banks, trust companies or other
depository institutions investing for their own account or on behalf of clients |
$1,000,000 in Institutional Shares of a Fund
alone or in combination with other assets under the management of GSAM and its affiliates |
||
|
n
Section 401(k), profit sharing,
money purchase pension, tax- sheltered annuity, defined benefit pension, or other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations |
|||
|
n
State, county, city or any
instrumentality, department, authority or agency thereof |
|||
|
n
Corporations with at least $100
million in assets or in outstanding publicly traded securities |
|||
|
n
“Wrap” account sponsors (provided
they have an agreement covering the arrangement with GSAM) |
|||
|
n
Registered investment advisers
investing for accounts for which they receive asset-based fees |
|||
|
|
|||
| n Individual investors | $10,000,000 | ||
|
n
Qualified non-profit organizations,
charitable trusts, foundations and endowments |
|||
|
n
Accounts over which GSAM or its
advisory affiliates have investment discretion |
|||
|
|
|||
|
The minimum investment requirement may be waived for current and former officers, partners, directors or employees of Goldman
Sachs or any of its affiliates or for other investors at the discretion of the Trust’s officers. No minimum amount is required for subsequent investments.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment amounts.
|
|
n
|
Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of
frequent purchases, sales or exchanges of Institutional Shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of a Fund.
|
|
n
|
Close a Fund to new investors from time to time and reopen a Fund whenever it is deemed appropriate by a Fund’s
Investment Adviser.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Institutional Shares is the Fund’s next determined NAV. The
Funds calculate NAV as follows:
|
| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
|
|
||
| Number of Outstanding Shares of the Class |
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper
form.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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 investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
|
How Can I Sell Institutional Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, each Fund
will redeem its Institutional Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
You may request that redemption proceeds be sent to you by check or by wire (if the wire
instructions are on record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Mail the request to: | |||
| Goldman Sachs Funds | |||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: | If you have elected the telephone redemption | ||
| privilege on your Account Application: | |||
| 1-800-621-2550 | |||
| (8:00 a.m. to 4:00 p.m. New York time) | |||
|
|
|||
|
Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Funds as described
under “How Do I Purchase Shares Through A Financial Institution?”
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not
employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect in writing to receive your redemption proceeds by check. Redemption proceeds paid by
check will normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take
up to 15 days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Institutions (including banks, trust companies, brokers and investment advisers) are responsible for the timely transmittal
of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, these institutions may set times by which they must receive redemption requests. These institutions may also
require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance falls below $50 as a result of earlier redemptions. The Funds will not redeem your
shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Fund will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Institutional Shares of the Fund that
pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange Institutional Shares of a Fund at NAV for Institutional Shares of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
SHAREHOLDER GUIDE
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be
made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing) trading practices may disrupt portfolio
management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders. To minimize harm to the Trust (or
Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment
of the Trust (or Goldman Sachs), has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered together.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Institutional Shares?
|
|
You will receive an annual report containing audited financial statements and a semi-annual report. To eliminate unnecessary
duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly account statement. The Funds do not generally provide sub-accounting services.
|
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
|
|
DISTRIBUTIONS
|
|
Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of Fund
distributions and the sale of your Fund shares.
|
|
Distributions you receive from the Funds are generally subject to federal income tax, and may also be subject to state or
local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax purposes, the Funds’ income dividend distributions and short-term capital gain distributions are taxable to you
as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Fund shares.
|
|
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Funds’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Funds will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
|
|
Each Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Funds may deduct these taxes in computing their taxable income.
|
|
If you buy shares of a Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
|
|
SALES AND EXCHANGES
|
|
Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
|
|
OTHER INFORMATION
|
|
When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
|
Additional Information on Portfolio Risks, Securities and Techniques
|
A. General Portfolio Risks
|
|
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 similar enterprises, warrants
and stock purchase rights. In general, stock values 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. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
To the extent that a Fund invests in fixed-income securities, that Fund will also be subject to the risks associated with its
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
(although many mortgage-related securities will have less potential 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 an issuer or guarantor could default on its obligations, and a Fund will not recover its investment. Call risk and extension risk are normally present in 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 prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors. The same would be true of asset-backed securities such as securities backed by car loans.
|
|
The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for a
Fund. A high rate of portfolio 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 turnover 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 securities 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 Additional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however, that all investment objectives, and all investment 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 Internet and Internet-Related Companies.
Internet and Internet-related companies are
generally subject to a rate of change in technology which is higher than other industries and often requires extensive and sustained investment in research and development. As a result, Internet and Internet-related companies are exposed to the risk
of rapid product obsolescence. Changes in governmental policies, such as telephone and cable regulations and anti-trust enforcement, and the need for regulatory approvals may have an adverse effect on the products, services and securities of
Internet and Internet-related companies. Internet and Internet-related companies may also produce or use products or services that prove commercially unsuccessful. In addition, intense worldwide competitive pressures and changing demand, evolving
industry standards, challenges in achieving product capability, loss of patent protection or proprietary rights, reduction or interruption in the supply of key components, changes in strategic alliances, frequent mergers or acquisitions or other
factors can have a significant effect on the financial conditions of companies in these industries. Competitive pressures in the Internet and Internet-related industries may affect negatively the financial condition of Internet and Internet-related
companies. Internet and
Internet-related companies are also subject to the risk of service disruptions and the risk of losses arising out of litigation related to these disruptions. Many Internet companies have exceptionally high price-to-earnings ratios with little or no
earnings histories, and many Internet companies are currently operating at a loss and may never be profitable. In certain instances, Internet and Internet-related securities may experience significant price movements caused by disproportionate
investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result of these and other reasons, investments in the Internet and Internet-related industry can experience sudden and rapid appreciation and
depreciation.
|
|
Risks of IPOs.
The Funds may invest in IPOs. An IPO is a company’s first offering of stock to the public.
IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the
issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to
investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the
Fund’s performance. Because of the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of the Fund’s portfolio and may lead to increased expenses to the Fund,
such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of
time. There is no assurance that a Fund will be able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for a Fund to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal
shareholders.
|
|
Risks of Investing in Small Capitalization Companies and REITs.
Each Fund may invest in small capitalization
companies and REITs. Investments in small capitalization companies and REITs involve greater risk and portfolio 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 periods the liquidity of particular issuers or industries, or all
securities in these particular 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
sufficient 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 bankruptcy. Transaction costs
for these investments are often higher than those of larger capitalization companies. Investments in small capitalization companies and REITs may be more difficult to price precisely than other types of securities because of their characteristics
and lower trading volumes.
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Risks of Foreign Investments.
Each Fund may make foreign investments. Foreign investments involve special risks
that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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. dollar before such income is distributed as dividends
to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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The introduction of a single currency, the euro, on January 1, 1999 for participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”) may have an
impact on the euro. Also, it is possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, 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 assets held by the Funds may be denominated in the euro.
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Brokerage commissions, custodial services and other costs relating to investment 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.
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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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.
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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 geographically concentrated.
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Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary 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.
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Risks of Emerging Countries.
The 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 countries are gener
ally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. A Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the
prices of listed securities, periodic trading or settlement 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 respective clients and other service providers. A Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.
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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 addition,
certain 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 purchased 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 securities in certain Asian and other
countries, it is anticipated that a Fund may invest in such countries through other investment funds in such countries.
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Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
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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 military 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 developments 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. As an
example, in the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not occur
in Eastern Europe or other countries.
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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 countries to the Fund.
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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 because of theft or other reasons.
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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. As a result, the Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.
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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 economic, 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 disadvantageous
time and only then 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.
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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 significant portion of the Funds’ currency exposure in emerging countries, if any, will be covered by such instruments.
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Risks of Derivative Investments.
A Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars, structured securities 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 fluctuations 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 considered a speculative practice and presents even greater risk of loss.
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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:
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Both domestic and foreign securities that are not readily marketable
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Certain stripped mortgage-backed securities
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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Certain over-the-counter options
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Certain structured securities and all swap transactions
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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.
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Investing in 144A Securities may decrease the liquidity of a Fund’s portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of
comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Funds may include securities (including zero coupon bonds)
issued by the U.S. government (and its agencies,
instrumentalities and sponsored enterprises), domestic and foreign corporations, banks and other issuers. Further information is provided in the Additional Statement.
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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 their 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 comparable credit quality.
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The 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating 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.
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Temporary Investment Risks.
Each Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
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U.S. government securities
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Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
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Certificates of deposit
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Bankers’ acceptances
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Repurchase agreements
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Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
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When a Fund’s assets are invested in such instruments, the Fund may not be achieving its investment
objective.
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C. Portfolio Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Funds, including their associated risks.
Further information is provided in the Additional Statement, which is available upon request.
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Convertible Securities.
Each Fund 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 securities 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 market 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.
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Foreign Currency Transactions.
A 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.
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Each Fund 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. 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 the foreign currency to appreciate against the U.S. dollar).
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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.
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APPENDIX A
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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.
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Structured Securities.
Each Fund may invest in structured securities. Structured securities are securities
whose value is determined 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 complex securities.
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REITs.
Each Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, 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.
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Fund may write (sell) covered call and put options and purchase
put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may invest. The Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and
call options on foreign currencies.
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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 considered 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 currency) 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.
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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 specified 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 transactions on U.S. and foreign exchanges.
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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 selections and
duration in accordance with its investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions 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
immediately thereafter the sum of the amount of initial margin deposits and premiums 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.
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Futures contracts and related options present the following risks:
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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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
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Because perfect correlation between a futures position and a portfolio position 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.
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The loss incurred by a Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
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Futures markets are highly volatile and the use of futures may increase the volatility of a Fund’s NAV.
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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 substantial losses to a Fund.
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Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
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Foreign exchanges may not provide the same protection as U.S. exchanges.
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Equity Swaps.
Each Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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.
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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, which may be substantial. 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. Because equity swaps are normally illiquid, a Fund may be unable to terminate its obligations when desired.
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When-Issued Securities and Forward Commitments.
Each Fund may purchase when-issued securities and enter into
forward commitments. 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.
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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 settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser
deems it appropriate.
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Repurchase Agreements.
Repurchase agreements involve the purchase of securities 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.
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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 additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.
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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.
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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 loan 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 by a Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and a 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 (including the loan collateral).
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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.
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Short Sales Against-the-Box.
Each Fund may make short sales against-the-box. A short sale against-the-box means
that at all times when a short position is open the Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without payment of any further consideration, an equal amount of the securities of the
same issuer as the securities sold short.
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Preferred Stock, Warrants and Rights.
Each Fund 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 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 or other non-compliance by the issuer of the preferred stock.
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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.
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Other Investment Companies.
Each Fund may invest in securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares™, as defined below) subject to statutory limitations prescribed by the Act. These limitations 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 companies. 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 iShares™ are shares of unaffiliate investment companies
which are traded like traditional equity securities on a national securities exchange or the NASDAQ® National Market System.
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Standard &
Poor’s Depositary Receipts™.
The Funds may, consistent with their investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
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iShares™
(formerly World Equity Benchmark Shares or WEBS).
iShares are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and
regions. iShares are listed on the AMEX and were initially offered to the public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares
on the AMEX. To date, iShares have traded at relatively modest discounts and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or
other disruptions affecting iShares 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
iShares as part of its investment strategy.
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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.
|
|
Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. Each Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial
institutions and supranational entities (
i.e.
, the World Bank, the International Monetary Fund, etc.).
|
|
Bank Obligations.
Each Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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.
|
|
U.S. Government Securities.
Each Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of the U.S.
government to purchase certain obligations of the issuer; 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 components of stripped U.S. government securities are traded independently.
|
|
Custodial Receipts.
Each Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
|
|
Mortgage-Backed Securities.
Each Fund may invest in mortgage-backed securities. Mortgage-backed securities
represent direct or indirect participations 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 securities.
|
|
Mortgage-backed securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”) and Real Estate Mortgage Investment Conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under the Code and invests in certain mortgages 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 with two different classes: one that receives substantially all of the interest 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.
Each Fund 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 receivables, leases, installment contracts and personal property. 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. 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. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on
repossessed collateral may not be available to support payments on the 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.
|
|
Borrowings.
Each Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its total assets.
|
|
Mortgage Dollar Rolls.
The Real Estate Securities Fund 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 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 (a) the price received for the securities sold
and (b) the lower forward price for the future purchase and/or fee income plus the interest 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 securities sold as part of the roll, the use of this technique will diminish the Fund’s 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 Fund treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Fund does not currently intend to enter into mortgage dollar rolls that are accounted for as a financing and does not treat them as borrowings.
|
|
Yield Curve Options.
The Real Estate Securities 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 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.
|
|
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. 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
The Real Estate Securities Fund may enter into swap transactions for hedging purposes or to seek to increase total return.
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 the 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 these investment
techniques were not used.
|
|
Inverse Floaters.
The Real Estate Securities Fund may invest in 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 an 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.
|
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). The information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with a Fund’s financial statements, is
included in the Funds’ annual report (available upon request). The information for all periods prior to the period ended December 31, 2000 has been audited by the Funds’ previous independent auditors.
|
|
INTERNET TOLLKEEPER FUND
|
|
Income (loss) from
investment operations |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, beginning of period |
Net
investment loss (c) |
Net realized
and unrealized gain (loss) |
Total
income (loss) from investment operations |
Total
distributions to shareholders from net realized gains |
||||||||||
|
|
||||||||||||||
| For the Year Ended December 31, | ||||||||||||||
| 2000 - Class A Shares | $19.25 | $(0.20) | $(6.94 | ) | $(7.14 | ) | $(0.21 | ) | ||||||
| 2000 - Class B Shares | 19.20 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Class C Shares | 19.19 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Institutional Shares | 19.25 | (0.13) | (6.94 | ) | (7.07 | ) | (0.21 | ) | ||||||
| 2000 - Service Shares | 19.23 | (0.21) | (6.93 | ) | (7.14 | ) | (0.21 | ) | ||||||
|
|
||||||||||||||
| For the Period Ended December 31, | ||||||||||||||
|
1999 - Class A Shares
(commenced October 1) |
10.00 | (0.05) | 9.30 | 9.25 | — | |||||||||
|
1999 - Class B Shares
(commenced October 1) |
10.00 | (0.08) | 9.28 | 9.20 | — | |||||||||
|
1999 - Class C Shares
(commenced October 1) |
10.00 | (0.08) | 9.27 | 9.19 | — | |||||||||
|
1999 - Institutional Shares
(commenced October 1) |
10.00 | (0.03) | 9.28 | 9.25 | — | |||||||||
|
1999 - Service Shares
(commenced October 1) |
10.00 | (0.05) | 9.28 | 9.23 | — | |||||||||
|
|
||||||||||||||
See page 62 for all footnotes
APPENDIX B
|
REAL ESTATE SECURITIES FUND
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total from
investment operations |
|||||||||
|
|
||||||||||||
| For the Years Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $8.68 | $0.44 | (c) | $2.28 | $2.72 | |||||||
| 2000 - Class B Shares | 8.73 | 0.40 | (c) | 2.27 | 2.67 | |||||||
| 2000 - Class C Shares | 8.66 | 0.39 | (c) | 2.27 | 2.66 | |||||||
| 2000 - Institutional Shares | 8.69 | 0.48 | (c) | 2.30 | 2.78 | |||||||
| 2000 - Service Shares | 8.69 | 0.44 | (c) | 2.30 | 2.74 | |||||||
|
|
||||||||||||
| 1999 - Class A Shares | 9.20 | 0.38 | (c) | (0.48 | ) | (0.10 | ) | |||||
| 1999 - Class B Shares | 9.27 | 0.28 | (c) | (0.45 | ) | (0.17 | ) | |||||
| 1999 - Class C Shares | 9.21 | 0.30 | (c) | (0.48 | ) | (0.18 | ) | |||||
| 1999 - Institutional Shares | 9.21 | 0.40 | (c) | (0.47 | ) | (0.07 | ) | |||||
| 1999 - Service Shares | 9.21 | 0.38 | (c) | (0.49 | ) | (0.11 | ) | |||||
|
|
||||||||||||
| For the Period Ended December 31, | ||||||||||||
| 1998 - Class A Shares (commenced July 27) | 10.00 | 0.15 | (0.80 | ) | (0.65 | ) | ||||||
| 1998 - Class B Shares (commenced July 27) | 10.00 | 0.14 | (c) | (0.83 | ) | (0.69 | ) | |||||
| 1998 - Class C Shares (commenced July 27) | 10.00 | 0.22 | (c) | (0.91 | ) | (0.69 | ) | |||||
| 1998 - Institutional Shares (commenced July 27) | 10.00 | 0.31 | (c) | (0.95 | ) | (0.64 | ) | |||||
| 1998 - Service Shares (commenced July 27) | 10.00 | 0.25 | (c) | (0.91 | ) | (0.66 | ) | |||||
|
|
||||||||||||
See page 62 for all footnotes
APPENDIX B
|
REAL ESTATE SECURITIES FUND (continued)
|
|
Ratios assuming
no expense reductions |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
Portfolio
turnover rate |
||||||||||||
|
|
||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||
| 2000 - Class A Shares | 1.44 | % | 4.43 | % | 1.99 | % | 3.88 | % | 49 | % | ||||||
| 2000 - Class B Shares | 2.19 | 3.93 | 2.49 | 3.63 | 49 | |||||||||||
| 2000 - Class C Shares | 2.19 | 3.90 | 2.49 | 3.60 | 49 | |||||||||||
| 2000 - Institutional Shares | 1.04 | 4.89 | 1.34 | 4.59 | 49 | |||||||||||
| 2000 - Service Shares | 1.54 | 4.46 | 1.84 | 4.16 | 49 | |||||||||||
|
|
||||||||||||||||
| 1999 - Class A Shares | 1.44 | 4.14 | 1.96 | 3.62 | 37 | |||||||||||
| 1999 - Class B Shares | 2.19 | 3.21 | 2.46 | 2.94 | 37 | |||||||||||
| 1999 - Class C Shares | 2.19 | 3.38 | 2.46 | 3.11 | 37 | |||||||||||
| 1999 - Institutional Shares | 1.04 | 4.43 | 1.31 | 4.16 | 37 | |||||||||||
| 1999 - Service Shares | 1.54 | 4.17 | 1.81 | 3.90 | 37 | |||||||||||
|
|
||||||||||||||||
| For the Period Ended December 31, | ||||||||||||||||
| 1998 - Class A Shares (commenced July 27) | 1.47 | (b) | 23.52 | (b) | 3.52 | (b) | 21.47 | (b) | 6 | |||||||
| 1998 - Class B Shares (commenced July 27) | 2.19 | (b) | 3.60 | (b) | 4.02 | (b) | 1.77 | (b) | 6 | |||||||
| 1998 - Class C Shares (commenced July 27) | 2.19 | (b) | 5.49 | (b) | 4.02 | (b) | 3.66 | (b) | 6 | |||||||
| 1998 - Institutional Shares (commenced July 27) | 1.04 | (b) | 8.05 | (b) | 2.87 | (b) | 6.22 | (b) | 6 | |||||||
| 1998 - Service Shares (commenced July 27) | 1.54 | (b) | 6.29 | (b) | 3.37 | (b) | 4.46 | (b) | 6 | |||||||
|
|
||||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
Index
Specialty Funds
Prospectus
(Institutional Shares)
|
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 the last fiscal year.
|
|
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).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Internet Tollkeeper Fund
SM
is a service mark of Goldman, Sachs & Co.
|
SPECPROINST
|
|
Prospectus
|
Service
Shares
Shares
May 1, 2001
|
GOLDMAN SACHS SPECIALTY FUNDS
|
|
n
|
Goldman
Sachs Internet Tollkeeper Fund
SM
|
|
n
|
Goldman
Sachs Real Estate Securities Fund
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the Internet Tollkeeper and Real Estate Securities Funds. Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
|
|
GROWTH STYLE FUNDS—INTERNET TOLLKEEPER FUND
|
|
THE FUND INVESTS IN “INTERNET TOLLKEEPER” COMPANIES, AND ITS NET ASSET VALUE (NAV) MAY FLUCTUATE SUBSTANTIALLY
OVER TIME. BECAUSE THE FUND CONCENTRATES ITS INVESTMENTS IN INTERNET TOLLKEEPER COMPANIES, THE FUND’S PERFORMANCE MAY BE SUBSTANTIALLY DIFFERENT FROM THE RETURNS OF THE BROADER STOCK MARKET AND OF “PURE” INTERNET FUNDS. PAST
PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS AND, DEPENDING ON THE TIMING OF YOUR INVESTMENT, YOU MAY LOSE MONEY EVEN IF THE FUND’S PAST RETURNS HAVE BEEN POSITIVE. THE FUND’S PARTICIPATION IN THE INITIAL PUBLIC OFFERING (IPO) MARKET
DURING ITS INITIAL START-UP PHASE MAY HAVE HAD A MAGNIFIED IMPACT ON THE FUND’S PERFORMANCE BECAUSE OF ITS RELATIVELY SMALL ASSET BASE. AS THE FUND’S ASSETS CONTINUE TO GROW, IT IS PROBABLE THAT THE EFFECT OF IPO INVESTMENTS ON THE
FUND’S FUTURE PERFORMANCE WILL NOT BE AS SIGNIFICANT.
|
|
Goldman Sachs’ Growth Investment Philosophy:
|
|
1.
|
Invest as if buying the company/business, not simply trading its stock:
|
|
n
|
Understand the business, management, products and competition.
|
|
n
|
Perform intensive, hands-on fundamental research.
|
|
n
|
Seek businesses with strategic competitive advantages.
|
|
n
|
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 franchises, 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.
|
|
REAL ESTATE SECURITIES FUND
|
|
Goldman Sachs’ Real Estate Securities Investment Philosophy:
|
|
When choosing the Fund’s securities, the Investment Adviser:
|
|
n
|
Selects stocks based on quality of assets, experienced management and a sustainable competitive advantage.
|
|
n
|
Seeks to buy securities at a discount to the intrinsic value of the business (assets and management).
|
|
n
|
Seeks a team approach to decision making.
|
|
Over time, REITs (which stands for Real Estate Investment Trusts) have offered investors important diversification and
competitive total returns versus the broad equity market.
|
Internet Tollkeeper Fund
|
FUND FACTS
|
|
|
Objective:
|
Long-term growth of capital
|
|
Benchmarks:
|
S&P 500® Index
NASDAQ Composite Index
Goldman Sachs Internet Index
|
|
Investment Focus:
|
U.S. equity securities that offer long-term capital appreciation
with a primary focus on the media, telecommunications, technology and Internet sectors |
|
Investment Style:
|
Growth
|
|
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 and at least 65% of its total assets in equity securities of “Internet Tollkeeper” companies (as described
below), which are companies in the media, telecommunications, technology and Internet sectors which provide access, infrastructure, content and services to Internet companies and Internet users. The Fund seeks to achieve its investment objective by
investing in equity securities of companies that the Investment Adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. The Fund may also invest up
to 35% of its total assets in other companies whose rapid adoption of an Internet strategy is expected to improve their cost structure, revenue opportunities or competitive advantage and Internet-based companies that the Investment Adviser believes
exhibit a sustainable business model. Although the Fund invests primarily 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 markets or countries
(“emerging countries”) and securities quoted in foreign currencies.
|
|
The Internet.
The Internet is a global collection of connected computers that allows commercial and professional organizations, educational institutions, government agencies, and individuals to communicate electronically, access
and share information, and conduct business.
|
|
The Internet has had, and is expected to continue to have, a significant impact on the global economy, as it changes the way
many companies operate. Benefits of the Internet for businesses may include global scalability, acquisition of new clients, new revenue sources and increased efficiencies.
|
|
Internet Tollkeepers.
The Fund intends to invest a substantial portion of its assets in companies the Investment Adviser describes as Internet Tollkeepers. In general, the Investment Adviser defines a tollkeeper as a company with
predictable, sustainable or recurring revenue streams. Like a toll collector for a highway or bridge, these tollkeeper companies may grow revenue by increasing “traffic,” or customers and sales, and raising “tolls,” or prices.
The Investment Adviser believes that the characteristics of many of these tollkeepers, including dominant market share and strong brand name, should enable them to consistently grow their business. An Internet Tollkeeper is a company that has
developed or is seeking to develop predictable, sustainable or recurring revenue streams by applying the above characteristics to the growth of the Internet. The Investment Adviser does not define companies that merely have an Internet site or sell
some products over the Internet as Internet Tollkeepers (although the Investment Adviser may invest in such companies as part of the Fund’s 35% basket of securities which are not or may not be Internet Tollkeepers).
|
|
Internet Tollkeepers are media, telecommunications, technology and Internet companies which provide access, infrastructure,
content and services to Internet companies and Internet users. The following represent examples of each of these types of companies, but should not be construed to exclude other types of Internet Tollkeepers:
|
|
n
|
Access providers enable individuals and businesses to connect to the Internet through, for example, cable systems or the
telephone network.
|
|
n
|
Infrastructure companies provide items such as servers, routers, software and storage necessary for companies to participate
in the Internet.
|
|
n
|
Media content providers own copyrights, distribution networks and/or programming. Traditional media companies stand to
benefit from an increase in advertising spending by Internet companies. Copyright owners stand to benefit from a new distribution channel for their music and video properties. They also will benefit from increasing demand for traditional items like
CDs and DVDs driven by aggressive competition among Internet retailers.
|
|
n
|
Service providers may facilitate transactions, communications, security, computer programming and back-office functions for
Internet businesses. For
example, Internet companies may contract out advertising sales or credit card clearing to service providers.
|
|
Our Approach to Investing in the Internet.
While the Internet is clearly a significant force in shaping businesses and driving the economy, many Internet-based companies have not shown sustainable growth in the past, and the Investment Adviser
believes that others will not show sustainable growth in the future. Many Internet-based companies that are engaged in electronic commerce are focused on driving sales volume and competing with other Internet-based companies. Often, this competition
is based on price, and if these companies do not own strong franchises, then the Investment Adviser believes there could be significant uncertainty regarding their long-term profitability.
|
|
The Investment Adviser believes that another attractive way to invest in the Internet sector is to invest in businesses
participating in the growth of the Internet that potentially have long-lasting strategic advantages. Characteristics of these companies may include: dominant market share, strong brand names, recurring revenue streams, cost advantages, economies of
scale, financial strength, technological advantages and strong, experienced management teams.
|
|
Beneficiaries of the Internet that may meet the above criteria include those companies (Internet Tollkeepers) providing
access, infrastructure, content, and services to Internet companies and Internet users. The Fund will also invest in companies whose rapid adoption of an Internet strategy is expected to improve their cost structure or competitive advantage.
Internet-based companies that exhibit a sustainable business model may also be candidates for purchase by the Fund. The Investment Adviser pays careful attention to the stock prices of these companies, seeking to purchase them at a discount to their
intrinsic value.
|
|
Because of its narrow industry focus, the Fund’s investment performance will be closely tied to many factors which
affect the Internet and Internet-related industries. These factors include intense competition, consumer preferences, problems with product compatibility and government regulation. Internet and Internet-related securities may experience significant
price movements caused by disproportionate investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result, the Fund’s NAV is more likely to have greater fluctuations than that of a Fund which invests in
other industries.
|
Real Estate Securities Fund
|
FUND FACTS
|
|
|
Objective:
|
Total return comprised of long-term growth of capital and dividend income
|
|
Benchmark:
|
Wilshire Real Estate Securities Index
|
|
Investment Focus:
|
REITs and real estate industry companies
|
|
Investment Style:
|
Growth at a discount
|
|
INVESTMENT OBJECTIVE
|
|
The Fund seeks total return comprised of long-term growth of capital and dividend income.
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
Equity Securities.
The Fund invests, under normal circumstances, substantially all and at least 80% of its total assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real
estate industry. The Fund expects that a substantial portion of its assets will be invested in REITs and real estate industry companies.
|
|
A “real estate industry company” is a company that derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management or sale of commercial, industrial or residential real estate or interests therein.
|
|
The Fund’s investment strategy is based on the premise that property market fundamentals are the primary determinant of
growth, underlying the success of companies in the real estate industry. The Investment Adviser focuses on companies that can achieve sustainable growth in cash flow and dividend paying capability. The Investment Adviser attempts to purchase
securities so that its underlying portfolio will be diversified geographically and by property type. Although the Fund will invest primarily in publicly traded U.S. securities, it may invest up to 15% of its total assets in foreign securities,
including securities of issuers in emerging countries and securities quoted in foreign currencies.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs. Mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skill, may not be
diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax free pass-through of income and failing to maintain their exemptions
from investment company registration. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions.
|
|
REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a
REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable
rate mortgage loans are reset periodically, yields on a REIT’s investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate obligations.
|
|
The REIT investments of the Real Estate Securities Fund often do not provide complete tax information to the Fund until after
the calendar year-end. Consequently, because of the delay, it may be necessary for the Fund to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
|
|
Other.
The Fund may invest up to 20% of its total assets in fixed-income securities, such as government, corporate debt and bank obligations, that offer the potential to further the Fund’s investment
objective.
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the Funds in seeking to achieve their investment objectives.
The table also highlights the differences between 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.
10
Percent of total assets
(italic
type)
10
Percent of net assets (roman type)
|
Ÿ
|
No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Investment Practices | |||||
| Borrowings |
33
1
/
3
|
33
1
/
3
|
|||
| Credit, Currency, Index, Interest Rate and Mortgage Swaps* | — | 15 | |||
| Cross Hedging of Currencies | Ÿ | Ÿ | |||
| Custodial Receipts | Ÿ | Ÿ | |||
| Equity Swaps* | 15 | 15 | |||
| Foreign Currency Transactions** | Ÿ | Ÿ | |||
| Futures Contracts and Options on Futures Contracts | Ÿ | Ÿ | |||
| Interest Rate Caps, Floors and Collars | — | Ÿ | |||
| Investment Company Securities (including exchange-traded funds) | 10 | 10 | |||
| Mortgage Dollar Rolls | — | Ÿ | |||
| Options on Foreign Currencies 1 | Ÿ | Ÿ | |||
| Options on Securities and Securities Indices 2 | Ÿ | Ÿ | |||
| Repurchase Agreements | Ÿ | Ÿ | |||
| Securities Lending |
33
1
/
3
|
33
1
/
3
|
|||
| Short Sales Against the Box | 25 | 25 | |||
| Unseasoned Companies | Ÿ | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | Ÿ | |||
|
|
|||||
|
*
|
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 each Fund may invest in foreign securities.
|
|
1
|
The Funds may purchase and sell call and put options.
|
|
2
|
The Funds may sell covered call and put options and purchase call and put options.
|
OTHER INVESTMENT PRACTICES AND SECURITIES
10
Percent of total assets
(italic
type
)
10
Percent of net assets (roman type)
|
Ÿ
|
No specific percentage limitation on usage;
limited only by the objectives and strategies of the Fund |
—
Not permitted
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Investment Securities | |||||
| American, European and Global Depository Receipts | Ÿ | Ÿ | |||
| Asset-Backed and Mortgage-Backed Securities 3 | Ÿ | Ÿ | |||
| Bank Obligations 3 | Ÿ | Ÿ | |||
| Convertible Securities 4 | Ÿ | Ÿ | |||
| Corporate Debt Obligations 3 | Ÿ | Ÿ | |||
| Equity Securities | 90+ | 80+ | |||
| Emerging Country Securities 5 | 25 | 15 | |||
| Fixed Income Securities | 10 | 20 | |||
| Foreign Securities 5 | 25 | 15 | |||
| Non-Investment Grade Fixed Income Securities | 10 6 | 20 6 | |||
| Real Estate Investment Trusts | Ÿ | Ÿ | |||
| Stripped Mortgage-Backed Securities *, 3 | — | Ÿ | |||
| Structured Securities 3 | Ÿ | Ÿ | |||
| Temporary Investments | Ÿ | Ÿ | |||
| U.S. Government Securities 3 | Ÿ | Ÿ | |||
| Yield Curve Options and Inverse Floating Rate Securities | — | Ÿ | |||
|
|
|||||
|
*
|
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.
|
|
3
|
Limited by the amount the Fund invests in fixed-income securities.
|
|
4
|
Convertible securities purchased by the Funds use the same rating criteria for convertible and non-convertible debt
securities.
|
|
5
|
The Internet Tollkeeper and Real Estate Securities Funds may invest in the aggregate up to 25% and 15%,
respectively, of their total assets in foreign securities, including emerging country securities.
|
|
6
|
May be BB or lower by Standard & Poor’s or Ba or lower by Moody’s.
|
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.
|
Ÿ
Applicable
— Not applicable |
Internet
Tollkeeper Fund |
Real
Estate Securities Fund |
|||
|---|---|---|---|---|---|
|
|
|||||
| Internet | Ÿ | — | |||
| Credit/Default | Ÿ | Ÿ | |||
| Foreign | Ÿ | Ÿ | |||
| Emerging Countries | Ÿ | Ÿ | |||
| Industry Concentration | Ÿ | Ÿ | |||
| Stock | Ÿ | Ÿ | |||
| Derivatives | Ÿ | Ÿ | |||
| Interest Rate | Ÿ | Ÿ | |||
| IPO | Ÿ | Ÿ | |||
| Management | Ÿ | Ÿ | |||
| Market | Ÿ | Ÿ | |||
| Liquidity | Ÿ | Ÿ | |||
| REIT | Ÿ | Ÿ | |||
| Small Cap | Ÿ | Ÿ | |||
|
|
|||||
PRINCIPAL RISKS OF THE FUNDS
All Funds:
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by a Fund may
default on its obligation to pay interest and repay principal.
|
|
n
|
Foreign Risk
—The risk that when a Fund invests in foreign securities, it will be subject to risk 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.
|
|
n
|
Emerging Countries Risk
—The securities markets of Asian, Latin and South American, Eastern European,
African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not subject to as extensive 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
registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
|
|
n
|
Industry Concentration Risk
—The risk that each of the Funds concentrates its investments in specific
industry sectors that have historically experienced substantial price volatility. Each Fund is subject to greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different
industry sectors. Securities of issuers held by the Funds may lack sufficient market liquidity to enable a Fund to sell the securities at an advantageous time or without a substantial drop in price.
|
|
n
|
Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
n
|
Derivatives Risk
—The risk that loss may result from a Fund’s investments in options, futures, swaps,
structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to a Fund.
|
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, 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 fixed-income securities.
|
|
n
|
IPO Risk
—The risk that the market value of IPO shares will fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk
and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s
assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the Fund’s performance.
|
|
n
|
Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
|
|
n
|
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 companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods.
|
|
n
|
Liquidity Risk
—The risk that a Fund will not be able to pay redemption proceeds 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 or emerging
country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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. The Goldman Sachs Asset Allocation Portfolios (the “Asset Allocation Portfolios”) expect to invest a significant percentage
of their assets in the Real Estate Securities Fund and other funds for which Goldman Sachs now or in the future acts as investment adviser or underwriter. Redemptions by an Asset Allocation Portfolio of its position in a Fund may further increase
liquidity risk and may impact a Fund’s NAV.
|
|
n
|
REIT Risk
—Investing in REITs involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs whose underlying properties are concentrated in a particular industry or geographic region are also subject to risks affecting such industries and regions. The securities of 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 of an
advantageous time or without a substantial drop in price.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 substantial drop in price.
|
Internet Tollkeeper Fund:
|
n
|
Internet Risk
—The risk that the stock prices of Internet and Internet-related companies will experience
significant price movements as a result of intense market volatility, worldwide competition, consumer preferences, product compatibility, product obsolescence, government regulation, excessive investor optimism or pessimism, or other
factors.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE FUNDS HAVE PERFORMED
|
|
The bar charts and tables below provide an indication of the risks of investing in a Fund by showing: (a) changes in the
performance of a Fund’s Service Shares from year to year; and (b) how the average annual returns of a Fund’s Service Shares compare to those of broad-based securities market indices. The bar chart and table assume reinvestment of dividends
and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s performance
would have been reduced.
|
FUND PERFORMANCE
Internet Tollkeeper Fund
SM
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’00
+
5.56%
Worst Quarter
Q4 ’00
-
31.86%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 10/1/99) | (37.28)% | 16.10% | |||
| S&P 500 Index* | (9.10)% | 3.51% | |||
| NASDAQ Composite Index** | (39.29)% | (8.08)% | |||
| Goldman Sachs Internet Index*** | (74.50)% | (52.00)% | |||
|
|
|||||
|
*
|
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks or unmanaged index of common
stock prices. The Index figures do not reflect any fees or expenses.
|
|
**
|
The NASDAQ Composite Index is a broad-based composite-weighted index of all NASDAQ National Market and Small-Cap
stocks. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Goldman Sachs Internet Index is a capitalization-weighted index of selected Internet companies. The Index
figures do not reflect any fees or expenses.
|
Real Estate Securities Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’99
+
12.88%
Worst Quarter
Q3 ’99
-
10.18%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 7/27/98) | 31.99% | 8.48% | |||
| Wilshire Real Estate Securities Index* | 30.74% | 5.29% | |||
|
|
|||||
|
*
|
The unmanaged Wilshire Real Estate Securities Index is an unmanaged index of publicly traded REITs and real estate
operating companies. The Index figures do not reflect any fees or expenses.
|
This table describes the fees and expenses that you would pay if you buy and hold Service Shares of a Fund.
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
|
Maximum Sales Charge (Load) Imposed
on Purchases |
None | None | |||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees | 1.00% | 1.00% | |||
| Other Expenses | 0.60% | 0.84% | |||
| Service Fees 2 | 0.25% | 0.25% | |||
| Shareholder Administration Fees | 0.25% | 0.25% | |||
| All Other Expenses 3 | 0.10% | 0.34% | |||
|
|
|||||
| Total Fund Operating Expenses* | 1.60% | 1.84% | |||
|
|
|||||
|
See page 18 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Funds which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total
Fund Operating Expenses” may increase without shareholder approval.
|
|
Internet
Tollkeeper Fund |
Real Estate
Securities Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees | 1.00% | 1.00% | |||
| Other Expenses | 0.60% | 0.54% | |||
| Service Fees 2 | 0.25% | 0.25% | |||
| Shareholder Administration Fees | 0.25% | 0.25% | |||
| All Other Expenses 3 | 0.10% | 0.04% | |||
|
|
|||||
| Total Fund Operating Expenses (after current expense limitations) | 1.60% | 1.54% | |||
|
|
|||||
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
Service Organizations may charge other fees to their customers who are beneficial owners of Service Shares in
connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
|
3
|
“All Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net
assets of each Fund’s Service Shares, plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, transfer agency fees and
expenses, service fees, shareholder administration fees, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentages of each Fund’s average daily net assets:
|
| Fund |
Other
Expenses |
||
|---|---|---|---|
|
|
|||
| Internet Tollkeeper | 0.06% | ||
| Real Estate Securities | 0.00% | ||
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Service Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and
that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Internet Tollkeeper | $163 | $505 | $871 | $1,900 | |||||
|
|
|||||||||
| Real Estate Securities | $187 | $579 | $995 | $2,159 | |||||
|
|
|||||||||
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other compensation in connection with the sale and distribution of Service Shares or for
services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Statement of Additional Information
(“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | |||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | |||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
makes the investment decisions for the Funds and places purchase and sale orders for the Funds’ portfolio transactions in U.S. and foreign markets. As permitted by applicable law, these orders may be directed to any brokers, including Goldman
Sachs and its affiliates. While the Investment Adviser is ultimately responsible for the management 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 will 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:
|
|
n
|
Supervises all non-advisory operations of the Funds
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Funds
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | 1.00% | 1.00% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.00% | |||
|
|
|||||
|
FUND MANAGERS
|
|
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. Mr. Hillenbrand joined
Goldman Sachs in 1997 upon its acquisition of Commodities Corporation, LLC where he was, and continues as, President. Over the course of his 20-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.
|
|
Growth Equity Investment Team
|
|
n
|
20-year consistent investment style applied through diverse and complete market cycles
|
|
n
|
More than $20 billion in equities currently under management
|
|
n
|
A portfolio management and analytical team with more than 200 years combined investment experience
|
Growth Equity Investment Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
George D. Adler
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Adler joined the Investment Adviser
as a portfolio manager in 1997. From 1990 to 1997, he was a portfolio manager at Liberty Investment Management, Inc. (“Liberty”). Liberty became part of Goldman Sachs Asset Management on January 1, 1997 as a result of an acquisition. Prior to 1994, Liberty was known as Eagle Asset Management. |
||||
|
|
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|
Steve Barry
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Barry joined the Investment
Adviser as a portfolio manager in 1999. From 1988 to 1999, he was a portfolio manager at Alliance Capital Management. |
||||
|
|
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|
Kenneth T. Berents
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
2000 |
Mr. Berents joined the Investment
Adviser as a portfolio manager in 2000. From 1992 to 1999, he was Director of Research and head of the Investment Committee at Wheat First Union. |
||||
|
|
|||||||
|
Robert G. Collins
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Collins joined the Investment
Adviser as a portfolio manager and Co-Chair of the Growth Equity Investment Committee in 1997. From 1991 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
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|
Herbert E. Ehlers
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
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|
Gregory H. Ekizian
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Ekizian joined the Investment
Adviser as a portfolio manager and Co- Chair of the Growth Equity Investment Committee in 1997. From 1990 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
Scott Kolar
Vice President |
Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Kolar joined the Investment
Adviser as an 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. |
||||
|
|
|||||||
|
Ernest C. Segundo, Jr.
Vice President |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Segundo joined the Investment
Adviser as a portfolio manager in 1997. From 1992 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
|
David G. Shell
Managing Director |
Senior Portfolio Manager—
Internet Tollkeeper |
Since
1999 |
Mr. Shell joined the Investment
Adviser as a portfolio manager in 1997. From 1987 to 1997, he was a portfolio manager at Liberty. |
||||
|
|
|||||||
SERVICE PROVIDERS
Real Estate Securities Team
The Real Estate Securities portfolio management team includes individuals with backgrounds in:
|
n
|
Fundamental real estate acquisition, development and operations
|
|
n
|
Real estate capital markets
|
|
n
|
Mergers and acquisitions
|
|
n
|
Asset management
|
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Herbert E. Ehlers
Managing Director |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Ehlers joined the Investment
Adviser as a 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. |
||||
|
|
|||||||
|
Mark Howard-
Johnson Vice President |
Senior Portfolio
Manager— Real Estate Securities |
Since
1998 |
Mr. Howard-Johnson joined the
Investment Adviser as a portfolio manager in 1998. His previous experience includes 15 years in the real estate finance business. From 1996 to 1998, he was the senior equity analyst for Boston Financial, responsible for the Pioneer Real Estate Shares Fund. Prior to joining Boston Financial, from 1994 to 1996, Mr. Howard-Johnson was a real estate securities analyst for The Penobscot Group, Inc., one of only two independent research firms in the public real estate securities business. |
||||
|
|
|||||||
|
Greg Poole
Associate |
Portfolio Manager—
Real Estate Securities |
Since
2000 |
Mr. Poole joined the Investment
Adviser as a real estate securities analyst in 1998 and became portfolio manager in 2000. His previous experience includes investment analysis and financial structuring for the Real Estate Principal Investment Group of the Investment Banking Division of Goldman Sachs, which he joined in 1996. He received his B.A. in Honours Economics from the University of Western Ontario in 1996. |
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|
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|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to a Fund or limit a Fund’s investment activities. Goldman Sachs and its affiliates 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 types 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 interest. A Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the statement of additional information (the “Additional Statement”).
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Internet Tollkeeper | Annually | Annually | |||
|
|
|||||
| Real Estate Securities | Quarterly | Annually | |||
|
|
|||||
From time to time a portion of a Fund’s dividends may constitute a return of capital.
When you purchase shares of a Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Service Shares.
|
|
How Can I Purchase Service Shares Of The Funds?
|
|
Generally, Service Shares may be purchased only through institutions that have agreed to provide shareholder administration
and personal and account maintenance services to their customers who are the beneficial owners of Service Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Service Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. No sales load is charged. Purchases of Service Shares must be settled
within three business days of receipt of a complete purchase order.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place an order with Goldman Sachs at 1-800-621-2550 and either:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian) on the next business day;
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
|
|
In certain instances, the Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Service
Shares:
|
|
n
|
Personal and account maintenance services; and
|
|
n
Shareholder administration services.
|
|
Personal and account maintenance services include:
|
|
n
|
Providing facilities to answer inquires and respond to correspondence with the Service Organization’s
customers
|
|
n
|
Acting as liaison between the Service Organization’s customers and the Trust
|
|
n
|
Assisting customers in completing application forms, selecting dividend and other options, and similar services
|
|
Shareholder administration services include:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem and exchange shares for customers
|
|
n
|
Processing payments for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.25% (annualized) for shareholder
administration services of the average daily net assets of the Service Shares of the Funds that are attributable to or held in the name of a Service Organization for its customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based
on sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
In addition to Service Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Service Shares. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
The Funds do not have any minimum purchase or account requirements with respect to Service Shares. A Service Organization
may, however, impose a minimum amount for initial and subsequent investments in Service Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of frequent purchases, sales or exchanges of Service Shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of
a Fund.
|
|
n
|
Close a Fund to new investors from time to time and reopen a Fund whenever it is deemed appropriate by a Fund’s
Investment Adviser.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a Fund’s
investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Service Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
|
|
||
| Number of Outstanding Shares of the Class |
SHAREHOLDER GUIDE
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper
form.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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 investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
|
How Can I Sell Service Shares Of The Funds?
|
|
Generally, Service Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
Redemption proceeds may be sent to recordholders by check or by wire (if the wire instructions are on record).
|
|
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is
elected on the Account Application.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
The Funds will arrange for redemption proceeds to be wired as federal funds to the bank
account designated in the recordholder’s Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption proceeds when the check has cleared,
which may take up to 15 days. If the Federal Reserve Bank is closed on the day that the redemption
proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Service Organization.
|
|
n
|
Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organization.
|
|
By Check:
A recordholder may elect in writing to receive redemption proceeds by check. Redemption
proceeds paid by check will normally be mailed to the address of record within three business days of receipt of a properly executed redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption
proceeds when the check has cleared, which may take up to 15 days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the Service Shares of any Service Organization whose account balance falls below $50 as a result of a redemption. The
Funds will not redeem Service Shares on this basis if the value of the account falls below the minimum account balance solely as a result of market conditions. The Fund will give 60 days’ prior written notice to allow a Service Organization to
purchase sufficient additional shares of the Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned
to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Service Shares of the Fund that pays the distributions. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Service Shares of a Fund at NAV for Service Shares of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
SHAREHOLDER GUIDE
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered
together.
|
|
What Types Of Reports Will Be Sent Regarding Investments In Service Shares?
|
|
Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Service Organizations will also be provided with a printed confirmation for each transaction in their account and a monthly account statement. Service Organizations are responsible for providing these or other reports to their customers who
are the beneficial owners of Service Shares in accordance with the rules that apply to their accounts with the Service Organizations.
|
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
|
|
DISTRIBUTIONS
|
|
Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of Fund
distributions and the sale of your Fund shares.
|
|
Distributions you receive from the Funds are generally subject to federal income tax, and may also be subject to state or
local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax purposes, the Funds’ income dividend distributions and short-term capital gain distributions are taxable to you
as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Fund shares.
|
|
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Funds’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Funds will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
|
|
Each Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Funds may deduct these taxes in computing their taxable income.
|
|
If you buy shares of a Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
|
TAXATION
|
SALES AND EXCHANGES
|
|
Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
|
|
OTHER INFORMATION
|
|
When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
|
Additional Information on Portfolio Risks, Securities and Techniques
|
A. General Portfolio Risks
|
|
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 similar enterprises, warrants
and stock purchase rights. In general, stock values 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. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
To the extent that a Fund invests in fixed-income securities, that Fund will also be subject to the risks associated with its
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
(although many mortgage-related securities will have less potential 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 an issuer or guarantor could default on its obligations, and a Fund will not recover its investment. Call risk and extension risk are normally present in 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 prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors. The same would be true of asset-backed securities such as securities backed by car loans.
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APPENDIX A
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The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for a
Fund. A high rate of portfolio 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 turnover 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.
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The following sections provide further information on certain types of securities 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 Additional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however, that all investment objectives, and all investment 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.
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B. Other Portfolio Risks
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Risks of Investing In Internet and Internet-Related Companies.
Internet and Internet-related companies are
generally subject to a rate of change in technology which is higher than other industries and often requires extensive and sustained investment in research and development. As a result, Internet and Internet-related companies are exposed to the risk
of rapid product obsolescence. Changes in governmental policies, such as telephone and cable regulations and anti-trust enforcement, and the need for regulatory approvals may have an adverse effect on the products, services and securities of
Internet and Internet-related companies. Internet and Internet-related companies may also produce or use products or services that prove commercially unsuccessful. In addition, intense worldwide competitive pressures and changing demand, evolving
industry standards, challenges in achieving product capability, loss of patent protection or proprietary rights, reduction or interruption in the supply of key components, changes in strategic alliances, frequent mergers or acquisitions or other
factors can have a significant effect on the financial conditions of companies in these industries. Competitive pressures in the Internet and Internet-related industries may affect negatively the financial condition of Internet and Internet-related
companies. Internet and
Internet-related companies are also subject to the risk of service disruptions and the risk of losses arising out of litigation related to these disruptions. Many Internet companies have exceptionally high price-to-earnings ratios with little or no
earnings histories, and many Internet companies are currently operating at a loss and may never be profitable. In certain instances, Internet and Internet-related securities may experience significant price movements caused by disproportionate
investor optimism or pessimism with little or no basis in fundamental economic conditions. As a result of these and other reasons, investments in the Internet and Internet-related industry can experience sudden and rapid appreciation and
depreciation.
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Risks of IPOs.
The Funds may invest in IPOs. An IPO is a company’s first offering of stock to the public.
IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the
issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When a Fund’s asset base is small, a significant portion of the Fund’s performance could be attributable to
investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund’s assets grow, the effect of the Fund’s investments in IPOs on the Fund’s performance probably will decline, which could reduce the
Fund’s performance. Because of the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of the Fund’s portfolio and may lead to increased expenses to the Fund,
such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of
time. There is no assurance that a Fund will be able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for a Fund to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal
shareholders.
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Risks of Investing in Small Capitalization Companies and REITs.
Each Fund may invest in small capitalization
companies and REITs. Investments in small capitalization companies and REITs involve greater risk and portfolio 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 periods the liquidity of particular issuers or industries, or all
securities in these particular 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
sufficient 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 bankruptcy. Transaction costs
for these investments are often higher than those of larger capitalization companies. Investments in small capitalization companies and REITs may be more difficult to price precisely than other types of securities because of their characteristics
and lower trading volumes.
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Risks of Foreign Investments.
Each Fund may make foreign investments. Foreign investments involve special risks
that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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. dollar before such income is distributed as dividends
to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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The introduction of a single currency, the euro, on January 1, 1999 for participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”) may have an
impact on the euro. Also, it is possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, 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 assets held by the Funds may be denominated in the euro.
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Brokerage commissions, custodial services and other costs relating to investment 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.
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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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.
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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 geographically concentrated.
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Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary 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.
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Risks of Emerging Countries.
The 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 countries are gener
ally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. A Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the
prices of listed securities, periodic trading or settlement 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 respective clients and other service providers. A Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.
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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 addition,
certain 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 purchased 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 securities in certain Asian and other
countries, it is anticipated that a Fund may invest in such countries through other investment funds in such countries.
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Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
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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 military 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 developments 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. As an
example, in the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not occur
in Eastern Europe or other countries.
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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 countries to the Fund.
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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 because of theft or other reasons.
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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. As a result, the Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.
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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 economic, 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 disadvantageous
time and only then 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.
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APPENDIX A
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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 significant portion of the Funds’ currency exposure in emerging countries, if any, will be covered by such instruments.
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Risks of Derivative Investments.
A Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars, structured securities 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 fluctuations 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 considered a speculative practice and presents even greater risk of loss.
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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:
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n
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Both domestic and foreign securities that are not readily marketable
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Certain stripped mortgage-backed securities
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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Certain over-the-counter options
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Certain structured securities and all swap transactions
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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.
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Investing in 144A Securities may decrease the liquidity of a Fund’s portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of
comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Funds may include securities (including zero coupon bonds)
issued by the U.S. government (and its agencies,
instrumentalities and sponsored enterprises), domestic and foreign corporations, banks and other issuers. Further information is provided in the Additional Statement.
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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 their 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 comparable credit quality.
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The 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating 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.
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Temporary Investment Risks.
Each Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
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U.S. government securities
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Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
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Certificates of deposit
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Bankers’ acceptances
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Repurchase agreements
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Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
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When a Fund’s assets are invested in such instruments, the Fund may not be achieving its investment
objective.
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C. Portfolio Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Funds, including their associated risks.
Further information is provided in the Additional Statement, which is available upon request.
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Convertible Securities.
Each Fund 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 securities 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 market 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.
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Foreign Currency Transactions.
A 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.
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Each Fund 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. 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 the foreign currency to appreciate against the U.S. dollar).
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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.
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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.
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Structured Securities.
Each Fund may invest in structured securities. Structured securities are securities
whose value is determined 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 complex securities.
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REITs.
Each Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, 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.
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Fund may write (sell) covered call and put options and purchase
put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may invest. The Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and
call options on foreign currencies.
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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 considered 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 currency) 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.
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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 specified 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 transactions on U.S. and foreign exchanges.
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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 selections and
duration in accordance with its investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions 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
immediately thereafter the sum of the amount of initial margin deposits and premiums 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.
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Futures contracts and related options present the following risks:
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n
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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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
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Because perfect correlation between a futures position and a portfolio position 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.
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The loss incurred by a Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
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Futures markets are highly volatile and the use of futures may increase the volatility of a Fund’s NAV.
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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 substantial losses to a Fund.
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Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
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Foreign exchanges may not provide the same protection as U.S. exchanges.
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Equity Swaps.
Each Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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.
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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, which may be substantial. 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. Because equity swaps are normally illiquid, a Fund may be unable to terminate their obligations when desired.
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APPENDIX A
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When-Issued Securities and Forward Commitments.
Each Fund may purchase when-issued securities and enter into
forward commitments. 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.
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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 settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser
deems it appropriate.
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Repurchase Agreements.
Repurchase agreements involve the purchase of securities 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.
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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 additional losses if a court determines that the Fund’s interest in the collateral 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 loan 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 by a Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and a 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 (including 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.
Each Fund may make short sales against-the-box. A short sale against-the-box means
that at all times when a short position is open the Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without payment of any further consideration, an equal amount of the securities of the
same issuer as the securities sold short.
|
|
Preferred Stock, Warrants and Rights.
Each Fund 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 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 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 securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares™, as defined below) subject to statutory limitations prescribed by the Act. These limitations 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 companies. 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 iShares™ are shares of unaffiliate investment companies
which are traded like traditional equity securities on a national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard &
Poor’s Depositary Receipts™.
The Funds may, consistent with their investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
|
|
n
|
iShares™
(formerly World Equity Benchmark Shares or WEBS).
iShares are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and
regions. iShares are listed on the AMEX and were initially offered to the public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares
on the AMEX. To date, iShares have traded at relatively modest discounts and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or
other disruptions affecting iShares 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
iShares as part of its investment strategy.
|
|
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.
|
|
Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. Each Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial
institutions and supranational entities (
i.e.
, the World Bank, the International Monetary Fund, etc.).
|
|
Bank Obligations.
Each Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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.
|
|
U.S. Government Securities.
Each Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of the U.S.
government to purchase certain obligations of the issuer; 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 components of stripped U.S. government securities are traded independently.
|
|
Custodial Receipts.
Each Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
|
|
Mortgage-Backed Securities.
Each Fund may invest in mortgage-backed securities. Mortgage-backed securities
represent direct or indirect participations 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 securities.
|
|
Mortgage-backed securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”) and Real Estate Mortgage Investment Conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under the Code and invests in certain mortgages 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 with two different classes: one that receives substantially all of the interest 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.
Each Fund 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 receivables, leases, installment contracts and personal property. 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. 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. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on
repossessed collateral may not be available to support payments on the 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.
|
|
Borrowings.
Each Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its total assets.
|
|
Mortgage Dollar Rolls.
The Real Estate Securities Fund 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 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 (a) the price received for the securities sold
and (b) the lower forward price for the future purchase and/or fee income plus the interest 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 securities sold as part of the roll, the use of this technique will diminish the Fund’s 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 Fund treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Fund does not currently intend to enter into mortgage dollar rolls that are accounted for as a financing and does not treat them as borrowings.
|
|
Yield Curve Options.
The Real Estate Securities 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 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.
|
|
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. 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
The Real Estate Securities Fund may enter into swap transactions for hedging purposes or to seek to increase total return.
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 the 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 these investment
techniques were not used.
|
|
Inverse Floaters.
The Real Estate Securities Fund may invest in 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 an 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.
|
[This page intentionally left blank]
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). The information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with a Fund’s financial statements, is
included in the Funds’ annual report (available upon request). The information for all periods prior to the period ended December 31, 2000 has been audited by the Funds’ previous independent auditors.
|
|
INTERNET TOLLKEEPER FUND
|
|
Income (loss) from
investment operations |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, beginning of period |
Net
investment loss (c) |
Net realized
and unrealized gain (loss) |
Total
income (loss) from investment operations |
Total
distributions to shareholders from net realized gains |
||||||||||
|
|
||||||||||||||
| For the Year Ended December 31, | ||||||||||||||
| 2000 - Class A Shares | $19.25 | $(0.20) | $(6.94 | ) | $(7.14 | ) | $(0.21 | ) | ||||||
| 2000 - Class B Shares | 19.20 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Class C Shares | 19.19 | (0.33) | (6.87 | ) | (7.20 | ) | (0.21 | ) | ||||||
| 2000 - Institutional Shares | 19.25 | (0.13) | (6.94 | ) | (7.07 | ) | (0.21 | ) | ||||||
| 2000 - Service Shares | 19.23 | (0.21) | (6.93 | ) | (7.14 | ) | (0.21 | ) | ||||||
|
|
||||||||||||||
| For the Period Ended December 31, | ||||||||||||||
|
1999 - Class A Shares
(commenced October 1) |
10.00 | (0.05) | 9.30 | 9.25 | — | |||||||||
|
1999 - Class B Shares
(commenced October 1) |
10.00 | (0.08) | 9.28 | 9.20 | — | |||||||||
|
1999 - Class C Shares
(commenced October 1) |
10.00 | (0.08) | 9.27 | 9.19 | — | |||||||||
|
1999 - Institutional Shares
(commenced October 1) |
10.00 | (0.03) | 9.28 | 9.25 | — | |||||||||
|
1999 - Service Shares
(commenced October 1) |
10.00 | (0.05) | 9.28 | 9.23 | — | |||||||||
|
|
||||||||||||||
See page 62 for all footnotes
APPENDIX B
|
REAL ESTATE SECURITIES FUND
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total from
investment operations |
|||||||||
|
|
||||||||||||
| For the Years Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $8.68 | $0.44 | (c) | $2.28 | $2.72 | |||||||
| 2000 - Class B Shares | 8.73 | 0.40 | (c) | 2.27 | 2.67 | |||||||
| 2000 - Class C Shares | 8.66 | 0.39 | (c) | 2.27 | 2.66 | |||||||
| 2000 - Institutional Shares | 8.69 | 0.48 | (c) | 2.30 | 2.78 | |||||||
| 2000 - Service Shares | 8.69 | 0.44 | (c) | 2.30 | 2.74 | |||||||
|
|
||||||||||||
| 1999 - Class A Shares | 9.20 | 0.38 | (c) | (0.48 | ) | (0.10 | ) | |||||
| 1999 - Class B Shares | 9.27 | 0.28 | (c) | (0.45 | ) | (0.17 | ) | |||||
| 1999 - Class C Shares | 9.21 | 0.30 | (c) | (0.48 | ) | (0.18 | ) | |||||
| 1999 - Institutional Shares | 9.21 | 0.40 | (c) | (0.47 | ) | (0.07 | ) | |||||
| 1999 - Service Shares | 9.21 | 0.38 | (c) | (0.49 | ) | (0.11 | ) | |||||
|
|
||||||||||||
| For the Period Ended December 31, | ||||||||||||
| 1998 - Class A Shares (commenced July 27) | 10.00 | 0.15 | (0.80 | ) | (0.65 | ) | ||||||
| 1998 - Class B Shares (commenced July 27) | 10.00 | 0.14 | (c) | (0.83 | ) | (0.69 | ) | |||||
| 1998 - Class C Shares (commenced July 27) | 10.00 | 0.22 | (c) | (0.91 | ) | (0.69 | ) | |||||
| 1998 - Institutional Shares (commenced July 27) | 10.00 | 0.31 | (c) | (0.95 | ) | (0.64 | ) | |||||
| 1998 - Service Shares (commenced July 27) | 10.00 | 0.25 | (c) | (0.91 | ) | (0.66 | ) | |||||
|
|
||||||||||||
See page 62 for all footnotes
APPENDIX B
|
REAL ESTATE SECURITIES FUND (continued)
|
|
Ratios assuming
no expense reductions |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
Portfolio
turnover rate |
||||||||||||
|
|
||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||
| 2000 - Class A Shares | 1.44 | % | 4.43 | % | 1.99 | % | 3.88 | % | 49 | % | ||||||
| 2000 - Class B Shares | 2.19 | 3.93 | 2.49 | 3.63 | 49 | |||||||||||
| 2000 - Class C Shares | 2.19 | 3.90 | 2.49 | 3.60 | 49 | |||||||||||
| 2000 - Institutional Shares | 1.04 | 4.89 | 1.34 | 4.59 | 49 | |||||||||||
| 2000 - Service Shares | 1.54 | 4.46 | 1.84 | 4.16 | 49 | |||||||||||
|
|
||||||||||||||||
| 1999 - Class A Shares | 1.44 | 4.14 | 1.96 | 3.62 | 37 | |||||||||||
| 1999 - Class B Shares | 2.19 | 3.21 | 2.46 | 2.94 | 37 | |||||||||||
| 1999 - Class C Shares | 2.19 | 3.38 | 2.46 | 3.11 | 37 | |||||||||||
| 1999 - Institutional Shares | 1.04 | 4.43 | 1.31 | 4.16 | 37 | |||||||||||
| 1999 - Service Shares | 1.54 | 4.17 | 1.81 | 3.90 | 37 | |||||||||||
|
|
||||||||||||||||
| For the Period Ended December 31, | ||||||||||||||||
| 1998 - Class A Shares (commenced July 27) | 1.47 | (b) | 23.52 | (b) | 3.52 | (b) | 21.47 | (b) | 6 | |||||||
| 1998 - Class B Shares (commenced July 27) | 2.19 | (b) | 3.60 | (b) | 4.02 | (b) | 1.77 | (b) | 6 | |||||||
| 1998 - Class C Shares (commenced July 27) | 2.19 | (b) | 5.49 | (b) | 4.02 | (b) | 3.66 | (b) | 6 | |||||||
| 1998 - Institutional Shares (commenced July 27) | 1.04 | (b) | 8.05 | (b) | 2.87 | (b) | 6.22 | (b) | 6 | |||||||
| 1998 - Service Shares (commenced July 27) | 1.54 | (b) | 6.29 | (b) | 3.37 | (b) | 4.46 | (b) | 6 | |||||||
|
|
||||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
Index
Specialty Funds
Prospectus
(Service Shares)
|
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 the last fiscal year.
|
|
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).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Internet Tollkeeper Fund
SM
is a service mark of Goldman, Sachs & Co.
SPECPROSVC
|
Prospectus
|
Class A, B and C Shares
May 1, 2001
|
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
|
|
n
|
Goldman Sachs Conservative Strategy Portfolio
|
|
n
|
Goldman Sachs Balanced Strategy Portfolio
|
|
n
|
Goldman Sachs Growth and Income Strategy Portfolio
|
|
n
|
Goldman Sachs Growth Strategy Portfolio
|
|
n
|
Goldman Sachs Aggressive Growth Strategy Portfolio
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division (“IMD”) of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as investment adviser (the “Investment Adviser”) to five asset allocation portfolios: the Conservative Strategy Portfolio, Balanced Strategy Portfolio, Growth and Income Strategy Portfolio,
Growth Strategy Portfolio and Aggressive Growth Strategy Portfolio (referred to as the “Portfolios” or the “Funds” interchangeably herein). The Portfolios are intended for investors who prefer to have their asset allocation
decisions made by professional money managers. Each Portfolio seeks to achieve its objective by investing in a combination of underlying funds for which Goldman Sachs now or in the future acts as investment adviser or principal underwriter (the
“Underlying Funds”). Some of these Underlying Funds invest primarily in fixed-income or money market securities (the “Underlying Fixed-Income Funds”) and other Underlying Funds invest primarily in equity securities (the
“Underlying Equity Funds”). An investor may choose to invest in one or more of the Portfolios based on individual investment goals, risk tolerance, and financial circumstances.
|
|
Goldman Sachs’ Asset Allocation Investment Philosophy:
|
|
The Investment Adviser’s Quantitative Strategies Group uses disciplined quantitative models to determine the relative
attractiveness of the world’s stock, bond and currency markets. These models use financial and economic variables to capture fundamental relationships that the Quantitative Strategies Group believes make sense. While the Investment
Adviser’s process is rigorous and quantitative, it also incorporates clear economic reasoning behind each recommendation.
|
|
Each Portfolio starts with a strategic allocation among the various asset classes. The Investment Adviser then tactically
deviates from the strategic allocations based on forecasts provided by the models. The tactical process seeks to add value by overweighting attractive markets and underweighting unattractive markets. Greater deviations from the strategic allocation
of a given Portfolio result in higher risk that the tactical allocation will underperform the strategic allocation. However, the Investment Adviser’s risk control process balances the amount any
|
|
The Asset Allocation Investment Process involves investing a Portfolio’s assets in other Goldman Sachs Funds within
specified equity and fixed-income percentage ranges.
|
|
asset class can be overweighted in seeking to achieve higher expected returns against the amount of risk imposed by that
deviation from the strategic allocation. The Investment Adviser employs Goldman Sachs’ proprietary Black-Litterman asset allocation technique in an effort to optimally balance these two goals.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income, consistent with the preservation of capital and secondarily the potential for capital appreciation
|
|
Benchmarks:
|
Two-Year U.S. Treasury Security
S&P 500® Index
Lehman Brothers Aggregate Bond Index
|
|
Investment Focus:
|
Primarily domestic fixed-income funds (approximately 80%) focusing on short-term investments and money market funds, with the balance in
domestic stock funds and an allocation to a global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income, consistent with the preservation of capital and secondarily also considers the potential
for capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds, with a focus on short-term investments including money market funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects
that the Portfolio will invest a relatively significant percentage of its assets in the Global Income Fund, Financial Square Prime Obligations Fund and CORE
SM
Large Cap Value Fund. It is expected that the Portfolio will invest more than 25% of its assets in the Short Duration Government Fund. The Portfolio may not invest in Underlying
Equity Funds that invest principally in foreign equity securities.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income and long-term capital appreciation
|
|
Benchmarks:
|
S&P 500® Index
Two-Year U.S. Treasury Security
Lehman Brothers High Yield Bond Index
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income and long-term capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of
its equity allocation in the CORE
SM
Large Cap Growth, CORE Large Cap Value and CORE
SM
International Equity Funds and will invest a relatively significant percentage of its assets in the Global Income Fund. It is expected that the Portfolio will invest more than
25% of its assets in the Short Duration Government Fund.
|
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and current income
|
|
Benchmarks:
|
S&P 500® Index
MSCI® Europe, Australasia, Far East (EAFE®) Index (unhedged)
Lehman Brothers Aggregate Bond Index
Lehman Brothers High Yield Bond Index
|
|
Investment Focus:
|
Domestic and international fixed-income and stock funds
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation and current income.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, which are intended to provide the capital appreciation component. Allocation to Underlying Fixed-Income Funds is intended to provide the income component. The Investment Adviser expects that the Portfolio will invest a relatively significant
percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds and will invest a relatively significant percentage of its assets in the Core Fixed Income and Global Income
Funds.
|
Growth Strategy Portfolio
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and secondarily current income
|
|
Benchmarks:
|
S&P 500® Index
MSCI® EAFE® Index (unhedged)
Russell 2000® Index
MSCI® Emerging Markets Free (EMF) Index
|
|
Investment Focus:
|
Primarily a blend of domestic large cap, small cap and international stock funds (approximately 80%), with the balance in domestic fixed-income
funds and a global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation and secondarily current income.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a blend of domestic large cap, small cap and international exposure to seek capital appreciation. Allocation to Underlying Fixed-Income Funds is intended to provide diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds.
|
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation
|
|
Benchmarks:
|
S&P 500® Index
MSCI® EAFE® Index (unhedged)
Russell 2000® Index
MSCI® EMF Index
|
|
Investment Focus:
|
Equity funds, with a greater focus on international and small cap investments
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, substantially all of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a greater focus on small cap and international investments. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of its assets in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds.
|
Each Portfolio seeks to achieve its investment objective by investing within specified equity and fixed-income ranges among Underlying Funds. The table below
illustrates the current Underlying Equity/Fixed-Income Fund allocation targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio’s Total Assets)
| Portfolio | Target | Range | |||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | |||||
| Equity | 20% | 0%-25% | |||
| Fixed-Income | 80% | 75%-100% | |||
|
|
|||||
| Balanced Strategy | |||||
| Equity | 40% | 20%-60% | |||
| Fixed-Income | 60% | 40%-80% | |||
|
|
|||||
| Growth and Income Strategy | |||||
| Equity | 60% | 40%-80% | |||
| Fixed-Income | 40% | 20%-60% | |||
|
|
|||||
| Growth Strategy | |||||
| Equity | 80% | 60%-100% | |||
| Fixed-Income | 20% | 0%-40% | |||
|
|
|||||
| Aggressive Growth Strategy | |||||
| Equity | 100% | 75%-100% | |||
| Fixed-Income | 0% | 0%-25% | |||
|
|
|||||
A Portfolio will invest in particular Underlying Funds based on various criteria. Among other things, the Investment Adviser will analyze the Underlying Funds’
respective investment objectives, policies and investment strategies in order to determine which Underlying Funds, in combination with other Underlying Funds, are appropriate in light of a Portfolio’s investment objective.
A Portfolio may purchase or sell securities to: (a) accommodate purchases and sales of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain or modify the allocation of its assets among the Underlying Funds within the percentage ranges described above.
PRINCIPAL INVESTMENT STRATEGIES
|
While each Portfolio can invest in any or all of the Underlying Funds, it is expected that each Portfolio will normally
invest in only some of the Underlying Funds at any particular time. Each Portfolio’s investment in any of the Underlying Funds may, and in some cases is expected to, exceed 25% of such Portfolio’s total assets.
|
|
THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED-INCOME TARGETS AND RANGES AND THE
INVESTMENTS IN EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
|
|
In addition, each Portfolio’s investment objective and all policies not specifically designated as fundamental in this
Prospectus or the Statement of Additional Information (the “Additional Statement”) are non-fundamental and may be changed without shareholder approval. If there is a change in a Portfolio’s investment objective, you should consider
whether that Portfolio remains an appropriate investment in light of your then current financial position and needs.
|
Loss of money is a risk of investing in each Portfolio. An investment in a Portfolio is not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. While the Portfolios offer a greater level of diversification than many other types of mutual funds, a single Portfolio may not provide a complete investment program for an investor.
The following summarizes important risks that apply to the Portfolios and may result in a loss of your investment. There can be no assurance that a Portfolio will achieve its investment objective.
|
n
|
Investing in the Underlying Funds
—The investments of each Portfolio are concentrated in the Underlying
Funds, and each Portfolio’s investment performance is directly related to the investment performance of the Underlying Funds held by it. The ability of each Portfolio to meet its investment objective is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those Underlying Funds by the Investment Adviser. The value of the Underlying Funds’ investments, and the net asset values (“NAV”) of the shares of both the
Portfolios and the Underlying Funds, will fluctuate in response to various market and economic factors related to the equity and fixed-income markets, as well as the financial condition and prospects of issuers in which the Underlying Funds invest.
There can be no assurance that the investment objective of any Portfolio or any Underlying Fund will be achieved.
|
|
n
|
Investments of the Underlying Funds
—Because the Portfolios invest in the Underlying Funds, the
Portfolios’ shareholders will be affected by the investment policies of the Underlying Funds in direct proportion to the amount of assets the Portfolios allocate to those Funds. Each Portfolio may invest in Underlying Funds that in turn invest
in small capitalization companies and foreign issuers and thus are subject to additional risks, including changes in foreign currency exchange rates and political risk. Foreign investments may include securities of issuers located in emerging
countries in Asia, Latin America, Eastern Europe and Africa. Each Portfolio may also invest in Underlying Funds that in turn invest in non-investment grade fixed-income securities (“junk bonds”), which are considered speculative by
traditional standards. In addition, the Underlying Funds may purchase derivative securities; enter into forward currency transactions; lend their portfolio securities; enter into futures contracts and options transactions; purchase zero coupon bonds
and payment-in-kind bonds; purchase securities issued by real estate investment trusts (“REITs”) and other issuers in the real estate industry; purchase restricted and illiquid securities; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase agreements; borrow money; and
engage in various other investment practices. The risks presented by these investment practices are discussed in Appendix A to this Prospectus and the Additional Statement.
|
|
n
|
Affiliated Persons
—In managing the Portfolios, the Investment Adviser will have the authority to select
and substitute Underlying Funds. The Investment Adviser is subject to conflicts of interest in allocating Portfolio assets among the various Underlying Funds both because the fees payable to it and/or its affiliates by some Underlying Funds are
higher than the fees payable by other Underlying Funds and because the Investment Adviser and its affiliates are also responsible for managing the Underlying Funds. The Trustees and officers of the Goldman Sachs Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Portfolios and the Underlying Funds.
|
|
n
|
Expenses
—You may invest in the Underlying Funds directly. By investing in the Underlying Funds indirectly
through a Portfolio, you will incur not only a proportionate share of the expenses of the Underlying Funds held by the Portfolio (including operating costs and investment management fees), but also expenses of the Portfolio.
|
|
n
|
Temporary Investments
—Although the
Portfolios normally seek to remain substantially invested in the Underlying Funds, each Portfolio may invest a portion of its assets in high-quality, short-term debt obligations (including commercial paper, certificates of deposit, bankers’
acceptances, repurchase agreements, debt obligations backed by the full faith and credit of the U.S. government and demand and time deposits of domestic and foreign banks and savings and loan associations) to maintain liquidity, to meet shareholder
redemptions and for other short-term cash needs. Also, there may be times when, in the opinion of the Investment Adviser, abnormal market or economic conditions warrant that, for temporary defensive purposes, a Portfolio may invest without
limitation in short-term obligations. When a Portfolio’s assets are invested in such investments, the Portfolio may not be achieving its investment objective.
|
|
DESCRIPTION OF THE UNDERLYING FUNDS
|
|
The following is a concise description of the investment objectives and practices for each of the Underlying Funds that are
available for investment by the Portfolios as of the date of this Prospectus. A Portfolio may also invest in other Underlying Funds not listed below that may become available for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the investment practices of the Underlying Funds is provided in Appendix A to this Prospectus and the Additional Statement. No offer is made in this Prospectus of any of the Underlying
Funds.
|
| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE Large Cap Value |
Long-term growth of capital
and dividend income. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
|||
|
|
|||||
| CORE Large Cap Growth |
Long-term growth of capital.
Dividend income is a secondary consideration. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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® Growth Index. |
|||
|
|
|||||
| CORE SM Small Cap Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
|||
|
|
|||||
| Real Estate Securities |
Total return comprised
of long-term growth of capital and dividend income. |
Substantially all, and at least 80%, of total
assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real estate industry. The Fund expects that a substantial portion of its total assets will be invested in REITS and real estate industry companies. |
|||
|
|
|||||
DESCRIPTION OF THE UNDERLYING FUNDS
| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE International Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of companies organized outside the United States or whose securities are principally traded outside 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 unhedged MSCI® EAFE® Index. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
|
International Growth
Opportunities* |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of companies with public stock market capitalizations within $100 million and $3 billion at the time of investment that are organized outside the United States or whose securities are principally traded outside the United States. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
| Emerging Markets Equity |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of emerging country issuers. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
|
*Formerly, “International Small Cap.”
|
|
*
|
Under normal interest rate conditions.
|
DESCRIPTION OF THE UNDERLYING FUNDS
| Investment Sector | Credit Quality | Other Investments | |||
|---|---|---|---|---|---|
|
|
|||||
|
Money market instruments including
securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises (“U.S. Government Securities”); U.S. bank obligations, commercial paper and other short- term obligations of U.S. corporations, governmental and other entities; asset-backed and receivables-backed securities; and related repurchase agreements. |
High Quality (short-
term ratings of A-1, P-1 or comparable quality). |
N/A | |||
|
|
|||||
|
At least 65% of total assets in U.S.
Government Securities and repurchase agreements collateralized by such securities. |
U.S. Government
Securities |
Mortgage pass-through securities
and other securities representing an interest in or collateralized by mortgage loans. |
|||
|
|
|||||
|
At least 65% of total assets in fixed-
income securities, including U.S. Government Securities, corporate, privately issued mortgage-backed and asset-backed securities. |
Minimum = BBB/Baa
Minimum for non- dollar securities = AA/Aa |
Foreign fixed-income, municipal
and convertible securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
|||
|
|
|||||
|
Securities of U.S. and foreign
governments and corporations. |
Minimum = BBB/Baa
At least 50% = AAA/Aaa |
Mortgage-backed and asset-backed
securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities or certain foreign government securities. |
|||
|
|
|||||
|
At least 65% of total assets in fixed-
income securities rated below investment grade, including U.S. and non-U.S. dollar corporate debt, foreign government securities, convertible securities and preferred stock. |
At least 65% = BB/Ba
or below |
Mortgage-backed and asset-backed
securities, U.S. Government Securities, investment grade corporate fixed-income securities, structured securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
|||
|
|
|||||
Loss of money is a risk of investing in each Underlying Fund. An investment in an Underlying 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 Underlying Funds and may result in a loss of your investment in a Portfolio. There can be no assurance that an
Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by an Underlying Fund will
decline in value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by an Underlying
Fund may default on its obligation to pay interest and repay principal.
|
|
n
|
Market Risk
—The risk that the value of the securities in which an Underlying Fund invests may go up or
down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. An Underlying Fund’s investments may be overweighted from
time to time in one or more industry sectors, which will increase the Underlying Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Derivatives Risk
—The risk that loss may result from an Underlying Fund’s investments in options,
futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to an Underlying Fund.
|
|
n
|
Management Risk
—The risk that a strategy used by an investment adviser to the Underlying Funds may fail to
produce the intended results.
|
|
n
|
Liquidity Risk
—The risk that an Underlying Fund will not be able to pay redemption proceeds within the
time period stated in the Underlying Fund’s Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Underlying Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs or emerging country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
n
|
NAV Risk
—The risk that the net asset value (“NAV”) of the Underlying Fund and the value of your
investment will fluctuate.
|
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
|
n
|
Call Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by an
Underlying Fund (such as a Mortgage-Backed Security) earlier than expected. This may happen when there is a decline in interest rates. Under these circumstances, an Underlying Fund may be unable to recoup all of its initial investment and will also
suffer from having to reinvest in lower yielding securities.
|
|
n
|
Extension Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by
an Underlying 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 an obligation will decrease, and an Underlying Fund will also suffer from
the inability to invest in higher yielding securities.
|
|
n
|
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.
|
Risk That Applies Primarily To The Underlying Equity Funds:
|
n
|
Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
Risks That Are Particularly Important For Specific Underlying Funds:
|
n
|
Geographic Risk
—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 susceptible 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 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 Underlying Funds in issuers located in a particular country or region will subject an Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising
from adverse developments affecting those issuers or countries.
|
|
n
|
Foreign Risk
—The risk that when an Underlying Fund invests in foreign securities, it will be subject to
risk of loss not typically associated with domestic issuers. Loss may result because of less foreign government regulation, less public informa
tion and less economic, political and social stability. Loss may also result from the imposition of exchange controls, confiscations and other government restrictions. The Underlying Funds will also be subject to the risk of negative foreign
currency rate fluctuations. Foreign risks will normally be greatest when an Underlying Fund invests in issuers located in emerging countries.
|
|
n
|
Emerging Countries Risk
—Certain Underlying Funds may invest in emerging country securities. The securities
markets of Asian, Latin and South American, Eastern European, African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not
subject to as extensive 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 registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
|
|
n
|
Small Cap Risk
—Certain Underlying Funds may invest in small cap stocks. The securities of small
capitalization companies 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 an
Underlying Fund to effect sales at an advantageous time or without a substantial drop in price.
|
|
n
|
Initial Public Offering (“IPO’’) Risk
—The risk that the market value of IPO shares will
fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high
transaction costs. IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion of the Underlying Fund’s performance could be attributable to investments in IPOs, because
such investments would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying Fund’s investments in IPOs on the Underlying Fund’s performance will probably decline, which
could reduce the Underlying Fund’s performance.
|
|
n
|
“Junk Bond” Risk
—Certain Underlying Funds may invest in non-investment grade fixed-income
securities (commonly known as “junk bonds”) that are considered predominantly speculative by traditional investment standards. Non-investment grade fixed-income securities and unrated securities of comparable credit quality are subject to
the increased risk of an issuer’s inability to meet principal and interest obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, nega
tive perceptions of the junk bond markets generally and less secondary market
liquidity. |
More information about the portfolio securities and investment techniques of the Underlying Funds, and their associated risks, is provided in Appendix A. You should
consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE PORTFOLIOS HAVE PERFORMED
|
|
The bar chart and table below provide an indication of the risks of investing in a Portfolio by showing: (a) changes in the
performance of a Portfolio’s Class A Shares from year to year; and (b) how the average annual returns of a Portfolio’s Class A, B and C Shares compare to those of broad-based securities market indices. The bar chart and table assume
reinvestment of dividends and distributions. A Portfolio’s past performance is not necessarily an indication of how the Portfolio will perform in the future. The average annual total return calculation reflects a maximum initial sales charge of
5.5% for Class A Shares, the assumed contingent deferred sales charge (“CDSC”) for Class B Shares (5% maximum declining to 0% after six years), and the assumed CDSC for Class C Shares (1% if redeemed within 12 months of purchase). The bar
chart does not reflect the sales loads applicable to Class A Shares. If the sales loads were reflected, returns would be less. Performance reflects expense limitations in effect. If expense limitations were not in place, a Portfolio’s
performance would have been reduced.
|
PORTFOLIO PERFORMANCE
Conservative Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q3 ’00
+
2.37%
Worst Quarter
Q2 ’00
+
0.84%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Class A (Inception 2/8/99) | |||||||
| Including Sales Charges | (0.43 | )% | 2.64 | % | |||
| Two-Year U.S. Treasury Security* | 7.53 | % | 4.98 | % | |||
| S&P 500® Index** | (9.10 | )% | 4.64 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 5.70 | % | |||
|
|
|||||||
| Class B (Inception 2/8/99) | |||||||
| Including CDSC | (0.77 | )% | 2.73 | % | |||
| Two-Year U.S. Treasury Security* | 7.53 | % | 4.98 | % | |||
| S&P 500® Index** | (9.10 | )% | 4.64 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 5.70 | % | |||
|
|
|||||||
| Class C (Inception 2/8/99) | |||||||
| Including CDSC | 3.51 | % | 4.93 | % | |||
| Two-Year U.S. Treasury Security* | 7.53 | % | 4.98 | % | |||
| S&P 500® Index** | (9.10 | )% | 4.64 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 5.70 | % | |||
|
|
|||||||
|
*
|
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or
expenses.
|
**The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common stocks. The Index figures do not
reflect any fees or expenses.
***The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified portfolio of fixed-income securities, including U.S. Treasuries, investment-grade
corporate bonds and mortgage-backed and asset-backed securities. The Index figures do not reflect any fees or expenses.
Balanced Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q4 ’98
+
7.04%
Worst Quarter
Q3 ’98
-
5.73%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Class A (Inception 1/2/98) | |||||||
| Including Sales Charges | (6.12 | )% | 3.37 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| Two-Year U.S. Treasury Security** | 7.53 | % | 5.29 | % | |||
| Lehman Brothers High Yield Bond Index*** | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
| Class B (Inception 1/2/98) | |||||||
| Including CDSC | (6.26 | )% | 3.55 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| Two-Year U.S. Treasury Security** | 7.53 | % | 5.29 | % | |||
| Lehman Brothers High Yield Bond Index*** | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
| Class C (Inception 1/2/98) | |||||||
| Including CDSC | (2.30 | )% | 4.62 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| Two-Year U.S. Treasury Security** | 7.53 | % | 5.29 | % | |||
| Lehman Brothers High Yield Bond Index*** | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or
expenses.
|
|
***
|
The Lehman Brothers High Yield Bond Index is a total return performance benchmark for fixed-income securities
having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or expenses.
|
PORTFOLIO PERFORMANCE
Growth and Income Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q4 ’99
+
10.22%
Worst Quarter
Q3 ’98
-
10.17%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Class A (Inception 1/2/98) | |||||||
| Including Sales Charges | (9.78 | )% | 3.64 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| MSCI® EAFE® Index (unhedged)** | (13.96 | )% | 9.63 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 6.36 | % | |||
| Lehman Brothers High Yield Bond Index† | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
| Class B (Inception 1/2/98) | |||||||
| Including CDSC | (10.01 | )% | 3.84 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| MSCI® EAFE® Index (unhedged)** | (13.96 | )% | 9.63 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 6.36 | % | |||
| Lehman Brothers High Yield Bond Index† | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
| Class C (Inception 1/2/98) | |||||||
| Including CDSC | (6.31 | )% | 4.79 | % | |||
| S&P 500® Index* | (9.10 | )% | 12.24 | % | |||
| MSCI® EAFE® Index (unhedged)** | (13.96 | )% | 9.63 | % | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63 | % | 6.36 | % | |||
| Lehman Brothers High Yield Bond Index† | (5.86 | )% | (0.61 | )% | |||
|
|
|||||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in
20 developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Lehman Brothers Aggregate Bond Index represents a diversified portfolio of fixed-income securities, including
U.S. Treasuries, investment-grade corporate bonds, and mortgage-backed and asset-backed securities. The Index is unmanaged and does not reflect any fees or expenses.
|
|
†
|
The Lehman Brothers High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or
expenses.
|
Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q4 ’99
+
13.16%
Worst Quarter
Q3 ’98
-
14.23%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Class A (Inception 1/2/98) | |||||
| Including Sales Charges | (13.69)% | 2.96% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
| Class B (Inception 1/2/98) | |||||
| Including CDSC | (13.92)% | 3.17% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
| Class C (Inception 1/2/98) | |||||
| Including CDSC | (10.27)% | 4.17% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in
20 developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Russell 2000® Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees
or expenses.
|
|
†
|
The unmanaged MSCI® EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
|
PORTFOLIO PERFORMANCE
Aggressive Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (CLASS A)
|
|
Best Quarter
Q4 ’99
+
15.81%
Worst Quarter
Q3 ’98
-
17.19%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Class A (Inception 1/2/98) | |||||
| Including Sales Charges | (16.32)% | 2.48% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
| Class B (Inception 1/2/98) | |||||
| Including CDSC | (16.46)% | 2.72% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
| Class C (Inception 1/2/98) | |||||
| Including CDSC | (12.88)% | 3.74% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in
20 developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Russell 2000® Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees
or expenses.
|
|
†
|
The unmanaged MSCI® EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
|
This table describes the fees and expenses that you would pay if you buy and hold Class A, Class B, or Class C Shares of a Portfolio.
|
Conservative Strategy Portfolio
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | 5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Portfolio Operating Expenses | ||||||||||
| (expenses that are deducted from Portfolio assets): 6 | ||||||||||
| Management Fees (for asset allocation) 7 | 0.35% | 0.35% | 0.35% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 1.35% | 1.35% | 1.35% | |||||||
| Underlying Fund Expenses 6 | 0.55% | 0.55% | 0.55% | |||||||
|
|
||||||||||
| Total Other and Underlying Fund Expenses | 1.90% | 1.90% | 1.90% | |||||||
|
|
||||||||||
| Total Portfolio Operating Expenses* | 2.50% | 3.25% | 3.25% | |||||||
|
|
||||||||||
|
See page 31 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Conservative Strategy Portfolio
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Portfolio Operating Expenses | |||||||
| (expenses that are deducted from Portfolio assets): 6 | |||||||
| Management Fees (for asset allocation) 7 | 0.15% | 0.15% | 0.15% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | ||||
| Underlying Fund Expenses 6 | 0.55% | 0.55% | 0.55% | ||||
|
|
|||||||
| Total Other and Underlying Fund Expenses | 0.74% | 0.74% | 0.74% | ||||
|
|
|||||||
|
Total Portfolio Operating Expenses (after
current waivers and expense limitations) |
1.14% | 1.89% | 1.89% | ||||
|
|
|||||||
PORTFOLIO FEES AND EXPENSES
|
Balanced Strategy Portfolio
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | 5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Portfolio Operating Expenses | ||||||||||
| (expenses that are deducted from Portfolio assets): 6 | ||||||||||
| Management Fees (for asset allocation) 7 | 0.35% | 0.35% | 0.35% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 0.49% | 0.49% | 0.49% | |||||||
| Underlying Fund Expenses 6 | 0.69% | 0.69% | 0.69% | |||||||
|
|
||||||||||
| Total Other and Underlying Fund Expenses | 1.18% | 1.18% | 1.18% | |||||||
|
|
||||||||||
| Total Portfolio Operating Expenses* | 1.78% | 2.53% | 2.53% | |||||||
|
|
||||||||||
|
See page 31 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Balanced Strategy Portfolio
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Portfolio Operating Expenses | |||||||
| (expenses that are deducted from Portfolio assets): 6 | |||||||
| Management Fees (for asset allocation) 7 | 0.15% | 0.15% | 0.15% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | ||||
| Underlying Fund Expenses 6 | 0.69% | 0.69% | 0.69% | ||||
|
|
|||||||
| Total Other and Underlying Fund Expenses | 0.88% | 0.88% | 0.88% | ||||
|
|
|||||||
|
Total Portfolio Operating Expenses (after
current waivers and expense limitations) |
1.28% | 2.03% | 2.03% | ||||
|
|
|||||||
Portfolio Fees and Expenses
continued
|
Growth and Income Strategy
Portfolio |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | 5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Portfolio Operating Expenses | ||||||||||
| (expenses that are deducted from Portfolio assets): 6 | ||||||||||
| Management Fees (for asset allocation) 7 | 0.35% | 0.35% | 0.35% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 0.27% | 0.27% | 0.27% | |||||||
| Underlying Fund Expenses 6 | 0.79% | 0.79% | 0.79% | |||||||
|
|
||||||||||
| Total Other and Underlying Fund Expenses | 1.06% | 1.06% | 1.06% | |||||||
|
|
||||||||||
| Total Portfolio Operating Expenses* | 1.66% | 2.41% | 2.41% | |||||||
|
|
||||||||||
|
See page 31 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Growth and Income Strategy Portfolio
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Portfolio Operating Expenses | |||||||
| (expenses that are deducted from Portfolio assets): 6 | |||||||
| Management Fees (for asset allocation) 7 | 0.15% | 0.15% | 0.15% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | ||||
| Underlying Fund Expenses 6 | 0.79% | 0.79% | 0.79% | ||||
|
|
|||||||
| Total Other and Underlying Fund Expenses | 0.98% | 0.98% | 0.98% | ||||
|
|
|||||||
|
Total Portfolio Operating Expenses (after
current waivers and expense limitations) |
1.38% | 2.13% | 2.13% | ||||
|
|
|||||||
PORTFOLIO FEES AND EXPENSES
|
Growth Strategy Portfolio
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | 5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Portfolio Operating Expenses | ||||||||||
| (expenses that are deducted from Portfolio assets): 6 | ||||||||||
| Management Fees (for asset allocation) 7 | 0.35% | 0.35% | 0.35% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 0.29% | 0.29% | 0.29% | |||||||
| Underlying Fund Expenses 6 | 0.84% | 0.84% | 0.84% | |||||||
|
|
||||||||||
| Total Other and Underlying Fund Expenses | 1.13% | 1.13% | 1.13% | |||||||
|
|
||||||||||
| Total Portfolio Operating Expenses* | 1.73% | 2.48% | 2.48% | |||||||
|
|
||||||||||
|
See page 31 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Growth Strategy Portfolio
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Portfolio Operating Expenses | |||||||
| (expenses that are deducted from Portfolio assets): 6 | |||||||
| Management Fees (for asset allocation) 7 | 0.15% | 0.15% | 0.15% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | ||||
| Underlying Fund Expenses 6 | 0.84% | 0.84% | 0.84% | ||||
|
|
|||||||
| Total Other and Underlying Fund Expenses | 1.03% | 1.03% | 1.03% | ||||
|
|
|||||||
|
Total Portfolio Operating Expenses (after
current waivers and expense limitations) |
1.43% | 2.18% | 2.18% | ||||
|
|
|||||||
Portfolio Fees and Expenses
continued
|
Aggressive Growth Strategy Portfolio
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | 5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Portfolio Operating Expenses | ||||||||||
| (expenses that are deducted from Portfolio assets): 6 | ||||||||||
| Management Fees (for asset allocation) 7 | 0.35% | 0.35% | 0.35% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 8 | 0.39% | 0.39% | 0.39% | |||||||
| Underlying Fund Expenses 6 | 0.90% | 0.90% | 0.90% | |||||||
|
|
||||||||||
| Total Other and Underlying Fund Expenses | 1.29% | 1.29% | 1.29% | |||||||
|
|
||||||||||
| Total Portfolio Operating Expenses* | 1.89% | 2.64% | 2.64% | |||||||
|
|
||||||||||
|
See page 31 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Aggressive Growth Strategy Portfolio
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Portfolio Operating Expenses | |||||||
| (expenses that are deducted from Portfolio assets): 6 | |||||||
| Management Fees (for asset allocation) 7 | 0.15% | 0.15% | 0.15% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 8 | 0.19% | 0.19% | 0.19% | ||||
| Underlying Fund Expenses 6 | 0.90% | 0.90% | 0.90% | ||||
|
|
|||||||
| Total Other and Underlying Fund Expenses | 1.09% | 1.09% | 1.09% | ||||
|
|
|||||||
|
Total Portfolio Operating Expenses (after
current waivers and expense limitations) |
1.49% | 2.24% | 2.24% | ||||
|
|
|||||||
PORTFOLIO FEES AND EXPENSES
1
The maximum sales charge is a percentage of the offering price. A CDSC of 1% is imposed on certain redemptions (within 18 months of purchase) of Class A Shares sold
without an initial sales charge as part of an investment of $1 million or more.
2
The maximum CDSC is a percentage of the lesser of the NAV at the time of the redemption or the NAV when the shares were originally purchased.
3
A CDSC is imposed upon Class B Shares redeemed within six years of purchase at a rate of 5% in the first year, declining to 1% in the sixth year, and eliminated
thereafter.
4
A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of purchase.
5
A transaction fee of $7.50 may be charged for redemption proceeds paid by wire.
6
The Portfolios’ annual operating expenses are based on actual expenses. “Underlying Fund Expenses” for each Portfolio are based upon the strategic
allocation of each Portfolio’s investment in the Underlying Funds and upon the actual total operating expenses of the Underlying Funds (including any current waivers and expense limitations of the Underlying Funds). Actual Underlying Fund
Expenses incurred by each Portfolio may vary with changes in the allocation of each Portfolio’s assets among the Underlying Funds and with other events that directly affect the expenses of the Underlying Funds.
7
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee on the Portfolios equal to 0.20% of the Portfolios’ average daily net
assets.
As a result of fee waivers, current management fees of the Portfolios are 0.15% of each Portfolio’s average daily net assets. The waivers may be terminated at any time at the option of the Investment Adviser.
8
“Other Expenses” include transfer agency fees and expenses equal to 0.19% of the average daily net assets of each Portfolio’s Class A, B and C Shares, plus
all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, distribution and service fees, transfer agency fees and expenses, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.00% of each Portfolio’s average daily net assets.
Example
The following Example is intended to help you compare the cost of investing in a Portfolio (without waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Class A, B or C Shares of a Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has
a 5% return each year and that a Portfolio’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Portfolio | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Conservative Strategy | |||||||||
| Class A Shares | $239 | $ 736 | $1,257 | $2,680 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $828 | $1,301 | $1,898 | $3,378 | |||||
| – Assuming no redemption | $328 | $1,001 | $1,698 | $3,378 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $428 | $1,001 | $1,698 | $3,549 | |||||
| – Assuming no redemption | $328 | $1,001 | $1,698 | $3,549 | |||||
|
|
|||||||||
| Balanced Strategy | |||||||||
| Class A Shares | $171 | $ 529 | $ 911 | $1,979 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $756 | $1,088 | $1,545 | $2,682 | |||||
| – Assuming no redemption | $256 | $ 788 | $1,345 | $2,682 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $356 | $ 788 | $1,345 | $2,866 | |||||
| – Assuming no redemption | $256 | $ 788 | $1,345 | $2,866 | |||||
|
|
|||||||||
| Growth and Income Strategy | |||||||||
| Class A Shares | $159 | $ 495 | $ 853 | $1,857 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $744 | $1,051 | $1,485 | $2,561 | |||||
| – Assuming no redemption | $244 | $ 751 | $1,285 | $2,561 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $344 | $ 751 | $1,285 | $2,746 | |||||
| – Assuming no redemption | $244 | $ 751 | $1,285 | $2,746 | |||||
|
|
|||||||||
PORTFOLIO FEES AND EXPENSES
| Portfolio | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Growth Strategy | |||||||||
| Class A Shares | $166 | $ 515 | $ 887 | $1,929 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $751 | $1,073 | $1,521 | $2,632 | |||||
| – Assuming no redemption | $251 | $ 773 | $1,321 | $2,632 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $351 | $ 773 | $1,321 | $2,816 | |||||
| – Assuming no redemption | $251 | $ 773 | $1,321 | $2,816 | |||||
|
|
|||||||||
| Aggressive Growth Strategy | |||||||||
| Class A Shares | $181 | $ 561 | $ 965 | $2,090 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $767 | $1,120 | $1,600 | $2,792 | |||||
| – Assuming no redemption | $267 | $ 820 | $1,400 | $2,792 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $367 | $ 820 | $1,400 | $2,973 | |||||
| – Assuming no redemption | $267 | $ 820 | $1,400 | $2,973 | |||||
|
|
|||||||||
The hypothetical example assumes that a CDSC will not apply to redemptions of Class A Shares within the first 18 months. Class B Shares convert to Class A Shares eight
years after purchase; therefore, Class A expenses are used in the hypothetical example after year eight.
Certain institutions that sell Portfolio shares and/or their salespersons may receive other compensation in connection with the sale and distribution of Class A, Class
B and Class C Shares or for services to their customers’ accounts and/or the Portfolios. For additional information regarding such compensation, see “What Should I Know When I Purchase Shares Through An Authorized Dealer?”
|
INVESTMENT ADVISERS
|
| Investment Adviser | Portfolio | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | Conservative Strategy | ||
| 32 Old Slip | Balanced Strategy | ||
| New York, New York 10005 | Growth and Income Strategy | ||
| Growth Strategy | |||
| Aggressive Growth Strategy | |||
|
|
|||
|
Except as noted below, GSAM also serves as investment adviser to each Underlying Fund.
|
|
GSAM is a business unit of IMD of Goldman Sachs. 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. GSFM, a registered investment adviser since 1990, is a Delaware limited partnership which is an
affiliate of Goldman Sachs. As of December 31, 2000, GSAM, GSAMI and GSFM, along with other units of IMD, had assets under management of $281.7 billion.
|
SERVICE PROVIDERS
|
Under an Asset Allocation Management Agreement with each Portfolio, the Investment Adviser, subject to the general
supervision of the Trustees, provides day-to-day advice as to each Portfolio’s investment transactions, including determinations concerning changes to (a) the Underlying Funds in which the Portfolios may invest; and (b) the percentage range of
assets of any Portfolio that may be invested in the Underlying Equity Funds and the Underlying Fixed-Income Funds as separate groups.
|
|
The Investment Adviser also performs the following additional services for the Portfolios:
|
|
n
|
Supervises all non-advisory operations of the Portfolios
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Portfolios
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Portfolio
|
|
n
|
Provides office space and all necessary office equipment and services
|
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Portfolio | Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Balanced Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth and Income Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Aggressive Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Portfolios reflects that the Investment
Adviser did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
In addition, each Portfolio, as a shareholder in the Underlying Funds, will indirectly bear a proportionate share of any
investment management fees and other expenses paid by the Underlying Funds. The following chart shows the total net operating expense ratios (management fee plus other operating expenses) of Institutional Shares of each Underlying Fund in which the
Portfolios may invest after applicable fee waivers and expense limitations, as of the end of each Underlying Fund’s most recent fiscal year. In addition, the following chart shows the contractual investment management fees payable to the
Investment Adviser or its affiliates by the Underlying Funds (in each case as an annualized percentage of a Fund’s average net assets). Absent voluntary fee waivers and/or expense reimbursements, which may be discontinued at any time, the total
operating expense ratios of certain Underlying Funds would be higher.
|
| Underlying Fund |
Contractual
Management Fee |
Total Net
Operating Expense Ratio |
|||
|---|---|---|---|---|---|
|
|
|||||
| Financial Square Prime Obligations | 0.205% | 0.18% | |||
|
|
|||||
| Short Duration Government | 0.50% | 0.54% | |||
|
|
|||||
| Core Fixed Income | 0.40% | 0.54% | |||
|
|
|||||
| Global Income | 0.90% | 0.69% | |||
|
|
|||||
| High Yield | 0.70% | 0.76% | |||
|
|
|||||
| CORE Large Cap Growth | 0.75% | 0.64% | |||
|
|
|||||
| CORE Large Cap Value | 0.60% | 0.64% | |||
|
|
|||||
| CORE Small Cap Equity | 0.85% | 0.93% | |||
|
|
|||||
| CORE International Equity | 0.85% | 1.01% | |||
|
|
|||||
| International Growth Opportunities* | 1.20% | 1.40% | |||
|
|
|||||
| Emerging Markets Equity | 1.20% | 1.39% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.04% | |||
|
|
|||||
|
* Formerly, “International Small Cap.”
|
SERVICE PROVIDERS
|
PORTFOLIO MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Investment Performance
& Valuation Oversight Group, and the Client Research Groups. In total, these groups include over 120 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department since becoming a Partner in 1994. Preceding
his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research and model development group.
|
|
Quantitative Strategies Group
|
|
n
|
The 30-person Quantitative Strategies Group includes eight Ph.Ds, with extensive academic and practitioner
experience
|
|
n
|
Disciplined, quantitative models are used to determine the relative attractiveness of the world’s stock, bond and
currency markets
|
|
n
|
Theory and economic intuition guide the investment process
|
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Mark M. Carhart, Ph.D., CFA
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Dr. Carhart joined the Investment Adviser as
a member of the Quantitative Strategies Group in 1997. From August 1995 to September 1997, he was Assistant Professor of Finance at the Marshall School of Business at USC and a Senior Fellow of the Wharton Financial Institutions Center. |
|||
|
|
|||||
|
Silverio Foresi, Ph.D.
Portfolio Manager |
Since 2000 |
Dr. Foresi joined the Investment Adviser in
1999. From 1997 to 1999, he was head of Research in Emerging Markets Fixed Income Derivatives Trading at Salomon Brothers. From 1990 to 1997, Dr. Foresi was an Assistant Professor of Finance at New York University. |
|||
|
|
|||||
|
Raymond J. Iwanowski
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Mr. Iwanowski joined the Investment Adviser
as an associate and portfolio manager in 1997. From 1993 to 1997, he was a Vice President and head of the Fixed Derivatives Client Research group at Salomon Brothers. |
|||
|
|
|||||
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Donald M. Raymond,
Ph.D., CFA Vice President; Portfolio and Product Manager; Quantitative Strategies |
Since 1998 |
Dr. Raymond is a Portfolio Manager in the
Quantitative Strategies Group responsible for the U.S. Asset Allocation mutual funds and Models Program. In his capacity as Product Manager, he is also responsible for new product development and client service for Global Tactical Asset Allocation and related products. Prior to joining the Investment Adviser in 1998, Dr. Raymond spent four years at Goldman Sachs Canada as head of Fixed Income Research and three years at a Canadian Investment Bank where he developed fixed income cash and derivative pricing models and portfolio arbitrage strategies. Dr. Raymond holds a B.Sc. and a Ph.D (Electrical and Computer Engineering), both from Queen’s University in Kingston, Canada. |
|||
|
|
|||||
|
Giorgio De Santis, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. DeSantis joined the Investment Adviser in
1998. From 1992 to 1998, he was Assistant Professor of Finance and Business Economics at the Marshall School of Business at USC. |
|||
|
|
|||||
|
William J. Fallon, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. Fallon joined the Investment Adviser in
1998. From 1996 to 1998, he worked in the Firmwide Risk Group of Goldman Sachs. From 1991 to 1996, he attended Columbia University, where he earned a Ph.D. in Finance. |
|||
|
|
|||||
|
Guang-Liang He, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. He joined the Investment Adviser in 1998.
In 1997, he worked in the Firmwide Risk Group of Goldman Sachs. From 1992 to 1997, he worked at Quantitative Financial Strategies, Inc. where he was responsible for the research and development of proprietary trading models. |
|||
|
|
|||||
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of each Portfolio’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, 60606-6372, also serves as each Portfolio’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing
functions.
|
SERVICE PROVIDERS
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Underlying Funds or
Portfolios. Goldman Sachs reserves the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to an Underlying Fund or limit an Underlying Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and
advise accounts and funds which have investment objectives similar to those of the Underlying Funds and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Underlying 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 Underlying Funds. The results of an Underlying Fund’s investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that an Underlying 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 Underlying Funds may, from time to time, enter into transactions in which other clients of Goldman
Sachs have an adverse interest. An Underlying Fund’s activities may be limited because of regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such
restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
n
Cash
n
Additional shares of the same class of the same Fund
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the Additional Statement.
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Portfolio |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | Monthly | Annually | |||
|
|
|||||
| Balanced Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth and Income Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth Strategy | Annually | Annually | |||
|
|
|||||
| Aggressive Growth Strategy | Annually | Annually | |||
|
|
|||||
From time to time a portion of a Portfolio’s dividends may constitute a return of capital.
When you purchase shares of a Portfolio, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Portfolio. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
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 Class A, Class B And Class C Shares Of The Funds?
|
|
You may purchase shares of the Funds through:
|
|
n
|
Goldman Sachs;
|
|
n
|
Authorized Dealers; or
|
|
n
|
Directly from Goldman Sachs Trust (the “Trust”).
|
|
In order to make an initial investment in a Fund, you must furnish to the Fund, Goldman Sachs or your Authorized Dealer the
information in the Account Application.
|
|
To Open an Account:
|
|
n
|
Complete the Account Application
|
|
n
|
Mail your payment and Account Application to:
|
|
Your Authorized Dealer
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to your Authorized Dealer
|
|
–
|
Your Authorized Dealer is responsible for forwarding payment promptly (within three business days) to the Fund
|
|
or
|
|
Goldman Sachs Funds c/o National Financial Data Services, Inc.
(“NFDS”)
, P.O. Box 219711,
Kansas City, MO 64121-9711
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to Goldman Sachs Funds – (Name of Fund
and
Class of Shares)
|
|
–
|
NFDS will not accept a check drawn on a foreign bank, a third-party check, cash, money orders, travelers cheques or credit
card checks
|
|
–
|
Federal funds wire, Automated Clearing House Network (“ACH”) transfer or bank wires should be sent to State Street
Bank and Trust Company (“State Street”) (each Fund’s custodian). Please call the Funds at 1-800-526-7384 to get detailed instructions on how to wire your money.
|
|
What Is My Minimum Investment In The Funds?
|
| Initial | Additional | ||||
|---|---|---|---|---|---|
|
|
|||||
| Regular Accounts | $1,000 | $50 | |||
|
|
|||||
|
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) |
$250 | $50 | |||
|
|
|||||
|
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts |
$250 | $50 | |||
|
|
|||||
| 403(b) Plan Accounts | $200 | $50 | |||
|
|
|||||
| SIMPLE IRAs and Education IRAs | $50 | $50 | |||
|
|
|||||
| Automatic Investment Plan Accounts | $50 | $50 | |||
|
|
|||||
|
What Alternative Sales Arrangements Are Available?
|
|
The Funds offer three classes of shares through this Prospectus.
|
|
|
|||||
|
Maximum Amount You Can
Buy In The Aggregate Across Funds |
Class A | No limit | |||
|
|
|||||
| Class B | $250,000 | ||||
|
|
|||||
| Class C | $1,000,000 | ||||
|
|
|||||
| Initial Sales Charge | Class A |
Applies to purchases of less than $1 million—
varies by size of investment with a maximum of 5.5% |
|||
|
|
|||||
| Class B | None | ||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
| CDSC | Class A |
1.00% on certain investments of $1 million or
more if you sell within 18 months |
|||
|
|
|||||
| Class B | 6 year declining CDSC with a maximum of 5% | ||||
|
|
|||||
| Class C |
1% if shares are redeemed within 12 months
of purchase |
||||
|
|
|||||
| Conversion Feature | Class A | None | |||
|
|
|||||
| Class B |
Class B Shares convert to Class A Shares after
8 years |
||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Refuse to open an account if you fail to (i) provide a social security number or other taxpayer identification number; or
(ii) certify that such number is correct (if required to do so under applicable law).
|
|
n
|
Reject or restrict any purchase or exchange order by a particular purchaser (or group of related purchasers). This may occur,
for example, when a pattern of
frequent purchases, sales or exchanges of shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of a Fund.
|
|
n
|
Close a Fund to new investors from time to time and
reopen a Fund whenever it is deemed appropriate by a Fund’s Investment Adviser.
|
|
n
|
Modify or waive the minimum investment
amounts.
|
|
n
|
Modify the manner in which shares are offered.
|
|
n
|
Modify the sales charge rates applicable to future purchases of shares.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange shares is the Fund’s next determined NAV and share class.
Each class calculates its NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each share class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form, plus any
applicable sales charge.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper form, less any
applicable CDSC.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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, the NAV of a Fund that holds
foreign securities may be impacted on days when investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
|
|
What Is The Offering Price Of Class A Shares?
|
|
The offering price of Class A Shares of each Fund is the next determined NAV per share plus an initial sales charge paid
to Goldman Sachs at the time of purchase of shares.
The sales charge varies depending upon the amount you purchase. In some cases, described below, the initial sales charge may be eliminated altogether, and the offering price will be the NAV per
share. The current sales charges and commissions paid to Authorized Dealers are as follows:
|
|
Amount of Purchase
(including sales charge, if any) |
Sales Charge as
Percentage of Offering Price |
Sales Charge
as Percentage of Net Amount Invested |
Maximum Dealer
Allowance as Percentage of Offering Price* |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Less than $50,000 | 5.50 | % | 5.82 | % | 5.00 | % | ||||
| $50,000 up to (but less than) $100,000 | 4.75 | 4.99 | 4.00 | |||||||
| $100,000 up to (but less than) $250,000 | 3.75 | 3.90 | 3.00 | |||||||
| $250,000 up to (but less than) $500,000 | 2.75 | 2.83 | 2.25 | |||||||
| $500,000 up to (but less than) $1 million | 2.00 | 2.04 | 1.75 | |||||||
| $1 million or more | 0.00 | ** | 0.00 | ** | *** | |||||
|
|
||||||||||
|
*
|
Dealer’s allowance may be changed periodically. During special promotions, the entire sales charge may be
allowed to Authorized Dealers. Authorized Dealers to whom substantially the entire sales charge is allowed may be deemed to be “underwriters” under the Securities Act of 1933.
|
|
**
|
No sales charge is payable at the time of purchase of Class A Shares of $1 million or more, but a CDSC of 1% may be
imposed in the event of certain redemptions within 18 months of purchase.
|
|
***
|
The Distributor may pay a one-time commission to Authorized Dealers who initiate or are responsible for purchases
of $1 million or more of shares of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the next $2 million, and 0.25% thereafter. The Distributor may also pay, with respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate or are responsible for purchases of $500,000 or more by certain Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or
other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations investing in the Funds which satisfy the criteria set forth below in “When Are Class A Shares Not
Subject To A Sales Load?” or $1 million or more by certain “wrap” accounts. Purchases by such plans will be made at NAV with no initial sales charge, but if all of the shares held are redeemed within 18 months after the end of the
calendar month in which such purchase was made, a CDSC of 1% may be imposed upon the plan sponsor or the third party administrator. In addition, Authorized Dealers will remit to the Distributor such payments received in connection with
“wrap” accounts in the event that shares are redeemed within 18 months after the end of the calendar month in which the purchase was made.
|
SHAREHOLDER GUIDE
|
What Else Do I Need To Know About Class A Shares’ CDSC?
|
|
Purchases of $1 million or more of Class A Shares will be made at NAV with no initial sales charge. However, if you redeem
shares within 18 months after the end of the calendar month in which the purchase was made, excluding any period of time in which the shares were exchanged into and remained invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if your Authorized Dealer enters into an agreement with the Distributor to return all or an applicable prorated portion of its commission to the Distributor. The CDSC is waived on redemptions in certain
circumstances. See “In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?” below.
|
|
When Are Class A Shares Not Subject To A Sales Load?
|
|
Class A Shares of the Funds may be sold at NAV without payment of any sales charge to the following individuals and
entities:
|
|
n
|
Goldman Sachs, its affiliates or their respective officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner, any Trustee or officer of the Trust and designated family members of any of these individuals;
|
|
n
|
Qualified retirement plans of Goldman Sachs;
|
|
n
|
Trustees or directors of investment companies for which Goldman Sachs or an affiliate acts as sponsor;
|
|
n
|
Any employee or registered representative of any Authorized Dealer or their respective spouses, children and
parents;
|
|
n
|
Banks, trust companies or other types of depository institutions investing for their own account or investing for
discretionary or non-discretionary accounts;
|
|
n
|
Any state, county or city, or any instrumentality, department, authority or agency thereof, which is prohibited by applicable
investment laws from paying a sales charge or commission in connection with the purchase of shares of a Fund;
|
|
n
|
Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or other employee
benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations (“Retirement Plans”) that:
|
|
n
|
Buy shares of Goldman Sachs Funds worth $500,000 or more; or
|
|
n
|
Have 100 or more eligible employees at the time of purchase; or
|
|
n
|
Certify that they expect to have annual plan purchases of shares of Goldman Sachs Funds of $200,000 or more; or
|
|
n
|
Are provided administrative services by certain third-party administrators that have entered into a special service
arrangement with Goldman Sachs relating to such plans; or
|
|
n
|
Have at the time of purchase aggregate assets of at least $2,000,000;
|
|
n
|
“Wrap” accounts for the benefit of clients of broker-dealers, financial institutions or financial planners,
provided they have entered into an agreement with GSAM specifying aggregate minimums and certain operating policies and standards;
|
|
n
|
Registered investment advisers investing for accounts for which they receive asset-based fees;
|
|
n
|
Accounts over which GSAM or its advisory affiliates have investment discretion;
|
|
n
|
Shareholders receiving distributions from a qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA;
|
|
n
|
Shareholders who roll over distributions from any tax-qualified retirement plan or tax-sheltered annuity to an IRA which
invests in the Goldman Sachs Funds, if the tax-qualified retirement plan or tax-sheltered annuity receives administrative services provided by certain third-party administrators that have entered into a special service arrangement with Goldman Sachs
relating to such plan or annuity; or
|
|
n
|
Other exemptions may be stated from time to time in the Additional Statement.
|
|
You must certify eligibility for any of the above exemptions on your Account Application and notify the Fund if you no
longer are eligible for the exemption.
The Fund will grant you an exemption subject to confirmation of your entitlement. You may be charged a fee if you effect your transactions through a broker or agent.
|
|
How Can The Sales Charge On Class A Shares Be Reduced?
|
|
n
|
Right of Accumulation:
When buying Class A Shares in Goldman Sachs Funds, your current aggregate
investment determines the initial sales load you pay. You may qualify for reduced sales charges when the current market value of holdings (shares at current offering price), plus new purchases, reaches $50,000 or more. Class A Shares of any of the
Goldman Sachs Funds may be combined under the Right of Accumulation. To qualify for a reduced sales load, you or your Authorized Dealer must notify the Funds’ Transfer Agent at the time of investment that a quantity discount is applicable. Use
of this service is subject to a check of appropriate records. The Additional Statement has more information about the Right of Accumulation.
|
|
n
|
Statement of Intention:
You may obtain a reduced sales charge by means of a written Statement of
Intention which expresses your non-binding commitment to invest in the aggregate $50,000 or more (not counting reinvestments of dividends and distributions) within a period of 13 months in Class A Shares of one or more Goldman Sachs Fund. Any
investments you make during the period
will receive the discounted sales load based on the full amount of your investment commitment. If the investment commitment of the Statement of Intention is not met prior to the expiration of the 13-month period, the entire amount will be subject to
the higher applicable sales charge. By signing the Statement of Intention, you authorize the Transfer Agent to escrow and redeem Class A Shares in your account to pay this additional charge. The Additional Statement has more information about the
Statement of Intention, which you should read carefully.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
|
|
What Is The Offering Price Of Class B Shares?
|
|
You may purchase Class B Shares of the Funds at the next determined NAV without an initial sales charge. However, Class B
Shares redeemed within six years of purchase will be subject to a CDSC at the rates shown in the table below based on how long you held your shares.
|
|
The CDSC schedule is as follows:
|
| Year Since Purchase |
CDSC as a
Percentage of Dollar Amount Subject to CDSC |
||
|---|---|---|---|
|
|
|||
| First | 5% | ||
| Second | 4% | ||
| Third | 3% | ||
| Fourth | 3% | ||
| Fifth | 2% | ||
| Sixth | 1% | ||
| Seventh and thereafter | None | ||
|
|
|||
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class B Shares, including the payment of compensation to Authorized Dealers. A commission equal to 4% of the amount invested is paid to
Authorized Dealers.
|
|
What Should I Know About The Automatic Conversion Of Class B Shares?
|
|
Class B Shares of a Fund will automatically convert into Class A Shares of the same Fund at the end of the calendar quarter
that is eight years after the purchase date.
|
|
If you acquire Class B Shares of a Fund by exchange from Class B Shares of another Goldman Sachs Fund, your Class B Shares
will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC schedule of that purchase.
|
|
If you acquire Class B Shares through reinvestment of distributions, your Class B Shares will convert into Class A Shares
based on the date of the initial purchase of the shares on which the distribution was paid.
|
|
The conversion of Class B Shares to Class A Shares will not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is unlikely. If conversions do not occur as a result of possible taxability, Class B Shares would continue to be subject to higher expenses than Class A Shares for an
indeterminate period.
|
|
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
|
|
What Is The Offering Price Of Class C Shares?
|
|
You may purchase Class C Shares of the Funds at the next determined NAV without paying an initial sales charge. However,
if you redeem Class C Shares within 12 months of purchase, a CDSC of 1% will normally be deducted from the redemption proceeds; provided that in connection with purchases by Retirement Plans, where all of the Class C Shares are redeemed within 12
months of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third-party administrator.
|
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class C Shares, including the payment of compensation to Authorized Dealers. An amount equal to 1% of the amount invested is normally paid by the
Distributor to Authorized Dealers.
|
|
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B AND C SHARES
|
|
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
|
|
n
|
The CDSC is based on the lesser of the NAV of the shares at the time of redemption or the original offering price (which is
the original NAV).
|
|
n
|
No CDSC is charged on shares acquired from reinvested dividends or capital gains distributions.
|
|
n
|
No CDSC is charged on the per share appreciation of your account over the initial purchase price.
|
SHAREHOLDER GUIDE
|
n
|
When counting the number of months since a purchase of Class B or Class C Shares was made, all payments made during a month
will be combined and considered to have been made on the first day of that month.
|
|
n
|
To keep your CDSC as low as possible, each time you place a request to sell shares, the Funds will first sell any shares in
your account that do not carry a CDSC and then the shares in your account that have been held the longest.
|
|
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?
|
|
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC may be waived or reduced if the redemption relates
to:
|
|
n
|
Retirement distributions or loans to participants or beneficiaries from Retirement Plans;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
“Code”)) of a participant or beneficiary in a Retirement Plan;
|
|
n
|
Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
|
|
n
|
Satisfying the minimum distribution requirements of the Code;
|
|
n
|
Establishing “substantially equal periodic payments” as described under Section 72(t)(2) of the Code;
|
|
n
|
The separation from service by a participant or beneficiary in a Retirement Plan;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is made within one
year of the event;
|
|
n
|
Excess contributions distributed from a Retirement Plan;
|
|
n
|
Distributions from a qualified Retirement Plan invested in the Goldman Sachs Funds which are being rolled over to a Goldman
Sachs IRA; or
|
|
n
|
Redemption proceeds which are to be reinvested in accounts or non-registered products over which GSAM or its advisory
affiliates have investment discretion.
|
|
In addition, Class A, B and C Shares subject to a systematic withdrawal plan may be redeemed without a CDSC. The Funds
reserve the right to limit such redemptions, on an annual basis, to 12% each of the value of your Class B and C Shares and 10% of the value of your Class A Shares.
|
|
How Do I Decide Whether To Buy Class A, B Or C Shares?
|
|
The decision as to which Class to purchase depends on the amount you invest, the intended length of the investment and
your personal situation.
|
|
n
|
Class A Shares.
If you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares.
|
|
n
|
Class B Shares.
If you plan to hold your investment for at least six years and would prefer not
to pay an initial sales charge, you might consider purchasing Class B Shares. By not paying a front-end sales charge, your entire investment in Class B Shares is available to work for you from the time you make your initial investment. However, the
distribution and service fee paid by Class B Shares will cause your Class B Shares (until conversion to Class A Shares) to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid) than
Class A Shares. A maximum purchase limitation of $250,000 in the aggregate normally applies to Class B Shares. Individual purchases exceeding $250,000 will be rejected.
|
|
n
|
Class C Shares.
If you are unsure of the length of your investment or plan to hold your
investment for less than six years and would prefer not to pay an initial sales charge, you may prefer Class C Shares. By not paying a front-end sales charge, your entire investment in Class C Shares is available to work for you from the time you
make your initial investment. However, the distribution and service fee paid by Class C Shares will cause your Class C Shares to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares (or Class B Shares after conversion to Class A Shares).
|
|
Although Class C Shares are subject to a CDSC for only 12 months, Class C Shares do not have the automatic eight year
conversion feature applicable to Class B Shares and your investment may pay higher distribution fees indefinitely.
|
|
A maximum purchase limitation of $1,000,000 in the aggregate normally applies to purchases of Class C Shares. Individual
purchases exceeding $1,000,000 will be rejected.
|
|
Note: Authorized Dealers may receive different compensation for selling Class A, Class B or Class C
Shares.
|
|
In addition to Class A, Class B and Class C Shares, each Fund also offers other classes of shares to investors. These other
share classes are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Each Fund will redeem
its shares upon request on any
business day at the NAV next determined after receipt of such request in proper form, subject to any applicable CDSC.
You may request that redemption proceeds be sent to you by check or by wire (if the wire instructions are on record).
Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Obtain a signature guarantee (see details below) | |||
|
n
Mail your request to:
Goldman Sachs Funds c/o NFDS P.O. Box 219711 Kansas City, MO 64121-9711 |
|||
|
|
|||
| By Telephone: |
If you have not declined the telephone redemption
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
n
You may redeem up to $50,000 of your shares
within any 7 calendar day period |
|||
|
n
Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the $50,000 limit |
|||
|
|
|||
|
When Do I Need A Signature Guarantee To Redeem Shares?
|
|
A signature guarantee is required if:
|
|
n
|
You are requesting in writing to redeem shares in an amount over $50,000;
|
|
n
|
You would like the redemption proceeds sent to an address that is not your address of record; or
|
|
n
|
You would like to change the bank designated on your Account Application.
|
|
A signature guarantee must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot provide a signature guarantee. Additional documentation may be required for executors, trustees or corporations or when deemed appropriate by the
Transfer Agent.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. The Trust may
accept telephone redemption instructions from any person identifying himself or herself as the owner of an account or the owner’s registered representative where the owner has not declined in writing to use this service. Thus, you risk possible
losses if a telephone redemption is not authorized by you.
|
|
In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs and NFDS each
employ reasonable procedures specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Proceeds of telephone redemption requests will be sent only to your address of record or authorized bank account designated
in the Account Application (unless you provide written instructions and a signature guarantee, indicating another address or account) and exchanges of shares normally will be made only to an identically registered account.
|
|
n
|
Telephone redemptions by check to your address of record will not be accepted during the 30-day period following any change
in your address of record.
|
|
n
|
The telephone redemption option does not apply to shares held in a “street name” account. “Street name”
accounts are accounts maintained and serviced by your Authorized Dealer. If your account is held in “street name,” you should contact your registered representative of record, who may make telephone redemptions on your behalf.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
SHAREHOLDER GUIDE
|
n
|
A transaction fee of $7.50 may be charged for payments of redemption proceeds by wire. Your bank may also charge wiring fees.
You should contact your bank directly to learn whether it charges such fees.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions (with your signature
guaranteed) to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect to receive your redemption proceeds by check. Redemption proceeds paid by check will
normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance is less than $50 as a result of a redemption. The Funds will not redeem your
shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Funds will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of
the Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interests of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional shares of the same class of the
Fund on which the distributions are paid. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs Fund?
|
|
You may redeem shares of a Fund and reinvest a portion or all of the redemption proceeds (plus any additional amounts needed
to round off purchases to the nearest full share) at NAV. To be eligible for this privilege, you must hold the shares
you want to redeem for at least 30 days and you must reinvest the share proceeds within 90 days after you redeem. You may reinvest as follows:
|
|
n
|
Class A or B Shares—Class A Shares of the same Fund or any other Goldman Sachs Fund
|
|
n
|
Class C Shares—Class C Shares of the same Fund or any other Goldman Sachs Fund
|
|
n
|
You should obtain and read the applicable prospectuses before investing in any other Funds.
|
|
n
|
If you pay a CDSC upon redemption of Class A or Class C Shares and then reinvest in Class A or Class C Shares as described
above, your account will be credited with the amount of the CDSC you paid. The reinvested shares will, however, continue to be subject to a CDSC. The holding period of the shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subsequent redemption. For Class B Shares, you may reinvest the redemption proceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemption of the Class B Shares will
not be credited to your account.
|
|
n
|
The reinvestment privilege may be exercised at any time in connection with transactions in which the proceeds are reinvested
at NAV in a tax-sheltered retirement plan. In other cases, the reinvestment privilege may be exercised once per year upon receipt of a written request.
|
|
n
|
You may be subject to tax as a result of a redemption. You should consult your tax adviser concerning the tax consequences of
a redemption and reinvestment.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange shares of a Fund at NAV without the imposition of an initial sales charge or CDSC at the time of exchange
for shares of the same class or an equivalent class of any other Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount you want to exchange | |||
| n Obtain a signature guarantee (see details above) | |||
| n Mail the request to: | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| P.O. Box 219711 | |||
| Kansas City, MO 64121-9711 | |||
| or for overnight delivery— | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| 330 West 9th St. | |||
| Poindexter Bldg., 1st Floor | |||
| Kansas City, MO 64105 | |||
|
|
|||
| By Telephone: |
If you have not declined the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
SHAREHOLDER GUIDE
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You should keep in mind the following factors when making or considering an exchange:
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
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Currently, there is no charge for exchanges, although the Funds may impose a charge in the future.
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The exchanged shares may later be exchanged for shares of the same class (or an equivalent class) of the original Fund at the
next determined NAV without the imposition of an initial sales charge or CDSC if the amount in the Fund resulting from such exchanges is less than the largest amount on which you have previously paid the applicable sales charge.
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When you exchange shares subject to a CDSC, no CDSC will be charged at that time. The exchanged shares will be subject to the
CDSC of the shares originally held. For purposes of determining the amount of the applicable CDSC, the length of time you have owned the shares will be measured from the date you acquired the original shares subject to a CDSC and will not be
affected by a subsequent exchange.
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Eligible investors may exchange certain classes of shares for another class of shares of the same Fund. For further
information, call Goldman Sachs Funds at 1-800-526-7384 and see the Additional Statement.
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund.
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Exchanges are available only in states where exchanges may be legally made.
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
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Goldman Sachs and NFDS may use reasonable procedures described under “What Do I Need to Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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Telephone exchanges normally will be made only to an identically registered account. Shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and accompanied by a signature guarantee.
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Exchanges into Funds that are closed to new investors
may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs
reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing) trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term
shareholders. The Trust and Goldman Sachs will not be held liable for any loss
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resulting from rejected purchase or exchange orders. To minimize harm to the Trust (or Goldman Sachs) and its shareholders,
the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Trust (or Goldman Sachs) has
been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered together.
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SHAREHOLDER SERVICES
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Can I Arrange To Have Automatic Investments Made On A Regular Basis?
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You may be able to make systematic cash investments through your bank via ACH transfer or your checking account via bank
draft each month. Forms for this option are available from Goldman Sachs, your Authorized Dealer or you may check the appropriate box on the Account Application.
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Can My Dividends From A Fund Be Invested In Other Funds?
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You may elect to cross-reinvest dividends paid by a Fund in shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
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Shares will be purchased at NAV.
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No initial sales charge or CDSC will be imposed.
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You may elect cross-reinvestment into an identically registered account or an account registered in a different name or with
a different address, social security number or taxpayer identification number provided that the account has been properly established, appropriate signature guarantees obtained and the minimum initial investment has been satisfied.
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Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
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You may elect to exchange automatically a specified dollar amount of shares of a Fund for shares of the same class or an
equivalent class of any other Goldman Sachs Fund.
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Shares will be purchased at NAV.
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No initial sales charge is imposed.
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Shares subject to a CDSC acquired under this program may be subject to a CDSC at the time of redemption from the Fund into
which the exchange is made depending upon the date and value of your original purchase.
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SHAREHOLDER GUIDE
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Automatic exchanges are made monthly on the 15th day of each month or the first business day thereafter.
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Minimum dollar amount: $50 per month.
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What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
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Cross-reinvestments and automatic exchanges are subject to the following conditions:
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You must hold $5,000 or more in the Fund which is paying the dividend or from which the exchange is being made.
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You must invest an amount in the Fund into which cross-reinvestments or automatic exchanges are being made that is equal to
that Fund’s minimum initial investment or continue to cross-reinvest or to make automatic exchanges until such minimum initial investment is met.
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You should obtain and read the prospectus of the Fund into which dividends are invested or automatic exchanges are
made.
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Can I Have Automatic Withdrawals Made On A Regular Basis?
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You may draw on your account systematically via check or ACH transfer in any amount of $50 or more.
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It is normally undesirable to maintain a systematic withdrawal plan at the same time that you are purchasing additional Class
A, Class B or Class C Shares because of the sales charge imposed on your purchases of Class A Shares or the imposition of a CDSC on your redemptions of Class A, Class B or Class C Shares.
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You must have a minimum balance of $5,000 in a Fund.
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Checks are mailed on or about the 25th day of each month.
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Each systematic withdrawal is a redemption and therefore a taxable transaction.
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The CDSC applicable to Class A, Class B or Class C Shares redeemed under the systematic withdrawal plan may be
waived.
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What Types Of Reports Will I Be Sent Regarding My Investment?
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You will be provided with a printed confirmation of each transaction in your account and an individual quarterly account
statement. A year-to-date statement for your account will be provided upon request made to Goldman Sachs. If your account is held in “street name” you may receive your statements and confirmations on a different schedule.
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You will also receive an annual shareholder report containing audited financial statements and a semi-annual shareholder
report. If you have consented to the delivery of a single copy of shareholder reports, prospectuses and other information to all shareholders who share the same mailing address with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds
by phone at 1-800-526-7384 or by mail at Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372. The Funds will begin sending individual copies to you within 30 days after receipt of your revocation.
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The Funds do not generally provide sub-accounting services.
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What Should I Know When I Purchase Shares Through An Authorized Dealer?
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Authorized Dealers and other financial intermediaries may provide varying arrangements for their clients to purchase and
redeem Fund shares. They may charge additional fees not described in this Prospectus to their customers for such services.
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If shares of a Fund are held in a “street name” account with an Authorized Dealer, all recordkeeping, transaction
processing and payments of distributions relating to your account will be performed by the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have no record of your transactions, you should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give instructions concerning the account or to obtain information about your account. The transfer of shares in a “street name” account to an account with another dealer
or to an account directly with the Fund involves special procedures and will require you to obtain historical purchase information about the shares in the account from the Authorized Dealer.
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Authorized Dealers and other financial intermediaries may be authorized to accept, on behalf of the Trust, purchase,
redemption and exchange orders placed by or on behalf of their customers, and if approved by the Trust, to designate other intermediaries to accept such orders. In these cases:
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A Fund will be deemed to have received an order that is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a business day, and the order will be priced at the Fund’s NAV per share (adjusted for any applicable sales charge) next determined after such acceptance.
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Authorized Dealers and intermediaries are responsible for transmitting accepted orders to the Funds within the time period
agreed upon by them.
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You should contact your Authorized Dealer or intermediary to learn whether it is authorized to accept orders for the
Trust.
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The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Authorized Dealers and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
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SHAREHOLDER GUIDE
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DISTRIBUTION SERVICES AND FEES
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What Are The Different Distribution And Service Fees Paid By Class A, B and C Shares?
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The Trust has adopted distribution and service plans (each a “Plan”) under which Class A, Class B and Class C
Shares bear distribution and service fees paid to Authorized Dealers and Goldman Sachs. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from these arrangements. Goldman Sachs pays
the distribution and service fees on a quarterly basis.
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Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund for distribution services equal, on an annual
basis, to 0.25%, 0.75% and 0.75%, respectively, of a Fund’s average daily net assets attributed to Class A, Class B and Class C Shares. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time, these fees will
increase the cost of your investment and may cost you more than paying other types of such charges.
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The distribution fees are subject to the requirements of Rule 12b-1 under the Act, and may be used (among other things)
for:
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Compensation paid to and expenses incurred by Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives;
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Commissions paid to Authorized Dealers;
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Allocable overhead;
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Telephone and travel expenses;
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Interest and other costs associated with the financing of such compensation and expenses;
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Printing of prospectuses for prospective shareholders;
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Preparation and distribution of sales literature or advertising of any type; and
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All other expenses incurred in connection with activities primarily intended to result in the sale of Class A, Class B and
Class C Shares.
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In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.75% distribution fee as an ongoing
commission to Authorized Dealers after the shares have been held for one year.
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PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
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Under the Plans, Goldman Sachs is also entitled to receive a separate fee equal on an annual basis to 0.25% of each
Fund’s average daily net assets attributed to Class B or Class C Shares. This fee is for personal and account maintenance services, and may be used to make payments to Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inqui
ries of, and furnishing assistance to, shareholders regarding ownership of their shares or their accounts or similar services not otherwise provided on behalf of the Funds. If the fees received by Goldman Sachs pursuant to the Plans exceed its
expenses, Goldman Sachs may realize a profit from this arrangement.
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In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.25% ongoing service fee to
Authorized Dealers after the shares have been held for one year.
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As with any investment, you should consider how your investment in the Portfolios will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Portfolios.
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Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of
Portfolio distributions and the sale of your Portfolio shares.
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DISTRIBUTIONS
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Distributions you receive from the Portfolios are generally subject to federal income tax, and may also be subject to state
or local taxes. This is true whether you reinvest your distributions in additional Portfolio shares or receive them in cash. For federal tax purposes, the Portfolios’ income dividend distributions and short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Portfolio shares.
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Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Portfolios’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Portfolios will
inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
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The REIT investments of the underlying Real Estate Securities Fund often do not provide complete tax information to the Fund
until after the calendar year-end. Consequently, because of the delay, it may be necessary for the Portfolios to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
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Each Portfolio may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign
securities. In general, the Portfolios may deduct these taxes in computing their taxable income.
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If you buy shares of a Portfolio before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
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SALES AND EXCHANGES
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Your sale of Portfolio shares is a taxable transaction for federal income tax purposes, and may also be subject to state and
local taxes. For tax purposes, the exchange of your Portfolio shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the
difference between your adjusted tax basis in the shares and the amount received. Generally, this gain or loss will be long-term or short-term depending on whether your holding period for the shares exceeds twelve months, except that any loss
realized on shares held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
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OTHER INFORMATION
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When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Portfolio must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Portfolio to do so.
Non-U.S. investors may be subject to U.S. withholding and estate tax.
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This Appendix provides further information on certain types of securities and techniques that may be used by the Underlying
Funds, including their associated risks. Additional information is provided in the Additional Statement, which is available upon request, and in the prospectuses of the Underlying Funds.
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The Underlying Equity Funds invest primarily in common stocks and other equity securities, including 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”). The Underlying Fixed-Income Funds invest primarily in fixed-income securities, including senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper), convertible and
non-convertible corporate debt obligations, loan participations and preferred stock.
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The Short-Duration Government Fund invests in U.S. Government Securities and related repurchase agreements, and does not make
foreign investments. The investments of the Financial Square Prime Obligations Fund are limited by SEC regulations applicable to money market funds as described in its prospectus, and do not include many of the types of investments discussed below
that are permitted for the other Underlying Funds. With these exceptions, and the further exceptions noted below, the following description applies generally to the Underlying Funds.
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A. General Risks of the Underlying Funds
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The Underlying Equity Funds will be subject to the risks associated with common stocks and other equity securities. In
general, stock values 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 an Underlying 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. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the
markets will trade at or close to record high levels in the future.
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The Underlying Fixed-Income Funds will be subject 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 (although many mortgage-related securities will have less potential 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 an issuer or guarantor could default
on its obligations, and an Underlying Fund will not recover its investment. Call risk and extension risk are normally present in adjustable 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
prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.The same would be true of asset-backed securities, such as securities backed by car loans.
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The Financial Square Prime Obligations Fund attempts to maintain a stable NAV of $1.00 per share and values its assets using
the amortized cost method in accordance with SEC regulations. There is no assurance, however, that the Financial Square Prime Obligations Fund will be successful in maintaining its per share value at $1.00 on a continuous basis. The per share NAVs
of the other Underlying Funds are expected to fluctuate on a daily basis.
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The portfolio turnover rates of the Underlying Funds have ranged from 49% to 272% during their most recent fiscal years. A
high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by an Underlying Fund and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The
portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of an Underlying Fund’s portfolio securities, excluding securities having a maturity at
the date of purchase of one year or less. There can be no assurance that the turnover rates of the Underlying Funds will remain within this range during subsequent fiscal years.
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B. Other Risks of the Underlying Funds
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Risks of Investing in Small Capitalization Companies.
Certain Underlying Funds may invest in small
capitalization companies. Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of
particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, an Underlying 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
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 bankruptcy. Transaction costs for these investments are often higher than those for larger capitalization companies. Investments in small capitalization companies may be more difficult to price precisely than other types of securities
because of their characteristics and lower trading volumes.
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Risks of Foreign Investments.
Certain of the Underlying Funds may make foreign investments. Foreign investments
involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 an Underlying Fund receives dividends, interest or other payments declines in value against the U.S. dollar before
such income is distributed as dividends to shareholders or converted to U.S. dollars, the Underlying Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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The introduction of a single currency, the euro, on January 1, 1999 for participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”), may have an
impact on the euro. Also, it is
possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, could cause market disruptions, and could adversely affect the value of
securities held by the Underlying Funds. Because of the number of countries using this single currency, a significant portion of the foreign assets held by certain of the Underlying Funds may be denominated in the euro.
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Brokerage commissions, custodial services and other costs relating to investment 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.
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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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.
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Concentration of an Underlying Fund’s assets in one or a few countries and currencies will subject a Fund to greater
risks than if an Underlying Fund’s assets were not geographically concentrated.
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Investment in sovereign debt obligations by certain Underlying 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 an Underlying 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 an Underlying Fund’s NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers.
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APPENDIX A
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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 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.
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Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). Certain Underlying Funds may also invest in European Depositary 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. |
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Risks of Emerging Countries.
Certain Underlying 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 countries are generally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. An Underlying
Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the prices of listed securities, periodic trading or settlement 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 an Underlying Fund, the investment adviser, its affiliates and their respective clients and other service providers. An
Underlying Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.
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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 addition,
certain 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 purchased by an
Underlying 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 securities in certain Asian and other countries, it
is anticipated that an Underlying Fund may invest in such countries through other investment funds in such countries.
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Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
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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 military 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 developments may
result in sudden and significant invest-ment 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. As an example, in the past some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no
assurance that similar expropriations will not recur in Eastern Europe or other countries.
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An Underlying 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 countries to the Underlying Fund.
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Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and
often may involve an Underlying 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 an
Underlying Fund to value its portfolio securities and could cause the Underlying 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 Underlying Fund has delivered or the Underlying Fund’s inability to complete its contractual obligations because of theft or other reasons. The creditworthiness of the local securities firms used by an Underlying Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Underlying Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its
responsibilities.
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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 an Underlying 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). An Underlying 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 economic, market or political conditions, or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, an Underlying 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. Investments in emerging countries may be more difficult to price precisely because of the characteristics discussed above and lower trading volumes.
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An Underlying 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 significant portion of the Underlying Funds’ currency exposure in emerging countries, if any, will be covered by such
instruments.
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Risks of Derivative Investments.
An Underlying Fund’s transactions, if any, in options, futures, options
on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities, stripped mortgage-backed securities 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 fluctuations in securities prices, interest rates or currency
prices. Certain Underlying Funds may also invest in derivative investments for
non-hedging purposes (that is, to seek to increase total return). Investing for non-hedging purposes is considered a speculative practice and presents even greater risk of loss.
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Derivative mortgage-backed securities (such as principal-only (“POs”), interest-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 securities. 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.
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Some floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For
example, range floaters are subject to the risk that the coupon will be reduced below market rates if a designated 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.
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Risks of Illiquid Securities.
The Underlying Funds may invest up to 15% (10% in the case of the Financial
Square Prime Obligations Fund) of their 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:
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n
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Both domestic and foreign securities that are not readily marketable
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n
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Certain municipal leases and participation interests
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n
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Certain stripped mortgage-backed securities
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n
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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n
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Certain over-the-counter options
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n
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Certain structured securities and all swap transactions
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n
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Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted
security, that the restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (“144A Securities”) and, therefore, is liquid.
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Investing in 144A Securities may decrease the liquidity of an Underlying Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which
may be significant, from the market price of comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Underlying Funds may include securities (including zero coupon
bonds) issued by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), foreign governments, domestic and foreign corporations, banks and other issuers. Some of these fixed-income securities are described in the next
section below. Further information is provided in the Additional Statement.
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Debt securities rated BBB or higher by Standard & Poor’s Ratings Group (“Standard & Poor’s”) or
Baa or higher by Moody’s Investors Services, Inc. (“Moody’s”) are considered “investment grade.” Securities rated BBB or Baa
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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. 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 comparable credit quality. If a security satisfies an Underlying
Fund’s minimum rating criteria at the time of purchase and is subsequently downgraded below such rating, the Underlying Fund will not be required to dispose of such security. If a downgrade occurs, the Underlying Fund’s investment adviser
will consider what action, including the sale of such security, is in the best interest of the Underlying Fund and its shareholders.
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Certain Underlying 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating assigned to a security in an Underlying Fund’s portfolio
is downgraded by a rating organization, the market price and liquidity of such security may be adversely affected.
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Risks of IPOs.
Certain Underlying Funds may invest in IPOs. An IPO is a company’s first offering of stock
to the public. IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available
for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion
of the Underlying Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying
Fund’s investments in IPOs on the Underlying Fund’s performance probably will decline, which could reduce the Underlying Fund’s performance. Because of the price volatility of IPO shares, an Underlying Fund may choose to hold IPO
shares for a very short period of time. This may increase the turnover of the Underlying Fund’s portfolio and may lead to increased expenses to the Underlying Fund, such as commissions and transaction costs. By selling IPO shares, the
Underlying Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. There is no assurance that an Underlying Fund will be
able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for an Underlying Fund to buy or sell significant amounts of shares without an unfavorable impact on
prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
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Non-Diversification and Geographic Risks.
The Global Income Fund is registered as a “non-diversified”
fund under the Act and is, therefore, 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. In addition, the Global Income Fund, and
certain other Underlying 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 the investments of these or other Underlying
Funds in issuers located in a particular country or region will subject the Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising from adverse developments affecting those issuers or
countries.
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Temporary Investment Risks.
The Underlying Funds may invest a substantial portion, and in some cases all, of
their total assets, in cash equivalents for temporary periods. When an Underlying Fund’s assets are invested in such instruments, the Underlying Fund may not be achieving its investment objective.
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APPENDIX A
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C. Investment Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Underlying Funds, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
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U.S. Government Securities.
Each Underlying Fund may invest in U.S. Government Securities. U.S. Government
Securities include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of
the U.S. government to purchase certain obligations of the issuer; 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 components of stripped U.S. Government Securities are traded independently.
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Custodial Receipts.
Each Underlying Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
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Mortgage-Backed Securities.
The Underlying Funds (other than CORE Large Cap Growth, CORE Large Cap Value, CORE
Small Cap Equity and CORE International Equity Funds (the “CORE Equity Funds”)) may invest in securities that represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real
property (“Mortgage-Backed Securities”). 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 Securities.
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Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”), and real estate mortgage investment conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and invests in certain
mortgages principally secured by interests in real property and other permitted investments. Mortgage-Backed Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are derivative multiple class Mortgage-Backed
Securities. SMBS are usually structured with two different classes: one that receives substantially all of the interest 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.
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Asset-Backed Securities.
The Underlying Funds (other than the CORE Equity 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 receivables, leases, installment contracts and personal property. 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. During periods of declining interest rates, prepayment of loans underlying
asset-backed securities can be expected to accelerate. Accordingly, an Underlying 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 in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility
that, in some cases, the Underlying Fund will be unable to possess and sell the underlying collateral and that the Underlying Fund’s recoveries on repossessed collateral may not be available to support
payments on the securities. In the event of a default, an Underlying Fund may suffer a loss if it cannot sell collateral quickly and receive the amount it is owed.
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Municipal Securities.
Certain Underlying Funds may invest in securities and instruments issued by state and
local governmental issuers. Municipal securities in which an Underlying Fund may invest consist of bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of states,
territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agencies or instrumentalities. Municipal securities include both “general” and “revenue” bonds and may be
issued to obtain funds for various public purposes. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power. Revenue obligations are payable only from the revenues derived from a particular facility or
class of facilities. Such securities may pay fixed, variable or floating rates of interest. Municipal securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which municipal securities may be issued include refunding outstanding obligations, obtaining funds for general
operating expenses, and obtaining funds to lend to other public institutions and facilities. Municipal securities in which the Underlying Funds may invest include private activity bonds, pre-refunded municipal securities and auction rate
securities.
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The obligations of the issuer to pay the principal of and interest on a municipal security are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of the issuer to pay when due the principal of or interest on a municipal
security may be materially affected.
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In addition, municipal securities include municipal leases, certificates of participation and “moral obligation”
bonds. A municipal lease is an obligation issued by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment purchase agreements.
Moral obligation bonds are supported by a moral commitment, but not a legal obligation, of a state or local government. Municipal leases, certificates of participation and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In particular, these instruments permit governmental issuers to acquire property and
equipment without meeting constitutional and statutory requirements for the issuance of debt. If, however, the governmental issuer does not periodically appropriate money to enable it to meet its payment obligations under these instruments, it
cannot be legally compelled to do so. If a default occurs, it is likely that an Underlying Fund would be unable to obtain another acceptable source of payment. Some municipal leases, certificates of participation and moral obligation bonds may be
illiquid.
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Municipal securities may also be in the form of a tender option bond, which is a municipal security (generally held pursuant
to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution. After payment of a fee to the financial institution that provides this option, the
security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution may not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrading in
the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and an Underlying Fund’s average portfolio maturity. There is risk that an Underlying Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid.
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Municipal securities may be backed by letters of credit or other forms of credit enhancement issued by domestic or foreign
banks or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to an Underlying Fund that invests in municipal securities. Letters of credit and other obligations of foreign
banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and are generally not bound by the accounting, auditing and financial reporting standards
applicable to U.S. banks.
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Corporate and Bank Obligations; Trust Preferred Securities; Convertible Securities.
Certain Underlying 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 U.S. or for
eign corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. 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. 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.
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Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities
generally offer lower interest or dividend yields than nonconvertible securities of similar quality. Convertible securities in which an Underlying 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 market 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.
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Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Certain Underlying Funds may invest
in zero coupon bonds, and certain Underlying Funds may invest in deferred interest, pay-in-kind and capital appreciation bonds. These 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 additional securities. The market 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.
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Rating Criteria.
Except as noted below, the Underlying 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 International Growth Opportunities, Emerging Markets Equity and Real Estate Securities Funds may invest up to 35%, 35% and 20%, 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 securities rated D by Moody’s or Standard & Poor’s. Fixed-income
securities 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.
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Structured Securities and Inverse Floaters.
Certain Underlying Funds may invest in structured securities.
Structured securities are securities whose value is determined 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 complex
securities.
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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.
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Floating and Variable Rate Obligations.
Certain Underlying Funds may purchase floating and variable rate
obligations. The value of these obligations is generally more stable than that of a fixed rate obligation in response to changes in interest rate levels. The issuers or financial intermediaries providing demand features may
support their ability to purchase the obligations by obtaining credit with liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable both of which
may be issued by domestic banks or foreign banks. An Underlying Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are
interests in a pool of debt obligations held by a bank or other financial institution.
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Foreign Currency Transactions.
Certain Underlying Funds may, to the extent consistent with their 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. Certain
Underlying Funds 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 Underlying Funds may also enter into such
transactions to seek to increase total return, which is considered a speculative practice.
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Certain Underlying 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. An Underlying 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 the foreign currency to appreciate against the U.S. dollar).
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Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, an
Underlying Fund’s NAV to fluctuate. 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.
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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 an Underlying Fund of unrealized profits, transaction costs, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the current market price.
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Underlying Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index
consisting of securities in which it may invest. Certain Underlying Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and call options on foreign currencies.
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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 considered a speculative activity). The successful use of options depends in part on the ability of an investment adviser to manage future price
fluctuations and the degree of correlation between the options and securities (or currency) markets. If an 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 an Underlying Fund’s investment portfolio, the Underlying Fund may incur losses that it would not otherwise incur. The use of options can also increase an Underlying
Fund’s transaction costs. Options written or purchased by the Underlying 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.
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Yield Curve Options.
Certain Underlying 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 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.
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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 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.
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APPENDIX A
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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 specified 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. Certain Underlying Funds may engage in futures transactions on U.S. and (in the case of certain Underlying Funds) foreign exchanges.
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Certain Underlying Funds 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 an Underlying 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. An Underlying Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. An Underlying Fund will
engage in futures and related options transactions 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. An Underlying
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 immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Underlying 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 Underlying Fund’s net
assets.
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Futures contracts and related options present the following risks:
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n
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While an Underlying 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 Underlying Fund had not entered into any futures contracts or options
transactions. |
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n
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Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and an Underlying Fund may be exposed to additional risk of loss.
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n
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The loss incurred by an Underlying Fund in entering into futures contracts and in writing call options on futures is
potentially unlimited and may exceed the amount of the premium received.
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n
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Futures markets are highly volatile and the use of futures may increase the volatility of an Underlying Fund’s
NAV.
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n
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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 substantial losses to an Underlying Fund.
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n
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Futures contracts and options on futures may be
illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
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n
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Foreign exchanges may not provide the same protection
as U.S. exchanges.
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Preferred Stock, Warrants and Rights.
Certain Underlying 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 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 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.
|
|
Loan Participations.
Certain Underlying Funds may invest in loan participations. A loan participation is an
interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermediary. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or a participation in the seller’s share of the loan. When the Underlying Fund acts as co-lender in connection with a participation interest or when it acquires
certain participation interests, the Underlying Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Underlying Fund lacks direct recourse, it will look to an agent for
the lenders (the “agent lender”) to enforce appropriate credit remedies against the borrower. In these cases, the Underlying Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the
Underlying Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Underlying Fund may be regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Underlying Fund may also be subject to the risk that the agent lender may become insolvent.
|
APPENDIX A
|
REITs.
The Real Estate Securities Fund expects to invest a substantial portion of its total assets in REITs,
which are pooled investment vehicles that invest primarily in either real estate or real estate related loans. In addition, other Underlying Equity Funds may invest in REITs from time to time. The value of a REIT is affected by changes in the value
of the properties 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 federal 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 geographically, by property type or in certain other respects, these risks may be heightened. Each Underlying
Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
|
|
Other Investment Companies.
Certain Underlying Funds may invest in securities of other investment companies
(including exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations. These limitations include a prohibition on any
Underlying Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of an Underlying Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard and Poor’s Depositary Receipts™.
The Underlying Equity Funds may, consistent with their
investment policies, purchase Standard & Poor’s Depositary Receipts™ (“SPDRs”). SPDRs are securities traded on the American Stock Exchange (the “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 handling 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®.
|
|
n
|
iShares
SM
(formerly called World Equity Benchmark Shares or WEBs).
iShares are
shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the
public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts
and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the
liquidity and value of an Underlying Equity Fund’s shares could also be substantially and adversely affected. If such disruptions were to occur, an Underlying Equity Fund could be required to reconsider the use of iShares as part of its
investment strategy.
|
|
Unseasoned Companies.
Certain Underlying Funds 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.
|
|
Non-Investment Grade Fixed-Income Securities.
Non-investment 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 obligations may be highly speculative and have poor prospects for
reaching investment 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 corporate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.
|
|
Non-investment grade fixed-income securities are generally unsecured and are often subordinated to the rights of other
creditors of the issuers of such securities. Investment by an Underlying 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 an Underlying Fund of its initial investment and any anticipated income or appreciation is uncertain.
|
APPENDIX A
|
Equity Swaps.
Each Underlying Equity Fund may invest up to 15% of its net assets in equity swaps. Equity swaps
allow the parties to a swap agreement to exchange dividend income or other components 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 an Underlying 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 an investment adviser does not accurately
analyze and predict the potential relative fluctuation of the components swapped with another party, an Underlying Fund may suffer a loss, which may be substantial. 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, an Underlying Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, an Underlying Fund may be unable to terminate its obligations when
desired.
|
|
When-Issued Securities and Forward Commitments.
Each Underlying Fund may purchase when-issued securities and
enter into forward commitments. 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 Underlying
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 settlement date. Although an Underlying Fund will
generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, an Underlying Fund may dispose of when-issued securities or forward commitments prior to settlement if its
investment adviser deems it appropriate.
|
|
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s
agreement to repurchase them at a mutually agreed upon date and price. The Underlying Funds 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. Some Underlying Funds may also enter into repurchase agreements involving certain foreign government securities.
|
|
If the other party or “seller” defaults, an Underlying Fund might suffer a loss to the extent that the proceeds
from the sale of the underlying securities and other collateral held by the Underlying Fund are less than the repurchase price and the Underlying Fund’s costs associated with delay and enforcement of the repurchase agreement. In addition, in
the event of bankruptcy of the seller, an Underlying Fund could suffer additional losses if a court determines that the Underlying Fund’s interest in the collateral is not enforceable.
|
|
In evaluating whether to enter into a repurchase agreement, an investment adviser will carefully consider the
creditworthiness of the seller. Certain Underlying 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 Underlying Fund may engage in securities lending. Securities lending
involves the lending of securities owned by an Underlying 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 by an Underlying Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject
to market depreciation or appreciation, and an Underlying Fund will be responsible for any loss that might result from its investment of the borrowers’ collateral. If an 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
an Underlying Fund (including the loan collateral).
|
|
An Underlying Fund may lend its securities to increase its income. An Underlying 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 Underlying Fund.
|
|
Short Sales Against-the-Box.
Certain Underlying Funds may make short sales against-the-box. A short sale
against-the-box means that at all times when a short position is open the Underlying Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without the payment of any further consideration, an
equal amount of the securities of the same issuer as the securities sold short.
|
APPENDIX A
|
Mortgage Dollar Rolls.
Certain Underlying Funds may enter into “mortgage dollar rolls.” In mortgage
dollar rolls, an Underlying Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Underlying Fund loses the right to receive principal and interest paid on the securities sold. However, the Underlying Fund benefits to the extent of any difference 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 interest 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 securities sold as part of the roll, the use of this technique will diminish the Underlying Fund’s performance.
|
|
Successful use of mortgage dollar rolls depends upon an investment adviser’s ability to predict correctly interest rates
and mortgage prepayments. If the investment adviser is incorrect in its prediction, an Underlying Fund may experience a loss. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving
the purchase of a security and a separate transaction involving a sale. The Underlying 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 Underlying Fund can borrow money from banks, and certain
Underlying Funds may enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. An Underlying Fund may not make additional investments if borrowings exceed 5% of its
total assets. Reverse repurchase agreements involve the sale of securities held by an Underlying Fund subject to the Underlying Fund’s agreement to repurchase them at a mutually agreed upon date and price (including interest). These
transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agreements may also be entered into when the 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 an Underlying Fund decline in value while these transactions are
outstanding, the NAV of the Underlying 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 an Underlying 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 an
Underlying Fund will decline below the price the Underlying Fund is obligated to pay to repurchase the securities, and that the securities may not be returned to the Underlying Fund.
|
|
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars.
To the extent consistent with their investment policies, certain Underlying Funds may enter into interest rate swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps, floors and collars. Interest rate swaps involve the
exchange by an Underlying 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
Certain Underlying Funds may enter into swap transactions for hedging purposes or to seek to increase total return. 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 an Underlying Fund would be less favorable than it would have been if these
investment techniques were not used.
|
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|
The financial highlights tables are intended to help you understand a Portfolio’s financial performance for the past
five years (or less if the Portfolio has been in operation for less than five years). Certain information reflects financial results for a single Portfolio share. The total returns in the table represent the rate that an investor would have earned
or lost on an investment in a Portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Portfolio’s financial statements, is included in the
Portfolio’s annual report (available upon request). The information for all periods prior to the year ended December 31, 2000 has been audited by the Portfolios’ previous independent auditors.
|
|
CONSERVATIVE STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
||||||||
|
|
|||||||||||
| For The Year Ended December 31, | |||||||||||
| 2000 - Class A Shares | $10.17 | $0.54 | (d) | $(0.01 | ) | $0.53 | |||||
| 2000 - Class B Shares | 10.18 | 0.49 | (d) | (0.05 | ) | 0.44 | |||||
| 2000 - Class C Shares | 10.17 | 0.47 | (d) | (0.02 | ) | 0.45 | |||||
| 2000 - Institutional Shares | 10.18 | 0.59 | (d) | (0.01 | ) | 0.58 | |||||
| 2000 - Service Shares | 10.18 | 0.46 | (d) | 0.06 | 0.52 | ||||||
|
|
|||||||||||
| For The Period Ended December 31, (c) | |||||||||||
| 1999 - Class A Shares | 10.00 | 0.36 | 0.18 | 0.54 | |||||||
| 1999 - Class B Shares | 10.00 | 0.30 | 0.19 | 0.49 | |||||||
| 1999 - Class C Shares | 10.00 | 0.29 | 0.18 | 0.47 | |||||||
| 1999 - Institutional Shares | 10.00 | 0.40 | (d) | 0.20 | 0.60 | ||||||
| 1999 - Service Shares | 10.00 | 0.53 | 0.02 | 0.55 | |||||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the underlying Funds.
|
APPENDIX B
|
CONSERVATIVE STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 5.34 | % | 1.95 | % | 3.98 | % | 46 | % | |||||
| 2000 - Class B Shares | 4.79 | 2.70 | 3.43 | 46 | |||||||||
| 2000 - Class C Shares | 4.60 | 2.70 | 3.24 | 46 | |||||||||
| 2000 - Institutional Shares | 5.80 | 1.55 | 4.44 | 46 | |||||||||
| 2000 - Service Shares | 4.50 | 2.05 | 3.14 | 46 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1999 - Class A Shares | 4.38 | (b) | 3.46 | (b) | 1.51 | (b) | 63 | ||||||
| 1999 - Class B Shares | 3.74 | (b) | 4.21 | (b) | 0.87 | (b) | 63 | ||||||
| 1999 - Class C Shares | 3.62 | (b) | 4.21 | (b) | 0.75 | (b) | 63 | ||||||
| 1999 - Institutional Shares | 4.43 | (b) | 3.06 | (b) | 1.56 | (b) | 63 | ||||||
| 1999 - Service Shares | 2.39 | (b) | 3.56 | (b) | (0.48 | ) (b) | 63 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
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|
BALANCED STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $10.99 | $0.48 | ( d) | $(0.54 | ) | $(0.06 | ) | |||||
| 2000 - Class B Shares | 10.98 | 0.39 | ( d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Class C Shares | 10.99 | 0.39 | ( d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Institutional Shares | 10.99 | 0.53 | ( d) | (0.55 | ) | (0.02 | ) | |||||
| 2000 - Service Shares | 10.99 | 0.61 | ( d) | (0.68 | ) | (0.07 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.31 | 0.34 | 0.73 | 1.07 | ||||||||
| 1999 - Class B Shares | 10.31 | 0.26 | 0.72 | 0.98 | ||||||||
| 1999 - Class C Shares | 10.32 | 0.27 | 0.71 | 0.98 | ||||||||
| 1999 - Institutional Shares | 10.32 | 0.37 | 0.74 | 1.11 | ||||||||
| 1999 - Service Shares | 10.31 | 0.33 | 0.73 | 1.06 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, ( c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.25 | 0.38 | 0.63 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.19 | 0.38 | 0.57 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.19 | 0.39 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.30 | 0.39 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.25 | 0.37 | 0.62 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
BALANCED STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 4.45 | % | 1.09 | % | 3.95 | % | 23 | % | |||||
| 2000 - Class B Shares | 3.60 | 1.84 | 3.10 | 23 | |||||||||
| 2000 - Class C Shares | 3.59 | 1.84 | 3.09 | 23 | |||||||||
| 2000 - Institutional Shares | 4.94 | 0.69 | 4.44 | 23 | |||||||||
| 2000 - Service Shares | 5.70 | 1.19 | 5.20 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 3.17 | 1.05 | 2.71 | 51 | |||||||||
| 1999 - Class B Shares | 2.42 | 1.80 | 1.96 | 51 | |||||||||
| 1999 - Class C Shares | 2.40 | 1.80 | 1.94 | 51 | |||||||||
| 1999 - Institutional Shares | 3.93 | 0.65 | 3.47 | 51 | |||||||||
| 1999 - Service Shares | 3.04 | 1.15 | 2.58 | 51 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 3.03 | (b) | 1.46 | (b) | 2.17 | (b) | 51 | ||||||
| 1998 - Class B Shares | 2.38 | (b) | 2.08 | (b) | 1.60 | (b) | 51 | ||||||
| 1998 - Class C Shares | 2.34 | (b) | 2.08 | (b) | 1.56 | (b) | 51 | ||||||
| 1998 - Institutional Shares | 3.55 | (b) | 1.02 | (b) | 2.77 | (b) | 51 | ||||||
| 1998 - Service Shares | 2.90 | (b) | 1.52 | (b) | 2.12 | (b) | 51 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
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|
GROWTH AND INCOME STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $11.71 | $0.38 | (d) | $(0.92 | ) | $(0.54 | ) | |||||
| 2000 - Class B Shares | 11.69 | 0.29 | (d) | (0.92 | ) | (0.63 | ) | |||||
| 2000 - Class C Shares | 11.69 | 0.29 | (d) | (0.93 | ) | (0.64 | ) | |||||
| 2000 - Institutional Shares | 11.71 | 0.44 | (d) | (0.91 | ) | (0.47 | ) | |||||
| 2000 - Service Shares | 11.69 | 0.37 | (d) | (0.92 | ) | (0.55 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.38 | 0.22 | 1.40 | 1.62 | ||||||||
| 1999 - Class B Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Class C Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Institutional Shares | 10.39 | 0.27 | 1.39 | 1.66 | ||||||||
| 1999 - Service Shares | 10.37 | 0.20 | 1.40 | 1.60 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.18 | 0.47 | 0.65 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.20 | 0.49 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.16 | 0.48 | 0.64 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH AND INCOME STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming no
expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
|
2000 - Class A Shares
|
3.35 | % | 0.87 | % | 3.07 | % | 20 | % | |||||
| 2000 - Class B Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Class C Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Institutional Shares | 3.87 | 0.47 | 3.59 | 20 | |||||||||
| 2000 - Service Shares | 3.26 | 0.97 | 2.98 | 20 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 2.00 | 0.85 | 1.74 | 49 | |||||||||
| 1999 - Class B Shares | 1.24 | 1.60 | 0.98 | 49 | |||||||||
| 1999 - Class C Shares | 1.23 | 1.60 | 0.97 | 49 | |||||||||
| 1999 - Institutional Shares | 2.53 | 0.45 | 2.27 | 49 | |||||||||
| 1999 - Service Shares | 1.91 | 0.95 | 1.65 | 49 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 2.37 | (b) | 1.05 | (b) | 1.92 | (b) | 42 | ||||||
| 1998 - Class B Shares | 1.72 | (b) | 1.68 | (b) | 1.34 | (b) | 42 | ||||||
| 1998 - Class C Shares | 1.68 | (b) | 1.68 | (b) | 1.30 | (b) | 42 | ||||||
| 1998 - Institutional Shares | 2.97 | (b) | 0.61 | (b) | 2.59 | (b) | 42 | ||||||
| 1998 - Service Shares | 2.28 | (b) | 1.11 | (b) | 1.90 | (b) | 42 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.24 | $0.22 | (d) | $(1.28 | ) | $(1.06 | ) | |||||
| 2000 - Class B Shares | 12.21 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Class C Shares | 12.22 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Institutional Shares | 12.23 | 0.25 | (d) | (1.26 | ) | (1.01 | ) | |||||
| 2000 - Service Shares | 12.22 | 0.23 | (d) | (1.29 | ) | (1.06 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.29 | 0.11 | 2.03 | 2.14 | ||||||||
| 1999 - Class B Shares | 10.28 | 0.02 | 2.02 | 2.04 | ||||||||
| 1999 - Class C Shares | 10.28 | 0.02 | 2.03 | 2.05 | ||||||||
| 1999 - Institutional Shares | 10.29 | 0.13 | 2.05 | 2.18 | ||||||||
| 1999 - Service Shares | 10.29 | 0.09 | 2.03 | 2.12 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.10 | 0.36 | 0.46 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.12 | 0.37 | 0.49 | ||||||||
| 1998 - Service Shares | 10.00 | 0.09 | 0.35 | 0.44 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 1.83 | % | 0.89 | % | 1.53 | % | 23 | % | |||||
| 2000 - Class B Shares | 1.08 | 1.64 | 0.78 | 23 | |||||||||
| 2000 - Class C Shares | 1.11 | 1.64 | 0.81 | 23 | |||||||||
| 2000 - Institutional Shares | 2.10 | 0.49 | 1.80 | 23 | |||||||||
| 2000 - Service Shares | 1.95 | 0.99 | 1.65 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.90 | 0.87 | 0.62 | 50 | |||||||||
| 1999 - Class B Shares | 0.17 | 1.62 | (0.11 | ) | 50 | ||||||||
| 1999 - Class C Shares | 0.16 | 1.62 | (0.12 | ) | 50 | ||||||||
| 1999 - Institutional Shares | 1.40 | 0.47 | 1.12 | 50 | |||||||||
| 1999 - Service Shares | 0.87 | 0.97 | 0.59 | 50 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 1.50 | (b) | 1.15 | (b) | 0.95 | (b) | 38 | ||||||
| 1998 - Class B Shares | 0.83 | (b) | 1.78 | (b) | 0.35 | (b) | 38 | ||||||
| 1998 - Class C Shares | 0.79 | (b) | 1.78 | (b) | 0.31 | (b) | 38 | ||||||
| 1998 - Institutional Shares | 2.88 | (b) | 0.71 | (b) | 2.40 | (b) | 38 | ||||||
| 1998 - Service Shares | 1.63 | (b) | 1.21 | (b) | 1.15 | (b) | 38 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (loss) |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.61 | $ 0.03 | (d) | $(1.49 | ) | $(1.46 | ) | |||||
| 2000 - Class B Shares | 12.57 | (0.06 | ) (d) | (1.47 | ) | (1.53 | ) | |||||
| 2000 - Class C Shares | 12.57 | (0.05 | ) (d) | (1.47 | ) | (1.52 | ) | |||||
| 2000 - Institutional Shares | 12.60 | 0.10 | (d) | (1.51 | ) | (1.41 | ) | |||||
| 2000 - Service Shares | 12.59 | 0.04 | (d) | (1.51 | ) | (1.47 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.16 | 0.02 | 2.56 | 2.58 | ||||||||
| 1999 - Class B Shares | 10.14 | (0.07 | ) | 2.54 | 2.47 | |||||||
| 1999 - Class C Shares | 10.15 | (0.06 | ) | 2.53 | 2.47 | |||||||
| 1999 - Institutional Shares | 10.16 | 0.06 | 2.55 | 2.61 | ||||||||
| 1999 - Service Shares | 10.15 | — | 2.55 | 2.55 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.05 | 0.20 | 0.25 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.01 | 0.18 | 0.19 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.01 | 0.19 | 0.20 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.07 | 0.20 | 0.27 | ||||||||
| 1998 - Service Shares | 10.00 | 0.04 | 0.21 | 0.25 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income (loss) to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 0.28 | % | 0.99 | % | (0.12 | )% | 19 | % | |||||
| 2000 - Class B Shares | (0.49 | ) | 1.74 | (0.89 | ) | 19 | |||||||
| 2000 - Class C Shares | (0.42 | ) | 1.74 | (0.82 | ) | 19 | |||||||
| 2000 - Institutional Shares | 0.84 | 0.59 | 0.44 | 19 | |||||||||
| 2000 - Service Shares | 0.30 | 1.09 | (0.10 | ) | 19 | ||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.12 | 1.00 | (0.29 | ) | 47 | ||||||||
| 1999 - Class B Shares | (0.63 | ) | 1.75 | (1.04 | ) | 47 | |||||||
| 1999 - Class C Shares | (0.61 | ) | 1.75 | (1.02 | ) | 47 | |||||||
| 1999 - Institutional Shares | 0.66 | 0.60 | 0.25 | 47 | |||||||||
| 1999 - Service Shares | 0.00 | 1.10 | (0.41 | ) | 47 | ||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 0.91 | (b) | 1.42 | (b) | 0.09 | (b) | 26 | ||||||
| 1998 - Class B Shares | 0.14 | (b) | 2.05 | (b) | (0.61 | ) (b) | 26 | ||||||
| 1998 - Class C Shares | 0.16 | (b) | 2.05 | (b) | (0.59 | ) (b) | 26 | ||||||
| 1998 - Institutional Shares | 8.17 | (b) | 0.99 | (b) | 7.42 | (b) | 26 | ||||||
| 1998 - Service Shares | 0.76 | (b) | 1.49 | (b) | 0.01 | (b) | 26 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
Index
Asset Allocation Portfolios
Prospectus
(Class A, B and C Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Portfolios’ investments is available in the Portfolios’ annual and semi-annual
reports to shareholders. In the Portfolios’ annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Portfolios’ performance during the last fiscal year.
|
|
Statement Of Additional Information
|
|
Additional information about the Portfolios and their policies is also available in the Portfolios’ Additional
Statement. The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Portfolios’ annual and semi-annual reports, and the Additional Statement, are available free upon request by calling
Goldman Sachs at 1-800-526-7384.
|
|
To obtain other information and for shareholder inquiries:
|
|
By telephone – Call 1-800-526-7384
|
|
By mail – Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Portfolios’ documents are located online and may be
downloaded from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
Goldman Sachs – http://www.gs.com (Prospectus only)
|
|
You may review and obtain copies of Portfolio documents by visiting the SEC’s public reference room in Washington, D.C.
You may also obtain copies of Portfolio 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: publicinfo@sec.gov. Information on the operation of
the public reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Portfolios’ investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
518088
AAPRO
|
Prospectus
|
Institutional Shares
May 1, 2001
|
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
|
|
n
|
Goldman
Sachs Conservative Strategy Portfolio
|
|
n
|
Goldman
Sachs Balanced Strategy Portfolio
|
|
n
|
Goldman
Sachs Growth and Income Strategy Portfolio
|
|
n
|
Goldman
Sachs Growth Strategy Portfolio
|
|
n
|
Goldman
Sachs Aggressive Growth Strategy Portfolio
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division (“IMD”) of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as investment adviser (the “Investment Adviser”) to five asset allocation portfolios: the Conservative Strategy Portfolio, Balanced Strategy Portfolio, Growth and Income Strategy Portfolio,
Growth Strategy Portfolio and Aggressive Growth Strategy Portfolio (referred to as the “Portfolios” or the “Funds” interchangeably herein). The Portfolios are intended for investors who prefer to have their asset allocation
decisions made by professional money managers. Each Portfolio seeks to achieve its objective by investing in a combination of underlying funds for which Goldman Sachs now or in the future acts as investment adviser or principal underwriter (the
“Underlying Funds”). Some of these Underlying Funds invest primarily in fixed-income or money market securities (the “Underlying Fixed-Income Funds”) and other Underlying Funds invest primarily in equity securities (the
“Underlying Equity Funds”). An investor may choose to invest in one or more of the Portfolios based on individual investment goals, risk tolerance, and financial circumstances.
|
|
Goldman Sachs’ Asset Allocation Investment Philosophy:
|
|
The Investment Adviser’s Quantitative Strategies Group uses disciplined quantitative models to determine the relative
attractiveness of the world’s stock, bond and currency markets. These models use financial and economic variables to capture fundamental relationships that the Quantitative Strategies Group believes make sense. While the Investment
Adviser’s process is rigorous and quantitative, it also incorporates clear economic reasoning behind each recommendation.
|
|
Each Portfolio starts with a strategic allocation among the various asset classes. The Investment Adviser then tactically
deviates from the strategic allocations based on forecasts provided by the models. The tactical process seeks to add value by overweighting attractive markets and underweighting unattractive markets. Greater deviations from the strategic allocation
of a given Portfolio result in higher risk that the tactical allocation will underperform the strategic allocation. However, the Investment Adviser’s risk control process balances the amount any
|
|
The Asset Allocation Investment Process involves investing a Portfolio’s assets in other Goldman Sachs Funds within
specified equity and fixed-income percentage ranges.
|
|
asset class can be overweighted in seeking to achieve higher expected returns against the amount of risk imposed by that
deviation from the strategic allocation. The Investment Adviser employs Goldman Sachs’ proprietary Black-Litterman asset allocation technique in an effort to optimally balance these two goals.
|
|
Goldman Sachs Conservative Strategy Portfolio
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income, consistent with the preservation of capital and secondarily the potential for capital appreciation
|
|
Benchmarks:
|
Two-Year U.S. Treasury Security S&P 500® Index
Lehman Brothers Aggregate Bond Index
|
|
Investment Focus:
|
Primarily domestic fixed-income funds (approximately 80%) focusing on short-term investments and money market funds, with the balance in
domestic stock funds and an allocation to a global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income, consistent with the preservation of capital and secondarily also considers the potential
for capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds, with a focus on short-term investments including money market funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects
that the Portfolio will invest a relatively significant percentage of its assets in the Global Income Fund, Financial Square Prime Obligations Fund and CORE
SM
Large Cap Value Fund. It is expected that the Portfolio will invest more than 25% of its assets in the Short Duration Government Fund. The Portfolio may not invest in Underlying
Equity Funds that invest principally in foreign equity securities.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income and long-term capital appreciation
|
|
Benchmarks:
|
Two-Year U.S. Treasury Security Lehman Brothers High Yield Bond Index |
|
Investment Focus:
|
Domestic fixed-income funds (approximately 60%), with the remaining balance in domestic and international stock funds and an allocation to a
global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income and long-term capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of
its equity allocation in the CORE
SM
Large Cap Growth, CORE Large Cap Value and CORE
SM
International Equity Funds and will invest a relatively significant percentage of its assets in the Global Income Fund. It is expected that the Portfolio will invest more than
25% of its assets in the Short Duration Government Fund.
|
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and current income
|
|
Benchmarks:
|
S&P 500® Index MSCI® Europe, Australasia, Far East (EAFE®) Index (unhedged) Lehman Brothers Aggregate Bond Index Lehman Brothers High Yield Bond Index |
|
Investment Focus:
|
Domestic and international fixed-income and stock funds
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation and current income.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, which are intended to provide the capital appreciation component. Allocation to Underlying Fixed-Income Funds is intended to provide the income component. The Investment Adviser expects that the Portfolio will invest a relatively significant
percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds and will invest a relatively significant percentage of its assets in the Core Fixed Income and Global Income
Funds.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and secondarily current income
|
|
Benchmarks:
|
S&P 500® Index MSCI® EAFE® Index (unhedged) Russell 2000® Index MSCI® Emerging Markets Free (EMF) Index |
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Investment Focus:
|
Primarily a blend of domestic large cap, small cap and international stock funds (approximately 80%), with the balance in domestic fixed-income
funds and a global bond fund
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Investment Style:
|
Asset Allocation
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INVESTMENT OBJECTIVE
|
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The Portfolio seeks long-term capital appreciation and secondarily current income.
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PRINCIPAL INVESTMENT STRATEGY
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Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a blend of domestic large cap, small cap and international exposure to seek capital appreciation. Allocation to Underlying Fixed-Income Funds is intended to provide diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds.
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PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
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PORTFOLIO FACTS
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Objective:
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Long-term capital appreciation
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|
Benchmarks:
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MSCI® EAFE® Index (unhedged) Russell 2000® Index MSCI® EMF Index |
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Investment Focus:
|
Equity funds, with a greater focus on international and small cap investments
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|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
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The Portfolio seeks long-term capital appreciation.
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PRINCIPAL INVESTMENT STRATEGY
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Under normal conditions, substantially all of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a greater focus on small cap and international investments. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of its assets in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds.
|
Each Portfolio seeks to achieve its investment objective by investing within specified equity and fixed-income ranges among Underlying Funds. The table below
illustrates the current Underlying Equity/Fixed-Income Fund allocation targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio’s Total Assets)
| Portfolio | Target | Range | |||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | |||||
| Equity | 20% | 0%-25% | |||
| Fixed-Income | 80% | 75%-100% | |||
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|
|||||
| Balanced Strategy | |||||
| Equity | 40% | 20%-60% | |||
| Fixed-Income | 60% | 40%-80% | |||
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|||||
| Growth and Income Strategy | |||||
| Equity | 60% | 40%-80% | |||
| Fixed-Income | 40% | 20%-60% | |||
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|||||
| Growth Strategy | |||||
| Equity | 80% | 60%-100% | |||
| Fixed-Income | 20% | 0%-40% | |||
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|
|||||
| Aggressive Growth Strategy | |||||
| Equity | 100% | 75%-100% | |||
| Fixed-Income | 0% | 0%-25% | |||
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|||||
A Portfolio will invest in particular Underlying Funds based on various criteria. Among other things, the Investment Adviser will analyze the Underlying Funds’
respective investment objectives, policies and investment strategies in order to determine which Underlying Funds, in combination with other Underlying Funds, are appropriate in light of a Portfolio’s investment objective.
A Portfolio may purchase or sell securities to: (a) accommodate purchases and sales of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain or modify the allocation of its assets among the Underlying Funds within the percentage ranges described above.
PRINCIPAL INVESTMENT STRATEGIES
|
While each Portfolio can invest in any or all of the Underlying Funds, it is expected that each Portfolio will normally
invest in only some of the Underlying Funds at any particular time. Each Portfolio’s investment in any of the Underlying Funds may, and in some cases is expected to, exceed 25% of such Portfolio’s total assets.
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THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED-INCOME TARGETS AND RANGES AND THE
INVESTMENTS IN EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
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|
In addition, each Portfolio’s investment objective and all policies not specifically designated as fundamental in this
Prospectus or the Statement of Additional Information (the “Additional Statement”) are non-fundamental and may be changed without shareholder approval. If there is a change in a Portfolio’s investment objective, you should consider
whether that Portfolio remains an appropriate investment in light of your then current financial position and needs.
|
Loss of money is a risk of investing in each Portfolio. An investment in a Portfolio is not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. While the Portfolios offer a greater level of diversification than many other types of mutual funds, a single Portfolio may not provide a complete investment program for an investor.
The following summarizes important risks that apply to the Portfolios and may result in a loss of your investment. There can be no assurance that a Portfolio will achieve its investment objective.
|
n
|
Investing in the Underlying Funds
—The investments of each Portfolio are concentrated in the Underlying
Funds, and each Portfolio’s investment performance is directly related to the investment performance of the Underlying Funds held by it. The ability of each Portfolio to meet its investment objective is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those Underlying Funds by the Investment Adviser. The value of the Underlying Funds’ investments, and the net asset values (“NAV”) of the shares of both the
Portfolios and the Underlying Funds, will fluctuate in response to various market and economic factors related to the equity and fixed-income markets, as well as the financial condition and prospects of issuers in which the Underlying Funds invest.
There can be no assurance that the investment objective of any Portfolio or any Underlying Fund will be achieved.
|
|
n
|
Investments of the Underlying Funds
—Because the Portfolios invest in the Underlying Funds, the
Portfolios’ shareholders will be affected by the investment policies of the Underlying Funds in direct proportion to the amount of assets the Portfolios allocate to those Funds. Each Portfolio may invest in Underlying Funds that in turn invest
in small capitalization companies and foreign issuers and thus are subject to additional risks, including changes in foreign currency exchange rates and political risk. Foreign investments may include securities of issuers located in emerging
countries in Asia, Latin America, Eastern Europe and Africa. Each Portfolio may also invest in Underlying Funds that in turn invest in non-investment grade fixed-income securities (“junk bonds”), which are considered speculative by
traditional standards. In addition, the Underlying Funds may purchase derivative securities; enter into forward currency transactions; lend their portfolio securities; enter into futures contracts and options transactions; purchase zero coupon bonds
and payment-in-kind bonds; purchase securities issued by real estate investment trusts (“REITs”) and other issuers in the real estate industry; purchase restricted and illiquid securities; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase agreements; borrow money; and
engage in various other investment practices. The risks presented by these investment practices are discussed in Appendix A to this Prospectus and the Additional Statement.
|
|
n
|
Affiliated Persons
—In managing the Portfolios, the Investment Adviser will have the authority to select
and substitute Underlying Funds. The Investment Adviser is subject to conflicts of interest in allocating Portfolio assets among the various Underlying Funds both because the fees payable to it and/or its affiliates by some Underlying Funds are
higher than the fees payable by other Underlying Funds and because the Investment Adviser and its affiliates are also responsible for managing the Underlying Funds. The Trustees and officers of the Goldman Sachs Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Portfolios and the Underlying Funds.
|
|
n
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Expenses
—You may invest in the Underlying Funds directly. By investing in the Underlying Funds indirectly
through a Portfolio, you will incur not only a proportionate share of the expenses of the Underlying Funds held by the Portfolio (including operating costs and investment management fees), but also expenses of the Portfolio.
|
|
n
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Temporary Investments
—Although the
Portfolios normally seek to remain substantially invested in the Underlying Funds, each Portfolio may invest a portion of its assets in high-quality, short-term debt obligations (including commercial paper, certificates of deposit, bankers’
acceptances, repurchase agreements, debt obligations backed by the full faith and credit of the U.S. government and demand and time deposits of domestic and foreign banks and savings and loan associations) to maintain liquidity, to meet shareholder
redemptions and for other short-term cash needs. Also, there may be times when, in the opinion of the Investment Adviser, abnormal market or economic conditions warrant that, for temporary defensive purposes, a Portfolio may invest without
limitation in short-term obligations. When a Portfolio’s assets are invested in such investments, the Portfolio may not be achieving its investment objective.
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DESCRIPTION OF THE UNDERLYING FUNDS
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|
The following is a concise description of the investment objectives and practices for each of the Underlying Funds that are
available for investment by the Portfolios as of the date of this Prospectus. A Portfolio may also invest in other Underlying Funds not listed below that may become available for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the investment practices of the Underlying Funds is provided in Appendix A to this Prospectus and the Additional Statement. No offer is made in this Prospectus of any of the Underlying
Funds.
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| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE Large Cap Value |
Long-term growth of capital
and dividend income. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
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|
|
|||||
| CORE Large Cap Growth |
Long-term growth of capital.
Dividend income is a secondary consideration. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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® Growth Index. |
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|
|
|||||
| CORE SM Small Cap Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
|||
|
|
|||||
| Real Estate Securities |
Total return comprised
of long-term growth of capital and dividend income. |
Substantially all, and at least 80%, of total
assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real estate industry. The Fund expects that a substantial portion of its total assets will be invested in REITS and real estate industry companies. |
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|
|||||
DESCRIPTION OF THE UNDERLYING FUNDS
| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE International Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of companies organized outside the United States or whose securities are principally traded outside 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 unhedged MSCI® EAFE® Index. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
|
International Growth
Opportunities* |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of companies with public stock market capitalizations within $100 million and $3 billion at the time of investment that are organized outside the United States or whose securities are principally traded outside the United States. The Fund may employ certain currency management techniques. |
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|
|
|||||
| Emerging Markets Equity |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of emerging country issuers. The Fund may employ certain currency management techniques. |
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|
|
|||||
|
*Formerly, “International Small Cap.”
|
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*
|
Under normal interest rate conditions.
|
DESCRIPTION OF THE UNDERLYING FUNDS
| Investment Sector | Credit Quality | Other Investments | |||
|---|---|---|---|---|---|
|
|
|||||
|
Money market instruments including
securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises (“U.S. Government Securities”); U.S. bank obligations, commercial paper and other short- term obligations of U.S. corporations, governmental and other entities; asset-backed and receivables-backed securities; and related repurchase agreements. |
High Quality (short-
term ratings of A-1, P-1 or comparable quality). |
N/A | |||
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|
|||||
|
At least 65% of total assets in U.S.
Government Securities and repurchase agreements collateralized by such securities. |
U.S. Government
Securities |
Mortgage pass-through securities
and other securities representing an interest in or collateralized by mortgage loans. |
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|
|
|||||
|
At least 65% of total assets in fixed-
income securities, including U.S. Government Securities, corporate, privately issued mortgage-backed and asset-backed securities. |
Minimum = BBB/Baa
Minimum for non- dollar securities = AA/Aa |
Foreign fixed-income, municipal
and convertible securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
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|
|
|||||
|
Securities of U.S. and foreign
governments and corporations. |
Minimum = BBB/Baa
At least 50% = AAA/Aaa |
Mortgage-backed and asset-backed
securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities or certain foreign government securities. |
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|
|||||
|
At least 65% of total assets in fixed-
income securities rated below investment grade, including U.S. and non-U.S. dollar corporate debt, foreign government securities, convertible securities and preferred stock. |
At least 65% = BB/Ba
or below |
Mortgage-backed and asset-backed
securities, U.S. Government Securities, investment grade corporate fixed-income securities, structured securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
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|
|||||
Loss of money is a risk of investing in each Underlying Fund. An investment in an Underlying 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 Underlying Funds and may result in a loss of your investment in a Portfolio. There can be no assurance that an
Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by an Underlying Fund will
decline in value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
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Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by an Underlying
Fund may default on its obligation to pay interest and repay principal.
|
|
n
|
Market Risk
—The risk that the value of the securities in which an Underlying Fund invests may go up or
down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. An Underlying Fund’s investments may be overweighted from
time to time in one or more industry sectors, which will increase the Underlying Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Derivatives Risk
—The risk that loss may result from an Underlying Fund’s investments in options,
futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to an Underlying Fund.
|
|
n
|
Management Risk
—The risk that a strategy used by an investment adviser to the Underlying Funds may fail to
produce the intended results.
|
|
n
|
Liquidity Risk
—The risk that an Underlying Fund will not be able to pay redemption proceeds within the
time period stated in the Underlying Fund’s Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Underlying Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs or emerging country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
|
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
|
n
|
NAV Risk
—The risk that the net asset value (“NAV”) of the Underlying Fund and the value of your
investment will fluctuate.
|
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
|
n
|
Call Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by an
Underlying Fund (such as a Mortgage-Backed Security) earlier than expected. This may happen when there is a decline in interest rates. Under these circumstances, an Underlying Fund may be unable to recoup all of its initial investment and will also
suffer from having to reinvest in lower yielding securities.
|
|
n
|
Extension Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by
an Underlying 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 an obligation will decrease, and an Underlying Fund will also suffer from
the inability to invest in higher yielding securities.
|
|
n
|
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.
|
Risk That Applies Primarily To The Underlying Equity Funds:
|
n
|
Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
Risks That Are Particularly Important For Specific Underlying Funds:
|
n
|
Geographic Risk
—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 susceptible 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 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 Underlying Funds in issuers located in a particular country or region will subject an Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising
from adverse developments affecting those issuers or countries.
|
|
n
|
Foreign Risk
—The risk that when an Underlying Fund invests in foreign securities, it will be subject to
risk of loss not typically associated with domestic issuers. Loss may result because of less foreign government regulation, less public informa
-
|
|
tion and less economic, political and social stability. Loss may also result from the imposition of exchange controls,
confiscations and other government restrictions. The Underlying Funds will also be subject to the risk of negative foreign currency rate fluctuations. Foreign risks will normally be greatest when an Underlying Fund invests in issuers located in
emerging countries.
|
|
n
|
Emerging Countries Risk
—Certain Underlying Funds may invest in emerging country securities. The securities
markets of Asian, Latin and South American, Eastern European, African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not
subject to as extensive 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 registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
|
|
n
|
Small Cap Risk
—Certain Underlying Funds may invest in small cap stocks. The securities of small
capitalization companies 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 an
Underlying Fund to effect sales at an advantageous time or without a substantial drop in price.
|
|
n
|
Initial Public Offering (“IPO”) Risk
—The risk that the market value of IPO shares will fluctuate
considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs.
IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion of the Underlying Fund’s performance could be attributable to investments in IPOs, because such investments
would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying Fund’s investments in IPOs on the Underlying Fund’s performance will probably decline, which could reduce the
Underlying Fund’s performance.
|
|
n
|
“Junk Bond” Risk
—Certain Underlying Funds may invest in non-investment grade fixed-income
securities (commonly known as “junk bonds”) that are considered predominantly speculative by traditional investment standards. Non-investment grade fixed-income securities and unrated securities of comparable credit quality are subject to
the increased risk of an issuer’s inability to meet principal and interest obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, nega
tive perceptions of the junk bond markets generally and less secondary market
liquidity. |
More information about the portfolio securities and investment techniques of the Underlying Funds, and their associated risks, is provided in Appendix A. You should
consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE PORTFOLIOS HAVE PERFORMED
|
|
The bar chart and table below provide an indication of the risks of investing in a Portfolio by showing: (a) changes in the
performance of a Portfolio’s Institutional Shares from year to year; and (b) how the average annual returns of a Portfolio’s Institutional Shares compare to those of broad-based securities market indices. The bar chart and table assume
reinvestment of dividends and distributions. A Portfolio’s past performance is not necessarily an indication of how the Portfolio will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in
place, a Portfolio’s performance would have been reduced.
|
PORTFOLIO PERFORMANCE
Conservative Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ’00
+
2.47%
Worst Quarter
Q2 ’00
+
0.84%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 2/8/99) | 5.88% | 6.29% | |||
| Two-Year U.S. Treasury Security* | 7.53% | 4.98% | |||
| S&P 500® Index** | (9.10)% | 4.64% | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63% | 5.70% | |||
|
|
|||||
|
*
|
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or expenses.
|
|
**
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified portfolio of fixed-income securities,
including U.S. Treasuries, investment-grade corporate bonds and mortgage-backed and asset-backed securities. The Index figures do not reflect any fees or expenses.
|
Balanced Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’98
+
7.25%
Worst Quarter
Q3 ’98
-
5.65%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 1/2/98) | (0.25)% | 5.78% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| Two-Year U.S. Treasury Security** | 7.53% | 5.29% | |||
| Lehman Brothers High Yield Bond Index*** | (5.86)% | (0.61)% | |||
|
|
|||||
*
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
**
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or expenses.
|
***
|
The Lehman Brothers High Yield Bond Index is a total return performance benchmark for fixed-income securities having a
maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or expenses.
|
PORTFOLIO PERFORMANCE
Growth and Income Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’98
+
10.34%
Worst Quarter
Q3 ’98
-
10.09%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 1/2/98) | (3.99)% | 6.05% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63% | 6.36% | |||
| Lehman Brothers High Yield Bond Index† | (5.86)% | (0.61)% | |||
|
|
|||||
*
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
**
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in 20
developed markets. The Index figures do not reflect any fees or expenses.
|
***
|
The Lehman Brothers Aggregate Bond Index represents a diversified portfolio of fixed-income securities, including U.S.
Treasuries, investment-grade corporate bonds, and mortgage-backed and asset-backed securities. The Index is unmanaged and does not reflect any fees or expenses.
|
|
†
|
The Lehman Brothers High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or
expenses.
|
Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’99
+
13.21%
Worst Quarter
Q3 ’98
-
14.16%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Institutional Shares (Inception 1/2/98) | (8.28)% | 5.28% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000 Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
*
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
**
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in 20
developed markets. The Index figures do not reflect any fees or expenses.
|
***
|
The Russell 2000 Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees or
expenses.
|
†
The unmanaged MSCI® EMF Index is a market
capitalization weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
PORTFOLIO PERFORMANCE
Aggressive Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’99
+
15.93%
Worst Quarter
Q3 ’98
-
17.19%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Institutional Shares (Inception 1/2/98) | (11.07) | % | 4.76 | % | |||
| S&P 500® Index* | (9.10) | % | 12.24 | % | |||
| MSCI® EAFE® Index (unhedged)** | (13.96) | % | 9.63 | % | |||
| Russell 2000® Index*** | (3.03) | % | 4.64 | % | |||
| MSCI® EMF Index† | (30.61) | % | (4.82) | % | |||
|
|
|||||||
*
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
**
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in 20
developed markets. The Index figures do not reflect any fees or expenses.
|
***
|
The Russell 2000® Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees or
expenses.
|
†
The unmanaged MSCI® EMF Index is a market
capitalization weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
This table describes the fees and expenses that you would pay if you buy and hold Institutional Shares of a Portfolio.
|
Conservative Strategy Portfolio |
Balanced
Strategy Portfolio |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Portfolio Operating Expenses | |||||
| (expenses that are deducted from Portfolio assets): 1 | |||||
| Management Fees (for asset allocation) 2 | 0.35% | 0.35% | |||
| Other Expenses 3 | 1.20% | 0.34% | |||
| Underlying Fund Expenses 1 | 0.55% | 0.69% | |||
|
|
|||||
| Total Other and Underlying Fund Expenses | 1.75% | 1.03% | |||
|
|
|||||
| Total Portfolio Operating Expenses* | 2.10% | 1.38% | |||
|
|
|||||
|
See page 28 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Conservative Strategy Portfolio |
Balanced Strategy Portfolio |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Portfolio Operating Expenses | |||||
| (expenses that are deducted from Portfolio assets): 1 | |||||
| Management Fees (for asset allocation) 2 | 0.15% | 0.15% | |||
| Other Expenses 3 | 0.04% | 0.04% | |||
| Underlying Fund Expenses 1 | 0.55% | 0.69% | |||
|
|
|||||
| Total Other and Underlying Fund Expenses | 0.59% | 0.73% | |||
|
|
|||||
|
Total Portfolio Operating Expenses (after current
waivers and expense limitations) |
0.74% | 0.88% | |||
|
|
|||||
PORTFOLIO FEES AND EXPENSES
Portfolio Fees and Expenses
continued
|
1
|
The Portfolios’ annual operating expenses are based on actual expenses. “Underlying Fund Expenses”
for each Portfolio are based upon the strategic allocation of each Portfolio’s investment in the Underlying Funds and upon the actual total operating expenses of the Underlying Funds (including any current waivers and expense limitations of the
Underlying Funds). Actual Underlying Fund expenses incurred by each Portfolio may vary with changes in the allocation of each Portfolio’s assets among the Underlying Funds and with other events that directly affect the expenses of the
Underlying Funds.
|
|
2
|
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee on the Portfolios equal
to 0.20% of the Portfolios’ average daily net assets.
As a result of fee waivers, current management fees of the Portfolios are 0.15% of each Portfolio’s average daily net assets. The waivers may be terminated at any time at the option
of the Investment Adviser.
|
|
3
|
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net assets
of each Portfolio’s Institutional Shares plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, transfer agency fees and
expenses, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.00% of each Portfolio’s average daily net assets.
|
PORTFOLIO FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Portfolio (without the waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Institutional Shares of a Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a
5% return each year and that a Portfolio’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Portfolio | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Conservative Strategy | $213 | $658 | $1,129 | $2,431 | |||||
|
|
|||||||||
| Balanced Strategy | $140 | $437 | $ 755 | $1,657 | |||||
|
|
|||||||||
| Growth and Income Strategy | $128 | $400 | $ 692 | $1,523 | |||||
|
|
|||||||||
| Growth Strategy | $135 | $421 | $ 729 | $1,601 | |||||
|
|
|||||||||
| Aggressive Growth Strategy | $152 | $471 | $ 813 | $1,779 | |||||
|
|
|||||||||
Institutions that invest in Institutional Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain institutions that invest in Institutional Shares may receive other compensation in connection with the sale and distribution of Institutional Shares or for
services to their customers’ accounts and/or the Portfolios. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISERS
|
| Investment Adviser | Portfolio | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | Conservative Strategy | ||
| 32 Old Slip | Balanced Strategy | ||
| New York, New York 10005 | Growth and Income Strategy | ||
| Growth Strategy | |||
| Aggressive Growth Strategy | |||
|
|
|||
|
Except as noted below, GSAM also serves as investment adviser to each Underlying Fund.
|
|
GSAM is a business unit of IMD of Goldman Sachs. 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. GSFM, a registered investment adviser since 1990, is a Delaware limited partnership which is an
affiliate of Goldman Sachs. As of December 31, 2000, GSAM, GSAMI and GSFM, along with other units of IMD, had assets under management of $281.7 billion.
|
SERVICE PROVIDERS
|
Under an Asset Allocation Management Agreement with each Portfolio, the Investment Adviser, subject to the general
supervision of the Trustees, provides day-to-day advice as to each Portfolio’s investment transactions, including determinations concerning changes to (a) the Underlying Funds in which the Portfolios may invest; and (b) the percentage range of
assets of any Portfolio that may be invested in the Underlying Equity Funds and the Underlying Fixed-Income Funds as separate groups.
|
|
The Investment Adviser also performs the following additional services for the Portfolios:
|
|
n
|
Supervises all non-advisory operations of the Portfolios
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Portfolios
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Portfolio
|
|
n
|
Provides office space and all necessary office equipment and services
|
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Portfolio | Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Balanced Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth and Income Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Aggressive Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Portfolios reflects that the Investment
Adviser did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
In addition, each Portfolio, as a shareholder in the Underlying Funds, will indirectly bear a proportionate share of any investment management fees and other expenses
paid by the Underlying Funds. The following chart shows the total net operating expense ratios (management fee plus other operating expenses) of Institutional Shares of each Underlying Fund in which the Portfolios may invest after applicable fee
waivers and expense limitations, as of the end of each Underlying Fund’s most recent fiscal year. In addition, the following chart shows the contractual investment management fees payable to the Investment Adviser or its affiliates by the
Underlying Funds (in each case as an annualized percentage of a Fund’s average net assets). Absent voluntary fee waivers and/or expense reimbursements, which may be discontinued at any time, the total operating expense ratios of certain
Underlying Funds would be higher.
| Underlying Fund |
Contractual
Management Fee |
Total Net
Operating Expense Ratio |
|||
|---|---|---|---|---|---|
|
|
|||||
| Financial Square Prime Obligations | 0.205% | 0.18% | |||
|
|
|||||
| Short Duration Government | 0.50% | 0.54% | |||
|
|
|||||
| Core Fixed Income | 0.40% | 0.54% | |||
|
|
|||||
| Global Income | 0.90% | 0.69% | |||
|
|
|||||
| High Yield | 0.70% | 0.76% | |||
|
|
|||||
| CORE Large Cap Growth | 0.75% | 0.64% | |||
|
|
|||||
| CORE Large Cap Value | 0.60% | 0.64% | |||
|
|
|||||
| CORE Small Cap Equity | 0.85% | 0.93% | |||
|
|
|||||
| CORE International Equity | 0.85% | 1.01% | |||
|
|
|||||
| International Growth Opportunities* | 1.20% | 1.40% | |||
|
|
|||||
| Emerging Markets Equity | 1.20% | 1.39% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.04% | |||
|
|
|||||
* Formerly, “International Small Cap.”
SERVICE PROVIDERS
|
PORTFOLIO MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Investment Performance
& Valuation Oversight Group, and the Client Research Groups. In total, these groups include over 120 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department since becoming a Partner in 1994. Preceding
his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research and model development group.
|
|
Quantitative Strategies Group
|
|
n
|
The 30-person Quantitative Strategies Group includes eight Ph.Ds, with extensive academic and practitioner
experience
|
|
n
|
Disciplined, quantitative models are used to determine the relative attractiveness of the world’s stock, bond and
currency markets
|
|
n
|
Theory and economic intuition guide the investment process
|
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Mark M. Carhart, Ph.D., CFA
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Dr. Carhart joined the Investment Adviser as
a member of the Quantitative Strategies Group in 1997. From August 1995 to September 1997, he was Assistant Professor of Finance at the Marshall School of Business at USC and a Senior Fellow of the Wharton Financial Institutions Center. |
|||
|
|
|||||
|
Silverio Foresi, Ph.D.
Portfolio Manager |
Since 2000 |
Dr. Foresi joined the Investment Adviser in
1999. From 1997 to 1999, he was head of Research in Emerging Markets Fixed Income Derivatives Trading at Salomon Brothers. From 1990 to 1997, Dr. Foresi was an Assistant Professor of Finance at New York University. |
|||
|
|
|||||
|
Raymond J. Iwanowski
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Mr. Iwanowski joined the Investment Adviser
as an associate and portfolio manager in 1997. From 1993 to 1997, he was a Vice President and head of the Fixed Derivatives Client Research group at Salomon Brothers. |
|||
|
|
|||||
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Donald M. Raymond,
Ph.D., CFA Vice President; Portfolio and Product Manager; Quantitative Strategies |
Since 1998 |
Dr. Raymond is a Portfolio Manager in the
Quantitative Strategies Group responsible for the U.S. Asset Allocation mutual funds and Models Program. In his capacity as Product Manager, he is also responsible for new product development and client service for Global Tactical Asset Allocation and related products. Prior to joining the Investment Adviser in 1998, Dr. Raymond spent four years at Goldman Sachs Canada as head of Fixed Income Research and three years at a Canadian Investment Bank where he developed fixed income cash and derivative pricing models and portfolio arbitrage strategies. Dr. Raymond holds a B.Sc. and a Ph.D (Electrical and Computer Engineering), both from Queen’s University in Kingston, Canada. |
|||
|
|
|||||
|
Giorgio De Santis, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. DeSantis joined the Investment Adviser in
1998. From 1992 to 1998, he was Assistant Professor of Finance and Business Economics at the Marshall School of Business at USC. |
|||
|
|
|||||
|
William J. Fallon, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. Fallon joined the Investment Adviser in
1998. From 1996 to 1998, he worked in the Firmwide Risk Group of Goldman Sachs. From 1991 to 1996, he attended Columbia University, where he earned a Ph.D. in Finance. |
|||
|
|
|||||
|
Guang-Liang He, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. He joined the Investment Adviser in 1998.
In 1997, he worked in the Firmwide Risk Group of Goldman Sachs. From 1992 to 1997, he worked at Quantitative Financial Strategies, Inc. where he was responsible for the research and development of proprietary trading models. |
|||
|
|
|||||
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of each Portfolio’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, 60606-6372, also serves as each Portfolio’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing
functions.
|
SERVICE PROVIDERS
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Underlying Funds or
Portfolios. Goldman Sachs reserves the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to an Underlying Fund or limit an Underlying Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and
advise accounts and funds which have investment objectives similar to those of the Underlying Funds and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Underlying 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 Underlying Funds. The results of an Underlying Fund’s investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that an Underlying 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 Underlying Funds may, from time to time, enter into transactions in which other clients of Goldman
Sachs have an adverse interest. An Underlying Fund’s activities may be limited because of regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such
restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
n
Cash
n
Additional shares of the same class of the same Fund
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the Additional Statement.
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Portfolio |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | Monthly | Annually | |||
|
|
|||||
| Balanced Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth and Income Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth Strategy | Annually | Annually | |||
|
|
|||||
| Aggressive Growth Strategy | Annually | Annually | |||
|
|
|||||
From time to time a portion of a Portfolio’s dividends may constitute a return of capital.
When you purchase shares of a Portfolio, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Portfolio. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Institutional Shares.
|
|
How Can I Purchase Institutional Shares Of The Funds?
|
|
You may purchase Institutional Shares on any business day at their NAV next determined after receipt of an order. No sales
load is charged. You should place an order with Goldman Sachs at 1-800-621-2550 and either:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian) on the next business day;
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
|
|
In order to make an initial investment in a Fund, you must furnish to the Fund or Goldman Sachs the Account Application.
Purchases of Institutional Shares must be settled within three business days of receipt of a complete purchase order.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
How Do I Purchase Shares Through A Financial Institution?
|
|
Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders placed by or on behalf of their customers, and may designate other intermediaries to accept such
orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or
intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Authorized institutions and intermediaries will be responsible for transmitting accepted orders and payments to the Trust
within the time period agreed upon by them.
|
|
You should contact your institution or intermediary to learn whether it is authorized to accept orders for the
Trust.
|
|
These institutions may receive payments from the Funds or Goldman Sachs for the services provided by them with respect to the
Funds’ Institutional Shares. These payments may be in addition to other payments borne by the Funds.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
In addition to Institutional Shares, each Fund also offers other classes of shares to investors. These other share classes
are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Institutional Shares. Information regarding these other share classes may be obtained
from your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
SHAREHOLDER GUIDE
|
What Is My Minimum Investment In The Funds?
|
| Type of Investor | Minimum Investment | ||
|---|---|---|---|
|
|
|||
|
n
Banks, trust companies or other
depository institutions investing for their own account or on behalf of clients |
$1,000,000 in Institutional Shares of a Fund
alone or in combination with other assets under the management of GSAM and its affiliates |
||
|
n
Section 401(k), profit sharing,
money purchase pension, tax- sheltered annuity, defined benefit pension, or other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations |
|||
|
n
State, county, city or any
instrumentality, department, authority or agency thereof |
|||
|
n
Corporations with at least $100
million in assets or in outstanding publicly traded securities |
|||
|
n
“Wrap” account sponsors (provided
they have an agreement covering the arrangement with GSAM) |
|||
|
n
Registered investment advisers
investing for accounts for which they receive asset-based fees |
|||
|
|
|||
| n Individual investors | $10,000,000 | ||
|
n
Qualified non-profit organizations,
charitable trusts, foundations and endowments |
|||
|
n
Accounts over which GSAM or its
advisory affiliates have investment discretion |
|||
|
|
|||
|
The minimum investment requirement may be waived for current and former officers, partners, directors or employees of Goldman
Sachs or any of its affiliates or for other investors at the discretion of the Trust’s officers. No minimum amount is required for subsequent investments.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment amounts.
|
|
n
|
Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of frequent purchases, sales or exchanges of Institutional Shares of a Fund is evi
dent, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of a Fund.
|
|
n
|
Close a Fund to new investors from time to time and reopen a Fund whenever it is deemed appropriate by a Fund’s
Investment Adviser.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Institutional Shares is the Fund’s next determined NAV. The
Funds calculate NAV as follows:
|
| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
|
|
||
| Number of Outstanding Shares of the Class |
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper
form.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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, the NAV of a Fund that holds
foreign securities may be impacted on days when investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
|
How Can I Sell Institutional Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, each Fund
will redeem its Institutional Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
You may request that redemption proceeds be sent to you by check or by wire (if the wire
instructions are on record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Mail your request to: | |||
| Goldman Sachs Funds | |||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: | If you have elected the telephone | ||
| redemption privilege on your Account Application: | |||
| n 1-800-621-2550 | |||
| (8:00 a.m. to 4:00 p.m. New York time) | |||
|
|
|||
|
Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Funds as described
under “How Do I Purchase Shares Through A Financial Institution?”
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not
employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect in writing to receive your redemption proceeds by check. Redemption proceeds paid by
check will normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take
up to 15 days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
SHAREHOLDER GUIDE
|
n
|
Institutions (including banks, trust companies, brokers and investment advisers) are responsible for the timely transmittal
of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, these institutions may set times by which they must receive redemption requests. These institutions may also
require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance falls below $50 as a result of earlier redemptions. The Funds will not redeem your
shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Fund will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Institutional Shares of the Fund
that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange Institutional Shares of a Fund at NAV for Institutional Shares of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs) has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered together.
|
SHAREHOLDER GUIDE
|
What Types of Reports Will I Be Sent Regarding Investments In Institutional Shares?
|
|
You will receive an annual report containing audited financial statements and a semi-annual report. To eliminate unnecessary
duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly account statement. The Funds do not generally provide sub-accounting services.
|
|
As with any investment, you should consider how your investment in the Portfolios will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Portfolios.
|
|
Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of
Portfolio distributions and the sale of your Portfolio shares.
|
|
DISTRIBUTIONS
|
|
Distributions you receive from the Portfolios are generally subject to federal income tax, and may also be subject to state
or local taxes. This is true whether you reinvest your distributions in additional Portfolio shares or receive them in cash. For federal tax purposes, the Portfolios’ income dividend distributions and short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Portfolio shares.
|
|
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Portfolios’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Portfolios will
inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
|
|
The REIT investments of the underlying Real Estate Securities Fund often do not provide complete tax information to the Fund
until after the calendar year-end. Consequently, because of the delay, it may be necessary for the Portfolios to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
|
|
Each Portfolio may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign
securities. In general, the Portfolios may deduct these taxes in computing their taxable income.
|
TAXATION
|
If you buy shares of a Portfolio before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
|
|
SALES AND EXCHANGES
|
|
Your sale of Portfolio shares is a taxable transaction for federal income tax purposes, and may also be subject to state and
local taxes. For tax purposes, the exchange of your Portfolio shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the
difference between your adjusted tax basis in the shares and the amount received. Generally, this gain or loss will be long-term or short-term depending on whether your holding period for the shares exceeds twelve months, except that any loss
realized on shares held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
|
|
OTHER INFORMATION
|
|
When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Portfolio must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Portfolio to do so.
Non-U.S. investors may be subject to U.S. withholding and estate tax.
|
|
This Appendix provides further information on certain types of securities and techniques that may be used by the Underlying
Funds, including their associated risks. Additional information is provided in the Additional Statement, which is available upon request, and in the prospectuses of the Underlying Funds.
|
|
The Underlying Equity Funds invest primarily in common stocks and other equity securities, including 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”). The Underlying Fixed-Income Funds invest primarily in fixed-income securities, including senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper), convertible and
non-convertible corporate debt obligations, loan participations and preferred stock.
|
|
The Short-Duration Government Fund invests in U.S. Government Securities and related repurchase agreements, and does not make
foreign investments. The investments of the Financial Square Prime Obligations Fund are limited by SEC regulations applicable to money market funds as described in its prospectus, and do not include many of the types of investments discussed below
that are permitted for the other Underlying Funds. With these exceptions, and the further exceptions noted below, the following description applies generally to the Underlying Funds.
|
|
A. General Risks of the Underlying Funds
|
|
The Underlying Equity Funds will be subject to the risks associated with common stocks and other equity securities. In
general, stock values 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 an Underlying 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. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the
markets will trade at or close to record high levels in the future.
|
|
The Underlying Fixed-Income Funds will be subject 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 (although many mortgage-related securities will have less potential 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 an issuer or guarantor could default
on its obligations, and an Underlying Fund will not recover its investment. Call risk and extension risk are normally present in adjustable 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
prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.The same would be true of asset-backed securities, such as securities backed by car loans.
|
|
The Financial Square Prime Obligations Fund attempts to maintain a stable NAV of $1.00 per share and values its assets using
the amortized cost method in accordance with SEC regulations. There is no assurance, however, that the Financial Square Prime Obligations Fund will be successful in maintaining its per share value at $1.00 on a continuous basis. The per share NAVs
of the other Underlying Funds are expected to fluctuate on a daily basis.
|
|
The portfolio turnover rates of the Underlying Funds have ranged from 49% to 272% during their most recent fiscal years. A
high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by an Underlying Fund and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The
portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of an Underlying Fund’s portfolio securities, excluding securities having a maturity at
the date of purchase of one year or less. There can be no assurance that the turnover rates of the Underlying Funds will remain within this range during subsequent fiscal years.
|
|
B. Other Risks of the Underlying Funds
|
|
Risks of Investing in Small Capitalization Companies.
Certain Underlying Funds may invest in small
capitalization companies. Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of
particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, an Underlying 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
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 bankruptcy. Transaction costs for these investments are often higher than those for larger capitalization companies. Investments in small capitalization companies may be more difficult to price precisely than other types of securities
because of their characteristics and lower trading volumes.
|
|
Risks of Foreign Investments.
Certain of the Underlying Funds may make foreign investments. Foreign investments
involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 an Underlying Fund receives dividends, interest or other payments declines in value against the U.S. dollar before
such income is distributed as dividends to shareholders or converted to U.S. dollars, the Underlying 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 participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”), may have an
impact on the euro. Also, it is
possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, could cause market disruptions, and could adversely affect the value of
securities held by the Underlying Funds. Because of the number of countries using this single currency, a significant portion of the foreign assets held by certain of the Underlying Funds may be denominated in the euro.
|
|
Brokerage commissions, custodial services and other costs relating to investment 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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.
|
|
Concentration of an Underlying Fund’s assets in one or a few countries and currencies will subject a Fund to greater
risks than if an Underlying Fund’s assets were not geographically concentrated.
|
|
Investment in sovereign debt obligations by certain Underlying 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 an Underlying 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 an Underlying 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 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 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 Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). Certain Underlying Funds may also invest in European Depositary 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 Underlying 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 countries are generally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. An Underlying
Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the prices of listed securities, periodic trading or settlement 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 an Underlying Fund, the investment adviser, its affiliates and their respective clients and other service providers. An
Underlying Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations 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 addition,
certain 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 purchased by an
Underlying 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 securities in certain Asian and other countries, it
is anticipated that an Underlying Fund may invest in such countries through other investment funds in such countries.
|
|
Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency 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 military 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 developments may
result in sudden and significant invest-ment 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. As an example, in the past some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no
assurance that similar expropriations will not recur in Eastern Europe or other countries.
|
|
An Underlying 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 countries to the Underlying Fund.
|
|
Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and
often may involve an Underlying 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 an
Underlying Fund to value its portfolio securities and could cause the Underlying 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 Underlying Fund has delivered or the Underlying Fund’s inability to complete its contractual obligations because of theft or other reasons. The creditworthiness of the local securities firms used by an Underlying Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Underlying Fund may be subject to a greater risk of loss if a securities firm defaults in the performance 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 an Underlying 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). An Underlying 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 economic, market or political conditions, or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, an Underlying 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. Investments in emerging countries may be more difficult to price precisely because of the characteristics discussed above and lower trading volumes.
|
|
An Underlying 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 significant portion of the Underlying Funds’ currency exposure in emerging countries, if any, will be covered by such
instruments.
|
|
Risks of Derivative Investments.
An Underlying Fund’s transactions, if any, in options, futures, options
on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities, stripped mortgage-backed securities 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 fluctuations in securities prices, interest rates or currency
prices. Certain Underlying Funds may also invest in derivative investments for
non-hedging purposes (that is, to seek to increase total return). Investing for non-hedging purposes is considered a speculative practice and presents even greater risk of loss.
|
|
Derivative mortgage-backed securities (such as principal-only (“POs”), interest-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 securities. 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.
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Some floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For
example, range floaters are subject to the risk that the coupon will be reduced below market rates if a designated 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.
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Risks of Illiquid Securities.
The Underlying Funds may invest up to 15% (10% in the case of the Financial
Square Prime Obligations Fund) of their 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:
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|
n
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Both domestic and foreign securities that are not readily marketable
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n
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Certain municipal leases and participation interests
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n
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Certain stripped mortgage-backed securities
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n
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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n
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Certain over-the-counter options
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n
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Certain structured securities and all swap transactions
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n
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Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted
security, that the restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (“144A Securities”) and, therefore, is liquid.
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Investing in 144A Securities may decrease the liquidity of an Underlying Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which
may be significant, from the market price of comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Underlying Funds may include securities (including zero coupon
bonds) issued by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), foreign governments, domestic and foreign corporations, banks and other issuers. Some of these fixed-income securities are described in the next
section below. Further information is provided in the Additional Statement.
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Debt securities rated BBB or higher by Standard & Poor’s Ratings Group (“Standard & Poor’s”) or
Baa or higher by Moody’s Investors Services, Inc. (“Moody’s”) are considered “investment grade.” Securities rated BBB or Baa
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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. 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 comparable credit quality. If a security satisfies an Underlying
Fund’s minimum rating criteria at the time of purchase and is subsequently downgraded below such rating, the Underlying Fund will not be required to dispose of such security. If a downgrade occurs, the Underlying Fund’s investment adviser
will consider what action, including the sale of such security, is in the best interest of the Underlying Fund and its shareholders.
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Certain Underlying 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating assigned to a security in an Underlying Fund’s portfolio
is downgraded by a rating organization, the market price and liquidity of such security may be adversely affected.
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Risks of IPOs.
Certain Underlying Funds may invest in IPOs. An IPO is a company’s first offering of stock
to the public. IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available
for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion
of the Underlying Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying
Fund’s investments in IPOs on the Underlying Fund’s performance probably will decline, which could reduce the Underlying Fund’s performance. Because of the price volatility of IPO shares, an Underlying Fund may choose to hold IPO
shares for a very short period of time. This may increase the turnover of the Underlying Fund’s portfolio and may lead to increased expenses to the Underlying Fund, such as commissions and transaction costs. By selling IPO shares, the
Underlying Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. There is no assurance that an Underlying Fund will be
able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for an Underlying Fund to buy or sell significant amounts of shares without an unfavorable impact on
prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
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Non-Diversification and Geographic Risks.
The Global Income Fund is registered as a “non-diversified”
fund under the Act and is, therefore, 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. In addition, the Global Income Fund, and
certain other Underlying 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 the investments of these or other Underlying
Funds in issuers located in a particular country or region will subject the Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising from adverse developments affecting those issuers or
countries.
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Temporary Investment Risks.
The Underlying Funds may invest a substantial portion, and in some cases all, of
their total assets, in cash equivalents for temporary periods. When an Underlying Fund’s assets are invested in such instruments, the Underlying Fund may not be achieving its investment objective.
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C. Investment Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Underlying Funds, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
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U.S. Government Securities.
Each Underlying Fund may invest in U.S. Government Securities. U.S. Government
Securities include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of
the U.S. government to purchase certain obligations of the issuer; 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 components of stripped U.S. Government Securities are traded independently.
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Custodial Receipts.
Each Underlying Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
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Mortgage-Backed Securities.
The Underlying Funds (other than CORE Large Cap Growth, CORE Large Cap Value, CORE
Small Cap Equity and CORE International Equity Funds (the “CORE Equity Funds”)) may invest in securities that represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real
property (“Mortgage-Backed Securities”). 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 Securities.
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APPENDIX A
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Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”), and real estate mortgage investment conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and invests in certain
mortgages principally secured by interests in real property and other permitted investments. Mortgage-Backed Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are derivative multiple class Mortgage-Backed
Securities. SMBS are usually structured with two different classes: one that receives substantially all of the interest 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.
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Asset-Backed Securities.
The Underlying Funds (other than the CORE Equity 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 receivables, leases, installment contracts and personal property. 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. During periods of declining interest rates, prepayment of loans underlying
asset-backed securities can be expected to accelerate. Accordingly, an Underlying 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 in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility
that, in some cases, the Underlying Fund will be unable to possess and sell the underlying collateral and that the Underlying Fund’s recoveries on repossessed collateral may not be available to support
payments on the securities. In the event of a default, an Underlying Fund may suffer a loss if it cannot sell collateral quickly and receive the amount it is owed.
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Municipal Securities.
Certain Underlying Funds may invest in securities and instruments issued by state and
local governmental issuers. Municipal securities in which an Underlying Fund may invest consist of bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of states,
territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agencies or instrumentalities. Municipal securities include both “general” and “revenue” bonds and may be
issued to obtain funds for various public purposes. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power. Revenue obligations are payable only from the revenues derived from a particular facility or
class of facilities. Such securities may pay fixed, variable or floating rates of interest. Municipal securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which municipal securities may be issued include refunding outstanding obligations, obtaining funds for general
operating expenses, and obtaining funds to lend to other public institutions and facilities. Municipal securities in which the Underlying Funds may invest include private activity bonds, pre-refunded municipal securities and auction rate
securities.
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The obligations of the issuer to pay the principal of and interest on a municipal security are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of the issuer to pay when due the principal of or interest on a municipal
security may be materially affected.
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In addition, municipal securities include municipal leases, certificates of participation and “moral obligation”
bonds. A municipal lease is an obligation issued by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment purchase agreements.
Moral obligation bonds are supported by a moral commitment, but not a legal obligation, of a state or local government. Municipal leases, certificates of participation and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In particular, these instruments permit governmental issuers to acquire property and
equipment without meeting constitutional and statutory requirements for the issuance of debt. If, however, the governmental issuer does not periodically appropriate money to enable it to meet its payment obligations under these instruments, it
cannot be legally compelled to do so. If a default occurs, it is likely that an Underlying Fund would be unable to obtain another acceptable source of payment. Some municipal leases, certificates of participation and moral obligation bonds may be
illiquid.
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Municipal securities may also be in the form of a tender option bond, which is a municipal security (generally held pursuant
to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution. After payment of a fee to the financial institution that provides this option, the
security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution may not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrading in
the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and an Underlying Fund’s average portfolio maturity. There is risk that an Underlying Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid.
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Municipal securities may be backed by letters of credit or other forms of credit enhancement issued by domestic or foreign
banks or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to an Underlying Fund that invests in municipal securities. Letters of credit and other obligations of foreign
banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and are generally not bound by the accounting, auditing and financial reporting standards
applicable to U.S. banks.
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Corporate and Bank Obligations; Trust Preferred Securities; Convertible Securities.
Certain Underlying 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 U.S. or for
eign corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. 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. 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.
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Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities
generally offer lower interest or dividend yields than nonconvertible securities of similar quality. Convertible securities in which an Underlying 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 market 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.
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Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Certain Underlying Funds may invest
in zero coupon bonds, and certain Underlying Funds may invest in deferred interest, pay-in-kind and capital appreciation bonds. These 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 additional securities. The market 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.
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APPENDIX A
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Rating Criteria.
Except as noted below, the Underlying 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 International Growth Opportunities, Emerging Markets Equity and Real Estate Securities Funds may invest up to 35%, 35% and 20%, 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 securities rated D by Moody’s or Standard & Poor’s. Fixed-income
securities 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.
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Structured Securities and Inverse Floaters.
Certain Underlying Funds may invest in structured securities.
Structured securities are securities whose value is determined 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 complex
securities.
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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.
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Floating and Variable Rate Obligations.
Certain Underlying Funds may purchase floating and variable rate
obligations. The value of these obligations is generally more stable than that of a fixed rate obligation in response to changes in interest rate levels. The issuers or financial intermediaries providing demand features may
support their ability to purchase the obligations by obtaining credit with liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable both of which
may be issued by domestic banks or foreign banks. An Underlying Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are
interests in a pool of debt obligations held by a bank or other financial institution.
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Foreign Currency Transactions.
Certain Underlying Funds may, to the extent consistent with their 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. Certain
Underlying Funds 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 Underlying Funds may also enter into such
transactions to seek to increase total return, which is considered a speculative practice.
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Certain Underlying 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. An Underlying 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 the foreign currency to appreciate against the U.S. dollar).
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Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, an
Underlying Fund’s NAV to fluctuate. 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.
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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 an Underlying Fund of unrealized profits, transaction costs, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the current market price.
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APPENDIX A
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Underlying Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index
consisting of securities in which it may invest. Certain Underlying Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and call options on foreign currencies.
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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 considered a speculative activity). The successful use of options depends in part on the ability of an investment adviser to manage future price
fluctuations and the degree of correlation between the options and securities (or currency) markets. If an 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 an Underlying Fund’s investment portfolio, the Underlying Fund may incur losses that it would not otherwise incur. The use of options can also increase an Underlying
Fund’s transaction costs. Options written or purchased by the Underlying 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.
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Yield Curve Options.
Certain Underlying 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 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.
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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 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.
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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 specified 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. Certain Underlying Funds may engage in futures transactions on U.S. and (in the case of certain Underlying Funds) foreign exchanges.
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Certain Underlying Funds 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 an Underlying 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. An Underlying Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. An Underlying Fund will
engage in futures and related options transactions 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. An Underlying
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 immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Underlying 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 Underlying Fund’s net
assets.
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Futures contracts and related options present the following risks:
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|
n
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While an Underlying 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 Underlying Fund had not entered into any futures contracts or options
transactions. |
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n
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Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and an Underlying Fund may be exposed to additional risk of loss.
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n
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The loss incurred by an Underlying Fund in entering into futures contracts and in writing call options on futures is
potentially unlimited and may exceed the amount of the premium received.
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APPENDIX A
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n
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Futures markets are highly volatile and the use of futures may increase the volatility of an Underlying Fund’s
NAV.
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n
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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 substantial losses to an Underlying Fund.
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n
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Futures contracts and options on futures may be
illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
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n
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Foreign exchanges may not provide the same protection
as U.S. exchanges.
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Preferred Stock, Warrants and Rights.
Certain Underlying 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 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 or other non-compliance by the issuer of the preferred
stock.
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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.
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Loan Participations.
Certain Underlying Funds may invest in loan participations. A loan participation is an
interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermediary. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or a participation in the seller’s share of the loan. When the Underlying Fund acts as co-lender in connection with a participation interest or when it acquires
certain participation interests, the Underlying Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Underlying Fund lacks direct recourse, it will look to an agent for
the lenders (the “agent lender”) to enforce appropriate credit remedies against the borrower. In these cases, the Underlying Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the
Underlying Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Underlying Fund may be regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Underlying Fund may also be subject to the risk that the agent lender may become insolvent.
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REITs.
The Real Estate Securities Fund expects to invest a substantial portion of its total assets in REITs,
which are pooled investment vehicles that invest primarily in either real estate or real estate related loans. In addition, other Underlying Equity Funds may invest in REITs from time to time. The value of a REIT is affected by changes in the value
of the properties 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 federal 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 geographically, by property type or in certain other respects, these risks may be heightened. Each Underlying
Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
|
|
Other Investment Companies.
Certain Underlying Funds may invest in securities of other investment companies
(including exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations. These limitations include a prohibition on any
Underlying Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of an Underlying Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard and Poor’s Depositary Receipts™.
The Underlying Equity Funds may, consistent with their
investment policies, purchase Standard & Poor’s Depositary Receipts™ (“SPDRs”). SPDRs are securities traded on the American Stock Exchange (the “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 handling 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®.
|
APPENDIX A
|
n
|
iShares
SM
(formerly called World Equity Benchmark Shares or WEBs).
iShares are
shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the
public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts
and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the
liquidity and value of an Underlying Equity Fund’s shares could also be substantially and adversely affected. If such disruptions were to occur, an Underlying Equity Fund could be required to reconsider the use of iShares as part of its
investment strategy.
|
|
Unseasoned Companies.
Certain Underlying Funds 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.
|
|
Non-Investment Grade Fixed-Income Securities.
Non-investment 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 obligations may be highly speculative and have poor prospects for
reaching investment 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 corporate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.
|
|
Non-investment grade fixed-income securities are generally unsecured and are often subordinated to the rights of other
creditors of the issuers of such securities. Investment by an Underlying 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 an Underlying Fund of its initial investment and any anticipated income or appreciation is uncertain.
|
|
Equity Swaps.
Each Underlying Equity Fund may invest up to 15% of its net assets in equity swaps. Equity swaps
allow the parties to a swap agreement to exchange dividend income or other components 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 an Underlying 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 an investment adviser does not accurately
analyze and predict the potential relative fluctuation of the components swapped with another party, an Underlying Fund may suffer a loss, which may be substantial. 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, an Underlying Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, an Underlying Fund may be unable to terminate its obligations when
desired.
|
|
When-Issued Securities and Forward Commitments.
Each Underlying Fund may purchase when-issued securities and
enter into forward commitments. 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 Underlying
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 settlement date. Although an Underlying Fund will
generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, an Underlying Fund may dispose of when-issued securities or forward commitments prior to settlement if its
investment adviser deems it appropriate.
|
|
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s
agreement to repurchase them at a mutually agreed upon date and price. The Underlying Funds 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. Some Underlying Funds may also enter into repurchase agreements involving certain foreign government securities.
|
|
If the other party or “seller” defaults, an Underlying Fund might suffer a loss to the extent that the proceeds
from the sale of the underlying securities and other collateral held by the Underlying Fund are less than the repurchase price and the Underlying Fund’s costs associated with delay and enforcement of the repurchase agreement. In addition, in
the event of bankruptcy of the seller, an Underlying Fund could suffer additional losses if a court determines that the Underlying Fund’s interest in the collateral is not enforceable.
|
|
In evaluating whether to enter into a repurchase agreement, an investment adviser will carefully consider the
creditworthiness of the seller. Certain Underlying 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 Underlying Fund may engage in securities lending. Securities lending
involves the lending of securities owned by an Underlying 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 by an Underlying Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject
to market depreciation or appreciation, and an Underlying Fund will be responsible for any loss that might result from its investment of the borrowers’ collateral. If an 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
an Underlying Fund (including the loan collateral).
|
|
An Underlying Fund may lend its securities to increase its income. An Underlying 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 Underlying Fund.
|
|
Short Sales Against-the-Box.
Certain Underlying Funds may make short sales against-the-box. A short sale
against-the-box means that at all times when a short position is open the Underlying Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without the payment of any further consideration, an
equal amount of the securities of the same issuer as the securities sold short.
|
|
Mortgage Dollar Rolls.
Certain Underlying Funds may enter into “mortgage dollar rolls.” In mortgage
dollar rolls, an Underlying Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Underlying Fund loses the right to receive principal and interest paid on the securities sold. However, the Underlying Fund benefits to the extent of any difference 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 interest 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 securities sold as part of the roll, the use of this technique will diminish the Underlying Fund’s performance.
|
|
Successful use of mortgage dollar rolls depends upon an investment adviser’s ability to predict correctly interest rates
and mortgage prepayments. If the investment adviser is incorrect in its prediction, an Underlying Fund may experience a loss. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving
the purchase of a security and a separate transaction involving a sale. The Underlying 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 Underlying Fund can borrow money from banks, and certain
Underlying Funds may enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. An Underlying Fund may not make additional investments if borrowings exceed 5% of its
total assets. Reverse repurchase agreements involve the sale of securities held by an Underlying Fund subject to the Underlying Fund’s agreement to repurchase them at a mutually agreed upon date and price (including interest). These
transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agreements may also be entered into when the 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 an Underlying Fund decline in value while these transactions are
outstanding, the NAV of the Underlying 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 an Underlying 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 an
Underlying Fund will decline below the price the Underlying Fund is obligated to pay to repurchase the securities, and that the securities may not be returned to the Underlying Fund.
|
|
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars.
To the extent consistent with their investment policies, certain Underlying Funds may enter into interest rate swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps, floors and collars. Interest rate swaps involve the
exchange by an Underlying 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
Certain Underlying Funds may enter into swap transactions for hedging purposes or to seek to increase total return. 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 an Underlying Fund would be less favorable than it would have been if these
investment techniques were not used.
|
|
The financial highlights tables are intended to help you understand a Portfolio’s financial performance for the past
five years (or less if the Portfolio has been in operation for less than five years). Certain information reflects financial results for a single Portfolio share. The total returns in the table represent the rate that an investor would have earned
or lost on an investment in a Portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Portfolio’s financial statements, is included in the
Portfolio’s annual report (available upon request). The information for all periods prior to the year ended December 31, 2000 has been audited by the Portfolios’ previous independent auditors.
|
|
CONSERVATIVE STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
||||||||
|
|
|||||||||||
| For The Year Ended December 31, | |||||||||||
| 2000 - Class A Shares | $10.17 | $0.54 | (d) | $(0.01 | ) | $0.53 | |||||
| 2000 - Class B Shares | 10.18 | 0.49 | (d) | (0.05 | ) | 0.44 | |||||
| 2000 - Class C Shares | 10.17 | 0.47 | (d) | (0.02 | ) | 0.45 | |||||
| 2000 - Institutional Shares | 10.18 | 0.59 | (d) | (0.01 | ) | 0.58 | |||||
| 2000 - Service Shares | 10.18 | 0.46 | (d) | 0.06 | 0.52 | ||||||
|
|
|||||||||||
| For The Period Ended December 31, (c) | |||||||||||
| 1999 - Class A Shares | 10.00 | 0.36 | 0.18 | 0.54 | |||||||
| 1999 - Class B Shares | 10.00 | 0.30 | 0.19 | 0.49 | |||||||
| 1999 - Class C Shares | 10.00 | 0.29 | 0.18 | 0.47 | |||||||
| 1999 - Institutional Shares | 10.00 | 0.40 | (d) | 0.20 | 0.60 | ||||||
| 1999 - Service Shares | 10.00 | 0.53 | 0.02 | 0.55 | |||||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the underlying Funds.
|
APPENDIX B
|
CONSERVATIVE STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 5.34 | % | 1.95 | % | 3.98 | % | 46 | % | |||||
| 2000 - Class B Shares | 4.79 | 2.70 | 3.43 | 46 | |||||||||
| 2000 - Class C Shares | 4.60 | 2.70 | 3.24 | 46 | |||||||||
| 2000 - Institutional Shares | 5.80 | 1.55 | 4.44 | 46 | |||||||||
| 2000 - Service Shares | 4.50 | 2.05 | 3.14 | 46 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1999 - Class A Shares | 4.38 | (b) | 3.46 | (b) | 1.51 | (b) | 63 | ||||||
| 1999 - Class B Shares | 3.74 | (b) | 4.21 | (b) | 0.87 | (b) | 63 | ||||||
| 1999 - Class C Shares | 3.62 | (b) | 4.21 | (b) | 0.75 | (b) | 63 | ||||||
| 1999 - Institutional Shares | 4.43 | (b) | 3.06 | (b) | 1.56 | (b) | 63 | ||||||
| 1999 - Service Shares | 2.39 | (b) | 3.56 | (b) | (0.48 | ) (b) | 63 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
BALANCED STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $10.99 | $0.48 | ( d) | $(0.54 | ) | $(0.06 | ) | |||||
| 2000 - Class B Shares | 10.98 | 0.39 | ( d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Class C Shares | 10.99 | 0.39 | ( d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Institutional Shares | 10.99 | 0.53 | ( d) | (0.55 | ) | (0.02 | ) | |||||
| 2000 - Service Shares | 10.99 | 0.61 | ( d) | (0.68 | ) | (0.07 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.31 | 0.34 | 0.73 | 1.07 | ||||||||
| 1999 - Class B Shares | 10.31 | 0.26 | 0.72 | 0.98 | ||||||||
| 1999 - Class C Shares | 10.32 | 0.27 | 0.71 | 0.98 | ||||||||
| 1999 - Institutional Shares | 10.32 | 0.37 | 0.74 | 1.11 | ||||||||
| 1999 - Service Shares | 10.31 | 0.33 | 0.73 | 1.06 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.25 | 0.38 | 0.63 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.19 | 0.38 | 0.57 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.19 | 0.39 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.30 | 0.39 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.25 | 0.37 | 0.62 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
BALANCED STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 4.45 | % | 1.09 | % | 3.95 | % | 23 | % | |||||
| 2000 - Class B Shares | 3.60 | 1.84 | 3.10 | 23 | |||||||||
| 2000 - Class C Shares | 3.59 | 1.84 | 3.09 | 23 | |||||||||
| 2000 - Institutional Shares | 4.94 | 0.69 | 4.44 | 23 | |||||||||
| 2000 - Service Shares | 5.70 | 1.19 | 5.20 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 3.17 | 1.05 | 2.71 | 51 | |||||||||
| 1999 - Class B Shares | 2.42 | 1.80 | 1.96 | 51 | |||||||||
| 1999 - Class C Shares | 2.40 | 1.80 | 1.94 | 51 | |||||||||
| 1999 - Institutional Shares | 3.93 | 0.65 | 3.47 | 51 | |||||||||
| 1999 - Service Shares | 3.04 | 1.15 | 2.58 | 51 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 3.03 | ( b) | 1.46 | ( b) | 2.17 | ( b) | 51 | ||||||
| 1998 - Class B Shares | 2.38 | ( b) | 2.08 | ( b) | 1.60 | ( b) | 51 | ||||||
| 1998 - Class C Shares | 2.34 | ( b) | 2.08 | ( b) | 1.56 | ( b) | 51 | ||||||
| 1998 - Institutional Shares | 3.55 | ( b) | 1.02 | ( b) | 2.77 | ( b) | 51 | ||||||
| 1998 - Service Shares | 2.90 | ( b) | 1.52 | ( b) | 2.12 | ( b) | 51 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
GROWTH AND INCOME STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $11.71 | $0.38 | (d) | $(0.92 | ) | $(0.54 | ) | |||||
| 2000 - Class B Shares | 11.69 | 0.29 | (d) | (0.92 | ) | (0.63 | ) | |||||
| 2000 - Class C Shares | 11.69 | 0.29 | (d) | (0.93 | ) | (0.64 | ) | |||||
| 2000 - Institutional Shares | 11.71 | 0.44 | (d) | (0.91 | ) | (0.47 | ) | |||||
| 2000 - Service Shares | 11.69 | 0.37 | (d) | (0.92 | ) | (0.55 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.38 | 0.22 | 1.40 | 1.62 | ||||||||
| 1999 - Class B Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Class C Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Institutional Shares | 10.39 | 0.27 | 1.39 | 1.66 | ||||||||
| 1999 - Service Shares | 10.37 | 0.20 | 1.40 | 1.60 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.18 | 0.47 | 0.65 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.20 | 0.49 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.16 | 0.48 | 0.64 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH AND INCOME STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming no
expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
|
2000 - Class A Shares
|
3.35 | % | 0.87 | % | 3.07 | % | 20 | % | |||||
| 2000 - Class B Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Class C Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Institutional Shares | 3.87 | 0.47 | 3.59 | 20 | |||||||||
| 2000 - Service Shares | 3.26 | 0.97 | 2.98 | 20 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 2.00 | 0.85 | 1.74 | 49 | |||||||||
| 1999 - Class B Shares | 1.24 | 1.60 | 0.98 | 49 | |||||||||
| 1999 - Class C Shares | 1.23 | 1.60 | 0.97 | 49 | |||||||||
| 1999 - Institutional Shares | 2.53 | 0.45 | 2.27 | 49 | |||||||||
| 1999 - Service Shares | 1.91 | 0.95 | 1.65 | 49 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 2.37 | (b) | 1.05 | (b) | 1.92 | (b) | 42 | ||||||
| 1998 - Class B Shares | 1.72 | (b) | 1.68 | (b) | 1.34 | (b) | 42 | ||||||
| 1998 - Class C Shares | 1.68 | (b) | 1.68 | (b) | 1.30 | (b) | 42 | ||||||
| 1998 - Institutional Shares | 2.97 | (b) | 0.61 | (b) | 2.59 | (b) | 42 | ||||||
| 1998 - Service Shares | 2.28 | (b) | 1.11 | (b) | 1.90 | (b) | 42 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.24 | $0.22 | (d) | $(1.28 | ) | $(1.06 | ) | |||||
| 2000 - Class B Shares | 12.21 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Class C Shares | 12.22 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Institutional Shares | 12.23 | 0.25 | (d) | (1.26 | ) | (1.01 | ) | |||||
| 2000 - Service Shares | 12.22 | 0.23 | (d) | (1.29 | ) | (1.06 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.29 | 0.11 | 2.03 | 2.14 | ||||||||
| 1999 - Class B Shares | 10.28 | 0.02 | 2.02 | 2.04 | ||||||||
| 1999 - Class C Shares | 10.28 | 0.02 | 2.03 | 2.05 | ||||||||
| 1999 - Institutional Shares | 10.29 | 0.13 | 2.05 | 2.18 | ||||||||
| 1999 - Service Shares | 10.29 | 0.09 | 2.03 | 2.12 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.10 | 0.36 | 0.46 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.12 | 0.37 | 0.49 | ||||||||
| 1998 - Service Shares | 10.00 | 0.09 | 0.35 | 0.44 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 1.83 | % | 0.89 | % | 1.53 | % | 23 | % | |||||
| 2000 - Class B Shares | 1.08 | 1.64 | 0.78 | 23 | |||||||||
| 2000 - Class C Shares | 1.11 | 1.64 | 0.81 | 23 | |||||||||
| 2000 - Institutional Shares | 2.10 | 0.49 | 1.80 | 23 | |||||||||
| 2000 - Service Shares | 1.95 | 0.99 | 1.65 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.90 | 0.87 | 0.62 | 50 | |||||||||
| 1999 - Class B Shares | 0.17 | 1.62 | (0.11 | ) | 50 | ||||||||
| 1999 - Class C Shares | 0.16 | 1.62 | (0.12 | ) | 50 | ||||||||
| 1999 - Institutional Shares | 1.40 | 0.47 | 1.12 | 50 | |||||||||
| 1999 - Service Shares | 0.87 | 0.97 | 0.59 | 50 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 1.50 | (b) | 1.15 | (b) | 0.95 | (b) | 38 | ||||||
| 1998 - Class B Shares | 0.83 | (b) | 1.78 | (b) | 0.35 | (b) | 38 | ||||||
| 1998 - Class C Shares | 0.79 | (b) | 1.78 | (b) | 0.31 | (b) | 38 | ||||||
| 1998 - Institutional Shares | 2.88 | (b) | 0.71 | (b) | 2.40 | (b) | 38 | ||||||
| 1998 - Service Shares | 1.63 | (b) | 1.21 | (b) | 1.15 | (b) | 38 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (loss) |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.61 | $ 0.03 | (d) | $(1.49 | ) | $(1.46 | ) | |||||
| 2000 - Class B Shares | 12.57 | (0.06 | ) (d) | (1.47 | ) | (1.53 | ) | |||||
| 2000 - Class C Shares | 12.57 | (0.05 | )( d) | (1.47 | ) | (1.52 | ) | |||||
| 2000 - Institutional Shares | 12.60 | 0.10 | (d) | (1.51 | ) | (1.41 | ) | |||||
| 2000 - Service Shares | 12.59 | 0.04 | (d) | (1.51 | ) | (1.47 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.16 | 0.02 | 2.56 | 2.58 | ||||||||
| 1999 - Class B Shares | 10.14 | (0.07 | ) | 2.54 | 2.47 | |||||||
| 1999 - Class C Shares | 10.15 | (0.06 | ) | 2.53 | 2.47 | |||||||
| 1999 - Institutional Shares | 10.16 | 0.06 | 2.55 | 2.61 | ||||||||
| 1999 - Service Shares | 10.15 | — | 2.55 | 2.55 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.05 | 0.20 | 0.25 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.01 | 0.18 | 0.19 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.01 | 0.19 | 0.20 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.07 | 0.20 | 0.27 | ||||||||
| 1998 - Service Shares | 10.00 | 0.04 | 0.21 | 0.25 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income (loss) to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 0.28 | % | 0.99 | % | (0.12 | )% | 19 | % | |||||
| 2000 - Class B Shares | (0.49 | ) | 1.74 | (0.89 | ) | 19 | |||||||
| 2000 - Class C Shares | (0.42 | ) | 1.74 | (0.82 | ) | 19 | |||||||
| 2000 - Institutional Shares | 0.84 | 0.59 | 0.44 | 19 | |||||||||
| 2000 - Service Shares | 0.30 | 1.09 | (0.10 | ) | 19 | ||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.12 | 1.00 | (0.29 | ) | 47 | ||||||||
| 1999 - Class B Shares | (0.63 | ) | 1.75 | (1.04 | ) | 47 | |||||||
| 1999 - Class C Shares | (0.61 | ) | 1.75 | (1.02 | ) | 47 | |||||||
| 1999 - Institutional Shares | 0.66 | 0.60 | 0.25 | 47 | |||||||||
| 1999 - Service Shares | 0.00 | 1.10 | (0.41 | ) | 47 | ||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 0.91 | (b) | 1.42 | (b) | 0.09 | (b) | 26 | ||||||
| 1998 - Class B Shares | 0.14 | (b) | 2.05 | (b) | (0.61 | ) (b) | 26 | ||||||
| 1998 - Class C Shares | 0.16 | (b) | 2.05 | (b) | (0.59 | ) (b) | 26 | ||||||
| 1998 - Institutional Shares | 8.17 | (b) | 0.99 | (b) | 7.42 | (b) | 26 | ||||||
| 1998 - Service Shares | 0.76 | (b) | 1.49 | (b) | 0.01 | (b) | 26 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
Index
Asset Allocation Portfolios Prospectus
(Institutional Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Portfolios’ investments is available in the Portfolios’ annual and semi-annual
reports to shareholders. In the Portfolios’ annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Portfolios’ performance during the last fiscal year.
|
|
Statement of Additional Information
|
|
Additional information about the Portfolios and their policies is also available in the Portfolios’ Additional
Statement. The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Portfolios’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Portfolios’ documents are located online and may be
downloaded from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Portfolio documents by visiting the SEC’s public reference room in Washington, D.C.
You may also obtain copies of Portfolio 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: publicinfo@sec.gov. Information on the operation of
the public reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Portfolios’ investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
AAPROINST
|
Prospectus
|
Service
Shares
Shares
May 1, 2001
|
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
|
|
n
|
Goldman
Sachs Conservative Strategy Portfolio
|
|
n
|
Goldman
Sachs Balanced Strategy Portfolio
|
|
n
|
Goldman
Sachs Growth and Income Strategy Portfolio
|
|
n
|
Goldman
Sachs Growth Strategy Portfolio
|
|
n
|
Goldman
Sachs Aggressive Growth Strategy Portfolio
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division (“IMD”) of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as investment adviser (the “Investment Adviser”) to five asset allocation portfolios: the Conservative Strategy Portfolio, Balanced Strategy Portfolio, Growth and Income Strategy Portfolio,
Growth Strategy Portfolio and Aggressive Growth Strategy Portfolio (referred to as the “Portfolios” or the “Funds” interchangeably herein). The Portfolios are intended for investors who prefer to have their asset allocation
decisions made by professional money managers. Each Portfolio seeks to achieve its objective by investing in a combination of underlying funds for which Goldman Sachs now or in the future acts as investment adviser or principal underwriter (the
“Underlying Funds”). Some of these Underlying Funds invest primarily in fixed-income or money market securities (the “Underlying Fixed-Income Funds”) and other Underlying Funds invest primarily in equity securities (the
“Underlying Equity Funds”). An investor may choose to invest in one or more of the Portfolios based on individual investment goals, risk tolerance, and financial circumstances.
|
|
Goldman Sachs’ Asset Allocation Investment Philosophy:
|
|
The Investment Adviser’s Quantitative Strategies Group uses disciplined quantitative models to determine the relative
attractiveness of the world’s stock, bond and currency markets. These models use financial and economic variables to capture fundamental relationships that the Quantitative Strategies Group believes make sense. While the Investment
Adviser’s process is rigorous and quantitative, it also incorporates clear economic reasoning behind each recommendation.
|
|
Each Portfolio starts with a strategic allocation among the various asset classes. The Investment Adviser then tactically
deviates from the strategic allocations based on forecasts provided by the models. The tactical process seeks to add value by overweighting attractive markets and underweighting unattractive markets. Greater deviations from the strategic allocation
of a given Portfolio result in higher risk that the tactical allocation will underperform the strategic allocation. However, the Investment Adviser’s risk control process balances the amount any
|
|
The Asset Allocation Investment Process involves investing a Portfolio’s assets in other Goldman Sachs Funds within
specified equity and fixed-income percentage ranges.
|
|
asset class can be overweighted in seeking to achieve higher expected returns against the amount of risk imposed by that
deviation from the strategic allocation. The Investment Adviser employs Goldman Sachs’ proprietary Black-Litterman asset allocation technique in an effort to optimally balance these two goals.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income, consistent with the preservation of capital and secondarily the potential for capital appreciation
|
|
Benchmarks:
|
Two-Year U.S. Treasury Security
S&P 500® Index
Lehman Brothers Aggregate Bond Index
|
|
Investment Focus:
|
Primarily domestic fixed-income funds (approximately 80%) focusing on short-term investments and money market funds, with the balance in
domestic stock funds and an allocation to a global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income, consistent with the preservation of capital and secondarily also considers the potential
for capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds, with a focus on short-term investments including money market funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects
that the Portfolio will invest a relatively significant percentage of its assets in the Global Income Fund, Financial Square Prime Obligations Fund and CORE
SM
Large Cap Value Fund. It is expected that the Portfolio will invest more than 25% of its assets in the Short Duration Government Fund. The Portfolio may not invest in Underlying
Equity Funds that invest principally in foreign equity securities.
|
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Current income and long-term capital appreciation
|
|
Benchmarks:
|
S&P 500® Index
Two-Year U.S. Treasury Security
Lehman Brothers High Yield Bond Index
|
|
Investment Focus:
|
Domestic fixed-income funds (approximately 60%), with the remaining balance in domestic and international stock funds and an allocation to a
global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks current income and long-term capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying
Fixed-Income Funds. Allocation to Underlying Equity Funds is intended to add diversification and enhance returns, but will also add some volatility. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of
its equity allocation in the CORE
SM
Large Cap Growth, CORE Large Cap Value and CORE
SM
International Equity Funds and will invest a relatively significant percentage of its assets in the Global Income Fund. It is expected that the Portfolio will invest more than
25% of its assets in the Short Duration Government Fund.
|
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and current income
|
|
Benchmarks:
|
S&P 500® Index
MSCI® Europe, Australasia, Far East (EAFE®) Index (unhedged)
Lehman Brothers Aggregate Bond Index
Lehman Brothers High Yield Bond Index
|
|
Investment Focus:
|
Domestic and international fixed-income and stock funds
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation and current income.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 60% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, which are intended to provide the capital appreciation component. Allocation to Underlying Fixed-Income Funds is intended to provide the income component. The Investment Adviser expects that the Portfolio will invest a relatively significant
percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds and will invest a relatively significant percentage of its assets in the Core Fixed Income and Global Income
Funds.
|
Growth Strategy Portfolio
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation and secondarily current income
|
|
Benchmarks:
|
S&P 500® Index
MSCI® EAFE® Index (unhedged)
Russell 2000® Index
MSCI® Emerging Markets Free (EMF) Index
|
|
Investment Focus:
|
Primarily a blend of domestic large cap, small cap and international stock funds (approximately 80%), with the balance in domestic fixed-income
funds and a global bond fund
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation and secondarily current income.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, approximately 80% of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a blend of domestic large cap, small cap and international exposure to seek capital appreciation. Allocation to Underlying Fixed-Income Funds is intended to provide diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity Funds.
|
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
|
PORTFOLIO FACTS
|
|
|
Objective:
|
Long-term capital appreciation
|
|
Benchmarks:
|
S&P 500® Index
MSCI® EAFE® Index (unhedged)
Russell 2000® Index
MSCI® EMF Index
|
|
Investment Focus:
|
Equity funds, with a greater focus on international and small cap investments
|
|
Investment Style:
|
Asset Allocation
|
|
INVESTMENT OBJECTIVE
|
|
The Portfolio seeks long-term capital appreciation.
|
|
PRINCIPAL INVESTMENT STRATEGY
|
|
Under normal conditions, substantially all of the Portfolio’s total assets will be allocated among Underlying Equity
Funds, with a greater focus on small cap and international investments. The Investment Adviser expects that the Portfolio will invest a relatively significant percentage of its assets in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds.
|
Each Portfolio seeks to achieve its investment objective by investing within specified equity and fixed-income ranges among Underlying Funds. The table below
illustrates the current Underlying Equity/Fixed-Income Fund allocation targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio’s Total Assets)
| Portfolio | Target | Range | |||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | |||||
| Equity | 20% | 0%-25% | |||
| Fixed-Income | 80% | 75%-100% | |||
|
|
|||||
| Balanced Strategy | |||||
| Equity | 40% | 20%-60% | |||
| Fixed-Income | 60% | 40%-80% | |||
|
|
|||||
| Growth and Income Strategy | |||||
| Equity | 60% | 40%-80% | |||
| Fixed-Income | 40% | 20%-60% | |||
|
|
|||||
| Growth Strategy | |||||
| Equity | 80% | 60%-100% | |||
| Fixed-Income | 20% | 0%-40% | |||
|
|
|||||
| Aggressive Growth Strategy | |||||
| Equity | 100% | 75%-100% | |||
| Fixed-Income | 0% | 0%-25% | |||
|
|
|||||
A Portfolio will invest in particular Underlying Funds based on various criteria. Among other things, the Investment Adviser will analyze the Underlying Funds’
respective investment objectives, policies and investment strategies in order to determine which Underlying Funds, in combination with other Underlying Funds, are appropriate in light of a Portfolio’s investment objective.
A Portfolio may purchase or sell securities to: (a) accommodate purchases and sales of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain or modify the allocation of its assets among the Underlying Funds within the percentage ranges described above.
PRINCIPAL INVESTMENT STRATEGIES
|
While each Portfolio can invest in any or all of the Underlying Funds, it is expected that each Portfolio will normally
invest in only some of the Underlying Funds at any particular time. Each Portfolio’s investment in any of the Underlying Funds may, and in some cases is expected to, exceed 25% of such Portfolio’s total assets.
|
|
THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED-INCOME TARGETS AND RANGES AND THE
INVESTMENTS IN EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
|
|
In addition, each Portfolio’s investment objective and all policies not specifically designated as fundamental in this
Prospectus or the Statement of Additional Information (the “Additional Statement”) are non-fundamental and may be changed without shareholder approval. If there is a change in a Portfolio’s investment objective, you should consider
whether that Portfolio remains an appropriate investment in light of your then current financial position and needs.
|
Loss of money is a risk of investing in each Portfolio. An investment in a Portfolio is not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. While the Portfolios offer a greater level of diversification than many other types of mutual funds, a single Portfolio may not provide a complete investment program for an investor.
The following summarizes important risks that apply to the Portfolios and may result in a loss of your investment. There can be no assurance that a Portfolio will achieve its investment objective.
|
n
|
Investing in the Underlying Funds
—The investments of each Portfolio are concentrated in the Underlying
Funds, and each Portfolio’s investment performance is directly related to the investment performance of the Underlying Funds held by it. The ability of each Portfolio to meet its investment objective is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those Underlying Funds by the Investment Adviser. The value of the Underlying Funds’ investments, and the net asset values (“NAV”) of the shares of both the
Portfolios and the Underlying Funds, will fluctuate in response to various market and economic factors related to the equity and fixed-income markets, as well as the financial condition and prospects of issuers in which the Underlying Funds invest.
There can be no assurance that the investment objective of any Portfolio or any Underlying Fund will be achieved.
|
|
n
|
Investments of the Underlying Funds
—Because the Portfolios invest in the Underlying Funds, the
Portfolios’ shareholders will be affected by the investment policies of the Underlying Funds in direct proportion to the amount of assets the Portfolios allocate to those Funds. Each Portfolio may invest in Underlying Funds that in turn invest
in small capitalization companies and foreign issuers and thus are subject to additional risks, including changes in foreign currency exchange rates and political risk. Foreign investments may include securities of issuers located in emerging
countries in Asia, Latin America, Eastern Europe and Africa. Each Portfolio may also invest in Underlying Funds that in turn invest in non-investment grade fixed-income securities (“junk bonds”), which are considered speculative by
traditional standards. In addition, the Underlying Funds may purchase derivative securities; enter into forward currency transactions; lend their portfolio securities; enter into futures contracts and options transactions; purchase zero coupon bonds
and payment-in-kind bonds; purchase securities issued by real estate investment trusts (“REITs”) and other issuers in the real estate industry; purchase restricted and illiquid securities; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase agreements; borrow money; and
engage in various other investment practices. The risks presented by these investment practices are discussed in Appendix A to this Prospectus and the Additional Statement.
|
|
n
|
Affiliated Persons
—In managing the Portfolios, the Investment Adviser will have the authority to select
and substitute Underlying Funds. The Investment Adviser is subject to conflicts of interest in allocating Portfolio assets among the various Underlying Funds both because the fees payable to it and/or its affiliates by some Underlying Funds are
higher than the fees payable by other Underlying Funds and because the Investment Adviser and its affiliates are also responsible for managing the Underlying Funds. The Trustees and officers of the Goldman Sachs Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Portfolios and the Underlying Funds.
|
|
n
|
Expenses
—You may invest in the Underlying Funds directly. By investing in the Underlying Funds indirectly
through a Portfolio, you will incur not only a proportionate share of the expenses of the Underlying Funds held by the Portfolio (including operating costs and investment management fees), but also expenses of the Portfolio.
|
|
n
|
Temporary Investments
—Although the
Portfolios normally seek to remain substantially invested in the Underlying Funds, each Portfolio may invest a portion of its assets in high-quality, short-term debt obligations (including commercial paper, certificates of deposit, bankers’
acceptances, repurchase agreements, debt obligations backed by the full faith and credit of the U.S. government and demand and time deposits of domestic and foreign banks and savings and loan associations) to maintain liquidity, to meet shareholder
redemptions and for other short-term cash needs. Also, there may be times when, in the opinion of the Investment Adviser, abnormal market or economic conditions warrant that, for temporary defensive purposes, a Portfolio may invest without
limitation in short-term obligations. When a Portfolio’s assets are invested in such investments, the Portfolio may not be achieving its investment objective.
|
|
DESCRIPTION OF THE UNDERLYING FUNDS
|
|
The following is a concise description of the investment objectives and practices for each of the Underlying Funds that are
available for investment by the Portfolios as of the date of this Prospectus. A Portfolio may also invest in other Underlying Funds not listed below that may become available for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the investment practices of the Underlying Funds is provided in Appendix A to this Prospectus and the Additional Statement. No offer is made in this Prospectus of any of the Underlying
Funds.
|
| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE Large Cap Value |
Long-term growth of capital
and dividend income. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
|||
|
|
|||||
| CORE Large Cap Growth |
Long-term growth of capital.
Dividend income is a secondary consideration. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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® Growth Index. |
|||
|
|
|||||
| CORE SM Small Cap Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of U.S. issuers, including certain foreign issuers 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. |
|||
|
|
|||||
| Real Estate Securities |
Total return comprised
of long-term growth of capital and dividend income. |
Substantially all, and at least 80%, of total
assets in a diversified portfolio of equity securities of issuers that are primarily engaged in or related to the real estate industry. The Fund expects that a substantial portion of its total assets will be invested in REITS and real estate industry companies. |
|||
|
|
|||||
DESCRIPTION OF THE UNDERLYING FUNDS
| Underlying Fund | Investment Objectives | Investment Criteria | |||
|---|---|---|---|---|---|
|
|
|||||
| CORE International Equity |
Long-term growth of
capital. |
At least 90% of total assets in equity securities
of companies organized outside the United States or whose securities are principally traded outside 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 unhedged MSCI® EAFE® Index. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
|
International Growth
Opportunities* |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of companies with public stock market capitalizations within $100 million and $3 billion at the time of investment that are organized outside the United States or whose securities are principally traded outside the United States. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
| Emerging Markets Equity |
Long-term capital
appreciation. |
Substantially all, and at least 65%, of total
assets in equity securities of emerging country issuers. The Fund may employ certain currency management techniques. |
|||
|
|
|||||
|
*Formerly, “International Small Cap.”
|
|
*
|
Under normal interest rate conditions.
|
DESCRIPTION OF THE UNDERLYING FUNDS
| Investment Sector | Credit Quality | Other Investments | |||
|---|---|---|---|---|---|
|
|
|||||
|
Money market instruments including
securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises (“U.S. Government Securities”); U.S. bank obligations, commercial paper and other short- term obligations of U.S. corporations, governmental and other entities; asset-backed and receivables-backed securities; and related repurchase agreements. |
High Quality (short-
term ratings of A-1, P-1 or comparable quality). |
N/A | |||
|
|
|||||
|
At least 65% of total assets in U.S.
Government Securities and repurchase agreements collateralized by such securities. |
U.S. Government
Securities |
Mortgage pass-through securities
and other securities representing an interest in or collateralized by mortgage loans. |
|||
|
|
|||||
|
At least 65% of total assets in fixed-
income securities, including U.S. Government Securities, corporate, privately issued mortgage-backed and asset-backed securities. |
Minimum = BBB/Baa
Minimum for non- dollar securities = AA/Aa |
Foreign fixed-income, municipal
and convertible securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
|||
|
|
|||||
|
Securities of U.S. and foreign
governments and corporations. |
Minimum = BBB/Baa
At least 50% = AAA/Aaa |
Mortgage-backed and asset-backed
securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities or certain foreign government securities. |
|||
|
|
|||||
|
At least 65% of total assets in fixed-
income securities rated below investment grade, including U.S. and non-U.S. dollar corporate debt, foreign government securities, convertible securities and preferred stock. |
At least 65% = BB/Ba
or below |
Mortgage-backed and asset-backed
securities, U.S. Government Securities, investment grade corporate fixed-income securities, structured securities, foreign currencies and repurchase agreements collateralized by U.S. Government Securities. |
|||
|
|
|||||
Loss of money is a risk of investing in each Underlying Fund. An investment in an Underlying 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 Underlying Funds and may result in a loss of your investment in a Portfolio. There can be no assurance that an
Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by an Underlying Fund will
decline in value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by an Underlying
Fund may default on its obligation to pay interest and repay principal.
|
|
n
|
Market Risk
—The risk that the value of the securities in which an Underlying Fund invests may go up or
down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. An Underlying Fund’s investments may be overweighted from
time to time in one or more industry sectors, which will increase the Underlying Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Derivatives Risk
—The risk that loss may result from an Underlying Fund’s investments in options,
futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to an Underlying Fund.
|
|
n
|
Management Risk
—The risk that a strategy used by an investment adviser to the Underlying Funds may fail to
produce the intended results.
|
|
n
|
Liquidity Risk
—The risk that an Underlying Fund will not be able to pay redemption proceeds within the
time period stated in the Underlying Fund’s Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Underlying Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs or emerging country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
|
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
|
n
|
NAV Risk
—The risk that the net asset value (“NAV”) of the Underlying Fund and the value of your
investment will fluctuate.
|
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
|
n
|
Call Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by an
Underlying Fund (such as a Mortgage-Backed Security) earlier than expected. This may happen when there is a decline in interest rates. Under these circumstances, an Underlying Fund may be unable to recoup all of its initial investment and will also
suffer from having to reinvest in lower yielding securities.
|
|
n
|
Extension Risk
—The risk that an issuer will exercise its right to pay principal on an obligation held by
an Underlying 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 an obligation will decrease, and an Underlying Fund will also suffer from
the inability to invest in higher yielding securities.
|
|
n
|
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.
|
Risk That Applies Primarily To The Underlying Equity Funds:
|
n
|
Stock Risk
—The risk that stock prices have historically risen and fallen in periodic cycles. Recently,
U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
Risks That Are Particularly Important For Specific Underlying Funds:
|
n
|
Geographic Risk
—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 susceptible 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 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 Underlying Funds in issuers located in a particular country or region will subject an Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising
from adverse developments affecting those issuers or countries.
|
|
n
|
Foreign Risk
—The risk that when an Underlying Fund invests in foreign securities, it will be subject to
risk of loss not typically associated with domestic issuers. Loss may result because of less foreign government regulation, less public informa-
tion and less economic, political and social stability. Loss may also result from the imposition of exchange controls, confiscations and other government restrictions. The Underlying Funds will also be subject to the risk of negative foreign
currency rate fluctuations. Foreign risks will normally be greatest when an Underlying Fund invests in issuers located in emerging countries.
|
|
n
|
Emerging Countries Risk
—Certain Underlying Funds may invest in emerging country securities. The securities
markets of Asian, Latin and South American, Eastern European, African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not
subject to as extensive 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 registration and custody and substantial economic and political disruptions. These risks are not normally associated with investments in more developed countries.
|
|
n
|
Small Cap Risk
—Certain Underlying Funds may invest in small cap stocks. The securities of small
capitalization companies 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 an
Underlying Fund to effect sales at an advantageous time or without a substantial drop in price.
|
|
n
|
Initial Public Offering (“IPO”) Risk
—The risk that the market value of IPO shares will fluctuate
considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs.
IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion of the Underlying Fund’s performance could be attributable to investments in IPOs, because such investments
would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying Fund’s investments in IPOs on the Underlying Fund’s performance will probably decline, which could reduce the
Underlying Fund’s performance.
|
|
n
|
“Junk Bond” Risk
—Certain Underlying Funds may invest in non-investment grade fixed-income
securities (commonly known as “junk bonds”) that are considered predominantly speculative by traditional investment standards. Non-investment grade fixed-income securities and unrated securities of comparable credit quality are subject to
the increased risk of an issuer’s inability to meet principal and interest obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, nega
tive perceptions of the junk bond markets generally and less secondary market
liquidity. |
More information about the portfolio securities and investment techniques of the Underlying Funds, and their associated risks, is provided in Appendix A. You should
consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE PORTFOLIOS HAVE PERFORMED
|
|
The bar chart and table below provide an indication of the risks of investing in a Portfolio by showing: (a) changes in the
performance of a Portfolio’s Service Shares from year to year; and (b) how the average annual returns of a Portfolio’s Service Shares compare to those of broad-based securities market indices. The bar chart and table assume reinvestment of
dividends and distributions. A Portfolio’s past performance is not necessarily an indication of how the Portfolio will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in place, a
Portfolio’s performance would have been reduced.
|
PORTFOLIO PERFORMANCE
Conservative Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ’00
+
2.34%
Worst Quarter
Q2 ’00
+
0.82%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 2/8/99) | 5.31% | 5.73% | |||
| Two-Year U.S. Treasury Security* | 7.53% | 4.98% | |||
| S&P 500® Index** | (9.10)% | 4.64% | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63% | 5.70% | |||
|
|
|||||
|
*
|
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or
expenses.
|
|
**
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified portfolio of fixed-income securities,
including U.S. Treasuries, investment-grade corporate bonds and mortgage-backed and asset-backed securities. The Index figures do not reflect any fees or expenses.
|
Balanced Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’98
+
7.01%
Worst Quarter
Q3 ’98
-
5.76%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 1/2/98) | (0.11)% | 5.46% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| Two-Year U.S. Treasury Security** | 7.53% | 5.29% | |||
| Lehman Brothers High Yield Bond Index*** | (5.86)% | (0.61)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not reflect any fees or
expenses.
|
|
***
|
The Lehman Brothers High Yield Bond Index is a total return performance benchmark for fixed-income securities
having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or expenses.
|
PORTFOLIO PERFORMANCE
Growth and Income Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’99
+
10.21%
Worst Quarter
Q3 ’98
-
10.20%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 1/2/98) | (4.63)% | 5.47% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Lehman Brothers Aggregate Bond Index*** | 11.63% | 6.36% | |||
| Lehman Brothers High Yield Bond Index† | (5.86)% | (0.61)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of
common stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in
20 developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Lehman Brothers Aggregate Bond Index represents a diversified portfolio of fixed-income securities, including
U.S. Treasuries, investment-grade corporate bonds, and mortgaged-backed and asset-backed securities. The Index is unmanaged and does not reflect any fees or expenses.
|
|
†
|
The Lehman Brothers High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any fees or
expenses.
|
Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’99
+
13.04%
Worst Quarter
Q3 ’98
-
14.24%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 1/2/98) | (8.67)% | 4.79% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in 20
developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Russell 2000 Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees or
expenses.
|
|
†
|
The unmanaged MSCI® EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
|
PORTFOLIO PERFORMANCE
Aggressive Growth Strategy Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ‘99
+
15.70%
Worst Quarter
Q3 ‘98
-
17.19%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 1/2/98) | (11.55)% | 4.32% | |||
| S&P 500® Index* | (9.10)% | 12.24% | |||
| MSCI® EAFE® Index (unhedged)** | (13.96)% | 9.63% | |||
| Russell 2000® Index*** | (3.03)% | 4.64% | |||
| MSCI® EMF Index† | (30.61)% | (4.82)% | |||
|
|
|||||
|
*
|
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks, an unmanaged index of common
stocks. The Index figures do not reflect any fees or expenses.
|
|
**
|
The unmanaged MSCI® EAFE® Index (unhedged) is a market capitalization-weighted composite of securities in 20
developed markets. The Index figures do not reflect any fees or expenses.
|
|
***
|
The Russell 2000® Index is an unmanaged index of common stock prices. The Index figures do not reflect any fees or
expenses.
|
|
†
|
The unmanaged MSCI® EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market countries. “Free” indicates an index that excludes shares in otherwise free markets that are not purchasable by foreigners. The Index figures do not reflect any
fees or expenses.
|
This table describes the fees and expenses that you would pay if you buy and hold Service Shares of a Portfolio.
|
Conservative Strategy Portfolio |
Balanced
Strategy Portfolio |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Portfolio Operating Expenses | |||||
| (expenses that are deducted from Portfolio assets): 1 | |||||
| Management Fees (for asset allocation) 2 | 0.35% | 0.35% | |||
| Other Expenses 4 | 1.70% | 0.84% | |||
| Service Fees 3 | 0.25% | 0.25% | |||
| Shareholder Administration Fees | 0.25% | 0.25% | |||
| All Other Expenses 4 | 1.20% | 0.34% | |||
| Underlying Fund Expenses 1 | 0.55% | 0.69% | |||
|
|
|||||
| Total Other and Underlying Fund Expenses | 2.25% | 1.53% | |||
|
|
|||||
| Total Portfolio Operating Expenses* | 2.60% | 1.88% | |||
|
|
|||||
|
See page 28 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Portfolio Operating
Expenses” of the Portfolio which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Portfolio Operating Expenses” may increase without shareholder approval.
|
|
Conservative Strategy Portfolio |
Balanced
Strategy Portfolio |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Portfolio Operating Expenses | |||||
| (expenses that are deducted from Portfolio assets): 1 | |||||
| Management Fees (for asset allocation) 2 | 0.15% | 0.15% | |||
| Other Expenses | 0.54% | 0.54% | |||
| Service Fees 3 | 0.25% | 0.25% | |||
| Shareholder Administration Fees | 0.25% | 0.25% | |||
| All Other Expenses 4 | 0.04% | 0.04% | |||
| Underlying Fund Expenses 1 | 0.55% | 0.69% | |||
|
|
|||||
| Total Other and Underlying Fund Expenses | 1.09% | 1.23% | |||
|
|
|||||
|
Total Portfolio Operating Expenses (after current
waivers and expense limitations) |
1.24% | 1.38% | |||
|
|
|||||
PORTFOLIO FEES AND EXPENSES
Portfolio Fees and Expenses
continued
1
The Portfolios’ annual operating expenses are based on actual expenses. “Underlying
Fund Expenses” for each Portfolio are based upon the strategic allocation of each Portfolio’s investment in the Underlying Funds and upon the actual total operating expenses of the Underlying Funds (including any current waivers and
expense limitations of the Underlying Funds). Actual Underlying Fund Expenses incurred by each Portfolio may vary with changes in the allocation of each Portfolio’s assets among the Underlying Funds and with other events that directly affect
the expenses of the Underlying Funds.
2
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee on
the Portfolios equal to 0.20% of the Portfolios’ average daily net assets.
As a result of fee waivers, current management fees of the Portfolios are 0.15% of each Portfolio’s average daily net assets. The waivers may be terminated at
any time at the option of the Investment Adviser.
3
Service Organizations may charge other fees to their customers who are beneficial owners of
Service Shares in connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
4
“All Other Expenses” include transfer agency fees and expenses equal to 0.04% of the
average daily net assets of each Portfolio’s Service Shares plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, transfer
agency fees and expenses, service fees, shareholder administration fees, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.00% of each Portfolio’s average daily net assets.
PORTFOLIO FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Portfolio (without the waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Service Shares of a Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that a Portfolio’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Portfolio | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Conservative Strategy | $263 | $808 | $1,380 | $2,934 | |||||
|
|
|||||||||
| Balanced Strategy | $191 | $591 | $1,016 | $2,201 | |||||
|
|
|||||||||
| Growth and Income Strategy | $179 | $554 | $ 954 | $2,073 | |||||
|
|
|||||||||
| Growth Strategy | $186 | $576 | $ 990 | $2,148 | |||||
|
|
|||||||||
| Aggressive Growth Strategy | $202 | $624 | $1,073 | $2,317 | |||||
|
|
|||||||||
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other compensation in connection with the sale and distribution of Service Shares or for
services to their customers’ accounts and/or the Portfolios. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISERS
|
| Investment Adviser | Portfolio | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | Conservative Strategy | ||
| 32 Old Slip | Balanced Strategy | ||
| New York, New York 10005 | Growth and Income Strategy | ||
| Growth Strategy | |||
| Aggressive Growth Strategy | |||
|
|
|||
|
Except as noted below, GSAM also serves as investment adviser to each Underlying Fund.
|
|
GSAM is a business unit of IMD of Goldman Sachs. 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. GSFM, a registered investment adviser since 1990, is a Delaware limited partnership which is an
affiliate of Goldman Sachs. As of December 31, 2000, GSAM, GSAMI and GSFM, along with other units of IMD, had assets under management of $281.7 billion.
|
SERVICE PROVIDERS
|
Under an Asset Allocation Management Agreement with each Portfolio, the Investment Adviser, subject to the general
supervision of the Trustees, provides day-to-day advice as to each Portfolio’s investment transactions, including determinations concerning changes to (a) the Underlying Funds in which the Portfolios may invest; and (b) the percentage range of
assets of any Portfolio that may be invested in the Underlying Equity Funds and the Underlying Fixed-Income Funds as separate groups.
|
|
The Investment Adviser also performs the following additional services for the Portfolios:
|
|
n
|
Supervises all non-advisory operations of the Portfolios
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Portfolios
|
|
n
|
Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional
information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of each Portfolio
|
|
n
|
Provides office space and all necessary office equipment and services
|
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Portfolio | Contractual Rate |
Actual Rate
For the Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Balanced Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth and Income Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
| Aggressive Growth Strategy | 0.35% | 0.15% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Portfolios reflects that the Investment
Adviser did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
In addition, each Portfolio, as a shareholder in the Underlying Funds, will indirectly bear a proportionate share of any
investment management fees and other expenses paid by the Underlying Funds. The following chart shows the total net operating expense ratios (management fee plus other operating expenses) of Institutional Shares of each Underlying Fund in which the
Portfolios may invest after applicable fee waivers and expense limitations, as of the end of each Underlying Fund’s most recent fiscal year. In addition, the following chart shows the contractual investment management fees payable to the
Investment Adviser or its affiliates by the Underlying Funds (in each case as an annualized percentage of a Fund’s average net assets). Absent voluntary fee waivers and/or expense reimbursements, which may be discontinued at any time, the total
operating expense ratios of certain Underlying Funds would be higher.
|
| Underlying Fund |
Contractual
Management Fee |
Total Net
Operating Expense Ratio |
|||
|---|---|---|---|---|---|
|
|
|||||
| Financial Square Prime Obligations | 0.205% | 0.18% | |||
|
|
|||||
| Short Duration Government | 0.50% | 0.54% | |||
|
|
|||||
| Core Fixed Income | 0.40% | 0.54% | |||
|
|
|||||
| Global Income | 0.90% | 0.69% | |||
|
|
|||||
| High Yield | 0.70% | 0.76% | |||
|
|
|||||
| CORE Large Cap Growth | 0.75% | 0.64% | |||
|
|
|||||
| CORE Large Cap Value | 0.60% | 0.64% | |||
|
|
|||||
| CORE Small Cap Equity | 0.85% | 0.93% | |||
|
|
|||||
| CORE International Equity | 0.85% | 1.01% | |||
|
|
|||||
| International Growth Opportunities* | 1.20% | 1.40% | |||
|
|
|||||
| Emerging Markets Equity | 1.20% | 1.39% | |||
|
|
|||||
| Real Estate Securities | 1.00% | 1.04% | |||
|
|
|||||
|
* Formerly, “International Small Cap.”
|
SERVICE PROVIDERS
|
PORTFOLIO MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Investment Performance
& Valuation Oversight Group, and the Client Research Groups. In total, these groups include over 120 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department since becoming a Partner in 1994. Preceding
his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research and model development group.
|
|
Quantitative Strategies Group
|
|
n
|
The 30-person Quantitative Strategies Group includes eight Ph.Ds, with extensive academic and practitioner
experience
|
|
n
|
Disciplined, quantitative models are used to determine the relative attractiveness of the world’s stock, bond and
currency markets
|
|
n
|
Theory and economic intuition guide the investment process
|
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Mark M. Carhart, Ph.D., CFA
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Dr. Carhart joined the Investment Adviser as
a member of the Quantitative Strategies Group in 1997. From August 1995 to September 1997, he was Assistant Professor of Finance at the Marshall School of Business at USC and a Senior Fellow of the Wharton Financial Institutions Center. |
|||
|
|
|||||
|
Silverio Foresi, Ph.D.
Portfolio Manager |
Since 2000 |
Dr. Foresi joined the Investment Adviser in
1999. From 1997 to 1999, he was head of Research in Emerging Markets Fixed Income Derivatives Trading at Salomon Brothers. From 1990 to 1997, Dr. Foresi was an Assistant Professor of Finance at New York University. |
|||
|
|
|||||
|
Raymond J. Iwanowski
Managing Director, Co-Head Quantitative Strategies and Senior Portfolio Manager |
Since 1998 |
Mr. Iwanowski joined the Investment Adviser
as an associate and portfolio manager in 1997. From 1993 to 1997, he was a Vice President and head of the Fixed Derivatives Client Research group at Salomon Brothers. |
|||
|
|
|||||
Quantitative Strategies Group
| Name and Title |
Years Primarily
Responsible |
Five Year Employment History | |||
|---|---|---|---|---|---|
|
|
|||||
|
Donald M. Raymond,
Ph.D., CFA Vice President; Portfolio and Product Manager; Quantitative Strategies |
Since 1998 |
Dr. Raymond is a Portfolio Manager in the
Quantitative Strategies Group responsible for the U.S. Asset Allocation mutual funds and Models Program. In his capacity as Product Manager, he is also responsible for new product development and client service for Global Tactical Asset Allocation and related products. Prior to joining the Investment Adviser in 1998, Dr. Raymond spent four years at Goldman Sachs Canada as head of Fixed Income Research and three years at a Canadian Investment Bank where he developed fixed income cash and derivative pricing models and portfolio arbitrage strategies. Dr. Raymond holds a B.Sc. and a Ph.D (Electrical and Computer Engineering), both from Queen’s University in Kingston, Canada. |
|||
|
|
|||||
|
Giorgio De Santis, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. DeSantis joined the Investment Adviser in
1998. From 1992 to 1998, he was Assistant Professor of Finance and Business Economics at the Marshall School of Business at USC. |
|||
|
|
|||||
|
William J. Fallon, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. Fallon joined the Investment Adviser in
1998. From 1996 to 1998, he worked in the Firmwide Risk Group of Goldman Sachs. From 1991 to 1996, he attended Columbia University, where he earned a Ph.D. in Finance. |
|||
|
|
|||||
|
Guang-Liang He, Ph.D.
Vice President and Portfolio Manager |
Since 1998 |
Dr. He joined the Investment Adviser in 1998.
In 1997, he worked in the Firmwide Risk Group of Goldman Sachs. From 1992 to 1997, he worked at Quantitative Financial Strategies, Inc. where he was responsible for the research and development of proprietary trading models. |
|||
|
|
|||||
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of each Portfolio’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, 60606-6372, also serves as each Port
folio’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Underlying Funds or Portfolios.
Goldman Sachs reserves the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to an Underlying Fund or limit an Underlying Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and
advise accounts and funds which have investment objectives similar to those of the Underlying Funds and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Underlying 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 Underlying Funds. The results of an Underlying Fund’s investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that an Underlying 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 Underlying Funds may, from time to time, enter into transactions in which other clients of Goldman
Sachs have an adverse interest. An Underlying Fund’s activities may be limited because of regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such
restrictions.
|
Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and
distributions paid in:
n
Cash
n
Additional shares of the same class of the same Fund
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain ILA
Portfolios. See the Additional Statement.
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Portfolio |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| Conservative Strategy | Monthly | Annually | |||
|
|
|||||
| Balanced Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth and Income Strategy | Quarterly | Annually | |||
|
|
|||||
| Growth Strategy | Annually | Annually | |||
|
|
|||||
| Aggressive Growth Strategy | Annually | Annually | |||
|
|
|||||
From time to time a portion of a Portfolio’s dividends may constitute a return of capital.
When you purchase shares of a Portfolio, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Portfolio. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Service Shares.
|
|
How Can I Purchase Service Shares Of The Funds?
|
|
Generally, Service Shares may be purchased only through institutions that have agreed to provide shareholder administration
and personal and account maintenance services to their customers who are the beneficial owners of Service Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Service Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. No sales load is charged. Purchases of Service Shares must be settled
within three business days of receipt of a complete purchase order.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place an order with Goldman Sachs at 1-800-621-2550 and either:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian) on the next business day;
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Service
Shares:
|
|
n
|
Personal and account maintenance services; and
|
|
n
|
Shareholder administration services.
|
|
Personal and account maintenance services include:
|
|
n
|
Providing facilities to answer inquires and respond to correspondence with the Service Organization’s
customers
|
|
n
|
Acting as liaison between the Service Organization’s customers and the Trust
|
|
n
|
Assisting customers in completing application forms, selecting dividend and other options, and similar services
|
|
Shareholder administration services include:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem and exchange shares for customers
|
|
n
|
Processing payments for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.25% (annualized) for shareholder
administration services of the average daily net assets of the Service Shares of the Funds that are attributable to or held in the name of a Service Organization for its customers.
|
SHAREHOLDER GUIDE
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based
on sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
In addition to Service Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Service Shares. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
The Funds do not have any minimum purchase or account requirements with respect to Service Shares. A Service Organization
may, however, impose a minimum amount for initial and subsequent investments in Service Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of frequent purchases, sales or exchanges of Service Shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of
a Fund.
|
|
n
|
Close a Fund to new investors from time to time and reopen a Fund whenever it is deemed appropriate by a Fund’s
Investment Adviser.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a Fund’s
investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Service Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
|
|
||
| Number of Outstanding Shares of the Class |
|
The Funds’ investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Funds receive your order in proper form.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Funds receive your order in proper
form.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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, the NAV of a Fund that holds
foreign securities may be impacted on days when investors may not purchase or redeem Fund shares.
|
|
In addition, 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 NAV 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.
|
|
How Can I Sell Service Shares Of The Funds?
|
|
Generally, Service Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
Redemption proceeds may be sent to recordholders by check or by wire (if the wire instructions are on record).
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SHAREHOLDER GUIDE
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A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is
elected on the Account Application.
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What Do I Need To Know About Telephone Redemption Requests?
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The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
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n
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All telephone requests are recorded.
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n
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Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
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n
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The telephone redemption option may be modified or terminated at any time.
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
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How Are Redemption Proceeds Paid?
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By Wire:
The Funds will arrange for redemption proceeds to be wired as federal funds to the bank
account designated in the recordholder’s Account Application. The following general policies govern wiring redemption proceeds:
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n
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Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption proceeds when the check has cleared,
which may take up to 15 days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
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n
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To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Service Organization.
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n
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Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organization.
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By Check:
A recordholder may elect in writing to receive redemption proceeds by check. Redemption
proceeds paid by check will normally be mailed to the address of record within three business days of receipt of a properly executed redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption
proceeds when the check has cleared, which may take up to 15 days.
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What Else Do I Need To Know About Redemptions?
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The following generally applies to redemption requests:
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n
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Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
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n
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Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
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The Trust reserves the right to:
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n
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Redeem the Service Shares of any Service Organization whose account balance falls below $50 as a result of a redemption. The
Funds will not redeem Service Shares on this basis if the value of the account falls below the minimum account balance solely as a result of market conditions. The Fund will give 60 days’ prior written notice to allow a Service Organization to
purchase sufficient additional shares of the Fund in order to avoid such redemption.
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n
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Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
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n
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Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
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n
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Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at
NAV in additional Service Shares of a Fund that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
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Can I Exchange My Investment From One Fund To Another?
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A Service Organization may exchange Service Shares of a Fund at NAV for Service Shares of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
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| Instructions For Exchanging Shares: | |||
|---|---|---|---|
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| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
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n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
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| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
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n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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You should keep in mind the following factors when making or considering an exchange:
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n
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
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n
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
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n
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Telephone exchanges normally will be made only to an identically registered account.
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n
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
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n
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Exchanges are available only in states where exchanges may be legally made.
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n
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
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n
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Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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n
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Exchanges into Funds that are closed to new investors may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered
in the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs) has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered together.
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What Types Of Reports Will Be Sent Regarding Investments In Service Shares?
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Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Service Organizations will also be provided with a printed confirmation for each transaction in their account and a monthly account statement. Service Organizations are responsible for providing these or other reports to their customers who
are the beneficial owners of Service Shares in accordance with the rules that apply to their accounts with the Service Organizations.
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As with any investment, you should consider how your investment in the Portfolios will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Portfolios.
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Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of
Portfolio distributions and the sale of your Portfolio shares.
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DISTRIBUTIONS
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Distributions you receive from the Portfolios are generally subject to federal income tax, and may also be subject to state
or local taxes. This is true whether you reinvest your distributions in additional Portfolio shares or receive them in cash. For federal tax purposes, the Portfolios’ income dividend distributions and short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned your Portfolio shares.
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Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Portfolios’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Portfolios will
inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
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The REIT investments of the underlying Real Estate Securities Fund often do not provide complete tax information to the Fund
until after the calendar year-end. Consequently, because of the delay, it may be necessary for the Portfolios to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31.
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Each Portfolio may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign
securities. In general, the Portfolios may deduct these taxes in computing their taxable income.
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If you buy shares of a Portfolio before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
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SALES AND EXCHANGES
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Your sale of Portfolio shares is a taxable transaction for federal income tax purposes, and may also be subject to state and
local taxes. For tax purposes, the exchange of your Portfolio shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the
difference between your adjusted tax basis in the shares and the amount received. Generally, this gain or loss will be long-term or short-term depending on whether your holding period for the shares exceeds twelve months, except that any loss
realized on shares held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
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OTHER INFORMATION
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When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, each Portfolio must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Portfolio to do so.
Non-U.S. investors may be subject to U.S. withholding and estate tax.
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This Appendix provides further information on certain types of securities and techniques that may be used by the Underlying
Funds, including their associated risks. Additional information is provided in the Additional Statement, which is available upon request, and in the prospectuses of the Underlying Funds.
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The Underlying Equity Funds invest primarily in common stocks and other equity securities, including 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”). The Underlying Fixed-Income Funds invest primarily in fixed-income securities, including senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper), convertible and
non-convertible corporate debt obligations, loan participations and preferred stock.
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The Short-Duration Government Fund invests in U.S. Government Securities and related repurchase agreements, and does not make
foreign investments. The investments of the Financial Square Prime Obligations Fund are limited by SEC regulations applicable to money market funds as described in its prospectus, and do not include many of the types of investments discussed below
that are permitted for the other Underlying Funds. With these exceptions, and the further exceptions noted below, the following description applies generally to the Underlying Funds.
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A. General Risks of the Underlying Funds
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The Underlying Equity Funds will be subject to the risks associated with common stocks and other equity securities. In
general, stock values 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 an Underlying 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. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the
markets will trade at or close to record high levels in the future.
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The Underlying Fixed-Income Funds will be subject 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 (although many mortgage-related securities will have less potential 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 an issuer or guarantor could default
on its obligations, and an Underlying Fund will not recover its investment. Call risk and extension risk are normally present in adjustable 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
prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.The same would be true of asset-backed securities, such as securities backed by car loans.
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The Financial Square Prime Obligations Fund attempts to maintain a stable NAV of $1.00 per share and values its assets using
the amortized cost method in accordance with SEC regulations. There is no assurance, however, that the Financial Square Prime Obligations Fund will be successful in maintaining its per share value at $1.00 on a continuous basis. The per share NAVs
of the other Underlying Funds are expected to fluctuate on a daily basis.
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The portfolio turnover rates of the Underlying Funds have ranged from 49% to 272% during their most recent fiscal years. A
high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by an Underlying Fund and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The
portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of an Underlying Fund’s portfolio securities, excluding securities having a maturity at
the date of purchase of one year or less. There can be no assurance that the turnover rates of the Underlying Funds will remain within this range during subsequent fiscal years.
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B. Other Risks of the Underlying Funds
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Risks of Investing in Small Capitalization Companies.
Certain Underlying Funds may invest in small
capitalization companies. Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of
particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, an Underlying 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
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 bankruptcy. Transaction costs for these investments are often higher than those for larger capitalization companies. Investments in small capitalization companies may be more difficult to price precisely than other types of securities
because of their characteristics and lower trading volumes.
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Risks of Foreign Investments.
Certain of the Underlying Funds may make foreign investments. Foreign investments
involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 an Underlying Fund receives dividends, interest or other payments declines in value against the U.S. dollar before
such income is distributed as dividends to shareholders or converted to U.S. dollars, the Underlying Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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The introduction of a single currency, the euro, on January 1, 1999 for participating nations in the European Economic and
Monetary Union has presented unique uncertainties, including the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”), may have an
impact on the euro. Also, it is
possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, could cause market disruptions, and could adversely affect the value of
securities held by the Underlying Funds. Because of the number of countries using this single currency, a significant portion of the foreign assets held by certain of the Underlying Funds may be denominated in the euro.
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Brokerage commissions, custodial services and other costs relating to investment 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.
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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 about 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. securities 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 possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions),
limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.
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Concentration of an Underlying Fund’s assets in one or a few countries and currencies will subject a Fund to greater
risks than if an Underlying Fund’s assets were not geographically concentrated.
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Investment in sovereign debt obligations by certain Underlying 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 an Underlying 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 an Underlying Fund’s NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers.
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APPENDIX A
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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 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.
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Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). Certain Underlying Funds may also invest in European Depositary 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. |
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Risks of Emerging Countries.
Certain Underlying 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 countries are generally located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. An Underlying
Fund’s purchase and sale of portfolio securities in certain emerging countries may be constrained by limitations relating to daily changes in the prices of listed securities, periodic trading or settlement 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 an Underlying Fund, the investment adviser, its affiliates and their respective clients and other service providers. An
Underlying Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.
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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 addition,
certain 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 purchased by an
Underlying 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 securities in certain Asian and other countries, it
is anticipated that an Underlying Fund may invest in such countries through other investment funds in such countries.
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Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high)
rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of such 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 partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
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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 military 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 developments may
result in sudden and significant invest-ment 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. As an example, in the past some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no
assurance that similar expropriations will not recur in Eastern Europe or other countries.
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An Underlying 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 countries to the Underlying Fund.
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Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and
often may involve an Underlying 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 an
Underlying Fund to value its portfolio securities and could cause the Underlying 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 Underlying Fund has delivered or the Underlying Fund’s inability to complete its contractual obligations because of theft or other reasons. The creditworthiness of the local securities firms used by an Underlying Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Underlying Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its
responsibilities.
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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 an Underlying 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). An Underlying 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 economic, market or political conditions, or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, an Underlying 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. Investments in emerging countries may be more difficult to price precisely because of the characteristics discussed above and lower trading volumes.
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An Underlying 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 significant portion of the Underlying Funds’ currency exposure in emerging countries, if any, will be covered by such
instruments.
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Risks of Derivative Investments.
An Underlying Fund’s transactions, if any, in options, futures, options
on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities, stripped mortgage-backed securities 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 fluctuations in securities prices, interest rates or currency
prices. Certain Underlying Funds may also invest in derivative investments for
non-hedging purposes (that is, to seek to increase total return). Investing for non-hedging purposes is considered a speculative practice and presents even greater risk of loss.
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Derivative mortgage-backed securities (such as principal-only (“POs”), interest-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 securities. 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.
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Some floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For
example, range floaters are subject to the risk that the coupon will be reduced below market rates if a designated 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.
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Risks of Illiquid Securities.
The Underlying Funds may invest up to 15% (10% in the case of the Financial
Square Prime Obligations Fund) of their 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:
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|
n
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Both domestic and foreign securities that are not readily marketable
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n
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Certain municipal leases and participation interests
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n
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Certain stripped mortgage-backed securities
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n
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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n
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Certain over-the-counter options
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n
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Certain structured securities and all swap transactions
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|
n
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Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted
security, that the restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (“144A Securities”) and, therefore, is liquid.
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Investing in 144A Securities may decrease the liquidity of an Underlying Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which
may be significant, from the market price of comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Underlying Funds may include securities (including zero coupon
bonds) issued by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), foreign governments, domestic and foreign corporations, banks and other issuers. Some of these fixed-income securities are described in the next
section below. Further information is provided in the Additional Statement.
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Debt securities rated BBB or higher by Standard & Poor’s Ratings Group (“Standard & Poor’s”) or
Baa or higher by Moody’s Investors Services, Inc. (“Moody’s”) are considered “investment grade.” Securities rated BBB or Baa
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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. 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 comparable credit quality. If a security satisfies an Underlying
Fund’s minimum rating criteria at the time of purchase and is subsequently downgraded below such rating, the Underlying Fund will not be required to dispose of such security. If a downgrade occurs, the Underlying Fund’s investment adviser
will consider what action, including the sale of such security, is in the best interest of the Underlying Fund and its shareholders.
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Certain Underlying 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 predominantly speculative and may be questionable as to principal and interest payments.
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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 rating assigned to a security in an Underlying Fund’s portfolio
is downgraded by a rating organization, the market price and liquidity of such security may be adversely affected.
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Risks of IPOs.
Certain Underlying Funds may invest in IPOs. An IPO is a company’s first offering of stock
to the public. IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available
for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. When an Underlying Fund’s asset base is small, a significant portion
of the Underlying Fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Underlying Fund. As the Underlying Fund’s assets grow, the effect of the Underlying
Fund’s investments in IPOs on the Underlying Fund’s performance probably will decline, which could reduce the Underlying Fund’s performance. Because of the price volatility of IPO shares, an Underlying Fund may choose to hold IPO
shares for a very short period of time. This may increase the turnover of the Underlying Fund’s portfolio and may lead to increased expenses to the Underlying Fund, such as commissions and transaction costs. By selling IPO shares, the
Underlying Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. There is no assurance that an Underlying Fund will be
able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for an Underlying Fund to buy or sell significant amounts of shares without an unfavorable impact on
prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
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Non-Diversification and Geographic Risks.
The Global Income Fund is registered as a “non-diversified”
fund under the Act and is, therefore, 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. In addition, the Global Income Fund, and
certain other Underlying 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 the investments of these or other Underlying
Funds in issuers located in a particular country or region will subject the Underlying Fund, to a greater extent than if investments were less concentrated, to losses arising from adverse developments affecting those issuers or
countries.
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Temporary Investment Risks.
The Underlying Funds may invest a substantial portion, and in some cases all, of
their total assets, in cash equivalents for temporary periods. When an Underlying Fund’s assets are invested in such instruments, the Underlying Fund may not be achieving its investment objective.
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APPENDIX A
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C. Investment Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Underlying Funds, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
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U.S. Government Securities.
Each Underlying Fund may invest in U.S. Government Securities. U.S. Government
Securities include U.S. Treasury obligations and obligations 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 Marketing Association); (c) the discretionary authority of
the U.S. government to purchase certain obligations of the issuer; 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 components of stripped U.S. Government Securities are traded independently.
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Custodial Receipts.
Each Underlying Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
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Mortgage-Backed Securities.
The Underlying Funds (other than CORE Large Cap Growth, CORE Large Cap Value, CORE
Small Cap Equity and CORE International Equity Funds (the “CORE Equity Funds”)) may invest in securities that represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real
property (“Mortgage-Backed Securities”). 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 Securities.
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Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations
(“CMOs”), and real estate mortgage investment conduit (“REMIC”) pass-through or participation certificates. CMOs provide 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 qualifies for special tax treatment under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and invests in certain
mortgages principally secured by interests in real property and other permitted investments. Mortgage-Backed Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are derivative multiple class Mortgage-Backed
Securities. SMBS are usually structured with two different classes: one that receives substantially all of the interest 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.
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Asset-Backed Securities.
The Underlying Funds (other than the CORE Equity 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 receivables, leases, installment contracts and personal property. 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. During periods of declining interest rates, prepayment of loans underlying
asset-backed securities can be expected to accelerate. Accordingly, an Underlying 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 in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility
that, in some cases, the Underlying Fund will be unable to possess and sell the underlying collateral and that the Underlying Fund’s recoveries on repossessed collateral may not be available to support
payments on the securities. In the event of a default, an Underlying Fund may suffer a loss if it cannot sell collateral quickly and receive the amount it is owed.
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Municipal Securities.
Certain Underlying Funds may invest in securities and instruments issued by state and
local governmental issuers. Municipal securities in which an Underlying Fund may invest consist of bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of states,
territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agencies or instrumentalities. Municipal securities include both “general” and “revenue” bonds and may be
issued to obtain funds for various public purposes. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power. Revenue obligations are payable only from the revenues derived from a particular facility or
class of facilities. Such securities may pay fixed, variable or floating rates of interest. Municipal securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which municipal securities may be issued include refunding outstanding obligations, obtaining funds for general
operating expenses, and obtaining funds to lend to other public institutions and facilities. Municipal securities in which the Underlying Funds may invest include private activity bonds, pre-refunded municipal securities and auction rate
securities.
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The obligations of the issuer to pay the principal of and interest on a municipal security are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of the issuer to pay when due the principal of or interest on a municipal
security may be materially affected.
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In addition, municipal securities include municipal leases, certificates of participation and “moral obligation”
bonds. A municipal lease is an obligation issued by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment purchase agreements.
Moral obligation bonds are supported by a moral commitment, but not a legal obligation, of a state or local government. Municipal leases, certificates of participation and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In
particular, these instruments permit governmental issuers to acquire property and equipment without meeting constitutional and statutory requirements for the issuance of debt. If, however, the governmental issuer does not periodically appropriate money to enable it to meet its payment obligations under these instruments, it cannot be legally compelled to do so. If a default occurs, it is likely that an Underlying Fund would be unable to obtain another acceptable source of payment. Some municipal leases, certificates of participation and moral obligation bonds may be illiquid. |
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Municipal securities may also be in the form of a tender option bond, which is a municipal security (generally held pursuant
to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution. After payment of a fee to the financial institution that provides this option, the
security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution may not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrading in
the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and an Underlying Fund’s average portfolio maturity. There is risk that an Underlying Fund
will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid.
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Municipal securities may be backed by letters of credit or other forms of credit enhancement issued by domestic or foreign
banks or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to an Underlying Fund that invests in municipal securities. Letters of credit and other obligations of foreign
banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and are generally not bound by the accounting, auditing and financial reporting standards
applicable to U.S. banks.
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Corporate and Bank Obligations; Trust Preferred Securities; Convertible Securities.
Certain Underlying 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 U.S. or for
eign corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. 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. 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.
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Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities
generally offer lower interest or dividend yields than nonconvertible securities of similar quality. Convertible securities in which an Underlying 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 market 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.
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Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Certain Underlying Funds may invest
in zero coupon bonds, and certain Underlying Funds may invest in deferred interest, pay-in-kind and capital appreciation bonds. These 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 additional securities. The market 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.
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Rating Criteria.
Except as noted below, the Underlying 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 International Growth Opportunities, Emerging Markets Equity and Real Estate Securities Funds may invest up to 35%, 35% and 20%, 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 securities rated D by Moody’s or Standard & Poor’s. Fixed-income
securities 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.
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Structured Securities and Inverse Floaters.
Certain Underlying Funds may invest in structured securities.
Structured securities are securities whose value is determined 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 complex
securities.
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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.
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Floating and Variable Rate Obligations.
Certain Underlying Funds may purchase floating and variable rate
obligations. The value of these obligations is generally more stable than that of a fixed rate obligation in response to changes in interest rate levels. The issuers or financial intermediaries providing demand features may
support their ability to purchase the obligations by obtaining credit with liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable both of which
may be issued by domestic banks or foreign banks. An Underlying Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are
interests in a pool of debt obligations held by a bank or other financial institution.
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Foreign Currency Transactions.
Certain Underlying Funds may, to the extent consistent with their 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. Certain
Underlying Funds 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 Underlying Funds may also enter into such
transactions to seek to increase total return, which is considered a speculative practice.
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Certain Underlying 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. An Underlying 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 the foreign currency to appreciate against the U.S. dollar).
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Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, an
Underlying Fund’s NAV to fluctuate. 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.
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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 an Underlying Fund of unrealized profits, transaction costs, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the current market price.
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Options on Securities, Securities Indices and Foreign Currencies.
A put option gives the purchaser of the
option the 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. Each Underlying Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index
consisting of securities in which it may invest. Certain Underlying Funds may also, to the extent that they invest in foreign securities, purchase and sell (write) put and call options on foreign currencies.
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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 considered a speculative activity). The successful use of options depends in part on the ability of an investment adviser to manage future price
fluctuations and the degree of correlation between the options and securities (or currency) markets. If an 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 an Underlying Fund’s investment portfolio, the Underlying Fund may incur losses that it would not otherwise incur. The use of options can also increase an Underlying
Fund’s transaction costs. Options written or purchased by the Underlying 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.
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Yield Curve Options.
Certain Underlying 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 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.
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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 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.
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APPENDIX A
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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 specified 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. Certain Underlying Funds may engage in futures transactions on U.S. and (in the case of certain Underlying Funds) foreign exchanges.
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Certain Underlying Funds 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 an Underlying 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. An Underlying Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. An Underlying Fund will
engage in futures and related options transactions 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. An Underlying
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 immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Underlying 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 Underlying Fund’s net
assets.
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Futures contracts and related options present the following risks:
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While an Underlying 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 Underlying Fund had not entered into any futures contracts or options
transactions. |
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Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and an Underlying Fund may be exposed to additional risk of loss.
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n
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The loss incurred by an Underlying Fund in entering into futures contracts and in writing call options on futures is
potentially unlimited and may exceed the amount of the premium received.
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Futures markets are highly volatile and the use of futures may increase the volatility of an Underlying Fund’s
NAV.
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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 substantial losses to an Underlying Fund.
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Futures contracts and options on futures may be
illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
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Foreign exchanges may not provide the same protection
as U.S. exchanges.
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Preferred Stock, Warrants and Rights.
Certain Underlying 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 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 or other non-compliance by the issuer of the preferred
stock.
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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.
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Loan Participations.
Certain Underlying Funds may invest in loan participations. A loan participation is an
interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermediary. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or a participation in the seller’s share of the loan. When the Underlying Fund acts as co-lender in connection with a participation interest or when it acquires
certain participation interests, the Underlying Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Underlying Fund lacks direct recourse, it will look to an agent for
the lenders (the “agent lender”) to enforce appropriate credit remedies against the borrower. In these cases, the Underlying Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the
Underlying Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Underlying Fund may be regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Underlying Fund may also be subject to the risk that the agent lender may become insolvent.
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APPENDIX A
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REITs.
The Real Estate Securities Fund expects to invest a substantial portion of its total assets in REITs,
which are pooled investment vehicles that invest primarily in either real estate or real estate related loans. In addition, other Underlying Equity Funds may invest in REITs from time to time. The value of a REIT is affected by changes in the value
of the properties 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 federal 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 geographically, by property type or in certain other respects, these risks may be heightened. Each Underlying
Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
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Other Investment Companies.
Certain Underlying Funds may invest in securities of other investment companies
(including exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations. These limitations include a prohibition on any
Underlying Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of an Underlying Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
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n
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Standard and Poor’s Depositary Receipts™.
The Underlying Equity Funds may, consistent with their
investment policies, purchase Standard & Poor’s Depositary Receipts™ (“SPDRs”). SPDRs are securities traded on the American Stock Exchange (the “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 handling 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®.
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n
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iShares
SM
(formerly called World Equity Benchmark Shares or WEBs).
iShares are
shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the
public in 1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts
and premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the
liquidity and value of an Underlying Equity Fund’s shares could also be substantially and adversely affected. If such disruptions were to occur, an Underlying Equity Fund could be required to reconsider the use of iShares as part of its
investment strategy.
|
|
Unseasoned Companies.
Certain Underlying Funds 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.
|
|
Non-Investment Grade Fixed-Income Securities.
Non-investment 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 obligations may be highly speculative and have poor prospects for
reaching investment 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 corporate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.
|
|
Non-investment grade fixed-income securities are generally unsecured and are often subordinated to the rights of other
creditors of the issuers of such securities. Investment by an Underlying 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 an Underlying Fund of its initial investment and any anticipated income or appreciation is uncertain.
|
APPENDIX A
|
Equity Swaps.
Each Underlying Equity Fund may invest up to 15% of its net assets in equity swaps. Equity swaps
allow the parties to a swap agreement to exchange dividend income or other components 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 an Underlying 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 an investment adviser does not accurately
analyze and predict the potential relative fluctuation of the components swapped with another party, an Underlying Fund may suffer a loss, which may be substantial. 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, an Underlying Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, an Underlying Fund may be unable to terminate its obligations when
desired.
|
|
When-Issued Securities and Forward Commitments.
Each Underlying Fund may purchase when-issued securities and
enter into forward commitments. 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 Underlying
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 settlement date. Although an Underlying Fund will
generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, an Underlying Fund may dispose of when-issued securities or forward commitments prior to settlement if its
investment adviser deems it appropriate.
|
|
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s
agreement to repurchase them at a mutually agreed upon date and price. The Underlying Funds 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. Some Underlying Funds may also enter into repurchase agreements involving certain foreign government securities.
|
|
If the other party or “seller” defaults, an Underlying Fund might suffer a loss to the extent that the proceeds
from the sale of the underlying securities and other collateral held by the Underlying Fund are less than the repurchase price and the Underlying Fund’s costs associated with delay and enforcement of the repurchase agreement. In addition, in
the event of bankruptcy of the seller, an Underlying Fund could suffer additional losses if a court determines that the Underlying Fund’s interest in the collateral is not enforceable.
|
|
In evaluating whether to enter into a repurchase agreement, an investment adviser will carefully consider the
creditworthiness of the seller. Certain Underlying 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 Underlying Fund may engage in securities lending. Securities lending
involves the lending of securities owned by an Underlying 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 by an Underlying Fund in short-term investments. To the extent that cash collateral is so invested, such collateral will be subject
to market depreciation or appreciation, and an Underlying Fund will be responsible for any loss that might result from its investment of the borrowers’ collateral. If an 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
an Underlying Fund (including the loan collateral).
|
|
An Underlying Fund may lend its securities to increase its income. An Underlying 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 Underlying Fund.
|
|
Short Sales Against-the-Box.
Certain Underlying Funds may make short sales against-the-box. A short sale
against-the-box means that at all times when a short position is open the Underlying Fund will own an equal amount of securities sold short, or securities convertible into or exchangeable for, without the payment of any further consideration, an
equal amount of the securities of the same issuer as the securities sold short.
|
APPENDIX A
|
Mortgage Dollar Rolls.
Certain Underlying Funds may enter into “mortgage dollar rolls.” In mortgage
dollar rolls, an Underlying Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Underlying Fund loses the right to receive principal and interest paid on the securities sold. However, the Underlying Fund benefits to the extent of any difference 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 interest 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 securities sold as part of the roll, the use of this technique will diminish the Underlying Fund’s performance.
|
|
Successful use of mortgage dollar rolls depends upon an investment adviser’s ability to predict correctly interest rates
and mortgage prepayments. If the investment adviser is incorrect in its prediction, an Underlying Fund may experience a loss. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving
the purchase of a security and a separate transaction involving a sale. The Underlying 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 Underlying Fund can borrow money from banks, and certain
Underlying Funds may enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. An Underlying Fund may not make additional investments if borrowings exceed 5% of its
total assets. Reverse repurchase agreements involve the sale of securities held by an Underlying Fund subject to the Underlying Fund’s agreement to repurchase them at a mutually agreed upon date and price (including interest). These
transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agreements may also be entered into when the 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 an Underlying Fund decline in value while these transactions are
outstanding, the NAV of the Underlying 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 an Underlying 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 an
Underlying Fund will decline below the price the Underlying Fund is obligated to pay to repurchase the securities, and that the securities may not be returned to the Underlying Fund.
|
|
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars.
To the extent consistent with their investment policies, certain Underlying Funds may enter into interest rate swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps, floors and collars. Interest rate swaps involve the
exchange by an Underlying 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. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. 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.
|
|
Certain Underlying Funds may enter into swap transactions for hedging purposes or to seek to increase total return. 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 an Underlying Fund would be less favorable than it would have been if these
investment techniques were not used.
|
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|
The financial highlights tables are intended to help you understand a Portfolio’s financial performance for the past
five years (or less if the Portfolio has been in operation for less than five years). Certain information reflects financial results for a single Portfolio share. The total returns in the table represent the rate that an investor would have earned
or lost on an investment in a Portfolio (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Portfolio’s financial statements, is included in the
Portfolio’s annual report (available upon request). The information for all periods prior to the year ended December 31, 2000 has been audited by the Portfolios’ previous independent auditors.
|
|
CONSERVATIVE STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
||||||||
|
|
|||||||||||
| For The Year Ended December 31, | |||||||||||
| 2000 - Class A Shares | $10.17 | $0.54 | (d) | $(0.01 | ) | $0.53 | |||||
| 2000 - Class B Shares | 10.18 | 0.49 | (d) | (0.05 | ) | 0.44 | |||||
| 2000 - Class C Shares | 10.17 | 0.47 | (d) | (0.02 | ) | 0.45 | |||||
| 2000 - Institutional Shares | 10.18 | 0.59 | (d) | (0.01 | ) | 0.58 | |||||
| 2000 - Service Shares | 10.18 | 0.46 | (d) | 0.06 | 0.52 | ||||||
|
|
|||||||||||
| For The Period Ended December 31, (c) | |||||||||||
| 1999 - Class A Shares | 10.00 | 0.36 | 0.18 | 0.54 | |||||||
| 1999 - Class B Shares | 10.00 | 0.30 | 0.19 | 0.49 | |||||||
| 1999 - Class C Shares | 10.00 | 0.29 | 0.18 | 0.47 | |||||||
| 1999 - Institutional Shares | 10.00 | 0.40 | (d) | 0.20 | 0.60 | ||||||
| 1999 - Service Shares | 10.00 | 0.53 | 0.02 | 0.55 | |||||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the underlying Funds.
|
APPENDIX B
|
CONSERVATIVE STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 5.34 | % | 1.95 | % | 3.98 | % | 46 | % | |||||
| 2000 - Class B Shares | 4.79 | 2.70 | 3.43 | 46 | |||||||||
| 2000 - Class C Shares | 4.60 | 2.70 | 3.24 | 46 | |||||||||
| 2000 - Institutional Shares | 5.80 | 1.55 | 4.44 | 46 | |||||||||
| 2000 - Service Shares | 4.50 | 2.05 | 3.14 | 46 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1999 - Class A Shares | 4.38 | (b) | 3.46 | (b) | 1.51 | (b) | 63 | ||||||
| 1999 - Class B Shares | 3.74 | (b) | 4.21 | (b) | 0.87 | (b) | 63 | ||||||
| 1999 - Class C Shares | 3.62 | (b) | 4.21 | (b) | 0.75 | (b) | 63 | ||||||
| 1999 - Institutional Shares | 4.43 | (b) | 3.06 | (b) | 1.56 | (b) | 63 | ||||||
| 1999 - Service Shares | 2.39 | (b) | 3.56 | (b) | (0.48 | ) (b) | 63 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
BALANCED STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $10.99 | $0.48 | (d) | $(0.54 | ) | $(0.06 | ) | |||||
| 2000 - Class B Shares | 10.98 | 0.39 | (d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Class C Shares | 10.99 | 0.39 | (d) | (0.53 | ) | (0.14 | ) | |||||
| 2000 - Institutional Shares | 10.99 | 0.53 | (d) | (0.55 | ) | (0.02 | ) | |||||
| 2000 - Service Shares | 10.99 | 0.61 | (d) | (0.68 | ) | (0.07 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.31 | 0.34 | 0.73 | 1.07 | ||||||||
| 1999 - Class B Shares | 10.31 | 0.26 | 0.72 | 0.98 | ||||||||
| 1999 - Class C Shares | 10.32 | 0.27 | 0.71 | 0.98 | ||||||||
| 1999 - Institutional Shares | 10.32 | 0.37 | 0.74 | 1.11 | ||||||||
| 1999 - Service Shares | 10.31 | 0.33 | 0.73 | 1.06 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.25 | 0.38 | 0.63 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.19 | 0.38 | 0.57 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.19 | 0.39 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.30 | 0.39 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.25 | 0.37 | 0.62 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
BALANCED STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 4.45 | % | 1.09 | % | 3.95 | % | 23 | % | |||||
| 2000 - Class B Shares | 3.60 | 1.84 | 3.10 | 23 | |||||||||
| 2000 - Class C Shares | 3.59 | 1.84 | 3.09 | 23 | |||||||||
| 2000 - Institutional Shares | 4.94 | 0.69 | 4.44 | 23 | |||||||||
| 2000 - Service Shares | 5.70 | 1.19 | 5.20 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 3.17 | 1.05 | 2.71 | 51 | |||||||||
| 1999 - Class B Shares | 2.42 | 1.80 | 1.96 | 51 | |||||||||
| 1999 - Class C Shares | 2.40 | 1.80 | 1.94 | 51 | |||||||||
| 1999 - Institutional Shares | 3.93 | 0.65 | 3.47 | 51 | |||||||||
| 1999 - Service Shares | 3.04 | 1.15 | 2.58 | 51 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 3.03 | (b) | 1.46 | (b) | 2.17 | (b) | 51 | ||||||
| 1998 - Class B Shares | 2.38 | (b) | 2.08 | (b) | 1.60 | (b) | 51 | ||||||
| 1998 - Class C Shares | 2.34 | (b) | 2.08 | (b) | 1.56 | (b) | 51 | ||||||
| 1998 - Institutional Shares | 3.55 | (b) | 1.02 | (b) | 2.77 | (b) | 51 | ||||||
| 1998 - Service Shares | 2.90 | (b) | 1.52 | (b) | 2.12 | (b) | 51 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
GROWTH AND INCOME STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value at beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $11.71 | $0.38 | (d) | $(0.92 | ) | $(0.54 | ) | |||||
| 2000 - Class B Shares | 11.69 | 0.29 | (d) | (0.92 | ) | (0.63 | ) | |||||
| 2000 - Class C Shares | 11.69 | 0.29 | (d) | (0.93 | ) | (0.64 | ) | |||||
| 2000 - Institutional Shares | 11.71 | 0.44 | (d) | (0.91 | ) | (0.47 | ) | |||||
| 2000 - Service Shares | 11.69 | 0.37 | (d) | (0.92 | ) | (0.55 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.38 | 0.22 | 1.40 | 1.62 | ||||||||
| 1999 - Class B Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Class C Shares | 10.36 | 0.14 | 1.40 | 1.54 | ||||||||
| 1999 - Institutional Shares | 10.39 | 0.27 | 1.39 | 1.66 | ||||||||
| 1999 - Service Shares | 10.37 | 0.20 | 1.40 | 1.60 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.18 | 0.47 | 0.65 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.12 | 0.46 | 0.58 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.20 | 0.49 | 0.69 | ||||||||
| 1998 - Service Shares | 10.00 | 0.16 | 0.48 | 0.64 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH AND INCOME STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming no
expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 3.35 | % | 0.87 | % | 3.07 | % | 20 | % | |||||
| 2000 - Class B Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Class C Shares | 2.57 | 1.62 | 2.29 | 20 | |||||||||
| 2000 - Institutional Shares | 3.87 | 0.47 | 3.59 | 20 | |||||||||
| 2000 - Service Shares | 3.26 | 0.97 | 2.98 | 20 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 2.00 | 0.85 | 1.74 | 49 | |||||||||
| 1999 - Class B Shares | 1.24 | 1.60 | 0.98 | 49 | |||||||||
| 1999 - Class C Shares | 1.23 | 1.60 | 0.97 | 49 | |||||||||
| 1999 - Institutional Shares | 2.53 | 0.45 | 2.27 | 49 | |||||||||
| 1999 - Service Shares | 1.91 | 0.95 | 1.65 | 49 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 2.37 | (b) | 1.05 | (b) | 1.92 | (b) | 42 | ||||||
| 1998 - Class B Shares | 1.72 | (b) | 1.68 | (b) | 1.34 | (b) | 42 | ||||||
| 1998 - Class C Shares | 1.68 | (b) | 1.68 | (b) | 1.30 | (b) | 42 | ||||||
| 1998 - Institutional Shares | 2.97 | (b) | 0.61 | (b) | 2.59 | (b) | 42 | ||||||
| 1998 - Service Shares | 2.28 | (b) | 1.11 | (b) | 1.90 | (b) | 42 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.24 | $0.22 | (d) | $(1.28 | ) | $(1.06 | ) | |||||
| 2000 - Class B Shares | 12.21 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Class C Shares | 12.22 | 0.13 | (d) | (1.27 | ) | (1.14 | ) | |||||
| 2000 - Institutional Shares | 12.23 | 0.25 | (d) | (1.26 | ) | (1.01 | ) | |||||
| 2000 - Service Shares | 12.22 | 0.23 | (d) | (1.29 | ) | (1.06 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.29 | 0.11 | 2.03 | 2.14 | ||||||||
| 1999 - Class B Shares | 10.28 | 0.02 | 2.02 | 2.04 | ||||||||
| 1999 - Class C Shares | 10.28 | 0.02 | 2.03 | 2.05 | ||||||||
| 1999 - Institutional Shares | 10.29 | 0.13 | 2.05 | 2.18 | ||||||||
| 1999 - Service Shares | 10.29 | 0.09 | 2.03 | 2.12 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.10 | 0.36 | 0.46 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.05 | 0.35 | 0.40 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.12 | 0.37 | 0.49 | ||||||||
| 1998 - Service Shares | 10.00 | 0.09 | 0.35 | 0.44 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 1.83 | % | 0.89 | % | 1.53 | % | 23 | % | |||||
| 2000 - Class B Shares | 1.08 | 1.64 | 0.78 | 23 | |||||||||
| 2000 - Class C Shares | 1.11 | 1.64 | 0.81 | 23 | |||||||||
| 2000 - Institutional Shares | 2.10 | 0.49 | 1.80 | 23 | |||||||||
| 2000 - Service Shares | 1.95 | 0.99 | 1.65 | 23 | |||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.90 | 0.87 | 0.62 | 50 | |||||||||
| 1999 - Class B Shares | 0.17 | 1.62 | (0.11 | ) | 50 | ||||||||
| 1999 - Class C Shares | 0.16 | 1.62 | (0.12 | ) | 50 | ||||||||
| 1999 - Institutional Shares | 1.40 | 0.47 | 1.12 | 50 | |||||||||
| 1999 - Service Shares | 0.87 | 0.97 | 0.59 | 50 | |||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 1.50 | (b) | 1.15 | (b) | 0.95 | (b) | 38 | ||||||
| 1998 - Class B Shares | 0.83 | (b) | 1.78 | (b) | 0.35 | (b) | 38 | ||||||
| 1998 - Class C Shares | 0.79 | (b) | 1.78 | (b) | 0.31 | (b) | 38 | ||||||
| 1998 - Institutional Shares | 2.88 | (b) | 0.71 | (b) | 2.40 | (b) | 38 | ||||||
| 1998 - Service Shares | 1.63 | (b) | 1.21 | (b) | 1.15 | (b) | 38 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
[This page intentionally left blank]
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO
|
|
Income (loss) from
investment operations |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (loss) |
Net realized
and unrealized gain (loss) |
Total
income from investment operations |
|||||||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 2000 - Class A Shares | $12.61 | $ 0.03 | (d) | $(1.49 | ) | $(1.46 | ) | |||||
| 2000 - Class B Shares | 12.57 | (0.06 | ) (d) | (1.47 | ) | (1.53 | ) | |||||
| 2000 - Class C Shares | 12.57 | (0.05 | ) (d) | (1.47 | ) | (1.52 | ) | |||||
| 2000 - Institutional Shares | 12.60 | 0.10 | (d) | (1.51 | ) | (1.41 | ) | |||||
| 2000 - Service Shares | 12.59 | 0.04 | (d) | (1.51 | ) | (1.47 | ) | |||||
|
|
||||||||||||
| For The Year Ended December 31, | ||||||||||||
| 1999 - Class A Shares | 10.16 | 0.02 | 2.56 | 2.58 | ||||||||
| 1999 - Class B Shares | 10.14 | (0.07 | ) | 2.54 | 2.47 | |||||||
| 1999 - Class C Shares | 10.15 | (0.06 | ) | 2.53 | 2.47 | |||||||
| 1999 - Institutional Shares | 10.16 | 0.06 | 2.55 | 2.61 | ||||||||
| 1999 - Service Shares | 10.15 | — | 2.55 | 2.55 | ||||||||
|
|
||||||||||||
| For The Period Ended December 31, (c) | ||||||||||||
| 1998 - Class A Shares | 10.00 | 0.05 | 0.20 | 0.25 | ||||||||
| 1998 - Class B Shares | 10.00 | 0.01 | 0.18 | 0.19 | ||||||||
| 1998 - Class C Shares | 10.00 | 0.01 | 0.19 | 0.20 | ||||||||
| 1998 - Institutional Shares | 10.00 | 0.07 | 0.20 | 0.27 | ||||||||
| 1998 - Service Shares | 10.00 | 0.04 | 0.21 | 0.25 | ||||||||
|
|
||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
APPENDIX B
|
AGGRESSIVE GROWTH STRATEGY PORTFOLIO (continued)
|
|
Ratios assuming
no expense reductions |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
net investment income (loss) to average net assets |
Ratio of
expenses to average net assets (e) |
Ratio of
net investment income (loss) to average net assets |
Portfolio
turnover rate |
||||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 2000 - Class A Shares | 0.28 | % | 0.99 | % | (0.12 | )% | 19 | % | |||||
| 2000 - Class B Shares | (0.49 | ) | 1.74 | (0.89 | ) | 19 | |||||||
| 2000 - Class C Shares | (0.42 | ) | 1.74 | (0.82 | ) | 19 | |||||||
| 2000 - Institutional Shares | 0.84 | 0.59 | 0.44 | 19 | |||||||||
| 2000 - Service Shares | 0.30 | 1.09 | (0.10 | ) | 19 | ||||||||
|
|
|||||||||||||
| For The Year Ended December 31, | |||||||||||||
| 1999 - Class A Shares | 0.12 | 1.00 | (0.29 | ) | 47 | ||||||||
| 1999 - Class B Shares | (0.63 | ) | 1.75 | (1.04 | ) | 47 | |||||||
| 1999 - Class C Shares | (0.61 | ) | 1.75 | (1.02 | ) | 47 | |||||||
| 1999 - Institutional Shares | 0.66 | 0.60 | 0.25 | 47 | |||||||||
| 1999 - Service Shares | 0.00 | 1.10 | (0.41 | ) | 47 | ||||||||
|
|
|||||||||||||
| For The Period Ended December 31, (c) | |||||||||||||
| 1998 - Class A Shares | 0.91 | (b) | 1.42 | (b) | 0.09 | (b) | 26 | ||||||
| 1998 - Class B Shares | 0.14 | (b) | 2.05 | (b) | (0.61 | ) (b) | 26 | ||||||
| 1998 - Class C Shares | 0.16 | (b) | 2.05 | (b) | (0.59 | ) (b) |
26
|
||||||
| 1998 - Institutional Shares | 8.17 | (b) | 0.99 | (b) | 7.42 | (b) |
26
|
||||||
| 1998 - Service Shares | 0.76 | (b) | 1.49 | (b) | 0.01 | (b) | 26 | ||||||
|
|
|||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. Total returns for
periods less than one full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998.
|
|
(d)
|
Calculated based on the average shares outstanding methodology.
|
|
(e)
|
Expense ratios exclude expenses of the Underlying Funds.
|
Index
Asset Allocation Portfolios
Prospectus (Service Shares)
Prospectus (Service Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Portfolios’ investments is available in the Portfolios’ annual and semi-annual
reports to shareholders. In the Portfolios’ annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Portfolios’ performance during the last fiscal year.
|
|
Statement of Additional Information
|
|
Additional information about the Portfolios and their policies is also available in the Portfolios’ Additional
Statement. The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Portfolios’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Portfolios’ documents are located online and may be
downloaded from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Portfolio documents by visiting the SEC’s public reference room in Washington, D.C.
You may also obtain copies of Portfolio 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: publicinfo@sec.gov. Information on the operation of
the public reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Portfolios’ investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
AAPROSVC
|
Prospectus
|
FST Preferred Shares
May 1, 2001
|
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
SM
|
|
n
|
Prime
Obligations Fund
|
|
n
|
Money
Market Fund
|
|
n
|
Treasury
Obligations Fund
|
|
n
|
Treasury
Instruments Fund
|
|
n
|
Government Fund
|
|
n
|
Federal
Fund
|
|
n
|
Tax-Free
Money Market Fund
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Funds. GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund, the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit
Department, a separate operating entity of Goldman Sachs, approves all money market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources,
ratings releases and company meetings, as well as the Investment Research, Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated
on a “real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Thr
ee main steps are followed in seeking to manage
interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the
yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from
weekly meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset
volatility, are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process
includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence their asset volatility;
|
|
n
|
Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc.
First Tier Institutional Indices. Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by
Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other
criteria, including conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government
Funds.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Funds.
|
|
n
|
Tax-Exempt Fund:
Tax-Free Money Market Fund.
|
|
n
|
The Investors:
The Funds are designed for institutional investors seeking a high rate of return,
a stable net asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly s
uitable for banks, corporations and other financial institutions that
seek investment of short-term funds for their own accounts or for the accounts of their customers. Shares of the Government Fund are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7),
107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration (“NCUA”) Rules and Regulations and NCUA Letter Number 155. The Fund intends to review changes in the applicable laws, rules and
regulations governing eligible investments for federally chartered credit unions, and to take such action as may be necessary so that the investments of the Fund qualify as eligible investments under the Federal Credit Union Act and the regulations
thereunder. Shares of the Government Fund, however, may or may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the
Government Fund is a permissible investment under the law applicable to it.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that
a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule
2a-7) at the time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required
by Rule 2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are
described in detail under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury
Obligations Fund’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer. However, a Fund may invest up to 25%
of the value of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other
investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the
Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds seek to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations and Money Market Funds pursue their investment objectives by investing in U.S. Government Securities,
obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Fund may also invest in U.S. dollar-denominated obligations of
foreign banks, foreign companies and foreign governments. The Treasury Obligations Fund pursues its investment objective by investing in securities issued by the U.S. Treasury and repurchase agreements relating to such securities. The Government
Fund pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities. The Treasury Instruments and Federal Funds pursue their investment objectives by limiting their investments to
certain U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury
Instruments and Federal Funds (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
In order to obtain a rating from a rating organization, the Prime Obligations, Money Market, Treasury Obligations, Treasury
Instruments, Government and Federal Funds will observe special investment restrictions.
|
|
Tax-Exempt Fund:
|
|
The Tax-Free Money Market Fund pursues its investment objective by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
| Fund |
U.S. Treasury
Obligations |
U.S. Government Securities |
Bank
Obligations |
Commercial
Paper |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | n 1 | n |
n
U.S. banks only 2 |
n | |||||
|
|
|||||||||
| Money Market | n 1 | n |
n
Over 25% of total assets must be invested in U.S. and foreign (US$) banks 3 |
n
U.S. and foreign (US$) commercial paper |
|||||
|
|
|||||||||
| Treasury Obligations | n 4 | ||||||||
|
|
|||||||||
| Treasury Instruments | n 4 | ||||||||
|
|
|||||||||
| Government | n 1 | n | |||||||
|
|
|||||||||
| Federal | n 1 |
n
|
|||||||
|
|
|||||||||
|
Tax-Free Money
Market |
n
Tax-exempt only |
||||||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits) the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Fund may invest in U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Investment Policies Matrix continued
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Private
Activity Bonds |
Credit
Quality 9 |
Summary of
Taxation for Distributions 14 |
Miscellaneous | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
||||
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
May invest in obligations
of the International Bank for Reconstruction and Development. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Under extraordinary circumstances,
may hold cash, U.S. Government Securities subject to state taxation or cash equivalents. Reverse repurchase agreements not permitted |
|||||
|
|
|||||||
| n | |||||||
|
Does not
intend to invest if subject to AMT 10,11 |
First
12
or
Second Tier 13 |
Tax-exempt federal
and taxable state 16 |
May (but does not currently intend
to) invest up to 20% of net assets in securities subject to AMT and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
|
11
|
No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or
similar obligations where the non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
|
|
12
|
First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
|
|
13
|
Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
|
|
14
|
See “Taxation” for an explanation of the tax consequences summarized in the table above.
|
|
15
|
Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
|
|
16
|
Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
|
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 government 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.
|
Ÿ
Applicable
— Not Applicable |
Prime Obligations Fund |
Money Market Fund |
Treasury Obligations Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| NAV | Ÿ | Ÿ | Ÿ | ||||
| Interest Rate | Ÿ | Ÿ | Ÿ | ||||
| Credit/Default | Ÿ | Ÿ | Ÿ | ||||
| Liquidity | Ÿ | Ÿ | Ÿ | ||||
| U.S. Government Securities | Ÿ | Ÿ | — | ||||
| Concentration | — | — | — | ||||
| Foreign | — | Ÿ | — | ||||
| Banking Industry | — | Ÿ | — | ||||
| Tax | — | — | — | ||||
|
|
|||||||
PRINCIPAL RISKS OF THE FUNDS
|
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| — | Ÿ | Ÿ | — | ||||
| — | — | — | Ÿ | ||||
| — | — | — | — | ||||
| — | — | — | — | ||||
| — | — | — | Ÿ | ||||
|
|
|||||||
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s
yield (and the market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other
financial institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Free Money Market Fund, risk of loss from payment default may also exist where municipal instruments are
backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the
time period stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Funds:
|
n
|
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 apply to the Money Market Fund:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political,
financial and economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Fund may not
invest more than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in
bank obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Fund
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Free Money Market Fund:
|
n
|
Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in
issuers within the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may
materially affect the value of the Fund’s portfolio and/or the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who
are not sensitive to the federal, state or local tax consequences of their investments.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s Preferred Shares from year to year; and (b) the average annual returns of a Fund’s Preferred Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility.
The bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.63%
Worst Quarter:
Q2 ’99 1.17%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/1/96) | 6.34% | 5.54% | |||
|
|
|||||
Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.63%
Worst Quarter:
Q2 ’99 1.17%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/1/96) | 6.34% | 5.56% | |||
|
|
|||||
FUND PERFORMANCE
Treasury Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.58%
Worst Quarter:
Q1 ’99 1.11%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/1/96) | 6.08% | 5.37% | |||
|
|
|||||
Treasury Instruments Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.52%
Worst Quarter:
Q1 ’99 1.04%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/30/97) | 5.79% | 5.08% | |||
|
|
|||||
FUND PERFORMANCE
Government Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.60%
Worst Quarter:
Q2 ’99 1.15%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/1/96) | 6.21% | 5.45% | |||
|
|
|||||
Federal Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.59%
Worst Quarter:
Q2 ’99 1.15%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/30/97) | 6.16% | 5.46% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Free Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.01%
Worst Quarter:
Q1 ’99 0.66%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Preferred Shares (Inception 5/1/96) | 3.85% | 3.38% | |||
|
|
|||||
This table describes the fees and expenses that you would pay if you buy and hold Preferred Shares of a Fund.
|
Prime
Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.205% | 0.205% | |||
| Other Expenses | 0.115% | 0.115% | |||
| Preferred Administration Fees 3 | 0.100% | 0.100% | |||
| All Other Expenses 4 | 0.015% | 0.015% | |||
|
|
|||||
| Total Fund Operating Expenses* | 0.320% | 0.320% | |||
|
|
|||||
|
See page 24 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.17% | 0.17% | |||
| Other Expenses | 0.11% | 0.11% | |||
| Preferred Administration Fees 3 | 0.10% | 0.10% | |||
| All Other Expenses 4 | 0.01% | 0.01% | |||
|
|
|||||
|
Total Fund Operating Expenses (after current waivers and expense
limitations) |
0.28% | 0.28% | |||
|
|
|||||
FUND FEES AND EXPENSES
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| 0.205% | 0.205% | 0.205% | 0.205% | 0.205% | |||||
| 0.125% | 0.175% | 0.125% | 0.125% | 0.125% | |||||
| 0.100% | 0.100% | 0.100% | 0.100% | 0.100% | |||||
| 0.025% | 0.075% | 0.025% | 0.025% | 0.025% | |||||
|
|
|||||||||
| 0.330% | 0.380% | 0.330% | 0.330% | 0.330% | |||||
|
|
|||||||||
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| 0.19% | 0.19% | 0.17% | 0.19% | 0.17% | |||||
| 0.11% | 0.11% | 0.11% | 0.11% | 0.11% | |||||
| 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | |||||
| 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | |||||
|
|
|||||||||
| 0.30% | 0.30% | 0.28% | 0.30% | 0.28% | |||||
|
|
|||||||||
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee equal to 0.015% of the
Federal, Treasury Obligations and Treasury Instruments Funds’ average daily net assets and equal to 0.035% of all other Funds’ average daily net assets.
As a result of fee waivers, the current management fees of the Federal, Treasury
Obligations and Treasury Instruments Funds and all other Funds are 0.19%, 0.19%, 0.19% and 0.17%, respectively, of such Funds’ average daily net assets. The waivers may be terminated at any time at the option of the Investment
Adviser.
|
|
3
|
Service Organizations may charge other fees directly to their customers who are beneficial owners of Preferred
Shares in connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
|
4
|
The Investment Adviser has voluntarily
agreed to reduce or limit “All Other Expenses” of each Fund (excluding management fees, preferred administration fees, taxes, interest, brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.01% of each
Fund’s average daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Preferred Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $33 | $103 | $180 | $406 | |||||
|
|
|||||||||
| Money Market | $33 | $103 | $180 | $406 | |||||
|
|
|||||||||
| Treasury Obligations | $34 | $106 | $185 | $418 | |||||
|
|
|||||||||
| Treasury Instruments | $39 | $122 | $213 | $480 | |||||
|
|
|||||||||
| Government | $34 | $106 | $185 | $418 | |||||
|
|
|||||||||
| Federal | $33 | $106 | $185 | $418 | |||||
|
|
|||||||||
| Tax-Free Money Market | $34 | $106 | $185 | $418 | |||||
|
|
|||||||||
Service Organizations that invest in Preferred Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Preferred Shares may receive other compensation in connection with the sale and distribution of Preferred Shares or for
services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|---|
|
|
||||||
| Prime Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Instruments | 0.205 | % | 0.17% | |||
|
|
||||||
| Government | 0.205 | % | 0.17% | |||
|
|
||||||
| Federal | 0.205 | % | 0.18% | |||
|
|
||||||
| Tax-Free Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
Dividends will be distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of the
following times:
| Fund |
Dividend Declaration Time
(New York Time) |
||
|
|
|||
| Prime Obligations | 5:00 p.m. | ||
|
|
|||
| Money Market | 5:00 p.m. | ||
|
|
|||
| Treasury Obligations | 5:00 p.m. | ||
|
|
|||
| Treasury Instruments | 4:00 p.m. | ||
|
|
|||
| Government | 5:00 p.m. | ||
|
|
|||
| Federal | 4:00 p.m. | ||
|
|
|||
| Tax-Free Money Market | 4:00 p.m. | ||
|
|
|||
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
DIVIDENDS
The income declared as a dividend for the Prime Obligations, Money Market, Treasury Obligations and Government Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any, will be included in the calculation of subsequent dividends.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Preferred Shares.
|
|
How Can I Purchase Preferred Shares Of The Funds?
|
|
Generally, Preferred Shares may be purchased only through institutions that have agreed to provide account administration and
maintenance services to their customers who are the beneficial owners of Preferred Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers. Generally,
Preferred Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of the purchase
amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
SHAREHOLDER GUIDE
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company
(“Northern”), as sub-custodian for State Street Bank and Trust Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to
Goldman Sachs Funds –(Name of Fund and Class of Shares), 4900 Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Treasury Instruments and Federal Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
|
Prime Obligations, Money Market, Treasury Obligations and
Government Funds: |
|||
| n By 5:00 p.m. New York time | Same business day | ||
| n After 5:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Free Money Market Fund: | |||
| n By 2:00 p.m. New York time | Same business day | ||
| n After 2:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Preferred
Shares:
|
|
n
|
Acting, directly or through an agent, as the sole
shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem or exchange
shares for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in
proper form when the order is accepted by the authorized Service Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be
responsible for transmitting accepted orders and payments to the Trust within the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a preferred administration plan adopted by the Trust’s Board of Trustees, Service Organizations are entitled
to receive payment for their services from the Trust of up to 0.10% (on an annualized basis) of the average daily net assets of the Preferred Shares of the Funds, which are attributable to or held in the name of the Service Organization for its
customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Preferred Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), and are entitled to different services than Preferred Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
|
| Minimum initial investment |
$10 million (may be
allocated among the Funds) |
||
|
|
|||
| Minimum account balance | $10 million | ||
|
|
|||
| Minimum subsequent investments | None | ||
|
|
|||
|
A Service Organization may, however, impose a minimum amount for initial and subsequent investments in Preferred Shares and
may establish other requirements such as a minimum account balance. A Service Organization may redeem Preferred Shares held by non-complying accounts, and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum
account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
32
SHAREHOLDER GUIDE
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a
Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Preferred Shares is the Fund’s next determined NAV. The
Funds calculate NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
| Fund | NAV Calculated | ||
|---|---|---|---|
|
|
|||
|
Treasury Instruments, Federal and
Tax-Free Money Market |
As of the close of regular trading of
the New York Stock Exchange (normally 4:00 p.m. New York time) on each business day |
||
|
|
|||
|
Prime Obligations, Money Market, Treasury
Obligations and Government |
As of 5:00 p.m. New York time
on each business day |
||
|
|
|||
|
n
|
NAV per share of each class is calculated by State
Street on each business day. Fund shares will be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association
(“BMA”) recommends that the securities markets close early, each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and
redemption orders received after the Fund’s closing time and credit will be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by
which purchase and redemption orders must be received for same business day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
How Can I Sell Preferred Shares Of The Funds?
|
|
Generally, Preferred Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization
will normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Preferred Shares upon request on any business
day at their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account
Application.
|
|
|
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
If you have elected the telephone redemption
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege described in the Additional Statement.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an
account or address other than that designated on the Account Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party
and the designated bank account to verify instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
SHAREHOLDER GUIDE
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
|
Treasury Instruments and Federal
Funds: |
|||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
|||
|
|
|||||
|
Prime Obligations, Money Market,
Treasury Obligations and Government Funds: |
|||||
| n By 5:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 5:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
|||
|
|
|||||
| Tax-Free Money Market Fund: | |||||
| n By 1:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 1:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
|||
|
|
|||||
|
n
|
Although redemption proceeds will normally be wired as described above, under certain circumstances, (a) redemption proceeds
may be paid the next business day following receipt of a properly executed wire transfer redemption request (or up to three business days later with respect to the Tax-Free Money Market Fund) and (b) redemption requests or payments may be postponed
or suspended as permitted pursuant to Section 22(e) of the Act. Generally, under that section redemption requests or payments may be postponed or suspended if (a) the New York Stock Exchange is closed for trading or trading is restricted; (b) an
emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund’s net assets not reasonably practicable; or (c) the SEC by order permits the suspension of the right of redemption. If
you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the day the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
|
|
n
|
Neither the Trust nor Goldman Sachs assumes any
responsibility for the performance of intermediaries or your Service Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed
appropriate by the Transfer Agent. A redemption request will not be in proper form until such additional documentation has been received.
|
|
n
|
Service Organizations are responsible for the timely
transmittal of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service
Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the Preferred Shares of any Service Organization
whose account balance falls below the minimum as a result of a redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption.
Different rules may apply to investors who have established brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
|
|
n
|
Redeem shares in other circumstances determined by the
Board of Trustees to be in the best interest of the Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities
(instead of cash). If you receive redemption proceeds in-kind, you should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Fund shares. No interest will accrue
on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Preferred Shares of a Fund at NAV for shares of the corresponding class of any other
Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
SHAREHOLDER GUIDE
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n The recordholder name(s) and signature(s) | |||||
| n The account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||||
|
|
|||||
| By Telephone: |
If you have elected the telephone
exchange privilege on your Account Application: |
||||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||||
|
|
|||||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of
the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in
a Fund must satisfy the minimum initial investment requirements of that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an
identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges
may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in
times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described
under “What Do I Need To Know About Telephone Redemption Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors
may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Preferred Shares?
|
|
Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Preferred Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-backed securities can be
expected to acceler-
ate. 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. In addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is
comparable in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a
Fund’s recoveries on repossessed collateral may not be available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by
the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which are issued by a state or local authority for capital projects and are secured by annual lease payments from the
state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and,
therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
APPENDIX A
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting
standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts
which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
APPENDIX A
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions).This information for the periods ended December 31, 2000 has been audited by PricewaterhouseCoopers LLP, whose report along with a Fund’s financial statements, is
included in the Fund’s annual report (available upon request). The information for all other periods prior to the period ended December 31, 2000 has been audited by the Fund’s previous independent accountants.
|
|
PRIME OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28% | |||||||
| 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 (c) | |||||||
| 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | |||||||||||
| 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | |||||||||||
| 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | |||||||||||
| 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | |||||||||||
| 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | |||||||||||
| 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | |||||||||||
| 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | |||||||||||
| 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | |||||||||||
| 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | |||||||||||
| 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | |||||||||||
| 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | |||||||||||
| 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | |||||||||||
| 1.00 | 5.28 | (c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 (c) | |||||||
| 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | |||||||||||
| 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | |||||||||||
|
|
|||||||||||||||||
|
MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||
| 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||
| 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||
| 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||
| 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||
| 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||
| 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||
| 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||
| 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||
| 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||
| 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||
| 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||
| 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||
| 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||
| 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||
| 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99% | |||||||
| 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 (c) | |||||||
| 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | |||||||||||
| 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | |||||||||||
| 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | |||||||||||
| 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | |||||||||||
| 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | |||||||||||
| 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | |||||||||||
| 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | |||||||||||
| 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | |||||||||||
| 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | |||||||||||
| 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | |||||||||||
| 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | |||||||||||
| 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | |||||||||||
| 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 (c) | |||||||
| 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | |||||||||||
| 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY INSTRUMENTS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||
| 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||
| 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||
| 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||
| 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||
| 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||
| 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||
| 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||
| 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||
| 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||
| 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||
| 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||
| 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||
| 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||
|
|
||||||||||||||||||
|
GOVERNMENT FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09% | |||||||
| 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 (c) | |||||||
| 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 | |||||||||||
| 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 | |||||||||||
| 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 | |||||||||||
| 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 | |||||||||||
| 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 | |||||||||||
| 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 | |||||||||||
| 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 | |||||||||||
| 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 | |||||||||||
| 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 | |||||||||||
| 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 | |||||||||||
| 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 | |||||||||||
| 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 | |||||||||||
| 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 (c) | |||||||
| 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 | |||||||||||
| 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
FEDERAL FUND
|
|
Net Asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13% | |||||||
| 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 (c) | |||||||
| 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 | |||||||||||
| 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 | |||||||||||
| 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 | |||||||||||
| 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 | |||||||||||
| 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 | |||||||||||
| 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 | |||||||||||
| 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 | |||||||||||
| 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 | |||||||||||
| 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 (c) | |||||||
| 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 (c) | |||||||
| 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 (c) | |||||||
| 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 (c) | |||||||
|
|
|||||||||||||||||
|
TAX-FREE MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
Footnotes:
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(b)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all distri
butions and a complete redemption of the investment at the net asset value at the end of the period. |
|
(c)
|
Annualized.
|
|
(d)
|
Not annualized.
|
APPENDIX B
|
Ratios assuming no expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88% | |||||||
| 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 (c) | |||||||
| 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | |||||||||||
| 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | |||||||||||
| 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | |||||||||||
| 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | |||||||||||
| 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | |||||||||||
| 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | |||||||||||
| 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | |||||||||||
| 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | |||||||||||
| 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | |||||||||||
| 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | |||||||||||
| 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | |||||||||||
| 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | |||||||||||
| 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 (c) | |||||||
| 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | |||||||||||
| 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | |||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 22 | Fund Fees And Expenses | |||
| 26 | Service Providers | |||
| 28 | Dividends | |||
| 30 | Shareholder Guide | |||
| 30 | How to Buy Shares | |||
| 34 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 48 |
Appendix B
Financial Highlights |
|||
Financial Square Funds
Prospectus
(FST Preferred Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Financial Square Funds
SM
is a service mark of Goldman, Sachs & Co.
FSPROPRMM
|
Prospectus
|
FST Shares
May 1, 2001
|
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
SM
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n
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Prime
Obligations Fund
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n
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Money
Market Fund
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n
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Treasury
Obligations Fund
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n
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Treasury
Instruments Fund
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n
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Government Fund
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n
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Federal
Fund
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n
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Tax-Free
Money
Market Fund |
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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.
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AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
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NOT FDIC-Insured
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May Lose Value
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No Bank Guarantee
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Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Funds. GSAM is referred to in this Prospectus as the “Investment Adviser.”
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Goldman Sachs’ Money Market Investment Philosophy:
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The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund, the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
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Manage credit risk
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Manage interest rate risk
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Manage liquidity
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Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
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Investment Process
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1. Managing Credit Risk
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The Investment Adviser’s process for managing risk emphasizes:
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Intensive research—
The Credit
Department, a separate operating entity of Goldman Sachs, approves all money market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources,
ratings releases and company meetings, as well as the Investment Research, Legal and Compliance departments of Goldman Sachs.
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Timely updates—
A Credit Department-approved list of securities is continuously communicated
on a “real-time” basis to the portfolio management team via computer link.
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The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
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2. Managing Interest Rate Risk
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Three main steps are followed in seeking to manage interest rate risk:
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Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the
yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from
weekly meetings with both Goldman Sachs economists and economists from outside the firm.
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Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset
volatility, are used to identify the most effective portfolio structure.
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Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process
includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
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3.
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Managing Liquidity
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Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
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Each Fund’s clients and factors that influence their asset volatility;
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Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
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Bid-ask spreads associated with securities in the portfolios.
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Benchmarks for the Money Market Funds are the
iMoneyNet, Inc.
First Tier Institutional Indices. Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
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GENERAL INVESTMENT MANAGEMENT APPROACH
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n
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The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by
Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other
criteria, including conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
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Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government
Funds.
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n
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Tax-Advantaged Funds:
Treasury Instruments and Federal Funds.
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n
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Tax-Exempt Fund:
Tax-Free Money Market Fund.
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The Investors:
The Funds are designed for institutional investors seeking a high rate of return,
a stable net asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the
accounts of their customers. Shares of the Government Fund are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the
National Credit Union Administration (“NCUA”) Rules and Regulations and NCUA Letter Number 155. The Fund intends to review changes in the applicable laws, rules and regulations governing eligible investments for federally chartered credit
unions, and to take such action as may be necessary so that the investments of the Fund qualify as eligible investments under the Federal Credit Union Act and the regulations thereunder. Shares of the Government Fund, however, may or may not qualify
as eligible investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Government Fund is a permissible investment under the law applicable to
it.
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NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that
a Fund will be able at all times to maintain a NAV of $1.00 per share.
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n
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Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule
2a-7) at the time of purchase.
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Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required
by Rule 2a-7).
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Investment Restrictions:
Each Fund is subject to certain investment restrictions that are
described in detail under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury
Obligations Fund’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder approval.
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Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance
with current regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer. However, a Fund may
invest up to 25% of the value of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or
securities of other investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements
as described in the Additional Statement.
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INVESTMENT OBJECTIVES
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The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds seek to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
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Taxable and Tax-Advantaged Funds:
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The Prime Obligations and Money Market Funds pursue their investment objectives by investing in U.S. Government Securities,
obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Fund may also invest in U.S. dollar-denominated obligations of
foreign banks, foreign companies and foreign governments. The Treasury Obligations Fund pursues its investment objective by investing in securities issued by the U.S. Treasury and repurchase agreements relating to such securities. The Government
Fund pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities. The Treasury Instruments and Federal Funds pursue their investment objectives by limiting their investments to
certain U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury
Instruments and Federal Funds (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
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In order to obtain a rating from a rating organization, the Prime Obligations, Money Market, Treasury Obligations, Treasury
Instruments, Government and Federal Funds will observe special investment restrictions.
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Tax-Exempt Fund:
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The Tax-Free Money Market Fund pursues its investment objective by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
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PRINCIPAL INVESTMENT STRATEGIES
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The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
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Investment Policies Matrix
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| Fund |
U.S. Treasury
Obligations |
U.S. Government Securities |
Bank
Obligations |
Commercial
Paper |
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| Prime Obligations | n 1 | n |
n
U.S. banks only 2 |
n | |||||
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| Money Market | n 1 | n |
n
Over 25% of total assets must be invested in U.S. and foreign (US$) banks 3 |
n
U.S. and foreign (US$) commercial paper |
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| Treasury Obligations | n 4 | ||||||||
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| Treasury Instruments | n 4 | ||||||||
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| Government | n 1 | n | |||||||
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| Federal | n 1 |
n
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Tax-Free Money
Market |
n
Tax-exempt only |
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Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
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1
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Issued or guaranteed by the U.S. Treasury.
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2
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Including foreign branches of U.S. banks.
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3
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If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits) the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
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4
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Issued by the U.S. Treasury.
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5
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To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
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6
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The Fund may invest in U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
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FUND INVESTMENT OBJECTIVES AND STRATEGIES
Investment Policies Matrix continued
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Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
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7
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Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
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8
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Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
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9
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To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
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10
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If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions.
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FUND INVESTMENT OBJECTIVES AND STRATEGIES
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Private
Activity Bonds |
Credit
Quality 9 |
Summary of
Taxation for Distributions 14 |
Miscellaneous | ||||
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| n | First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
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| n | First Tier 12 | Taxable federal and state 15 |
May invest in obligations
of the International Bank for Reconstruction and Development. Reverse repurchase agreements not permitted |
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| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
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| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Reverse repurchase agreements not
permitted |
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| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
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| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Under extraordinary circumstances,
may hold cash, U.S. Government Securities subject to state taxation or cash equivalents. Reverse repurchase agreements not permitted |
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Does not
intend to invest if subject to AMT 10,11 |
First
12
or
Second Tier 13 |
Tax-exempt federal
and taxable state 16 |
May (but does not currently intend
to) invest up to 20% of net assets in securities subject to AMT and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted |
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11
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No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or
similar obligations where the non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
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12
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First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
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13
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Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
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14
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See “Taxation” for an explanation of the tax consequences summarized in the table above.
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15
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Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
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16
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Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
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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 government 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.
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Ÿ
Applicable
— Not Applicable |
Prime Obligations Fund |
Money Market Fund |
Treasury Obligations Fund |
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|---|---|---|---|---|---|---|---|
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| NAV | Ÿ | Ÿ | Ÿ | ||||
| Interest Rate | Ÿ | Ÿ | Ÿ | ||||
| Credit/Default | Ÿ | Ÿ | Ÿ | ||||
| Liquidity | Ÿ | Ÿ | Ÿ | ||||
| U.S. Government Securities | Ÿ | Ÿ | — | ||||
| Concentration | — | — | — | ||||
| Foreign | — | Ÿ | — | ||||
| Banking Industry | — | Ÿ | — | ||||
| Tax | — | — | — | ||||
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PRINCIPAL RISKS OF THE FUNDS
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Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
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| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| — | Ÿ | Ÿ | — | ||||
| — | — | — | Ÿ | ||||
| — | — | — | — | ||||
| — | — | — | — | ||||
| — | — | — | Ÿ | ||||
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Risks that apply to all Funds:
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n
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NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
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n
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Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s
yield (and the market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
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n
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Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other
financial institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Free Money Market Fund, risk of loss from payment default may also exist where municipal instruments are
backed by foreign letters of credit or guarantees.
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n
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Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the
time period stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
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Risk that applies to the Prime Obligations, Money Market, Government and Federal Funds:
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n
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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.
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Risks that apply to the Money Market Fund:
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n
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Foreign Risk—
The risk that a foreign security could lose value as a result of political,
financial and economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Fund may not
invest more than 25% of its total assets in the securities of any one foreign government.
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n
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Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in
bank obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Fund
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
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PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Free Money Market Fund:
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n
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Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in
issuers within the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
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n
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Tax Risk—
The risk that future legislative or administrative changes or court decisions may
materially affect the value of the Fund’s portfolio and/or the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who
are not sensitive to the federal, state or local tax consequences of their investments.
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More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
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HOW THE FUNDS HAVE PERFORMED
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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’s FST Shares from year to year; and (b) the average annual returns of a Fund’s FST Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The bar
chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
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FUND PERFORMANCE
Prime Obligations Fund
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TOTAL RETURN
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CALENDAR YEAR
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Best Quarter:
Q1 ’91 1.78%
Worst Quarter:
Q2 ’93 0.78%
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AVERAGE ANNUAL TOTAL RETURN
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| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
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| FST Shares (Inception 3/8/90) | 6.44% | 5.64% | 5.17% | 5.40% | |||||
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Money Market Fund
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TOTAL RETURN
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CALENDAR YEAR
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Best Quarter:
Q3 ’00 1.65%
Worst Quarter:
Q2 ’99 1.20%
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AVERAGE ANNUAL TOTAL RETURN
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| For the period ended December 31, 2000 | 1 Year | 5 Year | Since Inception | ||||
|---|---|---|---|---|---|---|---|
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| FST Shares (Inception 5/18/94) | 6.44% | 5.65% | 5.64% | ||||
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FUND PERFORMANCE
Treasury Obligations Fund
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TOTAL RETURN
|
CALENDAR YEAR
|
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Best Quarter:
Q1 ’91 1.65%
Worst Quarter:
Q2 ’93 0.76%
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AVERAGE ANNUAL TOTAL RETURN
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| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
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| FST Shares (Inception 4/25/90) | 6.18% | 5.46% | 5.04% | 5.24% | |||||
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Treasury Instruments Fund
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TOTAL RETURN
|
CALENDAR YEAR
|
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Best Quarter:
Q4 ’00 1.55%
Worst Quarter:
Q1 ’99 1.07%
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AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
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| FST Shares (Inception 3/3/97) | 5.90% | 5.20% | |||
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FUND PERFORMANCE
Government Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.63%
Worst Quarter:
Q1 ’94 0.79%
|
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AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
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| FST Shares (Inception 4/6/93) | 6.31% | 5.55% | 5.21% | ||||
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Federal Fund
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TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.61%
Worst Quarter:
Q2 ’99 1.18%
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AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
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| FST Shares (Inception 2/28/97) | 6.26% | 5.56% | |||
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FUND PERFORMANCE
Tax-Free Money Market Fund
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TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.04%
Worst Quarter:
Q1 ’99 0.68%
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AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
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| FST Shares (Inception 7/19/94) | 3.95% | 3.47% | 3.53% | ||||
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This table describes the fees and expenses that you would pay if you buy and hold FST Shares of a Fund.
|
Prime
Obligations Fund |
Money
Market Fund |
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|---|---|---|---|---|---|
|
|
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| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.205% | 0.205% | |||
| Other Expenses 3 | 0.015% | 0.015% | |||
|
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| Total Fund Operating Expenses* | 0.220% | 0.220% | |||
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|||||
|
See page 24 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.17% | 0.17% | |||
| Other Expenses 3 | 0.01% | 0.01% | |||
|
|
|||||
|
Total Fund Operating Expenses (after current waivers and expense
limitations) |
0.18% | 0.18% | |||
|
|
|||||
FUND FEES AND EXPENSES
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee equal to 0.015% of the
Federal, Treasury Obligations and Treasury Instruments Funds’ average daily net assets and equal to 0.035% of all other Funds’ average daily net assets.
As a result of fee waivers, the current management fees of the Federal, Treasury
Obligations and Treasury Instruments Funds and all other Funds are 0.19%, 0.19%, 0.19% and 0.17%, respectively, of such Funds’ average daily net assets. The waivers may be terminated at any time at the option of the Investment
Adviser.
|
|
3
|
The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” of each Fund (excluding
management fees, taxes, interest, brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.01% of each Fund’s average daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in FST Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year
and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $23 | $71 | $124 | $280 | |||||
|
|
|||||||||
| Money Market | $23 | $71 | $124 | $280 | |||||
|
|
|||||||||
| Treasury Obligations | $24 | $74 | $130 | $293 | |||||
|
|
|||||||||
| Treasury Instruments | $29 | $90 | $158 | $357 | |||||
|
|
|||||||||
| Government | $24 | $74 | $130 | $293 | |||||
|
|
|||||||||
| Federal | $24 | $74 | $130 | $293 | |||||
|
|
|||||||||
| Tax-Free Money Market | $24 | $74 | $130 | $293 | |||||
|
|
|||||||||
Institutions that invest in FST Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their investments. You
should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain institutions that invest in FST Shares may receive other compensation in connection with the sale and distribution of FST Shares or for services to their
customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|---|
|
|
||||||
| Prime Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Instruments | 0.205 | % | 0.17% | |||
|
|
||||||
| Government | 0.205 | % | 0.17% | |||
|
|
||||||
| Federal | 0.205 | % | 0.18% | |||
|
|
||||||
| Tax-Free Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
Dividends will be distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of the
following times:
| Fund |
Dividend Declaration Time
(New York Time) |
||
|
|
|||
| Prime Obligations | 5:00 p.m. | ||
|
|
|||
| Money Market | 5:00 p.m. | ||
|
|
|||
| Treasury Obligations | 5:00 p.m. | ||
|
|
|||
| Treasury Instruments | 4:00 p.m. | ||
|
|
|||
| Government | 5:00 p.m. | ||
|
|
|||
| Federal | 4:00 p.m. | ||
|
|
|||
| Tax-Free Money Market | 4:00 p.m. | ||
|
|
|||
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
DIVIDENDS
The income declared as a dividend for the Prime Obligations, Money Market, Treasury Obligations and Government Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any, will be included in the calculation of subsequent dividends.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ FST Shares.
|
|
How Can I Purchase FST Shares Of The Funds?
|
|
You may purchase FST Shares on any business day at their NAV next determined after receipt of an order. Shares begin earning
dividends after the receipt of the purchase amount in federal funds. No sales load is charged. You may place a purchase order in writing or by telephone.
|
|
|
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
In order to make an initial investment in a Fund, you must furnish to the Fund or Goldman Sachs the Account
Application.
|
|
You may send your payment as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds –(Name of Fund and Class of Shares), 4900
Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial
intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot provide a signature guarantee.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
|
How Do I Purchase Shares Through A Financial Institution?
|
|
Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders placed by or on behalf of their customers and may designate other intermediaries to accept such
orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or
intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Authorized institutions or intermediaries will be responsible for transmitting accepted orders and payments to the Trust
within the time period agreed upon by them.
|
|
You should contact your institution or intermediary directly to learn whether it is authorized to accept orders for the
Trust.
|
|
These institutions may receive payments from the Funds or Goldman Sachs for the services provided by them with respect to the
Funds’ FST Shares. These payments may be in addition to other payments borne by the Funds.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to
the Funds, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to FST Shares, each Fund also offers other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), and are entitled to different services than FST Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
|
| Minimum initial investment | $10 million (may be | ||
| allocated among the Funds) | |||
|
|
|||
| Minimum account balance | $10 million | ||
|
|
|||
| Minimum subsequent investments | None | ||
|
|
|||
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange FST Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
| (Value of Assets of the Class) | ||||||||
| – (Liabilities of the Class) | ||||||||
| NAV | = |
|
||||||
| Number of Outstanding Shares of the Class | ||||||||
| Fund | NAV Calculated | ||
|---|---|---|---|
|
|
|||
|
Treasury Instruments, Federal and
Tax-Free Money Market |
As of the close of regular trading of the
New York Stock Exchange (normally 4:00 p.m. New York time) on each business day |
||
|
|
|||
|
Prime Obligations, Money Market,
Treasury Obligations and Government |
As of 5:00 p.m. New York time on
each business day |
||
|
|
|||
SHAREHOLDER GUIDE
|
n
|
NAV per share of each class is calculated by State Street on each business day. Fund shares will be priced on any day the New
York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
How Can I Sell FST Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, each Fund
will redeem its FST Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
You may request that redemption proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n Your name(s) and signature(s) | |||||
| n Your account number | |||||
| n The Fund name and Class of Shares | |||||
| n The dollar amount you want to sell | |||||
| n How and where to send the proceeds | |||||
| n Mail your request to: | |||||
|
Goldman Sachs Funds
4900 Sears Tower Chicago, IL 60606-6372 |
|||||
|
|
|||||
| By Telephone: |
If you have elected the telephone redemption
privilege on your Account Application: |
||||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||||
|
|
|||||
|
Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Funds as described
under “How Do I Purchase Shares Through A Financial Institution?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege described in the Additional Statement.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
SHAREHOLDER GUIDE
|
When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on your Account Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|
|
|||||
|
Treasury Instruments and
Federal Funds: |
|||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day
request is received |
|||
|
|
|||||
|
Prime Obligations, Money Market,
Treasury Obligations and Government Funds: |
|||||
| n By 5:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 5:00 p.m. New York time | Wired next business day |
Earned on day
request is received |
|||
|
|
|||||
| Tax-Free Money Market Fund: | |||||
| n By 1:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
|||
| n After 1:00 p.m. New York time | Wired next business day |
Earned on day
request is received |
|||
|
|
|||||
|
n
|
Although redemption proceeds will normally be wired as described above, under certain circumstances, (a) redemption proceeds
may be paid the next business day following receipt of a properly executed wire transfer redemption request (or up to three business days later with respect to the Tax-Free Money Market Fund) and (b) redemption requests or payments may be postponed
or suspended as permitted pursuant to Section 22(e) of the Act. Generally, under that section redemption requests or payments may be postponed or suspended if (a) the New York Stock Exchange is closed for trading or trading is restricted; (b) an
emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund’s net assets not reasonably practicable; or (c) the SEC by order permits the suspension of the right of redemption. If
you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the day the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance falls below the minimum as a result of a redemption. The Fund will give you 60
days’ prior written notice to allow you to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established brokerage accounts with Goldman Sachs in accordance with
the terms and conditions of their account agreements.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Institutional Shares of the Fund that
pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
SHAREHOLDER GUIDE
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange FST Shares of a Fund at NAV for shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n Your name(s) and signature(s) | |||||
| n Your account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||||
|
|
|||||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||||
|
|
|||||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need to Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will Be Sent Regarding Investments In FST Shares?
|
|
Recordholders will receive an annual report containing audited financial statements and a semi-annual report. To eliminate
unnecessary duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-621-2550. Recordholders will also
be provided with an individual monthly statement. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to recordholders. If you purchase shares through an institution or other intermediary,
the institution or intermediary is responsible for providing these or other reports to their customers who are the beneficial owners of the Fund shares in accordance with the rules that apply to their accounts with the institution or
intermediary.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds may enter into repurchase agreements with dealers in U.S. Government Securities and member banks of the Federal Reserve Systems which furnish collateral at least equal in value or market price to the amount
of their repurchase obligation.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which
include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interest in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral commitment
but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled payments
under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their
* Total return reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed deferred sales charge for Class B Shares (5% maximum
declining to 0% after six years) and the assumed deferred sales charge for
Class C Shares (1% if redeemed within 12 months of purchase).
B-78
foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting standards applicable to
U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have
investment objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi
cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions).This information for the periods ended December 31, 2000 has been audited by PricewaterhouseCoopers LLP, whose report along with a Fund’s financial statements, is
included in the Fund’s annual report (available upon request). The information for all other periods prior to the period ended December 31, 2000 has been audited by the Fund’s previous independent accountants.
|
|
PRIME OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28% | |||||||
| 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 (c) | |||||||
| 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | |||||||||||
| 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | |||||||||||
| 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | |||||||||||
| 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | |||||||||||
| 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | |||||||||||
| 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | |||||||||||
| 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | |||||||||||
| 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | |||||||||||
| 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | |||||||||||
| 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | |||||||||||
| 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | |||||||||||
| 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | |||||||||||
| 1.00 | 5.28 | ( c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 ( c) | |||||||
| 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | |||||||||||
| 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | |||||||||||
|
|
|||||||||||||||||
|
MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||
| 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||
| 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||
| 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||
| 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||
| 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||
| 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||
| 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||
| 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||
| 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||
| 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||
| 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||
| 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||
| 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||
| 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||
| 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99% | |||||||
| 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 (c) | |||||||
| 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | |||||||||||
| 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | |||||||||||
| 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | |||||||||||
| 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | |||||||||||
| 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | |||||||||||
| 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | |||||||||||
| 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | |||||||||||
| 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | |||||||||||
| 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | |||||||||||
| 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | |||||||||||
| 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | |||||||||||
| 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | |||||||||||
| 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 (c) | |||||||
| 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | |||||||||||
| 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY INSTRUMENTS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||
| 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||
| 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||
| 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||
| 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||
| 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||
| 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||
| 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||
| 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||
| 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||
| 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||
| 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||
| 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||
| 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||
|
|
||||||||||||||||||
|
GOVERNMENT FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09% | |||||||
| 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 (c) | |||||||
| 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 | |||||||||||
| 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 | |||||||||||
| 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 | |||||||||||
| 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 | |||||||||||
| 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 | |||||||||||
| 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 | |||||||||||
| 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 | |||||||||||
| 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 | |||||||||||
| 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 | |||||||||||
| 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 | |||||||||||
| 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 | |||||||||||
| 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 | |||||||||||
| 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 (c) | |||||||
| 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 | |||||||||||
| 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
FEDERAL FUND
|
|
Net Asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13% | |||||||
| 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 (c) | |||||||
| 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 | |||||||||||
| 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 | |||||||||||
| 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 | |||||||||||
| 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 | |||||||||||
| 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 | |||||||||||
| 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 | |||||||||||
| 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 | |||||||||||
| 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 | |||||||||||
| 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 (c) | |||||||
| 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 (c) | |||||||
| 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 (c) | |||||||
| 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 (c) | |||||||
|
|
|||||||||||||||||
|
TAX-FREE MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
Footnotes:
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88% | |||||||
| 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 (c) | |||||||
| 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | |||||||||||
| 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | |||||||||||
| 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | |||||||||||
| 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | |||||||||||
| 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | |||||||||||
| 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | |||||||||||
| 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | |||||||||||
| 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | |||||||||||
| 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | |||||||||||
| 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | |||||||||||
| 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | |||||||||||
| 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | |||||||||||
| 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 (c) | |||||||
| 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | |||||||||||
| 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | |||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 22 | Fund Fees and Expenses | |||
| 26 | Service Providers | |||
| 28 | Dividends | |||
| 30 | Shareholder Guide | |||
| 30 | How to Buy Shares | |||
| 33 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 48 |
Appendix B
Financial Highlights |
|||
Financial Square Funds
Prospectus
(FST Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Financial Square Funds
SM
is a service mark of Goldman Sachs & Co.
FSPROINSTMM
|
Prospectus
|
FST Service Shares
May 1, 2001
|
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
SM
|
|
n
|
Prime
Obligations Fund
|
|
n
|
Money
Market Fund
|
|
n
|
Treasury
Obligations Fund
|
|
n
|
Treasury
Instruments Fund
|
|
n
|
Government Fund
|
|
n
|
Federal
Fund
|
|
n
|
Tax- Free
Money Market Fund
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Funds. GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund, the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit
Department, a separate operating entity of Goldman Sachs, approves all money market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources,
ratings releases and company meetings, as well as the Investment Research, Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated
on a “real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the yield of a
portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from weekly
meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return,
in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility, are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process includes
legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence their asset volatility;
|
|
n
|
Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc.
First Tier Institutional Indices. Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by Rule 2a-7 under
the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria, including
conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government Funds.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Funds.
|
|
n
|
Tax-Exempt Fund:
Tax-Free Money Market Fund.
|
|
n
|
The Investors:
The Funds are designed for institutional investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers. Shares of the Government Fund are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit
Union Administration (“NCUA”) Rules and Regulations and NCUA Letter Number 155. The Fund intends to review changes in the applicable laws, rules and regulations governing eligible investments for federally chartered credit unions, and to
take such action as may be necessary so that the investments of the Fund qualify as eligible investments under the Federal Credit Union Act and the regulations thereunder. Shares of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Government Fund is a permissible investment under the law applicable to it.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that a Fund will be
able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule 2a-7) at the
time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required by Rule
2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are described in detail
under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury Obligations Fund’s policy
of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may
be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer. However, a Fund may invest up to 25%
of the value of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other
investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the
Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds seek to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations and Money Market Funds pursue their investment objectives by investing in U.S. Government Securities,
obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Fund may also invest in U.S. dollar-denominated obligations of
foreign banks, foreign companies and foreign governments. The Treasury Obligations Fund pursues its investment objective by investing in securities issued by the U.S. Treasury and repurchase agreements relating to such securities. The Government
Fund pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities. The Treasury Instruments and Federal Funds pursue their investment objectives by limiting their investments to
certain U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury
Instruments and Federal Funds (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
In order to obtain a rating from a rating organization, the Prime Obligations, Money Market, Treasury Obligations, Treasury
Instruments, Government and Federal Funds will observe special investment restrictions.
|
|
Tax-Exempt Fund:
|
|
The Tax-Free Money Market Fund pursues its investment objective by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
| Fund |
U.S. Treasury
Obligations |
U.S. Government Securities |
Bank
Obligations |
Commercial
Paper |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | n 1 | n |
n
U.S. banks only 2 |
n | |||||
|
|
|||||||||
| Money Market | n 1 | n |
n
Over 25% of total assets must be invested in U.S. and foreign (US$) banks 3 |
n
U.S. and foreign (US$) commercial paper |
|||||
|
|
|||||||||
| Treasury Obligations | n 4 | ||||||||
|
|
|||||||||
| Treasury Instruments | n 4 | ||||||||
|
|
|||||||||
| Government | n 1 | n | |||||||
|
|
|||||||||
| Federal | n 1 |
n
|
|||||||
|
|
|||||||||
|
Tax-Free Money
Market |
n
Tax-exempt only |
||||||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits) the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Fund may invest in U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Investment Policies Matrix continued
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Private
Activity Bonds |
Credit
Quality 9 |
Summary of
Taxation for Distributions 14 |
Miscellaneous | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
||||
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
May invest in obligations
of the International Bank for Reconstruction and Development. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Under extraordinary circumstances,
may hold cash, U.S. Government Securities subject to state taxation or cash equivalents. Reverse repurchase agreements not permitted |
|||||
|
|
|||||||
| n | |||||||
|
Does not
intend to invest if subject to AMT 10,11 |
First
12
or
Second Tier 13 |
Tax-exempt federal
and taxable state 16 |
May (but does not currently intend
to) invest up to 20% of net assets in securities subject to AMT and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
|
11
|
No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or
similar obligations where the non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
|
|
12
|
First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
|
|
13
|
Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
|
|
14
|
See “Taxation” for an explanation of the tax consequences summarized in the table above.
|
|
15
|
Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
|
|
16
|
Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
|
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 government 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.
|
Ÿ
Applicable
— Not Applicable |
Prime Obligations Fund |
Money Market Fund |
Treasury Obligations Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| NAV | Ÿ | Ÿ | Ÿ | ||||
| Interest Rate | Ÿ | Ÿ | Ÿ | ||||
| Credit/Default | Ÿ | Ÿ | Ÿ | ||||
| Liquidity | Ÿ | Ÿ | Ÿ | ||||
| U.S. Government Securities | Ÿ | Ÿ | — | ||||
| Concentration | — | — | — | ||||
| Foreign | — | Ÿ | — | ||||
| Banking Industry | — | Ÿ | — | ||||
| Tax | — | — | — | ||||
|
|
|||||||
PRINCIPAL RISKS OF THE FUNDS
|
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| — | Ÿ | Ÿ | — | ||||
| — | — | — | Ÿ | ||||
| — | — | — | — | ||||
| — | — | — | — | ||||
| — | — | — | Ÿ | ||||
|
|
|||||||
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Free Money Market Fund, risk of loss from payment default may also exist where municipal instruments are backed by
foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Funds:
|
n
|
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 apply to the Money Market Fund:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Fund may not invest more than
25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Fund
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Free Money Market Fund:
|
n
|
Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in issuers within
the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of the Fund’s portfolio and/or the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal, state or local tax consequences of their investments.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s Service Shares from year to year; and (b) the average annual returns of a Fund’s Service Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The
bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.53%
Worst Quarter:
Q2 ’93 0.65%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 1/8/92) | 5.91% | 5.11% | 4.53% | ||||
|
|
|||||||
Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.53%
Worst Quarter:
Q2 ’99 1.07 %
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 7/14/95) | 5.92% | 5.13% | 5.15% | ||||
|
|
|||||||
FUND PERFORMANCE
Treasury Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.48%
Worst Quarter:
Q2 ’93 0.64%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 10/15/91) | 5.66% | 4.94% | 4.41% | ||||
|
|
|||||||
Treasury Instruments Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.42%
Worst Quarter:
Q1 ’99 0.94%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 3/5/97) | 5.38% | 4.67% | |||
|
|
|||||
FUND PERFORMANCE
Government Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.50%
Worst Quarter:
Q2 ’99 1.05%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 5/16/95) | 5.79% | 5.02% | 5.06% | ||||
|
|
|||||||
Federal Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.48%
Worst Quarter:
Q2 ’99 1.05%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 3/25/97) | 5.74% | 5.04% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Free Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 0.91%
Worst Quarter:
Q1 ’99 0.56%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 9/23/94) | 3.43% | 2.96% | 3.03% | ||||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold Service Shares of a Fund.
|
Prime Obligations Fund |
Money
Market Fund |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Shareholder Fees | |||||||
| (fees paid directly from your investment): | |||||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||||
| Maximum Deferred Sales Charge (Load) | None | None | |||||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||||
| Redemption Fees | None | None | |||||
| Exchange Fees | None | None | |||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees 2 | 0.205 | % | 0.205 | % | |||
| Other Expenses | 0.515 | % | 0.515 | % | |||
| Service Fees 3 | 0.250 | % | 0.250 | % | |||
| Shareholder Administration Fees | 0.250 | % | 0.250 | % | |||
| All Other Expenses 4 | 0.015 | % | 0.015 | % | |||
|
|
|||||||
| Total Fund Operating Expenses* | 0.720 | % | 0.720 | % | |||
|
|
|||||||
See page 24 for all other footnotes.
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime Obligations Fund |
Money
Market Fund |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees 2 | 0.17 | % | 0.17 | % | |||
| Other Expenses | 0.51 | % | 0.51 | % | |||
| Service Fees 3 | 0.25 | % | 0.25 | % | |||
| Shareholder Administration Fees | 0.25 | % | 0.25 | % | |||
| All Other Expenses 4 | 0.01 | % | 0.01 | % | |||
|
|
|||||||
|
Total Fund Operating Expenses (after current waivers and expense
limitations) |
0.68 | % | 0.68 | % | |||
|
|
|||||||
FUND FEES AND EXPENSES
|
Treasury Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| None | None | None | None | None | |||||||||
| None | None | None | None | None | |||||||||
| None | None | None | None | None | |||||||||
| None | None | None | None | None | |||||||||
| None | None | None | None | None | |||||||||
| 0.205% | 0.205 | % | 0.205 | % | 0.205 | % | 0.205 | % | |||||
| 0.525% | 0.575 | % | 0.525 | % | 0.525 | % | 0.525 | % | |||||
| 0.250% | 0.250 | % | 0.250 | % | 0.250 | % | 0.250 | % | |||||
| 0.250% | 0.250 | % | 0.250 | % | 0.250 | % | 0.250 | % | |||||
| 0.025% | 0.075 | % | 0.025 | % | 0.025 | % | 0.025 | % | |||||
|
|
|||||||||||||
| 0.730% | 0.780 | % | 0.730 | % | 0.730 | % | 0.730 | % | |||||
|
|
|||||||||||||
|
Treasury Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||||||
|
|
|||||||||||||
| 0.19% | 0.19 | % | 0.17 | % | 0.19 | % | 0.17 | % | |||||
| 0.51% | 0.51 | % | 0.51 | % | 0.51 | % | 0.51 | % | |||||
| 0.25% | 0.25 | % | 0.25 | % | 0.25 | % | 0.25 | % | |||||
| 0.25% | 0.25 | % | 0.25 | % | 0.25 | % | 0.25 | % | |||||
| 0.01% | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | |||||
|
|
|||||||||||||
| 0.70% | 0.70 | % | 0.68 | % | 0.70 | % | 0.68 | % | |||||
|
|
|||||||||||||
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
The Investment Adviser has voluntarily
agreed not to impose a portion of the management fee equal to 0.015% of the Federal, Treasury Obligations and Treasury Instruments Funds’ average daily net assets and equal to 0.035% of all other Funds’ average daily net assets. As a
result of fee waivers, the current management fees of the Federal, Treasury Obligations and Treasury Instruments Funds and all other Funds are 0.19%, 0.19%, 0.19% and 0.17%, respectively, of such Funds’ average daily net assets. The waivers may
be terminated at any time at the option of the Investment Adviser.
|
|
3
|
Service Organizations may charge other fees directly to their customers who are beneficial owners of Service Shares
in connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
|
4
|
The Investment Adviser has voluntarily agreed to reduce or limit “All Other Expenses” of each Fund
(excluding management fees, service fees, shareholder administration fees, taxes, interest, brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.01% of each Fund’s average daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Service Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $74 | $230 | $401 | $894 | |||||
|
|
|||||||||
| Money Market | $74 | $230 | $401 | $894 | |||||
|
|
|||||||||
| Treasury Obligations | $75 | $233 | $406 | $906 | |||||
|
|
|||||||||
| Treasury Instruments | $80 | $249 | $433 | $966 | |||||
|
|
|||||||||
| Government | $75 | $233 | $406 | $906 | |||||
|
|
|||||||||
| Federal | $75 | $233 | $406 | $906 | |||||
|
|
|||||||||
| Tax-Free Money Market | $75 | $233 | $406 | $906 | |||||
|
|
|||||||||
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other compensation in connection with the sale and distribution of Service Shares or for
services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
||||
|---|---|---|---|---|---|---|
|
|
||||||
| Prime Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Obligations | 0.205 | % | 0.17% | |||
|
|
||||||
| Treasury Instruments | 0.205 | % | 0.17% | |||
|
|
||||||
| Government | 0.205 | % | 0.17% | |||
|
|
||||||
| Federal | 0.205 | % | 0.18% | |||
|
|
||||||
| Tax-Free Money Market | 0.205 | % | 0.17% | |||
|
|
||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
Dividends will be distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of the
following times:
| Fund |
Dividend Declaration Time
(New York Time) |
||
|
|
|||
| Prime Obligations | 5:00 p.m. | ||
|
|
|||
| Money Market | 5:00 p.m. | ||
|
|
|||
| Treasury Obligations | 5:00 p.m. | ||
|
|
|||
| Treasury Instruments | 4:00 p.m. | ||
|
|
|||
| Government | 5:00 p.m. | ||
|
|
|||
| Federal | 4:00 p.m. | ||
|
|
|||
| Tax-Free Money Market | 4:00 p.m. | ||
|
|
|||
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
DIVIDENDS
The income declared as a dividend for the Prime Obligations, Money Market, Treasury Obligations and Government Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any, will be included in the calculation of subsequent dividends.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Service Shares.
|
|
How Can I Purchase Service Shares Of The Funds?
|
|
Generally, Service Shares may be purchased only through institutions that have agreed to provide shareholder administration
and personal and account maintenance services to their customers who are the beneficial owners of Service Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Service Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of the
purchase amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
SHAREHOLDER GUIDE
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds – (Name of Fund and Class of Shares),
4900 Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Treasury Obligations and Federal Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
|
Prime Obligations, Money Market, Treasury Obligations and
Government Funds: |
|||
| n By 5:00 p.m. New York time | Same business day | ||
| n After 5:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Free Money Market Fund: | |||
| n By 2:00 p.m. New York time | Same business day | ||
| n After 2:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Service
Shares:
|
|
n
Personal and account maintenance services; and
|
|
n
Shareholder administration services.
|
|
Personal and account maintenance services include:
|
|
n
|
Providing facilities to answer inquiries and respond to correspondence with the Service Organization’s
customers
|
|
n
|
Acting as liaison between the Service Organization’s customers and the Trust
|
|
n
|
Assisting customers in completing application forms, selecting dividend and other options, and similar services
|
|
Shareholder administration services include:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem and exchange shares for customers
|
|
n
|
Processing payments for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.25% (annualized) for shareholder
administration services of the average daily net assets of the Service Shares of the Funds that are attributable to or held in the name of a Service Organization for its customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Service Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), and are entitled to different services than Service Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover of this Prospectus.
|
SHAREHOLDER GUIDE
|
What Is My Minimum Investment In The Funds?
|
|
|
| Minimum initial investment |
$10 million (may be
allocated among the Funds) |
||
|
|
|||
| Minimum account balance | $10 million | ||
|
|
|||
| Minimum subsequent investments | None | ||
|
|
|||
|
A Service Organization may, however, impose a minimum amount for initial and subsequent investments in Service Shares and may
establish other requirements such as a minimum account balance. A Service Organization may redeem Service Shares held by non-complying accounts, and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a Fund’s
investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Service Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
| Fund | NAV Calculated | ||
|---|---|---|---|
|
|
|||
|
Treasury Instruments, Federal and
Tax-Free Money Market |
As of the close of regular trading of the
New York Stock Exchange (normally 4:00 p.m. New York time) on each business day |
||
|
|
|||
|
Prime Obligations, Money Market,
Treasury Obligations and Government |
As of 5:00 p.m. New York time on each
business day |
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n
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NAV per share of each class is calculated by State Street on each business day. Fund shares will be priced on any day the New
York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
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n
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On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
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n
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The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
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To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
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How Can I Sell Service Shares Of The Funds?
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Generally, Service Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account Application.
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Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege described in the Additional Statement.
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SHAREHOLDER GUIDE
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What Do I Need To Know About Telephone Redemption Requests?
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The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
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All telephone requests are recorded.
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n
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Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
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n
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The telephone redemption option may be modified or terminated at any time.
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
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When Will Redemption Proceeds Be Wired?
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Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
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| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
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Treasury Instruments and Federal
Funds: |
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| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
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Prime Obligations, Money Market,
Treasury Obligations and Government: |
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| n By 5:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 5:00 p.m. New York time | Wired next business day |
Earned on day
request is received |
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| Tax-Free Money Market Fund: | |||||
| n By 1:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 1:00 p.m. New York time | Wired next business day |
Earned on day
request is received |
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Although redemption proceeds will normally be wired as described above, under certain circumstances, (a) redemption proceeds
may be paid the next business day following receipt of a properly executed wire transfer redemption request (or up to three business days later with respect to the Tax-Free Money Market Fund) and (b) redemption requests or payments may be postponed
or suspended as permitted pursuant to Section 22(e) of the Act. Generally, under that section redemption requests or payments may be postponed or suspended if (a) the New York Stock Exchange is closed for trading or trading is restricted; (b) an
emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund’s net assets not reasonably practicable; or (c) the SEC by order permits the suspension of the right of redemption. If
you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the day the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
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Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
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What Else Do I Need To Know About Redemptions?
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The following generally applies to redemption requests:
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Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
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Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
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The Trust reserves the right to:
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Redeem the Service Shares of any Service Organization whose account balance falls below the minimum as a result of a
redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established
brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
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Redeem shares in other circumstances determined by the Board of Trustees to be in the best interest of the Trust.
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SHAREHOLDER GUIDE
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Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
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Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Service Shares of the Fund that pays
the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
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Can I Exchange My Investment From One Fund To Another?
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A Service Organization may exchange Service Shares of a Fund at NAV for shares of the corresponding class of any other
Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
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| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
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| By Writing: | n Write a letter of instruction that includes: | ||||
| n The recordholder name(s) and signature(s) | |||||
| n The account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
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| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
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n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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You should keep in mind the following factors when making or considering an exchange:
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
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Telephone exchanges normally will be made only to an identically registered account.
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
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Exchanges are available only in states where exchanges may be legally made.
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
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Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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Exchanges into Funds that are closed to new investors may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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What Types Of Reports Will I Be Sent Regarding Investments In Service Shares?
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Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Service Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
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As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which
include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities and generally are not
bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts which evidence ownership of future interest payments, principal payments or
both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi
cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
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Both domestic and foreign securities that are not
readily marketable
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Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions).This information for the periods ended December 31, 2000 has been audited by PricewaterhouseCoopers LLP, whose report along with a Fund’s financial statements, is
included in the Fund’s annual report (available upon request). The information for all other periods prior to the period ended December 31, 2000 has been audited by the Fund’s previous independent accountants.
|
|
PRIME OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28 |
%
|
|||||||
| 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 |
(c)
|
|||||||
| 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | ||||||||||||
| 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | ||||||||||||
| 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | ||||||||||||
| 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | ||||||||||||
| 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | ||||||||||||
| 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | ||||||||||||
| 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | ||||||||||||
| 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | ||||||||||||
| 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | ||||||||||||
| 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | ||||||||||||
| 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | ||||||||||||
| 1.00 | 5.28 | ( c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 |
(
c)
|
|||||||
| 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||
| 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
|
MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||
| 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||
| 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||
| 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||
| 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||
| 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||
| 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||
| 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||
| 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||
| 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||
| 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||
| 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||
| 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||
| 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||
| 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||
| 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99 |
%
|
|||||||
| 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 | (c) | |||||||
| 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | ||||||||||||
| 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | ||||||||||||
| 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | ||||||||||||
| 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | ||||||||||||
| 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | ||||||||||||
| 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | ||||||||||||
| 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | ||||||||||||
| 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | ||||||||||||
| 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | ||||||||||||
| 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | ||||||||||||
| 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | ||||||||||||
| 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | ||||||||||||
| 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 |
(c)
|
|||||||
| 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | ||||||||||||
| 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||
| 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||
| 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||
| 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||
| 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||
| 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||
| 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||
| 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||
| 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||
| 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||
| 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||
| 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||
| 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||
| 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||
|
|
||||||||||||||||||
|
GOVERNMENT FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09 |
%
|
|||||||
| 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 |
(c)
|
|||||||
| 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 | ||||||||||||
| 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 | ||||||||||||
| 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 | ||||||||||||
| 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 | ||||||||||||
| 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 | ||||||||||||
| 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 | ||||||||||||
| 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 | ||||||||||||
| 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||
| 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 | ||||||||||||
| 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 | ||||||||||||
| 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 | ||||||||||||
| 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 | ||||||||||||
| 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 |
(c)
|
|||||||
| 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 | ||||||||||||
| 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL FUND
|
|
Net Asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13 |
%
|
|||||||
| 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 |
(c)
|
|||||||
| 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 | ||||||||||||
| 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 | ||||||||||||
| 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 | ||||||||||||
| 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 | ||||||||||||
| 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 | ||||||||||||
| 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 | ||||||||||||
| 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 | ||||||||||||
| 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 | ||||||||||||
| 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 |
(c)
|
|||||||
| 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 |
(c)
|
|||||||
| 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 |
(c)
|
|||||||
| 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 |
(c)
|
|||||||
|
|
||||||||||||||||||
|
TAX-FREE MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
Footnotes:
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(b)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all distri-butions and a
complete redemption of the investment at the net asset value at the end of the period.
|
|
(c)
|
Annualized.
|
|
(d)
|
Not annualized.
|
APPENDIX B
|
Ratios assuming no expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88 |
%
|
|||||||
| 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 |
(c)
|
|||||||
| 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | ||||||||||||
| 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | ||||||||||||
| 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | ||||||||||||
| 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | ||||||||||||
| 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | ||||||||||||
| 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | ||||||||||||
| 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | ||||||||||||
| 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | ||||||||||||
| 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | ||||||||||||
| 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | ||||||||||||
| 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | ||||||||||||
| 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | ||||||||||||
| 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 |
(c)
|
|||||||
| 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | ||||||||||||
| 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | ||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 22 |
Fund Fees and Expenses
|
|||
| 26 |
Service Providers
|
|||
| 28 | Dividends | |||
| 30 | Shareholder Guide | |||
| 30 | How to Buy Shares | |||
| 34 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 48 |
Appendix B
Financial Highlights |
|||
Financial Square Funds
Prospectus
(FST Service Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
|
The Funds’ investment company registration number is 811-5349.
|
|
Goldman Sachs Financial Square Funds
SM
is a service mark of Goldman, Sachs & Co.
|
FSPROSVCMM
|
Prospectus
|
FST Administration Shares
May 1, 2001
|
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
SM
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
n
|
Prime
Obligations Fund
|
|
n
|
Money
Market Fund
|
|
n
|
Treasury
Obligations Fund
|
|
n
|
Treasury
Instruments Fund
|
|
n
|
Government Fund
|
|
n
|
Federal
Fund
|
|
n
|
Tax-Free
Money Market Fund
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Funds. GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund, the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money
market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research,
Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the yield of a
portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from weekly
meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return,
in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility, are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process includes
legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence their asset volatility;
|
|
n
|
Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc.
First Tier Institutional Indices. Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by Rule 2a-7 under
the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria, including
conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government Funds.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Funds.
|
|
n
|
Tax-Exempt Fund:
Tax-Free Money Market Fund.
|
|
n
|
The Investors:
The Funds are designed for institutional investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers. Shares of the Government Fund are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit
Union Administration (“NCUA”) Rules and Regulations and NCUA Letter Number 155. The Fund intends to review changes in the applicable laws, rules and regulations governing eligible investments for federally chartered credit unions, and to
take such action as may be necessary so that the investments of the Fund qualify as eligible investments under the Federal Credit Union Act and the regulations thereunder. Shares of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Government Fund is a permissible investment under the law applicable to it.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that a Fund will be
able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule 2a-7) at the
time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required by Rule
2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are described in detail
under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury Obligations Fund’s policy
of limiting its investments to U.S. Treasury Obli
gations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder
approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer. However, a Fund may invest up to 25%
of the value of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other
investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the
Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds seek to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations and Money Market Funds pursue their investment objectives by investing in U.S. Government Securities,
obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Fund may also invest in U.S. dollar-denominated obligations of
foreign banks, foreign companies and foreign governments. The Treasury Obligations Fund pursues its investment objective by investing in securities issued by the U.S. Treasury and repurchase agreements relating to such securities. The Government
Fund pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities. The Treasury Instruments and Federal Funds pursue their investment objectives by limiting their investments to
certain U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury
Instruments and Federal Funds (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
In order to obtain a rating from a rating organization, the Prime Obligations, Money Market, Treasury Obligations, Treasury
Instruments, Government and Federal Funds will observe special investment restrictions.
|
|
Tax-Exempt Fund:
|
|
The Tax-Free Money Market Fund pursues its investment objective by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
| Fund |
U.S. Treasury
Obligations |
U.S. Government Securities |
Bank
Obligations |
Commercial
Paper |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | n 1 | n |
n
U.S. banks only 2 |
n | |||||
|
|
|||||||||
| Money Market | n 1 | n |
n
Over 25% of total assets must be invested in U.S. and foreign (US$) banks 3 |
n
U.S. and foreign (US$) commercial paper |
|||||
|
|
|||||||||
| Treasury Obligations | n 4 | ||||||||
|
|
|||||||||
| Treasury Instruments | n 4 | ||||||||
|
|
|||||||||
| Government | n 1 | n | |||||||
|
|
|||||||||
| Federal | n 1 |
n
|
|||||||
|
|
|||||||||
|
Tax-Free Money
Market |
n
Tax-exempt only |
||||||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits) the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Fund may invest in U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Investment Policies Matrix continued
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Private
Activity Bonds |
Credit
Quality 9 |
Summary of
Taxation for Distributions 14 |
Miscellaneous | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
||||
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
May invest in obligations
of the International Bank for Reconstruction and Development. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Under extraordinary circumstances,
may hold cash, U.S. Government Securities subject to state taxation or cash equivalents. Reverse repurchase agreements not permitted |
|||||
|
|
|||||||
| n | |||||||
|
Does not
intend to invest if subject to AMT 10,11 |
First
12
or
Second Tier 13 |
Tax-exempt federal
and taxable state 16 |
May (but does not currently intend
to) invest up to 20% of net assets in securities subject to AMT and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
|
11
|
No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or
similar obligations where the non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
|
|
12
|
First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
|
|
13
|
Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
|
|
14
|
See “Taxation” for an explanation of the tax consequences summarized in the table above.
|
|
15
|
Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
|
|
16
|
Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
|
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 government 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.
|
Ÿ
Applicable
— Not Applicable |
Prime Obligations Fund |
Money Market Fund |
Treasury Obligations Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| NAV | Ÿ | Ÿ | Ÿ | ||||
| Interest Rate | Ÿ | Ÿ | Ÿ | ||||
| Credit/Default | Ÿ | Ÿ | Ÿ | ||||
| Liquidity | Ÿ | Ÿ | Ÿ | ||||
| U.S. Government Securities | Ÿ | Ÿ | — | ||||
| Concentration | — | — | — | ||||
| Foreign | — | Ÿ | — | ||||
| Banking Industry | — | Ÿ | — | ||||
| Tax | — | — | — | ||||
|
|
|||||||
PRINCIPAL RISKS OF THE FUNDS
|
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| — | Ÿ | Ÿ | — | ||||
| — | — | — | Ÿ | ||||
| — | — | — | — | ||||
| — | — | — | — | ||||
| — | — | — | Ÿ | ||||
|
|
|||||||
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s
yield (and the market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other
financial institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Free Money Market Fund, risk of loss from payment default may also exist where municipal instruments are
backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the
time period stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Funds:
|
n
|
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 apply to the Money Market Fund:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political,
financial and economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Fund may not
invest more than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in
bank obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Fund
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Free Money Market Fund:
|
n
|
Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in
issuers within the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may
materially affect the value of the Fund’s portfolio and/or the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who
are not sensitive to the federal, state or local tax consequences of their investments.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s Administration Shares from year to year; and (b) the average annual returns of a Fund’s Administration Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance
volatility. The bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect.
If expense limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.59%
Worst Quarter:
Q2 ’93 0.71%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 11/9/92) | 6.18% | 5.37% | 4.91% | ||||
|
|
|||||||
Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q3 ’00 1.59%
Worst Quarter:
Q2 ’99 1.14%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 5/20/94) | 6.18% | 5.39% | 5.38% | ||||
|
|
|||||||
FUND PERFORMANCE
Treasury Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.54%
Worst Quarter:
Q1 ’94 0.72%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 1/21/93) | 5.92% | 5.20% | 4.81% | ||||
|
|
|||||||
Treasury Instruments Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.48%
Worst Quarter:
Q1 ’99 1.01%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Administration Shares (Inception 4/1/97) | 5.64% | 4.93% | |||
|
|
|||||
FUND PERFORMANCE
Government Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.56%
Worst Quarter:
Q1 ’94 0.73%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 9/1/93) | 6.05% | 5.28% | 5.06% | ||||
|
|
|||||||
Federal Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 1.55%
Worst Quarter:
Q2 ’99 1.11%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Administration Shares (Inception 4/1/97) | 6.00% | 5.30% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Free Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q4 ’00 0.97%
Worst Quarter:
Q1 ’99 0.62%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 8/1/94) | 3.69% | 3.21% | 3.28% | ||||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold Administration Shares of a Fund.
|
Prime Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
|
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends |
None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.205% | 0.205% | |||
| Other Expenses | 0.265% | 0.265% | |||
| Administration Fees 3 | 0.250% | 0.250% | |||
| All Other Expenses 4 | 0.015% | 0.015% | |||
|
|
|||||
| Total Fund Operating Expenses* | 0.470% | 0.470% | |||
|
|
|||||
|
See page 24 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.17% | 0.17% | |||
| Other Expenses | 0.26% | 0.26% | |||
| Administration Fees 3 | 0.25% | 0.25% | |||
| All Other Expenses 4 | 0.01% | 0.01% | |||
|
|
|||||
|
Total Fund Operating Expenses (after current waivers and
expense limitations) |
0.43% | 0.43% | |||
|
|
|||||
FUNDS FEES AND EXPENSES
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| None | None | None | None | None | |||||
| 0.205% | 0.205% | 0.205% | 0.205% | 0.205% | |||||
| 0.275% | 0.325% | 0.275% | 0.275% | 0.275% | |||||
| 0.250% | 0.250% | 0.250% | 0.250% | 0.250% | |||||
| 0.025% | 0.075% | 0.025% | 0.025% | 0.025% | |||||
|
|
|||||||||
| 0.480% | 0.530% | 0.480% | 0.480% | 0.480% | |||||
|
|
|||||||||
|
Treasury Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| 0.19% | 0.19% | 0.17% | 0.19% | 0.17% | |||||
| 0.26% | 0.26% | 0.26% | 0.26% | 0.26% | |||||
| 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | |||||
| 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | |||||
|
|
|||||||||
| 0.45% | 0.45% | 0.43% | 0.45% | 0.43% | |||||
|
|
|||||||||
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
The Investment Adviser has voluntarily
agreed not to impose a portion of the management fee equal to 0.015% of the Federal , Treasury Obligations and Treasury Instruments Funds’ average daily net assets and equal to 0.035% of all other Funds’ average daily net assets.
As a
result of fee waivers, the current management fees of the Federal, Treasury Obligations and Treasury Instruments Funds and all other Funds are 0.19%, 0.19%, 0.19% and 0.17%, respectively, of such Funds’ average daily net assets. The waivers may
be terminated at any time at the option of the Investment Adviser.
|
|
3
|
Service Organizations may charge other fees directly to their customers who are beneficial owners of Administration
Shares in connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
4
The Investment Adviser has voluntarily agreed to reduce or limit “All Other Expenses”
of each Fund (excluding management fees, administration fees, taxes, interest, brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.01% of each Fund’s average daily net assets.
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Administration Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return
each year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $48 | $151 | $263 | $591 | |||||
|
|
|||||||||
| Money Market | $48 | $151 | $263 | $591 | |||||
|
|
|||||||||
| Treasury Obligations | $49 | $154 | $269 | $604 | |||||
|
|
|||||||||
| Treasury Instruments | $54 | $170 | $296 | $665 | |||||
|
|
|||||||||
| Government | $49 | $154 | $269 | $604 | |||||
|
|
|||||||||
| Federal | $49 | $154 | $269 | $604 | |||||
|
|
|||||||||
| Tax-Free Money Market | $49 | $154 | $269 | $604 | |||||
|
|
|||||||||
Service Organizations that invest in Administration Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with
their investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Administration Shares may receive other compensation in connection with the sale and distribution of Administration Shares
or for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional
Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.205% | 0.17% | |||
|
|
|||||
| Money Market | 0.205% | 0.17% | |||
|
|
|||||
| Treasury Obligations | 0.205% | 0.17% | |||
|
|
|||||
| Treasury Instruments | 0.205% | 0.17% | |||
|
|
|||||
| Government | 0.205% | 0.17% | |||
|
|
|||||
| Federal | 0.205% | 0.18% | |||
|
|
|||||
| Tax-Free Money Market | 0.205% | 0.17% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
Dividends will be distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of the
following times:
| Fund |
Dividend Declaration Time
(New York Time) |
||
|
|
|||
| Prime Obligations | 5:00 p.m. | ||
|
|
|||
| Money Market | 5:00 p.m. | ||
|
|
|||
| Treasury Obligations | 5:00 p.m. | ||
|
|
|||
| Treasury Instruments | 4:00 p.m. | ||
|
|
|||
| Government | 5:00 p.m. | ||
|
|
|||
| Federal | 4:00 p.m. | ||
|
|
|||
| Tax-Free Money Market | 4:00 p.m. | ||
|
|
|||
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
DIVIDENDS
The income declared as a dividend for the Prime Obligations, Money Market, Treasury Obligations and Government Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any, will be included in the calculation of subsequent dividends.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Administration Shares.
|
|
How Can I Purchase Administration Shares Of The Funds?
|
|
Generally, Administration Shares may be purchased only through institutions that have agreed to provide shareholder
administration and maintenance services to their customers who are the beneficial owners of Administration Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Administration Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of
the purchase amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
SHAREHOLDER GUIDE
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds - (Name of Fund and Class of Shares), 4900
Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Treasury Instruments and Federal Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
|
Prime Obligations, Money Market, Treasury Obligations and
Government Funds: |
|||
| n By 5:00 p.m. New York time | Same business day | ||
| n After 5:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Free Money Market Fund: | |||
| n By 2:00 p.m. New York time | Same business day | ||
| n After 2:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in
Administration Shares:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem or exchange shares for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to an administration plan adopted by the Trust’s Board of Trustees, Service Organizations are entitled to
receive payment for their services from the Trust of up to 0.25% (on an annualized basis) of the average daily net assets of the Administration Shares of the Funds, which are attributable to or held in the name of the Service Organization for its
customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Administration Shares, each Fund also offers other classes of shares to investors. These other share classes
are subject to different fees and expenses (which affect performance), and are entitled to different services than Administration Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman
Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
|
| Minimum initial investment |
$10 million (may be
allocated among the Funds) |
||
|
|
|||
| Minimum account balance | $10 million | ||
|
|
|||
| Minimum subsequent investments | None | ||
|
|
|||
|
A Service Organization may, however, impose a minimum amount for initial and subsequent investments in Administration Shares
and may establish other requirements such as a minimum account balance. A Service Organization may redeem Administration Shares held by non-complying accounts, and may impose a charge for any special services.
|
SHAREHOLDER GUIDE
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a Fund’s
investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Administration Shares is the Fund’s next determined NAV. The
Funds calculate NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
| Fund | NAV Calculated | ||
|---|---|---|---|
|
|
|||
|
Treasury Instruments, Federal and Tax-
Free Money Market |
As of the close of regular trading of the New
York Stock Exchange (normally 4:00 p.m. New York time) on each business day |
||
|
|
|||
|
Prime Obligations, Money Market,
Treasury Obligations and Government |
As of 5:00 p.m. New York time on each
business day |
||
|
|
|||
|
n
|
NAV per share of each class is calculated by State Street on each business day. Fund shares will be priced on any day the New
York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will
normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
How Can I Sell Administration Shares Of The Funds?
|
|
Generally, Administration Shares may be sold (redeemed) only through Service Organizations. Customers of a Service
Organization will normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Administration Shares upon request
on any business day at their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account
Application.
|
|
|
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
If you have elected the telephone redemption
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege described in the Additional Statement.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The
written request may be confirmed by telephone with both the requesting party and the designated bank account to verify instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | ||||
|---|---|---|---|---|---|---|
|
|
||||||
|
Treasury Instruments and Federal
Funds: |
||||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
||||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
||||
|
|
||||||
|
Prime Obligations, Money Market,
Treasury Obligations and Government Funds: |
||||||
| n By 5:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
||||
| n After 5:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
||||
|
|
||||||
| Tax-Free Money Market Fund: | ||||||
| n By 1:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
||||
| n After 1:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
||||
|
|
||||||
|
n
|
Although redemption proceeds will normally be wired as described above, under certain circumstances, (a) redemption proceeds
may be paid the next business day following receipt of a properly executed wire transfer redemption request (or up to three business days later with respect to the Tax-Free Money Market Fund) and (b) redemption requests or payments may be postponed
or suspended as permitted pursuant to Section 22(e) of the Act. Generally, under that section redemption requests or payments may be postponed or suspended if (a) the New York Stock Exchange is closed for trading or trading is restricted; (b) an
emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund’s net assets not reasonably practicable; or (c) the SEC by order permits the suspension of the right of redemption. If
you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the
Federal Reserve Bank is closed on the day the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the Administration Shares of any Service Organization whose account balance falls below the minimum as a result of a
redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established
brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
|
|
n
|
Redeem shares in other circumstances determined by the Board of Trustees to be in the best interest of the Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Administration Shares of the Fund
that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Administration Shares of a Fund at NAV for shares of the corresponding class of any other
Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in
a Fund must satisfy the minimum initial investment requirements of that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors
may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be
subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Administration Shares?
|
|
Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Administration Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
furnish collateral at least equal in value or market price to the amount of their repurchase obligation.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which
include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have
investment objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi
cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions).This information for the periods ended December 31, 2000 has been audited by PricewaterhouseCoopers LLP, whose report along with a Fund’s financial statements, is
included in the Fund’s annual report (available upon request). The information for all other periods prior to the period ended December 31, 2000 has been audited by the Fund’s previous independent accountants.
|
|
PRIME OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28 |
%
|
|||||||
| 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 |
(c)
|
|||||||
| 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | ||||||||||||
| 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | ||||||||||||
| 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | ||||||||||||
| 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | ||||||||||||
| 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | ||||||||||||
| 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | ||||||||||||
| 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | ||||||||||||
| 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | ||||||||||||
| 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | ||||||||||||
| 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | ||||||||||||
| 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | ||||||||||||
| 1.00 | 5.28 | (c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 |
(c)
|
|||||||
| 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||
| 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
|
MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||
| 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||
| 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||
| 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||
| 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||
| 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||
| 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||
| 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||
| 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||
| 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||
| 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||
| 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||
| 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||
| 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||
| 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||
| 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99 |
%
|
|||||||
| 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 |
(c)
|
|||||||
| 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | ||||||||||||
| 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | ||||||||||||
| 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | ||||||||||||
| 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | ||||||||||||
| 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | ||||||||||||
| 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | ||||||||||||
| 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | ||||||||||||
| 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | ||||||||||||
| 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | ||||||||||||
| 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | ||||||||||||
| 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | ||||||||||||
| 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | ||||||||||||
| 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 |
(c)
|
|||||||
| 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | ||||||||||||
| 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||
| 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||
| 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||
| 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||
| 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||
| 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||
| 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||
| 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||
| 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||
| 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||
| 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||
| 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||
| 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||
| 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||
|
|
||||||||||||||||||
|
GOVERNMENT FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09 |
%
|
|||||||
| 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 |
(c)
|
|||||||
| 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 |
|
|||||||||||
| 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 |
|
|||||||||||
| 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 |
|
|||||||||||
| 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 |
|
|||||||||||
| 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 |
|
|||||||||||
| 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 |
|
|||||||||||
| 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 |
|
|||||||||||
| 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 |
|
|||||||||||
| 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 |
|
|||||||||||
| 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 |
|
|||||||||||
| 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 |
|
|||||||||||
| 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 |
|
|||||||||||
| 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 |
(c)
|
|||||||
| 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 |
|
|||||||||||
| 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 |
|
|||||||||||
|
|
||||||||||||||||||
|
FEDERAL FUND
|
|
Net Asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13 |
%
|
|||||||
| 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 |
(c)
|
|||||||
| 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 |
|
|||||||||||
| 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 |
|
|||||||||||
| 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 |
|
|||||||||||
| 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 |
|
|||||||||||
| 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 |
|
|||||||||||
| 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 |
|
|||||||||||
| 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 |
|
|||||||||||
| 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 |
|
|||||||||||
| 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 |
|
|||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 |
(c)
|
|||||||
| 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 |
(c)
|
|||||||
| 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 |
(c)
|
|||||||
| 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 |
(c)
|
|||||||
|
|
||||||||||||||||||
|
TAX-FREE MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
Footnotes:
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(b)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all distri- butions and a
complete redemption of the investment at the net asset value at the end of the period.
|
|
(c)
|
Annualized.
|
|
(d)
|
Not annualized.
|
APPENDIX B
|
Ratios assuming no expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88 |
%
|
|||||||
| 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 |
(c)
|
|||||||
| 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | ||||||||||||
| 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | ||||||||||||
| 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | ||||||||||||
| 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | ||||||||||||
| 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | ||||||||||||
| 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | ||||||||||||
| 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | ||||||||||||
| 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | ||||||||||||
| 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | ||||||||||||
| 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | ||||||||||||
| 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | ||||||||||||
| 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | ||||||||||||
| 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 |
(c)
|
|||||||
| 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | ||||||||||||
| 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | ||||||||||||
Index
| 1 |
General Investment
Management Approach |
|
| 5 |
Fund Investment Objectives
and Strategies |
|
| 10 | Principal Risks of the Funds | |
| 14 | Fund Performance | |
| 22 | Fund Fees and Expenses | |
| 26 | Service Providers | |
| 28 | Dividends | |
| 30 | Shareholder Guide | |||
| 30 | How to Buy Shares | |||
| 34 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 48 |
Appendix B
Financial Highlights |
|||
Financial Square Funds
Prospectus
(FST Administration Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Financial Squares Funds
SM
is a service mark of Goldman, Sachs & Co.
FSPROADMM
|
Prospectus
|
FST Select Shares
May 1, 2001
|
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
SM
|
|
n
|
Prime
Obligations Fund
|
|
n
|
Money
Market Fund
|
|
n
|
Treasury
Obligations Fund
|
|
n
|
Treasury
Instruments Fund
|
|
n
|
Government Fund
|
|
n
|
Federal
Fund
|
|
n
|
Tax-Free
Money Market Fund
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Funds. GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund, the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money
market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research,
Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the yield of a
portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from weekly
meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return,
in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility, are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process includes
legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence their asset volatility;
|
|
n
|
Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc.
First Tier Institutional Indices. Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by Rule 2a-7 under
the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria, including
conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government Funds.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Funds.
|
|
n
|
Tax-Exempt Fund:
Tax-Free Money Market Fund.
|
|
n
|
The Investors:
The Funds are designed for institutional investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers. Shares of the Government Fund are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit
Union Administration (“NCUA”) Rules and Regulations and NCUA Letter Number 155. The Fund intends to review changes in the applicable laws, rules and regulations governing eligible investments for federally chartered credit unions, and to
take such action as may be necessary so that the investments of the Fund qualify as eligible investments under the Federal Credit Union Act and the regulations thereunder. Shares of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Government Fund is a permissible investment under the law applicable to it.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that a Fund will be
able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule 2a-7) at the
time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required by Rule
2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are described in detail
under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury Obligations Fund’s policy
of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may
be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer. However, a Fund may invest up to 25%
of the value of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other
investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the
Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds seek to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations and Money Market Funds pursue their investment objectives by investing in U.S. Government Securities,
obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Fund may also invest in U.S. dollar-denominated obligations of
foreign banks, foreign companies and foreign governments. The Treasury Obligations Fund pursues its investment objective by investing in securities issued by the U.S. Treasury and repurchase agreements relating to such securities. The Government
Fund pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities. The Treasury Instruments and Federal Funds pursue their investment objectives by limiting their investments to
certain U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury
Instruments and Federal Funds (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
In order to obtain a rating from a rating organization, the Prime Obligations, Money Market, Treasury Obligations, Treasury
Instruments, Government and Federal Funds will observe special investment restrictions.
|
|
Tax-Exempt Fund:
|
|
The Tax-Free Money Market Fund pursues its investment objective by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
| Fund |
U.S. Treasury
Obligations |
U.S. Government Securities |
Bank
Obligations |
Commercial
Paper |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | n 1 | n |
n
U.S. banks only 2 |
n | |||||
|
|
|||||||||
| Money Market | n 1 | n |
n
Over 25% of total assets must be invested in U.S. and foreign (US$) banks 3 |
n
U.S. and foreign (US$) commercial paper |
|||||
|
|
|||||||||
| Treasury Obligations | n 4 | ||||||||
|
|
|||||||||
| Treasury Instruments | n 4 | ||||||||
|
|
|||||||||
| Government | n 1 | n | |||||||
|
|
|||||||||
| Federal | n 1 |
n
|
|||||||
|
|
|||||||||
|
Tax-Free Money
Market |
n
Tax-exempt only |
||||||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits) the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Fund may invest in U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Investment Policies Matrix continued
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
Private
Activity Bonds |
Credit
Quality 9 |
Summary of
Taxation for Distributions 14 |
Miscellaneous | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
||||
|
|
|||||||
| n | First Tier 12 | Taxable federal and state 15 |
May invest in obligations
of the International Bank for Reconstruction and Development. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 | Taxable federal and state 15 |
Reverse repurchase agreements not
permitted |
|||||
|
|
|||||||
| First Tier 12 |
Taxable federal and
generally exempt from state taxation |
Under extraordinary circumstances,
may hold cash, U.S. Government Securities subject to state taxation or cash equivalents. Reverse repurchase agreements not permitted |
|||||
|
|
|||||||
| n | |||||||
|
Does not
intend to invest if subject to AMT 10,11 |
First
12
or
Second Tier 13 |
Tax-exempt federal
and taxable state 16 |
May (but does not currently intend
to) invest up to 20% of net assets in securities subject to AMT and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted |
||||
|
|
|||||||
|
11
|
No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or
similar obligations where the non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
|
|
12
|
First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
|
|
13
|
Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
|
|
14
|
See “Taxation” for an explanation of the tax consequences summarized in the table above.
|
|
15
|
Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
|
|
16
|
Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
|
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 government 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.
|
Ÿ
Applicable
— Not Applicable |
Prime Obligations Fund |
Money Market Fund |
Treasury Obligations Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| NAV | Ÿ | Ÿ | Ÿ | ||||
| Interest Rate | Ÿ | Ÿ | Ÿ | ||||
| Credit/Default | Ÿ | Ÿ | Ÿ | ||||
| Liquidity | Ÿ | Ÿ | Ÿ | ||||
| U.S. Government Securities | Ÿ | Ÿ | — | ||||
| Concentration | — | — | — | ||||
| Foreign | — | Ÿ | — | ||||
| Banking Industry | — | Ÿ | — | ||||
| Tax | — | — | — | ||||
|
|
|||||||
PRINCIPAL RISKS OF THE FUNDS
|
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| Ÿ | Ÿ | Ÿ | Ÿ | ||||
| — | Ÿ | Ÿ | — | ||||
| — | — | — | Ÿ | ||||
| — | — | — | — | ||||
| — | — | — | — | ||||
| — | — | — | Ÿ | ||||
|
|
|||||||
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Free Money Market Fund, risk of loss from payment default may also exist where municipal instruments are backed by
foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Funds:
|
n
|
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 apply to the Money Market Fund:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Fund may not invest more than
25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Fund
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Free Money Market Fund:
|
n
|
Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in issuers within
the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of the Fund’s portfolio and/or the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal, state or local tax consequences of their investments.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE FUNDS HAVE PERFORMED
|
|
Select Shares of the Funds have less than one calendar year’s performance. For this reason, the performance information
shown below is for another class of shares (FST Shares) that is not offered in this Prospectus but would have similar annual returns because both classes of shares will be invested in the same portfolio of securities. Annual returns will differ only
to the extent that the classes do not have the same expenses. In reviewing this performance information, however, you should be aware that FST Shares are not subject to a service fee while Select Shares are subject to a service fee of .03 of 1%. If
the expenses of the Select Shares were reflected, performance would be reduced.
|
|
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’s FST Shares from year to year; and (b) the average annual returns of a Fund’s FST Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The bar
chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q1 ’91 1.78%
Worst Quarter:
Q2 ’93 0.78%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| FST Shares (Inception 3/8/90) | 6.44% | 5.64% | 5.17% | 5.40% | |||||
|
|
|||||||||
Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q3 ’00 1.65%
Worst Quarter:
Q2 ’99 1.20%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| FST Shares (Inception 5/18/94) | 6.44% | 5.65% | 5.64% | ||||
|
|
|||||||
FUND PERFORMANCE
Treasury Obligations Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q1 ‘91 1.65%
Worst Quarter:
Q2 ‘93 0.76%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| FST Shares (Inception 4/25/90) | 6.18% | 5.46% | 5.04% | 5.24% | |||||
|
|
|||||||||
Treasury Instruments Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q4 ‘00 1.55%
Worst Quarter:
Q1 ‘99 1.07%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| FST Shares (Inception 3/3/97) | 5.90% | 5.20% | |||
|
|
|||||
FUND PERFORMANCE
Government Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q4 ’00 1.63%
Worst Quarter:
Q1 ’94 0.79%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| FST Shares (Inception 4/6/93) | 6.31% | 5.55% | 5.21% | ||||
|
|
|||||||
Federal Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q4 ’00 1.61%
Worst Quarter:
Q2 ’99 1.18%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| FST Shares (Inception 2/28/97) | 6.26% | 5.56% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Free Money Market Fund
|
TOTAL RETURN
|
CALENDAR YEAR (FST Shares)
|
|
Best Quarter:
Q4 ’00 1.04%
Worst Quarter:
Q1 ’99 0.68%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| FST Shares (Inception 7/19/94) | 3.95% | 3.47% | 3.53% | ||||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold Select Shares of a Fund.
|
Prime
Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Shareholder Fees | |||||
| (fees paid directly from your investment): | |||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | |||
| Maximum Deferred Sales Charge (Load) | None | None | |||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | None | |||
| Redemption Fees | None | None | |||
| Exchange Fees | None | None | |||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.205% | 0.205% | |||
| Other Expenses | 0.045% | 0.045% | |||
| Select Service Fees 3 | 0.030% | 0.030% | |||
| All Other Expenses 4 | 0.015% | 0.015% | |||
|
|
|||||
| Total Fund Operating Expenses* | 0.250% | 0.250% | |||
|
|
|||||
|
See page 24 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, the estimated “Other Expenses” and “Total Fund
Operating Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs,
“Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Fund |
Money
Market Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Annual Fund Operating Expenses | |||||
| (expenses that are deducted from Fund assets): 1 | |||||
| Management Fees 2 | 0.17% | 0.17% | |||
| Other Expenses | 0.04% | 0.04% | |||
| Select Service Fees 3 | 0.03% | 0.03% | |||
| All Other Expenses 4 | 0.01% | 0.01% | |||
|
|
|||||
|
Total Fund Operating Expenses (after current waivers and expense
limitations) |
0.21% | 0.21% | |||
|
|
|||||
FUND FEES AND EXPENSES
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
None
|
None
|
None
|
None
|
None
|
|||||
|
None
|
None
|
None
|
None
|
None
|
|||||
|
None
|
None
|
None
|
None
|
None
|
|||||
|
None
|
None
|
None
|
None
|
None
|
|||||
|
None
|
None
|
None
|
None
|
None
|
|||||
|
|
|||||||||
|
|
|||||||||
|
0.205%
|
0.205%
|
0.205%
|
0.205%
|
0.205%
|
|||||
|
0.055%
|
0.105%
|
0.055%
|
0.055%
|
0.055%
|
|||||
|
0.030%
|
0.030%
|
0.030%
|
0.030%
|
0.030%
|
|||||
|
0.025%
|
0.075%
|
0.025%
|
0.025%
|
0.025%
|
|||||
|
|
|||||||||
|
0.260%
|
0.310%
|
0.260%
|
0.260%
|
0.260%
|
|||||
|
|
|||||||||
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
0.19%
|
|
0.19%
|
|
0.17%
|
|
0.19%
|
|
0.17%
|
|
|
0.04%
|
|
0.04%
|
|
0.04%
|
|
0.04%
|
|
0.04%
|
|
|
0.03%
|
|
0.03%
|
|
0.03%
|
|
0.03%
|
|
0.03%
|
|
|
0.01%
|
|
0.01%
|
|
0.01%
|
|
0.01%
|
|
0.01%
|
|
|
|
|||||||||
|
|
|||||||||
|
0.23%
|
|
0.23%
|
|
0.21%
|
|
0.23%
|
|
0.21%
|
|
|
|
|||||||||
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee equal to 0.015% of the
Federal, Treasury Obligations and Treasury Instruments Funds’ average daily net assets and equal to 0.035% of all other Funds’ average daily net assets.
As a result of fee waivers, the current management fees of the Federal, Treasury
Obligations and Treasury Instruments Funds and all other Funds are 0.19%, 0.19%, 0.19% and 0.17%, respectively, of such Funds’ average daily net assets.
The waivers may be terminated at any time at the option of the Investment
Adviser
.
|
|
3
|
Service Organizations may charge other fees directly to their customers who are beneficial owners of Select Shares
in connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
|
4
|
The Investment Adviser has voluntarily
agreed to reduce or limit “All Other Expenses” of each Fund (excluding management fees, select service fees, taxes, interest, brokerage fees and litigation, indemnification and other extraordinary expenses) to 0.01% of each Fund’s
average daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Select Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $26 | $80 | $141 | $318 | |||||
|
|
|||||||||
| Money Market | $26 | $80 | $141 | $318 | |||||
|
|
|||||||||
| Treasury Obligations | $27 | $84 | $146 | $331 | |||||
|
|
|||||||||
| Treasury Instruments | $32 | $100 | $174 | $393 | |||||
|
|
|||||||||
| Government | $27 | $84 | $146 | $331 | |||||
|
|
|||||||||
| Federal | $27 | $84 | $146 | $331 | |||||
|
|
|||||||||
| Tax-Free Money Market | $27 | $84 | $146 | $331 | |||||
|
|
|||||||||
Service Organizations that invest in Select Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Select Shares may receive other compensation in connection with the sale and distribution of Select Shares or for services
to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.205% | 0.17% | |||
|
|
|||||
| Money Market | 0.205% | 0.17% | |||
|
|
|||||
| Treasury Obligations | 0.205% | 0.17% | |||
|
|
|||||
| Treasury Instruments | 0.205% | 0.17% | |||
|
|
|||||
| Government | 0.205% | 0.17% | |||
|
|
|||||
| Federal | 0.205% | 0.18% | |||
|
|
|||||
| Tax-Free Money Market | 0.205% | 0.17% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
Dividends will be distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of the
following times:
| Fund |
Dividend Declaration Time
(New York Time) |
||
|
|
|||
| Prime Obligations | 5:00 p.m. | ||
|
|
|||
| Money Market | 5:00 p.m. | ||
|
|
|||
| Treasury Obligations | 5:00 p.m. | ||
|
|
|||
| Treasury Instruments | 4:00 p.m. | ||
|
|
|||
| Government | 5:00 p.m. | ||
|
|
|||
| Federal | 4:00 p.m. | ||
|
|
|||
| Tax-Free Money Market | 4:00 p.m. | ||
|
|
|||
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
DIVIDENDS
The income declared as a dividend for the Prime Obligations, Money Market, Treasury Obligations and Government Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any, will be included in the calculation of subsequent dividends.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Select Shares.
|
|
How Can I Purchase Select Shares Of The Funds?
|
|
Generally, Select Shares may be purchased only through institutions that have agreed to provide shareholder administration
and maintenance services to their customers who are the beneficial owners of Select Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers. Generally, Select
Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of the purchase amount in
federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs an Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
SHAREHOLDER GUIDE
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company
(“Northern”), as sub-custodian for State Street Bank and Trust Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to
Goldman Sachs Funds –(Name of Fund and Class of Shares), 4900 Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Treasury Instruments and Federal Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
|
Prime Obligations, Money Market, Treasury Obligations and
Government Funds: |
|||
| n By 5:00 p.m. New York time | Same business day | ||
| n After 5:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Free Money Market Fund: | |||
| n By 2:00 p.m. New York time | Same business day | ||
| n After 2:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Select
Shares:
|
|
n
|
Acting, directly or through an agent, as the sole
shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem or exchange
shares for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in
proper form when the order is accepted by the authorized Service Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be
responsible for transmitting accepted orders and payments to the Trust within the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a select plan adopted by the Trust’s Board of Trustees, Service Organizations are entitled to receive
payment for their services from the Trust of up to .03 of 1% (on an annualized basis) of the average daily net assets of the Select Shares of the Funds, which are attributable to or held in the name of the Service Organization for its
customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Select Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), and are entitled to different services than Select Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
|
|||
| Minimum initial investment |
$10 million (may be
allocated among the Funds) |
||
|
|
|||
| Minimum account balance | $10 million | ||
|
|
|||
| Minimum subsequent investments | None | ||
|
|
|||
|
A Service Organization may, however, impose a minimum amount for initial and subsequent investments in Select Shares and may
establish other requirements such as a minimum account balance. A Service Organization may redeem Select Shares held by non-complying accounts, and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum
account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
SHAREHOLDER GUIDE
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a
Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Select Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
| NAV = |
(Value of Assets of the Class)
– (Liabilities of the Class) |
|
|
|
||
| Number of Outstanding Shares of the Class |
| Fund | NAV Calculated | ||
|---|---|---|---|
|
|
|||
|
Treasury Instruments, Federal and
Tax-Free Money Market |
As of the close of regular trading of
the New York Stock Exchange (normally 4:00 p.m. New York time) on each business day |
||
|
|
|||
|
Prime Obligations, Money Market, Treasury
Obligations and Government |
As of 5:00 p.m. New York time
on each business day |
||
|
|
|||
|
n
|
NAV per share of each class is calculated by State
Street on each business day. Fund shares will be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association
(“BMA”) recommends that the securities markets close early, each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and
redemption orders received after the Fund’s closing time and credit will be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by
which purchase and redemption orders must be received for same business day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
How Can I Sell Select Shares Of The Funds?
|
|
Generally, Select Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Select Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account Application.
|
| Instructions For Redemptions: | |||
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
If you have elected the telephone
redemption privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege described in the Additional Statement.
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What Do I Need To Know About Telephone Redemption Requests?
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The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
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All telephone requests are recorded.
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n
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Any redemption request that requires money to go to an
account or address other than that designated on the Account Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party
and the designated bank account to verify instructions.
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The telephone redemption option may be modified or terminated at any time.
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
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SHAREHOLDER GUIDE
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When Will Redemption Proceeds Be Wired?
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Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
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| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
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|||||
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Treasury Instruments and Federal
Funds: |
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| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
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Prime Obligations, Money Market,
Treasury Obligations and Government Funds: |
|||||
| n By 5:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 5:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
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|
|||||
| Tax-Free Money Market Fund: | |||||
| n By 1:00 p.m. New York time | Wired same business day |
Not earned on day
request is received |
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| n After 1:00 p.m. New York time | Wired next business day |
Earned on day request
is received |
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Although redemption proceeds will normally be wired as
described above, under certain circumstances, (a) redemption proceeds may be paid the next business day following receipt of a properly executed wire transfer redemption request (or up to three business days later with respect to the Tax-Free Money
Market Fund) and (b) redemption requests or payments may be postponed or suspended as permitted pursuant to Section 22(e) of the Act. Generally, under that section redemption requests or payments may be postponed or suspended if (a) the New York
Stock Exchange is closed for trading or trading is restricted; (b) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund’s net assets not reasonably practicable; or (c) the
SEC by order permits the suspension of the right of redemption. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the
day the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
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Neither the Trust nor Goldman Sachs assumes any
responsibility for the performance of intermediaries or your Service Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
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What Else Do I Need To Know About Redemptions?
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The following generally applies to redemption requests:
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Additional documentation may be required when deemed
appropriate by the Transfer Agent. A redemption request will not be in proper form until such additional documentation has been received.
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Service Organizations are responsible for the timely
transmittal of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service
Organizations may also require additional documentation from you.
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The Trust reserves the right to:
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Redeem the Select Shares of any Service Organization
whose account balance falls below the minimum as a result of a redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption.
Different rules may apply to investors who have established brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
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Redeem shares in other circumstances determined by the
Board of Trustees to be in the best interest of the Trust.
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Pay redemptions by a distribution in-kind of securities
(instead of cash). If you receive redemption proceeds in-kind, you should expect to incur transaction costs upon the disposition of those securities.
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Reinvest any dividends or other distributions which you
have elected to receive in cash should your check for such dividends or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be
reinvested at NAV in additional Fund shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
SHAREHOLDER GUIDE
|
Can I Exchange My Investment From One Fund To Another?
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|
A Service Organization may exchange Select Shares of a Fund at NAV for shares of the corresponding class of any other Goldman
Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||
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|
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| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
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|
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| By Telephone: |
If you have elected the telephone
exchange privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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You should keep in mind the following factors when making or considering an exchange:
|
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n
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You should obtain and carefully read the prospectus of
the Fund you are acquiring before making an exchange.
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n
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All exchanges which represent an initial investment in
a Fund must satisfy the minimum initial investment requirements of that Fund, except that this requirement may be waived at the discretion of the Trust.
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n
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Telephone exchanges normally will be made only to an
identically registered account.
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n
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
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n
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Exchanges are available only in states where exchanges
may be legally made.
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n
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It may be difficult to make telephone exchanges in
times of drastic economic or market conditions.
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Goldman Sachs may use reasonable procedures described
under “What Do I Need To Know About Telephone Redemption Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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n
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Exchanges into Funds that are closed to new investors
may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered
in the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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What Types Of Reports Will I Be Sent Regarding Investments In Select Shares?
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Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Select Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
APPENDIX A
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting
standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts
which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
APPENDIX A
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
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n
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Both domestic and foreign securities that are not
readily marketable
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Certain municipal leases and participation
interests
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Certain stripped mortgage-backed securities
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Repurchase agreements and time deposits with a notice
or demand period of more than seven days
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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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions).This information for the periods ended December 31, 2000 has been audited by PricewaterhouseCoopers LLP, whose report along with a Fund’s financial statements, is
included in the Fund’s annual report (available upon request). The information for all other periods prior to the period ended December 31, 2000 has been audited by the Fund’s previous independent accountants.
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PRIME OBLIGATIONS FUND
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Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28 |
%
|
|||||||
| 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 |
(c)
|
|||||||
| 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | ||||||||||||
| 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | ||||||||||||
| 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | ||||||||||||
| 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | ||||||||||||
| 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | ||||||||||||
| 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | ||||||||||||
| 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | ||||||||||||
| 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | ||||||||||||
| 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | ||||||||||||
| 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | ||||||||||||
| 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | ||||||||||||
| 1.00 | 5.28 | ( c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 |
(
c)
|
|||||||
| 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||
| 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
|
MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||
| 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||
| 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||
| 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||
| 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||
| 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||
| 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||
| 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||
| 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||
| 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||
| 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||
| 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||
| 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||
| 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||
| 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||
| 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||
| 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY OBLIGATIONS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99 |
%
|
|||||||
| 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 |
(c)
|
|||||||
| 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | ||||||||||||
| 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | ||||||||||||
| 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | ||||||||||||
| 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | ||||||||||||
| 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | ||||||||||||
| 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | ||||||||||||
| 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | ||||||||||||
| 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | ||||||||||||
| 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | ||||||||||||
| 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | ||||||||||||
| 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | ||||||||||||
| 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | ||||||||||||
| 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 |
(c)
|
|||||||
| 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | ||||||||||||
| 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||
| 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||
| 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||
| 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||
| 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||
| 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||
| 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||
| 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||
| 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||
| 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||
| 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||
| 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||
| 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||
| 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||
|
|
||||||||||||||||||
|
GOVERNMENT FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09 |
%
|
|||||||
| 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 |
(c)
|
|||||||
| 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 | ||||||||||||
| 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 | ||||||||||||
| 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 | ||||||||||||
| 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 | ||||||||||||
| 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 | ||||||||||||
| 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 | ||||||||||||
| 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 | ||||||||||||
| 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||
| 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 | ||||||||||||
| 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 | ||||||||||||
| 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 | ||||||||||||
| 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 | ||||||||||||
| 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 |
(c)
|
|||||||
| 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 | ||||||||||||
| 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL FUND
|
|
Net Asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| For the Period Ended December 31, | ||||||||
| 1997 - FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
See page 60 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13 |
%
|
|||||||
| 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 |
(c)
|
|||||||
| 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 | ||||||||||||
| 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 | ||||||||||||
| 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 | ||||||||||||
| 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 | ||||||||||||
| 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 | ||||||||||||
| 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 | ||||||||||||
| 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 | ||||||||||||
| 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 | ||||||||||||
| 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 |
(c)
|
|||||||
| 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 |
(c)
|
|||||||
| 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 |
(c)
|
|||||||
| 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 |
(c)
|
|||||||
|
|
||||||||||||||||||
|
TAX-FREE MONEY MARKET FUND
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - FST Shares | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1998 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - FST Shares | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - FST Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
| 1996 - FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - FST Service Shares | 1.00 | 0.03 | (0.03 | ) | ||||
Footnotes:
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88 |
%
|
|||||||
| 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 |
(c)
|
|||||||
| 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | ||||||||||||
| 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | ||||||||||||
| 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | ||||||||||||
| 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | ||||||||||||
| 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | ||||||||||||
| 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | ||||||||||||
| 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | ||||||||||||
| 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | ||||||||||||
| 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | ||||||||||||
| 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | ||||||||||||
| 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | ||||||||||||
| 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | ||||||||||||
| 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 |
(c)
|
|||||||
| 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | ||||||||||||
| 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | ||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 22 | Fund Fees And Expenses | |||
| 26 | Service Providers | |||
| 28 | Dividends | |||
| 30 | Shareholder Guide | |||
| 30 | How to Buy Shares | |||
| 34 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 48 |
Appendix B
Financial Highlights |
|||
Financial Square Funds
Prospectus
(FST Select Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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 , Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
Goldman Sachs Financial Square Funds
SM
is a service mark of Goldman Sachs & Co.
FSPROSELECT
|
Prospectus
|
ILA (“Units” or “Shares”)
May 1, 2001
|
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
|
|
n
|
Prime
Obligations Portfolio
|
|
n
|
Money
Market Portfolio
|
|
n
|
Treasury
Obligations Portfolio
|
|
n
|
Treasury
Instruments Portfolio
|
|
n
|
Government Portfolio
|
|
n
|
Federal
Portfolio
|
|
n
|
Tax-Exempt Diversified Portfolio
|
|
n
|
Tax-Exempt California Portfolio
|
|
n
|
Tax-Exempt New York Portfolio
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Institutional Liquid Assets Portfolios (the “Funds”). GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money market
fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research, Legal
and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM)
target—
WAM (the weighted average time until the yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by
the portfolio management team based on insights gained from weekly meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio
structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility,
are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new
securities—
The Investment Adviser’s five-step process includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence
their asset volatility;
|
|
n
|
Technical events that influence the trading range of
federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the
portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc. First Tier Institutional Indices.
Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by
Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria
including conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government
Portfolios.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Portfolios.
|
|
n
|
Tax-Exempt Funds:
Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios.
|
|
n
|
The Investors:
The Funds are designed for investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that
a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule
2a-7) at the time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required
by Rule 2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are
described in detail under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions and the investment objective of a Fund (except the Tax-Exempt California and Tax-Exempt New York Portfolios’
objectives of providing shareholders with income exempt from California personal income tax and New York State and New York City personal income taxes, respectively) cannot be changed without approval of a majority of the outstanding shares of that
Fund. The Treasury Obligations Portfolio’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance
with current regulations of the Securities and Exchange Commis
sion (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer with these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York Portfolios
may each invest up to 25% of their total assets in five or fewer issuers; and (b) each of the other Funds may invest up to 25% of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to
cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier
Securities” as defined by the SEC are subject to different diversification requirements as described in the Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government and Federal Portfolios seek to
maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
The Prime Obligations and Money Market Portfolios pursue their investment objectives by investing in U.S. Government
Securities, obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Portfolio may also invest in U.S. dollar-denominated
obligations of foreign banks, foreign companies and foreign governments.
|
|
The Treasury Obligations Portfolio pursues its investment objective by investing in securities issued by the U.S. Treasury
and repurchase agreements relating to such securities. The Government Portfolio pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities.
|
|
The Treasury Instruments and Federal Portfolios pursue their investment objectives by limiting their investments to certain
U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury Instruments and
Federal Portfolios (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
Tax-Exempt Funds:
|
|
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders, to the
extent consistent with the preservation of capital and prescribed portfolio standards, with a high level of income exempt from federal income tax by investing primarily in municipal obligations.
|
|
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders with income exempt
from California personal income tax and New York State and New York City personal income taxes, respectively, by investing in obligations the interest on which is exempt from these taxes. (These instruments are called “California
obligations” and “New York obligations” in this Prospectus.)
|
|
The Tax-Exempt Funds pursue their investment objectives by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits), the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Money Market Portfolio may invest in U.S. dollar-denominated obligations (limited to commercial paper and other
notes) issued or guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in
the highest short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
Investment Policies Matrix continued
| Fund |
Municipals |
Custodial
Receipts |
Unrated
Securities 9 |
Investment
Companies |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
Prime Obligations
|
n 7 | n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Money Market | n 7 | n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Treasury Obligations | |||||||||
|
|
|||||||||
| Treasury Instruments | |||||||||
|
|
|||||||||
| Government |
n
Up to 10% of total assets in other investment companies |
||||||||
|
|
|||||||||
| Federal | |||||||||
|
|
|||||||||
| Tax-Exempt Diversified |
n
At least 80% of net assets in tax-exempt municipal obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt California |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in California obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt New York |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in New York obligations (except in extraordinary circumstances) 8 |
n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of a Fund’s portfolio securities will be invested in municipal obligations, but
the Funds may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of a Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
11 No more than 25% of the value of a Fund’s total assets may be invested in industrial development bonds or similar obligations where the
non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
12 First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only one NRSRO has assigned a rating, by
that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier Securities.
13 Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
14 See “Taxation” for an explanation of the tax consequences summarized in the table above.
15 Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S. Government Securities interest
income.
16 Taxable except for distributions from interest on obligations of an investor’s state of residence in certain states.
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 government 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.
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios, risk of loss from payment default
may also exist where municipal instruments are backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Portfolios:
|
n
|
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 apply to the Money Market Portfolio:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Portfolio may not invest more
than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Portfolio
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Exempt Funds:
|
n
|
Concentration Risk—
The risk that if a Fund invests more than 25% of its total assets in issuers within the
same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of a Fund’s portfolio and/or the ability of a Fund to pay federal tax-exempt dividends (in the case of each of these Funds) and state tax-exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt New York
Portfolios). These Funds would not be a suitable investment for IRAs, other tax-exempt or tax deferred accounts or for other investors who are not sensitive to the federal, state or local tax consequences of these investments.
|
|
n
|
California/New York Risks
— The Tax-Exempt California and Tax-Exempt New York Portfolios intend to invest
at least 65% of their total assets in California municipal obligations and New York municipal obligations, respectively. The investments of these Funds will, therefore, be affected by political and economic developments within these states, and by
the financial condition of these states, their public authorities and political sub-divisions. If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income,
NAV, and ability to preserve or realize appreciation of capital or liquidity could be adversely affected. The Tax-Exempt California and Tax-Exempt New York Portfolios are classified as “non-diversified” for regulatory purposes. See
Appendix A in this Prospectus for more information concerning the risks of investing in California and New York.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s ILA Shares from year to year; and (b) the average annual returns of a Fund’s ILA Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The bar
chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.71%
Worst Quarter
Q2 ’93 0.72%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 1/1/81) | 6.14% | 5.39% | 4.96% | 7.23% | |||||
|
|
|||||||||
Money Market Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ‘91 1.72%
Worst Quarter
Q2 ’93 0.74%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 1/1/88) | 6.18% | 5.43% | 5.00% | 5.77% | |||||
|
|
|||||||||
FUND PERFORMANCE
Treasury Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.61%
Worst Quarter
Q2 ’93 0.70%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 12/1/81) | 5.95% | 5.22% | 4.81% | 6.56% | |||||
|
|
|||||||||
Treasury Instruments Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 1.48%
Worst Quarter
Q2 ’93 0.72%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| ILA Shares (Inception 1/30/91) | 5.62% | 5.05% | 4.71% | ||||
|
|
|||||||
FUND PERFORMANCE
Government Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.63%
Worst Quarter
Q2 ’93 0.72%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 1/1/81) | 6.05% | 5.29% | 4.87% | 7.05% | |||||
|
|
|||||||||
Federal Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.65%
Worst Quarter
Q2 ’93 0.73%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 5/22/89) | 6.03% | 5.35% | 4.92% | 5.39% | |||||
|
|
|||||||||
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.13%
Worst Quarter
Q1 ’94 0.52%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 3/3/83) | 3.74% | 3.28% | 3.22% | 4.06% | |||||
|
|
|||||||||
Tax-Exempt California Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ’91 0.98%
Worst Quarter
Q1 ’94 0.48%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| ILA Shares (Inception 10/4/88) | 3.17% | 2.96% | 2.95% | 3.43% | |||||
|
|
|||||||||
FUND PERFORMANCE
Tax-Exempt New York Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 0.94%
Worst Quarter
Q1 ’94 0.48%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| ILA Shares (Inception 2/15/91) | 3.57% | 3.14% | 3.06% | ||||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold ILA Shares of a Fund.
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Shareholder Fees | |||||||
| (fees paid directly from your investment): | |||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
None | None | None | ||||
| Maximum Deferred Sales Charge (Load) | None | None | None | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | ||||
| Redemption Fees | None | None | None | ||||
| Exchange Fees | None | None | None | ||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses 2 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
| Total Fund Operating Expenses* 3 | 0.43% | 0.41% | 0.42% | ||||
|
|
|||||||
|
See page 26 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser with the approval of the
Trustees. If this occurs, “Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses 2 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after current
expense limitations) 3 |
0.43% | 0.41% | 0.42% | ||||
|
|
|||||||
FUND FEES AND EXPENSES
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net assets
of each Fund’s ILA Shares plus all other ordinary expenses not detailed above.
|
|
3
|
The Investment Adviser has voluntarily agreed to reduce or limit “Total Fund Operating Expenses” of each
Fund (excluding taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) such that Total Fund Operating Expenses will not exceed 0.43% of each Fund’s average daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in ILA Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and
that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $44 | $138 | $241 | $542 | |||||
|
|
|||||||||
| Money Market | $42 | $132 | $230 | $518 | |||||
|
|
|||||||||
| Treasury Obligations | $43 | $135 | $235 | $530 | |||||
|
|
|||||||||
| Treasury Instruments | $46 | $144 | $252 | $567 | |||||
|
|
|||||||||
| Government | $49 | $154 | $269 | $604 | |||||
|
|
|||||||||
| Federal | $41 | $128 | $224 | $505 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | $42 | $132 | $230 | $518 | |||||
|
|
|||||||||
| Tax-Exempt California | $43 | $135 | $235 | $530 | |||||
|
|
|||||||||
| Tax-Exempt New York | $48 | $151 | $263 | $591 | |||||
|
|
|||||||||
Institutions that invest in ILA Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their investments. You
should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investment.
Certain institutions that invest in ILA Shares may receive other compensation in connection with the sale and distribution of ILA Shares or for services to their
customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Money Market | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Instruments | 0.35% | 0.35% | |||
|
|
|||||
| Government | 0.35% | 0.35% | |||
|
|
|||||
| Federal | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt Diversified | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt California | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt New York | 0.35% | 0.35% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ ILA Shares.
|
|
How Can I Purchase Shares Of The Funds?
|
|
You may purchase ILA Shares on any business day at their NAV next determined after receipt of an order. Shares begin earning
dividends after the receipt of the purchase amount in federal funds. No sales load is charged. You may place a purchase order in writing or by telephone.
|
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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In order to make an initial investment in a Fund, you must furnish to the Fund or Goldman Sachs the Account
Application.
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You may send your payment as follows:
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n
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Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
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n
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Send a check or Federal Reserve draft payable to Goldman Sachs Funds – (Name of Fund and Class of Shares),
4900 Sears Tower, Chicago, Illinois 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
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It is strongly recommended that payment be effected by wiring federal funds to Northern.
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It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
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In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
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When Do Shares Begin Earning Dividends?
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Dividends begin to accrue as follows:
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| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
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| Taxable and Tax-Advantaged Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
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| Tax-Exempt Funds: | |||
| n By 1:00 p.m. New York time | Same business day | ||
| n After 1:00 p.m. New York time | Next business day | ||
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How Do I Purchase Shares Through A Financial Institution?
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Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders placed by or on behalf of their customers and may designate other intermediaries to accept such
orders, if approved by the Trust. In these cases:
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n
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A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or
intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
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n
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Authorized institutions or intermediaries will be responsible for transmitting accepted orders and payments to the Trust
within the time period agreed upon by them.
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You should contact your institution or intermediary directly to learn whether it is authorized to accept orders for the
Trust.
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These institutions may receive payments from the Funds or Goldman Sachs for the services provided by them with respect to the
Funds’ ILA Shares. These payments may be in addition to other payments borne by the Funds.
|
SHAREHOLDER GUIDE
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The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
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In addition to ILA Shares, each Fund also offers other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than ILA Shares. Information regarding these other share classes may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
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What Is My Minimum Investment In The Funds?
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| Minimum initial investment |
$50,000 (may be
allocated among the Funds) |
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| Minimum account balance | $50,000 | ||
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| Minimum subsequent investments | None | ||
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What Else Should I Know About Share Purchases?
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The Trust reserves the right to:
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Modify or waive the minimum investment and minimum account balance requirement.
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n
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Reject any purchase order for any reason.
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The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
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How Are Shares Priced?
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The price you pay or receive when you buy, sell or exchange ILA Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
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| (Value of Assets of the Class) | ||
| NAV = | – (Liabilities of the Class) | |
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| Number of Outstanding Shares of the Class |
|
n
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NAV per share of each class is calculated by State Street 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 be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
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On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
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n
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The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
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To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
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How Can I Sell ILA Shares Of The Funds?
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You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, each Fund
will redeem its ILA Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
You may request that redemption proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
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| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
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| By Telephone: |
If you have elected telephone redemption privilege on
your Account Application: |
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n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Funds as described
under “How Do I Purchase Shares
Through A Financial Institution?” You may also take advantage of the check redemption privilege, described below.
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What Do I Need To Know About Telephone Redemption Requests?
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The Trust, the Distributor, and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
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n
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All telephone requests are recorded.
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n
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Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
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n
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The telephone redemption option may be modified or terminated at any time.
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
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When Will Redemption Proceeds Be Wired?
|
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Redemption proceeds will normally be wired to the bank account designated on your Account Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
| Taxable and Tax-Advantaged Funds: | |||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
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| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
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| Tax-Exempt Funds: | |||||
| n By 12:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
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| n After 12:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
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n
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Although redemption proceeds will normally be wired as described above, each Fund reserves the right to pay redemption
proceeds up to three business days following receipt of a properly executed wire transfer redemption request. If
you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring
the redemption proceeds may be delayed one additional business day.
|
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n
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To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Transfer Agent.
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n
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Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
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What Should I Know About The Check Redemption Privilege?
|
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You may elect to have a special account with State Street for the purpose of redeeming ILA Shares from your account by
check.
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The following general policies govern the check redemption privilege:
|
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n
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You will be provided with a supply of checks when State Street receives a completed signature card and authorization form.
Checks drawn on the account may be payable to the order of any person in any amount over $500, but cannot be certified.
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n
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The payee of the check may cash or deposit it just like any other check drawn on a bank.
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n
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When the check is presented to State Street for payment, a sufficient number of full or fractional ILA Shares will be
redeemed to cover the amount of the check.
|
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n
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Canceled checks will be returned to you by State Street.
|
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n
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The check redemption privilege allows you to receive the dividends declared on the ILA Shares that are to be redeemed until
the check is actually processed. Because of this feature, accounts may not be completely liquidated by check.
|
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n
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If the amount of the check is greater than the value of the ILA Shares held in your account, the check will be returned
unpaid. In this case, you may be subject to extra charges.
|
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n
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The Trust reserves the right to limit the availability of, modify or terminate the check redemption privilege at any time
with respect to any or all shareholders.
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What Else Do I Need To Know About Redemptions?
|
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The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
SHAREHOLDER GUIDE
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance falls below the minimum as a result of a redemption. The Fund will give you 60
days’ prior written notice to allow you to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established brokerage accounts with Goldman Sachs in accordance with
the terms and conditions of their account agreements.
|
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n
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Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
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n
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Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
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n
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Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Institutional Shares of the Fund
that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
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Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange ILA Shares of a Fund at NAV for shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
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| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m.New York time) |
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You should keep in mind the following factors when making or considering an exchange:
|
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n
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
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n
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
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n
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Telephone exchanges normally will be made only to an identically registered account.
|
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n
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
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n
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Exchanges are available only in states where exchanges may be legally made.
|
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n
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
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Goldman Sachs may use reasonable procedures described under “What Do I Need to Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
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Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will Be Sent Regarding Investments In Shares?
|
|
Recordholders will receive an annual report containing audited financial statements and a semi-annual report. To eliminate
unnecessary duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact the Goldman Sachs Funds at 1-800-621-2550. Recordholders will
also be provided with an individual monthly statement. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to recordholders. If you purchase shares through an institution or other
intermediary, the institution or intermediary is responsible for providing these or other reports to their customers who are the beneficial owners of the Fund shares in accordance with the rules that apply to their accounts with the institution or
intermediary.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans
underlying asset-backed and receivables-backed securities can be expected to acceler ate. 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. In addition, securities that are backed by credit card, automobile and similar types of
receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligation, there is the possibility that, in some
cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes
(“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which are issued
by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private activity
bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
APPENDIX A
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting
standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local
governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies.
As a matter of fundamental policy, at least 80% of each of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios will ordinarily be invested in municipal obligations, the interest from which is, in the opinion of bond counsel, if any, excluded from gross income for federal income tax purposes. In addition, as a
matter of fundamental policy, at least 65% of each of the Tax-Exempt California and Tax-Exempt
New York Portfolio’s total assets will be invested in California and New York municipal obligations, except in extraordinary circumstances.
For these purposes, California and New York municipal obligations are obligations issued by or on behalf of the State of California or the State of New York,
respectively, and their respective political subdivisions, agencies and instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands and Guam, the interest from which is excluded from gross income for federal income tax purposes and
is exempt from California State personal income tax or New York State and New York City personal income tax. Each Tax-Exempt Fund may temporarily invest in taxable money market instruments or, in the case of the Tax-Exempt California and New York
Portfolios, in municipal obligations that are not California or New York municipal obligations, respectively, when acceptable California and New York municipal obligations are not available or when the Investment Adviser believes that the market
conditions dictate a defensive posture. Investments in taxable money market instruments will be limited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-Exempt California and Tax-Exempt New York Portfolios’ distributions
of interest from municipal obligations other than California and New York municipal obligations, respectively, may be subject to California and New York State and New York City personal income taxes. In addition, dividends paid by the Portfolios may
be subject to state corporate franchise and corporate income taxes, if applicable.
Risks of Investing in California and New York:
The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate their investments in California
and New York municipal obligations. Consequently, these Funds are more susceptible to factors adversely affecting issuers of California and New York municipal obligations, and may be riskier than comparable municipal bond funds and money market
funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio’s investments can be affected by political and economic developments within the State of California (“California”),
and by the financial condition of California, its public authorities and political subdivisions. After suffering a severe recession in the early 1990’s, California’s economy entered a sustained recovery starting in 1994, which has outpaced
the national economy in recent years. California’s budget returned to positive balance after deficits in the recession years, and has generated substantial surpluses for several years. Economic growth is expected to slow in 2001, due to a
combination of the impacts of the national economic slowdown, a cyclical slowdown in the high technology sector, and energy supply and price difficulties which have affected California since the start of 2001. These factors could reduce
California’s budget surpluses in fiscal year 2001-02. To respond to its own revenue shortfalls during the recession, California reduced assistance to its public authorities and political subdivisions, which have not been
fully restored in the more recent years of budget surpluses. California voters in the past have passed amendments to the California Constitution and other measures that limit the taxing and spending authority of California government entities, and
future initiatives could result in adverse consequences affecting California municipal obligations. In part as a result of such initiatives, local governments in California face fiscal difficulties in varying degrees.
These factors, among others (including the outcome of related pending litigation), could reduce the credit standing of certain issuers of California municipal
obligations. A more detailed discussion of the risks of investing in California is included in the Additional Statement.
The Tax-Exempt New York Portfolio’s investments will be affected by political and economic developments within the State of New York (the “State”), and
by the financial conditions of the State, its public authorities and political subdivisions, particularly the City of New York (the “City”). The State and the City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their financial obligations. Certain substantial issuers of New York municipal obligations (including issuers whose obligations may be acquired by the Fund) have, at times,
experienced serious financial difficulties. Strong demand for New York municipal obligations has also at times had the effect of permitting New York municipal obligations to be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obligations issued by other jurisdictions. A recurrence of the financial difficulties previously experienced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers’ existing obligations and, possibly, in the obligations of other issuers of New York municipal obligations. Although as of April 1, 2001 no issuers were in default with respect to the
payment of their New York municipal obligations, the occurrence of any such default could materially affect adversely the market values and marketability of all New York municipal obligations and, consequently, the value of the Fund’s holdings.
A more detailed discussion of the risks of investing in New York is included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income, NAV, ability
to preserve or realize appreciation of capital or liquidity could be adversely affected. Also, neither of these Funds is a diversified fund under the Act (except to the extent that diversification is required by Rule 2a-7 or for federal income tax
purposes). Because they may invest a larger percentage of their assets in the securities of fewer issuers than do diversified funds, these Funds may be exposed to greater risk in that an adverse change in the condition of one or a small number of
issuers would have a greater impact on them.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Fund’s financial statements, is included in the Fund’s annual
report (available upon request). The information for all periods prior to the periods ended December 31, 2000 has been audited by the Funds’ previous independent accountants.
|
|
PRIME OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| For the Years Ended December 31, | |||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA B units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - ILA C units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05) | ||||
|
|
|||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1997 - ILA C units (commenced August 15) | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA B units (commenced May 8) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||
| 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||
| 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||
| 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||
| 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||
| 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||
| 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||
| 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||
| 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||
| 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||
| 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||
| 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||
| 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||
| 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||
| 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||
| 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||
| 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||
| 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||
| 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||
| 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||
| 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||
| 1.00 | 3.97 | (c) | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||
|
|
||||||||||||||||||
|
MONEY MARKET PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $1,753,668 | 0.41% | 6.05 | % | 0.41 | % | 6.05 | % | |||||||
| 1.00 | 6.02 | 321,440 | 0.56 | 6.12 | 0.56 | 6.12 | |||||||||||
| 1.00 | 5.76 | 346,427 | 0.81 | 5.63 | 0.81 | 5.63 | |||||||||||
| 1.00 | 5.60 | 315,194 | 0.98 | 5.72 | 1.41 | 5.29 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.92 | 1,346,765 | 0.41 | 4.80 | 0.41 | 4.80 | |||||||||||
| 1.00 | 4.76 | 6,961 | 0.56 | 4.64 | 0.56 | 4.64 | |||||||||||
| 1.00 | 4.50 | 383,932 | 0.81 | 4.42 | 0.81 | 4.42 | |||||||||||
| 1.00 | 4.32 | 2 | 0.98 | 4.37 | 1.41 | 3.94 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.33 | 1,350,317 | 0.40 | 5.17 | 0.43 | 5.14 | |||||||||||
| 1.00 | 5.17 | 314,327 | 0.55 | 5.04 | 0.58 | 5.01 | |||||||||||
| 1.00 | 4.91 | 32,349 | 0.80 | 4.79 | 0.83 | 4.76 | |||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.90 (c) | 4.80 | (c) | 1.43 | (c) | 4.27 | (c) | |||||||
|
|
|||||||||||||||||
| 1.00 | 5.43 | 806,096 | 0.37 | 5.31 | 0.42 | 5.26 | |||||||||||
| 1.00 | 5.28 | 307,480 | 0.52 | 5.15 | 0.57 | 5.10 | |||||||||||
| 1.00 | 5.01 | 20,517 | 0.77 | 4.90 | 0.82 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.27 | 703,097 | 0.36 | 5.15 | 0.43 | 5.08 | |||||||||||
| 1.00 | 5.12 | 257,258 | 0.51 | 5.00 | 0.58 | 4.93 | |||||||||||
| 1.00 | 4.86 | 28,845 | 0.76 | 4.75 | 0.83 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.95 | % | $384,023 | 0.42 | % | 5.77 | % | 0.42 | % | 5.77 | % | |||||||
| 1.00 | 5.79 | 15,095 | 0.57 | 5.51 | 0.57 | 5.51 | ||||||||||||
| 1.00 | 5.52 | 493,259 | 0.82 | 5.49 | 0.82 | 5.49 | ||||||||||||
| 1.00 | 2.33 | (d) | 2,598 | 0.99 | (c) | 5.53 | (c) | 1.42 | (c) | 5.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.63 | 404,299 | 0.42 | 4.50 | 0.42 | 4.50 | ||||||||||||
| 1.00 | 4.48 | 42,334 | 0.57 | 4.35 | 0.57 | 4.35 | ||||||||||||
| 1.00 | 4.22 | 264,787 | 0.82 | 4.19 | 0.82 | 4.19 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 734,553 | 0.42 | 4.96 | 0.43 | 4.95 | ||||||||||||
| 1.00 | 4.99 | 80,464 | 0.57 | 4.88 | 0.58 | 4.87 | ||||||||||||
| 1.00 | 4.73 | 35,432 | 0.82 | 4.67 | 0.83 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.26 | 590,381 | 0.42 | 5.12 | 0.42 | 5.12 | ||||||||||||
| 1.00 | 5.10 | 124,159 | 0.57 | 4.99 | 0.57 | 4.99 | ||||||||||||
| 1.00 | 4.84 | 104,133 | 0.82 | 4.73 | 0.82 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.11 | 574,734 | 0.41 | 4.98 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 4.95 | 108,850 | 0.56 | 4.83 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.69 | 123,483 | 0.81 | 4.59 | 0.83 | 4.57 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.05 | $(0.05 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.62 | % | $201,088 | 0.43 | % | 5.49 | % | 0.45 | % | 5.47 | % | |||||||
| 1.00 | 5.46 | 21,875 | 0.58 | 5.20 | 0.60 | 5.18 | ||||||||||||
| 1.00 | 5.20 | 104,076 | 0.83 | 4.96 | 0.85 | 4.94 | ||||||||||||
| 1.00 | 2.21 | (d) | 11,577 | 1.00 | (c) | 5.22 | (c) | 1.45 | (c) | 4.77 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.38 | 224,609 | 0.43 | 4.29 | 0.43 | 4.29 | ||||||||||||
| 1.00 | 4.22 | 32,162 | 0.58 | 4.09 | 0.58 | 4.09 | ||||||||||||
| 1.00 | 3.96 | 306,483 | 0.83 | 3.90 | 0.83 | 3.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.96 | 341,476 | 0.30 | 4.83 | 0.43 | 4.70 | ||||||||||||
| 1.00 | 4.80 | 131,685 | 0.45 | 4.68 | 0.58 | 4.55 | ||||||||||||
| 1.00 | 4.54 | 374,128 | 0.70 | 4.43 | 0.83 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.17 | 330,241 | 0.22 | 5.02 | 0.42 | 4.82 | ||||||||||||
| 1.00 | 5.01 | 98,667 | 0.37 | 4.88 | 0.57 | 4.68 | ||||||||||||
| 1.00 | 4.75 | 295,404 | 0.62 | 4.63 | 0.82 | 4.43 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.10 | 708,999 | 0.21 | 4.96 | 0.43 | 4.74 | ||||||||||||
| 1.00 | 4.95 | 137,706 | 0.36 | 4.82 | 0.58 | 4.60 | ||||||||||||
| 1.00 | 4.68 | 383,901 | 0.61 | 4.56 | 0.83 | 4.34 | ||||||||||||
|
|
||||||||||||||||||
|
GOVERNMENT PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.05 | % | $126,034 | 0.43 | % | 5.84 | % | 0.48 | % | 5.79 | % | |||||||
| 1.00 | 5.89 | 562 | 0.58 | 5.57 | 0.63 | 5.52 | ||||||||||||
| 1.00 | 5.63 | 50,733 | 0.83 | 5.42 | 0.88 | 5.37 | ||||||||||||
| 1.00 | 5.50 | 44,533 | 1.00 | 5.60 | 1.48 | 5.12 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.77 | 205,244 | 0.43 | 4.64 | 0.45 | 4.62 | ||||||||||||
| 1.00 | 4.61 | 3,265 | 0.58 | 4.42 | 0.60 | 4.40 | ||||||||||||
| 1.00 | 4.35 | 79,847 | 0.83 | 4.24 | 0.85 | 4.22 | ||||||||||||
| 1.00 | 4.18 | 153 | 1.00 | 4.68 | 1.45 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.21 | 383,243 | 0.43 | 5.09 | 0.45 | 5.07 | ||||||||||||
| 1.00 | 5.05 | 7,692 | 0.58 | 4.94 | 0.60 | 4.92 | ||||||||||||
| 1.00 | 4.79 | 105,732 | 0.83 | 4.67 | 0.85 | 4.65 | ||||||||||||
| 1.00 | 4.57 | (c) | 2 | 0.93 | (c) | 4.60 | (c) | 1.45 | (c) | 4.08 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.31 | 460,457 | 0.42 | 5.16 | 0.42 | 5.16 | ||||||||||||
| 1.00 | 5.15 | 10,192 | 0.57 | 4.98 | 0.57 | 4.98 | ||||||||||||
| 1.00 | 4.89 | 83,799 | 0.82 | 4.78 | 0.82 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 694,651 | 0.41 | 5.04 | 0.44 | 5.01 | ||||||||||||
| 1.00 | 4.99 | 36,055 | 0.56 | 4.89 | 0.59 | 4.86 | ||||||||||||
| 1.00 | 4.73 | 94,228 | 0.81 | 4.63 | 0.84 | 4.60 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense limitations |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.03 | % | $4,221,684 | 0.40 | % | 5.90 | % | 0.40 | % | 5.90 | % | |||||||
| 1.00 | 5.87 | 620,138 | 0.55 | 6.01 | 0.55 | 6.01 | ||||||||||||
| 1.00 | 5.61 | 278,002 | 0.80 | 5.48 | 0.80 | 5.48 | ||||||||||||
| 1.00 | 2.36 | (d) | 778,826 | 1.00 | (c) | 5.59 | (c) | 1.43 | (c) | 5.16 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.81 | 3,171,330 | 0.41 | 4.72 | 0.41 | 4.72 | ||||||||||||
| 1.00 | 4.66 | 836 | 0.56 | 4.46 | 0.56 | 4.46 | ||||||||||||
| 1.00 | 4.39 | 284,382 | 0.81 | 4.30 | 0.81 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | 2,625,705 | 0.34 | 5.10 | 0.42 | 5.02 | ||||||||||||
| 1.00 | 5.09 | 508,297 | 0.49 | 4.97 | 0.57 | 4.89 | ||||||||||||
| 1.00 | 4.83 | 53,994 | 0.74 | 4.71 | 0.82 | 4.63 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 2,050,559 | 0.27 | 5.26 | 0.41 | 5.12 | ||||||||||||
| 1.00 | 5.24 | 530,001 | 0.42 | 5.11 | 0.56 | 4.97 | ||||||||||||
| 1.00 | 4.98 | 34,540 | 0.67 | 4.83 | 0.81 | 4.69 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.24 | 2,303,677 | 0.26 | 5.13 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 5.09 | 794,537 | 0.41 | 4.98 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.83 | 192,416 | 0.66 | 4.73 | 0.83 | 4.56 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT DIVERSIFIED PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | |||||||
| 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | ||||||||||||
| 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | ||||||||||||
| 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | ||||||||||||
| 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | ||||||||||||
| 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | ||||||||||||
| 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | ||||||||||||
| 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | ||||||||||||
| 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | ||||||||||||
| 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | ||||||||||||
| 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | ||||||||||||
| 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | ||||||||||||
| 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | ||||||||||||
| 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT CALIFORNIA PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distribution
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.03 | $(0.03 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (Re-commenced September 1) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 66 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.17 | % | $650,980 | 0.42 | % | 3.08 | % | 0.43 | % | 3.07 | % | |||||||
| 1.00 | 3.02 | 27,490 | 0.56 | 2.99 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.76 | 63 | 0.82 | 2.22 | 0.83 | 2.21 | ||||||||||||
| 1.00 | 2.63 | 71,162 | 0.98 | 2.74 | 1.42 | 2.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.60 | 895,469 | 0.42 | 2.58 | 0.42 | 2.58 | ||||||||||||
| 1.00 | 2.45 | 8,910 | 0.57 | 2.38 | 0.57 | 2.38 | ||||||||||||
| 1.00 | 2.19 | 27,229 | 0.82 | 2.39 | 0.82 | 2.39 | ||||||||||||
| 1.00 | 2.02 | 1 | 0.99 | 2.15 | 1.42 | 1.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.84 | 584,615 | 0.41 | 2.79 | 0.41 | 2.79 | ||||||||||||
| 1.00 | 2.68 | 512 | 0.56 | 2.84 | 0.56 | 2.84 | ||||||||||||
| 1.00 | 2.43 | 2 | 0.81 | 2.48 | 0.81 | 2.48 | ||||||||||||
| 1.00 | 2.25 | (c) | 2 | 0.91 | (c) | 2.37 | (c) | 1.41 | (c) | 1.87 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.15 | 591,003 | 0.42 | 3.10 | 0.42 | 3.10 | ||||||||||||
| 1.00 | 3.00 | 360 | 0.57 | 2.98 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.87 | (c) | 2 | 0.82 | (c) | 2.90 | (c) | 0.82 | (c) | 2.90 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.03 | 440,476 | 0.41 | 2.99 | 0.42 | 2.98 | ||||||||||||
| 1.00 | 2.88 | 142 | 0.56 | 2.84 | 0.57 | 2.83 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT NEW YORK PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (commenced September 15) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
Footnotes:
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.57 | % | $176,618 | 0.43 | % | 3.51 | % | 0.47 | % | 3.47 | % | |||||||
| 1.00 | 3.41 | 82,019 | 0.58 | 3.44 | 0.62 | 3.40 | ||||||||||||
| 1.00 | 3.15 | 303 | 0.83 | 3.33 | 0.87 | 3.29 | ||||||||||||
| 1.00 | 3.02 | 13,758 | 1.00 | 3.15 | 1.47 | 2.68 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.76 | 160,301 | 0.43 | 2.73 | 0.44 | 2.72 | ||||||||||||
| 1.00 | 2.60 | 37,836 | 0.58 | 2.61 | 0.59 | 2.60 | ||||||||||||
| 1.00 | 2.35 | 2 | 0.83 | 2.29 | 0.84 | 2.28 | ||||||||||||
| 1.00 | 2.17 | 2 | 1.00 | 2.34 | 1.44 | 1.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.02 | 122,550 | 0.36 | 2.96 | 0.51 | 2.81 | ||||||||||||
| 1.00 | 2.87 | 21,580 | 0.51 | 2.85 | 0.66 | 2.70 | ||||||||||||
| 1.00 | 2.61 | 2 | 0.76 | 2.61 | 0.91 | 2.46 | ||||||||||||
| 1.00 | 2.46 | (c) | 1 | 0.86 | (c) | 2.56 | (c) | 1.51 | (c) | 1.91 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.29 | 102,887 | 0.33 | 3.24 | 0.43 | 3.14 | ||||||||||||
| 1.00 | 3.14 | 31,993 | 0.48 | 3.09 | 0.58 | 2.99 | ||||||||||||
| 1.00 | 3.02 | (c) | 2 | 0.73 | (c) | 3.04 | (c) | 0.83 | (c) | 2.94 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.05 | 70,175 | 0.32 | 3.01 | 0.43 | 2.90 | ||||||||||||
| 1.00 | 2.90 | 44,319 | 0.47 | 2.88 | 0.58 | 2.77 | ||||||||||||
|
|
||||||||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 24 | Fund Fees and Expenses | |||
| 28 | Service Providers | |||
| 30 | Dividends | |||
| 31 | Shareholder Guide | |||
| 31 | How to Buy Shares | |||
| 34 | How to Sell Shares | |||
| 39 | Taxation | |||
| 40 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 50 |
Appendix B
Financial Highlights |
|||
Institutional Liquid Assets
Prospectus
(ILA Units)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
|
The Funds’ investment company registration number is 811-5349.
|
ILAPROINSTMM
|
Prospectus
|
ILA Service, ILA Class B and Class C (“Units” or “Shares“)
May 1, 2001
|
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
Prime Obligations Portfolio
|
n
|
ILA
Service
(“Units” or “Shares”), |
|
n
|
ILA Class
B and Class C (“Units” or “Shares”)
|
Tax-Exempt Diversified
Portfolio
Portfolio
|
n
|
ILA
Service
(“Units” or “Shares”) |
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Institutional Liquid Assets Portfolios (the “Funds”). GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek the preservation of capital, daily liquidity and maximum current income. With each
Fund the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money
market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research,
Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM) target—
WAM (the weighted average time until the yield of a
portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by the portfolio management team based on insights gained from weekly
meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio structure—
Proprietary models that seek the optimum balance of risk and return,
in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility, are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new securities—
The Investment Adviser’s five-step process includes
legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence their asset volatility;
|
|
n
|
Technical events that influence the trading range of federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc. First Tier Institutional Indices.
Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by Rule 2a-7 under
the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria, including
those conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Fund:
Prime Obligations Portfolio
|
|
n
|
Tax-Exempt Fund:
Tax-Exempt Diversified Portfolio
|
|
n
|
The Investors:
The Funds are designed for investors seeking a high rate of return, a stable net asset value
(“NAV”) and convenient liquidation privileges.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that a Fund will be
able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule 2a-7) at the
time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required by Rule
2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are described in detail
under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions and the investment objective of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund. All investment
policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer except that each Fund may invest up to
25% of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other
investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the
Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
Taxable Fund:
|
|
The Prime Obligations Portfolio seeks to maximize current income to the extent consistent with the preservation of capital
and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
The Prime Obligations Portfolio pursues its investment objective by investing in U.S. Government Securities, obligations of
U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements.
|
|
Tax-Exempt Fund:
|
|
The Tax-Exempt Diversified Portfolio seeks to provide shareholders, to the extent consistent with the preservation of capital
and prescribed portfolio standards, with a high level of income exempt from federal income tax by investing primarily in municipal obligations.
|
|
As a matter of fundamental policy, at least 80% of the net assets of the Tax-Exempt Diversified Portfolio will ordinarily be
invested in securities issued by or on behalf of states, territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any,
is, in the opinion of bond counsel excluded from gross income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the Funds in
seeking to achieve their investment objectives. The table also highlights the differences between 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.
|
|
Investment Policies Matrix
|
|
Prime
Obligations Portfolio |
Tax-Exempt
Diversified Portfolio |
||||
|---|---|---|---|---|---|
|
|
|||||
| U.S. Treasury Obligations | n 1 | ||||
|
|
|||||
| U.S. Government Securities | n | ||||
|
|
|||||
| Bank Obligations | n | ||||
| U.S. banks only 2 | |||||
|
|
|||||
| Commercial Paper | n | n | |||
| Tax-exempt only | |||||
|
|
|||||
|
Short-Term Obligations of Corporations
and Other Entities |
n
U.S. entities only |
||||
|
|
|||||
| Repurchase Agreements | n | ||||
|
|
|||||
|
Asset-Backed and Receivables-Backed
Securities 3 |
n | ||||
|
|
|||||
| Municipals | n 4 | n | |||
|
At least 80% of net assets in tax-
exempt municipal obligations (except in extraordinary circumstances) 5 |
|||||
|
|
|||||
| Custodial Receipts | n | n | |||
|
|
|||||
| Unrated Securities 6 | n | n | |||
|
|
|||||
| Investment Companies | n | n | |||
|
Up to 10% of total
assets in other investment companies |
Up to 10% of total assets in
other investment companies |
||||
|
|
|||||
| Private Activity Bonds | n |
n
Does not intend to invest 7 |
|||
|
|
|||||
| Credit Quality 6 | First Tier 8 | First Tier 8 or Second Tier 9 | |||
|
|
|||||
| Summary of Taxation for Distributions 10 | Taxable federal and state 11 |
Tax-exempt federal and taxable
state 12 |
|||
|
|
|||||
| Miscellaneous |
Reverse repurchase
agreements not permitted |
May (but does not currently intend
to) invest up to 20% of net assets in AMT securities and may temporarily invest in the taxable money market instruments described herein. Reverse repurchase agreements not permitted. |
|||
|
|
|||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
4
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
5
|
Ordinarily expect that 100% of the Fund’s portfolio securities will be invested in municipal obligations, but
the Fund may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
6
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
7
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of the Fund’s net
assets under normal market conditions. No more than 25% of the value of the Fund’s total assets may be invested in industrial development bonds or similar obligations where the non-governmental entities supplying the revenues from which such
bonds or obligations are to be paid are in the same industry.
|
|
8
|
First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier
Securities.
|
|
9
|
Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only
one NRSRO has assigned a rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
|
|
10
|
See “Taxation” for an explanation of the tax consequences summarized in the table above.
|
|
11
|
Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S.
Government Securities interest income.
|
|
12
|
Taxable except for distributions from interest on obligations of an investor’s state of residence in certain
states.
|
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 government 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.
|
Ÿ
Applicable
— Not Applicable |
Prime
Obligations Portfolio |
Tax-Exempt
Diversified Portfolio |
|||
|---|---|---|---|---|---|
|
|
|||||
| NAV | Ÿ | Ÿ | |||
|
|
|||||
| Interest Rate | Ÿ | Ÿ | |||
|
|
|||||
| Credit/Default | Ÿ | Ÿ | |||
|
|
|||||
| Liquidity | Ÿ | Ÿ | |||
|
|
|||||
| U.S. Government Securities | Ÿ | — | |||
|
|
|||||
| Concentration | — | Ÿ | |||
|
|
|||||
| Tax | — | Ÿ | |||
|
|
|||||
Risks that apply to each Fund:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Exempt Diversified Portfolio, risk of loss from payment default may also exist where municipal instruments are
backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations Portfolio:
|
n
|
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 apply to the Tax-Exempt Diversified Portfolio:
|
n
|
Concentration Risk—
The risk that if the Fund invests more than 25% of its total assets in issuers within
the same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the ability of the Fund to pay federal tax-exempt dividends. This Fund would not be a suitable investment for IRAs, other tax-exempt or tax deferred accounts or for other investors who are not sensitive to the federal, state or local tax
consequences of these investments.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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 the Funds’ Service Shares from year to year; and (b) the average annual returns of the Funds’ Service Shares and the Prime Obligation Portfolio’s Class B and C Shares. Investors should be aware that the fluctuation of
interest rates is one primary factor in performance volatility. The bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.
The average annual total return reflects the assumed contingent deferred sales charge (“CDSC”) for Class B Shares (5% maximum declining to 0% after six years) and the assumed CDSC for Class C Shares (1% if redeemed within 12 months of
purchase). Service Shares are not subject to any initial sales charge or CDSC. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s performance would have been reduced. You may obtain a
Fund’s current yield by calling 1-800-526-7384.
|
Prime Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (Service Shares)
|
|
Best Quarter
Q1 ’91 1.61%
Worst Quarter
Q2 ’93 0.62 %
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 6/1/90) | 5.72% | 4.97% | 4.54% | 4.71% | |||||
|
|
|||||||||
| Class B (Inception 5/8/96) | |||||||||
| Including CDSC | -0.15% | N/A | N/A | 3.88% | |||||
|
|
|||||||||
| Class C (Inception 8/15/97) | |||||||||
| Including CDSC | 4.04% | N/A | N/A | 4.41% | |||||
|
|
|||||||||
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (Service Shares)
|
|
Best Quarter
Q1 ’91 1.03%
Worst Quarter
Q1 ’94 0.42 %
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 7/2/90) | 3.33% | 2.87% | 2.81% | 2.93% | |||||
|
|
|||||||||
(Service, Class B and Class C Shares)
This table describes the fees and expenses that you would pay if you buy and hold ILA Service, Class B or Class C Shares of a Fund.
|
Prime
Obligations Portfolio |
Tax-Exempt
Diversified Portfolio |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (ILA Service) | (ILA Class B † ) | (ILA Class C † ) | (ILA Service) | ||||||||||
|
|
|||||||||||||
| Shareholder Fees | |||||||||||||
| (fees paid directly from your investment): | |||||||||||||
|
Maximum Sales Charge (Load)
Imposed on Purchases |
None | None | None | None | |||||||||
| Maximum Deferred Sales Charge (Load) 1 | None | 5.0% | 2 | 1.0% | 3 | None | |||||||
|
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends |
None | None | None | None | |||||||||
| Redemption Fees 4 | None | None | None | None | |||||||||
| Exchange Fees 4 | None | None | None | None | |||||||||
|
Annual Fund Operating
Expenses |
|||||||||||||
|
(expenses that are deducted from Fund
assets): 5 |
|||||||||||||
| Management Fees | 0.35% | 0.35% | 0.35% | 0.35% | |||||||||
|
Class B and C Distribution and Service
(12b-1) Fees |
None | 1.00% | 1.00% | None | |||||||||
| Other Expenses | 0.48% | 0.08% | 0.08% | 0.46% | |||||||||
| Service Fees 6 | 0.25 | % | None | None | 0.25 | % | |||||||
| Shareholder Administration Fees | 0.15 | % | N/A | N/A | 0.15 | % | |||||||
| All Other Expenses 7 | 0.08 | % | 0.08 | % | 0.08 | % | 0.06 | % | |||||
|
|
|||||||||||||
| Total Fund Operating Expenses 8 | 0.83% | 1.43% | 1.43% | 0.81% | |||||||||
|
|
|||||||||||||
†
Investors wishing to purchase shares of the Prime Obligations Portfolio are generally required
to purchase ILA Service Shares. ILA Class B and Class C Shares of the Prime Obligations Portfolio will typically be in exchange for Class B or Class C Shares, respectively, of another Goldman Sachs Fund.
1
The maximum CDSC is a percentage of the lesser of the NAV at the time of redemption or the NAV
when the shares were originally purchased.
2
A CDSC is imposed upon Class B Shares redeemed within six years of purchase (or initial
investment in a Goldman Sachs Fund from which an exchange is made) at a rate of 5% in the first year, declining to 1% in the sixth year, and eliminated thereafter.
3
A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of purchase (or initial
investment in a Goldman Sachs Fund from which an exchange is made).
4
A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire.
5
The Funds’ annual operating expenses are based on actual expenses.
6
Service Organizations may charge other Fees directly to their customers who are the beneficial
owners of ILA Service Shares in connection with their customers’ accounts. Such fees may affect the return such customers realize with respect to their investments.
7
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the
average daily net assets of each class plus all other ordinary expenses not detailed above.
8
The Investment Adviser has voluntarily agreed to reduce or limit “Total
Fund Operating Expenses” of each Fund (excluding distribution fees, service fees, shareholder administration fees, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) such that Total Fund
Operating Expenses will not exceed 0.43% of each Fund’s average daily net assets. The expense limitation may be terminated at any time at the option of the Investment Adviser with the approval of the Trustees.
If this occurs,
“Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Service, Class B or Class C Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | |||||||||
| ILA Service Shares | $ 85 | $265 | $460 | $1,025 | |||||
| ILA Class B Shares* | |||||||||
| – Assuming complete redemption at end of period | $646 | $752 | $982 | $1,550 | |||||
| – Assuming no redemption | $146 | $452 | $782 | $1,550 | |||||
| ILA Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $246 | $452 | $782 | $1,713 | |||||
| – Assuming no redemption | $146 | $452 | $782 | $1,713 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | |||||||||
| ILA Service Shares | $ 83 | $259 | $450 | $1,002 | |||||
|
|
|||||||||
* ILA Class B Shares convert to ILA Service Shares eight years after purchase; therefore, ILA
Class B expenses in the hypothetical example above assume this conversion.
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investment.
Certain institutions may receive other compensation in connection with the sale and distribution of shares or for services to their customers’ accounts and/or the
Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, a Fund may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt Diversified | 0.35% | 0.35% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will
normally, but not always, be declared as of 4:00 p.m. New York time as a dividend and distributed monthly. You may choose to have dividends paid in:
|
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any
time. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the applicable Fund.
|
|
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about
the first business day of each month. Net short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
|
|
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses.
In order to avoid excessive fluctuations in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the
subsequent calendar year. Although realized gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
|
|
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 Shares Of The Funds?
|
|
Each Fund offers Service Shares, and the Prime Obligations Portfolio also offers Class B and Class C Shares. You may purchase
shares on any business day at their NAV next determined after receipt of an order in proper form by State Street Bank and Trust Company (“State Street”) as agent for Goldman Sachs or certain authorized institutions (“Authorized
Dealers”). No sales load is charged.
|
|
Service Shares may be purchased through Goldman Sachs acting as a Service Organization or through Authorized Dealers. Class B
and Class C Shares may be purchased through Goldman Sachs or through Authorized Dealers. Class B and Class C Shares will typically be issued only upon an exchange of Class B and Class C Shares of another equity or bond fund of the Goldman Sachs
Trust (the “Trust”) or to accounts that intend to systematically exchange such shares for Class B or Class C Shares of other Goldman Sachs Funds. If you do not specify in your instructions to the Funds which class of shares you wish to
purchase, the Funds will assume that the instructions apply to Service Shares since, unlike Class B and Class C Shares, they are normally not subject to any CDSC and have lower fees.
|
|
In order to make an initial investment in a Fund, you must furnish to the Fund, Goldman Sachs, your Service Organization or
your Authorized Dealer the information in the Account Application.
|
|
To Open an Account:
|
|
n
|
Complete the enclosed Account Application
|
|
n
|
Mail your payment and Account Application to:
|
|
Your Authorized Dealer
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to your Authorized Dealer
|
|
–
|
Your Authorized Dealer is responsible for forwarding payment promptly (within three business days) to the Fund
|
|
or
|
|
Goldman Sachs Funds c/o National Financial Data Services
(“NFDS”)
,
P.O. Box 419711, Kansas City, MO 64141-9711 |
|
–
|
Purchases by check or Federal Reserve draft should be made payable to Goldman Sachs Funds—(Name of Fund
and
Class of Shares)
|
|
–
|
NFDS will not accept a check drawn on a foreign bank or a third-party check, cash, money orders, travelers cheques or credit
card checks
|
|
–
|
Federal funds wire, Automated Clearing House Network (“ACH”) transfer or bank wires should be sent to State
Street
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt. ACH transfers are expected to convert to federal funds on the business day following receipt of the ACH transfer.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Prime Obligations Portfolio: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Exempt Diversified Portfolio: | |||
| n By 1:00 p.m. New York time | Same business day | ||
| n After 1:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Is My Minimum Investment In The Funds?
|
| All Funds | Initial | Additional | |||
|---|---|---|---|---|---|
|
|
|||||
| Regular Accounts | $5,000 | None | |||
|
|
|||||
| Systematic Exchange Program (Class B and C Shares Only) | $1,000 | None | |||
|
|
|||||
| Other Share Exchanges |
$5,000 or
full account share balance, whichever is less |
None | |||
|
|
|||||
| Prime Obligations Portfolio Only | |||||
|
|
|||||
|
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) |
$250 | $50 | |||
|
|
|||||
|
Uniform Gift to Minors Act Accounts/Uniform Transfer to Minors
Act Accounts |
$250 | $50 | |||
|
|
|||||
| 403(b) Plan Accounts | $200 | $50 | |||
|
|
|||||
| SIMPLE IRAs and Education IRAs | $50 | $50 | |||
|
|
|||||
| Automatic Investment Plan Accounts | $50 | $50 | |||
|
|
|||||
SHAREHOLDER GUIDE
|
What Alternative Sales Arrangements Are Available?
|
|
The Funds offer three classes of shares through this Prospectus:
|
|
|
| Maximum Amount You Can | Class B | $250,000 | |||
|
|
|||||
| Buy in the Aggregate | Class C | $1,000,000 | |||
|
|
|||||
| Across Funds |
Service
Shares |
No limit | |||
|
|
|||||
| Initial Sales Charge | Class B | None | |||
|
|
|||||
| Class C | None | ||||
|
|
|||||
|
Service
Shares |
None | ||||
|
|
|||||
| CDSC | Class B | 6 year declining CDSC with a maximum of 5% | |||
|
|
|||||
| Class C |
1% if shares are redeemed within 12 months
of purchase |
||||
|
|
|||||
|
Service
Shares |
None unless acquired in an exchange for
shares subject to a CDSC |
||||
|
|
|||||
| Conversion Feature | Class B |
Class B Shares convert to ILA Service Shares
after 8 years |
|||
|
|
|||||
| Class C | None | ||||
|
|
|||||
|
Service
Shares |
None | ||||
|
|
|||||
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Refuse to open an account if you fail to (i) provide a social security number or other taxpayer identification number; or
(ii) certify that such number is correct (if required to do so under applicable law).
|
|
n
|
Reject any purchase order for any reason.
|
|
n
|
Modify or waive the minimum investment
amounts.
|
|
n
|
Modify the manner in which shares are offered.
|
|
n
|
Modify the sales charge rate applicable to future purchases of Class B and Class C Shares.
|
|
The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment
policies and operations and if approved by the Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
|
(Value of Assets of the Class)
|
|
– (Liabilities of the Class)
|
|
NAV =
|
|
|
|
Number of Outstanding Shares of the Class
|
|
n
|
NAV per share of each class is calculated by State Street 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 be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston, or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be granted to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
A COMMON QUESTION ABOUT THE PURCHASE OF SERVICE SHARES
|
|
What Is The Offering Price Of Service Shares?
|
|
You may purchase Service Shares of the Funds at the next determined NAV without an initial sales charge. Service Shares
are not subject to any CDSC.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
|
|
What Is The Offering Price Of Class B Shares?
|
|
You may purchase Class B Shares of the Prime Obligations Portfolio at the next determined NAV without an initial sales
charge. However, Class B Shares redeemed within six years of purchase will be subject to a CDSC at the rates shown in the table below based on how long you held your shares.
|
SHAREHOLDER GUIDE
|
The CDSC schedule is as follows:
|
| Year Since Purchase |
CDSC as a
Percentage of Dollar Amount Subject to CDSC |
||
|---|---|---|---|
|
|
|||
| First | 5% | ||
| Second | 4% | ||
| Third | 3% | ||
| Fourth | 3% | ||
| Fifth | 2% | ||
| Sixth | 1% | ||
| Seventh and thereafter | None | ||
|
|
|||
|
No CDSC is imposed upon exchanges of Class B Shares between the Prime Obligation Portfolios and another Goldman Sachs Fund.
However, shares acquired in an exchange will be subject to the CDSC to the same extent as if there had been no exchange.
|
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class B Shares, including the payment of compensation to Authorized Dealers. A commission equal to 4% of the amount invested is paid to
Authorized Dealers.
|
|
What Should I Know About The Automatic Conversion Of Class B Shares?
|
|
Class B Shares of the Prime Obligations Portfolio will automatically convert into Service Shares of the Prime Obligations
Portfolio at the end of the calendar quarter that is eight years after the purchase date.
|
|
If you acquire Class B Shares of the Prime Obligations Portfolio by exchange from Class B Shares of another Goldman Sachs
Fund, your Class B Shares will convert into Service Shares of the Prime Obligations Portfolio based on the date of the initial purchase and the CDSC schedule of that purchase.
|
|
If you acquire Class B Shares through reinvestment of distributions, your Class B Shares will convert into Service Shares
based on the date of the initial purchase of the shares on which the distribution was paid.
|
|
The conversion of Class B Shares to Service Shares will not occur at any time the Prime Obligations Portfolio is advised that
such conversions may constitute taxable events for federal tax purposes, which the Fund believes is unlikely. If conversions do not occur as a result of possible taxability, Class B Shares would continue to be subject to higher expenses than Service
Shares for an indeterminate period.
|
|
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
|
|
What Is The Offering Price Of Class C Shares?
|
|
You may purchase Class C Shares of the Prime Obligations Portfolio at the next determined NAV without paying an initial
sales charge. However, if you redeem Class C Shares within 12 months of purchase, a CDSC of 1% will normally be deducted from the redemption proceeds; provided that in connection with purchases by Section 401(k), profit sharing, money purchase
pension, tax-sheltered annuity, defined benefit pension, or other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations (“Retirement Plans”), where all of
the Class C Shares are redeemed within 12 months of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third party administrator.
|
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Funds in connection with the sale of Class C Shares, including the payment of compensation to Authorized Dealers. An amount equal to 1% of the amount invested is paid by the
Distributor to Authorized Dealers.
|
|
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF SERVICE, CLASS B AND CLASS C SHARES
|
|
What Else Do I Need To Know About The CDSC On Class B Or C Shares?
|
|
n
|
No CDSC is charged on shares acquired from reinvested dividends or capital gains distributions.
|
|
n
|
When counting the number of months since a purchase of Class B or Class C Shares was made, all payments made during a month
will be combined and considered to have been made on the first day of that month.
|
|
n
|
To keep your CDSC as low as possible, each time you place a request to sell shares, the Funds will first sell any shares in
your account that do not carry a CDSC and then the shares in your account that have been held the longest.
|
|
In What Situations May The CDSC On Service, Class B Or Class C Shares Be Waived Or Reduced?
|
|
The CDSC on Service, Class B or Class C Shares that are subject to a CDSC (
i.e
., because the Service Shares were
acquired in an exchange transaction for shares of a Goldman Sachs Fund that were subject to a CDSC) may be waived or reduced if the redemption relates to:
|
|
n
|
Retirement distributions or loans to participants or beneficiaries from Retirement Plans;
|
SHAREHOLDER GUIDE
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
“Code”)) of a participant or beneficiary in a Retirement Plan;
|
|
n
|
Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
|
|
n
|
Satisfying the minimum distribution requirements of the Code;
|
|
n
|
Establishing “substantially equal periodic payments” as described under Section 72(t)(2) of the Code;
|
|
n
|
The separation from service by a participant or beneficiary in a Retirement Plan;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is made within one
year of the event;
|
|
n
|
Excess contributions distributed from a Retirement Plan;
|
|
n
|
Distributions from a qualified Retirement Plan invested in the Goldman Sachs Funds which are being rolled over to a Goldman
Sachs IRA; or
|
|
n
|
Redemption proceeds which are to be reinvested in accounts or non-registered products over which GSAM or its advisory
affiliates have investment discretion.
|
|
In addition, Service, Class B and Class C Shares subject to a systematic withdrawal plan may be redeemed without a CDSC. The
Funds reserve the right to limit such redemptions, on an annual basis, to 10% of the value of your Service Shares and 12% each of the value of your Class B and C Shares.
|
|
What Other Attributes of Service, Class B Or Class C Shares Should I Know About?
|
|
n
|
Service Shares.
Service Shares are normally not subject to any initial sales charge or CDSC. However, Service
Shares are subject to service and shareholder administration fees at the aggregate annual rate of 0.40% of a Fund’s average daily net assets attributable to Service Shares.
|
|
n
|
Class B Shares.
Class B Shares are subject to a CDSC but not an initial sales charge. By not paying a front-end
sales charge, your entire investment in Class B Shares is available to work for you from the time you make your initial investment. However, the distribution fee of up to 0.75% and service fee of up to 0.25% paid by Class B Shares will cause your
Class B Shares (until conversion to Service Shares) to have a higher expense ratio, and thus lower performance and dividend payments, than Service Shares. A maximum purchase limitation of $250,000 in the aggregate normally applies to Class B Shares.
Individual purchases exceeding $250,000 will be rejected.
|
|
n
|
Class C Shares.
Class C Shares are also subject to a CDSC but not an initial sales charge. By not paying a
front-end sales charge, your entire investment in Class C Shares is available to work for you from the time you make your initial investment. However, the distribution fee of 0.75% and service fee of 0.25%
paid by Class C Shares will cause your Class C Shares to have a higher expense ratio, and thus lower performance and dividend payments, than Service Shares (or Class B Shares after conversion to Service Shares).
|
|
Although Class C Shares are subject to a CDSC for only 12 months, Class C Shares do not have the automatic eight year
conversion feature applicable to Class B Shares and your investment will therefore pay higher distribution fees indefinitely. A maximum purchase limitation of $1,000,000 in the aggregate normally applies to purchases of Class C Shares. Individual
purchases exceeding $1,000,000 will be rejected.
|
|
Note: Authorized Dealers may receive different compensation for selling Service, Class B or Class C
Shares.
|
|
In addition to Service, Class B and Class C Shares, each Fund also offers other classes of shares to investors. These other
share classes are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
How Can I Sell Shares Of The Funds?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, each Fund
will redeem its shares upon request on any business day at their NAV next determined after receipt of such request in proper form, subject to any applicable CDSC.
You may request that redemption proceeds be sent to you by check or by wire (if
the wire instructions are on record). Redemptions may be requested in writing or by telephone.
|
SHAREHOLDER GUIDE
| Instructions For Redemptions: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n Your name(s) and signature(s) | |||||
| n Your account number | |||||
| n The Fund name and Class of Shares | |||||
| n The dollar amount you want to sell | |||||
| n How and where to send the proceeds | |||||
| n Obtain a signature guarantee (see details below) | |||||
|
n
Mail your request to:
Goldman Sachs Funds c/o NFDS P.O. Box 49711 Kansas City, MO 64141-9711 |
|||||
|
|
|||||
| By Telephone: |
If you have not declined the telephone redemption
privilege on your Account Application: |
||||
| n 1-800-526-7384 (8:00 a.m. to 4:00 p.m. New York time) | |||||
|
n
You may redeem up to $50,000 of your shares
within any 7 calendar day period |
|||||
|
n
Proceeds which are sent directly to a Goldman Sachs
brokerage account are not subject to the $50,000 limit |
|||||
|
|
|||||
|
You may also take advantage of the check redemption privilege described below.
|
|
When Do I Need A Signature Guarantee To Redeem Shares?
|
|
A signature guarantee is required if:
|
|
n
|
You are requesting in writing to redeem shares in an amount over $50,000;
|
|
n
|
You would like the redemption proceeds sent to an address that is not your address of record; or
|
|
n
|
You would like to change the bank designated on your Account Application.
|
|
A signature guarantee must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot provide a signature guarantee. Additional documentation may be required for executors, trustees or corporations or when deemed appropriate by the
Transfer Agent.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor, and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. The Trust may accept telephone redemption requests from any person identifying himself or herself as the owner of an account or the owner’s
registered representative where the owner has not declined in writing to use this service. Thus, you risk possible losses if a telephone redemption is not authorized by you.
|
|
In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs and NFDS
employs reasonable procedures specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Proceeds of telephone redemption requests will be sent only to your address of record or authorized bank account designated
on your Account Application (unless you provide written instructions and a signature guarantee, indicating another address or account) and exchanges of shares normally will be made only to an identically registered account.
|
|
n
|
Telephone redemptions by check to your address of record will not be accepted during the 30-day period following any change
in your address of record.
|
|
n
|
The telephone redemption option does not apply to shares held in a “street name” account. “Street name”
accounts are accounts maintained and serviced by your Authorized Dealer. If your account is held in “street name,” you should contact your registered representative of record, who may make telephone redemptions on your behalf.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
When Will Redemption Proceeds Be Wired Or Mailed?
|
|
Redemption proceeds will normally be wired or mailed to the recordholder of shares as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations Portfolio: | |||||
|
|
|||||
| n By 3:00 p.m. New York time | n Wired same business day | Not earned on day | |||
|
n
Checks sent next business
day |
request is received | ||||
| n After 3:00 p.m. New York time | n Wired next business day | Earned on day | |||
|
n
Checks sent within two
business days |
request is received | ||||
|
|
|||||
| Tax-Exempt Diversified Portfolio: | |||||
|
|
|||||
| n By 12:00 p.m. New York time | n Wired same business day | Not earned on day | |||
|
n
Checks sent next business
day |
request is received | ||||
| n After 12:00 p.m. New York time | n Wired next business day | Earned on day | |||
|
n
Checks sent within two
business days |
request is received | ||||
|
|
|||||
SHAREHOLDER GUIDE
|
n
|
Although redemption proceeds will normally be wired or mailed as described above, each Fund reserves the right to pay
redemption proceeds up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up
to 15 days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
A transaction fee of $7.50 may be charged for payments of redemption proceeds by wire. Your bank may also charge wiring fees.
You should contact your bank directly to learn whether it charges such fees.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions (with your signature
guaranteed) to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
What Should I Know About The Check Redemption Privilege? (Service Shares Only)
|
|
You may elect to have a special account with State Street for the purpose of redeeming shares from your account by check. The
following general policies govern the check redemption privilege:
|
|
n
|
You will be provided with a supply of checks when State Street receives a completed signature card and authorization form.
Checks drawn on the account may be payable to the order of any person in any amount over $500, but cannot be certified.
|
|
n
|
The payee of the check may cash or deposit it just like any other check drawn on a bank.
|
|
n
|
When the check is presented to State Street for payment, a sufficient number of full or fractional Service Shares will be
redeemed to cover the amount of the check.
|
|
n
|
Canceled checks will be returned to you by State Street.
|
|
n
|
The check redemption privilege allows you to receive the dividends declared on the Service Shares that are to be redeemed
until the check is actually processed. Because of this feature, accounts may not be completely liquidated by check.
|
|
n
|
If the amount of the check is greater than the value of the Service Shares held in your account, the check will be returned
unpaid. In this case, you may be subject to extra charges.
|
|
n
|
The Trust reserves the right to limit the availability of, modify or terminate the check redemption privilege at any time
with respect to any or all shareholders.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the shares of any account whose balance falls below the minimum as a result of redemption. The Fund will give 60
days’ prior written notice to allow you to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established brokerage accounts with Goldman Sachs in accordance with
the terms and conditions of their account agreements.
|
|
n
|
Redeem the shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional shares of the same class and Fund
on which the distributions are paid. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
SHAREHOLDER GUIDE
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange Service Shares of each Fund and Class B and C Shares of the Prime Obligations Portfolio for shares of the
same class or an equivalent class of any other Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n Your name(s) and signature(s) | |||||
| n Your account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount you want to exchange | |||||
| n Obtain a signature guarantee (see details above) | |||||
|
n
Mail the request to:
Goldman Sachs Funds c/o NFDS P.O. Box 419711 Kansas City, MO 64141-9711 or for overnight delivery— Goldman Sachs Funds c/o NFDS 330 West 9th St. Poindexter Bldg. 1st Floor Kansas City, MO 64105 |
|||||
|
|
|||||
| By Telephone: |
If you have not declined the telephone exchange
privilege on your Account Application: |
||||
|
n
1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time) |
|||||
|
|
|||||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
Currently, there is no charge for exchanges, although a Fund may impose a charge in the future.
|
|
n
|
Exchanges of Class B and Class C Shares will be made at NAV and will be subject to the CDSC of the original shares held. For
purposes of determining the amount of the applicable CDSC, the length of time you have owned the shares will be measured from the date you acquired the original shares subject to a CDSC and will not be affected by subsequent exchange.
|
|
n
|
Exchanges of Service Shares from each Fund will be made into the relevant Goldman Sachs Fund at the public offering price,
which may include a sales charge, unless a sales charge has previously been paid on the investment represented by the exchanged shares (
i.e.
, the shares to be exchanged were originally issued in exchange for shares on which a sales charge was
paid), in which case the exchange will be made at NAV. Service Shares acquired in an exchange transaction for shares of a Goldman Sachs Fund will be subject to the CDSC, if any, of the shares originally held.
|
|
n
|
Eligible investors may exchange certain classes of shares for another class of shares of the same Fund. For further
information, call Goldman Sachs Funds at 1-800-526-7384 and see the Additional Statement.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund. The minimum initial exchange is $5,000 or the full account share balance, whichever is less.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs and NFDS may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account. Shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and accompanied by a signature guarantee.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
SHAREHOLDER SERVICES
|
|
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
|
|
You may be able to make systematic cash investments through your bank via ACH transfer or your checking account via bank
draft each month. Forms for this option are available from Goldman Sachs, your Authorized Dealer or you may check the appropriate box on the Account Application.
|
SHAREHOLDER GUIDE
|
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
|
|
You may elect to exchange automatically a specified dollar amount of shares of a Fund for shares of the same class or an
equivalent class of any other Goldman Sachs Fund.
|
|
n
|
Shares will be purchased at NAV.
|
|
n
|
No initial sales charge is imposed.
|
|
n
|
Sales subject to a CDSC acquired under this program may be subject to a CDSC at the time of redemption from the Fund into
which the exchange is made depending upon the date and value of your original purchase.
|
|
n
|
Automatic exchanges are made monthly on the 15th day of each month or the first business day thereafter.
|
|
n
|
Minimum dollar amount: $50 per month.
|
|
Do I Have Any Reinvestment Privileges With Respect to Class B or Class C Shares?
|
|
You may redeem Class B or Class C Shares of a Fund and reinvest a portion or all of the redemption proceeds (plus any
additional amounts needed to round off purchases to the nearest full share). To be eligible for this privilege, you must hold the shares you want to redeem for at least 30 days and must reinvest the share proceeds within 90 days after you redeem.
You may reinvest as follows:
|
|
n
|
If you redeem Class B Shares of the Prime Obligations Portfolio, you may reinvest any or all of the redemption proceeds (plus
that amount necessary to acquire a fractional share to round off the purchase to the nearest full share) in Service Shares of Prime Obligations Portfolio and Tax-Exempt Diversified Portfolio or Class A Shares of any Goldman Sachs Fund at NAV. The
amount of the CDSC paid upon redemption will not be credited to your account.
|
|
n
|
If you redeem Class C Shares of the Prime Obligations Portfolio, you may reinvest any or all of the redemption proceeds (plus
that amount necessary to acquire a fractional share to round off the purchase to the nearest full share) in Class C Shares of the Prime Obligations Portfolio or Class C Shares of any other Goldman Sachs Fund.
|
|
n
|
You should obtain and read the applicable prospectuses before investing in any other Funds.
|
|
n
|
If you redeem Class C Shares, pay a CDSC upon redemption and reinvest in Class C Shares subject to the conditions set forth
above, your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. In this case, the holding period of the Class C Shares acquired through reinvestment for purposes
of computing the CDSC payable upon a subsequent redemption will include the holding period of the redeemed shares.
|
|
n
|
The reinvestment privilege may be exercised at any time in connection with transactions in which the proceeds are reinvested
at NAV in a tax-sheltered retirement plan. In other cases, the reinvestment privilege may be exercised once per year upon receipt of a written request.
|
|
n
|
You may be subject to tax as a result of a redemption. You should consult your tax adviser concerning the tax consequences of
a redemption and reinvestment.
|
|
Can I Have Automatic Withdrawals Made On A Regular Basis?
|
|
You may draw on your account systematically via check or ACH transfer in any amount of $50 or more.
|
|
n
|
It is normally undesirable to maintain a systematic withdrawal plan at the same time that you are purchasing additional Class
B or Class C Shares because of the imposition of a CDSC on your redemptions of Class B or Class C Shares.
|
|
n
|
You must have a minimum balance of $5,000 in a Fund.
|
|
n
|
Checks are mailed on or about the 25th day of each month.
|
|
n
|
Each systematic withdrawal is a redemption and therefore a taxable transaction.
|
|
n
|
The CDSC applicable to Class B or Class C Shares redeemed under the systematic withdrawal plan may be waived.
|
|
What Types of Reports Will I Be Sent Regarding Investments in Shares?
|
|
You will receive an annual report containing audited financial statements and a semi-annual report. To eliminate unnecessary
duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-526-7384.
|
|
What Should I Know When I Purchase Shares Through An Authorized Dealer?
|
|
Authorized Dealers and other financial intermediaries may provide varying arrangements for their clients to purchase and
redeem Fund shares. They may charge additional fees not described in this Prospectus to their customers for such services.
|
|
If shares of a Fund are held in a “street name” account with an Authorized Dealer, all recordkeeping, transaction
processing and payments of distributions relating to your account will be performed by the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have no record of your transactions, you should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give instructions concerning your account or to obtain information about your account. The transfer of shares in a “street name” account to an account with another dealer
or to an account directly with the Fund involves special procedures and will require you to obtain historical purchase information about the shares in the account from the Authorized Dealer.
|
SHAREHOLDER GUIDE
|
Authorized Dealers and other financial intermediaries may be authorized to accept, on behalf of the Trust, purchase,
redemption and exchange orders placed by or on behalf of their customers, and if approved by the Trust, to designate other intermediaries to accept such orders. In these cases:
|
|
n
|
A Fund will be deemed to have received an order that is in proper form by or on behalf of a customer when the order is
accepted by an Authorized Dealer or intermediary on a business day, and the order will be priced at the Fund’s NAV per share (adjusted for any applicable sales charge) next determined after such acceptance.
|
|
n
|
Authorized Dealers and intermediaries are responsible for transmitting accepted orders to the Funds within the time period
agreed upon by them.
|
|
You should contact your Authorized Dealer or intermediary directly to learn whether it is authorized to accept orders for the
Trust.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Authorized Dealers and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
DISTRIBUTION SERVICES AND FEES
|
|
What Are The Different Distribution And Service Fees Paid By Service, Class B and Class C Shares?
|
|
The Trust has adopted plans (each a “Plan”) under which Service, Class B and Class C Shares bear service fees and
(in the case of Class B and Class C Shares) distribution fees paid to Service Organizations and Goldman Sachs. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from these
arrangements. Goldman Sachs pays the distribution and service fees on a quarterly basis.
|
|
Under the Plan for Service Shares, Service Organizations agree to provide the following services in connection with their
customers’ investments in Service Shares:
|
|
n
Personal and account maintenance services; and
|
|
n
Shareholder administration services.
|
|
Personal and account maintenance services include:
|
|
n
|
Providing facilities to answer inquiries and respond to correspondence with the Service Organization’s
customers
|
|
n
|
Acting as liaison between the Service Organization’s customers and the Trust
|
|
n
|
Assisting customers in completing application forms, selecting dividend and other options, and similar services
|
|
Shareholder administration services include:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem and exchange shares for customers
|
|
n
|
Processing payments for customers
|
|
Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust with respect to its Service Shares. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.15%
(annualized) for shareholder administration services of the average daily net assets of the Service Shares of the Funds that are attributable to or held in the name of a Service Organization for its customers. In addition, GSAM, at its own expense,
may pay a Service Organization up to 0.10% of the average daily net assets of the Service Shares of a Fund, which are attributable to or held in the name of the Service Organization for its customers. The compensation paid by GSAM does not represent
an additional expense to a Fund or its shareholders, since it will be paid from the assets of GSAM.
|
|
Under the Plans for Class B and Class C Shares, Goldman Sachs is entitled to a monthly fee from each Fund for distribution
services equal, on an annual basis, to 0.75% of a Fund’s average daily net assets attributed to Class B and Class C Shares. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of sales charges.
|
|
The distribution fees are subject to the requirements of Rule 12b-1 under the Act, and may be used (among other things)
for:
|
|
n
|
Compensation paid to and expenses incurred by Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives;
|
|
n
|
Commissions paid to Authorized Dealers;
|
|
n
|
Allocable overhead;
|
|
n
|
Telephone and travel expenses;
|
|
n
|
Interest and other costs associated with the financing of such compensation and expenses;
|
|
n
|
Printing of prospectuses for prospective shareholders;
|
|
n
|
Preparation and distribution of sales literature or advertising of any type; and
|
|
n
|
All other expenses incurred in connection with activities primarily intended to result in the sale of Class B and Class C
Shares.
|
SHAREHOLDER GUIDE
|
In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.75% distribution fee as an ongoing
commission to Authorized Dealers after the shares have been held for one year.
|
|
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
|
|
Under the Plans for Class B and Class C Shares, Goldman Sachs is also entitled to receive a separate fee equal on an annual
basis to 0.25% of each Fund’s average daily net assets attributed to Class B or Class C Shares. This fee is for personal and account maintenance services, and may be used to make payments to Goldman Sachs, Authorized Dealers and their officers,
sales representatives and employees for responding to inquiries of, and furnishing assistance to, shareholders regarding ownership of their shares or their accounts or similar services not otherwise provided on behalf of the Funds. If the fees
received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from this arrangement.
|
|
In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.25% ongoing service fee to
Authorized Dealers after the shares have been held for one year.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Diversified Portfolio, distributions of investment income are taxable as ordinary
income for federal tax purposes, and may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to
interest on federal obligations or interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Diversified Portfolio
that are designated as “exempt interest dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as
long-term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Diversified Portfolio may be a preference item when determining your federal
alternative minimum tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares
in the Tax-Exempt Diversified Portfolio generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account
Application. By law, each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so.
Non-U.S. investors may be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury Obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. A Fund may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. Bank obligations may be
general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligation or by government regulation.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commerical paper. Commerical paper
represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated
obligations of domestic issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the purchaser. Funding agreements
will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period. Because there is normally no
secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income
from repurchase agreements will be taxable to a Fund’s shareholders. In addition, each Fund, 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.
Asset-Backed and Receivables-Backed Securities.
The Prime Obligations Portfolio may invest in asset-backed and receivables-backed securities, whose
principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and
receivables-backed securities can be expected to accelerate. Accordingly, the 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. In addition, securities that are backed by credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, the Fund will be
unable to possess and sell the underlying collateral and that the Fund’s recoveries on repossessed collateral may not be available to support payments on the securities. In the event of a default, the Fund may suffer a loss if it cannot sell
collateral quickly and receive the amount it is owed.
Municipal Obligations.
The Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds
also include lease rental revenue bonds which are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations.
Industrial development bonds (“private activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms,
including commercial paper, tender option bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
The Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a specific
type of revenue bond backed by the credit and security of a private user, the interest from
which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the AMT.
Other Municipal Obligation Policies.
The Tax-Exempt Diversified Fund may invest 25% or more of the value of its total assets in municipal obligations
which are related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, the Fund may invest all of its assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities;
(b) municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of the Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment
was not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting
standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local
governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Each Fund may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have
investment objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settlement period.
APPENDIX A
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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Special Risks and Policies Applicable to the Tax-Exempt Diversified Portfolio:
Fundamental Policies.
As a matter of fundamental policy, at least 80% of the net assets of the Tax-Exempt Diversified Portfolio will ordinarily be
invested in municipal obligations, the interest from which is, in the opinion of bond counsel, if any, excluded from gross income for federal income tax purposes. In addition, the Tax-Exempt Diversified Portfolio may temporarily invest in taxable
money market instruments. Investments in taxable money market instruments will be limited to those meeting the quality standards of the Tax-Exempt Diversified Portfolio.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Fund’s financial statements, is included in the Fund’s annual
report (available upon request). The information for all periods prior to the periods ended December 31, 2000 has been audited by the Funds’ previous accountants.
|
|
PRIME OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA Units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service Units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA B Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - ILA C Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management Shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - ILA Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA B Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA C Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management Shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA B Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1998 - ILA C Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1998 - Cash Management Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA B Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1997 - ILA C Units (commenced August 15) | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1996 - ILA Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service Units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA B Units (commenced May 8) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 46 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||
| 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||
| 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||
| 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||
| 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||
| 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||
| 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||
| 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||
| 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||
| 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||
| 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||
| 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||
| 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||
| 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||
| 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||
| 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||
| 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||
| 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||
| 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||
| 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||
| 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||
| 1.00 | 3.97 | (c) | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT DIVERSIFIED PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income a |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA Units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration Units | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - ILA Service Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management Shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service Units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management Shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service Units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - ILA Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Service Units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
Footnotes:
|
a
|
Calculated based on the average units / shares outstanding methodology.
|
|
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.
|
APPENDIX B
|
Ratios assuming
no expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return b |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | |||||||
| 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | ||||||||||||
| 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | ||||||||||||
| 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | ||||||||||||
| 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | ||||||||||||
| 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | ||||||||||||
| 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | ||||||||||||
| 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | ||||||||||||
| 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | ||||||||||||
| 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | ||||||||||||
| 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | ||||||||||||
| 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | ||||||||||||
| 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | ||||||||||||
| 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | ||||||||||||
|
|
||||||||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 4 |
Fund Investment Objectives
and Strategies |
|||
| 7 | Principal Risks of the Funds | |||
| 9 | Fund Performance | |||
| 12 | Fund Fees and Expenses | |||
| 14 | Service Providers | |||
| 16 | Dividends | |||
| 17 | Shareholder Guide | |||
| 17 | How to Buy Shares | |||
| 24 | How to Sell Shares | |||
| 36 | Taxation | |||
| 37 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 44 |
Appendix B
Financial Highlights |
|||
Institutional Liquid Assets
Prospectus
(ILA Service, Class B and Class C Units)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-9711
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
Goldman Sachs – http://www.gs.com (Prospectus Only)
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
ILAPRORETMM 518087
|
Prospectus
|
ILA Service (“Units” or “Shares”)
May 1, 2001
|
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
n
|
Prime
Obligations Portfolio
|
|
n
|
Money
Market Portfolio
|
|
n
|
Treasury
Obligations Portfolio
|
|
n
|
Treasury
Instruments Portfolio
|
|
n
|
Government Portfolio
|
|
n
|
Federal
Portfolio
|
|
n
|
Tax-Exempt Diversified Portfolio
|
|
n
|
Tax-Exempt California Portfolio
|
|
n
|
Tax-Exempt New York Portfolio
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Institutional Liquid Assets Portfolios (the “Funds”). GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money market
fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research, Legal
and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM)
target—
WAM (the weighted average time until the yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by
the portfolio management team based on insights gained from weekly meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio
structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility,
are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new
securities—
The Investment Adviser’s five-step process includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence
their asset volatility;
|
|
n
|
Technical events that influence the trading range of
federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the
portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc. First Tier Institutional Indices.
Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by
Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria
including conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government
Portfolios.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Portfolios.
|
|
n
|
Tax-Exempt Funds:
Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios.
|
|
n
|
The Investors:
The Funds are designed for investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that
a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule
2a-7) at the time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required
by Rule 2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are
described in detail under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions and the investment objective of a Fund (except the Tax-Exempt California and Tax-Exempt New York Portfolios’
objectives of providing shareholders with income exempt from California personal income tax and New York State and New York City personal income taxes, respectively) cannot be changed without approval of a majority of the outstanding shares of that
Fund. The Treasury Obligations Portfolio’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance
with current regulations of the Securities and Exchange Commis
sion (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer with these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York Portfolios
may each invest up to 25% of their total assets in five or fewer issuers; and (b) each of the other Funds may invest up to 25% of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to
cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier
Securities” as defined by the SEC are subject to different diversification requirements as described in the Additional Statement.
|
|
INVESTMENT OBJECTIVES
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government and Federal Portfolios seek to
maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
The Prime Obligations and Money Market Portfolios pursue their investment objectives by investing in U.S. Government
Securities, obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Portfolio may also invest in U.S. dollar-denominated
obligations of foreign banks, foreign companies and foreign governments.
|
|
The Treasury Obligations Portfolio pursues its investment objective by investing in securities issued by the U.S. Treasury
and repurchase agreements relating to such securities. The Government Portfolio pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities.
|
|
The Treasury Instruments and Federal Portfolios pursue their investment objectives by limiting their investments to certain
U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury Instruments and
Federal Portfolios (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
Tax-Exempt Funds:
|
|
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders, to the
extent consistent with the preservation of capital and prescribed portfolio standards, with a high level of income exempt from federal income tax by investing primarily in municipal obligations.
|
|
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders with income exempt
from California personal income tax and New York State and New York City personal income taxes, respectively, by investing in obligations the interest on which is exempt from these taxes. (These instruments are called “California
obligations” and “New York obligations” in this Prospectus.)
|
|
The Tax-Exempt Funds pursue their investment objectives by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits), the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Money Market Portfolio may invest in U.S. dollar-denominated obligations (limited to commercial paper and other
notes) issued or guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in
the highest short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
Investment Policies Matrix continued
| Fund |
Municipals |
Custodial
Receipts |
Unrated
Securities 9 |
Investment
Companies |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
Prime Obligations
|
n 7 | n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Money Market | n 7 | n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Treasury Obligations | |||||||||
|
|
|||||||||
| Treasury Instruments |
|
||||||||
|
|
|||||||||
| Government |
n
Up to 10% of total assets in other investment companies |
||||||||
|
|
|||||||||
| Federal |
|
||||||||
|
|
|||||||||
| Tax-Exempt Diversified |
n
At least 80% of net assets in tax-exempt municipal obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt California |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in California obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt New York |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in New York obligations (except in extraordinary circumstances) 8 |
n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of a Fund’s portfolio securities will be invested in municipal obligations, but
the Funds may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of a Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
11 No more than 25% of the value of a Fund’s total assets may be invested in industrial development bonds or similar obligations where the
non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
12 First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only one NRSRO has assigned a rating, by
that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier Securities.
13 Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
14 See “Taxation” for an explanation of the tax consequences summarized in the table above.
15 Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S. Government Securities interest
income.
16 Taxable except for distributions from interest on obligations of an investor’s state of residence in certain states.
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 government 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.
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios, risk of loss from payment default
may also exist where municipal instruments are backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Portfolios:
|
n
|
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 apply to the Money Market Portfolio:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Portfolio may not invest more
than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Portfolio
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Exempt Funds:
|
n
|
Concentration Risk—
The risk that if a Fund invests more than 25% of its total assets in issuers within the
same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of a Fund’s portfolio and/or the ability of a Fund to pay federal tax-exempt dividends (in the case of each of these Funds) and state tax-exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt New York
Portfolios). These Funds would not be a suitable investment for IRAs, other tax-exempt or tax deferred accounts or for other investors who are not sensitive to the federal, state or local tax consequences of these investments.
|
|
n
|
California/New York Risks
— The Tax-Exempt California and Tax-Exempt New York Portfolios intend to invest
at least 65% of their total assets in California municipal obligations and New York municipal obligations, respectively. The investments of these Funds will, therefore, be affected by political and economic developments within these states, and by
the financial condition of these states, their public authorities and political sub-divisions. If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income,
NAV, and ability to preserve or realize appreciation of capital or liquidity could be adversely affected. The Tax-Exempt California and Tax-Exempt New York Portfolios are classified as “non-diversified” for regulatory purposes. See
Appendix A in this Prospectus for more information concerning the risks of investing in California and New York.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s Service Shares from year to year; and (b) the average annual returns of a Fund’s Service Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The
bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense
limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.61%
Worst Quarter
Q2 ’93 0.62%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 6/1/90) | 5.72% | 4.97% | 4.54% | 4.71% | |||||
|
|
|||||||||
Money Market Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.62%
Worst Quarter
Q2 ’93 0.64%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 6/1/90) | 5.76% | 5.01% | 4.58% | 4.75% | |||||
|
|
|||||||||
FUND PERFORMANCE
Treasury Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.51%
Worst Quarter
Q2 ’93 0.60%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 6/1/90) | 5.52% | 4.80% | 4.39% | 4.57% | |||||
|
|
|||||||||
Treasury Instruments Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 1.38%
Worst Quarter
Q2 ’93 0.62%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 1/30/91) | 5.20% | 4.63% | 4.29% | ||||
|
|
|||||||
FUND PERFORMANCE
Government Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter:
Q1 ’91 1.53%
Worst Quarter:
Q2 ’93 0.62%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 7/1/90) | 5.63% | 4.87% | 4.45% | 4.60% | |||||
|
|
|||||||||
Federal Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 1.46%
Worst Quarter
Q1 ’94 0.66%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 5/15/93) | 5.61% | 4.93% | 4.63% | ||||
|
|
|||||||
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.03%
Worst Quarter
Q1 ’94 0.42%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 7/2/90) | 3.33% | 2.87% | 2.81% | 2.93% | |||||
|
|
|||||||||
Tax-Exempt California Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’00 0.77%
Worst Quarter
Q1 ’99 0.47%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 9/15/97) | 2.76% | 2.49% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Exempt New York Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 0.84%
Worst Quarter
Q1 ’99 0.49%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Service Shares (Inception 9/15/97) | 3.15% | 2.73% | |||
|
|
|||||
This table describes the fees and expenses that you would pay if you buy and hold ILA Service Shares of a Fund.
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Shareholder Fees | |||||||
| (fees paid directly from your investment): | |||||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | None | None | ||||
| Maximum Deferred Sales Charge (Load) | None | None | None | ||||
|
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends |
None | None | None | ||||
| Redemption Fees | None | None | None | ||||
| Exchange Fees | None | None | None | ||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses | 0.48% | 0.46% | 0.47% | ||||
| Service Fees 2 | 0.25% | 0.25% | 0.25% | ||||
| Shareholder Administration Fees | 0.15% | 0.15% | 0.15% | ||||
| All Other Expenses 3 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
| Total Fund Operating Expenses* 4 | 0.83% | 0.81% | 0.82% | ||||
|
|
|||||||
|
See page 26 for all other footnotes
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser with the approval of the
Trustees. If this occurs, “Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses | 0.48% | 0.46% | 0.47% | ||||
| Service Fees 2 | 0.25% | 0.25% | 0.25% | ||||
| Shareholder Administration Fees | 0.15% | 0.15% | 0.15% | ||||
| All Other Expenses 3 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after current expense
limitations) 4 |
0.83% | 0.81% | 0.82% | ||||
|
|
|||||||
FUND FEES AND EXPENSES
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
Service Organizations may charge other fees directly to their customers who are the beneficial owners of Service
Shares in connection with their customers’ accounts. Such fees may affect the return such customers realize with respect to their investments.
|
|
3
|
“All Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net
assets of each Fund’s Service Shares plus all other ordinary expenses not detailed above.
|
|
4
|
The Investment Adviser has voluntarily agreed to reduce or limit “Total Fund Operating Expenses” of each
Fund (excluding service fees, shareholder administration fees, taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) such that Total Fund Operating Expenses will not exceed 0.43% of each Fund’s average
daily net assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Service Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and
that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $85 | $265 | $460 | $1,025 | |||||
|
|
|||||||||
| Money Market | $83 | $259 | $450 | $1,002 | |||||
|
|
|||||||||
| Treasury Obligations | $84 | $262 | $455 | $1,014 | |||||
|
|
|||||||||
| Treasury Instruments | $87 | $271 | $471 | $1,049 | |||||
|
|
|||||||||
| Government | $90 | $281 | $488 | $1,084 | |||||
|
|
|||||||||
| Federal | $82 | $255 | $444 | $ 990 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | $83 | $259 | $450 | $1,002 | |||||
|
|
|||||||||
| Tax-Exempt California | $84 | $262 | $455 | $1,014 | |||||
|
|
|||||||||
| Tax-Exempt New York | $89 | $278 | $482 | $1,073 | |||||
|
|
|||||||||
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investment.
Certain Service Organizations that invest in Service Shares may receive other compensation in connection with the sale and distribution of Service Shares or for
services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Fund |
Contractual Rate
|
|
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Money Market | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Instruments | 0.35% | 0.35% | |||
|
|
|||||
| Government | 0.35% | 0.35% | |||
|
|
|||||
| Federal | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt Diversified | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt California | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt New York | 0.35% | 0.35% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Service Shares.
|
|
How Can I Purchase Service Shares Of The Funds?
|
|
Generally, Service Shares may be purchased only through institutions that have agreed to provide shareholder administration
and personal and account maintenance services to their customers who are the beneficial owners of Service Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Service Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of the
purchase amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
|||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds -(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Taxable and Tax-Advantaged Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Exempt Funds: | |||
| n By 1:00 p.m. New York time | Same business day | ||
| n After 1:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Service
Shares:
|
|
n
Personal and account maintenance services; and
|
|
n
Shareholder administration services.
|
|
Personal and account maintenance services include:
|
|
n
|
Providing facilities to answer inquiries and respond to correspondence with the Service Organization’s
customers
|
|
n
|
Acting as liaison between the Service Organization’s customers and the Trust
|
|
n
|
Assisting customers in completing application forms, selecting dividend and other options, and similar services
|
|
Shareholder administration services include:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem and exchange shares for customers
|
|
n
|
Processing payments for customers
|
SHAREHOLDER GUIDE
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.15% (annualized) for shareholder
administration services of the average daily net assets of the Service Shares of the Funds that are attributable to or held in the name of a Service Organization for its customers. In addition, GSAM, at its own expense, may pay a Service
Organization up to 0.10% of the average daily net assets of the Service Shares of the Fund, which are attributable to or held in the name of the Service Organization for its customers. The compensation paid by GSAM does not represent an additional
expense to a Fund or its shareholders, since it will be paid from the assets of GSAM.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Service Shares, each Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Service Shares. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
The Funds do not have any minimum purchase or account requirements with respect to Service Shares. A Service Organization
may, however, impose a mini
mum amount for initial and subsequent investments in Service Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Service Shares held by non-complying accounts, and may impose a charge for
any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a Fund’s
investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Service Shares is the Fund’s next determined NAV. The Funds
calculate NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
|
n
|
NAV per share of each class is calculated by State Street 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 be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
SHAREHOLDER GUIDE
|
How Can I Sell Service Shares Of The Funds?
|
|
Generally, Service Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem Service Shares upon request on any business day at their
NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account Application.
|
|
Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor, and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
| Taxable and Tax-Advantaged Funds: | |||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
| Tax-Exempt Funds: | |||||
| n By 12:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 12:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
|
n
|
Although redemption proceeds will normally be wired as described above, each Fund reserves the right to pay redemption
proceeds up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days.
If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
|
|
What Should I Know About The Check Redemption Privilege?
|
|
A Service Organization may elect to have a special account with State Street for the purpose of redeeming Service Shares from
its account by check.
|
|
The following general policies govern the check redemption privilege:
|
|
n
|
The Service Organization will be provided with a supply of checks when State Street receives a completed signature card and
authorization form. Checks drawn on the account may be payable to the order of any person in any amount over $500, but cannot be certified.
|
|
n
|
The payee of the check may cash or deposit it just like any other check drawn on a bank.
|
SHAREHOLDER GUIDE
|
n
|
When the check is presented to State Street for payment, a sufficient number of full or fractional Service Shares will be
redeemed to cover the amount of the check.
|
|
n
|
Canceled checks will be returned to the Service Organization by State Street.
|
|
n
|
The check redemption privilege allows a Service Organization to receive the dividends declared on the Service Shares that are
to be redeemed until the check is actually processed. Because of this feature, accounts may not be completely liquidated by check.
|
|
n
|
If the amount of the check is greater than the value of the Service Shares held in the Service Organization’s account,
the check will be returned unpaid. In this case, the Service Organization may be subject to extra charges.
|
|
n
|
The Trust reserves the right to limit the availability of, modify or terminate the check redemption privilege at any time
with respect to any or all Service Organizations.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the Service Shares of any Service Organization whose account balance falls below the minimum as a result of a
redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established
brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
|
|
n
|
Redeem the shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition,
that distribution and all future distributions payable to you will be reinvested at NAV in additional Service Shares of the Fund that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption
checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Service Shares of a Fund at NAV for shares of the corresponding class of any other
Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n The recordholder name(s) and signature(s) | |||||
| n The account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||||
|
|
|||||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||||
|
n
1-800-621-2550
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You should keep in mind the following factors when making or considering an exchange:
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
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Telephone exchanges normally will be made only to an identically registered account.
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
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Exchanges are available only in states where exchanges may be legally made.
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
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SHAREHOLDER GUIDE
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Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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Exchanges into Funds that are closed to new investors may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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What Types Of Reports Will I Be Sent Regarding Investments In Service Shares?
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Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Service Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
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As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
APPENDIX A
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the holder to sell the RAWs to a bank or other
financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities and generally are not
bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial receipts which evidence ownership of future interest payments, principal payments or
both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
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Both domestic and foreign securities that are not
readily marketable
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Certain municipal leases and participation
interests
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Certain stripped mortgage-backed securities
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Repurchase agreements and time deposits with a notice
or demand period of more than seven days
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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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
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Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies.
As a matter of fundamental policy, at least 80% of each of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios will ordinarily be invested in municipal obliga-
APPENDIX A
tions, the interest from which is, in the opinion of bond counsel, if any, excluded from gross income for federal income tax purposes. In addition, as a matter of
fundamental policy, at least 65% of each of the Tax-Exempt California and Tax-Exempt New York Portfolio’s total assets will be invested in California and New York municipal obligations, except in extraordinary circumstances.
For these purposes, California and New York municipal obligations are obligations issued by or on behalf of the State of California or the State of New York,
respectively, and their respective political subdivisions, agencies and instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands and Guam, the interest from which is excluded from gross income for federal income tax purposes and
is exempt from California State personal income tax or New York State and New York City personal income tax. Each Tax-Exempt Fund may temporarily invest in taxable money market instruments or, in the case of the Tax-Exempt California and New York
Portfolios, in municipal obligations that are not California or New York municipal obligations, respectively, when acceptable California and New York municipal obligations are not available or when the Investment Adviser believes that the market
conditions dictate a defensive posture. Investments in taxable money market instruments will be limited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-Exempt California and Tax-Exempt New York Portfolios’ distributions
of interest from municipal obligations other than California and New York municipal obligations, respectively, may be subject to California and New York State and New York City personal income taxes. In addition, dividends paid by the Portfolios may
be subject to state corporate franchise and corporate income taxes, if applicable.
Risks of Investing in California and New York:
The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate their investments in California
and New York municipal obligations. Consequently, these Funds are more susceptible to factors adversely affecting issuers of California and New York municipal obligations, and may be riskier than comparable municipal bond funds and money market
funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio’s investments can be affected by political and economic developments within the State of California (“California”),
and by the financial condition of California, its public authorities and political subdivisions. After suffering a severe recession in the early 1990’s, California’s economy entered a sustained recovery starting in 1994, which has outpaced
the national economy in recent years. California’s budget returned to positive balance after deficits in the recession years, and has generated substantial surpluses for several years. Economic growth is expected to slow in 2001, due to a
combination of the impacts of the national economic slowdown, a cyclical slowdown in the high technology sector, and energy supply and price difficulties which have affected California since the start of 2001. These factors could reduce
California’s budget surpluses in fiscal year 2001-02. To respond to its own revenue shortfalls during the recession, California reduced
assistance to its public authorities and political subdivisions, which have not been fully restored in the more recent years of budget surpluses. California voters in the past have passed amendments to the California Constitution and other measures
that limit the taxing and spending authority of California government entities, and future initiatives could result in adverse consequences affecting California municipal obligations. In part as a result of such initiatives, local governments in
California face fiscal difficulties in varying degrees.
These factors, among others (including the outcome of related pending litigation), could reduce the credit standing of certain issuers of California municipal
obligations. A more detailed discussion of the risks of investing in California is included in the Additional Statement.
The Tax-Exempt New York Portfolio’s investments will be affected by political and economic developments within the State of New York (the “State”), and
by the financial conditions of the State, its public authorities and political subdivisions, particularly the City of New York (the “City”). The State and the City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their financial obligations. Certain substantial issuers of New York municipal obligations (including issuers whose obligations may be acquired by the Fund) have, at times,
experienced serious financial difficulties. Strong demand for New York municipal obligations has also at times had the effect of permitting New York municipal obligations to be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obligations issued by other jurisdictions. A recurrence of the financial difficulties previously experienced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers’ existing obligations and, possibly, in the obligations of other issuers of New York municipal obligations. Although as of April 1, 2001 no issuers were in default with respect to the
payment of their New York municipal obligations, the occurrence of any such default could materially affect adversely the market values and marketability of all New York municipal obligations and, consequently, the value of the Fund’s holdings.
A more detailed discussion of the risks of investing in New York is included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income, NAV, ability
to preserve or realize appreciation of capital or liquidity could be adversely affected. Also, neither of these Funds is a diversified fund under the Act (except to the extent that diversification is required by Rule 2a-7 or for federal income tax
purposes). Because they may invest a larger percentage of their assets in the securities of fewer issuers than do diversified funds, these Funds may be exposed to greater risk in that an adverse change in the condition of one or a small number of
issuers would have a greater impact on them.
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Financial Highlights
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The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Fund’s financial statements, is included in the Fund’s annual
report (available upon request). The information for all periods prior to the periods ended December 31, 2000 has been audited by the Funds’ previous independent accountants.
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PRIME OBLIGATIONS PORTFOLIO
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Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
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|---|---|---|---|---|---|---|---|
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| For the Years Ended December 31, | |||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA B units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - ILA C units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05) | ||||
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| 1999 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04) | ||||
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| 1998 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1997 - ILA C units (commenced August 15) | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA B units (commenced May 8) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||
| 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||
| 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||
| 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||
| 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||
| 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||
| 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||
| 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||
| 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||
| 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||
| 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||
| 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||
| 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||
| 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||
| 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||
| 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||
| 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||
| 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||
| 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||
| 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||
| 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||
| 1.00 | 3.97 | (c) | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||
|
|
||||||||||||||||||
|
MONEY MARKET PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $1,753,668 | 0.41% | 6.05 | % | 0.41 | % | 6.05 | % | |||||||
| 1.00 | 6.02 | 321,440 | 0.56 | 6.12 | 0.56 | 6.12 | |||||||||||
| 1.00 | 5.76 | 346,427 | 0.81 | 5.63 | 0.81 | 5.63 | |||||||||||
| 1.00 | 5.60 | 315,194 | 0.98 | 5.72 | 1.41 | 5.29 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.92 | 1,346,765 | 0.41 | 4.80 | 0.41 | 4.80 | |||||||||||
| 1.00 | 4.76 | 6,961 | 0.56 | 4.64 | 0.56 | 4.64 | |||||||||||
| 1.00 | 4.50 | 383,932 | 0.81 | 4.42 | 0.81 | 4.42 | |||||||||||
| 1.00 | 4.32 | 2 | 0.98 | 4.37 | 1.41 | 3.94 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.33 | 1,350,317 | 0.40 | 5.17 | 0.43 | 5.14 | |||||||||||
| 1.00 | 5.17 | 314,327 | 0.55 | 5.04 | 0.58 | 5.01 | |||||||||||
| 1.00 | 4.91 | 32,349 | 0.80 | 4.79 | 0.83 | 4.76 | |||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.90 (c) | 4.80 | (c) | 1.43 | (c) | 4.27 | (c) | |||||||
|
|
|||||||||||||||||
| 1.00 | 5.43 | 806,096 | 0.37 | 5.31 | 0.42 | 5.26 | |||||||||||
| 1.00 | 5.28 | 307,480 | 0.52 | 5.15 | 0.57 | 5.10 | |||||||||||
| 1.00 | 5.01 | 20,517 | 0.77 | 4.90 | 0.82 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.27 | 703,097 | 0.36 | 5.15 | 0.43 | 5.08 | |||||||||||
| 1.00 | 5.12 | 257,258 | 0.51 | 5.00 | 0.58 | 4.93 | |||||||||||
| 1.00 | 4.86 | 28,845 | 0.76 | 4.75 | 0.83 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.95 | % | $384,023 | 0.42 | % | 5.77 | % | 0.42 | % | 5.77 | % | |||||||
| 1.00 | 5.79 | 15,095 | 0.57 | 5.51 | 0.57 | 5.51 | ||||||||||||
| 1.00 | 5.52 | 493,259 | 0.82 | 5.49 | 0.82 | 5.49 | ||||||||||||
| 1.00 | 2.33 | (d) | 2,598 | 0.99 | (c) | 5.53 | (c) | 1.42 | (c) | 5.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.63 | 404,299 | 0.42 | 4.50 | 0.42 | 4.50 | ||||||||||||
| 1.00 | 4.48 | 42,334 | 0.57 | 4.35 | 0.57 | 4.35 | ||||||||||||
| 1.00 | 4.22 | 264,787 | 0.82 | 4.19 | 0.82 | 4.19 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 734,553 | 0.42 | 4.96 | 0.43 | 4.95 | ||||||||||||
| 1.00 | 4.99 | 80,464 | 0.57 | 4.88 | 0.58 | 4.87 | ||||||||||||
| 1.00 | 4.73 | 35,432 | 0.82 | 4.67 | 0.83 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.26 | 590,381 | 0.42 | 5.12 | 0.42 | 5.12 | ||||||||||||
| 1.00 | 5.10 | 124,159 | 0.57 | 4.99 | 0.57 | 4.99 | ||||||||||||
| 1.00 | 4.84 | 104,133 | 0.82 | 4.73 | 0.82 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.11 | 574,734 | 0.41 | 4.98 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 4.95 | 108,850 | 0.56 | 4.83 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.69 | 123,483 | 0.81 | 4.59 | 0.83 | 4.57 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.05 | $(0.05 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.62 | % | $201,088 | 0.43 | % | 5.49 | % | 0.45 | % | 5.47 | % | |||||||
| 1.00 | 5.46 | 21,875 | 0.58 | 5.20 | 0.60 | 5.18 | ||||||||||||
| 1.00 | 5.20 | 104,076 | 0.83 | 4.96 | 0.85 | 4.94 | ||||||||||||
| 1.00 | 2.21 | (d) | 11,577 | 1.00 | (c) | 5.22 | (c) | 1.45 | (c) | 4.77 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.38 | 224,609 | 0.43 | 4.29 | 0.43 | 4.29 | ||||||||||||
| 1.00 | 4.22 | 32,162 | 0.58 | 4.09 | 0.58 | 4.09 | ||||||||||||
| 1.00 | 3.96 | 306,483 | 0.83 | 3.90 | 0.83 | 3.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.96 | 341,476 | 0.30 | 4.83 | 0.43 | 4.70 | ||||||||||||
| 1.00 | 4.80 | 131,685 | 0.45 | 4.68 | 0.58 | 4.55 | ||||||||||||
| 1.00 | 4.54 | 374,128 | 0.70 | 4.43 | 0.83 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.17 | 330,241 | 0.22 | 5.02 | 0.42 | 4.82 | ||||||||||||
| 1.00 | 5.01 | 98,667 | 0.37 | 4.88 | 0.57 | 4.68 | ||||||||||||
| 1.00 | 4.75 | 295,404 | 0.62 | 4.63 | 0.82 | 4.43 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.10 | 708,999 | 0.21 | 4.96 | 0.43 | 4.74 | ||||||||||||
| 1.00 | 4.95 | 137,706 | 0.36 | 4.82 | 0.58 | 4.60 | ||||||||||||
| 1.00 | 4.68 | 383,901 | 0.61 | 4.56 | 0.83 | 4.34 | ||||||||||||
|
|
||||||||||||||||||
|
GOVERNMENT PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.05 | % | $126,034 | 0.43 | % | 5.84 | % | 0.48 | % | 5.79 | % | |||||||
| 1.00 | 5.89 | 562 | 0.58 | 5.57 | 0.63 | 5.52 | ||||||||||||
| 1.00 | 5.63 | 50,733 | 0.83 | 5.42 | 0.88 | 5.37 | ||||||||||||
| 1.00 | 5.50 | 44,533 | 1.00 | 5.60 | 1.48 | 5.12 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.77 | 205,244 | 0.43 | 4.64 | 0.45 | 4.62 | ||||||||||||
| 1.00 | 4.61 | 3,265 | 0.58 | 4.42 | 0.60 | 4.40 | ||||||||||||
| 1.00 | 4.35 | 79,847 | 0.83 | 4.24 | 0.85 | 4.22 | ||||||||||||
| 1.00 | 4.18 | 153 | 1.00 | 4.68 | 1.45 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.21 | 383,243 | 0.43 | 5.09 | 0.45 | 5.07 | ||||||||||||
| 1.00 | 5.05 | 7,692 | 0.58 | 4.94 | 0.60 | 4.92 | ||||||||||||
| 1.00 | 4.79 | 105,732 | 0.83 | 4.67 | 0.85 | 4.65 | ||||||||||||
| 1.00 | 4.57 | (c) | 2 | 0.93 | (c) | 4.60 | (c) | 1.45 | (c) | 4.08 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.31 | 460,457 | 0.42 | 5.16 | 0.42 | 5.16 | ||||||||||||
| 1.00 | 5.15 | 10,192 | 0.57 | 4.98 | 0.57 | 4.98 | ||||||||||||
| 1.00 | 4.89 | 83,799 | 0.82 | 4.78 | 0.82 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 694,651 | 0.41 | 5.04 | 0.44 | 5.01 | ||||||||||||
| 1.00 | 4.99 | 36,055 | 0.56 | 4.89 | 0.59 | 4.86 | ||||||||||||
| 1.00 | 4.73 | 94,228 | 0.81 | 4.63 | 0.84 | 4.60 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense limitations |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.03 | % | $4,221,684 | 0.40 | % | 5.90 | % | 0.40 | % | 5.90 | % | |||||||
| 1.00 | 5.87 | 620,138 | 0.55 | 6.01 | 0.55 | 6.01 | ||||||||||||
| 1.00 | 5.61 | 278,002 | 0.80 | 5.48 | 0.80 | 5.48 | ||||||||||||
| 1.00 | 2.36 | (d) | 778,826 | 1.00 | (c) | 5.59 | (c) | 1.43 | (c) | 5.16 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.81 | 3,171,330 | 0.41 | 4.72 | 0.41 | 4.72 | ||||||||||||
| 1.00 | 4.66 | 836 | 0.56 | 4.46 | 0.56 | 4.46 | ||||||||||||
| 1.00 | 4.39 | 284,382 | 0.81 | 4.30 | 0.81 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | 2,625,705 | 0.34 | 5.10 | 0.42 | 5.02 | ||||||||||||
| 1.00 | 5.09 | 508,297 | 0.49 | 4.97 | 0.57 | 4.89 | ||||||||||||
| 1.00 | 4.83 | 53,994 | 0.74 | 4.71 | 0.82 | 4.63 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 2,050,559 | 0.27 | 5.26 | 0.41 | 5.12 | ||||||||||||
| 1.00 | 5.24 | 530,001 | 0.42 | 5.11 | 0.56 | 4.97 | ||||||||||||
| 1.00 | 4.98 | 34,540 | 0.67 | 4.83 | 0.81 | 4.69 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.24 | 2,303,677 | 0.26 | 5.13 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 5.09 | 794,537 | 0.41 | 4.98 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.83 | 192,416 | 0.66 | 4.73 | 0.83 | 4.56 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT DIVERSIFIED PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | |||||||
| 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | ||||||||||||
| 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | ||||||||||||
| 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | ||||||||||||
| 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | ||||||||||||
| 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | ||||||||||||
| 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | ||||||||||||
| 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | ||||||||||||
| 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | ||||||||||||
| 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | ||||||||||||
| 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | ||||||||||||
| 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | ||||||||||||
| 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | ||||||||||||
| 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT CALIFORNIA PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distribution
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.03 | $(0.03 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (Re-commenced September 1) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.17 | % | $650,980 | 0.42 | % | 3.08 | % | 0.43 | % | 3.07 | % | |||||||
| 1.00 | 3.02 | 27,490 | 0.56 | 2.99 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.76 | 63 | 0.82 | 2.22 | 0.83 | 2.21 | ||||||||||||
| 1.00 | 2.63 | 71,162 | 0.98 | 2.74 | 1.42 | 2.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.60 | 895,469 | 0.42 | 2.58 | 0.42 | 2.58 | ||||||||||||
| 1.00 | 2.45 | 8,910 | 0.57 | 2.38 | 0.57 | 2.38 | ||||||||||||
| 1.00 | 2.19 | 27,229 | 0.82 | 2.39 | 0.82 | 2.39 | ||||||||||||
| 1.00 | 2.02 | 1 | 0.99 | 2.15 | 1.42 | 1.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.84 | 584,615 | 0.41 | 2.79 | 0.41 | 2.79 | ||||||||||||
| 1.00 | 2.68 | 512 | 0.56 | 2.84 | 0.56 | 2.84 | ||||||||||||
| 1.00 | 2.43 | 2 | 0.81 | 2.48 | 0.81 | 2.48 | ||||||||||||
| 1.00 | 2.25 | (c) | 2 | 0.91 | (c) | 2.37 | (c) | 1.41 | (c) | 1.87 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.15 | 591,003 | 0.42 | 3.10 | 0.42 | 3.10 | ||||||||||||
| 1.00 | 3.00 | 360 | 0.57 | 2.98 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.87 | (c) | 2 | 0.82 | (c) | 2.90 | (c) | 0.82 | (c) | 2.90 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.03 | 440,476 | 0.41 | 2.99 | 0.42 | 2.98 | ||||||||||||
| 1.00 | 2.88 | 142 | 0.56 | 2.84 | 0.57 | 2.83 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT NEW YORK PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (commenced September 15) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
Footnotes:
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.57 | % | $176,618 | 0.43 | % | 3.51 | % | 0.47 | % | 3.47 | % | |||||||
| 1.00 | 3.41 | 82,019 | 0.58 | 3.44 | 0.62 | 3.40 | ||||||||||||
| 1.00 | 3.15 | 303 | 0.83 | 3.33 | 0.87 | 3.29 | ||||||||||||
| 1.00 | 3.02 | 13,758 | 1.00 | 3.15 | 1.47 | 2.68 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.76 | 160,301 | 0.43 | 2.73 | 0.44 | 2.72 | ||||||||||||
| 1.00 | 2.60 | 37,836 | 0.58 | 2.61 | 0.59 | 2.60 | ||||||||||||
| 1.00 | 2.35 | 2 | 0.83 | 2.29 | 0.84 | 2.28 | ||||||||||||
| 1.00 | 2.17 | 2 | 1.00 | 2.34 | 1.44 | 1.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.02 | 122,550 | 0.36 | 2.96 | 0.51 | 2.81 | ||||||||||||
| 1.00 | 2.87 | 21,580 | 0.51 | 2.85 | 0.66 | 2.70 | ||||||||||||
| 1.00 | 2.61 | 2 | 0.76 | 2.61 | 0.91 | 2.46 | ||||||||||||
| 1.00 | 2.46 | (c) | 1 | 0.86 | (c) | 2.56 | (c) | 1.51 | (c) | 1.91 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.29 | 102,887 | 0.33 | 3.24 | 0.43 | 3.14 | ||||||||||||
| 1.00 | 3.14 | 31,993 | 0.48 | 3.09 | 0.58 | 2.99 | ||||||||||||
| 1.00 | 3.02 | (c) | 2 | 0.73 | (c) | 3.04 | (c) | 0.83 | (c) | 2.94 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.05 | 70,175 | 0.32 | 3.01 | 0.43 | 2.90 | ||||||||||||
| 1.00 | 2.90 | 44,319 | 0.47 | 2.88 | 0.58 | 2.77 | ||||||||||||
|
|
||||||||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 24 | Fund Fees and Expenses | |||
| 28 | Service Providers | |||
| 30 | Dividends | |||
| 31 | Shareholder Guide | |||
| 31 | How to Buy Shares | |||
| 35 | How to Sell Shares | |||
| 40 | Taxation | |||
| 41 |
Appendix A
Additional Information On Portfolio Risks, Securities And Techniques |
|||
| 52 |
Appendix B
Financial Highlights |
|||
Institutional Liquid Assets Prospectus
(ILA Service Units)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Funds’ investment company registration number is 811-5349.
ILAPROSVCMM
|
Prospectus
|
ILA
Administration
(“Units” or
“Shares”)
May 1, 2001
|
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
n
|
Prime
Obligations Portfolio
|
|
n
|
Money
Market Portfolio
|
|
n
|
Treasury
Obligations Portfolio
|
|
n
|
Treasury
Instruments Portfolio
|
|
n
|
Government Portfolio
|
|
n
|
Federal
Portfolio
|
|
n
|
Tax-Exempt Diversified Portfolio
|
|
n
|
Tax-Exempt California Portfolio
|
|
n
|
Tax-Exempt New York Portfolio
|
|
NOT FDIC-Insured
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Institutional Liquid Assets Portfolios (the “Funds”). GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money market
fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research, Legal
and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM)
target—
WAM (the weighted average time until the yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by
the portfolio management team based on insights gained from weekly meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio
structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility,
are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new
securities—
The Investment Adviser’s five-step process includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence
their asset volatility;
|
|
n
|
Technical events that influence the trading range of
federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the
portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc. First Tier Institutional Indices.
Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by
Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria
including conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government
Portfolios.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Portfolios.
|
|
n
|
Tax-Exempt Funds:
Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios.
|
|
n
|
The Investors:
The Funds are designed for investors seeking a high rate of return, a stable net
asset value (“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of
their customers.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that
a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule
2a-7) at the time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required
by Rule 2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are
described in detail under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions and the investment objective of a Fund (except the Tax-Exempt California and Tax-Exempt New York Portfolios’
objectives of providing shareholders with income exempt from California personal income tax and New York State and New York City personal income taxes, respectively) cannot be changed without approval of a majority of the outstanding shares of that
Fund. The Treasury Obligations Portfolio’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance
with current regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer with
these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York
|
|
Portfolios may each invest up to 25% of their total assets in five or fewer
issuers; and (b) each of the other Funds may invest up to 25% of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the Additional Statement. |
|
INVESTMENT OBJECTIVES
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government and Federal Portfolios seek to
maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
The Prime Obligations and Money Market Portfolios pursue their investment objectives by investing in U.S. Government
Securities, obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Portfolio may also invest in U.S. dollar-denominated
obligations of foreign banks, foreign companies and foreign governments.
|
|
The Treasury Obligations Portfolio pursues its investment objective by investing in securities issued by the U.S. Treasury
and repurchase agreements relating to such securities. The Government Portfolio pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities.
|
|
The Treasury Instruments and Federal Portfolios pursue their investment objectives by limiting their investments to certain
U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury Instruments and
Federal Portfolios (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
Tax-Exempt Funds:
|
|
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders, to the
extent consistent with the preservation of capital and prescribed portfolio standards, with a high level of income exempt from federal income tax by investing primarily in municipal obligations.
|
|
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders with income exempt
from California personal income tax and New York State and New York City personal income taxes, respectively, by investing in obligations the interest on which is exempt from these taxes. (These instruments are called “California
obligations” and “New York obligations” in this Prospectus.)
|
|
The Tax-Exempt Funds pursue their investment objectives by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits), the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Money Market Portfolio may invest in U.S. dollar-denominated obligations (limited to commercial paper and other
notes) issued or guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in
the highest short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
Investment Policies Matrix continued
| Fund |
Municipals |
Custodial
Receipts |
Unrated
Securities 9 |
Investment
Companies |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
Prime Obligations
|
n 7 | n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Money Market | n 7 | n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Treasury Obligations | |||||||||
|
|
|||||||||
| Treasury Instruments | |||||||||
|
|
|||||||||
| Government |
n
Up to 10% of total assets in other investment companies |
||||||||
|
|
|||||||||
| Federal | |||||||||
|
|
|||||||||
| Tax-Exempt Diversified |
n
At least 80% of net assets in tax-exempt municipal obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt California |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in California obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt New York |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in New York obligations (except in extraordinary circumstances) 8 |
n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of a Fund’s portfolio securities will be invested in municipal obligations, but
the Funds may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of a Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
11 No more than 25% of the value of a Fund’s total assets may be invested in industrial development bonds or similar obligations where the
non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
12 First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only one NRSRO has assigned a rating, by
that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier Securities.
13 Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
14 See “Taxation” for an explanation of the tax consequences summarized in the table above.
15 Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S. Government Securities interest
income.
16 Taxable except for distributions from interest on obligations of an investor’s state of residence in certain states.
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 government 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.
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios, risk of loss from payment default
may also exist where municipal instruments are backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Portfolios:
|
n
|
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 apply to the Money Market Portfolio:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Portfolio may not invest more
than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Portfolio
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Exempt Funds:
|
n
|
Concentration Risk—
The risk that if a Fund invests more than 25% of its total assets in issuers within the
same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of a Fund’s portfolio and/or the ability of a Fund to pay federal tax-exempt dividends (in the case of each of these Funds) and state tax-exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt New York
Portfolios). These Funds would not be a suitable investment for IRAs, other tax-exempt or tax deferred accounts or for other investors who are not sensitive to the federal, state or local tax consequences of these investments.
|
|
n
|
California/New York Risks
— The Tax-Exempt California and Tax-Exempt New York Portfolios intend to invest
at least 65% of their total assets in California municipal obligations and New York municipal obligations, respectively. The investments of these Funds will, therefore, be affected by political and economic developments within these states, and by
the financial condition of these states, their public authorities and political sub-divisions. If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income,
NAV, and ability to preserve or realize appreciation of capital or liquidity could be adversely affected. The Tax-Exempt California and Tax-Exempt New York Portfolios are classified as “non-diversified” for regulatory purposes. See
Appendix A in this Prospectus for more information concerning the risks of investing in California and New York.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
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’s Administration Shares from year to year; and (b) the average annual returns of a Fund’s Administration Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance
volatility. The bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect.
If expense limitations were not in place, a Fund’s performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.68%
Worst Quarter
Q2 ’93 0.68%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 6/5/90) | 5.98% | 5.23% | 4.80% | 4.97% | |||||
|
|
|||||||||
Money Market Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.68%
Worst Quarter
Q2 ’93 0.70%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 6/12/90) | 6.02% | 5.27% | 4.84% | 5.00% | |||||
|
|
|||||||||
FUND PERFORMANCE
Treasury Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.57%
Worst Quarter
Q2 ’93 0.67%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 6/12/90) | 5.79% | 5.06% | 4.65% | 4.82% | |||||
|
|
|||||||||
Treasury Instruments Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q4 ’00 1.44%
Worst Quarter
Q2 ’93 0.68%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 7/24/91) | 5.46% | 4.89% | 4.48% | ||||
|
|
|||||||
FUND PERFORMANCE
Government Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.59%
Worst Quarter
Q2 ’93 0.68%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 6/1/90) | 5.89% | 5.14% | 4.71% | 4.88% | |||||
|
|
|||||||||
Federal Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.61%
Worst Quarter
Q2 ’93 0.69%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 9/20/90) | 5.87% | 5.19% | 4.76% | 4.84% | |||||
|
|
|||||||||
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 1.09%
Worst Quarter
Q1 ’94 0.48%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 6/12/90) | 3.58% | 3.13% | 3.07% | 3.20% | |||||
|
|
|||||||||
Tax-Exempt California Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q1 ’91 0.95%
Worst Quarter
Q1 ’94 0.44%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Administration Shares (Inception 12/3/90) | 3.02% | 2.80% | 2.80 | 2.82% | |||||
|
|
|||||||||
FUND PERFORMANCE
Tax-Exempt New York Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
Best Quarter
Q4 ’00
0.90%
Worst Quarter
Q1 ’94
0.44%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Administration Shares (Inception 2/15/91) | 3.41% | 2.98% | 2.90% | ||||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold ILA Administration Shares of a Fund.
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Shareholder Fees | |||||||
| (fees paid directly from your investment): | |||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
None | None | None | ||||
| Maximum Deferred Sales Charge (Load) | None | None | None | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | ||||
| Redemption Fees | None | None | None | ||||
| Exchange Fees | None | None | None | ||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses | 0.23% | 0.21% | 0.22% | ||||
| Administration Fees 2 | 0.15% | 0.15% | 0.15% | ||||
| All Other Expenses 3 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
| Total Fund Operating Expenses* 4 | 0.58% | 0.56% | 0.57% | ||||
|
|
|||||||
|
See page 26 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser with the approval of the
Trustees. If this occurs, “Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Other Expenses | 0.23% | 0.21% | 0.22% | ||||
| Administration Fees 2 | 0.15% | 0.15% | 0.15% | ||||
| All Other Expenses 3 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after
current expense limitations) 4 |
0.58% | 0.56% | 0.57% | ||||
|
|
|||||||
FUND FEES AND EXPENSES
Fund Fees and Expenses
continued
|
1
|
The Funds’ annual operating expenses are based on actual expenses.
|
|
2
|
Service Organizations may charge other fees directly to their customers who are the beneficial owners of
Administration Shares in connection with their customers’ accounts. Such fees may affect the return such customers realize with respect to their investments.
|
|
3
|
“All Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net
assets of each Fund’s Administration Shares plus all other ordinary expenses not detailed above.
|
|
4
|
The Investment Adviser has voluntarily agreed to reduce or limit “Total Fund Operating Expenses” of each
Fund (excluding administration fees, taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) such that Total Fund Operating Expenses will not exceed 0.43% of each Fund’s average daily net
assets.
|
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Administration Shares of a Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $59 | $186 | $324 | $726 | |||||
|
|
|||||||||
| Money Market | $57 | $179 | $313 | $701 | |||||
|
|
|||||||||
| Treasury Obligations | $58 | $183 | $318 | $714 | |||||
|
|
|||||||||
| Treasury Instruments | $61 | $192 | $335 | $750 | |||||
|
|
|||||||||
| Government | $64 | $202 | $351 | $786 | |||||
|
|
|||||||||
| Federal | $56 | $176 | $307 | $689 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | $57 | $179 | $313 | $701 | |||||
|
|
|||||||||
| Tax-Exempt California | $58 | $183 | $318 | $714 | |||||
|
|
|||||||||
| Tax-Exempt New York | $63 | $199 | $346 | $774 | |||||
|
|
|||||||||
Service Organizations that invest in Administration Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with
their investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investment.
Certain Service Organizations that invest in Administration Shares may receive other compensation in connection with the sale and distribution of Administration Shares
or for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional
Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Money Market | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Instruments | 0.35% | 0.35% | |||
|
|
|||||
| Government | 0.35% | 0.35% | |||
|
|
|||||
| Federal | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt Diversified | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt California | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt New York | 0.35% | 0.35% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed monthly. You may choose to have dividends paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Administration Shares.
|
|
How Can I Purchase Administration Shares Of The Funds?
|
|
Generally, Administration Shares may be purchased only through institutions that have agreed to provide shareholder
administration and maintenance services to their customers who are the beneficial owners of Administration Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Administration Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends after the Fund’s receipt of
the purchase amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
|||||
| By Writing: | Goldman Sachs Funds | ||||
| 4900 Sears Tower | |||||
| Chicago, IL 60606-6372 | |||||
|
|
|||||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m New York time) |
||||
|
|
|||||
|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
Service Organizations may send their payments as follows:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds -(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in
Administration Shares:
|
|
n
|
Acting, directly or through an agent, as the sole shareholder of record
|
|
n
|
Maintaining account records for customers
|
|
n
|
Processing orders to purchase, redeem or exchange shares for customers
|
|
Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
|
A Fund will be deemed to have received an order in
proper form when the order is accepted by the authorized Service Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
SHAREHOLDER GUIDE
|
n
|
Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to an administration plan adopted by the Trust’s Board of Trustees, Service Organizations are entitled to
receive payment for their services from the Trust of up to 0.15% (on an annualized basis) of the average daily net assets of the Administration Shares of the Funds, which are attributable to or held in the name of the Service Organization for its
customers. In addition, GSAM, at its own expense, may pay a Service Organization, up to 0.10% of the average daily net assets of the Administration Shares of the Fund, which are attributable to or held in the name of the Service Organization for its
customers. The compensation paid by GSAM does not represent an additional expense to a Fund or its shareholders, since it will be paid from the assets of GSAM.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
|
In addition to Administration Shares, each Fund also offers other classes of shares to investors. These other share classes
are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Administration Shares. Information regarding these other share classes may be obtained
from your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
The Funds do not have any minimum purchase or account requirements with respect to Administration Shares. A Service
Organization may, however, impose a minimum amount for initial and subsequent investments in Administration Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Administration Shares held
by non-complying accounts, and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment and minimum account balance requirement.
|
|
n
|
Reject any purchase order for any reason.
|
|
The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a
Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Administration Shares is the Fund’s next determined NAV. The
Funds calculate NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
|
n
|
NAV per share of each class is calculated by State Street 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 be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
|
n
|
On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able at all times to maintain a NAV of $1.00 per share.
|
SHAREHOLDER GUIDE
|
How Can I Sell Administration Shares Of The Funds?
|
|
Generally, Administration Shares may be sold (redeemed) only through Service Organizations. Customers of a Service
Organization will normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Administration Shares upon request
on any business day at their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is elected on the Account
Application.
|
|
Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor, and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
| Taxable and Tax-Advantaged Funds: | |||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
| Tax-Exempt Funds: | |||||
| n By 12:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 12:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
|
n
|
Although redemption proceeds will normally be wired as described above, each Fund reserves the right to pay redemption
proceeds up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days.
If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
|
|
What Should I Know About The Check Redemption Privilege?
|
|
A Service Organization may elect to have a special account with State Street for the purpose of redeeming Administration
Shares from its account by check.
|
|
The following general policies govern the check redemption privilege:
|
|
n
|
The Service Organization will be provided with a supply of checks when State Street receives a completed signature card and
authorization form. Checks drawn on the account may be payable to the order of any person in any amount over $500, but cannot be certified.
|
SHAREHOLDER GUIDE
|
n
|
The payee of the check may cash or deposit it just like any other check drawn on a bank.
|
|
n
|
When the check is presented to State Street for payment, a sufficient number of full or fractional Administration Shares will
be redeemed to cover the amount of the check.
|
|
n
|
Canceled checks will be returned to the Service Organization by State Street.
|
|
n
|
The check redemption privilege allows a Service Organization to receive the dividends declared on the Administration Shares
that are to be redeemed until the check is actually processed. Because of this feature, accounts may not be completely liquidated by check.
|
|
n
|
If the amount of the check is greater than the value of the Administration Shares held in the Service Organization’s
account, the check will be returned unpaid. In this case, the Service Organization may be subject to extra charges.
|
|
n
|
The Trust reserves the right to limit the availability of, modify or terminate the check redemption privilege at any time
with respect to any or all Service
Organizations. |
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem the Administration Shares of any Service Organization whose account balance falls below the minimum as a result of a
redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established
brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
|
|
n
|
Redeem the shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Administration Shares of the Fund
that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Administration Shares of a Fund at NAV for shares of the corresponding class of any other
Goldman Sachs Fund.
|
|
The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in
a Fund must satisfy the minimum initial investment requirements of that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses, and social security or other taxpayer identification
numbers only if the exchange
instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Administration Shares?
|
|
Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Administration Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
APPENDIX A
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which
include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi
cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
APPENDIX A
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies.
As a matter of fundamental policy, at least 80% of each of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios will ordinarily be invested in municipal obligations, the interest from which is, in the opinion of bond counsel, if any, excluded from gross income for federal income tax purposes. In addition, as a
matter of fundamental policy, at least 65% of each of the Tax-Exempt California and Tax-Exempt New York Portfolio’s total assets will be invested in California and New York municipal obligations, except in extraordinary
circumstances.
For these purposes, California and New York municipal obligations are obligations issued by or on behalf of the State of California or the State of New York, respective-
ly, and their respective political subdivisions, agencies and instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands and Guam, the interest from
which is excluded from gross income for federal income tax purposes and is exempt from California State personal income tax or New York State and New York
City personal income tax. Each Tax-Exempt Fund may temporarily invest in taxable money market instruments or, in the case of the Tax-Exempt California and New
York Portfolios, in municipal obligations that are not California or New York municipal obligations, respectively, when acceptable California and New York municipal
obligations are not available or when the Investment Adviser believes that the market conditions dictate a defensive posture. Investments in taxable money market instruments will be limited to those meeting the quality standards of each Tax-Exempt
Fund. The Tax-Exempt California and Tax-Exempt New York Portfolios’ distribu-
tions of interest from municipal obligations other than California and New York municipal obligations, respectively, may be subject to California and New York State and New York City personal income taxes. In addition, dividends paid by the Portfolios may be subject to state corporate franchise and corporate income taxes, if applicable.
ly, and their respective political subdivisions, agencies and instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands and Guam, the interest from
which is excluded from gross income for federal income tax purposes and is exempt from California State personal income tax or New York State and New York
City personal income tax. Each Tax-Exempt Fund may temporarily invest in taxable money market instruments or, in the case of the Tax-Exempt California and New
York Portfolios, in municipal obligations that are not California or New York municipal obligations, respectively, when acceptable California and New York municipal
obligations are not available or when the Investment Adviser believes that the market conditions dictate a defensive posture. Investments in taxable money market instruments will be limited to those meeting the quality standards of each Tax-Exempt
Fund. The Tax-Exempt California and Tax-Exempt New York Portfolios’ distribu-
tions of interest from municipal obligations other than California and New York municipal obligations, respectively, may be subject to California and New York State and New York City personal income taxes. In addition, dividends paid by the Portfolios may be subject to state corporate franchise and corporate income taxes, if applicable.
Risks of Investing in California and New York:
The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate their investments in California
and New York municipal obligations. Consequently, these Funds are more susceptible to factors adversely affecting issuers of California and New York municipal obligations, and may be riskier than comparable municipal bond funds and money market
funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio’s investments can be affected by political and economic developments within the State of California (“California”),
and by the financial condition of California, its public authorities and political subdivisions. After suffering a severe recession in the early 1990’s, California’s economy entered a
sustained recovery starting in 1994, which has outpaced the national economy in recent years. California’s budget returned to positive balance after deficits in the recession years, and has generated substantial surpluses for several years.
Economic growth is expected to slow in 2001, due to a combination of the impacts of the national economic slowdown, a cyclical slowdown in the high technology sector, and energy supply and price difficulties which have affected California since the
start of 2001. These factors could reduce California’s budget surpluses in fiscal year 2001-02. To respond to its own revenue shortfalls during the recession, California reduced assistance to its public authorities and political subdivisions,
which have not been fully restored in the more recent years of budget surpluses. California voters in the past have passed amendments to the California Constitution and other measures that limit the taxing and spending authority of California
government entities, and future initiatives could result in adverse consequences affecting California municipal obligations. In part as a result of such initiatives, local governments in California face fiscal difficulties in varying
degrees.
These factors, among others (including the outcome of related pending litigation), could reduce the credit standing of certain issuers of California municipal
obligations. A more detailed discussion of the risks of investing in California is included in the Additional Statement.
The Tax-Exempt New York Portfolio’s investments will be affected by political and economic developments within the State of New York (the “State”), and
by the financial conditions of the State, its public authorities and political subdivisions, particularly the City of New York (the “City”). The State and the City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their financial obligations. Certain substantial issuers of New York municipal obligations (including issuers whose obligations may be acquired by the Fund) have, at times,
experienced serious financial difficulties. Strong demand for New York municipal obligations has also at times had the effect of permitting New York municipal obligations to be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obligations issued by other jurisdictions. A recurrence of the financial difficulties previously experienced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers’ existing obligations and, possibly, in the obligations of other issuers of New York municipal obligations. Although as of April 1, 2001 no issuers were in default with respect to the
payment of their New York municipal obligations, the occurrence of any such default could materially affect adversely the market values and marketability of all New York municipal obligations and, consequently, the value of the Fund’s holdings.
A more detailed discussion of the risks of investing in New York is included in the Additional Statement.
APPENDIX A
If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income, NAV, ability
to preserve or realize appreciation of capital or liquidity could be adversely affected. Also, neither of these Funds is a diversified fund under the Act (except to the extent that diversification is required by Rule 2a-7 or for federal income tax
purposes). Because they may invest a larger percentage of their assets in the securities of fewer issuers than do diversified funds, these Funds may be exposed to greater risk in that an adverse change in the condition of one or a small number of
issuers would have a greater impact on them.
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Fund’s financial statements, is included in the Fund’s annual
report (available upon request). The information for all periods prior to the periods ended December 31, 2000 has been audited by the Funds’ previous independent accountants.
|
|
PRIME OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| For the Years Ended December 31, | |||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA B units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - ILA C units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05) | ||||
|
|
|||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1997 - ILA C units (commenced August 15) | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA B units (commenced May 8) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||
| 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||
| 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||
| 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||
| 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||
| 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||
| 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||
| 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||
| 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||
| 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||
| 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||
| 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||
| 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||
| 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||
| 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||
| 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||
| 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||
| 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||
| 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||
| 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||
| 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||
| 1.00 | 3.97 | (c) | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||
|
|
||||||||||||||||||
|
MONEY MARKET PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $1,753,668 | 0.41% | 6.05 | % | 0.41 | % | 6.05 | % | |||||||
| 1.00 | 6.02 | 321,440 | 0.56 | 6.12 | 0.56 | 6.12 | |||||||||||
| 1.00 | 5.76 | 346,427 | 0.81 | 5.63 | 0.81 | 5.63 | |||||||||||
| 1.00 | 5.60 | 315,194 | 0.98 | 5.72 | 1.41 | 5.29 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.92 | 1,346,765 | 0.41 | 4.80 | 0.41 | 4.80 | |||||||||||
| 1.00 | 4.76 | 6,961 | 0.56 | 4.64 | 0.56 | 4.64 | |||||||||||
| 1.00 | 4.50 | 383,932 | 0.81 | 4.42 | 0.81 | 4.42 | |||||||||||
| 1.00 | 4.32 | 2 | 0.98 | 4.37 | 1.41 | 3.94 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.33 | 1,350,317 | 0.40 | 5.17 | 0.43 | 5.14 | |||||||||||
| 1.00 | 5.17 | 314,327 | 0.55 | 5.04 | 0.58 | 5.01 | |||||||||||
| 1.00 | 4.91 | 32,349 | 0.80 | 4.79 | 0.83 | 4.76 | |||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.90 (c) | 4.80 | (c) | 1.43 | (c) | 4.27 | (c) | |||||||
|
|
|||||||||||||||||
| 1.00 | 5.43 | 806,096 | 0.37 | 5.31 | 0.42 | 5.26 | |||||||||||
| 1.00 | 5.28 | 307,480 | 0.52 | 5.15 | 0.57 | 5.10 | |||||||||||
| 1.00 | 5.01 | 20,517 | 0.77 | 4.90 | 0.82 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.27 | 703,097 | 0.36 | 5.15 | 0.43 | 5.08 | |||||||||||
| 1.00 | 5.12 | 257,258 | 0.51 | 5.00 | 0.58 | 4.93 | |||||||||||
| 1.00 | 4.86 | 28,845 | 0.76 | 4.75 | 0.83 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.95 | % | $384,023 | 0.42 | % | 5.77 | % | 0.42 | % | 5.77 | % | |||||||
| 1.00 | 5.79 | 15,095 | 0.57 | 5.51 | 0.57 | 5.51 | ||||||||||||
| 1.00 | 5.52 | 493,259 | 0.82 | 5.49 | 0.82 | 5.49 | ||||||||||||
| 1.00 | 2.33 | (d) | 2,598 | 0.99 | (c) | 5.53 | (c) | 1.42 | (c) | 5.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.63 | 404,299 | 0.42 | 4.50 | 0.42 | 4.50 | ||||||||||||
| 1.00 | 4.48 | 42,334 | 0.57 | 4.35 | 0.57 | 4.35 | ||||||||||||
| 1.00 | 4.22 | 264,787 | 0.82 | 4.19 | 0.82 | 4.19 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 734,553 | 0.42 | 4.96 | 0.43 | 4.95 | ||||||||||||
| 1.00 | 4.99 | 80,464 | 0.57 | 4.88 | 0.58 | 4.87 | ||||||||||||
| 1.00 | 4.73 | 35,432 | 0.82 | 4.67 | 0.83 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.26 | 590,381 | 0.42 | 5.12 | 0.42 | 5.12 | ||||||||||||
| 1.00 | 5.10 | 124,159 | 0.57 | 4.99 | 0.57 | 4.99 | ||||||||||||
| 1.00 | 4.84 | 104,133 | 0.82 | 4.73 | 0.82 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.11 | 574,734 | 0.41 | 4.98 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 4.95 | 108,850 | 0.56 | 4.83 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.69 | 123,483 | 0.81 | 4.59 | 0.83 | 4.57 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.05 | $(0.05 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.62 | % | $201,088 | 0.43 | % | 5.49 | % | 0.45 | % | 5.47 | % | |||||||
| 1.00 | 5.46 | 21,875 | 0.58 | 5.20 | 0.60 | 5.18 | ||||||||||||
| 1.00 | 5.20 | 104,076 | 0.83 | 4.96 | 0.85 | 4.94 | ||||||||||||
| 1.00 | 2.21 | (d) | 11,577 | 1.00 | (c) | 5.22 | (c) | 1.45 | (c) | 4.77 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.38 | 224,609 | 0.43 | 4.29 | 0.43 | 4.29 | ||||||||||||
| 1.00 | 4.22 | 32,162 | 0.58 | 4.09 | 0.58 | 4.09 | ||||||||||||
| 1.00 | 3.96 | 306,483 | 0.83 | 3.90 | 0.83 | 3.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.96 | 341,476 | 0.30 | 4.83 | 0.43 | 4.70 | ||||||||||||
| 1.00 | 4.80 | 131,685 | 0.45 | 4.68 | 0.58 | 4.55 | ||||||||||||
| 1.00 | 4.54 | 374,128 | 0.70 | 4.43 | 0.83 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.17 | 330,241 | 0.22 | 5.02 | 0.42 | 4.82 | ||||||||||||
| 1.00 | 5.01 | 98,667 | 0.37 | 4.88 | 0.57 | 4.68 | ||||||||||||
| 1.00 | 4.75 | 295,404 | 0.62 | 4.63 | 0.82 | 4.43 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.10 | 708,999 | 0.21 | 4.96 | 0.43 | 4.74 | ||||||||||||
| 1.00 | 4.95 | 137,706 | 0.36 | 4.82 | 0.58 | 4.60 | ||||||||||||
| 1.00 | 4.68 | 383,901 | 0.61 | 4.56 | 0.83 | 4.34 | ||||||||||||
|
|
||||||||||||||||||
|
GOVERNMENT PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.05 | % | $126,034 | 0.43 | % | 5.84 | % | 0.48 | % | 5.79 | % | |||||||
| 1.00 | 5.89 | 562 | 0.58 | 5.57 | 0.63 | 5.52 | ||||||||||||
| 1.00 | 5.63 | 50,733 | 0.83 | 5.42 | 0.88 | 5.37 | ||||||||||||
| 1.00 | 5.50 | 44,533 | 1.00 | 5.60 | 1.48 | 5.12 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.77 | 205,244 | 0.43 | 4.64 | 0.45 | 4.62 | ||||||||||||
| 1.00 | 4.61 | 3,265 | 0.58 | 4.42 | 0.60 | 4.40 | ||||||||||||
| 1.00 | 4.35 | 79,847 | 0.83 | 4.24 | 0.85 | 4.22 | ||||||||||||
| 1.00 | 4.18 | 153 | 1.00 | 4.68 | 1.45 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.21 | 383,243 | 0.43 | 5.09 | 0.45 | 5.07 | ||||||||||||
| 1.00 | 5.05 | 7,692 | 0.58 | 4.94 | 0.60 | 4.92 | ||||||||||||
| 1.00 | 4.79 | 105,732 | 0.83 | 4.67 | 0.85 | 4.65 | ||||||||||||
| 1.00 | 4.57 | (c) | 2 | 0.93 | (c) | 4.60 | (c) | 1.45 | (c) | 4.08 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.31 | 460,457 | 0.42 | 5.16 | 0.42 | 5.16 | ||||||||||||
| 1.00 | 5.15 | 10,192 | 0.57 | 4.98 | 0.57 | 4.98 | ||||||||||||
| 1.00 | 4.89 | 83,799 | 0.82 | 4.78 | 0.82 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 694,651 | 0.41 | 5.04 | 0.44 | 5.01 | ||||||||||||
| 1.00 | 4.99 | 36,055 | 0.56 | 4.89 | 0.59 | 4.86 | ||||||||||||
| 1.00 | 4.73 | 94,228 | 0.81 | 4.63 | 0.84 | 4.60 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense limitations |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.03 | % | $4,221,684 | 0.40 | % | 5.90 | % | 0.40 | % | 5.90 | % | |||||||
| 1.00 | 5.87 | 620,138 | 0.55 | 6.01 | 0.55 | 6.01 | ||||||||||||
| 1.00 | 5.61 | 278,002 | 0.80 | 5.48 | 0.80 | 5.48 | ||||||||||||
| 1.00 | 2.36 | (d) | 778,826 | 1.00 | (c) | 5.59 | (c) | 1.43 | (c) | 5.16 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.81 | 3,171,330 | 0.41 | 4.72 | 0.41 | 4.72 | ||||||||||||
| 1.00 | 4.66 | 836 | 0.56 | 4.46 | 0.56 | 4.46 | ||||||||||||
| 1.00 | 4.39 | 284,382 | 0.81 | 4.30 | 0.81 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | 2,625,705 | 0.34 | 5.10 | 0.42 | 5.02 | ||||||||||||
| 1.00 | 5.09 | 508,297 | 0.49 | 4.97 | 0.57 | 4.89 | ||||||||||||
| 1.00 | 4.83 | 53,994 | 0.74 | 4.71 | 0.82 | 4.63 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 2,050,559 | 0.27 | 5.26 | 0.41 | 5.12 | ||||||||||||
| 1.00 | 5.24 | 530,001 | 0.42 | 5.11 | 0.56 | 4.97 | ||||||||||||
| 1.00 | 4.98 | 34,540 | 0.67 | 4.83 | 0.81 | 4.69 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.24 | 2,303,677 | 0.26 | 5.13 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 5.09 | 794,537 | 0.41 | 4.98 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.83 | 192,416 | 0.66 | 4.73 | 0.83 | 4.56 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT DIVERSIFIED PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | |||||||
| 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | ||||||||||||
| 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | ||||||||||||
| 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | ||||||||||||
| 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | ||||||||||||
| 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | ||||||||||||
| 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | ||||||||||||
| 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | ||||||||||||
| 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | ||||||||||||
| 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | ||||||||||||
| 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | ||||||||||||
| 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | ||||||||||||
| 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | ||||||||||||
| 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT CALIFORNIA PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distribution
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.03 | $(0.03 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (Re-commenced September 1) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 68 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.17 | % | $650,980 | 0.42 | % | 3.08 | % | 0.43 | % | 3.07 | % | |||||||
| 1.00 | 3.02 | 27,490 | 0.56 | 2.99 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.76 | 63 | 0.82 | 2.22 | 0.83 | 2.21 | ||||||||||||
| 1.00 | 2.63 | 71,162 | 0.98 | 2.74 | 1.42 | 2.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.60 | 895,469 | 0.42 | 2.58 | 0.42 | 2.58 | ||||||||||||
| 1.00 | 2.45 | 8,910 | 0.57 | 2.38 | 0.57 | 2.38 | ||||||||||||
| 1.00 | 2.19 | 27,229 | 0.82 | 2.39 | 0.82 | 2.39 | ||||||||||||
| 1.00 | 2.02 | 1 | 0.99 | 2.15 | 1.42 | 1.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.84 | 584,615 | 0.41 | 2.79 | 0.41 | 2.79 | ||||||||||||
| 1.00 | 2.68 | 512 | 0.56 | 2.84 | 0.56 | 2.84 | ||||||||||||
| 1.00 | 2.43 | 2 | 0.81 | 2.48 | 0.81 | 2.48 | ||||||||||||
| 1.00 | 2.25 | (c) | 2 | 0.91 | (c) | 2.37 | (c) | 1.41 | (c) | 1.87 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.15 | 591,003 | 0.42 | 3.10 | 0.42 | 3.10 | ||||||||||||
| 1.00 | 3.00 | 360 | 0.57 | 2.98 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.87 | (c) | 2 | 0.82 | (c) | 2.90 | (c) | 0.82 | (c) | 2.90 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.03 | 440,476 | 0.41 | 2.99 | 0.42 | 2.98 | ||||||||||||
| 1.00 | 2.88 | 142 | 0.56 | 2.84 | 0.57 | 2.83 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT NEW YORK PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (commenced September 15) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
Footnotes:
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.57 | % | $176,618 | 0.43 | % | 3.51 | % | 0.47 | % | 3.47 | % | |||||||
| 1.00 | 3.41 | 82,019 | 0.58 | 3.44 | 0.62 | 3.40 | ||||||||||||
| 1.00 | 3.15 | 303 | 0.83 | 3.33 | 0.87 | 3.29 | ||||||||||||
| 1.00 | 3.02 | 13,758 | 1.00 | 3.15 | 1.47 | 2.68 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.76 | 160,301 | 0.43 | 2.73 | 0.44 | 2.72 | ||||||||||||
| 1.00 | 2.60 | 37,836 | 0.58 | 2.61 | 0.59 | 2.60 | ||||||||||||
| 1.00 | 2.35 | 2 | 0.83 | 2.29 | 0.84 | 2.28 | ||||||||||||
| 1.00 | 2.17 | 2 | 1.00 | 2.34 | 1.44 | 1.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.02 | 122,550 | 0.36 | 2.96 | 0.51 | 2.81 | ||||||||||||
| 1.00 | 2.87 | 21,580 | 0.51 | 2.85 | 0.66 | 2.70 | ||||||||||||
| 1.00 | 2.61 | 2 | 0.76 | 2.61 | 0.91 | 2.46 | ||||||||||||
| 1.00 | 2.46 | (c) | 1 | 0.86 | (c) | 2.56 | (c) | 1.51 | (c) | 1.91 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.29 | 102,887 | 0.33 | 3.24 | 0.43 | 3.14 | ||||||||||||
| 1.00 | 3.14 | 31,993 | 0.48 | 3.09 | 0.58 | 2.99 | ||||||||||||
| 1.00 | 3.02 | (c) | 2 | 0.73 | (c) | 3.04 | (c) | 0.83 | (c) | 2.94 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.05 | 70,175 | 0.32 | 3.01 | 0.43 | 2.90 | ||||||||||||
| 1.00 | 2.90 | 44,319 | 0.47 | 2.88 | 0.58 | 2.77 | ||||||||||||
|
|
||||||||||||||||||
Index
| 1 |
General Investment
Management Approach |
|||
| 5 |
Fund Investment Objectives
and Strategies |
|||
| 10 | Principal Risks of the Funds | |||
| 14 | Fund Performance | |||
| 24 | Fund Fees and Expenses | |||
| 28 | Service Providers | |||
| 30 | Dividends | |||
| 31 | Shareholder Guide | |||
| 31 | How to Buy Shares | |||
| 35 | How to Sell Shares | |||
| 40 | Taxation | |||
| 41 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 52 |
Appendix B
Financial Highlights |
|||
Institutional Liquid Assets
Prospectus
(ILA Administration Units)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
|
The Funds’ investment company registration number is 811-5349.
|
ILAPROADMM
|
Prospectus
|
ILA Cash Management Shares
May 1, 2001
|
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
|
|
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 FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A FUND.
|
|
n
|
Prime
Obligations Portfolio
|
|
n
|
Money
Market Portfolio
|
|
n
|
Treasury
Obligations Portfolio
|
|
n
|
Treasury
Instruments Portfolio
|
|
n
|
Government Portfolio
|
|
n
|
Federal
Portfolio
|
|
n
|
Tax-Exempt Diversified Portfolio
|
|
n
|
Tax-Exempt California Portfolio
|
|
n
|
Tax-Exempt New York Portfolio
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
Management Approach
|
Goldman Sachs Asset Management (“GSAM”), a business unit of the Investment Management Division of Goldman, Sachs
& Co. (“Goldman Sachs”), serves as Investment Adviser to the Institutional Liquid Assets Portfolios (the “Funds”). GSAM is referred to in this Prospectus as the “Investment Adviser.”
|
|
Goldman Sachs’ Money Market Investment Philosophy:
|
|
The Money Market Funds are managed to seek preservation of capital, daily liquidity and maximum current income. With each
Fund the Investment Adviser follows a conservative, risk-managed investment process that seeks to:
|
|
n
|
Manage credit risk
|
|
n
|
Manage interest rate risk
|
|
n
|
Manage liquidity
|
|
Since 1981, the Investment Adviser has actively managed the Goldman Sachs Money Market Funds to provide investors with the
greatest possible preservation of principal and income potential.
|
|
Investment Process
|
|
1. Managing Credit Risk
|
|
The Investment Adviser’s process for managing risk emphasizes:
|
|
n
|
Intensive research—
The Credit Department, a separate operating entity of Goldman Sachs, approves all money
market fund eligible securities for the Funds. Sources for the Credit Department’s analysis include third-party inputs, such as financial statements and media sources, ratings releases and company meetings, as well as the Investment Research,
Legal and Compliance departments of Goldman Sachs.
|
|
n
|
Timely updates—
A Credit Department-approved list of securities is continuously communicated on a
“real-time” basis to the portfolio management team via computer link.
|
|
The Result: An “approved” list of high-quality credits—
The Investment Adviser’s portfolio
management team uses this approved list to construct portfolios which offer the best available risk-return tradeoff within the “approved” credit universe.
|
|
2. Managing Interest Rate Risk
|
|
Three main steps are followed in seeking to manage interest rate risk:
|
|
n
|
Establish weighted average maturity (WAM)
target—
WAM (the weighted average time until the yield of a portfolio reflects any changes in the current interest rate environment) is constantly revisited and adjusted as market conditions change. An overall strategy is developed by
the portfolio management team based on insights gained from weekly meetings with both Goldman Sachs economists and economists from outside the firm.
|
|
n
|
Implement optimum portfolio
structure—
Proprietary models that seek the optimum balance of risk and return, in conjunction with the Investment Adviser’s analysis of factors such as market events, short-term interest rates and each Fund’s asset volatility,
are used to identify the most effective portfolio structure.
|
|
n
|
Conduct rigorous analysis of new
securities—
The Investment Adviser’s five-step process includes legal, credit, historical index and liquidity analysis, as well as price stress testing to determine suitability for money market mutual funds.
|
|
3.
|
Managing Liquidity
|
|
Factors that the Investment Adviser’s portfolio managers continuously monitor and that affect liquidity of a money
market portfolio include:
|
|
n
|
Each Fund’s clients and factors that influence
their asset volatility;
|
|
n
|
Technical events that influence the trading range of
federal funds and other short-term fixed-income markets; and
|
|
n
|
Bid-ask spreads associated with securities in the
portfolios.
|
|
Benchmarks for the Money Market Funds are the
iMoneyNet, Inc. First Tier Institutional Indices.
Each Fund tracks the
iMoneyNet Index which best corresponds to the Fund’s eligible investments.
|
GENERAL INVESTMENT MANAGEMENT APPROACH
|
n
|
The Funds:
Each Fund’s securities are valued by the amortized cost method as permitted by Rule 2a-7 under
the Investment Company Act of 1940, as amended (the “Act”). Under Rule 2a-7, each Fund may invest only in U.S. dollar-denominated securities that are determined to present minimal credit risk and meet certain other criteria including
conditions relating to maturity, diversification and credit quality. These operating policies may be more restrictive than the fundamental policies set forth in the Statement of Additional Information (the “Additional
Statement”).
|
|
n
|
Taxable Funds:
Prime Obligations, Money Market, Treasury Obligations and Government Portfolios.
|
|
n
|
Tax-Advantaged Funds:
Treasury Instruments and Federal Portfolios.
|
|
n
|
Tax-Exempt Funds:
Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios.
|
|
n
|
The Investors:
The Funds are designed for investors seeking a high rate of return, a stable net asset value
(“NAV”) and convenient liquidation privileges. The Funds are particularly suitable for banks, corporations and other financial institutions that seek investment of short-term funds for their own accounts or for the accounts of their
customers.
|
|
n
|
NAV:
Each Fund seeks to maintain a stable NAV of $1.00 per share. There can be no assurance that a Fund will be
able at all times to maintain a NAV of $1.00 per share.
|
|
n
|
Maximum Remaining Maturity of Portfolio Investments:
13 months (as determined pursuant to Rule 2a-7) at the
time of purchase.
|
|
n
|
Dollar-Weighted Average Portfolio Maturity (“WAM”):
Not more than 90 days (as required by Rule
2a-7).
|
|
n
|
Investment Restrictions:
Each Fund is subject to certain investment restrictions that are described in detail
under “Investment Restrictions” in the Additional Statement. Fundamental investment restrictions and the investment objective of a Fund (except the Tax-Exempt California and Tax-Exempt New York Portfolios’ objectives of providing
shareholders with income exempt from California personal income tax and New York State and New York City personal income taxes, respectively) cannot be changed without approval of a majority of the outstanding shares of that Fund. The Treasury
Obligations Portfolio’s policy of limiting its investments to U.S. Treasury Obligations (as defined in Appendix A) and related repurchase agreements is also fundamental. All investment policies not specifically designated as fundamental are
non-fundamental and may be changed without shareholder approval.
|
|
n
|
Diversification:
Diversification can help a Fund reduce the risks of investing. In accordance with current
regulations of the Securities and Exchange Commission (the “SEC”), each Fund may not invest more than 5% of the value of its total assets at the time of purchase in the securities of any single issuer with
these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York
|
|
Portfolios may each invest up to 25% of their total assets in five or fewer
issuers; and (b) each of the other Funds may invest up to 25% of its total assets in the securities of a single issuer for up to three business days. These limitations do not apply to cash, certain repurchase agreements, U.S. Government Securities (as defined in Appendix A) or securities of other investment companies. In addition, securities subject to certain unconditional guarantees and securities that are not “First Tier Securities” as defined by the SEC are subject to different diversification requirements as described in the Additional Statement. |
|
INVESTMENT OBJECTIVES
|
|
Taxable and Tax-Advantaged Funds:
|
|
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government and Federal Portfolios seek to
maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing exclusively in high quality money market instruments.
|
|
The Prime Obligations and Money Market Portfolios pursue their investment objectives by investing in U.S. Government
Securities, obligations of U.S. banks, commercial paper and other short-term obligations of U.S. companies, states, municipalities and other entities and repurchase agreements. The Money Market Portfolio may also invest in U.S. dollar-denominated
obligations of foreign banks, foreign companies and foreign governments.
|
|
The Treasury Obligations Portfolio pursues its investment objective by investing in securities issued by the U.S. Treasury
and repurchase agreements relating to such securities. The Government Portfolio pursues its investment objective by investing in U.S. Government Securities and repurchase agreements relating to such securities.
|
|
The Treasury Instruments and Federal Portfolios pursue their investment objectives by limiting their investments to certain
U.S. Treasury Obligations and U.S. Government Securities, respectively, the interest from which is generally exempt from state income taxation. You should consult your tax adviser to determine whether distributions from the Treasury Instruments and
Federal Portfolios (and any other Fund that may hold such obligations) derived from interest on such obligations are exempt from state income taxation in your own state.
|
|
Tax-Exempt Funds:
|
|
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders, to the
extent consistent with the preservation of capital and prescribed portfolio standards, with a high level of income exempt from federal income tax by investing primarily in municipal obligations.
|
|
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios seek to provide shareholders with income exempt
from California personal income tax and New York State and New York City personal income taxes, respectively, by investing in obligations the interest on which is exempt from these taxes. (These instruments are called “California
obligations” and “New York obligations” in this Prospectus.)
|
|
The Tax-Exempt Funds pursue their investment objectives by investing in securities issued by or on behalf of states,
territories, and possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia, the interest from which, if any, is in the opinion of bond counsel excluded from gross
income for federal income tax purposes, and not an item of tax preference under the federal alternative minimum tax (“AMT”).
|
|
PRINCIPAL INVESTMENT STRATEGIES
|
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
|
|
Investment Policies Matrix
|
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
1
|
Issued or guaranteed by the U.S. Treasury.
|
|
2
|
Including foreign branches of U.S. banks.
|
|
3
|
If adverse economic conditions prevail in the banking industry (such as substantial losses on loans, increases in
non-performing assets and charge-offs and declines in total deposits), the Fund may, for temporary defensive purposes, invest less than 25% of its total assets in bank obligations.
|
|
4
|
Issued by the U.S. Treasury.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
|
5
|
To the extent required by Rule 2a-7, asset-backed and receivables-backed securities will be rated by the requisite
number of nationally recognized statistical rating organizations (“NRSROs”).
|
|
6
|
The Money Market Portfolio may invest in U.S. dollar-denominated obligations (limited to commercial paper and other
notes) issued or guaranteed by a foreign government. The Fund may also invest in U.S. dollar-denominated obligations issued or guaranteed by any entity located or organized in a foreign country that maintains a short-term foreign currency rating in
the highest short-term ratings category by the requisite number of NRSROs. The Fund may not invest more than 25% of its total assets in the securities of any one foreign government.
|
Investment Policies Matrix continued
| Fund |
Municipals |
Custodial
Receipts |
Unrated
Securities 9 |
Investment
Companies |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
Prime Obligations
|
n 7 | n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Money Market | n 7 | n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Treasury Obligations | |||||||||
|
|
|||||||||
|
Treasury Instruments
|
|||||||||
|
|
|||||||||
| Government |
n
Up to 10% of total assets in other investment companies |
||||||||
|
|
|||||||||
| Federal |
|
||||||||
|
|
|||||||||
| Tax-Exempt Diversified |
n
At least 80% of net assets in tax-exempt municipal obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt California |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in California obligations (except in extraordinary circumstances) 8 |
n |
n
|
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
| Tax-Exempt New York |
n
At least 80% of net assets in tax-exempt municipal obligations and at least 65% of total assets in New York obligations (except in extraordinary circumstances) 8 |
n | n |
n
Up to 10% of total assets in other investment companies |
|||||
|
|
|||||||||
|
Note: See Appendix A for a description of, and certain criteria applicable to, each of these categories of
investments.
|
|
7
|
Will only make such investments when yields on such securities are attractive compared to other taxable
investments.
|
|
8
|
Ordinarily expect that 100% of a Fund’s portfolio securities will be invested in municipal obligations, but
the Funds may, for temporary defensive purposes, hold cash or invest in short-term taxable securities.
|
|
9
|
To the extent permitted by Rule 2a-7, securities without short-term ratings may be purchased if they are deemed to
be of comparable quality to First Tier Securities, or to the extent that a Fund may purchase Second Tier Securities, comparable in quality to Second Tier Securities. In addition, a Fund holding a security supported by a guarantee or demand feature
may rely on the credit quality of the guarantee or demand feature in determining the credit quality of the investment.
|
|
10
|
If such policy should change, private activity bonds subject to AMT would not exceed 20% of a Fund’s net
assets under normal market conditions.
|
FUND INVESTMENT OBJECTIVES AND STRATEGIES
11 No more than 25% of the value of a Fund’s total assets may be invested in industrial development bonds or similar obligations where the
non-governmental entities supplying the revenues from which such bonds or obligations are to be paid are in the same industry.
12 First Tier Securities are (a) rated in the highest short-term rating category by at least two NRSROs, or if only one NRSRO has assigned a rating, by
that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings. U.S. Government Securities are considered First Tier Securities.
13 Second Tier Securities are (a) rated in the top two short-term rating categories by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund under certain conditions to demand payment from, an entity with such ratings.
14 See “Taxation” for an explanation of the tax consequences summarized in the table above.
15 Taxable in many states except for distributions from U.S. Treasury Obligation interest income and certain U.S. Government Securities interest
income.
16 Taxable except for distributions from interest on obligations of an investor’s state of residence in certain states.
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 government 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.
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to all Funds:
|
n
|
NAV Risk—
The risk that a Fund will not be able to maintain a NAV per share of $1.00 at all
times.
|
|
n
|
Interest Rate Risk—
The risk that during periods of rising interest rates, a Fund’s yield (and the
market value of its securities) will tend to be lower than prevailing market rates; in periods of falling interest rates, a Fund’s yield will tend to be higher.
|
|
n
|
Credit/Default Risk—
The risk that an issuer or guarantor of a security, or a bank or other financial
institution that has entered into a repurchase agreement, may default on its payment obligations. In addition, with respect to the Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios, risk of loss from payment default
may also exist where municipal instruments are backed by foreign letters of credit or guarantees.
|
|
n
|
Liquidity Risk—
The risk that a Fund will be unable to pay redemption proceeds within the time period
stated in this Prospectus, because of unusual market conditions, an unusually high volume of redemption requests, or other reasons.
|
Risk that applies to the Prime Obligations, Money Market, Government and Federal Portfolios:
|
n
|
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 apply to the Money Market Portfolio:
|
n
|
Foreign Risk—
The risk that a foreign security could lose value as a result of political, financial and
economic events in foreign countries, less publicly available financial and other information, less stringent foreign securities regulations and accounting and disclosure standards, or other factors. The Money Market Portfolio may not invest more
than 25% of its total assets in the securities of any one foreign government.
|
|
n
|
Banking Industry Risk—
The risk that if the Fund invests more than 25% of its total assets in bank
obligations, an adverse development in the banking industry may affect the value of the Fund’s investments more than if the Fund’s investments were not invested to such a degree in the banking industry. Normally, the Money Market Portfolio
intends to invest more than 25% of its total assets in bank obligations. Banks may be particularly susceptible to certain economic factors such as interest rate changes, adverse developments in the real estate market, fiscal and monetary policy and
general economic cycles.
|
PRINCIPAL RISKS OF THE FUNDS
Risks that apply to the Tax-Exempt Funds:
|
n
|
Concentration Risk—
The risk that if a Fund invests more than 25% of its total assets in issuers within the
same state, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated.
|
|
n
|
Tax Risk—
The risk that future legislative or administrative changes or court decisions may materially
affect the value of a Fund’s portfolio and/or the ability of a Fund to pay federal tax-exempt dividends (in the case of each of these Funds) and state tax-exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt New York
Portfolios). These Funds would not be a suitable investment for IRAs, other tax-exempt or tax deferred accounts or for other investors who are not sensitive to the federal, state or local tax consequences of these investments.
|
|
n
|
California/New York Risks
—The Tax-Exempt California and Tax-Exempt New York Portfolios intend to invest at
least 65% of their total assets in California municipal obligations and New York municipal obligations, respectively. The investments of these Funds will, therefore, be affected by political and economic developments within these states, and by the
financial condition of these states, their public authorities and political sub-divisions. If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income,
NAV, and ability to preserve or realize appreciation of capital or liquidity could be adversely affected. The Tax-Exempt California and Tax-Exempt New York Portfolios are classified as “non-diversified” for regulatory purposes. See
Appendix A in this Prospectus for more information concerning the risks of investing in California and New York.
|
More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the
investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
HOW THE FUNDS HAVE PERFORMED
|
|
Cash Management Shares of the Treasury Obligations, Treasury Instruments and Federal Portfolios have less than one calendar
year’s performance. For this reason, the performance information shown below is for another class of shares (ILA Service Shares) that is not offered in this Prospectus but would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ only to the extent that the classes do not have the same expenses. In reviewing this performance information, however, you should be aware that ILA Service Shares have a 0.40%
(annualized) service fee while Cash Management Shares bear distribution and service fees at 0.57% net of voluntary waivers. If the expenses of the Cash Management Shares were reflected, performance would be reduced.
|
|
The bar chart and table below provide an indication of the risks of investing in a Fund by showing with respect to the Prime
Obligations, Money Market, Government, Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios: (a) changes in the performance of each Fund’s ILA Cash Management Shares from year to year; and (b) the average annual
returns of each Fund’s ILA Cash Management Shares. With respect to the Treasury Obligations, Treasury Instruments and Federal Portfolios, the bar chart and table show: (a) changes in the performance of each Fund’s ILA Service Shares from
year to year; and (b) the average annual returns of each Fund’s ILA Service Shares. Investors should be aware that the fluctuation of interest rates is one primary factor in performance volatility. The bar chart and table assume reinvestment of
dividends and distributions. A Fund’s past performance is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s
performance would have been reduced. You may obtain a Fund’s current yield by calling 1-800-621-2550.
|
FUND PERFORMANCE
Prime Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ‘00 1.43%
Worst Quarter
Q2 ’99 0.99%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Cash Management Shares (Inception 5/1/98) | 5.54% | 4.87% | |||
|
|
|||||
Money Market Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ‘00 1.45%
Worst Quarter
Q2 ’99 1.00%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Cash Management Shares (Inception 5/1/98) | 5.60% | 4.90% | |||
|
|
|||||
FUND PERFORMANCE
Treasury Obligations Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (Service Shares)
|
|
Best Quarter
Q1 ’91 1.51%
Worst Quarter
Q2 ’93 0.60%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | 10 Years | Since Inception | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Service Shares (Inception 6/1/90) | 5.52% | 4.80% | 4.39% | 4.57% | |||||
|
|
|||||||||
Treasury Instruments Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (Service Shares)
|
|
Best Quarter
Q4 ’00 1.38%
Worst Quarter
Q2 ’93 0.62%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 1/30/91) | 5.20% | 4.63% | 4.29% | ||||
|
|
|||||||
FUND PERFORMANCE
Government Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q3 ’00 1.42%
Worst Quarter
Q2 ’99 0.96%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Cash Management Shares (Inception 5/1/98) | 5.50% | 4.77% | |||
|
|
|||||
Federal Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR (Service Shares)
|
|
Best Quarter
Q4 ’00 1.46%
Worst Quarter
Q1 ’94 0.66%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | 5 Years | Since Inception | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Service Shares (Inception 5/15/93) | 5.61% | 4.93% | 4.63% | ||||
|
|
|||||||
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’00 0.86%
Worst Quarter
Q1 ’99 0.49%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Cash Management Shares (Inception 5/1/98) | 3.19% | 2.71% | |||
|
|
|||||
Tax-Exempt California Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’00 0.76%
Worst Quarter
Q1 ’99 0.43%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||
|---|---|---|---|---|---|
|
|
|||||
| Cash Management Shares (Inception 5/1/98) | 2.63% | 2.31% | |||
|
|
|||||
FUND PERFORMANCE
Tax-Exempt New York Portfolio
|
TOTAL RETURN
|
CALENDAR YEAR
|
|
Best Quarter
Q2 ’00 0.83%
Worst Quarter
Q1 ’99 0.44%
|
|
|
AVERAGE ANNUAL TOTAL RETURN
|
| For the period ended December 31, 2000 | 1 Year | Since Inception | |||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Cash Management Shares (Inception 5/1/98) | 3.02 | % | 2.56 | % | |||
|
|
|||||||
This table describes the fees and expenses that you would pay if you buy and hold ILA Cash Management Shares of a Fund.
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Shareholder Fees | |||||||
| (fees paid directly from your investment): | |||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
None | None | None | ||||
| Maximum Deferred Sales Charge (Load) | None | None | None | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | ||||
| Redemption Fees | None | None | None | ||||
| Exchange Fees | None | None | None | ||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Distribution (12b-1) Fees 2 | 0.07% | 0.07% | 0.07% | ||||
| Service Fees 3 | 0.50% | 0.50% | 0.50% | ||||
| Other Expenses 4 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
| Total Fund Operating Expenses* 5 | 1.00% | 0.98% | 0.99% | ||||
|
|
|||||||
|
See page 26 for all other footnotes.
|
|
*
|
As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating
Expenses” of the Funds which are actually incurred as of the date of this Prospectus are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other
Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Treasury
Obligations Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 1 | |||||||
| Management Fees | 0.35% | 0.35% | 0.35% | ||||
| Distribution (12b-1) Fees 2 | 0.07% | 0.07% | 0.07% | ||||
| Service Fees 3 | 0.50% | 0.50% | 0.50% | ||||
| Other Expenses 4 | 0.08% | 0.06% | 0.07% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after current
waivers and expense limitations) 5 |
1.00% | 0.98% | 0.99% | ||||
|
|
|||||||
FUND FEES AND EXPENSES
|
Treasury
Instruments Portfolio |
Government
Portfolio |
Federal
Portfolio |
Tax-Exempt
Diversified Portfolio |
Tax-Exempt
California Portfolio |
Tax-Exempt
New York Portfolio |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||
| None | None | None | None | None | None | ||||||
| None | None | None | None | None | None | ||||||
| None | None | None | None | None | None | ||||||
| None | None | None | None | None | None | ||||||
| None | None | None | None | None | None | ||||||
| 0.35% | 0.35% | 0.35% | 0.35% | 0.35% | 0.35% | ||||||
| 0.07% | 0.07% | 0.07% | 0.07% | 0.07% | 0.07% | ||||||
| 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | ||||||
| 0.10% | 0.13% | 0.05% | 0.06% | 0.07% | 0.12% | ||||||
|
|
|||||||||||
| 1.02% | 1.05% | 0.97% | 0.98% | 0.99% | 1.04% | ||||||
|
|
|||||||||||
|
Treasury
Instruments Portfolio |
Government
Portfolio |
Federal
Portfolio |
Tax Exempt
Diversified Portfolio |
Tax Exempt
California Portfolio |
Tax Exempt
New York Portfolio |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||
| 0.35% | 0.35% | 0.35% | 0.35% | 0.35% | 0.35% | ||||||
| 0.07% | 0.07% | 0.07% | 0.07% | 0.07% | 0.07% | ||||||
| 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | ||||||
| 0.08% | 0.08% | 0.05% | 0.06% | 0.07% | 0.08% | ||||||
|
|
|||||||||||
| 1.00% | 1.00% | 0.97% | 0.98% | 0.99% | 1.00% | ||||||
|
|
|||||||||||
Fund Fees and Expenses
continued
1
The annual operating expenses of the Treasury Obligations, Treasury Instruments and Federal
Portfolios are estimated. The annual operating expenses of all other Portfolios are based on actual expenses.
2
Goldman Sachs has voluntarily agreed to limit a portion of the distribution fees attributable
to Cash Management Shares of each Fund equal to 0.07%. The waiver may be terminated at any time at the option of Goldman Sachs. If this occurs, the distribution fees attributable to Cash Management Shares of each Fund will increase to 0.50% of each
Fund’s average daily net assets.
3
Service Organizations may charge other fees directly to their customers who are the beneficial
owners of Cash Management Shares in connection with their customers’ accounts. Such fees may affect the return such customers realize with respect to their investments.
4
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the
average daily net assets of each Fund’s Cash Management Shares plus all other ordinary expenses not detailed above.
5
The Investment Adviser has voluntarily agreed to reduce or limit “Total Fund Operating
Expenses” of each Fund (excluding taxes, interest, brokerage fees, litigation, indemnification, distribution fees, service fees and other extraordinary expenses) such that Total Fund Operating Expenses will not exceed 0.43% of each Fund’s
average daily net assets.
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Cash Management Shares of a Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $146 | $452 | $782 | $1,713 | |||||
|
|
|||||||||
| Money Market | $144 | $446 | $771 | $1,619 | |||||
|
|
|||||||||
| Treasury Obligations | $145 | $449 | $776 | $1,702 | |||||
|
|
|||||||||
| Treasury Instruments | $148 | $459 | $792 | $1,735 | |||||
|
|
|||||||||
| Government | $151 | $468 | $809 | $1,770 | |||||
|
|
|||||||||
| Federal | $143 | $443 | $766 | $1,680 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | $144 | $446 | $771 | $1,691 | |||||
|
|
|||||||||
| Tax-Exempt California | $145 | $449 | $776 | $1,702 | |||||
|
|
|||||||||
| Tax-Exempt New York | $150 | $465 | $803 | $1,757 | |||||
|
|
|||||||||
Service Organizations that invest in Cash Management Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with
their investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investment.
Certain Service Organizations that invest in Cash Management Shares may receive other compensation in connection with the sale and distribution of Cash Management
Shares or for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional
Statement.
|
INVESTMENT ADVISER
|
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. GSAM, 32 Old Slip, New
York, New York 10005, acts as Investment Adviser to the Funds. Goldman Sachs registered as an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser
also performs the following services for the Funds:
|
|
n
|
Continually manages each Fund, including the purchase, retention and disposition of securities and other assets
|
|
n
|
Administers each Fund’s business affairs
|
|
n
|
Performs various recordholder servicing functions (to the extent not provided by other organizations)
|
|
Pursuant to SEC orders, certain Funds may enter into principal transactions in certain money market instruments, including
repurchase agreements, with Goldman Sachs.
|
SERVICE PROVIDERS
|
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 payable monthly, at the annual rates listed below (as a percentage of each respective Portfolio’s average daily net assets):
|
| Fund | Contractual Rate |
Actual Rate For the
Fiscal Year Ended December 31, 2000 |
|||
|---|---|---|---|---|---|
|
|
|||||
| Prime Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Money Market | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Obligations | 0.35% | 0.35% | |||
|
|
|||||
| Treasury Instruments | 0.35% | 0.35% | |||
|
|
|||||
| Government | 0.35% | 0.35% | |||
|
|
|||||
| Federal | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt Diversified | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt California | 0.35% | 0.35% | |||
|
|
|||||
| Tax-Exempt New York | 0.35% | 0.35% | |||
|
|
|||||
|
The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser
did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
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.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
All or substantially all of each Fund’s net investment income will be declared as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed monthly. You may choose to have dividends paid in:
|
n
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Cash
|
|
n
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Additional shares of the same class of the same Fund
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time. If you do not indicate any choice,
dividends and distributions will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash distributions normally will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with federal income tax requirements and may be reflected in a Fund’s daily distributions.
Each Fund may distribute at least annually other realized capital gains, if any, after reduction by available capital losses. In order to avoid excessive fluctuations
in the amount of monthly capital gains distributions, a portion of any net capital gains realized on the disposition of securities during the months of November and December may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the NAV of the Fund, they are not expected to be of an amount which would affect the Fund’s NAV of $1.00 per share.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Funds’ Cash Management Shares.
|
|
How Can I Purchase Cash Management Shares Of The Funds?
|
|
Generally, Cash Management Shares may be purchased only through institutions that have agreed to provide account
administration and personal and account maintenance services to their customers who are the beneficial owners of Cash Management Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will
normally give their purchase instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received
by them from their customers. Generally, Cash Management Shares may be purchased from the Funds on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. Shares begin earning dividends
after the Fund’s receipt of the purchase amount in federal funds. No sales load is charged.
|
|
Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place a purchase order in writing or by telephone.
|
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
||
|
|
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|
Before or immediately after placing an initial purchase order, a Service Organization should complete and send to Goldman
Sachs the Account Application.
|
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In certain instances, Goldman Sachs Trust, the “Trust,” may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
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Service Organizations may send their payments as follows:
|
|
n
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Wire federal funds to The Northern Trust Company (“Northern”), as sub-custodian for State Street Bank and Trust
Company (“State Street”) (each Fund’s custodian);
or
|
|
n
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Send a check or Federal Reserve draft payable to Goldman Sachs Funds - (Name of Fund and Class of Shares), 4900
Sears Tower, Chicago, IL 60606-6372. The Funds will not accept a check drawn on a foreign bank or a third-party check.
|
|
It is strongly recommended that payment be effected by wiring federal funds to Northern.
|
|
It is expected that Federal Reserve drafts will ordinarily be converted to federal funds on the day of receipt and that
checks will be converted to federal funds within two business days after receipt.
|
|
When Do Shares Begin Earning Dividends?
|
|
Dividends begin to accrue as follows:
|
| If an effective order and federal funds are received: | Dividends begin: | ||
|---|---|---|---|
|
|
|||
| Taxable and Tax-Advantaged Funds: | |||
| n By 3:00 p.m. New York time | Same business day | ||
| n After 3:00 p.m. New York time | Next business day | ||
|
|
|||
| Tax-Exempt Funds: | |||
| n By 1:00 p.m. New York time | Same business day | ||
| n After 1:00 p.m. New York time | Next business day | ||
|
|
|||
|
What Do I Need To Know About Service Organizations?
|
|
Service Organizations may provide the following services in connection with their customers’ investments in Cash
Management Shares:
|
|
n
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Acting, directly or through an agent, as the sole shareholder of record
|
|
n
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Maintaining account records for customers
|
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n
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Processing orders to purchase, redeem or exchange shares for customers
|
|
n
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Responding to inquiries from prospective and existing shareholders
|
|
n
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Assisting customers with investment procedures
|
|
n
|
Developing, maintaining and supporting systems necessary to support accounts for cash management services
|
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Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
|
|
n
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A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a
business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
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Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
|
|
You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
|
|
Pursuant to a service plan adopted by the Trust’s Board of Trustees, Service Organizations are entitled to receive
payment for their services from the Trust of up to 0.50% (on an annualized basis) of the average daily net assets of the Cash Management Shares of the Funds, which are attributable to or held in the name of the Service Organization for its
customers.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Funds, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds.
|
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In addition to Cash Management Shares, each Fund also offers other classes of shares to investors. These other share classes
are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Cash Management Shares. Information regarding these other share classes may be obtained
from your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
|
What Is My Minimum Investment In The Funds?
|
|
The Funds do not have any minimum purchase or account requirements with respect to Cash Management Shares. A Service
Organization may, however, impose a minimum amount for initial and subsequent investments in Cash Management Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Cash Management Shares
held by non-complying accounts, and may impose a charge for any special services.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
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Modify or waive the minimum investment and minimum account balance requirement.
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|
n
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Reject any purchase order for any reason.
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The Funds may allow Service Organizations to purchase shares with securities instead of cash if consistent with a
Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Cash Management Shares is the Fund’s next determined NAV.
The Funds calculate NAV as follows:
|
| NAV | = |
(Value of Assets of the Class)
– (Liabilities of the Class) Number of Outstanding Shares of the Class |
|
n
|
NAV per share of each class is calculated by State Street 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 be priced on any day the New York Stock Exchange is open, except for days on which Chicago, Boston or New York banks are closed for local holidays.
|
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n
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On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early,
each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will
be given to the next business day.
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|
n
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The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
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To help each Fund maintain its $1.00 constant share price, portfolio securities are valued at amortized cost in accordance
with SEC regulations. Amortized cost will normally approximate market value. There can be no assurance that a Fund will be able to at all times maintain a NAV of $1.00 per share.
|
|
How Can I Sell Cash Management Shares Of The Funds?
|
|
Generally, Cash Management Shares may be sold (redeemed) only through Service Organizations. Customers of a Service
Organization will normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn, place redemption orders with the Funds.
Generally, each Fund will redeem its Cash Management Shares upon
request on any business day at their NAV next determined after receipt of such request in proper form.
|
|
A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is
elected on the Account Application.
|
SHAREHOLDER GUIDE
|
|
|||
| By Writing: | Goldman Sachs Funds | ||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: |
If you have elected the telephone redemption privilege
on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
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Certain Service Organizations are authorized to accept redemption requests on behalf of the Funds as described under
“What Do I Need To Know About Service Organizations?” A redemption may also be made with respect to certain Funds by means of the check redemption privilege.
|
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What Do I Need To Know About Telephone Redemption Requests?
|
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The Trust, the Distributor, and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
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n
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All telephone requests are recorded.
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n
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Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
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n
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The telephone redemption option may be modified or terminated at any time.
|
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
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When Will Redemption Proceeds Be Wired?
|
|
Redemption proceeds will normally be wired to the bank account designated on a Service Organization’s Account
Application as follows:
|
| Redemption Request Received | Redemption Proceeds | Dividends | |||
|---|---|---|---|---|---|
|
|
|||||
| Taxable and Tax-Advantaged Funds: | |||||
| n By 3:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 3:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
| Tax-Exempt Funds: | |||||
| n By 12:00 p.m. New York time | Wired same business day |
Not earned on day request
is received |
|||
| n After 12:00 p.m. New York time | Wired next business day |
Earned on day request is
received |
|||
|
|
|||||
|
n
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Although redemption proceeds will normally be wired as described above, each Fund reserves the right to pay redemption
proceeds up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days.
If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
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Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organizations.
|
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What Should I Know About The Check Redemption Privilege?
|
|
A Service Organization may elect to have a special account with State Street for the purpose of redeeming Cash Management
Shares from its account by check. The following general policies govern the check redemption privilege:
|
|
n
|
The Service Organization will be provided with a supply of checks when State Street receives a completed signature card and
authorization form. Checks drawn on the account may be payable to the order of any person in any amount over $500, but cannot be certified.
|
|
n
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The payee of the check may cash or deposit it just like any other check drawn on a bank.
|
SHAREHOLDER GUIDE
|
n
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When the check is presented to State Street for payment, a sufficient number of full or fractional Cash Management Shares
will be redeemed to cover the amount of the check.
|
|
n
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Canceled checks will be returned to the Service Organization by State Street.
|
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n
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The check redemption privilege allows a Service Organization to receive the dividends declared on the Cash Management Shares
that are to be redeemed until the check is actually processed. Because of this feature, accounts may not be completely liquidated by check.
|
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n
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If the amount of the check is greater than the value of the Cash Management Shares held in the Service Organization’s
account, the check will be returned unpaid. In this case, the Service Organization may be subject to extra charges.
|
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n
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The Trust reserves the right to limit the availability of, modify or terminate the check redemption privilege at any time
with respect to any or all Service Organizations.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
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Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
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Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
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Redeem the Cash Management Shares of any Service Organization whose account balance falls below the minimum as a result of a
redemption. The Fund will give 60 days’ prior written notice to allow a Service Organization to purchase sufficient additional shares of the Fund in order to avoid such redemption. Different rules may apply to investors who have established
brokerage accounts with Goldman Sachs in accordance with the terms and conditions of their account agreements.
|
|
n
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Redeem your Cash Management Shares in other circumstances determined by the Board of Trustees to be in the best interest of
the Trust.
|
|
n
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Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
|
|
n
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Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned
to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Fund shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
A Service Organization may exchange Cash Management Shares of a Fund at NAV for shares of the corresponding class of any
other Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n The recordholder name(s) and signature(s) | |||
| n The account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount to be exchanged | |||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||
|
|
|||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
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Telephone exchanges normally will be made only to an identically registered account.
|
|
n
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Shares may be exchanged among accounts with different names, addresses, and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
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Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
SHAREHOLDER GUIDE
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
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Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Cash Management Shares?
|
|
Service Organizations will receive from the Funds annual reports containing audited financial statements and semi-annual
reports. Upon request, Service Organizations will also be provided with a printed confirmation for each transaction. Any dividends and distributions paid by the Funds are also reflected in regular statements issued by the Funds to Service
Organizations. Service Organizations are responsible for providing these or other reports to their customers who are the beneficial owners of Cash Management Shares in accordance with the rules that apply to their accounts with the Service
Organizations.
|
|
What Are The Distribution Fees Paid By Cash Management Shares?
|
|
The Trust has adopted a distribution plan (the “Plan”) under which Cash Management Shares bear distribution fees
for the sale and distribution of its shares. Because these fees are paid out of the Funds’ assets on an ongoing basis, over time, these fees will increase the cost of your investment and may cost you more than paying other types of sales
charges. If the fees received by Goldman Sachs pursuant to the Plan exceed its expenses, Goldman Sachs may realize a profit from this arrangement.
|
|
Under the Plan, Goldman Sachs is entitled to a monthly fee from each Fund for distribution services equal, on an annual
basis, to 0.50% of a Fund’s average daily net assets attributed to Cash Management Shares. Currently, Goldman Sachs has voluntarily agreed to limit the amount of such fees to 0.07% of a Fund’s average daily net assets attributed to Cash
Management Shares. As of the date of this Prospectus, Goldman Sachs has no intention of modifying or discontinuing such limitation, but may do so in the future at its discretion.
|
|
The distribution fees are subject to the requirements of Rule 12b-1 under the Act, and may be used (among other things)
for:
|
|
n
|
Compensation paid to and expenses incurred by Service Organizations, Goldman Sachs and their respective officers, employees
and sales representatives;
|
|
n
|
Commissions paid to Service Organizations;
|
|
n
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Allocable overhead;
|
|
n
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Telephone and travel expenses;
|
|
n
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Interest and other costs associated with the financing of such compensation and expenses;
|
|
n
|
Printing of prospectuses for prospective shareholders;
|
|
n
|
Preparation and distribution of sales literature or advertising of any type; and
|
|
n
|
All other expenses incurred in connection with activities primarily intended to result in the sale of Cash Management
Shares.
|
As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax
information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged accounts, you should consider the possible tax consequences of Fund distributions.
Taxes on Distributions:
Except for the Tax-Exempt Funds, distributions of investment income are taxable as ordinary income for federal tax purposes, and
may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. To the extent that Fund distributions are attributable to interest on federal obligations or
interest on obligations of your state of residence or its municipalities or authorities, they will in most cases be exempt from state and local income taxes. Distributions from the Tax-Exempt Funds that are designated as “exempt interest
dividends” are generally not subject to federal income tax. Distributions of short-term capital gains are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January
are taxable as if they were paid in December. The Funds will inform shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
You should note that a portion of the exempt-interest dividends paid by the Tax-Exempt Funds may be a preference item when determining your federal alternative minimum
tax liability. Exempt-interest dividends are also taken into account in determining the taxable portion of social security or railroad retirement benefits. Any interest on indebtedness incurred by you to purchase or carry shares in the Tax-Exempt
Funds generally will not be deductible for federal income tax purposes.
Other Information:
When you open your account, you should provide your social security or tax identification number on your Account Application. By law,
each Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S. investors may
be subject to U.S. withholding and estate tax.
Additional Information on Portfolio Risks, 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 associated risks.
Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental policies and investment restrictions that cannot be changed without
shareholder approval. You should note, however, that all 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.
U.S. Treasury Obligations and U.S. Government Securities.
U.S. Treasury Obligations include securities issued or guaranteed by the U.S. Treasury
(“U.S. Treasury Obligations”). Payment of principal and interest on these obligations is backed by the full faith and credit of the U.S. government. U.S. Treasury Obligations include, among other things, the separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if such components are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).
U.S. Government Securities are obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or sponsored enterprises (“U.S.
Government Securities”). Unlike U.S. Treasury obligations, U.S. Government Securities can be supported by either (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 Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit
of the issuer.
U.S. Government Securities are deemed to include (a) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (b) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid. U.S. Government
Securities also include zero coupon bonds.
APPENDIX A
Some Funds invest in U.S. Treasury Obligations and certain U.S. Government Securities the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the U.S. Treasury and certain agencies, authorities or instrumentalities of the U.S. government, including the Federal Home Loan Banks, Federal Farm Credit Banks, Tennessee
Valley Authority and Student Loan Marketing Association.
U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government
will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.
Bank Obligations.
Bank obligations include certificates of deposit, commercial paper, unsecured bank promissory notes, bankers’ acceptances, time
deposits and other debt obligations. Certain Funds may invest in obligations issued or backed by U.S. banks when a bank has more than $1 billion in total assets at the time of purchase or is a branch or subsidiary of such a bank. In addition,
certain Funds may invest in U.S. dollar-denominated obligations issued or guaranteed by foreign banks that have more than $1 billion in total assets at the time of purchase, U.S. branches of such foreign banks (Yankee obligations), foreign branches
of such foreign banks and foreign branches of U.S. banks having more than $1 billion in total assets at the time of purchase. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
If a Fund invests more than 25% of its total assets in bank obligations (whether foreign or domestic), it may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S. and most foreign banks are subject to comprehensive regulations which, in the case of U.S. regulations, have undergone substantial changes in the past decade. The enactment
of new legislation or regulations, as well as changes in interpretation and enforcement of current laws, may affect the manner of operations and profitability of domestic and foreign banks. Significant developments in the U.S. banking industry have
included increased competition from other types of financial institutions, increased acquisition activity and geographic expansion. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and adverse
developments in the real estate markets. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks.
Commercial Paper.
A Fund may invest in commercial paper, including variable amount master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks or
bank holding companies, corporations, finance companies and other issuers. The commercial paper purchased by a Fund consists of direct U.S. dollar-denominated obligations of domestic or, in the case of certain Funds, foreign issuers.
Short-Term Obligations.
A Fund may invest in other short-term obligations, including short-term funding agreements payable in U.S. dollars and issued or
guaranteed by U.S. corporations, foreign corporations or other entities. A funding agreement is a contract between an issuer and a purchaser that obligates the issuer to pay a guaranteed rate of interest on a principal sum deposited by the
purchaser. Funding agreements will also guarantee a stream of payments over time. A funding agreement has a fixed maturity date and may have either a fixed or variable interest rate that is based on an index and guaranteed for a set time period.
Because there is normally no secondary market for these investments, funding agreements purchased by a Fund may be regarded as illiquid.
Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually
agreed upon date and price. Certain Funds 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.
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 cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the creditworthiness of the seller. Distributions of the
income from repurchase agreements will be taxable to a Fund’s shareholders. In addition, 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.
Asset-Backed and Receivables-Backed Securities.
Certain Funds may invest in asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed and receivables-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. During periods of declining interest rates, prepayment of loans underlying asset-backed and receivables-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. In
addition, securities that are backed by credit card, automobile and similar types of receivables generally do not have the benefit of a security interest in collateral that is comparable in quality to mortgage assets. If the issuer of an
asset-backed security defaults on its payment obligation, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be
available to support payments on the 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.
Foreign Government Obligations and Related Foreign Risks.
Certain Funds may invest in foreign government obligations. Foreign government obligations that
the Funds invest in are U.S. dollar-denominated obligations (limited to commercial paper and other notes) issued or guaranteed by a foreign government or other entity located or organized in a foreign country that maintains a short-term foreign
currency rating in the highest short-term ratings category by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign government, bank, corporation or other issuer, may present a greater degree of risk than
investments in securities of domestic issuers because of less publicly-available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse
governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, changes in
the exchange rate of a foreign currency relative to the U.S. dollar (e.g., weakening of the currency against the U.S. dollar) may adversely affect the ability of a foreign issuer to pay interest and repay principal on an obligation.
Municipal Obligations.
Certain Funds may invest in municipal obligations. Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies, authorities and instrumentalities, and the District of Columbia. Municipal obligations in which a Fund may invest include fixed rate notes and similar debt instruments;
variable and floating rate demand instruments; tax-exempt commercial paper; municipal bonds; and unrated notes, paper, bonds or other instruments.
Municipal Notes and Bonds.
Municipal notes include tax anticipation notes (“TANs”), revenue anticipation notes (“RANs”), bond
anticipation notes (“BANs”), tax and revenue anticipation notes (“TRANs”) and construction loan notes. Municipal bonds include general obligation bonds and revenue bonds. General obligation bonds are backed by the taxing power of
the issuing municipality and are considered the safest type of municipal obligation. Revenue bonds are backed by the revenues of a project or facility such as the tolls from a toll bridge. Revenue bonds also include lease rental revenue bonds which
are issued by a state or local authority for capital projects and are secured by annual lease payments from the state or locality sufficient to cover debt service on the authority’s obligations. Industrial development bonds (“private
activity bonds”) are a specific type of revenue bond backed by the credit and security of a private user and, therefore, have more potential risk. Municipal bonds may be issued in a variety of forms, including commercial paper, tender option
bonds and variable and floating rate securities.
Tender Option Bonds.
A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity
and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued in conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the institution. As consideration for providing the option, the financial institution receives periodic fees equal to the
difference between the bond’s fixed coupon rate and the rate, as determined by a remarketing or similar agent, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution will normally not be obligated to accept tendered bonds in the event of certain defaults
or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become
illiquid as a result of a credit rating downgrade, a payment default or a disqualification from tax-exempt status.
Revenue Anticipation Warrants.
Revenue Anticipation Warrants (“RAWs”) are issued in anticipation of the issuer’s receipt of revenues and
present the risk that such revenues will be insufficient to satisfy the issuer’s payment obligations. The entire amount of principal and interest on RAWs is due at maturity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which
include a demand feature that permits the holder to sell the RAWs to a bank or other financial institution at a purchase price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds.
Certain Funds may invest in industrial development bonds (private activity bonds). Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private user, the interest from which would be an item of tax preference when distributed by a Fund as “exempt-interest dividends” to shareholders under the
AMT.
Other Municipal Obligation Policies.
Certain Funds may invest 25% or more of the value of their respective total assets in municipal obligations which are
related in such a way that an economic, business or political development or change affecting one municipal obligation would also affect the other municipal obligation. For example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
municipal obligations whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these municipal obligations will subject the Fund, to a greater extent than if such investment was
not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.
Municipal obligations may also include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued
by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment contracts. Moral obligation bonds are supported by the moral
commitment but not the legal obligation of a state or municipality. Municipal leases, certificates of participation and moral obligation bonds present the risk that the state or municipality involved will not appropriate the monies to meet scheduled
payments under these instruments.
Municipal obligations may be backed by letters of credit or other forms of credit enhancement issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in municipal obligations. Letters of credit and other obligations
of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities and generally are not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks. In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal payments or both on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obligation, a Fund may acquire the right to sell the obligation to another party at a guaranteed
price and date.
Custodial Receipts.
Certain Funds may also acquire U.S. Government Securities in the form of custodial receipts. Custodial receipts evidence ownership of
future interest payments, principal payments or both on notes or bonds issued or guaranteed as to principal or interest by the U.S. government, its agencies, instrumentalities, political subdivisions or authorities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S. government.
Other Investment Companies.
A Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Act. These
limitations 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 companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment
objectives, policies and restrictions substantially similar to those of the acquiring Fund and will be subject to substantially the same risks.
Floating and Variable Rate Obligations.
The Funds may purchase floating and variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels. Subject to the conditions for using amortized cost valuation under the Act, a Fund may consider the maturity of a variable or floating rate obligation to be
shorter than its ultimate stated maturity if the obligation is a U.S. Treasury Obligation or U.S. Government Security, if the obligation has a remaining maturity of 397 calendar days or less, or if the obligation has a demand feature that permits
the Fund to receive payment at any time or at specified intervals not exceeding 397 calendar days. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable, both of which may be issued by domestic banks or foreign banks which have a branch, agency
or subsidiary in the United States. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certifi
cates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments.
The Funds may purchase when-issued securities and enter into forward commitments. 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 a Fund at the time of entering into the transaction. A forward
commitment involves 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 settlement date. Although a Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.
Illiquid Securities.
Each Fund may invest up to 10% 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:
|
n
|
Both domestic and foreign securities that are not
readily marketable
|
|
n
|
Certain municipal leases and participation
interests
|
|
n
|
Certain stripped mortgage-backed securities
|
|
n
|
Repurchase agreements and time deposits with a notice
or demand period of more than seven days
|
|
n
|
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 liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|
Investing in restricted securities may decrease the liquidity of a Fund’s portfolio.
Borrowings.
Each Fund may borrow up to 33
1
/
3
% of its total assets from banks for
temporary or emergency purposes. A Fund may not make additional investments if borrowings exceed 5% of its net assets. For more information, see the Additional Statement.
Downgraded Securities.
After its purchase, a portfolio security may be assigned a lower rating or cease to be rated. If this occurs, a Fund may continue
to hold the security if the Investment Adviser believes it is in the best interest of the Fund and its shareholders.
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies.
As a matter of fundamental policy, at least 80% of each of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios will ordinarily be invested in municipal obligations, the interest from which is, in the opinion of bond counsel, if any, excluded from gross income for federal income tax purposes. In addition, as a
matter of fundamental policy, at least 65% of each of the Tax-Exempt California and Tax-Exempt New York Portfolio’s total assets will be invested in California and New York municipal obligations, except in extraordinary
circumstances.
For these purposes, California and New York municipal obligations are obligations issued by or on behalf of the State of California or the State of New York,
respectively, and their respective political subdivisions, agencies and instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands and Guam, the interest from which is excluded from gross income for federal income tax purposes and
is exempt from California State personal income tax or New York State and New York City personal income tax. Each Tax-Exempt Fund may temporarily invest in taxable money market instruments or, in the case of the Tax-Exempt California and New York
Portfolios, in municipal obligations that are not California or New York municipal obligations, respectively, when acceptable California and New York municipal obligations are not available or when the Investment Adviser believes that the market
conditions dictate a defensive posture. Investments in taxable money market instruments will be limited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-Exempt California and Tax-Exempt New York Portfolios’ distributions
of interest from municipal obligations other than California and New York municipal obligations, respectively, may be subject to California and New York State and New York City personal income taxes. In addition, dividends paid by the Portfolios may
be subject to state franchise and corporate income taxes, if applicable.
Risks of Investing in California and New York:
The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate their investments in California
and New York municipal obligations. Consequently, these Funds are more susceptible to factors adversely affecting issuers of California and New York municipal obligations, and may be riskier than comparable municipal bond funds and money market
funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio’s investments can be affected by political and economic developments within the State of California (“California”),
and by the financial condition of California, its public authorities and political subdivisions. After suffering a severe recession in the early 1990’s, California’s economy entered a sustained recovery starting in 1994, which has outpaced
the national economy in recent years. California’s budget returned to positive balance after deficits in the recession years, and has generated substantial surpluses for several years. Economic
growth is expected to slow in 2001, due to a combination of the impacts of the national economic slowdown, a cyclical slowdown in the high technology sector, and energy supply and price difficulties which have affected California since the start of
2001. These factors could reduce California’s budget surpluses in fiscal year 2001-02. To respond to its own revenue shortfalls during the recession, California reduced assistance to its public authorities and political subdivisions, which have
not been fully restored in the more recent years of budget surpluses. California voters in the past have passed amendments to the California Constitution and other measures that limit the taxing and spending authority of California government
entities, and future initiatives could result in adverse consequences affecting California municipal obligations. In part as a result of such initiatives, local governments in California face fiscal difficulties in varying degrees.
These factors, among others (including the outcome of related pending litigation), could reduce the credit standing of certain issuers of California municipal
obligations. A more detailed discussion of the risks of investing in California is included in the Additional Statement.
The Tax-Exempt New York Portfolio’s investments will be affected by political and economic developments within the State of New York (the “State”), and
by the financial conditions of the State, its public authorities and political subdivisions, particularly the City of New York (the “City”). The State and the City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their financial obligations. Certain substantial issuers of New York municipal obligations (including issuers whose obligations may be acquired by the Fund) have, at times,
experienced serious financial difficulties. Strong demand for New York municipal obligations has also at times had the effect of permitting New York municipal obligations to be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obligations issued by other jurisdictions. A recurrence of the financial difficulties previously experienced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers’ existing obligations and, possibly, in the obligations of other issuers of New York municipal obligations. Although as of April 1, 2001 no issuers were in default with respect to the
payment of their New York municipal obligations, the occurrence of any such default could materially affect adversely the market values and marketability of all New York municipal obligations and, consequently, the value of the Fund’s holdings.
A more detailed discussion of the risks of investing in New York is included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable to meet their financial obligations, the corresponding Fund’s income, NAV, ability
to
preserve or realize appreciation of capital or liquidity could be adversely affected. Also, neither of these Funds is a diversified fund under the Act (except to the extent that diversification is required by Rule 2a-7 or for federal income tax
purposes). Because they may invest a larger percentage of their assets in the securities of fewer issuers than do diversified funds, these Funds may be exposed to greater risk in that an adverse change in the condition of one or a small number of
issuers would have a greater impact on them.
[This page intentionally left blank]
Financial Highlights
|
The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five
years (or less if the Fund has been in operation for less than five years). Certain information 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 distributions). This information has been audited by PricewaterhouseCoopers LLP, whose report, along with a Fund’s financial statements, is included in the Fund’s annual
report (available upon request). The information for all periods prior to the periods ended December 31, 2000 has been audited by the Funds’ previous independent accountants.
|
|
PRIME OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| For the Years Ended December 31, | |||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06) | ||||
| 2000 - ILA B units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - ILA C units | 1.00 | 0.05 | (0.05) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05) | ||||
|
|
|||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1998 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - ILA C units | 1.00 | 0.04 | (0.04) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1997 - ILA B units | 1.00 | 0.04 | (0.04) | ||||
| 1997 - ILA C units (commenced August 15) | 1.00 | 0.04 | (0.04) | ||||
|
|
|||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05) | ||||
| 1996 - ILA B units (commenced May 8) | 1.00 | 0.03 | (0.03) | ||||
|
|
|||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||
| 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||
| 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||
| 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||
| 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||
| 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||
| 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||
| 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||
| 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||
| 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||
| 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||
| 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||
| 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||
| 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||
| 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||
| 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||
| 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||
| 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||
| 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||
| 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||
| 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||
| 1.00 | 3.97 | c | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||
|
|
||||||||||||||||||
|
MONEY MARKET PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.06 | (0.06 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||
|
|
|||||||||||||||||
| $1.00 | 6.18 | % | $1,753,668 | 0.41% | 6.05 | % | 0.41 | % | 6.05 | % | |||||||
| 1.00 | 6.02 | 321,440 | 0.56 | 6.12 | 0.56 | 6.12 | |||||||||||
| 1.00 | 5.76 | 346,427 | 0.81 | 5.63 | 0.81 | 5.63 | |||||||||||
| 1.00 | 5.60 | 315,194 | 0.98 | 5.72 | 1.41 | 5.29 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 4.92 | 1,346,765 | 0.41 | 4.80 | 0.41 | 4.80 | |||||||||||
| 1.00 | 4.76 | 6,961 | 0.56 | 4.64 | 0.56 | 4.64 | |||||||||||
| 1.00 | 4.50 | 383,932 | 0.81 | 4.42 | 0.81 | 4.42 | |||||||||||
| 1.00 | 4.32 | 2 | 0.98 | 4.37 | 1.41 | 3.94 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.33 | 1,350,317 | 0.40 | 5.17 | 0.43 | 5.14 | |||||||||||
| 1.00 | 5.17 | 314,327 | 0.55 | 5.04 | 0.58 | 5.01 | |||||||||||
| 1.00 | 4.91 | 32,349 | 0.80 | 4.79 | 0.83 | 4.76 | |||||||||||
| 1.00 | 4.69 | (c) | 2 | 0.90 (c) | 4.80 | (c) | 1.43 | (c) | 4.27 | (c) | |||||||
|
|
|||||||||||||||||
| 1.00 | 5.43 | 806,096 | 0.37 | 5.31 | 0.42 | 5.26 | |||||||||||
| 1.00 | 5.28 | 307,480 | 0.52 | 5.15 | 0.57 | 5.10 | |||||||||||
| 1.00 | 5.01 | 20,517 | 0.77 | 4.90 | 0.82 | 4.85 | |||||||||||
|
|
|||||||||||||||||
| 1.00 | 5.27 | 703,097 | 0.36 | 5.15 | 0.43 | 5.08 | |||||||||||
| 1.00 | 5.12 | 257,258 | 0.51 | 5.00 | 0.58 | 4.93 | |||||||||||
| 1.00 | 4.86 | 28,845 | 0.76 | 4.75 | 0.83 | 4.68 | |||||||||||
|
|
|||||||||||||||||
|
TREASURY OBLIGATIONS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.95 | % | $384,023 | 0.42 | % | 5.77 | % | 0.42 | % | 5.77 | % | |||||||
| 1.00 | 5.79 | 15,095 | 0.57 | 5.51 | 0.57 | 5.51 | ||||||||||||
| 1.00 | 5.52 | 493,259 | 0.82 | 5.49 | 0.82 | 5.49 | ||||||||||||
| 1.00 | 2.33 | (d) | 2,598 | 0.99 | (c) | 5.53 | (c) | 1.42 | (c) | 5.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.63 | 404,299 | 0.42 | 4.50 | 0.42 | 4.50 | ||||||||||||
| 1.00 | 4.48 | 42,334 | 0.57 | 4.35 | 0.57 | 4.35 | ||||||||||||
| 1.00 | 4.22 | 264,787 | 0.82 | 4.19 | 0.82 | 4.19 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 734,553 | 0.42 | 4.96 | 0.43 | 4.95 | ||||||||||||
| 1.00 | 4.99 | 80,464 | 0.57 | 4.88 | 0.58 | 4.87 | ||||||||||||
| 1.00 | 4.73 | 35,432 | 0.82 | 4.67 | 0.83 | 4.66 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.26 | 590,381 | 0.42 | 5.12 | 0.42 | 5.12 | ||||||||||||
| 1.00 | 5.10 | 124,159 | 0.57 | 4.99 | 0.57 | 4.99 | ||||||||||||
| 1.00 | 4.84 | 104,133 | 0.82 | 4.73 | 0.82 | 4.73 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.11 | 574,734 | 0.41 | 4.98 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 4.95 | 108,850 | 0.56 | 4.83 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.69 | 123,483 | 0.81 | 4.59 | 0.83 | 4.57 | ||||||||||||
|
|
||||||||||||||||||
|
TREASURY INSTRUMENTS PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.05 | $(0.05 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 5.62 | % | $201,088 | 0.43 | % | 5.49 | % | 0.45 | % | 5.47 | % | |||||||
| 1.00 | 5.46 | 21,875 | 0.58 | 5.20 | 0.60 | 5.18 | ||||||||||||
| 1.00 | 5.20 | 104,076 | 0.83 | 4.96 | 0.85 | 4.94 | ||||||||||||
| 1.00 | 2.21 | (d) | 11,577 | 1.00 | (c) | 5.22 | (c) | 1.45 | (c) | 4.77 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.38 | 224,609 | 0.43 | 4.29 | 0.43 | 4.29 | ||||||||||||
| 1.00 | 4.22 | 32,162 | 0.58 | 4.09 | 0.58 | 4.09 | ||||||||||||
| 1.00 | 3.96 | 306,483 | 0.83 | 3.90 | 0.83 | 3.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.96 | 341,476 | 0.30 | 4.83 | 0.43 | 4.70 | ||||||||||||
| 1.00 | 4.80 | 131,685 | 0.45 | 4.68 | 0.58 | 4.55 | ||||||||||||
| 1.00 | 4.54 | 374,128 | 0.70 | 4.43 | 0.83 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.17 | 330,241 | 0.22 | 5.02 | 0.42 | 4.82 | ||||||||||||
| 1.00 | 5.01 | 98,667 | 0.37 | 4.88 | 0.57 | 4.68 | ||||||||||||
| 1.00 | 4.75 | 295,404 | 0.62 | 4.63 | 0.82 | 4.43 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.10 | 708,999 | 0.21 | 4.96 | 0.43 | 4.74 | ||||||||||||
| 1.00 | 4.95 | 137,706 | 0.36 | 4.82 | 0.58 | 4.60 | ||||||||||||
| 1.00 | 4.68 | 383,901 | 0.61 | 4.56 | 0.83 | 4.34 | ||||||||||||
|
|
||||||||||||||||||
|
GOVERNMENT PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.05 | % | $126,034 | 0.43 | % | 5.84 | % | 0.48 | % | 5.79 | % | |||||||
| 1.00 | 5.89 | 562 | 0.58 | 5.57 | 0.63 | 5.52 | ||||||||||||
| 1.00 | 5.63 | 50,733 | 0.83 | 5.42 | 0.88 | 5.37 | ||||||||||||
| 1.00 | 5.50 | 44,533 | 1.00 | 5.60 | 1.48 | 5.12 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 4.77 | 205,244 | 0.43 | 4.64 | 0.45 | 4.62 | ||||||||||||
| 1.00 | 4.61 | 3,265 | 0.58 | 4.42 | 0.60 | 4.40 | ||||||||||||
| 1.00 | 4.35 | 79,847 | 0.83 | 4.24 | 0.85 | 4.22 | ||||||||||||
| 1.00 | 4.18 | 153 | 1.00 | 4.68 | 1.45 | 4.23 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.21 | 383,243 | 0.43 | 5.09 | 0.45 | 5.07 | ||||||||||||
| 1.00 | 5.05 | 7,692 | 0.58 | 4.94 | 0.60 | 4.92 | ||||||||||||
| 1.00 | 4.79 | 105,732 | 0.83 | 4.67 | 0.85 | 4.65 | ||||||||||||
| 1.00 | 4.57 | (c) | 2 | 0.93 | (c) | 4.60 | (c) | 1.45 | (c) | 4.08 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 5.31 | 460,457 | 0.42 | 5.16 | 0.42 | 5.16 | ||||||||||||
| 1.00 | 5.15 | 10,192 | 0.57 | 4.98 | 0.57 | 4.98 | ||||||||||||
| 1.00 | 4.89 | 83,799 | 0.82 | 4.78 | 0.82 | 4.78 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.15 | 694,651 | 0.41 | 5.04 | 0.44 | 5.01 | ||||||||||||
| 1.00 | 4.99 | 36,055 | 0.56 | 4.89 | 0.59 | 4.86 | ||||||||||||
| 1.00 | 4.73 | 94,228 | 0.81 | 4.63 | 0.84 | 4.60 | ||||||||||||
|
|
||||||||||||||||||
|
FEDERAL PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.06 | $(0.06 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.06 | (0.06 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
| 2000 - Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.04 | (0.04 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.05 | (0.05 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.05 | (0.05 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense limitations |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 6.03 | % | $4,221,684 | 0.40 | % | 5.90 | % | 0.40 | % | 5.90 | % | |||||||
| 1.00 | 5.87 | 620,138 | 0.55 | 6.01 | 0.55 | 6.01 | ||||||||||||
| 1.00 | 5.61 | 278,002 | 0.80 | 5.48 | 0.80 | 5.48 | ||||||||||||
| 1.00 | 2.36 | (d) | 778,826 | 1.00 | (c) | 5.59 | (c) | 1.43 | (c) | 5.16 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 4.81 | 3,171,330 | 0.41 | 4.72 | 0.41 | 4.72 | ||||||||||||
| 1.00 | 4.66 | 836 | 0.56 | 4.46 | 0.56 | 4.46 | ||||||||||||
| 1.00 | 4.39 | 284,382 | 0.81 | 4.30 | 0.81 | 4.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.25 | 2,625,705 | 0.34 | 5.10 | 0.42 | 5.02 | ||||||||||||
| 1.00 | 5.09 | 508,297 | 0.49 | 4.97 | 0.57 | 4.89 | ||||||||||||
| 1.00 | 4.83 | 53,994 | 0.74 | 4.71 | 0.82 | 4.63 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.40 | 2,050,559 | 0.27 | 5.26 | 0.41 | 5.12 | ||||||||||||
| 1.00 | 5.24 | 530,001 | 0.42 | 5.11 | 0.56 | 4.97 | ||||||||||||
| 1.00 | 4.98 | 34,540 | 0.67 | 4.83 | 0.81 | 4.69 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 5.24 | 2,303,677 | 0.26 | 5.13 | 0.43 | 4.96 | ||||||||||||
| 1.00 | 5.09 | 794,537 | 0.41 | 4.98 | 0.58 | 4.81 | ||||||||||||
| 1.00 | 4.83 | 192,416 | 0.66 | 4.73 | 0.83 | 4.56 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT DIVERSIFIED PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.04 | (0.04 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | |||||||
| 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | ||||||||||||
| 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | ||||||||||||
| 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | ||||||||||||
| 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | ||||||||||||
| 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | ||||||||||||
| 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | ||||||||||||
| 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | ||||||||||||
| 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | ||||||||||||
| 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | ||||||||||||
| 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | ||||||||||||
| 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | ||||||||||||
| 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | ||||||||||||
| 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT CALIFORNIA PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distribution
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.03 | $(0.03 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (Re-commenced September 1) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
See page 70 for all footnotes.
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.17 | % | $650,980 | 0.42 | % | 3.08 | % | 0.43 | % | 3.07 | % | |||||||
| 1.00 | 3.02 | 27,490 | 0.56 | 2.99 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.76 | 63 | 0.82 | 2.22 | 0.83 | 2.21 | ||||||||||||
| 1.00 | 2.63 | 71,162 | 0.98 | 2.74 | 1.42 | 2.30 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.60 | 895,469 | 0.42 | 2.58 | 0.42 | 2.58 | ||||||||||||
| 1.00 | 2.45 | 8,910 | 0.57 | 2.38 | 0.57 | 2.38 | ||||||||||||
| 1.00 | 2.19 | 27,229 | 0.82 | 2.39 | 0.82 | 2.39 | ||||||||||||
| 1.00 | 2.02 | 1 | 0.99 | 2.15 | 1.42 | 1.72 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.84 | 584,615 | 0.41 | 2.79 | 0.41 | 2.79 | ||||||||||||
| 1.00 | 2.68 | 512 | 0.56 | 2.84 | 0.56 | 2.84 | ||||||||||||
| 1.00 | 2.43 | 2 | 0.81 | 2.48 | 0.81 | 2.48 | ||||||||||||
| 1.00 | 2.25 | (c) | 2 | 0.91 | (c) | 2.37 | (c) | 1.41 | (c) | 1.87 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.15 | 591,003 | 0.42 | 3.10 | 0.42 | 3.10 | ||||||||||||
| 1.00 | 3.00 | 360 | 0.57 | 2.98 | 0.57 | 2.98 | ||||||||||||
| 1.00 | 2.87 | (c) | 2 | 0.82 | (c) | 2.90 | (c) | 0.82 | (c) | 2.90 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.03 | 440,476 | 0.41 | 2.99 | 0.42 | 2.98 | ||||||||||||
| 1.00 | 2.88 | 142 | 0.56 | 2.84 | 0.57 | 2.83 | ||||||||||||
|
|
||||||||||||||||||
|
TAX-EXEMPT NEW YORK PORTFOLIO
|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| For the Years Ended December 31, | ||||||||
| 2000 - ILA units | $1.00 | $0.04 | $(0.04 | ) | ||||
| 2000 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 2000 - Cash Management shares | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
| 1999 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1999 - ILA Service units | 1.00 | 0.02 | (0.02 | ) | ||||
| 1999 - Cash Management shares | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1998 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - ILA Service units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1998 - Cash Management shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | ||||
|
|
||||||||
| 1997 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1997 - ILA Service units (commenced September 15) | 1.00 | 0.01 | (0.01 | ) | ||||
|
|
||||||||
| 1996 - ILA units | 1.00 | 0.03 | (0.03 | ) | ||||
| 1996 - ILA Administration units | 1.00 | 0.03 | (0.03 | ) | ||||
|
|
||||||||
Footnotes:
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
APPENDIX B
|
Ratios assuming no
expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||
|
|
||||||||||||||||||
| $1.00 | 3.57 | % | $176,618 | 0.43 | % | 3.51 | % | 0.47 | % | 3.47 | % | |||||||
| 1.00 | 3.41 | 82,019 | 0.58 | 3.44 | 0.62 | 3.40 | ||||||||||||
| 1.00 | 3.15 | 303 | 0.83 | 3.33 | 0.87 | 3.29 | ||||||||||||
| 1.00 | 3.02 | 13,758 | 1.00 | 3.15 | 1.47 | 2.68 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 2.76 | 160,301 | 0.43 | 2.73 | 0.44 | 2.72 | ||||||||||||
| 1.00 | 2.60 | 37,836 | 0.58 | 2.61 | 0.59 | 2.60 | ||||||||||||
| 1.00 | 2.35 | 2 | 0.83 | 2.29 | 0.84 | 2.28 | ||||||||||||
| 1.00 | 2.17 | 2 | 1.00 | 2.34 | 1.44 | 1.90 | ||||||||||||
|
|
||||||||||||||||||
| 1.00 | 3.02 | 122,550 | 0.36 | 2.96 | 0.51 | 2.81 | ||||||||||||
| 1.00 | 2.87 | 21,580 | 0.51 | 2.85 | 0.66 | 2.70 | ||||||||||||
| 1.00 | 2.61 | 2 | 0.76 | 2.61 | 0.91 | 2.46 | ||||||||||||
| 1.00 | 2.46 | (c) | 1 | 0.86 | (c) | 2.56 | (c) | 1.51 | (c) | 1.91 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.29 | 102,887 | 0.33 | 3.24 | 0.43 | 3.14 | ||||||||||||
| 1.00 | 3.14 | 31,993 | 0.48 | 3.09 | 0.58 | 2.99 | ||||||||||||
| 1.00 | 3.02 | (c) | 2 | 0.73 | (c) | 3.04 | (c) | 0.83 | (c) | 2.94 | (c) | |||||||
|
|
||||||||||||||||||
| 1.00 | 3.05 | 70,175 | 0.32 | 3.01 | 0.43 | 2.90 | ||||||||||||
| 1.00 | 2.90 | 44,319 | 0.47 | 2.88 | 0.58 | 2.77 | ||||||||||||
|
|
||||||||||||||||||
Index
| 1 |
General Investment
Management Approach |
|
| 5 |
Fund Investment Objectives
and Strategies |
|
| 10 | Principal Risks of the Funds | |
| 14 | Fund Performance | |
| 24 | Fund Fees and Expenses | |
| 28 | Service Providers | |
| 30 | Dividends | |
| 31 | Shareholder Guide | |||
| 31 How to Buy Shares | ||||
| 34 How to Sell Shares | ||||
| 41 | Taxation | |||
| 42 |
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques |
|||
| 54 |
Appendix B
Financial Highlights |
|||
Institutional Liquid Assets
Prospectus
(ILA Cash Management Shares)
|
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.
|
|
Statement of Additional Information
|
|
Additional information about the Funds and their policies is also available in the Funds’ Statement of Additional
Information (“Additional Statement”). The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Funds’ annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Funds’ documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
|
|
|
The Funds’ investment company registration number is 811-5349.
|
|
Prospectus
|
Class A, B and C Shares
May 1, 2001
| GOLDMAN SACHS CORE SM TAX-MANAGED EQUITY FUND |
|
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 THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the CORE Tax-Managed Equity Fund (the “Fund”). CORE is an acronym for “Computer-Optimized, Research Enhanced,” which reflects the Fund’s investment process.
Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
|
|
QUANTITATIVE (“CORE”) STYLE FUND
|
|
Goldman Sachs’ CORE Tax-Managed Investment Philosophy:
|
|
Goldman Sachs’ quantitative investment process—CORE—uses advanced quantitative tools for both stock selection
and portfolio construction. In an effort to maximize after-tax returns, tax implications are considered in all portfolio decisions.
|
|
I. CORE Stock Selection
|
|
Phase 1: Quantitative Analysis
|
|
n
|
Comprehensive:
The Goldman Sachs’ proprietary multifactor model (“Multifactor
Model”), a rigorous computerized rating system, performs daily evaluation of more than 3,000 domestic stocks
|
|
n
|
Rigorous:
The Multifactor Model provides thorough statistical analysis of common investment
themes
(e.g., value, momentum
and
risk)
|
|
n
|
Objective:
Quantitative analysis applied without bias across the board
|
|
Phase 2: Fundamental Research
|
|
n
|
Extensive:
Insights from Goldman Sachs analysts and more than 2,800 analysts at 200 brokerage
firms
|
|
n
|
Fundamental Insights:
Analysis of buy/hold/sell opinions are systematically factored into how we
rank each of the 3,000+ domestic stocks
|
|
n
|
Insightful:
Addresses issues such as new product introductions or management changes that a
purely quantitative model cannot readily evaluate
|
|
II. CORE Portfolio Construction
|
|
n
|
Benchmark driven:
Computer optimizer calculates numerous security combinations at numerous
weightings to identify an efficient risk/return portfolio given the CORE Fund’s benchmark
|
|
n
|
Sector and size neutral:
Portfolio ultimately has similar style, risk, sector and market
capitalization characteristics to the benchmark
|
|
n
|
Tax optimized:
All investment decisions consider expected after-tax returns including realizing
capital losses to offset realized gains, creating loss carry-forwards, and identifying securities for in-kind distribution
|
|
Goldman Sachs CORE Tax-Managed Fund is a fully invested portfolio that offers broad access to a well-defined stock universe,
seeks to outperform its benchmark on an after-tax basis through consistent, disciplined stock selection, and is intended to be an effective tool for implementing a tax-managed strategy within an overall investment portfolio.
|
|
CORE Tax-Managed Equity Fund
|
FUND FACTS
|
Objective:
|
Long-term after-tax growth of capital
|
|
Benchmark:
|
Russell 3000 Index
|
|
Investment Focus:
|
A total market, broadly diversified portfolio of U.S. equity securities
|
|
Investment Style:
|
Tax-managed quantitative focus
|
|
INVESTMENT OBJECTIVE
|
|
The Fund seeks to provide long-term after-tax growth of capital through tax-sensitive participation in a broadly diversified
portfolio of U.S. equity securities.
|
|
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 uses both a variety of quantitative techniques and fundamental research when selecting investments which have the
potential to maximize the Fund’s after-tax return, and minimize capital gains and income distributions. The Fund will seek to maintain risk, style, capitalization and industry characteristics similar to the Russell 3000 Index.
|
|
Tax-Managed Investing.
In managing the Fund, the Investment Adviser balances investment
considerations and tax considerations. The Fund seeks to achieve returns primarily in the form of price appreciation (which is not subject to current tax), and may use different strategies in seeking tax-efficiency. These strategies
include:
|
|
n
|
Offsetting long-term and short-term capital gains with long-term and short-term capital losses and creating loss
carry-forward positions
|
|
n
|
Limiting portfolio turnover that may result in taxable gains
|
|
n
|
Selling tax lots of securities that have a higher tax basis before selling tax lots of securities that have a lower
basis
|
|
n
|
Maintaining a bias towards stocks with low dividend yields
|
|
In situations where the Fund would otherwise be required to sell portfolio securities to meet shareholder redemption requests
(and possibly realizing taxable gains), the Fund may borrow money to make the necessary redemption payments. In addition, Goldman Sachs may, but would not in any instance be required to, make contemporaneous purchases of Fund shares for its own
account that would provide the Fund with cash to meet its redemption payment obligations.
|
|
When the Fund borrows money, the Investment Adviser intends to hedge the excess market exposure created by borrowing. There
is no guarantee such hedging will be completely effective.
|
|
The Fund may not achieve its investment objective of providing “after-tax” growth of capital for various reasons.
Implementation of tax-managed investment strategies may not materially reduce the amount of taxable income and capital gains distributed by the Fund to shareholders.
|
|
Other.
The Fund’s investments in fixed-income securities are limited to securities that are considered cash equivalents.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
10
Percent of total assets
(italic type
)
10
Percent of net assets (roman type)
Ÿ
No specific percentage limitation on usage;
limited only by the objective and
strategies of the Fund
limited only by the objective and
strategies of the Fund
—
Not permitted
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Practices | ||||
| Borrowings |
33
1
/3
|
|||
| Custodial receipts | Ÿ | |||
| Equity Swaps* | 15 | |||
| Foreign Currency Transactions | — | |||
| Futures Contracts and Options on Futures Contracts | Ÿ 1 | |||
| Investment Company Securities (including exchange-traded funds) | 10 | |||
| Options on Securities and Securities Indices 2 | Ÿ | |||
| Repurchase Agreements | Ÿ | |||
| Securities Lending |
33
1
/3
|
|||
| Short Sales Against the Box | — | |||
| Unseasoned Companies | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | |||
|
|
||||
|
*
|
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.
|
|
1
|
The Fund may enter into futures transactions only with respect to U.S. equity indices.
|
|
2
|
The Fund may sell covered call and put options and purchase call and put options.
|
10
Percent of total assets
(italic type
)
10
Percent of net assets (roman type)
Ÿ
No specific percentage limitation on usage;
limited only by the objective and
strategies of the Fund
limited only by the objective and
strategies of the Fund
—
Not permitted
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Securities | ||||
| American and Global Depositary Receipts | Ÿ | |||
| Asset-Backed and Mortgage-Backed Securities | — | |||
| Bank Obligations 3 | Ÿ | |||
| Convertible Securities | Ÿ | |||
| Corporate Debt Obligations 3 | Ÿ | |||
| Equity Securities | 90+ | |||
| Emerging Country Securities | — | |||
| Fixed Income Securities 4 |
10
|
|||
| Foreign Securities 5 | Ÿ | |||
| Non-Investment Grade Fixed Income Securities | — | |||
| Real Estate Investment Trusts (“REITs”) | Ÿ | |||
| Structured Securities * | Ÿ | |||
| Temporary Investments |
35
|
|||
| U.S. Government Securities 3 | Ÿ | |||
|
|
||||
|
*
|
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.
|
|
3
|
Limited by the amount the Fund invests in fixed-income securities.
|
|
4
|
Cash equivalents only.
|
|
5
|
Equity securities of foreign issuers must be traded in the United States.
|
|
Loss of money is a risk of investing in the Fund. An investment in the 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 Fund and may result in a loss of your investment. The Fund should not be relied upon as a
complete investment program. There can be no assurance that the Fund will achieve its investment objective.
|
|
RISKS OF TAX-MANAGED INVESTING
|
|
Because the Investment Adviser balances investment considerations and tax considerations, the Fund’s pre-tax performance
may be lower than the performance of a similar CORE Fund that is not tax-managed. This is because the Investment Adviser may choose not to make certain investments that may result in taxable distributions. Even though tax-managed strategies are
being used, they may not reduce the amount of taxable income and capital gains distributed by the Fund to shareholders. A high percentage of the Fund’s net asset value (“NAV”) may consist of unrealized capital gains, which represent a
potential future tax liability to shareholders.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
INVESTMENT RISKS
|
|
CORE
Tax-Managed Equity Fund |
||
|---|---|---|---|
| Ÿ Applicable | |||
|
|
|||
| Stock | Ÿ | ||
| Credit/Default | Ÿ | ||
| Foreign | Ÿ | ||
| Derivatives | Ÿ | ||
| Interest Rate | Ÿ | ||
| Management | Ÿ | ||
| Market | Ÿ | ||
| Liquidity | Ÿ | ||
| Small Cap | Ÿ | ||
|
|
|||
|
n
|
Stock Risk
—The risk that stock
prices have historically risen and fallen in periodic cycles. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high
levels in the future.
|
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by the Fund may
default on its obligation to pay interest and repay principal.
|
|
n
|
Foreign Risk
—The risk that when the Fund invests in foreign securities, it will be subject to risk 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. The Fund will also be subject to the risk of negative foreign currency rate fluctuations.
|
|
n
|
Derivatives Risk
—The risk that loss may result from the Fund’s investments in options, futures,
swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Fund.
|
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by the Fund will decline in
value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
|
Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
|
|
n
|
Market Risk
—The risk that the value of the securities in which the Fund invests may go up or down in
response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. The Fund’s investments may be overweighted from time to time in one
or more industry sectors, which will increase the Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Liquidity Risk
—The risk that the Fund will not be able to pay redemption proceeds within the time period
stated in this Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Because the Fund may invest in small capitalization stocks and REITs, the Fund will be especially subject to the risk
that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 the Fund to effect sales at an advantageous time or without a substantial
drop in price.
|
PRINCIPAL RISKS OF THE FUND
|
More information about the Fund’s portfolio securities and investment techniques, and their associated risks, is
provided in Appendix A. You should consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
|
HOW THE FUND HAS PERFORMED
|
|
The Fund commenced operations on April 3, 2000. Since the Fund has less than one calendar year’s performance, no
performance information is provided in this section.
|
This table describes the fees and expenses that you would pay if you buy and hold Class A, Class B, or Class C Shares of the Fund.
|
CORE Tax-Managed Equity Fund
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | ||||||||
|
|
||||||||||
| Shareholder Fees | ||||||||||
| (fees paid directly from your investment): | ||||||||||
|
Maximum Sales Charge (Load) Imposed on
Purchases |
5.5% | 1 | None | None | ||||||
| Maximum Deferred Sales Charge (Load) 2 | None | 1 | 5.0% | 3 | 1.0% | 4 | ||||
|
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends |
None | None | None | |||||||
| Redemption Fees 5 | None | None | None | |||||||
| Exchange Fees 5 | None | None | None | |||||||
| Annual Fund Operating Expenses | ||||||||||
| (expenses that are deducted from Fund assets): 6 | ||||||||||
| Management Fees | 0.75% | 0.75% | 0.75% | |||||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | |||||||
| Other Expenses 7 | 1.03% | 1.03% | 1.03% | |||||||
|
|
||||||||||
| Total Fund Operating Expenses* | 2.03% | 2.78% | 2.78% | |||||||
|
|
||||||||||
|
See page 12 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Fund which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total Fund
Operating Expenses” may increase without shareholder approval.
|
|
CORE Tax-Managed Equity Fund
|
|||||||
|---|---|---|---|---|---|---|---|
| Class A | Class B | Class C | |||||
|
|
|||||||
| Annual Fund Operating Expenses | |||||||
| (expenses that are deducted from Fund assets): 6 | |||||||
| Management Fees | 0.75% | 0.75% | 0.75% | ||||
| Distribution and Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | ||||
| Other Expenses 7 | 0.24% | 0.24% | 0.24% | ||||
|
|
|||||||
|
Total Fund Operating Expenses (after current
expense limitations) |
1.24% | 1.99% | 1.99% | ||||
|
|
|||||||
Fund Fees and Expenses
(continued)
|
1
|
The maximum sales charge is a percentage of the offering price. A contingent deferred sales charge
(“CDSC”) of 1% is imposed on certain redemptions (within 18 months of purchase) of Class A Shares sold without an initial sales charge as part of an investment of $1 million or more.
|
|
2
|
The maximum CDSC is a percentage of the lesser of the NAV at the time of the redemption or the NAV when the shares
were originally purchased.
|
|
3
|
A CDSC is imposed upon Class B Shares redeemed within six years of purchase at a rate of 5% in the first year,
declining to 1% in the sixth year, and eliminated thereafter.
|
|
4
|
A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of purchase.
|
|
5
|
A transaction fee of $7.50 may be charged for redemption proceeds paid by wire.
|
|
6
|
The Fund’s annual operating expenses are based on actual expenses.
|
|
7
|
“Other Expenses” include transfer agency fees and expenses equal to 0.19% of the average daily net assets
of the Fund’s Class A, B and C Shares, plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, distribution and service fees,
transfer agency fees and expenses, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentage of the Fund’s average daily net assets:
|
| Fund |
Other
Expenses |
||
|---|---|---|---|
|
|
|||
| CORE Tax-Managed Equity | 0.05% | ||
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in the Fund (without the waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Class A, B or C Shares of the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| CORE Tax-Managed Equity | |||||||||
| Class A Shares | $745 | $1,152 | $1,583 | $2,779 | |||||
| Class B Shares | |||||||||
| – Assuming complete redemption at end of period | $781 | $1,162 | $1,669 | $2,930 | |||||
| – Assuming no redemption | $281 | $ 862 | $1,469 | $2,930 | |||||
| Class C Shares | |||||||||
| – Assuming complete redemption at end of period | $381 | $ 862 | $1,469 | $3,109 | |||||
| – Assuming no redemption | $281 | $ 862 | $1,469 | $3,109 | |||||
|
|
|||||||||
The hypothetical example assumes that a CDSC will not apply to redemptions of Class A Shares within the first 18 months. Class B Shares convert to Class A Shares eight
years after purchase; therefore, Class A expenses are used in the hypothetical example after year eight.
Certain institutions that sell Fund shares and/or their salespersons may receive other compensation in connection with the sale and distribution of Class A, Class B and
Class C Shares for services to their customers’ accounts and/or the Fund. For additional information regarding such compensation, see “What Should I Know When I Purchase Shares Through An Authorized Dealer?” in the Prospectus and
“Other Information” in the Statement of Additional Information (“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | Fund | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | CORE Tax-Managed Equity | ||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Fund’s portfolio transactions. The Investment Adviser
makes the investment decisions for the Fund and places purchase and sale orders for the Fund’s portfolio transactions. As permitted by applicable law, these orders may be directed to any brokers, including Goldman Sachs and its affiliates.
While the Investment Adviser is ultimately responsible for the management of the Fund, 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 will 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 Fund:
|
|
n
|
Supervises all non-advisory operations of the Fund
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Fund
|
|
n
|
Arranges for the preparation of all required tax
returns, reports to shareholders, prospectuses and statements of additional information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of the Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
SERVICE PROVIDERS
|
MANAGEMENT FEES
|
|
As compensation for its services and its assumption of certain expenses, the Investment Adviser is entitled to the following
fee, computed daily and payable monthly, at the annual rate listed below (as a percentage of the Fund’s average daily net assets):
|
| Contractual Rate |
Actual Rate for the
Fiscal Period Ended December 31, 2000 |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| CORE Tax-Managed Equity | 0.75 | % | 0.75 | % | |||
|
|
|||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Fund reflects that the Investment Adviser did
not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
FUND MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Risk
Management/Investment Performance & Valuation Oversight Group, and the Client Research Groups. In total, these groups include approximately 165 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department of
Goldman Sachs since becoming a Partner in 1994. Preceding his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research
and model development group.
|
|
Quantitative Equity Team
|
|
n
|
A stable and growing team supported by an extensive internal staff
|
|
n
|
Access to the research ideas of Goldman Sachs’ renowned Global Investment Research Department
|
|
n
|
More than $34.7 billion in equities currently under management
|
|
n
|
Proprietary research on quantitative models and tax-advantaged strategies
|
Quantitative Equity Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Melissa Brown
Managing Director Product Manager for Quantitative Equities |
Senior Portfolio Manager —
CORE Tax-Managed Equity |
Since
2000 |
Ms. Brown joined the
Investment Adviser as a portfolio manager in 1998. From 1984 to 1998, she was the director of Quantitative Equity Research and served on the Investment Policy Committee at Prudential Securities. |
||||
|
|
|||||||
|
Robert C. Jones
Managing Director Head of Quantitative Equities |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Jones joined the
Investment Adviser as a portfolio manager in 1989. |
||||
|
|
|||||||
|
Victor H. Pinter
Vice President Head of Portfolio Construction |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Pinter joined the
Investment Adviser as a research analyst in 1989. He became a portfolio manager in 1992. |
||||
|
|
|||||||
SERVICE PROVIDERS
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of the Fund’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the Fund’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Fund. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to the Fund or limit the Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and advise accounts and
funds which have investment objectives similar to those of the Fund and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Fund. 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 Fund. The results of the Fund’s
investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that the 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 Fund may, from time to time, enter into transactions in which other clients of Goldman Sachs have an adverse interest. The Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
|
The Fund pays dividends from its investment company taxable income and distributions from net realized capital gains (although the Fund attempts to minimize capital
gains and income distributions in seeking its investment objective). You may choose to have dividends and distributions paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the Fund
|
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain Goldman
Sachs Institutional Liquid Assets Portfolios (“ILA Portfolios”). See the Additional Statement.
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| CORE Tax-Managed Equity | Annually | Annually | |||
|
|
|||||
From time to time a portion of the Fund’s dividends may constitute a return of capital.
When you purchase shares of the Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Fund’s shares.
|
|
How Can I Purchase Class A, Class B And Class C Shares Of The Fund?
|
|
You may purchase shares of the Fund through:
|
|
n
|
Goldman Sachs;
|
|
n
|
Authorized Dealers; or
|
|
n
|
Directly from Goldman Sachs Trust (the “Trust”).
|
|
In order to make an initial investment in the Fund, you must furnish to the Fund, Goldman Sachs or your Authorized Dealer the
information in the Account
Application. |
|
To Open an Account:
|
|
n
|
Complete the enclosed Account Application
|
|
n
|
Mail your payment and Account Application to:
|
|
Your Authorized Dealer
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to your Authorized Dealer
|
|
–
|
Your Authorized Dealer is responsible for forwarding payment promptly (within three business days) to the Fund
|
|
or
|
|
Goldman Sachs Funds c/o National Financial Data Services, Inc.
(“NFDS”)
, P.O. Box 219711,
Kansas City, MO 64121-9711
|
|
–
|
Purchases by check or Federal Reserve draft should be made payable to Goldman Sachs Funds – (Name of Fund
and
Class of Shares)
|
|
–
|
NFDS will not accept a check drawn on a foreign bank, a third-party check, cash, money orders, travelers cheques or credit
card checks
|
|
–
|
Federal funds wire, Automated Clearing House Network (“ACH”) transfer or bank wires should be sent to State Street
Bank and Trust Company (“State Street”) (the Fund’s custodian). Please call the Fund at 1-800-526-7384 to get detailed instructions on how to wire your money.
|
|
What Is My Minimum Investment In The Fund?
|
| Initial | Additional | ||||
|---|---|---|---|---|---|
|
|
|||||
| Regular Accounts | $1,000 | $50 | |||
|
|
|||||
|
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts |
$250 | $50 | |||
|
|
|||||
| Automatic Investment Plan Accounts | $50 | $50 | |||
|
|
|||||
|
What Alternative Sales Arrangements Are Available?
|
|
The Fund offers three classes of shares through this Prospectus.
|
|
|
|||||
| Maximum Amount You Can | Class A | No limit | |||
|
|
|||||
| Buy In The Aggregate | Class B | $250,000 | |||
|
|
|||||
| Class C | $1,000,000 | ||||
|
|
|||||
| Initial Sales Charge | Class A |
Applies to purchases of less than $1 million—
varies by size of investment with a maximum of 5.5% |
|||
|
|
|||||
| Class B | None | ||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
| CDSC | Class A |
1.00% on certain investments of $1 million or
more if you sell within 18 months |
|||
|
|
|||||
| Class B | 6 year declining CDSC with a maximum of 5% | ||||
|
|
|||||
| Class C |
1% if shares are redeemed within 12 months
of purchase |
||||
|
|
|||||
| Conversion Feature | Class A | None | |||
|
|
|||||
| Class B |
Class B Shares convert to Class A Shares after
8 years |
||||
|
|
|||||
| Class C | None | ||||
|
|
|||||
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Refuse to open an account if you fail to (i) provide a social security number or other taxpayer identification number; or
(ii) certify that such number is correct (if required to do so under applicable law).
|
SHAREHOLDER GUIDE
|
n
|
Reject or restrict any purchase or exchange order by a
particular purchaser (or group of related purchasers). This may occur, for example, when a pattern of frequent purchases, sales or exchanges of shares of the Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt the management of the Fund.
|
|
n
|
Close the Fund to new investors from time to time and
reopen the Fund whenever it is deemed appropriate by the Fund’s Investment Adviser.
|
|
n
|
Modify or waive the minimum investment
amounts.
|
|
n
|
Modify the manner in which shares are offered.
|
|
n
|
Modify the sales charge rates applicable to future purchases of shares.
|
|
The Fund may allow you to purchase shares with securities instead of cash if consistent with the Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange shares is the Fund’s next determined NAV and share class.
Each class calculates its NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
|
The Fund’s investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each share class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Fund receives your order in proper form, plus any
applicable sales charge.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Fund receives your order in proper form, less any
applicable CDSC.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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.
|
|
In addition, the impact of events that occur after the publication of market quotations used by the Fund to price its
securities, but before the close of regular trad-ing on the New York Stock Exchange will normally not be reflected in the 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 effect on Fund operations and other relevant factors.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
|
|
What Is The Offering Price Of Class A Shares?
|
|
The offering price of Class A Shares of the Fund is the next determined NAV per share plus an initial sales charge paid
to Goldman Sachs at the time of purchase of shares.
The sales charge varies depending upon the amount you purchase. In some cases, described below, the initial sales charge may be eliminated altogether, and the offering price will be the NAV
per share. The current sales charges and commissions paid to Authorized Dealers are as follows:
|
|
Amount of Purchase
(including sales charge, if any) |
Sales Charge as
Percentage of Offering Price |
Sales Charge
as Percentage of Net Amount Invested |
Maximum Dealer
Allowance as Percentage of Offering Price* |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Less than $50,000 | 5.50 | % | 5.82 | % | 5.00 | % | ||||
| $50,000 up to (but less than) $100,000 | 4.75 | 4.99 | 4.00 | |||||||
| $100,000 up to (but less than) $250,000 | 3.75 | 3.90 | 3.00 | |||||||
| $250,000 up to (but less than) $500,000 | 2.75 | 2.83 | 2.25 | |||||||
| $500,000 up to (but less than) $1 million | 2.00 | 2.04 | 1.75 | |||||||
| $1 million or more | 0.00 | ** | 0.00 | ** | *** | |||||
|
|
||||||||||
|
*
|
Dealer’s allowance may be changed periodically. During special promotions, the entire sales charge may be
allowed to Authorized Dealers. Authorized Dealers to whom substantially the entire sales charge is allowed may be deemed to be “underwriters” under the Securities Act of 1933.
|
|
**
|
No sales charge is payable at the time of purchase of Class A Shares of $1 million or more, but a CDSC of 1% may be
imposed in the event of certain redemptions within 18 months of purchase.
|
|
***
|
The Distributor may pay a one-time commission to Authorized Dealers who initiate or are responsible for purchases
of $1 million or more of shares of the Fund equal to 1.00% of the amount under $3 million, 0.50% of the next $2 million, and 0.25% thereafter. The Distributor may also pay, with respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate or are responsible for purchases of $500,000 or more by certain Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or
other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations investing in the Fund which satisfy the criteria set forth below in “When Are Class A Shares Not
Subject To A Sales Load?” or $1 million or more by certain “wrap” accounts. Purchases by such plans will be made at NAV with no initial sales charge, but if all of the shares held are redeemed within 18 months after the end of the
calendar month in which such purchase was made, a CDSC of 1% may be imposed upon the plan sponsor or the third party administrator. In addition, Authorized Dealers will remit to the Distributor such payments received in connection with
“wrap” accounts in the event that shares are redeemed within 18 months after the end of the calendar month in which the purchase was made.
|
SHAREHOLDER GUIDE
|
What Else Do I Need To Know About Class A Shares’ CDSC?
|
|
Purchases of $1 million or more of Class A Shares will be made at NAV with no initial sales charge. However, if you redeem
shares within 18 months after the end of the calendar month in which the purchase was made, excluding any period of time in which the shares were exchanged into and remained invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if your Authorized Dealer enters into an agreement with the Distributor to return all or an applicable prorated portion of its commission to the Distributor. The CDSC is waived on redemptions in certain
circumstances. See “In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?” below.
|
|
When Are Class A Shares Not Subject To A Sales Load?
|
|
Class A Shares of the Fund may be sold at NAV without payment of any sales charge to the following individuals and
entities:
|
|
n
|
Goldman Sachs, its affiliates or their respective officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner, any Trustee or officer of the Trust and designated family members of any of these individuals;
|
|
n
|
Qualified retirement plans of Goldman Sachs;
|
|
n
|
Trustees or directors of investment companies for which Goldman Sachs or an affiliate acts as sponsor;
|
|
n
|
Any employee or registered representative of any Authorized Dealer or their respective spouses, children and
parents;
|
|
n
|
Banks, trust companies or other types of depository institutions investing for their own account or investing for
discretionary or non-discretionary accounts;
|
|
n
|
Any state, county or city, or any instrumentality, department, authority or agency thereof, which is prohibited by applicable
investment laws from paying a sales charge or commission in connection with the purchase of shares of a Fund;
|
|
n
|
Section 401(k), profit sharing, money purchase pension, tax-sheltered annuity, defined benefit pension, or other employee
benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations (“Retirement Plans”) that:
|
|
n
|
Buy shares of Goldman Sachs Funds worth $500,000 or more; or
|
|
n
|
Have 100 or more eligible employees at the time of purchase; or
|
|
n
|
Certify that they expect to have annual plan purchases of shares of Goldman Sachs Funds of $200,000 or more; or
|
|
n
|
Are provided administrative services by certain third-party administrators that have entered into a special service
arrangement with Goldman Sachs relating to such plans; or
|
|
n
|
Have at the time of purchase aggregate assets of at least $2,000,000;
|
|
n
|
“Wrap” accounts for the benefit of clients of broker-dealers, financial institutions or financial planners,
provided they have entered into an agreement with GSAM specifying aggregate minimums and certain operating policies and standards;
|
|
n
|
Registered investment advisers investing for accounts for which they receive asset-based fees;
|
|
n
|
Accounts over which GSAM or its advisory affiliates have investment discretion;
|
|
n
|
Shareholders receiving distributions from a qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA;
|
|
n
|
Shareholders who roll over distributions from any tax-qualified retirement plan or tax-sheltered annuity to an IRA which
invests in the Goldman Sachs Funds if the tax-qualified retirement plan or tax-sheltered annuity receives administrative services provided by certain third-party administrators that have entered into a special service arrangement with Goldman Sachs
relating to such plan or annuity; or
|
|
n
|
Other exemptions may be stated from time to time in the Additional Statement.
|
|
You must certify eligibility for any of the above exemptions on your Account Application and notify the Fund if you no
longer are eligible for the exemption.
The Fund will grant you an exemption subject to confirmation of your entitlement. You may be charged a fee if you effect your transactions through a broker or agent.
|
|
How Can The Sales Charge On Class A Shares Be Reduced?
|
|
n
|
Right of Accumulation:
When buying Class A Shares in Goldman Sachs Funds, your current aggregate
investment determines the initial sales load you pay. You may qualify for reduced sales charges when the current market value of holdings (shares at current offering price), plus new purchases, reaches $50,000 or more. Class A Shares of any of the
Goldman Sachs Funds may be combined under the Right of Accumulation. To qualify for a reduced sales load, you or your Authorized Dealer must notify the Fund’s Transfer Agent at the time of investment that a quantity discount is applicable. Use
of this service is subject to a check of appropriate records. The Additional Statement has more information about the Right of Accumulation.
|
|
n
|
Statement of Intention:
You may obtain a reduced sales charge by means of a written Statement of
Intention which expresses your non-binding commitment to invest in the aggregate $50,000 or more (not counting reinvestments of dividends and distributions) within a period of 13 months in Class A Shares of one or more
Goldman Sachs Funds. Any investments you make during the period will receive the discounted sales load based on the full amount of your investment commitment. If the investment commitment of the Statement of Intention is not met prior to the
expiration of the 13-month period, the entire amount will be subject to the higher applicable sales charge. By signing the Statement of Intention, you authorize the Transfer Agent to escrow and redeem Class A Shares in your account to pay this
additional charge. The Additional Statement has more information about the Statement of Intention, which you should read carefully.
|
|
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
|
|
What Is The Offering Price Of Class B Shares?
|
|
You may purchase Class B Shares of the Fund at the next determined NAV without an initial sales charge. However, Class B
Shares redeemed within six years of purchase will be subject to a CDSC at the rates shown in the table below based on how long you held your shares.
|
|
The CDSC schedule is as follows:
|
| Year Since Purchase |
CDSC as a
Percentage of Dollar Amount Subject to CDSC |
||
|---|---|---|---|
|
|
|||
| First | 5% | ||
| Second | 4% | ||
| Third | 3% | ||
| Fourth | 3% | ||
| Fifth | 2% | ||
| Sixth | 1% | ||
| Seventh and thereafter | None | ||
|
|
|||
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Fund in connection with the sale of Class B Shares, including the payment of compensation to Authorized Dealers. A commission equal to 4% of the amount invested is paid to Authorized
Dealers.
|
|
What Should I Know About The Automatic Conversion Of Class B Shares?
|
|
Class B Shares of the Fund will automatically convert into Class A Shares of the Fund at the end of the calendar quarter that
is eight years after the purchase date.
|
|
If you acquire Class B Shares of the Fund by exchange from Class B Shares of another Goldman Sachs Fund, your Class B Shares
will convert into Class A Shares of such Fund based on the date of the initial purchase and the CDSC schedule of that purchase.
|
|
If you acquire Class B Shares through reinvestment of distributions, your Class B Shares will convert into Class A Shares
based on the date of the initial purchase of the shares on which the distribution was paid.
|
|
The conversion of Class B Shares to Class A Shares will not occur at any time the Fund is advised that such conversions may
constitute taxable events for federal tax purposes, which the Fund believes is unlikely. If conversions do not occur as a result of possible taxability, Class B Shares would continue to be subject to higher expenses than Class A Shares for an
indeterminate period.
|
|
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
|
|
What Is The Offering Price Of Class C Shares?
|
|
You may purchase Class C Shares of the Fund at the next determined NAV without paying an initial sales charge. However, if
you redeem Class C Shares within 12 months of purchase, a CDSC of 1% will normally be deducted from the redemption proceeds; provided that in connection with purchases by Retirement Plans, where all of the Class C Shares are redeemed within 12
months of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third-party administrator.
|
|
Proceeds from the CDSC are payable to the Distributor and may be used in whole or in part to defray the Distributor’s
expenses related to providing distribution-related services to the Fund in connection with the sale of Class C Shares, including the payment of compensation to Authorized Dealers. An amount equal to 1% of the amount invested is normally paid by the
Distributor to Authorized Dealers.
|
|
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B AND C SHARES
|
|
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
|
|
n
|
The CDSC is based on the lesser of the NAV of the shares at the time of redemption or the original offering price (which is
the original NAV).
|
|
n
|
No CDSC is charged on shares acquired from reinvested dividends or capital gains distributions.
|
SHAREHOLDER GUIDE
|
n
|
No CDSC is charged on the per share appreciation of your account over the initial purchase price.
|
|
n
|
When counting the number of months since a purchase of Class B or Class C Shares was made, all payments made during a month
will be combined and considered to have been made on the first day of that month.
|
|
n
|
To keep your CDSC as low as possible, each time you place a request to sell shares, the Fund will first sell any shares in
your account that do not carry a CDSC and then the shares in your account that have been held the longest.
|
|
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?
|
|
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC may be waived or reduced if the redemption relates
to:
|
|
n
|
Retirement distributions or loans to participants or beneficiaries from Retirement Plans;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
“Code”)) of a participant or beneficiary in a Retirement Plan;
|
|
n
|
Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
|
|
n
|
Satisfying the minimum distribution requirements of the Code;
|
|
n
|
Establishing “substantially equal periodic payments” as described under Section 72(t)(2) of the Code;
|
|
n
|
The separation from service by a participant or beneficiary in a Retirement Plan;
|
|
n
|
The death or disability (as defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is made within one
year of the event;
|
|
n
|
Excess contributions distributed from a Retirement Plan;
|
|
n
|
Distributions from a qualified Retirement Plan invested in the Goldman Sachs Funds which are being rolled over to a Goldman
Sachs IRA; or
|
|
n
|
Redemption proceeds which are to be reinvested in accounts or non-registered products over which GSAM or its advisory
affiliates have investment discretion.
|
|
In addition, Class A, B and C Shares subject to a systematic withdrawal plan may be redeemed without a CDSC. The Fund
reserves the right to limit such redemptions, on an annual basis, to 12% each of the value of your Class B and C Shares and 10% of the value of your Class A Shares.
|
|
How Do I Decide Whether To Buy Class A, B Or C Shares?
|
|
The decision as to which Class to purchase depends on the amount you invest, the intended length of the investment and
your personal situation.
|
|
n
|
Class A Shares.
If you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares.
|
|
n
|
Class B Shares.
If you plan to hold your investment for at least six years and would prefer not
to pay an initial sales charge, you might consider purchasing Class B Shares. By not paying a front-end sales charge, your entire investment in Class B Shares is available to work for you from the time you make your initial investment. However, the
distribution and service fee paid by Class B Shares will cause your Class B Shares (until conversion to Class A Shares) to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid) than
Class A Shares. A maximum purchase limitation of $250,000 in the aggregate normally applies to Class B Shares. Individual purchases exceeding $250,000 will be rejected.
|
|
n
|
Class C Shares.
If you are unsure of the length of your investment or plan to hold your
investment for less than six years and would prefer not to pay an initial sales charge, you may prefer Class C Shares. By not paying a front-end sales charge, your entire investment in Class C Shares is available to work for you from the time you
make your initial investment. However, the distribution and service fee paid by Class C Shares will cause your Class C Shares to have a higher expense ratio, and thus lower performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares (or Class B Shares after conversion to Class A Shares).
|
|
Although Class C Shares are subject to a CDSC for only 12 months, Class C Shares do not have the automatic eight year
conversion feature applicable to Class B Shares and your investment may pay higher distribution fees indefinitely.
|
|
A maximum purchase limitation of $1,000,000 in the aggregate normally applies to purchases of Class C Shares. Individual
purchases exceeding $1,000,000 will be rejected.
|
|
Note: Authorized Dealers may receive different compensation for selling Class A, Class B or Class C
Shares.
|
|
In addition to Class A, Class B and Class C Shares, the Fund also offers other classes of shares to investors. These other
share classes are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
SHAREHOLDER GUIDE
|
How Can I Sell Class A, Class B And Class C Shares Of The Fund?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
The Fund will redeem
its shares upon request on any business day at the NAV next determined after receipt of such request in proper form, subject to any applicable CDSC.
You may request that redemption proceeds be sent to you by check or by wire (if the wire
instructions are on record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Obtain a signature guarantee (see details below) | |||
|
n
Mail your request to:
Goldman Sachs Funds c/o NFDS P.O. Box 219711 Kansas City, MO 64121-9711 |
|||
|
|
|||
| By Telephone: |
If you have not declined the telephone redemption
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
n
You may redeem up to $50,000 of your shares
within any 7 calendar day period |
|||
|
n
Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the $50,000 limit |
|||
|
|
|||
|
When Do I Need A Signature Guarantee To Redeem Shares?
|
|
A signature guarantee is required if:
|
|
n
|
You are requesting in writing to redeem shares in an amount over $50,000;
|
|
n
|
You would like the redemption proceeds sent to an address that is not your address of record; or
|
|
n
|
You would like to change the bank designated on your Account Application.
|
|
A signature guarantee must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot provide a signature guarantee. Additional documentation may be required for executors, trustees or corporations or when deemed appropriate by the
Transfer Agent.
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. The Trust may accept telephone redemption instructions from any person identifying himself or herself as the owner of an account or the owner’s
registered representative where the owner has not declined in writing to use this service. Thus, you risk possible losses if a telephone redemption is not authorized by you.
|
|
In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs and NFDS each
employ reasonable procedures specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Proceeds of telephone redemption requests will be sent only to your address of record or authorized bank account designated
in the Account Application (unless you provide written instructions and a signature guarantee, indicating another address or account) and exchanges of shares normally will be made only to an identically registered account.
|
|
n
|
Telephone redemptions by check to your address of record will not be accepted during the 30-day period following any change
in your address of record.
|
|
n
|
The telephone redemption option does not apply to shares held in a “street name” account. “Street name”
accounts are accounts maintained and serviced by your Authorized Dealer. If your account is held in “street name,” you should contact your registered representative of record, who may make telephone redemptions on your behalf.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the
Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
A transaction fee of $7.50 may be charged for payments of redemption proceeds by wire. Your bank may also charge wiring fees.
You should contact your bank directly to learn whether it charges such fees.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions (with your signature
guaranteed) to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect to receive your redemption proceeds by check. Redemption proceeds paid by check will
normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days.
|
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance is less than $50 as a result of a redemption. The Fund will not redeem your shares
on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Fund will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of the Fund
in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interests of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities. The Fund may, in its discretion, pay redemption proceeds in-kind at any time or if requested by a shareholder. The Fund anticipates that it will normally grant
shareholder requests for an in-kind distribution so long as the distribution is in the best interests of the Fund and its other shareholders.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional shares of the same class of the
Fund that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs Fund?
|
|
You may redeem shares of the Fund and reinvest a portion or all of the redemption proceeds (plus any additional amounts
needed to round off purchases to the nearest full share) at NAV. To be eligible for this privilege, you must hold the shares you want to redeem for at least 30 days and you must reinvest the share proceeds within 90 days after you redeem. You may
reinvest as follows:
|
|
n
|
Class A or B Shares—Class A Shares of the Fund or any other Goldman Sachs Fund
|
|
n
|
Class C Shares—Class C Shares of the Fund or any other Goldman Sachs Fund
|
|
n
|
You should obtain and read the applicable prospectuses before investing in any other Funds.
|
|
n
|
If you pay a CDSC upon redemption of Class A or Class C Shares and then reinvest in Class A or Class C Shares as described
above, your account will be credited with the amount of the CDSC you paid. The reinvested shares will, however, continue to be subject to a CDSC. The holding period of the shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subsequent redemption. For Class B Shares, you may reinvest the redemption proceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemption of the Class B Shares will
not be credited to your account.
|
|
n
|
The reinvestment privilege may be exercised at any time in connection with transactions in which the proceeds are reinvested
at NAV in a tax-sheltered retirement plan. In other cases, the reinvestment privilege may be exercised once per year upon receipt of a written request.
|
|
n
|
You may be subject to capital gains tax as a result of a redemption. You should consult your tax adviser concerning the tax
consequences of a redemption and reinvestment.
|
SHAREHOLDER GUIDE
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange shares of the Fund at NAV without the imposition of an initial sales charge or CDSC at the time of exchange
for shares of the same class or an equivalent class of any other Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund names and Class of Shares | |||
| n The dollar amount you want to exchange | |||
| n Obtain a signature guarantee (see details above) | |||
| n Mail the request to: | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| P.O. Box 219711 | |||
| Kansas City, MO 64121-9711 | |||
| or for overnight delivery - | |||
| Goldman Sachs Funds | |||
| c/o NFDS | |||
| 330 West 9th St. | |||
| Poindexter Bldg., 1st Floor | |||
| Kansas City, MO 64105 | |||
|
|
|||
| By Telephone: |
If you have not declined the telephone exchange
privilege on your Account Application: |
||
|
n
1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time) |
|||
|
|
|||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
Currently, there is no charge for exchanges, although the Fund may impose a charge in the future.
|
|
n
|
The exchanged shares may later be exchanged for shares of the same class (or an equivalent class) of the original Fund at the
next determined NAV without the imposition of an initial sales charge or CDSC if the amount in the Fund resulting from such exchanges is less than the largest amount on which you have previously paid the applicable sales charge.
|
|
n
|
When you exchange shares subject to a CDSC, no CDSC will be charged at that time. The exchanged shares will be subject to the
CDSC of the shares originally held. For purposes of determining the amount of the applicable
CDSC, the length of time you have owned the shares will be measured from the date you acquired the original shares subject to a CDSC and will not be affected by a subsequent exchange.
|
|
n
|
Eligible investors may exchange certain classes of shares for another class of shares of the Fund. For further information,
call Goldman Sachs Funds at 1-800-526-7384 and see the Additional Statement.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs and NFDS may use reasonable procedures described under “What Do I Need to Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account. Shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and accompanied by a signature guarantee.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other
excessive trading practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term
(market-timing) trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or
exchange orders. To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading
or if an investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to the Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered
together.
|
SHAREHOLDER GUIDE
|
SHAREHOLDER SERVICES
|
|
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
|
|
You may be able to make systematic cash investments through your bank via ACH transfer or your checking account via bank
draft each month. Forms for this option are available from Goldman Sachs, your Authorized Dealer or you may check the appropriate box on the Account Application.
|
|
Can My Dividends From The Fund Be Invested In Other Funds?
|
|
You may elect to cross-reinvest dividends paid by the Fund in shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
|
|
n
|
Shares will be purchased at NAV.
|
|
n
|
No initial sales charge or CDSC will be imposed.
|
|
n
|
You may elect cross-reinvestment into an identically registered account or an account registered in a different name or with
a different address, social security number or taxpayer identification number provided that the account has been properly established, appropriate signature guarantees obtained and the minimum initial investment has been satisfied.
|
|
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
|
|
You may elect to exchange automatically a specified dollar amount of shares of the Fund for shares of the same class or an
equivalent class of any other Goldman Sachs Fund.
|
|
n
|
Shares will be purchased at NAV.
|
|
n
|
No initial sales charge is imposed.
|
|
n
|
Shares subject to a CDSC acquired under this program may be subject to a CDSC at the time of redemption from the Fund into
which the exchange is made depending upon the date and value of your original purchase.
|
|
n
|
Automatic exchanges are made monthly on the 15th day of each month or the first business day thereafter.
|
|
n
|
Minimum dollar amount: $50 per month.
|
|
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
|
|
Cross-reinvestments and automatic exchanges are subject to the following conditions:
|
|
n
|
You must hold $5,000 or more in the Fund which is paying the dividend or from which the exchange is being made.
|
|
n
|
You must invest an amount in the Fund into which cross-reinvestments or automatic exchanges are being made that is equal to
that Fund’s minimum initial investment or continue to cross-reinvest or to make automatic exchanges until such minimum initial investment is met.
|
|
n
|
You should obtain and read the prospectus of the Fund into which dividends are invested or automatic exchanges are
made.
|
|
Can I Have Automatic Withdrawals Made On A Regular Basis?
|
|
You may draw on your account systematically via check or ACH transfer in any amount of $50 or more.
|
|
n
|
It is normally undesirable to maintain a systematic withdrawal plan at the same time that you are purchasing additional Class
A, Class B or Class C Shares because of the sales charge imposed on your purchases of Class A Shares or the imposition of a CDSC on your redemptions of Class A, Class B or Class C Shares.
|
|
n
|
You must have a minimum balance of $5,000 in the Fund.
|
|
n
|
Checks are mailed on or about the 25th day of each month.
|
|
n
|
Each systematic withdrawal is a redemption and therefore a taxable transaction.
|
|
n
|
The CDSC applicable to Class A, Class B or Class C Shares redeemed under the systematic withdrawal plan may be
waived.
|
|
What Types Of Reports Will I Be Sent Regarding My Investment?
|
|
You will be provided with a printed confirmation of each transaction in your account and an individual quarterly account
statement. A year-to-date statement for your account will be provided upon request made to Goldman Sachs. If your account is held in “street name” you may receive your statements and confirmations on a different schedule.
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You will also receive an annual shareholder report containing audited financial statements and a semi-annual shareholder
report. If you have consented to the delivery of a single copy of shareholder reports, prospectuses and other information to all shareholders who share the same mailing address with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372. The Fund will begin sending individual copies to you within 30 days after receipt of your revocation.
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The Fund does not generally provide sub-accounting services.
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SHAREHOLDER GUIDE
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What Should I Know When I Purchase Shares Through An Authorized Dealer?
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Authorized Dealers and other financial intermediaries may provide varying arrangements for their clients to purchase and
redeem Fund shares. They may charge additional fees not described in this Prospectus to their customers for such services.
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If shares of the Fund are held in a “street name” account with an Authorized Dealer, all recordkeeping, transaction
processing and payments of distributions relating to your account will be performed by the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the Fund will have no record of your transactions, you should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give instructions concerning the account or to obtain information about your account. The transfer of shares in a “street name” account to an account with another dealer
or to an account directly with the Fund involves special procedures and will require you to obtain historical purchase information about the shares in the account from the Authorized Dealer.
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Authorized Dealers and other financial intermediaries may be authorized to accept, on behalf of the Trust, purchase,
redemption and exchange orders placed by or on behalf of their customers, and if approved by the Trust, to designate other intermediaries to accept such orders. In these cases:
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The Fund will be deemed to have received an order that is in proper form when the order is accepted by an Authorized Dealer
or intermediary on a business day, and the order will be priced at the Fund’s NAV per share (adjusted for any applicable sales charge) next determined after such acceptance.
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Authorized Dealers and intermediaries are responsible for transmitting accepted orders to the Fund within the time period
agreed upon by them.
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You should contact your Authorized Dealer or intermediary to learn whether it is authorized to accept orders for the
Trust.
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The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Fund, to selected Authorized Dealers and other persons in connection with the sale, distribution and/or servicing of shares of the Fund and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
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DISTRIBUTION SERVICES AND FEES
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What Are The Different Distribution And Service Fees Paid By Class A, B And C Shares?
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The Trust has adopted distribution and service plans (each a “Plan”) under which Class A, Class B and Class C
Shares bear distribution and service fees paid to Authorized Dealers and Goldman Sachs. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from these arrangements. Goldman Sachs pays
the distribution and service fees on a quarterly basis.
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Under the Plans, Goldman Sachs is entitled to a monthly fee from the Fund for distribution services equal, on an annual
basis, to 0.25%, 0.75% and 0.75%, respectively, of the Fund’s average daily net assets attributed to Class A, Class B and Class C Shares. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time, these fees will
increase the cost of your investment and may cost you more than paying other types of such charges.
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The distribution fees are subject to the requirements of Rule 12b-1 under the Act, and may be used (among other things)
for:
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Compensation paid to and expenses incurred by Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives;
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Commissions paid to Authorized Dealers;
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Allocable overhead;
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Telephone and travel expenses;
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Interest and other costs associated with the financing of such compensation and expenses;
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Printing of prospectuses for prospective shareholders;
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Preparation and distribution of sales literature or advertising of any type; and
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All other expenses incurred in connection with activities primarily intended to result in the sale of Class A, Class B and
Class C Shares.
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In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.75% distribution fee as an ongoing
commission to Authorized Dealers after the shares have been held for one year.
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PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
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Under the Plans, Goldman Sachs is also entitled to receive a separate fee equal on an annual basis to 0.25% of the
Fund’s average daily net assets attributed to Class B or Class C Shares. This fee is for personal and account maintenance
services, and may be used to make payments to Goldman Sachs, Authorized Dealers and their officers, sales representatives and employees for responding to inquiries of, and furnishing assistance to, shareholders regarding ownership of their shares or
their accounts or similar services not otherwise provided on behalf of the Fund. If the fees received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit from this arrangement.
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In connection with the sale of Class C Shares, Goldman Sachs normally begins paying the 0.25% ongoing service fee to
Authorized Dealers after the shares have been held for one year.
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As with any investment, you should consider how your investment in the Fund will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Fund.
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You should consider the possible tax consequences of Fund distributions and the sale of your Fund shares.
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DISTRIBUTIONS
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Distributions you receive from the Fund are generally subject to federal income tax, and may also be subject to state or
local taxes (although the Fund attempts to minimize capital gains and income distributions in seeking its investment objective). This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax
purposes, the Fund’s income dividend distributions and short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have
owned your Fund shares.
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Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Fund’s dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Fund will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
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The Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Fund may deduct these taxes in computing its taxable income.
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If you buy shares of the Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
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TAXATION
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SALES AND EXCHANGES
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Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
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OTHER INFORMATION
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When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, the Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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Investments in the Fund are subject to the tax risks described previously under “Principal Risks of the Fund—Risks
of Tax-Managed Investing.”
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Additional Information on Portfolio Risks, Securities and Techniques
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A. General Portfolio Risks
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The Fund will be subject to the risks associated with equity securities. “Equity securities” 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 similar enterprises, warrants, and
stock purchase rights. In general, stock values 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 the 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 Fund may
increase or decrease. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
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To the extent that the Fund invests in fixed-income securities, the Fund will also be subject to the risks associated with
its fixed-income securities. These risks include interest rate risk and credit risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when
interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that an issuer or guarantor could default on its obligations, and the Fund will not recover its investment.
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A high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by the Fund
and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of the 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 Fund’s historical
portfolio turnover rates.
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The following sections provide further information on certain types of securities and investment techniques that may be used
by the Fund, including their associated risks. Additional information is provided in the Additional Statement, which
is available upon request. Among other things, the Additional Statement describes certain fundamental investment restrictions that cannot be changed without shareholder approval. You should note, however, that the investment objective and all
investment policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in the Fund’s investment objective, you should consider whether the Fund remains an
appropriate investment in light of your then current financial position and needs.
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B. Other Portfolio Risks
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Risks of Investing in Small Capitalization Companies.
The Fund may invest in small capitalization companies.
Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, the 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 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 bankruptcy. Transaction costs for these investments are often higher than those of larger capitalization companies. Investments in
small capitalization companies may be more difficult to price precisely than other types of securities because of their characteristics and lower trading volumes.
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Risks of Foreign Investments.
The Fund may invest in foreign issuers that are traded in the United States.
Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 the Fund receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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Brokerage commissions, custodial services and other costs relating to investment 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.
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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 about 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. securities markets and secu-
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rities of many foreign issuers are less liquid and more volatile than securities of comparable domestic issuers.
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Concentration of the Fund’s assets in one or a few countries will subject the Fund to greater risks than if the
Fund’s assets were not geographically concentrated.
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Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). 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. GDRs are receipts evidencing an arrangement with a non-U.S. bank. GDRs are not necessarily quoted in the same currency as the underlying security.
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Risks of Derivative Investments.
The Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars and structured securities 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 fluctuations in securities prices or interest rates. The 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 considered a speculative practice and presents even greater risk of loss.
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Risks of Illiquid Securities.
The 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:
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Both domestic and foreign securities that are not readily marketable
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Repurchase agreements and time deposits with a notice or demand period of more than seven days
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Certain over-the-counter options
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Certain structured securities and all swap transactions
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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.
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Investing in 144A Securities may decrease the liquidity of the Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market
price of comparable securities for which a liquid market exists.
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Credit Risks.
Debt securities purchased by the Fund may include securities (including zero coupon bonds) issued
by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), domestic corporations, banks and other issuers. Further information is provided in the Additional Statement.
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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 their 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 comparable credit quality.
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Temporary Investment Risks.
The Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
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U.S. government securities
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Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
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Certificates of deposit
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Bankers’ acceptances
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Repurchase agreements
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Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
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When the Fund’s assets are invested in such instruments, the Fund may not be achieving its investment
objective.
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C. Portfolio Securities and Techniques
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This section provides further information on certain types of securities and investment techniques that may be used by the
Fund, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
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Convertible Securities.
The Fund 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 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 market 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.
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Structured Securities.
The Fund may invest in structured securities. Structured securities are securities whose
value is determined 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 complex securities.
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REITs.
The Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, by property
type or in certain other respects, these risks may be heightened. The Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
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Options on Securities and Securities Indices.
A put option gives the purchaser of the option the 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. The Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may
invest.
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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 considered 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 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 the Fund’s investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase the Fund’s transaction costs. Options written
or purchased by the Fund 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.
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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 at a future time at a specified 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), securities indices and other financial instruments and
indices. The Fund may engage in futures transactions only with respect to U.S. equity indices.
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The 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 the Fund invests in foreign securities, currency exchange rates, or to otherwise manage its term structure, sector selection and
duration in accordance with its investment objective and policies. The Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. The Fund will engage in futures and related options transactions 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. The 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 immediately thereafter the sum of the amount of initial margin deposits and premiums 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.
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Futures contracts and related options present the following risks:
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While the 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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
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Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and the Fund may be exposed to additional risk of loss.
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The loss incurred by the Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
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Futures markets are highly volatile and the use of futures may increase the volatility of the Fund’s NAV.
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APPENDIX A
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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 substantial losses to the Fund.
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Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
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Foreign exchanges may not provide the same protection as U.S. exchanges.
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Equity Swaps.
The Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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.
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An equity swap may be used by the 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, the Fund may suffer a loss, which may be substantial. 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, the Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, the Fund may be unable to terminate its obligations when desired.
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When-Issued Securities and Forward Commitments.
The Fund may purchase when-issued securities and enter into
forward commitments. 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.
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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 settlement date. Although the Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser
deems it appropriate.
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Repurchase Agreements.
Repurchase agreements involve the purchase of securities subject to the seller’s
agreement to repurchase them at a mutually agreed
upon date and price. The 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.
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If the other party or “seller” defaults, the 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,
the Fund could suffer additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.
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In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the
creditworthiness of the seller. The Fund, 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.
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Lending of Portfolio Securities.
The Fund may engage in securities lending. Securities lending involves the
lending of securities owned by the Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loan 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 by the Fund in short-term investments. To the extent that cash collateral is so invested, 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
the Fund (including the loan collateral).
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The Fund may lend its securities to increase its income. The 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.
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Preferred Stock, Warrants and Rights.
The Fund 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 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 or other non-compliance by the issuer of the preferred stock.
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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.
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Other Investment Companies.
The Fund may invest in securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations prescribed by the Act. These limitations include a
prohibition on the Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. The 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard &
Poor’s Depositary Receipts™.
The Fund may, consistent with its investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
|
|
n
|
iShares
SM
(formerly World Equity Benchmark Shares or WEBs).
iShares are shares of
an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the public in
1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts and
premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the liquidity and value of the Fund’s
shares could also be substantially and adversely affected. If such disruptions were to occur, the Fund could be required to reconsider the use of iShares as part of its investment strategy.
|
|
Unseasoned Companies.
The 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.
|
|
Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. The Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial institutions and supranational entities
(
i.e.
, the World Bank, the International Monetary Fund, etc.).
|
|
Bank Obligations.
The Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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.
|
|
U.S. Government Securities.
The Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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. Trea
sury (such as securities of the Student Loan Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit of the issuer.
|
|
Custodial Receipts.
The Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
|
|
Borrowings.
The Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. The Fund may not make additional investments if borrowings exceed 5% of its total assets.
|
Financial Highlights
|
The financial highlights table is intended to help you understand the Fund’s financial performance from its
commencement (April 3, 2000) to December 31, 2000. Certain information 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 the Fund
(assuming reinvestment of all dividends and distributions). This information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the
Fund’s annual report (available upon request).
|
|
CORE TAX-MANAGED EQUITY FUND
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (c) |
Net realized
and unrealized loss |
Total from
investment operations |
||||||||
|
|
|||||||||||
| For The Period Ended December 31, | |||||||||||
| 2000 - Class A Shares (commenced April 3) | $10.00 | $ 0.04 | $(1.11 | ) | $(1.07 | ) | |||||
| 2000 - Class B Shares (commenced April 3) | 10.00 | — | (1.11 | ) | (1.11 | ) | |||||
| 2000 - Class C Shares (commenced April 3) | 10.00 | — | (1.12 | ) | (1.12 | ) | |||||
| 2000 - Institutional Shares (commenced April 3) | 10.00 | 0.13 | (1.17 | ) | (1.04 | ) | |||||
| 2000 - Service Shares (commenced April 3) | 10.00 | 0.06 | (1.13 | ) | (1.07 | ) | |||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than a full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
APPENDIX B
|
Ratios assuming
no expense reductions |
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, end of period |
Total
return (a) |
Net assets
at end of period (in 000s) |
Ratio of
net expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Ratio of
expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Portfolio
turnover rate |
||||||||||||||
|
|
|||||||||||||||||||||
| $8.93 | (10.70 | )% | $64,396 | 1.24 | % | 0.63 | % | 2.03 | % | (0.16 | )% | 77 | % | ||||||||
| 8.89 | (11.10 | ) | 34,538 | 1.99 | (0.03 | ) | 2.78 | (0.82 | ) | 77 | |||||||||||
| 8.88 | (11.20 | ) | 25,640 | 1.99 | (0.05 | ) | 2.78 | (0.84 | ) | 77 | |||||||||||
| 8.96 | (10.40 | ) | 11,787 | 0.84 | 1.87 | 1.63 | 1.08 | 77 | |||||||||||||
| 8.93 | (10.70 | ) | 533 | 1.34 | 0.94 | 2.13 | 0.15 | 77 | |||||||||||||
|
|
|||||||||||||||||||||
Index
CORE Tax-Managed Equity Fund
Prospectus
(Class A, B and C Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
|
|
Statement of Additional Information
|
|
Additional information about the Fund and its policies is also available in the Fund’s Additional Statement. The
Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Fund’s annual and semi-annual reports, and the Additional Statement, are available free upon request by calling
Goldman Sachs at 1-800-526-7384.
|
|
To obtain other information and for shareholder inquiries:
|
|
By telephone – Call 1-800-526-7384
|
|
By mail – Goldman Sachs Funds, 4900 Sears Tower, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Fund’s documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
Goldman Sachs – http://www.gs.com (Prospectus Only)
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Fund’s investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
518086
CORTXPROABC
|
Prospectus
|
|
Institutional Shares
|
|
May 1, 2001
|
|
GOLDMAN SACHS CORE
SM
TAX-MANAGED EQUITY FUND
|
|
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 THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the CORE Tax-Managed Equity Fund (the “Fund”). CORE is an acronym for “Computer-Optimized, Research Enhanced,” which reflects the Fund’s investment process.
Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
|
|
QUANTITATIVE (“CORE”) STYLE FUND
|
|
Goldman Sachs’ CORE Tax-Managed Investment Philosophy:
|
|
Goldman Sachs’ quantitative investment process—CORE—uses advanced quantitative tools for both stock selection
and portfolio construction. In an effort to maximize after-tax returns, tax implications are considered in all portfolio decisions.
|
|
I. CORE Stock Selection
|
|
Phase 1: Quantitative Analysis
|
|
n
|
Comprehensive:
The Goldman Sachs’ proprietary multifactor model (“Multifactor Model”), a
rigorous computerized rating system, performs daily evaluation of more than 3,000 domestic stocks
|
|
n
|
Rigorous:
The Multifactor Model provides thorough statistical analysis of common investment themes
(e.g.,
value, momentum
and
risk)
|
|
n
|
Objective:
Quantitative analysis applied without bias across the board
|
|
Phase 2: Fundamental Research
|
|
n
|
Extensive:
Insights from Goldman Sachs analysts and more than 2,800 analysts at 200 brokerage firms
|
|
n
|
Fundamental Insights:
Analysis of buy/hold/sell opinions are systematically factored into how we rank each of
the 3,000+ domestic stocks
|
|
n
|
Insightful:
Addresses issues such as new product introductions or management changes that a purely quantitative
model cannot readily evaluate
|
|
II. CORE Portfolio Construction
|
|
n
|
Benchmark driven:
Computer optimizer calculates numerous security combinations at numerous weightings to
identify an efficient risk/return portfolio given the CORE Fund’s benchmark
|
|
n
|
Sector and size neutral:
Portfolio ultimately has similar style, risk, sector and market capitalization
characteristics to the benchmark
|
|
n
|
Tax optimized:
All investment decisions consider expected after-tax returns including realizing capital losses
to offset realized gains, creating loss carry-forwards, and identifying securities for in-kind distribution
|
|
Goldman Sachs CORE Tax-Managed Fund is a fully invested portfolio that offers broad access to a well-defined stock universe,
seeks to outperform its benchmark on an after-tax basis through consistent, disciplined stock selection, and is intended to be an effective tool for implementing a tax-managed strategy within an overall investment portfolio.
|
|
CORE Tax-Managed Equity Fund
|
FUND FACTS
|
Objective:
|
Long-term after-tax growth of capital
|
|
Benchmark:
|
Russell 3000 Index
|
|
Investment Focus:
|
A total market, broadly diversified portfolio of U.S. equity securities
|
|
Investment Style:
|
Tax-managed quantitative focus
|
|
INVESTMENT OBJECTIVE
|
|
The Fund seeks to provide long-term after-tax growth of capital through tax-sensitive participation in a broadly diversified
portfolio of U.S. equity securities.
|
|
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 uses both a variety of quantitative techniques and fundamental research when selecting investments which have the
potential to maximize the Fund’s after-tax return, and minimize capital gains and income distributions. The Fund will seek to maintain risk, style, capitalization and industry characteristics similar to the Russell 3000 Index.
|
|
Tax-Managed Investing.
In managing the Fund, the Investment Adviser balances investment
considerations and tax considerations. The Fund seeks to achieve returns primarily in the form of price appreciation (which is not subject to current tax), and may use different strategies in seeking tax-efficiency. These strategies
include:
|
|
n
|
Offsetting long-term and short-term capital gains with long-term and short-term capital losses and creating loss
carry-forward positions
|
|
n
|
Limiting portfolio turnover that may result in taxable gains
|
|
n
|
Selling tax lots of securities that have a higher tax basis before selling tax lots of securities that have a lower
basis
|
|
n
|
Maintaining a bias towards stocks with low dividend yields
|
|
In situations where the Fund would otherwise be required to sell portfolio securities to meet shareholder redemption requests
(and possibly realizing taxable gains), the Fund may borrow money to make the necessary redemption payments. In addition, Goldman Sachs may, but would not in any instance be required to, make contemporaneous purchases of Fund shares for its own
account that would provide the Fund with cash to meet its redemption payment obligations.
|
|
When the Fund borrows money, the Investment Adviser intends to hedge the excess market exposure created by borrowing. There
is no guarantee such hedging will be completely effective.
|
|
The Fund may not achieve its investment objective of providing “after-tax” growth of capital for various reasons.
Implementation of tax-managed investment strategies may not materially reduce the amount of taxable income and capital gains distributed by the Fund to shareholders.
|
|
Other.
The Fund’s investments in fixed-income securities are limited to securities that are considered cash equivalents.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
| 10 | Percent of total assets (italic type ) |
| 10 |
Percent of net assets (roman type)
|
| Ÿ | No specific percentage limitation on usage; |
|
limited only by the objective
|
|
| and strategies of the Fund | |
| — |
Not permitted
|
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Practices | ||||
| Borrowings |
33
1
/3
|
|||
| Custodial receipts | Ÿ | |||
| Equity Swaps* | 15 | |||
| Foreign Currency Transactions | — | |||
| Futures Contracts and Options on Futures Contracts | Ÿ 1 | |||
| Investment Company Securities (including exchange-traded funds) | 10 | |||
| Options on Securities and Securities Indices 2 | Ÿ | |||
| Repurchase Agreements | Ÿ | |||
| Securities Lending |
33
1
/3
|
|||
| Short Sales Against the Box | — | |||
| Unseasoned Companies | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | |||
|
|
||||
|
*
|
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.
|
|
1
|
The Fund may enter into futures transactions only with respect to U.S. equity indices.
|
|
2
|
The Fund may sell covered call and put options and purchase call and put options.
|
| 10 | Percent of total assets (italic type ) |
| 10 | Percent of net assets (roman type) |
| Ÿ |
No specific percentage limitation on usage;
|
| limited only by the objective and | |
| strategies of the Fund | |
|
—
|
Not permitted |
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Securities | ||||
| American and Global Depositary Receipts |
Ÿ
|
|||
| Asset-Backed and Mortgage-Backed Securities |
—
|
|||
| Bank Obligations 3 |
Ÿ
|
|||
| Convertible Securities |
Ÿ
|
|||
| Corporate Debt Obligations 3 |
Ÿ
|
|||
| Equity Securities |
90+
|
|||
| Emerging Country Securities |
—
|
|||
| Fixed Income Securities 4 |
10
|
|||
| Foreign Securities 5 |
Ÿ
|
|||
| Non-Investment Grade Fixed Income Securities |
—
|
|||
| Real Estate Investment Trusts (“REITs”) |
Ÿ
|
|||
| Structured Securities * |
Ÿ
|
|||
| Temporary Investments |
35
|
|||
| U.S. Government Securities 3 |
Ÿ
|
|||
|
|
||||
|
*
|
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.
|
|
3
|
Limited by the amount the Fund invests in fixed-income securities.
|
|
4
|
Cash equivalents only.
|
|
5
|
Equity securities of foreign issuers must be traded in the United States.
|
|
Loss of money is a risk of investing in the Fund. An investment in the 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 Fund and may result in a loss of your investment. The Fund should not be relied upon as a
complete investment program. There can be no assurance that the Fund will achieve its investment objective.
|
|
RISKS OF TAX-MANAGED INVESTING
|
|
Because the Investment Adviser balances investment considerations and tax considerations, the Fund’s pre-tax performance
may be lower than the performance of a similar CORE Fund that is not tax-managed. This is because the Investment Adviser may choose not to make certain investments that may result in taxable distributions. Even though tax-managed strategies are
being used, they may not reduce the amount of taxable income and capital gains distributed by the Fund to shareholders. A high percentage of the Fund’s net asset value (“NAV”) may consist of unrealized capital gains, which represent a
potential future tax liability to shareholders.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
INVESTMENT RISKS
|
CORE
Tax-Managed Equity Fund |
|||
|---|---|---|---|
| Ÿ Applicable | |||
|
|
|||
| Stock | Ÿ | ||
| Credit/Default | Ÿ | ||
| Foreign | Ÿ | ||
| Derivatives | Ÿ | ||
| Interest Rate | Ÿ | ||
| Management | Ÿ | ||
| Market | Ÿ | ||
| Liquidity | Ÿ | ||
| Small Cap | Ÿ | ||
|
|
|||
|
n
|
Stock Risk
—The risk that stock
prices have historically risen and fallen in periodic cycles. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high
levels in the future.
|
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by the Fund may
default on its obligation to pay interest and repay principal.
|
|
n
|
Foreign Risk
—The risk that when the Fund invests in foreign securities, it will be subject to risk 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. The Fund will also be subject to the risk of negative foreign currency rate fluctuations.
|
|
n
|
Derivatives Risk
—The risk that loss may result from the Fund’s investments in options, futures,
swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Fund.
|
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by the Fund will decline in
value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
|
Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
|
|
n
|
Market Risk
—The risk that the value of the securities in which the Fund invests may go up or down in
response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. The Fund’s investments may be overweighted from time to time in one
or more industry sectors, which will increase the Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Liquidity Risk
—The risk that the Fund will not be able to pay redemption proceeds within the time period
stated in this Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Because the Fund may invest in small capitalization stocks and REITs, the Fund will be especially subject to the risk
that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 the Fund to effect sales at an advantageous time or without a substantial
drop in price.
|
PRINCIPAL RISKS OF THE FUND
|
More information about the Fund’s portfolio securities and investment techniques, and their associated risks, is
provided in Appendix A. You should consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
|
HOW THE FUND HAS PERFORMED
|
|
The Fund commenced operations on April 3, 2000. Since the Fund has less than one calendar year’s performance, no
performance information is provided in this section.
|
This table describes the fees and expenses that you would pay if you buy and hold Institutional Shares of the Fund.
|
|
CORE
Tax-Managed Equity Fund |
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Shareholder Fees | |||||||||
| (fees paid directly from your investment): | |||||||||
| Maximum Sales Charge (Load) Imposed on Purchases | None | ||||||||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | ||||||||
| Redemption Fees | None | ||||||||
| Exchange Fees | None | ||||||||
| Annual Fund Operating Expenses | |||||||||
| (expenses that are deducted from Fund assets): 1 | |||||||||
| Management Fees | 0.75% | ||||||||
| Distribution and Service (12b-1) Fees | None | ||||||||
| Other Expenses 2 | 0.88% | ||||||||
|
|
|||||||||
| Total Fund Operating Expenses* | 1.63% | ||||||||
|
|
|||||||||
|
See page 12 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Fund which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total Fund
Operating Expenses” may increase without shareholder approval.
|
|
|
CORE
Tax-Managed Equity Fund |
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Annual Fund Operating Expenses | |||||||||
| (expenses that are deducted from Fund assets): 1 | |||||||||
| Management Fees | 0.75% | ||||||||
| Distribution and Service (12b-1) Fees | None | ||||||||
| Other Expenses 2 | 0.09% | ||||||||
|
|
|||||||||
| Total Fund Operating Expenses (after current expense limitations) | 0.84% | ||||||||
|
|
|||||||||
Fund Fees and Expenses
(continued)
|
1
|
The Fund’s annual operating expenses are based on actual expenses.
|
|
2
|
“Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net assets
of the Fund’s Institutional Shares plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, transfer agency fees and expenses,
taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentage of the Fund’s average daily net assets:
|
| Fund |
Other
Expenses |
||
|---|---|---|---|
|
|
|||
| CORE Tax-Managed Equity |
0.05%
|
||
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in the Fund (without the waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Institutional Shares of the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund |
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| CORE Tax-Managed Equity |
$166
|
|
$514
|
|
$887
|
|
$1,933
|
||
|
|
|||||||||
Institutions that invest in Institutional Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain institutions that invest in Institutional Shares may receive other compensation in connection with the sale and distribution of Institutional Shares or for
services to their customers’ accounts and/or the Fund. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Statement of Additional Information
(“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | Fund | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | CORE Tax-Managed Equity | ||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Fund’s portfolio transactions. The Investment Adviser
makes the investment decisions for the Fund and places purchase and sale orders for the Fund’s portfolio transactions. As permitted by applicable law, these orders may be directed to any brokers, including Goldman Sachs and its affiliates.
While the Investment Adviser is ultimately responsible for the management of the Fund, 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 will 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 Fund:
|
|
n
|
Supervises all non-advisory operations of the Fund
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Fund
|
|
n
|
Arranges for the preparation of all required tax
returns, reports to shareholders, prospectuses and statements of additional information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of the Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
SERVICE PROVIDERS
|
MANAGEMENT FEES
|
|
As compensation for its services and its assumption of certain expenses, the Investment Adviser is entitled to the following
fee, computed daily and payable monthly, at the annual rate listed below (as a percentage of the Fund’s average daily net assets):
|
|
Contractual Rate
|
|
Actual Rate for the
Fiscal Period Ended December 31, 2000 |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| CORE Tax-Managed Equity |
0.75
%
|
|
0.75
%
|
||||
|
|
|||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Fund reflects that the Investment Adviser did
not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
FUND MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Risk
Management/Investment Performance & Valuation Oversight Group, and the Client Research Groups. In total, these groups include approximately 165 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department of
Goldman Sachs since becoming a Partner in 1994. Preceding his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research
and model development group.
|
|
Quantitative Equity Team
|
|
n
|
A stable and growing team supported by an extensive internal staff
|
|
n
|
Access to the research ideas of Goldman Sachs’ renowned Global Investment Research Department
|
|
n
|
More than $34.7 billion in equities currently under management
|
|
n
|
Proprietary research on quantitative models and tax-advantaged strategies
|
Quantitative Equity Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Melissa Brown
Managing Director Product Manager for Quantitative Equities |
Senior Portfolio Manager —
CORE Tax-Managed Equity |
Since
2000 |
Ms. Brown joined the
Investment Adviser as a portfolio manager in 1998. From 1984 to 1998, she was the director of Quantitative Equity Research and served on the Investment Policy Committee at Prudential Securities. |
||||
|
|
|||||||
|
Robert C. Jones
Managing Director Head of Quantitative Equities |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Jones joined the
Investment Adviser as a portfolio manager in 1989. |
||||
|
|
|||||||
|
Victor H. Pinter
Vice President Head of Portfolio Construction |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Pinter joined the
Investment Adviser as a research analyst in 1989. He became a portfolio manager in 1992. |
||||
|
|
|||||||
SERVICE PROVIDERS
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of the Fund’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the Fund’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Fund. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
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 activities of Goldman Sachs may present conflicts of interest with respect to the Fund or limit the Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and advise accounts and
funds which have investment objectives similar to those of the Fund and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Fund. 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 Fund. The results of the Fund’s
investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that the 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 Fund may, from time to time, enter into transactions in which other clients of Goldman Sachs have an adverse interest. The Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
|
The Fund pays dividends from its investment company taxable income and distributions from net realized capital gains (although the Fund attempts to minimize capital
gains and income distributions in seeking its investment objective). You may choose to have dividends and distributions paid in:
|
n
|
Cash
|
|
n
|
Additional shares of the same class of the Fund
|
|
n
|
Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain Goldman
Sachs Institutional Liquid Assets Portfolios (“ILA Portfolios”). See the Additional Statement.
|
You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
|||
|---|---|---|---|---|---|
|
|
|||||
| CORE Tax-Managed Equity | Annually | Annually | |||
|
|
|||||
From time to time a portion of the Fund’s dividends may constitute a return of capital.
When you purchase shares of the Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
|
The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Fund’s Institutional Shares.
|
|
How Can I Purchase Institutional Shares Of The Fund?
|
|
You may purchase Institutional Shares on any business day at their NAV next determined after receipt of an order. No sales
load is charged. You should place an order with Goldman Sachs at 1-800-621-2550 and either:
|
|
n
|
Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (the Fund’s custodian) on the next business day;
or
|
|
n
|
Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
|
|
In order to make an initial investment in the Fund, you must furnish to the Fund or Goldman Sachs the Account Application.
Purchases of Institutional Shares must be settled within three business days of receipt of a complete purchase order.
|
|
In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
|
|
How Do I Purchase Shares Through A Financial Institution?
|
|
Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders placed by or on behalf of their customers, and may designate other intermediaries to accept such
orders, if approved by the Trust. In these cases:
|
|
n
|
The Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or
intermediary on a business
day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
|
|
n
|
Authorized institutions and intermediaries will be responsible for transmitting accepted orders and payments to the Trust
within the time period agreed upon by them.
|
|
You should contact your institution or intermediary to learn whether it is authorized to accept orders for the
Trust.
|
|
These institutions may receive payments from the Fund or Goldman Sachs for the services provided by them with respect to the
Fund’s Institutional Shares. These payments may be in addition to other payments borne by the Fund.
|
|
The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Fund, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Fund and other Goldman Sachs Funds. Additional compensation based on sales may,
but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
|
|
In addition to Institutional Shares, the Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Institutional Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
|
SHAREHOLDER GUIDE
|
What is My Minimum Investment in the Fund?
|
| Type of Investor | Minimum Investment | ||
|---|---|---|---|
|
|
|||
|
n
Banks, trust companies or other
depository institutions investing for their own account or on behalf of clients |
$1,000,000 in Institutional Shares of the Fund
alone or in combination with other assets under the management of GSAM and its affiliates |
||
|
n
Section 401(k), profit sharing,
money purchase pension, tax- sheltered annuity, defined benefit pension, or other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations |
|||
|
n
State, county, city or any
instrumentality, department, authority or agency thereof |
|||
|
n
Corporations with at least $100
million in assets or in outstanding publicly traded securities |
|||
|
n
“Wrap” account sponsors (provided
they have an agreement covering the arrangement with GSAM) |
|||
|
n
Registered investment advisers
investing for accounts for which they receive asset-based fees |
|||
|
|
|||
| n Individual investors | $10,000,000 | ||
|
n
Qualified non-profit organizations,
charitable trusts, foundations and endowments |
|||
|
n
Accounts over which GSAM or its
advisory affiliates have investment discretion |
|||
|
|
|||
|
The minimum investment requirement may be waived for current and former officers, partners, directors or employees of Goldman
Sachs or any of its affiliates or for other investors at the discretion of the Trust’s officers. No minimum amount is required for subsequent investments.
|
|
What Else Should I Know About Share Purchases?
|
|
The Trust reserves the right to:
|
|
n
|
Modify or waive the minimum investment amounts.
|
|
n
|
Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of frequent purchases, sales or exchanges of Institutional Shares of the Fund is
evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of the Fund.
|
|
n
|
Close the Fund to new investors from time to time and reopen the Fund whenever it is deemed appropriate by the Fund’s
Investment Adviser.
|
|
The Fund may allow you to purchase shares with securities instead of cash if consistent with the Fund’s investment
policies and operations and if approved by the Fund’s Investment Adviser.
|
|
How Are Shares Priced?
|
|
The price you pay or receive when you buy, sell or exchange Institutional Shares is the Fund’s next determined NAV. The
Fund calculates NAV as follows:
|
|
|
(Value of Assets of the Class)
|
|
|
NAV =
|
– (Liabilities of the Class)
|
|
|
|
Number of Outstanding Shares of the Class
|
|
|
The Fund’s investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
|
|
n
|
NAV per share of each class is calculated by State Street 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.
|
|
n
|
When you buy shares, you pay the NAV next calculated
after
the Fund receives your order in proper form.
|
|
n
|
When you sell shares, you receive the NAV next calculated
after
the Fund receives your order in proper
form.
|
|
n
|
The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
|
|
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.
|
|
In addition, the impact of events that occur after the publication of market quotations used by the Fund to price its
securities, but before the close of regular trading on the New York Stock Exchange will normally not be reflected in the 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 effect on Fund operations and other relevant factors.
|
SHAREHOLDER GUIDE
|
How Can I Sell Institutional Shares Of The Fund?
|
|
You may arrange to take money out of your account by selling (redeeming) some or all of your shares.
Generally, the Fund
will redeem its Institutional Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
You may request that redemption proceeds be sent to you by check or by wire (if the wire
instructions are on record). Redemptions may be requested in writing or by telephone.
|
| Instructions For Redemptions: | |||
|---|---|---|---|
|
|
|||
| By Writing: | n Write a letter of instruction that includes: | ||
| n Your name(s) and signature(s) | |||
| n Your account number | |||
| n The Fund name and Class of Shares | |||
| n The dollar amount you want to sell | |||
| n How and where to send the proceeds | |||
| n Mail your request to: | |||
| Goldman Sachs Funds | |||
| 4900 Sears Tower | |||
| Chicago, IL 60606-6372 | |||
|
|
|||
| By Telephone: | If you have elected the telephone | ||
| redemption privilege on your Account Application: | |||
| n 1-800-621-2550 | |||
| (8:00 a.m. to 4:00 p.m. New York time) | |||
|
|
|||
|
Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Fund as described under
“How Do I Purchase Shares Through A Financial Institution?”
|
|
What Do I Need To Know About Telephone Redemption Requests?
|
|
The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
|
|
n
|
All telephone requests are recorded.
|
|
n
|
Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The
written request may be confirmed by telephone with both the requesting party and the designated bank account to verify instructions.
|
|
n
|
The telephone redemption option may be modified or terminated at any time.
|
|
Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
|
|
How Are Redemption Proceeds Paid?
|
|
By Wire:
You may arrange for your redemption proceeds to be wired as federal funds to the bank account
designated in your Account Application. The following general policies govern wiring redemption proceeds:
|
|
n
|
Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15
days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
|
|
n
|
To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Transfer Agent.
|
|
n
|
Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any
intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.
|
|
By Check:
You may elect in writing to receive your redemption proceeds by check. Redemption proceeds paid by
check will normally be mailed to the address of record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take
up to 15 days.
|
SHAREHOLDER GUIDE
|
What Else Do I Need To Know About Redemptions?
|
|
The following generally applies to redemption requests:
|
|
n
|
Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
|
|
n
|
Institutions (including banks, trust companies, brokers and investment advisers) are responsible for the timely transmittal
of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, these institutions may set times by which they must receive redemption requests. These institutions may also
require additional documentation from you.
|
|
The Trust reserves the right to:
|
|
n
|
Redeem your shares if your account balance falls below $50 as a result of earlier redemptions. The Fund will not redeem your
shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Fund will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
|
|
n
|
Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
|
|
n
|
Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities. The Fund may, in its discretion, pay redemption proceeds in-kind at any time or if requested by a shareholder. The Fund anticipates that it will normally grant
shareholder requests for an in-kind distribution so long as the distribution is in the best interests of the Fund and its other shareholders.
|
|
n
|
Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Institutional Shares of the Fund
that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
|
|
Can I Exchange My Investment From One Fund To Another?
|
|
You may exchange Institutional Shares of a Fund at NAV for Institutional Shares of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.
|
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
|
|||||
| By Writing: | n Write a letter of instruction that includes: | ||||
| n Your name(s) and signature(s) | |||||
| n Your account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
|
n
Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
|||||
|
|
|||||
| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
||||
|
n
1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
|||||
|
|
|||||
|
You should keep in mind the following factors when making or considering an exchange:
|
|
n
|
You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
|
|
n
|
All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of
that Fund, except that this requirement may be waived at the discretion of the Trust.
|
|
n
|
Telephone exchanges normally will be made only to an identically registered account.
|
|
n
|
Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
|
|
n
|
Exchanges are available only in states where exchanges may be legally made.
|
|
n
|
It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
|
|
n
|
Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
|
|
n
|
Exchanges into Funds that are closed to new investors may be restricted.
|
SHAREHOLDER GUIDE
|
For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered
in the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
|
|
Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to the Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered
together.
|
|
What Types Of Reports Will I Be Sent Regarding Investments In Institutional Shares?
|
|
You will receive an annual report containing audited financial statements and a semi-annual report. To eliminate unnecessary
duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly account statement. The Fund does not generally provide sub-accounting services.
|
|
As with any investment, you should consider how your investment in the Fund will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Fund.
|
|
You should consider the possible tax consequences of Fund distributions and the sale of your Fund shares.
|
|
DISTRIBUTIONS
|
|
Distributions you receive from the Fund are generally subject to federal income tax, and may also be subject to state or
local taxes (although the Fund attempts to minimize capital gains and income distributions in seeking its investment objective). This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax
purposes, the Fund’s income dividend distributions and short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have
owned your Fund shares.
|
|
Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Fund’s dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Fund will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
|
|
The Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Fund may deduct these taxes in computing its taxable income.
|
|
If you buy shares of the Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
|
TAXATION
|
SALES AND EXCHANGES
|
|
Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
|
|
OTHER INFORMATION
|
|
When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, the Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
|
|
Investments in the Fund are subject to the tax risks described previously under “Principal Risks of the Fund—Risks
of Tax-Managed Investing.”
|
Additional Information on Portfolio Risks, Securities and Techniques
|
A. General Portfolio Risks
|
|
The Fund will be subject to the risks associated with equity securities. “Equity securities” 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 similar enterprises, warrants, and
stock purchase rights. In general, stock values 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 the 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 Fund may
increase or decrease. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
To the extent that the Fund invests in fixed-income securities, the Fund will also be subject to the risks associated with
its fixed-income securities. These risks include interest rate risk and credit risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when
interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that an issuer or guarantor could default on its obligations, and the Fund will not recover its investment.
|
|
A high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by the Fund
and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of the 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 Fund’s historical
portfolio turnover rates.
|
|
The following sections provide further information on certain types of securities and investment techniques that may be used
by the Fund, including their associated risks. Additional information is provided in the Additional Statement, which
is available upon request. Among other things, the Additional Statement describes certain fundamental investment restrictions that cannot be changed without shareholder approval. You should note, however, that the investment objective and all
investment policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in the Fund’s investment objective, you should consider whether the 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.
The Fund may invest in small capitalization companies.
Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, the 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 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 bankruptcy. Transaction costs for these investments are often higher than those of larger capitalization companies. Investments in
small capitalization companies may be more difficult to price precisely than other types of securities because of their characteristics and lower trading volumes.
|
|
Risks of Foreign Investments.
The Fund may invest in foreign issuers that are traded in the United States.
Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 the Fund receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
|
|
Brokerage commissions, custodial services and other costs relating to investment 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 about 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. securities markets and secu-
|
|
rities of many foreign issuers are less liquid and more volatile than securities of comparable domestic issuers.
|
|
Concentration of the Fund’s assets in one or a few countries will subject the Fund to greater risks than if the
Fund’s assets were not geographically concentrated.
|
|
Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). 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. GDRs are receipts evidencing an arrangement with a non-U.S. bank. GDRs are not necessarily quoted in the same currency as the underlying security.
|
|
Risks of Derivative Investments.
The Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars and structured securities 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 fluctuations in securities prices or interest rates. The 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 considered a speculative practice and presents even greater risk of loss.
|
|
Risks of Illiquid Securities.
The 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:
|
|
n
|
Both domestic and foreign securities that are not readily marketable
|
|
n
|
Repurchase agreements and time deposits with a notice or demand period of more than seven days
|
|
n
|
Certain over-the-counter options
|
|
n
|
Certain structured securities and all swap transactions
|
|
n
|
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.
|
|
Investing in 144A Securities may decrease the liquidity of the Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market
price of comparable securities for which a liquid market exists.
|
|
Credit Risks.
Debt securities purchased by the Fund may include securities (including zero coupon bonds) issued
by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), domestic corporations, banks and other issuers. Further information 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 their 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 comparable credit quality.
|
|
Temporary Investment Risks.
The Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
|
|
n
|
U.S. government securities
|
|
n
|
Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
|
|
n
|
Certificates of deposit
|
|
n
|
Bankers’ acceptances
|
|
n
|
Repurchase agreements
|
|
n
|
Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
|
|
When the 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
Fund, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
|
|
Convertible Securities.
The Fund 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 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 market 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.
|
|
Structured Securities.
The Fund may invest in structured securities. Structured securities are securities whose
value is determined 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 complex securities.
|
|
REITs.
The Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, by property
type or in certain other respects, these risks may be heightened. The Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
|
|
Options on Securities and Securities Indices.
A put option gives the purchaser of the option the 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. The Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may
invest.
|
|
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 considered 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 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 the Fund’s investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase the Fund’s transaction costs. Options written
or purchased by the Fund 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.
|
|
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 at a future time at a specified 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), securities indices and other financial instruments and
indices. The Fund may engage in futures transactions only with respect to U.S. equity indices.
|
|
The 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 the Fund invests in foreign securities, currency exchange rates, or to otherwise manage its term structure, sector selection and
duration in accordance with its investment objective and policies. The Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. The Fund will engage in futures and related options transactions 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. The 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 immediately thereafter the sum of the amount of initial margin deposits and premiums 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:
|
|
n
|
While the 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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
|
|
n
|
Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and the Fund may be exposed to additional risk of loss.
|
|
n
|
The loss incurred by the Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
|
|
n
|
Futures markets are highly volatile and the use of futures may increase the volatility of the Fund’s NAV.
|
APPENDIX A
|
n
|
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 substantial losses to the Fund.
|
|
n
|
Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
|
|
n
|
Foreign exchanges may not provide the same protection as U.S. exchanges.
|
|
Equity Swaps.
The Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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 the 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, the Fund may suffer a loss, which may be substantial. 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, the Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, the Fund may be unable to terminate its obligations when desired.
|
|
When-Issued Securities and Forward Commitments.
The Fund may purchase when-issued securities and enter into
forward commitments. 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 settlement date. Although the Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the 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 securities subject to the seller’s
agreement to repurchase them at a mutually agreed
upon date and price. The 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.
|
|
If the other party or “seller” defaults, the 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,
the Fund could suffer additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.
|
|
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the
creditworthiness of the seller. The Fund, 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.
The Fund may engage in securities lending. Securities lending involves the
lending of securities owned by the Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loan 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 by the Fund in short-term investments. To the extent that cash collateral is so invested, 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
the Fund (including the loan collateral).
|
|
The Fund may lend its securities to increase its income. The 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.
|
|
Preferred Stock, Warrants and Rights.
The Fund 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 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 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.
The Fund may invest in securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations prescribed by the Act. These limitations include a
prohibition on the Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. The 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard &
Poor’s Depositary Receipts™.
The Fund may, consistent with its investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
|
|
n
|
iShares
SM
(formerly World Equity Benchmark Shares or WEBs).
iShares are shares of
an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the public in
1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts and
premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the liquidity and value of the Fund’s
shares could also be substantially and adversely affected. If such disruptions were to occur, the Fund could be required to reconsider the use of iShares as part of its investment strategy.
|
|
Unseasoned Companies.
The 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.
|
|
Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. The Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial institutions and supranational entities
(
i.e.
, the World Bank, the International Monetary Fund, etc.).
|
|
Bank Obligations.
The Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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.
|
|
U.S. Government Securities.
The Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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. Trea
sury (such as securities of the Student Loan Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit of the issuer.
|
|
Custodial Receipts.
The Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
|
|
Borrowings.
The Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. The Fund may not make additional investments if borrowings exceed 5% of its total assets.
|
Financial Highlights
|
The financial highlights table is intended to help you understand the Fund’s financial performance from its
commencement (April 3, 2000) to December 31, 2000. Certain information 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 the Fund
(assuming reinvestment of all dividends and distributions). This information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the
Fund’s annual report (available upon request).
|
|
CORE TAX-MANAGED EQUITY FUND
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (c) |
Net realized
and unrealized loss |
Total from
investment operations |
||||||||
|
|
|||||||||||
| For The Period Ended December 31, | |||||||||||
| 2000 - Class A Shares (commenced April 3) | $10.00 | $ 0.04 | $(1.11 | ) | $(1.07 | ) | |||||
| 2000 - Class B Shares (commenced April 3) | 10.00 | — | (1.11 | ) | (1.11 | ) | |||||
| 2000 - Class C Shares (commenced April 3) | 10.00 | — | (1.12 | ) | (1.12 | ) | |||||
| 2000 - Institutional Shares (commenced April 3) | 10.00 | 0.13 | (1.17 | ) | (1.04 | ) | |||||
| 2000 - Service Shares (commenced April 3) | 10.00 | 0.06 | (1.13 | ) | (1.07 | ) | |||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than a full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
APPENDIX B
|
Ratios assuming
no expense reductions |
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, end of period |
Total
return (a) |
Net assets
at end of period (in 000s) |
Ratio of
net expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Ratio of
expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Portfolio
turnover rate |
||||||||||||||
|
|
|||||||||||||||||||||
| $8.93 | (10.70 | )% | $64,396 | 1.24 | % | 0.63 | % | 2.03 | % | (0.16 | )% | 77 | % | ||||||||
| 8.89 | (11.10 | ) | 34,538 | 1.99 | (0.03 | ) | 2.78 | (0.82 | ) | 77 | |||||||||||
| 8.88 | (11.20 | ) | 25,640 | 1.99 | (0.05 | ) | 2.78 | (0.84 | ) | 77 | |||||||||||
| 8.96 | (10.40 | ) | 11,787 | 0.84 | 1.87 | 1.63 | 1.08 | 77 | |||||||||||||
| 8.93 | (10.70 | ) | 533 | 1.34 | 0.94 | 2.13 | 0.15 | 77 | |||||||||||||
|
|
|||||||||||||||||||||
Index
CORE Tax-Managed Equity Fund
Prospectus
(Institutional Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
|
|
Statement of Additional Information
|
|
Additional information about the Fund and its policies is also available in the Fund’s Additional Statement. The
Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Fund’s annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Fund’s documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Fund’s investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
CORTXPROINST
|
Prospectus
|
Service
Shares
Shares
May 1, 2001
|
GOLDMAN SACHS CORE
SM
TAX-MANAGED EQUITY FUND
|
|
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 THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE FUND.
|
|
NOT FDIC-INSURED
|
May Lose Value
|
No Bank Guarantee
|
|
Goldman Sachs Asset Management, a business unit of the Investment Management Division of Goldman, Sachs & Co.
(“Goldman Sachs”), serves as investment adviser to the CORE Tax-Managed Equity Fund (the “Fund”). CORE is an acronym for “Computer-Optimized, Research Enhanced,” which reflects the Fund’s investment process.
Goldman Sachs Asset Management is referred to in this Prospectus as the “Investment Adviser.”
|
|
QUANTITATIVE (“CORE”) STYLE FUND
|
|
Goldman Sachs’ CORE Tax-Managed Investment Philosophy:
|
|
Goldman Sachs’ quantitative investment process—CORE—uses advanced quantitative tools for both stock selection
and portfolio construction. In an effort to maximize after-tax returns, tax implications are considered in all portfolio decisions.
|
|
I. CORE Stock Selection
|
|
Phase 1: Quantitative Analysis
|
|
n
|
Comprehensive:
The Goldman Sachs’ proprietary multifactor model (“Multifactor
Model”), a rigorous computerized rating system, performs daily evaluation of more than 3,000 domestic stocks
|
|
n
|
Rigorous:
The Multifactor Model provides thorough statistical analysis of common investment
themes
(e.g., value, momentum
and
risk)
|
|
n
|
Objective:
Quantitative analysis applied without bias across the board
|
|
Phase 2: Fundamental Research
|
|
n
|
Extensive:
Insights from Goldman Sachs analysts and more than 2,800 analysts at 200 brokerage
firms
|
|
n
|
Fundamental Insights:
Analysis of buy/hold/sell opinions are systematically factored into how we
rank each of the 3,000+ domestic stocks
|
|
n
|
Insightful:
Addresses issues such as new product introductions or management changes that a
purely quantitative model cannot readily evaluate
|
|
II. CORE Portfolio Construction
|
|
n
|
Benchmark driven:
Computer optimizer calculates numerous security combinations at numerous
weightings to identify an efficient risk/return portfolio given the CORE Fund’s benchmark
|
|
n
|
Sector and size neutral:
Portfolio ultimately has similar style, risk, sector and market
capitalization characteristics to the benchmark
|
|
n
|
Tax optimized:
All investment decisions consider expected after-tax returns including realizing
capital losses to offset realized gains, creating loss carry-forwards, and identifying securities for in-kind distribution
|
|
Goldman Sachs CORE Tax-Managed Fund is a fully invested portfolio that offers broad access to a well-defined stock universe,
seeks to outperform its benchmark on an after-tax basis through consistent, disciplined stock selection, and is intended to be an effective tool for implementing a tax-managed strategy within an overall investment portfolio.
|
|
CORE Tax-Managed Equity Fund
|
FUND FACTS
|
Objective:
|
Long-term after-tax growth of capital
|
|
Benchmark:
|
Russell 3000 Index
|
|
Investment Focus:
|
A total market, broadly diversified portfolio of U.S. equity securities
|
|
Investment Style:
|
Tax-managed quantitative focus
|
|
INVESTMENT OBJECTIVE
|
|
The Fund seeks to provide long-term after-tax growth of capital through tax-sensitive participation in a broadly diversified
portfolio of U.S. equity securities.
|
|
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 uses both a variety of quantitative techniques and fundamental research when selecting investments which have the
potential to maximize the Fund’s after-tax return, and minimize capital gains and income distributions. The Fund will seek to maintain risk, style, capitalization and industry characteristics similar to the Russell 3000 Index.
|
|
Tax-Managed Investing.
In managing the Fund, the Investment Adviser balances investment
considerations and tax considerations. The Fund seeks to achieve returns primarily in the form of price appreciation (which is not subject to current tax), and may use different strategies in seeking tax-efficiency. These strategies
include:
|
|
n
|
Offsetting long-term and short-term capital gains with long-term and short-term capital losses and creating loss
carry-forward positions
|
|
n
|
Limiting portfolio turnover that may result in taxable gains
|
|
n
|
Selling tax lots of securities that have a higher tax basis before selling tax lots of securities that have a lower
basis
|
|
n
|
Maintaining a bias towards stocks with low dividend yields
|
|
In situations where the Fund would otherwise be required to sell portfolio securities to meet shareholder redemption requests
(and possibly realizing taxable gains), the Fund may borrow money to make the necessary redemption payments. In addition, Goldman Sachs may, but would not in any instance be required to, make contemporaneous purchases of Fund shares for its own
account that would provide the Fund with cash to meet its redemption payment obligations.
|
|
When the Fund borrows money, the Investment Adviser intends to hedge the excess market exposure created by borrowing. There
is no guarantee such hedging will be completely effective.
|
|
The Fund may not achieve its investment objective of providing “after-tax” growth of capital for various reasons.
Implementation of tax-managed investment strategies may not materially reduce the amount of taxable income and capital gains distributed by the Fund to shareholders.
|
|
Other.
The Fund’s investments in fixed-income securities are limited to securities that are considered cash equivalents.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
The table below identifies some of the investment techniques that may (but are not required to) be used by the 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.
10
Percent of total assets
(italic type
)
10
Percent of net assets (roman type)
Ÿ
No specific percentage limitation on usage;
limited only by the objective and
strategies of the Fund
limited only by the objective and
strategies of the Fund
—
Not permitted
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Practices | ||||
| Borrowings |
33
1
/3
|
|||
| Custodial receipts | Ÿ | |||
| Equity Swaps* | 15 | |||
| Foreign Currency Transactions | — | |||
| Futures Contracts and Options on Futures Contracts | Ÿ | 1 | ||
| Investment Company Securities (including exchange-traded funds) | 10 | |||
| Options on Securities and Securities Indices 2 | Ÿ | |||
| Repurchase Agreements | Ÿ | |||
| Securities Lending |
33
1
/3
|
|||
| Short Sales Against the Box | — | |||
| Unseasoned Companies | Ÿ | |||
| Warrants and Stock Purchase Rights | Ÿ | |||
| When-Issued Securities and Forward Commitments | Ÿ | |||
|
|
||||
|
*
|
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.
|
|
1
|
The Fund may enter into futures transactions only with respect to U.S. equity indices.
|
|
2
|
The Fund may sell covered call and put options and purchase call and put options.
|
10
Percent of total assets
(italic type
)
10
Percent of net assets (roman type)
Ÿ
No specific percentage limitation on usage;
limited only by the objective and
strategies of the Fund
limited only by the objective and
strategies of the Fund
—
Not permitted
|
CORE
Tax-Managed Equity Fund |
||||
|---|---|---|---|---|
|
|
||||
| Investment Securities | ||||
| American and Global Depositary Receipts | Ÿ | |||
| Asset-Backed and Mortgage-Backed Securities | — | |||
| Bank Obligations 3 | Ÿ | |||
| Convertible Securities | Ÿ | |||
| Corporate Debt Obligations 3 | Ÿ | |||
| Equity Securities | 90+ | |||
| Emerging Country Securities | — | |||
| Fixed Income Securities 4 |
10
|
|||
| Foreign Securities 5 | Ÿ | |||
| Non-Investment Grade Fixed Income Securities | — | |||
| Real Estate Investment Trusts (“REITs”) | Ÿ | |||
| Structured Securities * | Ÿ | |||
| Temporary Investments |
35
|
|||
| U.S. Government Securities 3 | Ÿ | |||
|
|
||||
|
*
|
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.
|
|
3
|
Limited by the amount the Fund invests in fixed-income securities.
|
|
4
|
Cash equivalents only.
|
|
5
|
Equity securities of foreign issuers must be traded in the United States.
|
|
Loss of money is a risk of investing in the Fund. An investment in the 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 Fund and may result in a loss of your investment. The Fund should not be relied upon as a
complete investment program. There can be no assurance that the Fund will achieve its investment objective.
|
|
RISKS OF TAX-MANAGED INVESTING
|
|
Because the Investment Adviser balances investment considerations and tax considerations, the Fund’s pre-tax performance
may be lower than the performance of a similar CORE Fund that is not tax-managed. This is because the Investment Adviser may choose not to make certain investments that may result in taxable distributions. Even though tax-managed strategies are
being used, they may not reduce the amount of taxable income and capital gains distributed by the Fund to shareholders. A high percentage of the Fund’s net asset value (“NAV”) may consist of unrealized capital gains, which represent a
potential future tax liability to shareholders.
|
|
The Fund is not a suitable investment for IRAs, other tax-exempt or tax-deferred accounts or for other investors who are not
sensitive to the federal income tax consequences of their investments.
|
INVESTMENT RISKS
|
|
CORE
Tax-Managed Equity Fund |
||
|---|---|---|---|
| Ÿ Applicable | |||
|
|
|||
| Stock | Ÿ | ||
| Credit/Default | Ÿ | ||
| Foreign | Ÿ | ||
| Derivatives | Ÿ | ||
| Interest Rate | Ÿ | ||
| Management | Ÿ | ||
| Market | Ÿ | ||
| Liquidity | Ÿ | ||
| Small Cap | Ÿ | ||
|
|
|||
|
n
|
Stock Risk
—The risk that stock
prices have historically risen and fallen in periodic cycles. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high
levels in the future.
|
|
n
|
Credit/Default Risk
—The risk that an issuer or guarantor of fixed-income securities held by the Fund may
default on its obligation to pay interest and repay principal.
|
|
n
|
Foreign Risk
—The risk that when the Fund invests in foreign securities, it will be subject to risk 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. The Fund will also be subject to the risk of negative foreign currency rate fluctuations.
|
|
n
|
Derivatives Risk
—The risk that loss may result from the Fund’s investments in options, futures,
swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Fund.
|
|
n
|
Interest Rate Risk
—The risk that when interest rates increase, securities held by the Fund will decline in
value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
|
|
n
|
Management Risk
—The risk that a strategy used by the Investment Adviser may fail to produce the intended
results.
|
|
n
|
Market Risk
—The risk that the value of the securities in which the Fund invests may go up or down in
response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Price changes may be temporary or last for extended periods. The Fund’s investments may be overweighted from time to time in one
or more industry sectors, which will increase the Fund’s exposure to risk of loss from adverse developments affecting those sectors.
|
|
n
|
Liquidity Risk
—The risk that the Fund will not be able to pay redemption proceeds within the time period
stated in this Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Because the Fund may invest in small capitalization stocks and REITs, the Fund will be especially subject to the risk
that during certain periods the liquidity of particular issuers or industries, or all securities within particular 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.
|
|
n
|
Small Cap Risk
—The securities of small capitalization stocks 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 the Fund to effect sales at an advantageous time or without a substantial
drop in price.
|
PRINCIPAL RISKS OF THE FUND
|
More information about the Fund’s portfolio securities and investment techniques, and their associated risks, is
provided in Appendix A. You should consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.
|
|
HOW THE FUND HAS PERFORMED
|
|
The Fund commenced operations on April 3, 2000. Since the Fund has less than one calendar year’s performance, no
performance information is provided in this section.
|
This table describes the fees and expenses that you would pay if you buy and hold Service Shares of the Fund.
|
CORE
Tax-Managed Equity Fund |
|||
|---|---|---|---|
|
|
|||
| Shareholder Fees | |||
| (fees paid directly from your investment): | |||
|
Maximum Sales Charge (Load) Imposed
on Purchases |
None | ||
| Maximum Sales Charge (Load) Imposed on Reinvested Dividends | None | ||
| Redemption Fees | None | ||
| Exchange Fees | None | ||
| Annual Fund Operating Expenses | |||
| (expenses that are deducted from Fund assets): 1 | |||
| Management Fees | 0.75% | ||
| Other Expenses | 1.38% | ||
| Service Fees 2 | 0.25% | ||
| Shareholder Administration Fees | 0.25% | ||
| All Other Expenses 3 | 0.88% | ||
|
|
|||
| Total Fund Operating Expenses* | 2.13% | ||
|
|
|||
|
See page 12 for all other footnotes.
|
|
*
|
As a result of current expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the
Fund which are actually incurred as of the date of this Prospectus are as set forth below. The expense limitations may be terminated at any time at the option of the Investment Adviser. If this occurs, “Other Expenses” and “Total Fund
Operating Expenses” may increase without shareholder approval.
|
|
CORE
Tax-Managed Equity Fund |
|||
|---|---|---|---|
|
|
|||
| Annual Fund Operating Expenses | |||
| (expenses that are deducted from Fund assets): 1 | |||
| Management Fees | 0.75% | ||
| Other Expenses | 0.59% | ||
| Service Fees 2 | 0.25% | ||
| Shareholder Administration Fee | 0.25% | ||
| All Other Expenses 3 | 0.09% | ||
|
|
|||
| Total Fund Operating Expenses (after current expense limitations) | 1.34% | ||
|
|
|||
Fund Fees and Expenses
(continued)
|
1
|
The Fund’s annual operating expenses are based on actual expenses.
|
|
2
|
Service Organizations may charge other fees to their customers who are beneficial owners of Service Shares in
connection with their customers’ accounts. Such fees may affect the return customers realize with respect to their investments.
|
|
3
|
“All Other Expenses” include transfer agency fees and expenses equal to 0.04% of the average daily net
assets of the Fund’s Service Shares, plus all other ordinary expenses not detailed above. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” (excluding management fees, transfer agency fees and expenses,
service fees, shareholder administration fees, taxes, interest and brokerage fees and litigation, indemnification and other extraordinary expenses) to the following percentage of the Fund’s average daily net assets:
|
| Fund |
Other
Expenses |
|
|---|---|---|
|
|
||
| CORE Tax-Managed Equity | 0.05% | |
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in the Fund (without the waivers and expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Service Shares of the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Fund | 1 Year | 3 Years | 5 Years | 10 Years | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| CORE Tax-Managed Equity | $216 | $667 | $1,144 | $2,462 | |||||
|
|
|||||||||
Service Organizations that invest in Service Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their
investments. You should contact your Service Organization for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other compensation in connection with the sale and distribution of Service Shares or for
services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Statement of Additional Information
(“Additional Statement”).
|
INVESTMENT ADVISER
|
| Investment Adviser | Fund | ||
|---|---|---|---|
|
|
|||
| Goldman Sachs Asset Management (“GSAM”) | CORE Tax-Managed Equity | ||
| 32 Old Slip | |||
| New York, New York 10005 | |||
|
|
|||
|
GSAM is a business unit of the Investment Management Division (“IMD”) of Goldman Sachs. Goldman Sachs registered as
an investment adviser in 1981. As of December 31, 2000, GSAM, along with other units of IMD, had assets under management of $281.7 billion.
|
|
The Investment Adviser provides day-to-day advice regarding the Fund’s portfolio transactions. The Investment Adviser
makes the investment decisions for the Fund and places purchase and sale orders for the Fund’s portfolio transactions. As permitted by applicable law, these orders may be directed to any brokers, including Goldman Sachs and its affiliates.
While the Investment Adviser is ultimately responsible for the management of the Fund, 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 will 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 Fund:
|
|
n
|
Supervises all non-advisory operations of the Fund
|
|
n
|
Provides personnel to perform necessary executive, administrative and clerical services to the Fund
|
|
n
|
Arranges for the preparation of all required tax
returns, reports to shareholders, prospectuses and statements of additional information and other reports filed with the Securities and Exchange Commission (the “SEC”) and other regulatory authorities
|
|
n
|
Maintains the records of the Fund
|
|
n
|
Provides office space and all necessary office equipment and services
|
SERVICE PROVIDERS
|
MANAGEMENT FEES
|
|
As compensation for its services and its assumption of certain expenses, the Investment Adviser is entitled to the following
fee, computed daily and payable monthly, at the annual rate listed below (as a percentage of the Fund’s average daily net assets):
|
| Contractual Rate |
Actual Rate for the
Fiscal Period Ended December 31, 2000 |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| CORE Tax-Managed Equity | 0.75 | % | 0.75 | % | |||
|
|
|||||||
|
The difference, if any, between the stated fees and the actual fees paid by the Fund reflects that the Investment Adviser did
not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.
|
|
FUND MANAGERS
|
|
Robert B. Litterman, Ph.D., a Managing Director of Goldman Sachs, is the co-developer, along with the late Fischer Black, of
the Black-Litterman Global Asset Allocation Model, a key tool in IMD’s asset allocation process. As Director of Quantitative Resources, Dr. Litterman oversees Quantitative Equities, the Quantitative Strategies Group, the Risk
Management/Investment Performance & Valuation Oversight Group, and the Client Research Groups. In total, these groups include approximately 165 professionals. Prior to moving to IMD, Dr. Litterman was the head of the Firmwide Risk department of
Goldman Sachs since becoming a Partner in 1994. Preceding his time in the Operations, Technology & Finance Division, Dr. Litterman spent eight years in the Fixed Income Division’s research department where he was co-director of the research
and model development group.
|
|
Quantitative Equity Team
|
|
n
|
A stable and growing team supported by an extensive internal staff
|
|
n
|
Access to the research ideas of Goldman Sachs’ renowned Global Investment Research Department
|
|
n
|
More than $34.7 billion in equities currently under management
|
|
n
|
Proprietary research on quantitative models and tax-advantaged strategies
|
Quantitative Equity Team
| Name and Title | Fund Responsibility |
Years
Primarily Responsible |
Five Year Employment History | ||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Melissa Brown
Managing Director Product Manager for Quantitative Equities |
Senior Portfolio Manager —
CORE Tax-Managed Equity |
Since
2000 |
Ms. Brown joined the
Investment Adviser as a portfolio manager in 1998. From 1984 to 1998, she was the director of Quantitative Equity Research and served on the Investment Policy Committee at Prudential Securities. |
||||
|
|
|||||||
|
Robert C. Jones
Managing Director Head of Quantitative Equities |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Jones joined the
Investment Adviser as a portfolio manager in 1989. |
||||
|
|
|||||||
|
Victor H. Pinter
Vice President Head of Portfolio Construction |
Senior Portfolio Manager—
CORE Tax-Managed Equity |
Since
2000 |
Mr. Pinter joined the
Investment Adviser as a research analyst in 1989. He became a portfolio manager in 1992. |
||||
|
|
|||||||
SERVICE PROVIDERS
|
DISTRIBUTOR AND TRANSFER AGENT
|
|
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”)
of the Fund’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the Fund’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.
|
|
From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Fund. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its own account.
|
|
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY GOLDMAN SACHS
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The involvement of the Investment Adviser, 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 Fund or limit the Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and advise accounts and
funds which have investment objectives similar to those of the Fund and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Fund. 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 Fund. The results of the Fund’s
investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that the 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 Fund may, from time to time, enter into transactions in which other clients of Goldman Sachs have an adverse interest. The Fund’s activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions.
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The Fund pays dividends from its investment company taxable income and distributions from net realized capital gains (although the Fund attempts to minimize capital
gains and income distributions in seeking its investment objective). You may choose to have dividends and distributions paid in:
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Cash
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Additional shares of the same class of the Fund
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Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain Goldman
Sachs Institutional Liquid Assets Portfolios (“ILA Portfolios”). See the Additional Statement.
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You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular
dividend or distribution. If you do not indicate any choice, dividends and distributions will be reinvested automatically in the Fund.
The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated
as received by you and then used to purchase the shares.
Dividends from investment company taxable income and distributions from net realized capital gains are declared and paid as follows:
| Fund |
Investment
Income Dividends |
Capital Gains
Distributions |
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|---|---|---|---|---|---|
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| CORE Tax-Managed Equity | Annually | Annually | |||
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From time to time a portion of the Fund’s dividends may constitute a return of capital.
When you purchase shares of the Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been
earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the purchase price.
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The following section will provide you with answers to some of the most often asked questions regarding buying and selling
the Fund’s Service Shares.
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How Can I Purchase Service Shares Of The Fund?
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Generally, Service Shares may be purchased only through institutions that have agreed to provide shareholder administration
and personal and account maintenance services to their customers who are the beneficial owners of Service Shares. These institutions are called “Service Organizations.” Customers of a Service Organization will normally give their purchase
instructions to the Service Organization, and the Service Organization will, in turn, place purchase orders with Goldman Sachs. Service Organizations will set times by which purchase orders and payments must be received by them from their customers.
Generally, Service Shares may be purchased from the Fund on any business day at their NAV next determined after receipt of an order by Goldman Sachs from a Service Organization. No sales load is charged. Purchases of Service Shares must be settled
within three business days of receipt of a complete purchase order.
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Service Organizations are responsible for transmitting purchase orders and payments to Goldman Sachs in a timely fashion.
Service Organizations should place an order with Goldman Sachs at 1-800-621-2550 and either:
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Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust
Company (“State Street”) (the Fund’s custodian) on the next business day;
or
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Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears
Tower, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.
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In certain instances, Goldman Sachs Trust (the “Trust”) may require a signature guarantee in order to effect
purchase, redemption or exchange transactions. Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust.
A notary public cannot provide a signature guarantee.
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What Do I Need To Know About Service Organizations?
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Service Organizations may provide the following services in connection with their customers’ investments in Service
Shares:
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Personal and account maintenance services; and
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Shareholder administration services.
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Personal and account maintenance services include:
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Providing facilities to answer inquires and respond to correspondence with the Service Organization’s
customers
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Acting as liaison between the Service Organization’s customers and the Trust
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Assisting customers in completing application forms, selecting dividend and other options, and similar services
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Shareholder administration services include:
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Acting, directly or through an agent, as the sole shareholder of record
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Maintaining account records for customers
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Processing orders to purchase, redeem and exchange shares for customers
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Processing payments for customers
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Some (but not all) Service Organizations are authorized to accept, on behalf of the Trust, purchase, redemption and exchange
orders placed by or on behalf of their customers, and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:
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The Fund will be deemed to have received an order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.
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Service Organizations or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within
the time period agreed upon by them.
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You should contact your Service Organization directly to learn whether it is authorized to accept orders for the
Trust.
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Pursuant to a service plan and a separate shareholder administration plan adopted by the Trust’s Board of Trustees,
Service Organizations are entitled to receive payments for their services from the Trust. These payments are equal to 0.25% (annualized) for personal and account maintenance services plus an additional 0.25% (annualized) for shareholder
administration services of the average daily net assets of the Service Shares of the Fund that are attributable to or held in the name of the Service Organization for its customers.
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SHAREHOLDER GUIDE
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The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their
assets and not as an additional charge to the Fund, to selected Service Organizations and other persons in connection with the sale, distribution and/or servicing of shares of the Fund and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of the amount invested.
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In addition to Service Shares, the Fund also offers other classes of shares to investors. These other share classes are
subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Service Shares. Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.
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What Is My Minimum Investment In The Fund?
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The Fund does not have any minimum purchase or account requirements with respect to Service Shares. A Service Organization
may, however, impose a minimum amount for initial and subsequent investments in Service Shares, and may establish other requirements such as a minimum account balance. A Service Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
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What Else Should I Know About Share Purchases?
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The Trust reserves the right to:
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Reject or restrict any purchase or exchange orders by a particular purchaser (or group of related purchasers). This may
occur, for example, when a pattern of frequent purchases, sales or exchanges of Service Shares of the Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management
of the Fund.
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Close the Fund to new investors from time to time and
reopen the Fund whenever it is deemed appropriate by the Fund’s Investment Adviser.
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The Fund may allow Service Organizations to purchase shares with securities instead of cash if consistent with the
Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.
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How Are Shares Priced?
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The price you pay or receive when you buy, sell or exchange Service Shares is the Fund’s next determined NAV. The Fund
calculates NAV as follows:
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(Value of Assets of the Class)
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NAV =
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– (Liabilities of the Class)
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Number of Outstanding Shares of the Class
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The Fund’s investments are valued based on market quotations or, if accurate quotations are not readily available, the
fair value of the Fund’s investments may be determined in good faith under procedures established by the Trustees.
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n
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NAV per share of each class is calculated by State Street 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.
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When you buy shares, you pay the NAV next calculated
after
the Fund receives your order in proper form.
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When you sell shares, you receive the NAV next calculated
after
the Fund receives your order in proper
form.
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The Trust reserves the right to advance the time by which purchase and redemption orders must be received for same business
day credit as otherwise permitted by the SEC.
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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.
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In addition, the impact of events that occur after the publication of market quotations used by the Fund to price its
securities, but before the close of regular trading on the New York Stock Exchange will normally not be reflected in the 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 effect on Fund operations and other relevant factors.
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How Can I Sell Service Shares Of The Fund?
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Generally, Service Shares may be sold (redeemed) only through Service Organizations. Customers of a Service Organization will
normally give their redemption instructions to the Service Organization, and the Service Organization will, in turn,
place redemption orders with the Fund.
Generally, the Fund will redeem its Service Shares upon request on any business day at their NAV next determined after receipt of such request in proper form.
Redemption proceeds may be sent to
recordholders by check or by wire (if the wire instructions are on record).
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A Service Organization may request redemptions in writing or by telephone if the optional telephone redemption privilege is
elected on the Account Application.
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What Do I Need To Know About Telephone Redemption Requests?
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The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust
accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures
specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in
effect:
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All telephone requests are recorded.
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Any redemption request that requires money to go to an account or address other than that designated on the Account
Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify
instructions.
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The telephone redemption option may be modified or terminated at any time.
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Note: It may be difficult to make telephone redemptions in times of drastic economic or market
conditions.
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How Are Redemption Proceeds Paid?
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By Wire:
The Fund will arrange for redemption proceeds to be wired as federal funds to the bank
account designated in the recordholder’s Account Application. The following general policies govern wiring redemption proceeds:
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Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay),
but may be paid up to three
business days following receipt of a properly executed wire transfer redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption proceeds when the check has cleared, which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.
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To change the bank designated on your Account Application, you must send written instructions signed by an authorized person
designated on the Account Application to the Service Organization.
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Neither the Trust nor Goldman Sachs assumes any responsibility for the performance of intermediaries or your Service
Organization in the transfer process. If a problem with such performance arises, you should deal directly with such intermediaries or Service Organization.
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By Check:
A recordholder may elect in writing to receive redemption proceeds by check. Redemption
proceeds paid by check will normally be mailed to the address of record within three business days of receipt of a properly executed redemption request. If the shares to be sold were recently paid for by check, the Fund will pay the redemption
proceeds when the check has cleared, which may take up to 15 days.
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What Else Do I Need To Know About Redemptions?
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The following generally applies to redemption requests:
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Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in
proper form until such additional documentation has been received.
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Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests, Service Organizations may set times by which they must receive redemption requests. Service Organizations may also require additional documentation from you.
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The Trust reserves the right to:
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Redeem the Service Shares of any Service Organization whose account balance falls below $50 as a result of a redemption. The
Fund will not redeem Service Shares on this basis if the value of the account falls below the minimum account balance solely as a result of market conditions. The Fund will give 60 days’ prior written notice to allow a Service Organization to
purchase sufficient additional shares of the Fund in order to avoid such redemption.
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Redeem the shares in other circumstances determined by the Board of Trustees to be in the best interest of the
Trust.
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SHAREHOLDER GUIDE
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Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you
should expect to incur transaction costs upon the disposition of those securities.
The Fund may, in its discretion, pay redemption proceeds in-kind at any time if requested by a shareholder. The Fund anticipates that it will normally grant
shareholder requests for an in-kind distribution so long as the distribution is in the best interests of the Fund and its other shareholders.
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Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends
or other distributions be returned to the Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at NAV in additional Service Shares of the Fund that
pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
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Can I Exchange My Investment From One Fund To Another?
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A Service Organization may exchange Service Shares of the Fund at NAV for Service Shares of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice.
|
| Instructions For Exchanging Shares: | |||||
|---|---|---|---|---|---|
|
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| By Writing: | n Write a letter of instruction that includes: | ||||
| n The recordholder name(s) and signature(s) | |||||
| n The account number | |||||
| n The Fund names and Class of Shares | |||||
| n The dollar amount to be exchanged | |||||
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Mail the request to:
Goldman Sachs Funds 4900 Sears Tower Chicago, IL 60606-6372 |
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| By Telephone: |
If you have elected the telephone exchange
privilege on your Account Application: |
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1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time) |
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You should keep in mind the following factors when making or considering an exchange:
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You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
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All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirement of that
Fund, except that this requirement may be waived at the discretion of the Trust.
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Telephone exchanges normally will be made only to an identically registered account.
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Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.
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Exchanges are available only in states where exchanges may be legally made.
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It may be difficult to make telephone exchanges in times of drastic economic or market conditions.
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Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption
Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.
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Exchanges into Funds that are closed to new investors may be restricted.
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For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in
the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.
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Restrictions on Excessive Trading Practices.
The Trust does not permit market-timing or other excessive trading
practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders.
To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an
investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to the Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered
together.
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What Types Of Reports Will Be Sent Regarding Investments In Service Shares?
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Service Organizations will receive from the Fund annual reports containing audited financial statements and semi-annual
reports. Service Organizations will also be provided with a printed confirmation for each transaction in their account and a monthly account statement. Service Organizations are responsible for providing these or other reports to their customers who
are the beneficial owners of Service Shares in accordance with the rules that apply to their accounts with the Service Organizations.
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As with any investment, you should consider how your investment in the Fund will be taxed. The tax information below is
provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Fund.
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You should consider the possible tax consequences of Fund distributions and the sale of your Fund shares.
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DISTRIBUTIONS
|
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Distributions you receive from the Fund are generally subject to federal income tax, and may also be subject to state or
local taxes (although the Fund attempts to minimize capital gains and income distributions in seeking its investment objective). This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax
purposes, the Fund’s income dividend distributions and short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have
owned your Fund shares.
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Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October,
November or December but paid in January are taxable as if they were paid in December. A percentage of the Fund’s dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. The Fund will inform
shareholders of the character and tax status of all distributions promptly after the close of each calendar year.
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The Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In
general, the Fund may deduct these taxes in computing its taxable income.
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If you buy shares of the Fund before it makes a distribution, the distribution will be taxable to you even though it may
actually be a return of a portion of your investment. This is known as “buying a dividend.”
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SALES AND EXCHANGES
|
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Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local
taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between
your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term capital gain dividends that were received on the shares.
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OTHER INFORMATION
|
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When you open your account, you should provide your social security or tax identification number on your Account Application.
By law, the Fund must withhold 31% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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Investments in the Fund are subject to the tax risks described previously under “Principal Risks of the Fund—Risks
of Tax-Managed Investing.”
|
Additional Information on Portfolio Risks, Securities and Techniques
|
A. General Portfolio Risks
|
|
The Fund will be subject to the risks associated with equity securities. “Equity securities” 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 similar enterprises, warrants, and
stock purchase rights. In general, stock values 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 the 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 Fund may
increase or decrease. Recently, certain stock markets have experienced substantial price volatility. There is no guarantee that the markets will trade at or close to record high levels in the future.
|
|
To the extent that the Fund invests in fixed-income securities, the Fund will also be subject to the risks associated with
its fixed-income securities. These risks include interest rate risk and credit risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when
interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that an issuer or guarantor could default on its obligations, and the Fund will not recover its investment.
|
|
A high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by the Fund
and its shareholders, and is also likely to result in higher short-term capital gains taxable to shareholders. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of the 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 Fund’s historical
portfolio turnover rates.
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|
The following sections provide further information on certain types of securities and investment techniques that may be used
by the Fund, including their associated risks. Additional information is provided in the Additional Statement, which
is available upon request. Among other things, the Additional Statement describes certain fundamental investment restrictions that cannot be changed without shareholder approval. You should note, however, that the investment objective and all
investment policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in the Fund’s investment objective, you should consider whether the Fund remains an
appropriate investment in light of your then current financial position and needs.
|
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B. Other Portfolio Risks
|
|
Risks of Investing in Small Capitalization Companies.
The Fund may invest in small capitalization companies.
Investments in small capitalization companies involve greater risk and portfolio 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 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 periods the liquidity of particular issuers or industries, or all securities in these particular 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 sufficient market liquidity, the 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 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 bankruptcy. Transaction costs for these investments are often higher than those of larger capitalization companies. Investments in
small capitalization companies may be more difficult to price precisely than other types of securities because of their characteristics and lower trading volumes.
|
|
Risks of Foreign Investments.
The Fund may invest in foreign issuers that are traded in the United States.
Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency 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 the Fund receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.
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|
Brokerage commissions, custodial services and other costs relating to investment 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 about 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. securities markets and secu-
|
|
rities of many foreign issuers are less liquid and more volatile than securities of comparable domestic issuers.
|
|
Concentration of the Fund’s assets in one or a few countries will subject the Fund to greater risks than if the
Fund’s assets were not geographically concentrated.
|
|
Investments in foreign securities may take the form of sponsored and unsponsored American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). 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. GDRs are receipts evidencing an arrangement with a non-U.S. bank. GDRs are not necessarily quoted in the same currency as the underlying security.
|
|
Risks of Derivative Investments.
The Fund’s transactions, if any, in options, futures, options on futures,
swaps, interest rate caps, floors and collars and structured securities 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 fluctuations in securities prices or interest rates. The 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 considered a speculative practice and presents even greater risk of loss.
|
|
Risks of Illiquid Securities.
The 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:
|
|
n
|
Both domestic and foreign securities that are not readily marketable
|
|
n
|
Repurchase agreements and time deposits with a notice or demand period of more than seven days
|
|
n
|
Certain over-the-counter options
|
|
n
|
Certain structured securities and all swap transactions
|
|
n
|
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.
|
|
Investing in 144A Securities may decrease the liquidity of the Fund’s portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market
price of comparable securities for which a liquid market exists.
|
|
Credit Risks.
Debt securities purchased by the Fund may include securities (including zero coupon bonds) issued
by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), domestic corporations, banks and other issuers. Further information 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 their 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 comparable credit quality.
|
|
Temporary Investment Risks.
The Fund may, for temporary defensive purposes, invest a certain percentage of its
total assets in:
|
|
n
|
U.S. government securities
|
|
n
|
Commercial paper rated at least A-2 by Standard & Poor’s or P-2 by Moody’s
|
|
n
|
Certificates of deposit
|
APPENDIX A
|
n
|
Bankers’ acceptances
|
|
n
|
Repurchase agreements
|
|
n
|
Non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one
year
|
|
When the 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
Fund, including their associated risks. Further information is provided in the Additional Statement, which is available upon request.
|
|
Convertible Securities.
The Fund 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 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 market 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.
|
|
Structured Securities.
The Fund may invest in structured securities. Structured securities are securities whose
value is determined 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 complex securities.
|
|
REITs.
The Fund may invest in REITs. REITs are pooled investment vehicles 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 properties 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 geographically, by property
type or in certain other respects, these risks may be heightened. The Fund will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests.
|
|
Options on Securities and Securities Indices.
A put option gives the purchaser of the option the 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. The Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index consisting of securities in which it may
invest.
|
|
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 considered 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 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 the Fund’s investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase the Fund’s transaction costs. Options written
or purchased by the Fund 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.
|
APPENDIX A
|
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 at a future time at a specified 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), securities indices and other financial instruments and
indices. The Fund may engage in futures transactions only with respect to U.S. equity indices.
|
|
The 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 the Fund invests in foreign securities, currency exchange rates, or to otherwise manage its term structure, sector selection and
duration in accordance with its investment objective and policies. The Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. The Fund will engage in futures and related options transactions 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. The 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 immediately thereafter the sum of the amount of initial margin deposits and premiums 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:
|
|
n
|
While the 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 poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.
|
|
n
|
Because perfect correlation between a futures position and a portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and the Fund may be exposed to additional risk of loss.
|
|
n
|
The loss incurred by the Fund in entering into futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received.
|
|
n
|
Futures markets are highly volatile and the use of futures may increase the volatility of the Fund’s NAV.
|
|
n
|
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 substantial losses to the Fund.
|
|
n
|
Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.
|
|
n
|
Foreign exchanges may not provide the same protection as U.S. exchanges.
|
|
Equity Swaps.
The Fund may invest in equity swaps. Equity swaps allow the parties to a swap agreement to
exchange the dividend income or other components 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 the 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, the Fund may suffer a loss, which may be substantial. 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, the Fund may suffer a loss if the counterparty defaults. Because equity swaps are normally illiquid, the Fund may be unable to terminate its obligations when desired.
|
|
When-Issued Securities and Forward Commitments.
The Fund may purchase when-issued securities and enter into
forward commitments. 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 settlement date. Although the Fund will generally
purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the 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 securities subject to the seller’s
agreement to repurchase them at a mutually agreed
upon date and price. The 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.
|
|
If the other party or “seller” defaults, the 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,
the Fund could suffer additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.
|
|
In evaluating whether to enter into a repurchase agreement, the Investment Adviser will carefully consider the
creditworthiness of the seller. The Fund, 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.
The Fund may engage in securities lending. Securities lending involves the
lending of securities owned by the Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loan 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 by the Fund in short-term investments. To the extent that cash collateral is so invested, 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
the Fund (including the loan collateral).
|
|
The Fund may lend its securities to increase its income. The 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.
|
|
Preferred Stock, Warrants and Rights.
The Fund 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 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 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.
The Fund may invest in securities of other investment companies (including
exchange-traded funds such as SPDRs and iShares
SM
, as defined below) subject to statutory limitations prescribed by the Act. These limitations include a
prohibition on the Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund’s total assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. The 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
iShares
SM
are shares of unaffiliated investment companies which are traded like traditional equity securities on a
national securities exchange or the NASDAQ® National Market System.
|
|
n
|
Standard &
Poor’s Depositary Receipts™.
The Fund may, consistent with its investment policies, purchase Standard & Poor’s Depositary 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 handling 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®.
|
|
n
|
iShares
SM
(formerly World Equity Benchmark Shares or WEBs).
iShares are shares of
an investment company that invests substantially all of its assets in securities included in specified indices, including the MSCI indices for various countries and regions. iShares are listed on the AMEX and were initially offered to the public in
1996. The market prices of iShares are expected to fluctuate in accordance with both changes in the NAVs of their underlying indices and supply and demand of iShares on the AMEX. To date, iShares have traded at relatively modest discounts and
premiums to their NAVs. However, iShares have a limited operating history and information is lacking regarding the actual performance and trading liquidity of iShares 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 iShares will continue to be met or will remain unchanged. In the event substantial market or other disruptions affecting iShares should occur in the future, the liquidity and value of the Fund’s
shares could also be substantially and adversely affected. If such disruptions were to occur, the Fund could be required to reconsider the use of iShares as part of its investment strategy.
|
|
Unseasoned Companies.
The 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.
|
|
Corporate Debt Obligations.
Corporate debt obligations include bonds, notes, debentures, commercial paper and
other obligations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. The Fund 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 obligations). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial institutions and supranational entities
(
i.e.
, the World Bank, the International Monetary Fund, etc.).
|
|
Bank Obligations.
The Fund may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitations, 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 regulations. 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.
|
|
U.S. Government Securities.
The Fund may invest in U.S. government securities. U.S. government securities
include U.S. Treasury obligations and obligations 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. Trea
sury (such as securities of the Student Loan Marketing Association); (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit of the issuer.
|
|
Custodial Receipts.
The Fund 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 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. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.
|
|
Borrowings.
The Fund can borrow money from banks and other financial institutions in amounts not exceeding
one-third of its total assets for temporary or emergency purposes. The Fund may not make additional investments if borrowings exceed 5% of its total assets.
|
[This page intentionally left blank]
Financial Highlights
|
The financial highlights table is intended to help you understand the Fund’s financial performance from its
commencement (April 3, 2000) to December 31, 2000. Certain information 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 the Fund
(assuming reinvestment of all dividends and distributions). This information for the period ended December 31, 2000 has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the
Fund’s annual report (available upon request).
|
|
CORE TAX-MANAGED EQUITY FUND
|
|
Income (loss) from
investment operations |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset value, beginning of period |
Net
investment income (c) |
Net realized
and unrealized loss |
Total from
investment operations |
||||||||
|
|
|||||||||||
| For The Period Ended December 31, | |||||||||||
| 2000 - Class A Shares (commenced April 3) | $10.00 | $ 0.04 | $(1.11 | ) | $(1.07 | ) | |||||
| 2000 - Class B Shares (commenced April 3) | 10.00 | — | (1.11 | ) | (1.11 | ) | |||||
| 2000 - Class C Shares (commenced April 3) | 10.00 | — | (1.12 | ) | (1.12 | ) | |||||
| 2000 - Institutional Shares (commenced April 3) | 10.00 | 0.13 | (1.17 | ) | (1.04 | ) | |||||
| 2000 - Service Shares (commenced April 3) | 10.00 | 0.06 | (1.13 | ) | (1.07 | ) | |||||
|
|
|||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and
distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for
periods less than a full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
APPENDIX B
|
Ratios assuming
no expense reductions |
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, end of period |
Total
return (a) |
Net assets
at end of period (in 000s) |
Ratio of
net expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Ratio of
expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Portfolio
turnover rate |
||||||||||||||
|
|
|||||||||||||||||||||
| $8.93 | (10.70 | )% | $64,396 | 1.24 | % | 0.63 | % | 2.03 | % | (0.16 | )% | 77 | % | ||||||||
| 8.89 | (11.10 | ) | 34,538 | 1.99 | (0.03 | ) | 2.78 | (0.82 | ) | 77 | |||||||||||
| 8.88 | (11.20 | ) | 25,640 | 1.99 | (0.05 | ) | 2.78 | (0.84 | ) | 77 | |||||||||||
| 8.96 | (10.40 | ) | 11,787 | 0.84 | 1.87 | 1.63 | 1.08 | 77 | |||||||||||||
| 8.93 | (10.70 | ) | 533 | 1.34 | 0.94 | 2.13 | 0.15 | 77 | |||||||||||||
|
|
|||||||||||||||||||||
Index
CORE Tax-Managed Equity Fund
Prospectus
(Service Shares)
|
FOR MORE INFORMATION
|
|
Annual/Semi-annual Report
|
|
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the last fiscal year.
|
|
Statement of Additional Information
|
|
Additional information about the Fund and its policies is also available in the Fund’s Additional Statement. The
Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).
|
|
The Fund’s annual and semi-annual reports, and the Additional Statement, are 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, Chicago, IL 60606-6372
|
|
By e-mail – gs-funds@gs.com
|
|
On the Internet – Text-only versions of the Fund’s documents are located online and may be downloaded
from:
|
|
SEC EDGAR database – http://www.sec.gov
|
|
You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You
may also obtain copies of Fund 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: publicinfo@sec.gov. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
|
The Fund’s investment company registration number is 811-5349.
CORE
SM
is a service mark of Goldman, Sachs & Co.
CORTXPROSVC
PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
Class B Shares
Class C Shares
Institutional Shares
Service Shares
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
(Each a portfolio of Goldman Sachs 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 prospectuses for the Class A, Class B, Class C, Service Shares and
Institutional Shares of 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 dated May 1, 2001, and as may be further amended
and/or supplemented from time to time (the "Prospectuses"), 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
PricewaterhouseCoopers LLP, the independent public accountants for each
Portfolio, contained in each Portfolio's 2000 Annual Report are incorporated
herein by reference in the section "Financial Statements." No other portions of
the Portfolios' Annual Report are incorporated herein by reference.
The date of this Additional Statement is May 1, 2001.
TABLE OF CONTENTS
Page
----
INTRODUCTION........................................................................ 4
INVESTMENT OBJECTIVES AND POLICIES.................................................. 4
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES.................................. 13
INVESTMENT RESTRICTIONS............................................................. 54
MANAGEMENT.......................................................................... 56
PORTFOLIO TRANSACTIONS AND BROKERAGE................................................ 75
NET ASSET VALUE..................................................................... 77
PERFORMANCE INFORMATION............................................................. 78
SHARES OF THE TRUST................................................................. 86
TAXATION............................................................................ 91
FINANCIAL STATEMENTS................................................................ 98
OTHER INFORMATION................................................................... 98
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS..................................................... 100
DISTRIBUTION AND SERVICE PLANS...................................................... 104
SERVICE PLAN........................................................................ 109
APPENDIX A.......................................................................... 1-A
APPENDIX B.......................................................................... 1-B
APPENDIX C (Statement of Intention and Escrow Agreement)............................ 1-C
GOLDMAN SACHS ASSET MANAGEMENT Investment Adviser 32 Old Slip New York, New York 10005 GOLDMAN, SACHS & CO. Distributor 85 Broad Street New York, NY 10004 GOLDMAN, SACHS & CO. Transfer Agent 4900 Sears Tower Chicago, Illinois 60606 Toll free .......800-526-7384 B-3
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end management investment
company. The Trust is organized as a Delaware business trust, and is a successor
to a Massachusetts business trust that was combined with the Trust on April 30,
1997. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Conservative Strategy Portfolio ("Conservative Strategy
Portfolio"), Goldman Sachs Balanced Strategy Portfolio ("Balanced Strategy
Portfolio"), Goldman Sachs Growth and Income Strategy Portfolio ("Growth and
Income Strategy Portfolio"), Goldman Sachs Growth Strategy Portfolio ("Growth
Strategy Portfolio") and Goldman Sachs Aggressive Growth Strategy Portfolio
("Aggressive Growth Strategy Portfolio") (each referred to herein as a
"Portfolio" and collectively referred to as the "Portfolios"). The Trust assumed
its current name on March 22, 1991. The Trustees of the Trust have authority
under the Declaration of Trust to create and classify shares into separate
series and to classify and reclassify any series of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Portfolios and other series. Each Portfolio is authorized to
issue five classes of shares: Institutional Shares, Service Shares, Class A
Shares, Class B Shares and Class C Shares. Additional series and classes may be
added in the future from time to time.
Each Portfolio is a separately managed, diversified mutual fund with its
own investment objectives and policies. Each Portfolio has been constructed as a
"fund of funds," which means that it pursues its investment objective primarily
by allocating its investments among other investment portfolios of the Trust
(the "Underlying Funds").
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment
Management Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to each Portfolio. GSAM is sometimes referred to herein as
the "Investment Adviser." Goldman Sachs serves as each Portfolio's distributor
and transfer agent. Each Portfolio's custodian is State Street Bank and Trust
Company ("State Street").
INVESTMENT OBJECTIVES AND POLICIES
Normally, each of the Portfolios will be predominantly invested in
shares of the Underlying Funds. These Underlying Funds currently consist of the:
CORE(SM) Large Cap Value Fund, CORE(SM) Large Cap Growth Fund, CORE(SM) Small
Cap Equity Fund, Real Estate Securities Fund, CORE(SM) International Equity
Fund, International Growth Opportunities Fund (formerly International Small Cap
Fund), and Emerging Markets Equity Fund (the "Underlying Equity Funds"); Short
Duration Government Fund, Core Fixed Income Fund, Global Income Fund and High
Yield Fund (the "Underlying Fixed-Income Funds") and the Financial Square Prime
Obligations Fund. The value of the Underlying Funds' investments, and the net
asset value of the shares of both the Underlying Funds and the Portfolios will
fluctuate with market, economic and, to the extent applicable, foreign exchange
conditions, so that an investment in any of the Portfolios may be worth more or
less when redeemed than when purchased. The following description provides
additional information regarding the Underlying Funds and the types of
investments that the Underlying Funds may make.
B-4
Description of Underlying Funds ------------------------------- CORE Large Cap Value FundObjective. This Fund seeks long-term growth of capital and dividend --------- income. The Fund seeks this objective through a broadly diversified portfolio of equity securities 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. Primary Investment Focus. This 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 composed 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 ----- securities that are considered cash equivalents. CORE Large Cap Growth Fund Objective. This 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. Primary Investment Focus. This 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 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 Russell 1000(R) Growth Index. The Fund seeks a portfolio composed 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 ----- securities that are considered cash equivalents. CORE Small Cap Equity Fund Objective. This 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(R)Index at the time of investment. Primary Investment Focus. This 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 B-5
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(R) Index. The Fund seeks a portfolio composed of
companies with small market capitalizations, strong expected earnings growth and
momentum, and better valuation and risk characteristics than the Russell 2000(R)
Index. If the issuer of a portfolio security held by the Fund is no longer
included in the Russell 2000(R) Index, the Fund may, but is not required to,
sell the security.
Other. The Fund's investments in fixed-income securities are limited to
-----
securities that are considered cash equivalents.
Real Estate Securities Fund
Objective. This Fund seeks total return comprised of long-term growth of
---------
capital and dividend income.
Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
substantially all and at least 80% of its total assets in a diversified
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry. The Fund expects that a substantial portion
of its assets will be invested in REITs and real estate industry companies. A
"real estate industry company" is a company that derives at least 50% of its
gross revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate or interests therein.
The Fund's investment strategy is based on the premise that property
market fundamentals are the primary determinant of growth, underlying the
success of companies in the real estate industry. The Fund's investment adviser
focuses on companies that can achieve sustainable growth in cash flow and
dividend paying capability. The investment adviser attempts to purchase
securities so that its underlying portfolio will be diversified geographically
and by property type.
Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs.
Mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skill, may not be diversified, and are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income and failing to maintain their
exemptions from investment company registration. REITs whose underlying
properties are concentrated in a particular industry or geographic region are
also subject to risks affecting such industries and regions.
REITs (especially mortgage REITs) are also subject to interest rate
risks. When interest rates decline, the value of a REIT's investment in fixed
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of a REIT's investment in fixed rate obligations can be expected to
decline.
Shares of REITs. The Fund may invest without limitation in shares of
---------------
REITs. REITs are pooled investment vehicles that invest primarily in either real
estate or real estate related loans. REITs are
B-6
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 Fund, REITs are not taxed on income distributed
to shareholders provided they comply with several requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the Fund invests in
addition to the expenses directly by the Fund.
Other. This Fund may invest up to 20% of its total assets in
-----
fixed-income securities, such as government, corporate debt and bank
obligations, that offer the potential to further the Fund's investment
objective. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 15% of its total assets in foreign
securities, including securities of issuers in emerging countries and securities
quoted in foreign currencies.
CORE International Equity Fund
Objective. This Fund seeks long-term growth of capital. The Fund seeks
---------
this objective through a broadly diversified portfolio of equity securities of
large cap companies that are organized outside the United States or whose
securities are principally traded outside the United States.
Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
at least 90% 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 may allocate its assets among countries as determined by its
investment adviser from time to time, provided the Fund's assets are invested in
at least three foreign countries. The Fund may invest in securities of issuers
in countries with emerging markets or economies which involve certain risks
which are not present in investments in more developed countries.
The Fund seeks broad representation of large cap issuers across major
countries and sectors of the international economy. 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 EAFE(R)
Index. In addition, the Fund seeks a portfolio composed of companies with
attractive valuations and stronger momentum characteristics than the EAFE(R)
Index.
Other. The Fund's investments in fixed-income securities are limited to
-----
securities that are considered to be cash equivalents.
International Growth Opportunities Fund (formerly International Small Cap
Fund)
Objective. This Fund seeks long-term capital appreciation.
---------
Primary Investment Focus. The Fund invests, under normal circumstances,
------------------------
substantially all, and at least 65% of its total assets in equity securities of
companies with public stock market capitalizations (based upon shares available
for trading on an unrestricted basis) within $100 million and $3 billion at the
time of investment and that are organized outside the U.S. or whose securities
are principally
B-7
traded outside the U.S. The Fund seeks to achieve its investment objective by
investing in a diversified portfolio of equity securities that are considered by
the Fund's investment adviser to be strategically positioned for long-term
growth. The Fund may allocate its assets among countries as determined by its
investment adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries. The Fund expects to invest a
substantial portion of its assets in securities of companies in the developed
countries of Western Europe, Japan and Asia. However, the Fund may also invest
in the securities of issuers located in Australia, Canada, New Zealand and the
emerging countries. Currently, emerging countries include, among others, most
Latin American, African, Asian and Eastern European nations. Many of the
emerging countries in which the Fund may invest involve risks which are not
present in investments in more developed countries.
Other. The Fund may invest in the aggregate up to 35% of its total
-----
assets in equity securities of larger cap companies with public stock market
capitalizations outside the market capitalization range stated above at the time
of investment and in fixed-income securities, such as government, corporate and
bank debt obligations. If the market capitalization of a company held by the
Fund moves outside the range stated above, the Fund may, consistent with its
investment objective, continue to hold the security.
Emerging Markets Equity Fund
Objective. This Fund seeks long-term capital appreciation.
---------
Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
substantially all, and at least 65% of its total assets in equity securities of
emerging country issuers. The investment adviser may consider classifications by
the World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, emerging countries include, among others, most Latin American,
African, Asian and Eastern European nations. The Fund's investment adviser
currently intends that the Fund's investment focus will be in the following
emerging countries as well as any other emerging country to the extent that
foreign investors are permitted by applicable law to make such investments:
Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech Republic, Egypt,
Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan, Kenya, Malaysia,
Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Russia, Singapore,
South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and
Zimbabwe.
An emerging country issuer is any company that either: (i) derives 50%
or more of its total revenue from goods produced, sales made or services
performed in one or more emerging countries; (ii) is organized under the laws
of, or has a principal office in, an emerging country; (iii) maintains 50% or
more of its assets in one or more of the emerging countries; or (iv) has a class
of its securities whose principal securities markets is in an emerging country.
Under normal circumstances, this Fund maintains investments in at least
six emerging countries, and will not invest more than 35% of its total assets in
securities of issuers in any one emerging country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the emerging country
markets and particular issuers. In addition, macro-economic factors and the
portfolio managers' and Goldman Sachs economists' views of the relative
attractiveness of emerging countries and currencies are considered in allocating
the Fund's assets among emerging countries. Concentration of the Fund's assets
in one or a few emerging countries and currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically concentrated.
Investments in emerging countries involve certain risks which are not present in
investments in more developed countries.
B-8
Investments in Emerging Countries involve certain risks which are not
present in investments in more developed countries. The Fund may purchase
privately placed equity securities, equity securities of companies that are in
the process of being privatized by foreign governments, securities of issuers
that have not paid dividends on a timely basis, equity securities of issuers
that have experienced difficulties, and securities of companies without
performance records.
Other. The Fund may invest in the aggregate up to 35% of its total
-----
assets in (i) fixed-income securities of private and governmental emerging
country issuers; and (ii) equity and fixed-income securities, such as
government, corporate and bank debt obligations, of issuers in developed
countries.
Financial Square Prime Obligations Fund
Objective. This Fund seeks to maximize current income to the extent
---------
consistent with the preservation of capital and the maintenance of liquidity by
investing exclusively in high quality money market instruments.
Primary Investment Focus. This Fund invests in securities of the U.S.
------------------------
Government, its agencies, authorities and instrumentalities, obligations of U.S.
banks, commercial paper, and other short-term obligations of U.S. companies,
states, municipalities and other entities and repurchase agreements. Securities
purchased by the Fund will be determined by its investment adviser to present
minimal credit risks, and will have remaining maturities (as determined in
accordance with regulatory requirements) of 13 months or less at the time of
purchase. The dollar-weighted average maturity of the Fund will not exceed 90
days.
Other. The investments of this Fund are limited by regulations
-----
applicable to money market funds as described in its Prospectus, and do not
include many of the types of investments that are permitted for the other
Underlying Funds. Although this Fund attempts to maintain a stable net asset
value of $1.00 per share, there is no assurance that it will be able to do so on
a continuous basis. Like investments in the other Underlying Funds, an
investment in this Fund is neither insured nor guaranteed by the U.S. Government
or any governmental authority.
Short Duration Government Fund
Objective. This Fund seeks a high level of current income and
---------
secondarily, in seeking current income, may also consider the potential for
capital appreciation.
Duration. Under normal interest rate conditions, the Fund's duration is
--------
expected to be equal to that of the Fund's benchmark, the two-year U.S. Treasury
security, plus or minus .5 years. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year U.S. Treasury note.
Investment Sector. This Fund invests, under normal market conditions, at
-----------------
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
B-9
Credit Quality. The Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage, credit and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices.
Core Fixed Income Fund
Objective. This Fund seeks a total return consisting of capital
---------
appreciation and income that exceeds the total return of the Lehman Brothers
Aggregate Bond Index (the "Index").
Duration. Under normal interest rate conditions, the Fund's duration is
--------
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed six years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a five-year U.S. Treasury note.
Investment Sector. This Fund invests, under normal circumstances, at
-----------------
least 65% of its total assets in fixed-income securities, including U.S.
Government Securities, corporate debt securities, Mortgage-Backed Securities,
and Asset-Backed Securities. The Fund may also invest in custodial receipts,
Municipal Securities and convertible securities. The Fund's investments in
non-U.S. dollar denominated obligations will not exceed 25% of its total assets
at the time of investment, of which 10% may be invested in obligations of
issuers in countries with emerging markets or economies. In pursuing its
investment objective, the Fund uses the Index as its performance benchmark, but
the Fund will not attempt to replicate the Index.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at least
BBB or Baa by an NRSRO. 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. The securities currently included in the Index have at least
one year remaining to maturity; have an outstanding principal amount of at least
$100 million; and are issued by the following types of issuers, with each
category receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of
Mortgage-Backed Securities; utilities; industrial issuers; financial
institutions; foreign issuers; and issuers of Asset-Backed Securities. In
pursuing its investment objective, the Fund uses the Index as its performance
benchmark, but the Fund will not attempt to replicate the Index. The Fund,
therefore, may invest in securities that are not included in the Index. The
Index is a trademark of Lehman Brothers. Inclusion of a security in the Index
does not imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.
B-10
Credit Quality. All U.S. dollar-denominated fixed-income securities
--------------
purchased by the Fund will be rated, at the time of purchase, at least BBB or
Baa by an NRSRO or, if unrated, will be determined by the Fund's investment
adviser to be of comparable quality. The non-U.S. dollar-denominated
fixed-income securities in which the Fund may invest will be rated, at the time
of investment, at least AA or Aa by an NRSRO or, if unrated, will be determined
by the Fund's investment adviser to be of comparable quality.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are not
limited to, the use of financial futures contracts, option contracts (including
options on futures), forward foreign currency exchange contracts, currency
options and futures, options on foreign currencies, currency, credit, mortgage
and interest rate swaps and interest rate floors, caps and collars. Currency
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to increase
total return. The Fund may also employ other investment techniques to seek to
enhance returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices.
Global Income Fund
Objective. This Fund seeks a high total return, emphasizing current
---------
income, and, to a lesser extent, providing opportunities for capital
appreciation.
Duration. Under normal interest rate conditions, the Fund's duration is
--------
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed 7.5
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a six-year government bond.
Investment Sector. The Fund invests primarily in a portfolio of high
-----------------
quality fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect of
currency positions, denominated in U.S. dollars and (ii) invest in securities of
issuers in at least three countries. The Fund seeks 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 fixed-income securities in which the Fund may invest include: (i)
U.S. Government Securities and custodial receipts therefor; (ii) securities
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, instrumentalities or by supranational
entities (i.e., international organizations designated or supported by
governmental entities to promote economic reconstruction or development, such as
the World Bank); (iii) corporate debt securities; (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, U.S. or foreign banks (and their branches wherever located) having total
assets of more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed
and Asset-Backed Securities.
Credit Quality. All securities purchased by the Fund will be rated, at
--------------
the time of purchase, at least BBB or Baa by an NRSRO. However, the Fund will
invest at least 50% of its total assets in securities rated, at the time of
purchase, AAA or Aaa by an NRSRO. Unrated securities will be determined by the
B-11
Fund's investment adviser to be of comparable quality. 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.Other. This Fund may employ certain active management techniques to ----- manage its duration and term structure, to seek to hedge its exposure to foreign currencies and to seek to enhance returns. These techniques include, but are not limited to, the use of financial futures contracts, option contracts (including options on futures), forward foreign currency exchange contracts, currency options and futures, options on foreign currencies, currency, credit, mortgage and interest rate swaps and interest rate floors, caps and collars. Currency management techniques involve risks different from those associated with investing solely in U.S. dollar-denominated fixed-income securities of U.S. issuers. It is expected that the Fund will use certain currency techniques to seek to hedge against currency exchange rate fluctuations or to seek to increase total return. While the Fund will have both long and short currency positions, its net long and short foreign currency exposure will not exceed the value of the Fund's total assets. To the extent that the Fund is fully invested in foreign securities while also maintaining currency positions, it may be exposed to greater combined risk. The Fund's net currency positions may expose it to risks independent of its securities positions. The Fund may also employ other investment techniques to seek to enhance returns, such as lending portfolio securities and entering into mortgage dollar rolls, repurchase agreements and other investment practices. The Fund may purchase securities on a when-issued or forward commitment basis. 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. Concentration of the 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 those countries. 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 countries with emerging markets and economies. High Yield Fund Objective. This Fund seeks a high level of current income and may also --------- consider the potential for capital appreciation. Duration. Under normal interest rate conditions, the Fund's duration is -------- expected to be equal to that of the Lehman Brothers High Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest rate conditions, the Fund's maximum duration will not exceed 7.5 years. The approximate interest rate sensitivity of the Fund is expected to be comparable to a 6-year U.S. Treasury note. Investment Sector. This Fund invests, under normal circumstances, at ----------------- least 65% of its total assets in high yield, fixed-income securities rated, at the time of investment, below investment grade. Non-investment grade securities are securities rated BB, Ba or below by an NRSRO, or, if unrated, determined by the investment adviser to be of comparable quality. The Fund may invest in all types of fixed-income securities, including senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper), convertible and non-convertible corporate debt obligations, loan participations, custodial receipts, municipal securities and preferred stock. The Fund may invest up to 25% of its total assets in obligations of domestic and foreign issuers (including securities of issuers located in countries with emerging markets and economies) which are denominated in currencies other than the U.S. dollar.
B-12
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Government
Securities. The Fund may also invest in common stocks, warrants, rights and
other equity securities, but will generally hold such equity investments only
when debt or preferred stock of the issuer of such equity securities is held by
the Fund.
Credit Quality. This Fund invests at least 65% of its total assets in
--------------
securities rated BB or Ba or lower at the time of investment or, if unrated,
determined by the Fund's investment adviser to be of comparable quality. The
Fund may purchase securities of issuers in default. Non-investment grade
securities (commonly known as "junk bonds") tend to offer higher yields than
higher rated securities with similar maturities. Non-investment grade securities
are, however, considered speculative and generally involve greater price
volatility and greater risk of loss of principal and interest than higher rated
securities. See "Description of Investment Securities and Practices." A
description of the corporate bond ratings is contained in Appendix A to this
Additional Statement.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are not
limited to, the use of financial futures contracts, option contracts (including
options on futures), forward foreign currency exchange contracts, currency
options and futures, and currency, credit, mortgage and interest rate swaps.
Currency management techniques involve risks different from those associated
with investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to increase
total return. The Fund may also employ other investment techniques to seek to
enhance returns, such as lending portfolio securities and entering into
repurchase agreements and other investment practices.
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES
The Short-Duration Government Fund invests in U.S. Government Securities
and related repurchase agreements, and neither this Fund nor the Financial
Square Prime Obligations Fund makes foreign investments. The investments of the
Financial Square Prime Obligations Fund are limited by Securities Exchange
Commission ("SEC") regulations applicable to money market funds as described in
its prospectus, and do not include many of the types of investments discussed
below that are permitted for the other Underlying Funds. With these exceptions,
and the further exceptions noted below, the following description applies
generally to the Underlying Funds.
As stated in the Prospectuses, the Portfolios may also invest a portion
of their assets in high quality, short-term debt obligations and engage in
certain other investment practices. Further information about the Underlying
Funds and their respective investment objectives and policies is included in
their Prospectuses and Additional Statements. There is no assurance that any
Portfolio or Underlying Fund will achieve its objective.
Corporate Debt Obligations
Each Underlying Fund (other than the Short Duration Government Fund)
may, under normal market conditions, invest in corporate debt obligations,
including obligations of industrial, utility and financial issuers. CORE Large
Cap Value, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
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
B-13
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 of
the Underlying Funds will attempt to reduce these risks through portfolio
diversification and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends and corporate
developments.
Commercial Paper and Other Short-Term Corporate Obligations. Certain of
the Underlying Funds may invest in commercial paper and other short-term
obligations payable in U.S. dollars and issued or guaranteed by U.S.
corporations, non-U.S. corporations or other entities. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations and finance companies.
Trust Preferreds. Certain of the Underlying Funds 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 Investors 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 an Underlying 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
Underlying 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 and Fitch, Inc. ("Fitch").
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. High yield
securities are also
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issued by governmental issuers that may have difficulty in making all scheduled
interest and principal payments.
The market values of high yield, fixed-income securities tends to
reflect those individual corporate or municipal 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.
Since investors generally perceive that there are greater risks
associated with non-investment grade securities of the type in which the
Underlying Funds may 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 an Underlying 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 an Underlying 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 an Underlying Fund of its initial
investment and any anticipated income or appreciation is uncertain. In addition,
an Underlying 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 investments. An Underlying
Fund may be required to liquidate other portfolio securities to satisfy the
Underlying Fund's annual distribution obligations in respect of accrued interest
income on securities which are subsequently written off, even though the
Underlying 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 contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the ability of an Underlying Fund to dispose of particular
portfolio investments. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than
B-15
the prices used in calculating an Underlying Fund's net asset value. A less
liquid secondary market also may make it more difficult for an Underlying Fund
to obtain precise valuations of the high yield securities in its portfolio.
The adoption of new legislation could adversely affect the secondary
market for high yield securities and the financial condition of issuers of these
securities. The form of any future 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, an Underlying Fund may have to replace such
security with a lower-yielding security, resulting in a decreased return for
investors. In addition, if an Underlying 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 Underlying Fund's
portfolio and increasing the exposure of the Underlying 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 credit analysis
of an Underlying Fund's investment adviser than would be the case with
investments in investment-grade debt obligations. An Underlying Fund's
investment adviser employs its own credit research and analysis, which includes
a study of an issuer's existing debt, capital structure, ability to service debt
and to pay dividends, sensitivity to economic conditions, operating history and
current trend of earnings. The investment adviser continually monitors the
investments in an Underlying 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 effects such a
recession might have on such securities. A widespread economic downturn could
result in increased defaults and losses.
Loan Participations. The High Yield Fund may invest in loan
-------------------
participations. Such loans must be to issuers in whose obligations the High
Yield Fund may invest. A loan participation is an interest in a loan to a U.S.
or foreign company or other borrower which is administered and sold by a
financial intermediary. In a typical corporate loan syndication, a number of
lenders, usually banks (co-lenders), lend a corporate borrower a specified sum
pursuant to the terms and conditions of a loan agreement. One of the co-lenders
usually agrees to act as the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the
form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or
a participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High Yield
Fund acquires certain participation interests, the High Yield Fund will have
direct recourse against the borrower if the borrower fails to pay
B-16
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Underlying Fund had purchased a direct obligation
(such as commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may be
subject to certain defenses by the borrower as a result of improper conduct by
the agent bank. Moreover, under the terms of the loan participation, the High
Yield Fund may be regarded as a creditor of the agent bank (rather than of the
underlying corporate borrower), so that the High Yield Fund may also be subject
to the risk that the agent bank may become insolvent. The secondary market, if
any, for these loan participations is limited and any loan participations
purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to
diversification of the High Yield Fund's portfolio investments, the issuer of a
loan participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
Obligations of the United States, Its Agencies, Instrumentalities and Sponsored
Enterprises
Each Underlying 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 U.S. Treasury, (b) the discretionary
authority of the U.S. government to purchase the agency's obligations or (c)
only the credit of the issuer. 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
Investment Company Act of 1940, as amended (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 Underlying Fund may also purchase U.S. Government Securities in private
placements, subject to the Underlying Fund's limitation on investment in
illiquid securities.
The Underlying Funds 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").
B-17
Bank Obligations
Certain of the Underlying Funds 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 government regulation.
Banks are subject to extensive 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 operations of
this industry.
Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds
Certain of the Underlying Funds expect to 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, an Underlying 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, an Underlying 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 Underlying 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, an Underlying Fund may be required to
liquidate other portfolio securities to obtain sufficient cash to satisfy
federal tax distribution requirements applicable to the Underlying Fund. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable.
B-18
Zero Coupon Bonds
An Underlying Fund's investment in fixed-income securities may include
zero coupon bonds. Zero coupon bonds 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 an Underlying Fund defaults, the Underlying Fund may obtain no return at
all on its investment. A 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 Underlying Fund's distribution obligations.
Variable and Floating Rate Securities
The interest rates payable on certain fixed-income securities in which
an Underlying 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.
Permissible investments for certain of the Underlying Funds include
"leveraged" inverse floating rate debt instruments ("inverse floaters"),
including "leveraged 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 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 limitation on illiquid investments.
Custodial Receipts
Each Underlying 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 "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.
B-19
Municipal Securities
Certain of the Underlying Funds may invest in bonds, notes and other
instruments issued by or on behalf of states, territories and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies or instrumentalities ("Municipal Securities").
Municipal Securities are often issued to obtain funds for various public
purposes including refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include certain "private
activity bonds" or industrial development bonds, which are issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly
owned corporations.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest, although the characteristics and enforcement of general obligations
may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer, and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a
revenue obligation may be backed by a letter of credit, guarantee or insurance.
General obligations and revenue obligations may be issued in a variety of forms,
including commercial paper, fixed, variable and floating rate securities, tender
option bonds, auction rate bonds and zero coupon bonds, deferred interest bonds
and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of Municipal Securities. There are also
numerous differences in the security of Municipal Securities both within and
between these two principal classifications.
An entire issue of Municipal Securities may be purchased by one or a
small number of institutional investors such as the High Yield and Core Fixed
Income Funds. Thus, the issue may not be said to be publicly offered. Unlike
some securities that are not publicly offered, a secondary market exists for
many Municipal Securities that were not publicly offered initially and such
securities may be readily marketable.
The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement features
available to the issuers or holders of such Municipal Securities.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a Municipal
Security may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be
B-20
included in an investor's federal alternative minimum taxable income, and
corporate investors must include all tax-exempt interest in their federal
alternative minimum taxable income. The Trust cannot predict what legislation,
if any, may be proposed in the future in Congress as regards the federal income
tax status of interest on Municipal Securities or which proposals, if any, might
be enacted. Such proposals, if enacted, might materially and adversely affect
the liquidity and value of the Municipal Securities in an Underlying Fund's
portfolio.
Municipal Leases, Certificates of Participation and Other Participation
-----------------------------------------------------------------------
Interests. Municipal Securities include leases, certificates of participation
---------
and other participation interests. A municipal lease is an obligation in the
form of a lease or installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such obligations is
generally exempt from state and local taxes in the state of issuance. Municipal
leases frequently involve special risks not normally associated with general
obligations or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt issuance limitations
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject to
the temporary abatement of payments in the event the issuer is prevented from
maintaining occupancy of the leased premises or utilizing the leased equipment.
Although the obligations may be secured by the leased equipment or facilities,
the disposition of the property in the event of non-appropriation or foreclosure
might prove difficult, time consuming and costly, and result in a delay in
recovering or the failure to fully recover an Underlying Fund's original
investment. To the extent that an Underlying Fund invests in unrated municipal
leases or participates in such leases, the credit quality rating and risk of
cancellation of such unrated leases will be monitored on an ongoing basis.
Certificates of participation represent undivided interests in municipal
leases, installment purchase agreements or other instruments. The certificates
are typically issued by a trust or other entity which has received an assignment
of the payments to be made by the state or political subdivision under such
leases or installment purchase agreements.
Certain municipal lease obligations and certificates of participation may
be deemed to be illiquid for the purpose of an Underlying Fund's limitation on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by an Underlying Fund may be determined
by its investment adviser, pursuant to guidelines adopted by the Trustees of the
Trust, to be liquid securities for the purpose of such limitation. In
determining the liquidity of municipal lease obligations and certificates of
participation, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades or quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease obligations
and certificates of participation affecting the marketability thereof. These
include the general creditworthiness of the issuer, the importance to the issuer
of the property covered by the lease and the likelihood that the marketability
of the obligation will be maintained throughout the time the obligation is held
by an Underlying Fund.
Certain Underlying Funds may purchase participations in Municipal
Securities held by a commercial bank or other financial institution. Such
participations provide an Underlying Fund with the
B-21
right to a pro rata undivided interest in the underlying Municipal Securities.
In addition, such participations generally provide an Underlying Fund with the
right to demand payment, on not more than seven days' notice, of all or any part
of such Fund's participation interest in the underlying Municipal Security, plus
accrued interest. An Underlying Fund will only invest in such participations if,
in the opinion of bond counsel, counsel for the issuers of such participations
or counsel selected by the investment advisors, the interest from such
participation is exempt from regular federal income tax.
Auction Rate Securities. Municipal Securities also include auction rate
-----------------------
Municipal Securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in Municipal Securities
(collectively, "auction rate securities"). Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is some risk
that an auction will fail due to insufficient demand for the securities.
An Underlying Fund's investments in auction rate securities of closed-end
funds are subject to the limitations prescribed by the Act. An Underlying Fund
will indirectly bear its proportionate share of any management and other fees
paid by such closed-end funds in addition to the advisory fees payable directly
by the Underlying Funds.
Other Types of Municipal Securities. Other types of Municipal Securities in
-----------------------------------
which certain of the Underlying Funds may invest include municipal notes, tax-
exempt commercial paper, pre-refunded municipal bonds, industrial development
bonds, tender option bonds and insured municipal obligations.
Call Risk and Reinvestment Risk. Municipal Securities may include "call"
-------------------------------
provisions which permit the issuers of such securities, at any time or after a
specified period, to redeem the securities prior to their stated maturity. In
the event that Municipal Securities held in an Underlying Fund's portfolio are
called prior to the maturity, the Underlying Fund will be required to reinvest
the proceeds on such securities at an earlier date and may be able to do so only
at lower yields, thereby reducing the Underlying Fund's return on its portfolio
securities.
Mortgage Loans and Mortgage-Backed Securities
General Characteristics. Certain of the Underlying Funds may invest in
-----------------------
Mortgage-Backed Securities as described in the Prospectuses. 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, multi-family (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, multi-family 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
B-22
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 an Underlying 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 an Underlying 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 an Underlying 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.
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. The value of Mortgage-
Backed Securities that are structured as pass through mortgage securities that
are collateralized by ARMs are less likely to rise during periods of declining
interest rates to the same extent as fixed rate securities. Accordingly, 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
B-23
low fixed-rate mortgages may encourage mortgagors to refinance their ARMs to
"lock-in" a fixed-rate mortgage. On the other hand, during periods of rising
interest rates, the value of ARMs will lag behind changes in the market rate.
ARMs are also typically subject to maximum increases and decreases in the
interest rate adjustment which can be made on any one adjustment date, in any
one year, or during the life of the security. In the event of dramatic increases
or decreases in prevailing market interest rates, the value of a Fund's
investment in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates. 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 an Underlying Fund's portfolio that holds ARMs and,
therefore, in the net asset value of such Underlying Fund's shares, will 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. These regulations
may impair the ability of a mortgage lender to enforce its rights under the
mortgage documents. These regulations may adversely affect the Underlying Funds'
investments in Mortgage-Backed Securities (including those issued or guaranteed
by the U.S. government, its agencies or instrumentalities) by delaying the
Underlying 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.
B-24
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 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 government 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"), collateralized mortgage obligations and
stripped Mortgage-Backed Securities. An Underlying 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. From time
to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating federal sponsorship of the Federal National Mortgage
Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie
Mac") that issue guaranteed mortgage-backed securities. The Trust cannot predict
what legislation, if any, may be proposed in the future in Congress as regards
such sponsorship or which proposals, if any, might be enacted. Such proposals,
if enacted, might materially and adversely affect the availability of government
guaranteed Mortgage-Backed Securities and the liquidity and value of an
Underlying Fund's portfolio.
An Underlying 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").
B-25
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 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 up to forty 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.
B-26
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.
Mortgage Pass-Through Securities. As described in the Prospectuses, certain
--------------------------------
of the Underlying 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 seller or
servicer of the underlying mortgage obligations will generally make
representations and warranties to certificate-holders as to certain
characteristics of the mortgage loans and as to the accuracy of certain
information furnished to the trustee in respect of each such mortgage loan. Upon
a breach of any representation or warranty that materially and adversely affects
the interest of the related certificate-holders in a mortgage loan, the seller
or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement
so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation may
constitute the sole remedy available to the related certificate-holders or the
trustee for the material breach of any such representation or warranty by the
seller or servicer.
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
B-27
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 normally 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 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 may 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.
B-28
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 losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event 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. In the event of delinquencies in payments on the
------------------
mortgage loans underlying the Mortgage Pass-Throughs, the servicer may agree to
make advances of cash for the benefit of certificate-holders, but generally will
do so 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 as 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. An Underlying 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.
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.
B-29
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 Underlying 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 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 PAC 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
B-30
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. Certain of the Underlying Funds may
-----------------------------------
invest in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities, issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by private issuers. Although the market for
such securities has become more liquid, privately issued SMBS may not be readily
marketable and will be considered illiquid for purposes of an Underlying Fund's
limitation on investments in illiquid securities. An Underlying Fund's
investment adviser may determine that SMBS which are U.S. Government Securities
are liquid for purposes of each 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
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.
Certain Underlying Funds may invest in asset-backed securities. 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. During
periods of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, an Underlying 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 an
Underlying Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in 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, if the issuer
of an asset-backed
B-31
security defaults on its payment obligations, there is the possibility that, in
some cases, an Underlying Fund will be unable to possess and sell the underlying
collateral and that an Underlying Fund's recoveries on repossessed collateral
may not be available to support payments on the securities.
Futures Contracts and Options on Futures Contracts
Each Underlying Fund may purchase and sell futures contracts and may also
purchase and write options on futures contracts. The CORE Large Cap Value, CORE
Large Cap Growth and CORE Small Cap Equity Funds may only enter into such
transactions with respect to a representative 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. An Underlying 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 an Underlying Fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC or,
with respect to certain Underlying Funds, 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, an Underlying 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.
Futures Contracts. A futures contract may generally be described as an
-----------------
agreement between two parties to buy and sell particular financial instruments
or currencies 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, and
Underlying Fund can seek to offset a decline in the value of its current
portfolio securities through the sale of futures contracts. When interest rates
are falling or prices are rising, an Underlying 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, an
Underlying Fund may 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. An Underlying Fund may 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 Underlying Fixed-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 an Underlying Fund will usually liquidate futures
contracts on securities or currency in this manner, an Underlying Fund may
B-32
instead make or take delivery of the underlying securities or currency whenever
it appears economically advantageous for the Underlying Fund to do so. A
clearing corporation associated with the exchange on which futures on securities
or currency 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 an Underlying
Fund owns or proposes to acquire or the exchange rate of currencies in which
portfolio securities are denominated or quoted. An Underlying 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 foreign currency rates that would adversely affect
the U.S. dollar value of the Fund's portfolio securities. Such futures contracts
may include contracts for the future delivery securities held by a Fund or
securities with characteristics similar to those of a Fund's portfolio
securities. Similarly, certain Underlying Funds may sell futures contracts on
any currency 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 an Underlying Fund's investment adviser, there is a sufficient degree of
correlation between price trends for an Underlying Fund's portfolio securities
and futures contracts based on other financial instruments, securities indices
or other indices, the Underlying Fund may also enter into such futures contracts
as part of its hedging strategy. Although under some circumstances prices of
securities in an Underlying Fund's portfolio may be more or less volatile than
prices of such futures contracts, its investment adviser will attempt to
estimate the extent of this volatility difference based on historical patterns
and compensate for any such differential by having the Underlying Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Underlying 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 an Underlying Fund's portfolio
securities would be substantially offset by a decline in the value of the
futures position.
On other occasions, an Underlying Fund may take a "long" position by
purchasing such futures contracts. This would be done, for example, when an
Underlying 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
or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
----------------------------
futures contracts will give an Underlying 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, an Underlying 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 an Underlying Fund's
assets. By writing a call option, an Underlying 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 an Underlying Fund intends to
purchase. However, an Underlying 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
B-33
price. Thus, the loss incurred by an Underlying Fund in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. An Underlying 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. An Underlying 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. An Underlying 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 an Underlying
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 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 an Underlying 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 an Underlying 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 an Underlying 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 an Underlying Fund may be exposed to risk of loss.
Perfect correlation between an Underlying 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 an Underlying 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 an Underlying Fund's trading in
futures depends upon the ability of its investment adviser to analyze correctly
the futures markets.
Options on Securities and Securities Indices
Writing Covered Options. Certain of the Underlying Funds may write (sell)
-----------------------
covered call and put options on any securities in which they may invest or on
any securities index consisting of securities in which it may invest. An
Underlying 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 an Underlying
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 an Underlying Fund are covered,
which means that such Fund will own the
B-34
securities subject to the option as long as the option is outstanding or such
Fund will use the other methods described below. An Underlying Fund's purpose in
writing covered call options is to realize greater income than would be realized
on portfolio securities transactions alone. However, an Underlying Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by an Underlying 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 an Underlying 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 put option or will use the other methods described below. The
purpose of writing such options is to generate additional income for the
Underlying Fund. However, in return for the option premium, an Underlying 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 an Underlying Fund will also be considered
to be covered to the extent that the Underlying Fund's liabilities under such
options are wholly or partially offset by its rights under call and put options
purchased by the Underlying Fund or by an offsetting forward contract which, by
virtue of its exercise price or otherwise, reduces an Underlying Fund's net
exposure on its written option position.
An Underlying Fund may also write (sell) covered call and put options on
any securities index comprised of securities in which it may invest. 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.
An Underlying 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
consideration which has been segregated by the Underlying Fund) upon conversion
or exchange of other securities in its portfolio. An Underlying Fund may 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.
An Underlying 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 Underlying Fund (other than Financial Square Prime
------------------
Obligations Fund) may purchase put and call options on any securities in which
it may invest or options on any securities index comprised of securities in
which it may invest. An Underlying Fund would also be able to enter into closing
sale transactions in order to realize gains or minimize losses on options it had
purchased.
An Underlying Fund may purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle an Underlying Fund, in return for the
premium paid, to purchase specified securities at a specified price during the
option period. An Underlying Fund would ordinarily realize a gain if, during the
option period, the value of such
B-35
securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such an Underlying Fund would realize either no
gain or a loss on the purchase of the call option.
An Underlying Fund may purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts"), or in
securities in which it may invest. The purchase of a put option would entitle an
Underlying 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 an
Underlying Fund's securities. Put options may also be purchased by an Underlying
Fund for the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. An Underlying Fund would ordinarily realize a
gain on the purchase of a call option 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 such an Underlying
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.
An Underlying 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. Each Underlying Fixed-Income Fund and Real Estate
-------------------
Securities 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.
An Underlying Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, an Underlying Fund may
purchase a call option on the yield spread between two securities if the
Underlying 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. An Underlying Fund may also purchase or write yield
curve options in an effort to increase current income if, in the judgment of its
investment adviser, the Underlying Fund 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 an Underlying Fund will be "covered." A call
(or put) option is covered if an Underlying 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 Underlying Fund's net liability under the
two options. Therefore, an Underlying Fund's liability for such a covered option
is generally limited to the difference between the amount of the Underlying
Fund's liability under the option written by the Underlying Fund less the value
of the option held by the Underlying 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 market for other types
at options.
B-36
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 an
Underlying Fund is unable to effect a closing purchase transaction with respect
to covered options it has written, the Underlying Fund will not be able to sell
the underlying securities or dispose of segregated assets until the options
expire or are exercised. Similarly, if an Underlying 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.
An Underlying 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 an Underlying 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 an Underlying Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Underlying Funds' 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 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 an 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
ability of an investment adviser to predict future price fluctuations and the
degree of correlation between the options and securities markets. If an
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 Fund may incur losses that it would not otherwise
incur. The writing of options could increase a Fund's portfolio turnover rate
and, therefore, associated brokerage commissions or spreads.
B-37
Warrants and Stock Purchase Rights
Certain of the Underlying Funds may invest a portion of their assets in
warrants or rights (including 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. An Underlying Fund will invest in warrants
and rights only if such securities are deemed appropriate by its investment
adviser for investment by the Underlying 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
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of an Underlying Fund's
investment adviser, to offer the potential for better long-term growth of
capital and income than investments in U.S. securities, 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 discussed in the Portfolio's Prospectuses and 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, an
Underlying 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. An
Underlying Fund may be subject to currency exposure independent of its
securities positions.
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. To the extent that a substantial
portion of an Underlying Fund's total assets, adjusted to reflect the Underlying
Fund's net position after giving effect to currency transactions, is denominated
or quoted in the currencies of foreign countries, the Underlying Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries. In addition, if the currency in which an Underlying Fund
receives dividends, interest or other payment declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Underlying Fund may have to sell portfolio
securities to obtain sufficient cash to pay such dividends.
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 Underlying Fund endeavors to achieve the most
favorable net results on its
B-38
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. Mail service between the United
States and foreign countries may be slower or less reliable than within the
United States, thus increasing the risk of delayed settlement of portfolio
transactions or loss of certificates for portfolio securities.
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 an Underlying Fund's assets are uninvested and no return is
earned on such assets. The inability of an Underlying Fund to make intended
security purchases due to settlement problems could cause the Underlying Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to an
Underlying Fund due to subsequent declines in value of the portfolio securities
or, if the Underlying 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 an Underlying 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.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depositary 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.
To the extent an Underlying Fund acquires Depositary Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depositary Receipts to issue and service such
unsponsored Depositary Receipts, there may be an increased possibility that the
Underlying 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 Depositary
Receipts does not eliminate all the risks inherent in investing in securities of
non-U.S. issuers. The market value of Depositary Receipts is dependent upon the
market value of the underlying securities and fluctuations in the relative value
of the currencies in which the Depositary receipts and the underlying securities
are quoted. However, by investing in Depositary 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, certain of the Underlying 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,
B-39
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 CORE International Equity, International
-----------------------------
Growth Opportunities and Emerging Markets 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 Real Estate Securities Fund may invest,
to a lesser extent, in equity and equity-related securities of foreign issuers,
including emerging country issuers. The Core Fixed Income, Global Income and
High Yield Funds may invest in debt securities of foreign issuers, including
emerging country issuers, 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 the securities markets of emerging countries are less liquid and
subject to greater price volatility, and have 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 issuers 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.
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. A Fund's investments in emerging countries are
subject to the risk that the liquidity of particular instruments, or instruments
generally in such countries, will shrink or disappear suddenly and without
warning as a result of adverse economic, market or political conditions, or
adverse investor perceptions, whether or not accurate. 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 the
securities markets can cause prices to be erratic for reasons apart from factors
that affect the soundness and competitiveness of the securities issuers. For
example, prices may be unduly influenced by traders who control prices 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 an Underlying 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. The risks associated with reduced liquidity may be
particularly acute to the extent that an Underlying Fund needs cash to meet
redemption requests, to pay dividends and other distributions or to pay its
expenses.
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
B-40
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 an Underlying 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 an Underlying Fund's investment in certain emerging countries and may
increase the expenses of the Underlying Fund. Certain emerging countries require
government 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 emerging countries may be subject to restrictions which require
governmental 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 an
Underlying Fund. An Underlying Fund may be required to establish special
custodial or other arrangements before investing in certain emerging countries.
Emerging countries may be subject to a substantially greater degree of
economic, political and social instability and disruption 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
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 Underlying Funds may invest and adversely affect the value of the
Underlying Funds' assets. A Fund's investments can also 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. Most Eastern European countries had a
centrally planned, socialist economy for a substantial period of time. The
governments of many Eastern European countries have more recently been
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 an extended 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.
B-41
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. Other emerging countries, on the other hand, have recently
experienced deflationary pressure and are in economic recessions. 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.
An Underlying 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. See "Taxation."
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 an Underlying Fund's assets is uninvested
and no return is earned thereon. The inability of an Underlying Fund to make
intended security purchases or sales due to settlement problems could result
either in losses to the Underlying Fund due to subsequent declines in value of
the portfolio securities or, if the Underlying Fund has entered into a contract
to sell the securities, could result in possible liability of the Underlying
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 if a securities firm defaults in the performance of its responsibilities.
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
an Underlying Fund may have limited recourse in the event of a default. During
periods of economic uncertainty, the market prices of sovereign debt, and an
Underlying 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.
B-42
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. Certain of the Underlying
Funds may enter into forward foreign currency exchange contracts for hedging
purposes and to seek to protect against anticipated changes in future foreign
currency exchange rates. Certain of the Underlying Funds may also enter into
forward foreign currency exchange contracts 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 an Underlying 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.
An Underlying Fund may enter into forward foreign currency exchange
contracts in several circumstances. First, when an Underlying Fund enters into a
contract for the purchase or sale of a security denominated or quoted in a
foreign currency, or when an Underlying Fund anticipates the receipt in a
foreign currency of dividend or interest payments on such a security which it
holds, the Underlying 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 Underlying Fund will 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 an Underlying Fund's 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 an Underlying 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
B-43
contract is entered into and the date it matures. Using forward contracts to
protect the value of an Underlying 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 an
Underlying 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 an
Underlying Fund's foreign assets.
Certain of the Underlying 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. These Funds may also
enter into forward contracts to seek to increase total return.
Unless otherwise covered, cash or liquid assets of an Underlying Fund
will be segregated in an amount equal to the value of the Underlying 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 an Underlying 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 an Underlying Fund's ability to utilize forward foreign currency
exchange contracts may be restricted. Certain of the Underlying Funds will not
enter into a forward contract with a term of greater than one year.
While an Underlying Fund may enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while an Underlying Fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Underlying Fund than if it had not engaged in any such
transactions. Moreover, there may be imperfect correlation between an Underlying
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 an Underlying Fund to sustain losses which will prevent
the Underlying Fund from achieving a complete hedge or expose the Underlying
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 obligations. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive an Underlying Fund of
unrealized profits, transaction costs or the benefits of a currency hedge or
force the Underlying 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 an Underlying Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Underlying
Fund to cover its purchase or sale commitments, if any, at the current market
price. An Underlying 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 its investment adviser. To
the extent that a substantial portion of an Underlying Fund's total assets,
adjusted to reflect the Underlying Fund's net position after giving effect to
currency transactions, is denominated or quoted in the currencies of foreign
countries, the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
B-44
Writing and Purchasing Currency Call and Put Options. Certain of the
Underlying Funds may, to the extent they invest in foreign securities, 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 foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
and when an Underlying Fund seeks to close out an option, the Underlying 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 an Underlying Fund's
position, the Underlying Fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies written or purchased by
an Underlying Fund will be traded on U.S. and foreign exchanges or over-the-
counter.
Options on currency may be used for either hedging or cross-hedging
purposes, which involves writing or purchasing options on one currency to hedge
against changes in exchange rates for a different currency with a pattern of
correlation, or to seek to increase total return when an Underlying Fund's
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
Underlying Fund's portfolio.
A call option written by an Underlying Fund obligates an Underlying Fund
to sell a specified currency to the holder of the option at a specified price if
the option is exercised before the expiration date. A put option written by an
Underlying Fund would obligate an Underlying 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 an Underlying 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.
An Underlying 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." An Underlying Fund
may enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Underlying Fund.
An Underlying 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 an Underlying Fund are quoted or denominated.
The purchase of a call option would entitle the Underlying Fund, in return for
the premium paid, to purchase specified currency at a specified price during the
option period. An Underlying 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 Underlying Fund
would realize either no gain or a loss on the purchase of the call option.
An Underlying 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 an Underlying Fund, in exchange for the premium paid, to
sell specified currency at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the U.S. dollar value of an Underlying Fund's
B-45
portfolio securities due to currency exchange rate fluctuations. An Underlying
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 Underlying 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,
certain Underlying Funds may use options on currency to seek to increase total
return. These 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, an Underlying Fund may forego the opportunity to profit from
an increase in the market value of the underlying currency. Also, when writing
put options, an Underlying Fund accepts, in return for the option premium, the
risk that it 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 an Underlying 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 an Underlying
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.
An Underlying 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 an
Underlying Fund.
The amount of the premiums which an Underlying 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.
Mortgage Dollar Rolls
Certain of the Underlying Funds may enter into mortgage "dollar rolls"
in which an Underlying 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, an Underlying Fund loses the right to
receive principal and interest paid on the securities sold. However, an
Underlying Fund would benefit to the extent of any
B-46
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 an Underlying 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. An
Underlying 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 Underlying Funds treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Underlying Funds
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 an Underlying Fund sells the security becomes
insolvent, an Underlying Fund's right to purchase or repurchase the mortgage-
related securities subject to the mortgage dollar roll may be restricted and the
instrument which an Underlying Fund is required to repurchase may be worth less
than an instrument which an Underlying Fund originally held. Successful use of
mortgage dollar rolls will depend upon the ability of an Underlying Fund's
investment adviser to manage an Underlying 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
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 common stock. In evaluating a
convertible security, an Underlying Fund's 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.
Currency Swaps, Mortgage Swaps, Credit Swaps, Index Swaps and Interest Rate
Swaps, Caps, Floors and Collars
Certain Underlying Funds may enter into currency swaps for both hedging
purposes and to seek to increase total return. In addition, certain of the
Underlying Fixed-Income Funds and Real Estate Securities Fund may enter into
mortgage, credit, index 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 an
Underlying Fund with another party of their respective rights to make or receive
payments in specified currencies. Interest rate swaps involve the exchange by an
B-47
Underlying 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. Index swaps
involve the exchange by an Underlying Fund with another party of the respective
amounts payable with respect to a notional principal amount at interest rates
equal to two specified indices. 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. Since interest rate, mortgage and
currency swaps and interest rate caps, floors and collars are individually
negotiated, each Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its swap, cap, floor and collar positions.
An Underlying Fund will enter into interest rate mortgage and index
swaps only on a net basis, which means that the two payment streams are netted
out, with the Underlying Fund receiving or paying, as the case may be, only the
net amount of the two payments. Interest rate, index 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, index and mortgage
swaps is limited to the net amount of interest payments that the Underlying Fund
is contractually obligated to make. If the other party to an interest rate,
index or mortgage swap defaults, the Underlying Fund's risk of loss consists of
the net amount of interest payments that the Underlying Fund is contractually
entitled to receive, if any. In contrast, currency swaps usually involve the
delivery of the entire principal amount of one designated currency in exchange
for the other 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 an
Underlying 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 Underlying 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 an Underlying Fund's
borrowing restrictions.
An Underlying 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 its investment
adviser. The Underlying Fixed-Income Funds will not enter into any mortgage,
interest rate or credit swap transactions unless the unsecured commercial paper,
senior debt or claims-paying ability of the other party is rated either A or A-1
or better by Standard & Poor's or A or P-1 or better by Moody's or their
equivalent ratings. The Core Fixed Income, Global Income and High Yield Funds
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, an Underlying 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
B-48
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 Underlying Funds' transactions in swaps, caps, floors and
collars.
The use of interest rate, mortgage, credit, index 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 Underlying Fund's
investment adviser is incorrect in its forecasts of market values, interest
rates and currency exchange rates, the investment performance of an Underlying
Fund would be less favorable than it would have been if this investment
technique were not used.
Equity Swaps
Each Underlying Equity Fund 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 swaps
may be structured in different ways. For example, a counterparty may agree to
pay the Underlying Fund the amount, if any, by which the notional amount of the
equity swap contract would have increased in value had it been 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 Underlying 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 Underlying 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 Underlying Fund on the notional amount. In other cases, the
counterparty and the Underlying 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).
An Underlying Fund will enter into equity swaps only on a net basis,
which means that the two payment streams are netted out, with the Underlying
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 an
Underlying Fund is contractually obligated to make. If the other party to an
equity swap defaults, an Underlying 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 Underlying Fund's
potential exposure, the Underlying 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 an Underlying Fund's
borrowing restrictions.
An Underlying Equity Fund will not enter into equity 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. An Underlying Fund's ability to enter into certain swap transactions
may be limited by tax considerations.
B-49
Real Estate Investment Trusts
The Underlying Equity Funds may invest in shares of REITs. REITs are
pooled investment vehicles which invest primarily in real estate or real estate
related loans. 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. Like regulated investment companies such as the Underlying
Funds, REITs are not taxed on income distributed to shareholders provided they
comply with certain requirements under the Code. An Underlying Fund will
indirectly bear its proportionate share of any expenses paid by REITs in which
it invests in addition to the expenses paid by an Underlying 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 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 Underlying 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, U.S. government securities or letters of intent maintained on
a current basis at an amount at least equal to the market value of the
securities loaned. An Underlying 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, an Underlying 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. An
Underlying Fund would not have the right to vote any securities having voting
rights during the existence of the loan, but an Underlying 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 an Underlying Fund's investment adviser to be of good
standing, and when, in the judgment of the investment adviser, the consideration
which can be earned currently from securities loans of this type justifies the
attendant risk. If an investment adviser determines 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 an Underlying 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 Underlying Fund is
responsible for any loss that may result from its investment of the borrowed
collateral.
When-Issued Securities and Forward Commitments
Each Underlying 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 an Underlying Fund to
B-50
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. An Underlying 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, an Underlying Fund may dispose of or negotiate
a commitment after entering into it. An Underlying Fund may also sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. The Underlying Funds may realize a capital gain or loss
in connection with these transactions. For purposes of determining an Underlying
Fund's duration, the maturity of when-issued or forward commitment securities
will be calculated from the commitment date. An Underlying Fund is 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. Alternatively, each Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. 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 Underlying Fund may invest a portion of its net assets in companies
(including predecessors) which have operated less than three years, except that
this limitation does not apply to debt securities which have been rated
investment grade or better by at least one NRSRO. 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 of the Underlying Funds may make limited investments in the
securities of other investment companies including, pursuant to an exemptive
order obtained from the SEC, money market funds for which the Investment Adviser
or any of its affiliates serves as investment adviser. An Underlying 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 Underlying Fund. However, to the extent that
the Underlying Fund invests in a money market fund for which the Investment
Adviser or any of its affiliates acts as adviser, the advisory and
administration fees payable by the Underlying Fund to the investment adviser or
its affiliates will be reduced by an amount equal to the Underlying Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the investment adviser or its affiliates.
Each Underlying Equity Fund may also 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 ("AMEX")). The UIT was 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(R) Index. The UIT is sponsored by a subsidiary of the AMEX.
SPDRs may be used for several reasons, including, but not limited to,
facilitating the handling of cash flows or trading or reducing transaction
costs. The price movement of SPDRs may not perfectly parallel the price activity
of the S&P 500(R) Index. The UIT will issue SPDRs in aggregations known as
"Creation Units" in
B-51
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
S&P 500(R) 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
500(R) Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, an investor 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, an
investor 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 Underlying Funds could result in losses on SPDRs.
Certain Underlying Funds 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. Certain Underlying Funds may also
invest in. iShares(SM) (formerly called World Equity Benchmark Shares or WEBS)
and similar securities that invest in securities included in foreign securities
indices. iShares(SM) are shares of an investment company that invests
substantially all of its assets in securities included in the MSCI indices for
specified countries. iShares(SM) are listed on the AMEX and were initially
offered to the public in 1996. The market prices of iShares(SM) are expected to
fluctuate in accordance with both changes in the NAVs of their underlying
indices and supply and demand of iShares(SM) on the AMEX. To date, iShares(SM)
have traded at relatively modest discounts and premiums to the NAVs. However,
iShares(SM) have a limited operating history and information is lacking
regarding the actual performance and trading liquidity of iShares(SM) 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
iShares(SM) will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting iShares(SM) should occur in
the future, the liquidity and value of an Underlying Fund's shares could also be
substantially and adversely affected. If such disruptions were to occur, an
Underlying Fund could be required to reconsider the uses of iShares(SM) as part
of its investment strategy.
Repurchase Agreements
Each Underlying 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 Underlying Funds may also enter into
repurchase agreements involving certain foreign government securities. A
repurchase agreement is an arrangement under which an Underlying 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 an Underlying Fund's custodian. The repurchase price may be higher
than the purchase price, the difference being income to an Underlying Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to an Underlying Fund together with the repurchase price on repurchase.
In either case, the income to an Underlying Fund is unrelated to the interest
rate on the security subject to the repurchase agreement.
B-52
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from an Underlying Fund to the seller of the
security. For other purposes, it is not always clear whether a court would
consider the security purchased by an Underlying Fund subject to a repurchase
agreement as being owned by an Underlying Fund or as being collateral for a loan
by an Underlying 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, an Underlying 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 value of the security. If the
court characterizes the transaction as a loan and an Underlying Fund has not
perfected a security interest in the security, an Underlying Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, an Underlying Fund
would be at risk of losing some or all of the principal and interest involved in
the transaction.
The Underlying Fund's 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), an Underlying 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, an Underlying Fund, together with other registered
investment companies having advisory agreements with the Investment Adviser or
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.
Reverse Repurchase Agreements
Certain Underlying Funds 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 Core Fixed Income, Global Income
and High Yield Funds 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 a 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 its investment adviser to
make sure that an appropriate value is maintained. Reverse repurchase agreements
are considered to be borrowings under the Act.
B-53
Restricted and Illiquid Securities
The Underlying Funds may not invest more than 15% (10% in the case of
Financial Square Prime Obligations Fund) of their 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 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
Securities Act of 1933 (the "1933 Act") is treated like Rule 144A Securities.
The Trustees have adopted guidelines under which the Underlying Funds'
investment advisers determine and monitor the liquidity of the Underlying Funds'
portfolio securities. This investment practice could have the effect of
increasing the level of illiquidity in an Underlying 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.
Short Sales "Against the Box"
The Underlying Funds (other than the CORE Large Cap Growth, CORE Large
Cap Value, CORE Small Cap Equity and CORE International Equity Funds) may engage
in short sales against the box. In a short sale, the seller sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
While a short sale is made by selling a security the seller does not own, a
short sale is "against the box" to the extent that the seller contemporaneously
owns or has the right to obtain, at no added cost, securities identical to those
sold short. It may be entered into by a Fund, for example, to lock in a sales
price for a security the Fund does not wish to sell immediately. If a Fund sells
securities short against the box, it may protect itself from loss if the price
of the securities declines in the future, but will lose the opportunity to
profit on such securities if the price rises.
If a Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
Portfolio Turnover
Each Underlying 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.
B-54
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 Portfolio. The investment objective of each Portfolio
and all other investment policies or practices of each Portfolio are considered
by the Trust not to be fundamental and accordingly may be changed without
shareholder approval. For purposes of the Act, "majority" means the lesser of
(a) 67% or more of the shares of the Trust or a Portfolio present at a meeting,
if the holders of more than 50% of the outstanding shares of the Trust or a
Portfolio are present or represented by proxy, or (b) more than 50% of the
shares of the Trust or a Portfolio. 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
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by, a Portfolio. With respect to the Portfolios' 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 Portfolio may not:
(1) make any investment inconsistent with the Portfolio's
classification as a 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 investment
companies and 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 Portfolio 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
Portfolio may, to the extent permitted by applicable law,
borrow up to an additional 5% of its total assets for
temporary purposes, (c) the Portfolio may obtain such
short-term credits as may be necessary for the clearance
of purchases and sales of portfolio securities, (d) the
Portfolio may purchase securities on margin to the extent
permitted by applicable law and (e) the Portfolio 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 Portfolio'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;
B-55
(5) underwrite securities issued by others, except to the
extent that the sale of portfolio securities by the
Portfolio may be deemed to be an underwriting;
(6) purchase, hold or deal in real estate, although a
Portfolio 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 and sell real estate acquired by a
Portfolio as a result of the ownership of securities;
(7) invest in commodities or commodity contracts, except that
the Portfolio may invest in currency and financial
instruments and contracts that are commodities or
commodity contracts;
(8) issue senior securities to the extent such issuance would
violate applicable law.
Notwithstanding any other fundamental investment restriction or policy,
each Portfolio may 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 Portfolio.
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 Portfolio may not:
(a) Invest in companies for the purpose of exercising control
or management (but this does not prevent a Portfolio from
purchasing a controlling interest in one or more of the
Underlying Funds consistent with its investment objective
and policies).
(b) Invest more than 15% of the Portfolio'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 Portfolio's
borrowings (excluding covered mortgage dollar rolls)
exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against
the box.
The Underlying Funds in which the Portfolios may invest have adopted
certain investment restrictions which may be more or less restrictive than those
listed above, thereby allowing a Portfolio to participate in certain investment
strategies indirectly that are prohibited under the fundamental and
non-fundamental investment restrictions and policies listed above. The
investment restrictions of these Underlying Funds are set forth in their
respective Additional Statements.
B-56
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
Portfolio's daily business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
B-57
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- Ashok N. Bakhru, 59 Chairman Chairman of the Board and Trustee - P.O. Box 143 & Trustee Goldman Sachs Variable Insurance Trust Lima, PA 19037 (registered investment company) (since October 1997); 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); Director of Arkwright Mutual Insurance Company (1984-1999); Trustee of International House of Philadelphia (1989-Present); Member of Cornell University Council (1992-Present); Trustee of the Walnut Street Theater (1992-Present); Director, Private Equity Investors - III (since November 1998); and Trustee, Citizens Scholarship Foundation of America (since 1998). B-58
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- *David B. Ford, 55 Trustee Trustee - Goldman Sachs Variable 32 Old Slip Insurance Trust (registered investment New York, NY 10005 company) (since October 1997); 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, 38 Trustee Trustee and President - Goldman Sachs 32 Old Slip & President Variable Insurance Trust (registered New York, NY 10005 investment company) (since October 1997); Trustee, Trust for Credit Unions (registered investment company) (since March 1998); Managing Director, Goldman Sachs (since November 1997); President, Goldman Sachs Funds Group (since April 1996); and President, MFS Retirement Services Inc., of Massachusetts Financial Services (prior thereto). B-59
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- Patrick T. Harker, 42 Trustee Trustee - Goldman Sachs Variable Office of the Dean Insurance Trust (registered The Wharton School investment company) (since August University of Pennsylvania 2000); Dean and Reliance 1000 SH-DH Professor of Operations and Philadelphia, PA 19104-6364 Information Management, The Wharton School, University of Pennsylvania (since February 2000); Interim and Deputy Dean, The Wharton School, University of Pennsylvania (since July 1999); Professor and Chairman of Department of Operations and Information Management, The Wharton School, University of Pennsylvania (July 1997-August 2000); UPS Transportation Professor for the Private Sector, Professor of Systems Engineering and Chairman of Systems Engineering, School of Engineering and Applied Science, University of Pennsylvania (prior thereto). *John P. McNulty, 48 Trustee Trustee - Goldman Sachs Variable 32 Old Slip Insurance Trust (registered New York, NY 10005 investment company) (since October 1997); Managing Director, Goldman Sachs (since November 1996); Head of Investment Management Division (since September 1999); General Partner, J. Aron & Company (commodity dealer and risk management adviser) (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); and Director, Commodities Corp. LLC (since April 1997).
B-60
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- Mary P. McPherson, 65 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment The Andrew W. Mellon Foundation company) (since October 1997); Vice President, The Andrew W. Mellon 140 East 62/nd/ Street Foundation (provider of grants for conservation, environmental and New York, NY 10021 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, 51 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since October 1997); Advisory Director - GSAM (since May 1999); New York, NY 10005 Limited Partner, Goldman Sachs (prior to May 1999); Consultant to GSAM (since December 1994). B-61
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- William H. Springer, 71 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 701 Morningside Drive company) (since October 1997); Director, The Walgreen Co. (a retail Lake Forest, IL 60045 drug store business) (April 1988-January 2000); Director of BKF Capital Group, Inc. (a public holding company of a registered investment adviser) (April 1992-present); and Chairman and Trustee, Northern Institutional Funds (since April 1984) and Northern Funds (since March 2000). Richard P. Strubel, 61 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 500 Lake Cook Road company) (since October 1997); President and COO, UNext.com (since 1999) Suite 150 (provider of educational services via the internet); Director, Deerfield, IL 60015 Gildan Activewear Inc. (since February 1999); Director of Kaynar Technologies Inc. (since March 1997); Managing Director, Tandem Partners, Inc. (1990-1999); Trustee, Northern Institutional Funds (since December 1982) and Northern Funds (since March 2000); and Director, Cantilever Technologies, Inc. (since 1999). *John M. Perlowski, 36 Treasurer Treasurer - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since 1997); and Vice President, Goldman Sachs (since July New York, NY 10005 1995). *Philip V. Giuca, Jr., 38 Assistant Assistant Treasurer - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since 1997); and Vice President, Goldman Sachs New York, NY 10005 (May 1992-Present). B-62
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- *Peter Fortner, 42 Assistant Assistant Treasurer - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since August 2000); Vice President, Goldman Sachs New York, NY 10005 (July 2000-Present); Associate, Prudential Insurance Company of America (November 1985-June 2000); and Assistant Treasurer, certain closed end funds administered by Prudential (1999 and 2000). *Kenneth Curran, 37 Assistant Assistant Treasurer - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since January 2001); Vice President, Goldman Sachs New York, NY 10005 (November 1998-Present); and Senior Tax Manager, KPMG Peat Marwick (August 1995-October 1998). *James A. Fitzpatrick, 40 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since October 1997); Managing Director, Goldman Chicago, IL 60606 Sachs (since October 1999); Vice President, Goldman Sachs (April 1997-December 1999); and Vice President and General Manager, First Data Corporation - Investor Services Group (1994 to 1997). *Jesse Cole, 37 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since 1998); Vice President, Goldman Chicago, IL 60606 Sachs (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). B-63
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- *Christopher Keller, 35 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (October 2000-present); Vice President, Goldman Chicago, IL 60606 Sachs (April 1997-present); and Manager, Andersen Consulting (August 1989-April 1997). *Kerry K. Daniels, 37 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since April 2000); and Manager, Institutional Chicago, IL 60606 Account Administration - Shareholder Services, Goldman Sachs (since 1986). *Mary F. Hoppa, 36 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since April 2000); Vice President, Chicago, IL 60606 Goldman Sachs (since October 1999); and Senior Vice President and Director of Mutual Fund Operations, Strong Capital Management (January 1987-September 1999). *Howard B. Surloff, 35 Secretary Secretary - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since 2001) and Assistant Secretary prior thereto; Assistant New York, NY 10005 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); and Counsel to the Funds Group, GSAM (November 1993-December 1997). B-64
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- *Valerie A. Zondorak, 35 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Assistant General Counsel, GSAM and New York, NY 10005 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, 29 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Legal Products Analyst, Goldman Sachs New York, NY 10005 (since December 1998); Legal Assistant, Goldman Sachs (January 1996- December 1998); and Assistant Secretary to the Funds Group (1996 to present). *Kaysie P. Uniacke, 39 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Managing Director, Goldman Sachs (since New York, NY 10005 1997); Vice President and Senior Portfolio Manager, GSAM (1988 to 1997). B-65
Name, Age Positions Principal Occupation(s) and Address With Trust During Past 5 Years ----------- ---------- --------------------- *Elizabeth D. Anderson, 31 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Vice President, Goldman Sachs (since May New York, NY 10005 1997); Portfolio Manager, GSAM (since April 1996); Junior Portfolio Manager, GSAM (1995-April 1996); and Funds Trading Assistant, GSAM (1993- 1995). *Amy E. Belanger, 31 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1999); Vice President, Goldman Sachs (since New York, NY 10005 June 1999); Counsel, Goldman Sachs (since 1998); and Associate, Dechert Price & Rhoads (September 1996-1998). 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 20, 2001, the Trustees and officers of the Trust as a group owned less than 1% of the outstanding shares of beneficial interest of each Portfolio. 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. B-66
The following table sets forth certain information with respect to the compensation of each Trustee of the Trust for the one-year period ended December 31, 2000:Pension or Total Compensation Retirement from Goldman Sachs Trust Benefits and the Goldman Sachs Aggregate Accrued as Funds Complex Compensation Part of (including the Name of Trustee From the Portfolios/2/ Portfolios' Expenses Portfolios)/3/ --------------- ---------------------- -------------------- ------------- Ashok N. Bakhru1 $11,220 $0 $142,250 David B. Ford $0 $0 $0 Douglas C. Grip $0 $0 $0 Patrick T. Harker4 $2,070 $0 $26,500 John P. McNulty $0 $0 $0 Mary P. McPherson $8,349 $0 $106,000 Alan A. Shuch $0 $0 $0 Jackson W. Smart5 $4,076 $0 $53,500 William H. Springer $8,180 $0 $104,000 Richard P. Strubel $8,349 $0 $106,000 1 Includes compensation as Chairman of the Board of Trustees. 2 Reflects amount paid by the Portfolios described in this Additional Statement during the fiscal year ended December 31, 2000. 3 The Goldman Sachs Funds complex consists of Goldman Sachs Trust and Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of 54 mutual funds, including 5 asset allocation portfolios, on December 31, 2000. Goldman Sachs Variable Insurance Trust consisted of [10] mutual funds on December 31, 2000. 4 Mr. Harker was appointed to the Board of Trustees on August 29, 2000. 5 No longer a trustee of the Trust. Class A Shares of the Portfolios may be sold at net asset value without payment of any sales charge to Goldman Sachs, its affiliates or their respective officers, partners, directors or employees (including retired employees and former partners), any partnership of which Goldman Sachs is a general partner, any trustee or officer of the Trust and designated family members of any of the above individuals. These and the Portfolios' other sales load waivers are due to the nature of the investors and/or the reduced sales effort and expense that are needed to obtain such investments. The Trust, the Investment Adviser and the Portfolios' principal underwriter have adopted codes of ethics under Rule 17j-1 of the Act that permit personnel subject to their particular code of ethics to invest in securities, including securities that may be purchased or held by a Portfolio or an Underlying Fund.Management Services As stated in the Portfolios' Prospectuses, GSAM, 32 Old Slip, New York, New York 10005, a unit of the Investment Management Division of Goldman Sachs, serves as Investment Adviser to the Portfolios and, except as noted, to each Underlying Fund. Goldman Sachs Funds Management, L.P. B-67
("GSFM"), 32 Old Slip, New York, New York, a Delaware limited partnership,
serves as investment adviser to the Short Duration Government Funds. Goldman
Sachs Asset Management International ("GSAMI"), Procession House, 55 Ludgate
Hill, London, England EC4M 7JW, a unit of the Investment Management Division of
Goldman Sachs, serves as investment adviser to the International Growth
Opportunities, Emerging Markets Equity and Global Income Funds. As a company
with unlimited liability under the laws of England, GSAMI is regulated by the
Investment Management Regulatory Organization Limited, a United Kingdom self-
regulatory organization, in the conduct of its investment advisory business. See
"Service Providers" in the Portfolios' Prospectuses for a description of the
Investment Adviser's duties to the Portfolios.
The Goldman Sachs Group, L.P., which controlled the Portfolios'
Investment Adviser and the investment adviser of each Underlying Fund, merged
into The Goldman Sachs Group, Inc. as a result of an initial public offering in
1999.
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 also is 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 Portfolios and Underlying Funds to use the name "Goldman Sachs" or a
derivative thereof as part of each Portfolio's and Fund's name for as long as a
Portfolio's or Fund's Management Agreement is in effect.
The Underlying Funds' 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.
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 United States 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.
In managing the Underlying Funds, the Underlying Funds' investment
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
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
B-68
team has earned top rankings in various external surveys such as Extel,
Institutional Investor, and Reuters. These rankings acknowledge the achievements
of the firm's economists, strategists and equity analysts.
In structuring Short Duration Government Fund's securities portfolio,
the Fund's investment adviser will review the existing overall economic and
mortgage market trends. The investment adviser will then study yield spreads,
the implied volatility and the shape of the yield curve. The investment adviser
will then apply this analysis to a list of eligible securities that meet the
Fund's investment guidelines
With respect to Short Duration Government Fund, Core Fixed Income Fund
and High Yield Fund, the applicable investment advisers expect 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 the
Funds' 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
advisers use 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 particular 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 advisers consider 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 advisers will first evaluate the absolute level of a
security's OAS considering its liquidity and its interest rate, volatility and
prepayment sensitivity. The investment advisers will then analyze its value
relative to alternative investments and to its own investments. The investment
advisers will also measure a security's interest rate risk by computing an
option adjusted duration (OAD). The investment advisers believe a security's OAD
is a better measurement of its price sensitivity than cash flow duration, which
systematically misstates portfolio duration. The investment advisers also
evaluate returns for different mortgage market sectors and evaluates the credit
risk of individual securities. This sophisticated technical analysis allows the
investment advisers 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
Funds' 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 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 an Underlying 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 Underlying Funds' 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
B-69
Securities could suggest tactical trading opportunities for the Underlying
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 Underlying Funds' 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 Underlying Funds' investment advisers with respect to an
Underlying 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
Underlying Funds' 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 an Underlying Fund's investments.
In allocating assets among foreign countries and currencies for the
Underlying Funds which can invest in foreign securities, the Underlying Funds'
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 an Underlying Fund given its
investment objectives and criteria.
The management agreements for the Portfolios and the Underlying Funds
provide that their investment advisers (and their affiliates) may render similar
services to others as long as the services provided by them thereunder are not
impaired thereby.
The Portfolios' 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" (as such term is defined in the
Act) of any party thereto (the "non-interested Trustees"), on April 24, 2001.
These arrangements were approved by the sole shareholder of the Balanced
Strategy, Growth and Income Strategy, Growth Strategy and Aggressive Growth
Strategy Portfolios on January 1, 1998, and of the Conservative Strategy
Portfolio on February 3, 1999 by consent action to satisfy conditions imposed by
the SEC in connection with the registration of shares of the Portfolio. The
management agreement will remain in effect until June 30, 2002 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 Portfolio 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
B-70
terminate automatically with respect to a Portfolio 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
Portfolio on 60 days' written notice to the Investment Adviser and by the
Investment Adviser on 60 days' written notice to the Trust.
Under the management agreement, the Investment Adviser also: (i)
supervises all non-advisory operations of each Portfolio; (ii) provides
personnel to perform such executive, administrative and clerical services as are
reasonably necessary to provide effective administration of each Portfolio;
(iii) arranges for at each Portfolio'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 Portfolio's records;
and (v) provides office space and all necessary office equipment and services.
Pursuant to the management agreement, the Investment Advisers are
entitled to receive the contractual fees listed below, payable monthly of such
Portfolio's average daily net assets.
Asset Allocation Fee Asset Allocation Fee
Portfolio With Limitations Without Limitations
--------- -------------------- -------------------
Conservative Strategy .15% .35%
Balanced Strategy .15% .35%
Growth and Income Strategy .15% .35%
Growth Strategy .15% .35%
Aggressive Growth Strategy .15% .35%
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The fees paid by the Portfolios for services rendered under the management
agreement were as follows (with and without the fee limitations that were then
in effect) for the period ended December 31:
2000 1999 1998
==== ==== ====
With Fee Without Fee With Fee Without Fee With Fee Without Fee
Limitations Limitations Limitations Limitations Limitations Limitations
----------- ----------- ----------- ----------- ----------- -----------
Conservative Strategy/1/ $ 21,346 $ 49,808 $ 14,735 $ 34,384 N/A N/A
Balanced Strategy/2/ 132,905 310,112 151,574 353,673 $78,025 $182,558
Growth and Income Strategy/2/ 636,522 1,485,219 661,611 1,543,759 356,735 834,668
Growth Strategy/2/ 485,762 1,133,444 461,317 1,076,406 253,545 593,231
Aggressive Growth Strategy/2/ 212,979 496,951 177,161 413,376 94,065 219,795
___________________
/1/ The Conservative Strategy Portfolio commenced operations on February 8,
1999.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Activities of Goldman Sachs and Its Affiliates and Other Accounts
Managed by Goldman Sachs. The involvement of the Investment Adviser and 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 Portfolios and the Underlying Funds or impede their
investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Adviser and its 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 Portfolios and the Underlying
Funds and/or which engage in transactions in the same types of securities,
currencies and instruments as the Underlying 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 Underlying Funds invest. Such activities could affect the prices and
availability of the securities, currencies and instruments in which the
Underlying Funds invest, which could have an adverse impact on each Underlying
Fund's (and, consequently, each Portfolio's) performance. Such transactions,
particularly in respect of proprietary accounts or customer accounts other than
those included in the Investment Adviser's and its advisory affiliates' asset
management activities, will be executed independently of the Underlying Funds'
transactions and thus at prices or rates that may be more or less favorable.
When the Investment Adviser and its advisory affiliates seek to purchase or sell
the same assets for their managed accounts, including the Underlying Funds, the
assets actually purchased or sold may be allocated among the accounts on a basis
determined in its good faith discretion to be equitable. In some cases, this
system may adversely affect the size or the price of the assets purchased or
sold for the Underlying Funds.
From time to time, the Underlying 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 Adviser and/or its affiliates will not initiate or recommend certain
types of transactions in certain securities or instruments with respect to which
the Investment Adviser and/or its affiliates are performing services or when
position limits have been reached.
B-72
In connection with their management of the Underlying Funds, the Underlying
Funds' investment advisers may have access to certain fundamental analysis and
proprietary technical models developed by Goldman Sachs and other affiliates.
The investment advisers will not be under any obligation, however, to effect
transactions on behalf of the Underlying 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
Underlying Funds and it is not anticipated that the investment advisers will
have access to such information for the purpose of managing the Underlying
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 Underlying Funds.
The results of each Underlying 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 an Underlying Fund. Moreover, it is possible that an
Underlying 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 Underlying 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 an Underlying 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 Underlying 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 Underlying Fund invests.
In addition, certain principals and certain of the employees of the
Underlying Funds' 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 Portfolios should be aware.
The Underlying Funds' investment advisers may enter into transactions and
invest in currencies or instruments on behalf of an Underlying 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 an Underlying Fund, and such party may have no incentive to assure
that the Underlying 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
affiliates, the underlying securities, currencies or instruments of which may be
those in which an Underlying Fund invests or which may be based on the
performance of an Underlying Fund. The
B-73
Underlying 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 into transactions with other clients of Goldman
Sachs or its affiliates where such other clients have interests adverse to those
of the Underlying 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 Portfolios. To the
extent affiliated transactions are permitted, the Underlying Funds will deal
with Goldman Sachs and its affiliates on an arms-length basis.
Each Underlying Fund will be required to establish business relationships
with its counterparties based on the Underlying 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 an Underlying Fund's establishment of its
business relationships, nor is it expected that an Underlying Fund's
counterparties will rely on the credit of Goldman Sachs or any of its affiliates
in evaluating the Underlying Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of an Underlying Fund in order to increase
the assets of the Underlying Fund. Increasing an Underlying Fund's assets may
enhance investment flexibility and diversification and may contribute to
economies of scale that tend to reduce the Underlying Fund's expense ratio.
Goldman Sachs reserves the right to redeem at any time some or all of the shares
of an Underlying Fund acquired for its own account. A large redemption of shares
of an Underlying Fund by Goldman Sachs could significantly reduce the asset size
of the Underlying Fund, which might have an adverse effect on the Underlying
Fund's investment flexibility, portfolio diversification and expense ratio.
It is possible that an Underlying 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 Underlying 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 Underlying
Funds' investment advisers may be prohibited from purchasing or recommending the
purchase of certain securities of that entity for the Underlying Funds.
Distributor and Transfer Agent
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive Distributor of shares of the Portfolios pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
each Portfolio. Shares of the Portfolios are offered and sold on a continuous
basis by Goldman Sachs, acting as agent. Pursuant to the distribution agreement,
after the Portfolios' Prospectuses and periodic reports have been prepared, set
in type and mailed to shareholders, Goldman Sachs will pay for the printing and
distribution of copies thereof used in connection with the offering to
prospective investors. Goldman Sachs will also pay for other supplementary sales
literature and advertising costs. Goldman Sachs may enter into sales agreements
with certain investment dealers and financial service firms (the "Authorized
Dealers") to solicit subscriptions for Class A, Class B and Class C Shares of
each of the Portfolios that offer such classes of shares. Goldman Sachs receives
a portion of the sales load imposed on the sale, in the case of Class A Shares,
or redemption in the case of Class B and Class C Shares (and in certain cases,
Class A Shares), of such Portfolio shares.
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Goldman Sachs retained approximately the following commissions on sales
of Class A, Class B and Class C Shares during the period ended December 31:
2000 1999 1998
==== ==== ====
Conservative Strategy/1/ $ 1,000 $ 4,000 N/A
Balanced Strategy/2/ 24,000 41,000 $156,000
Growth and Income Strategy/2/ 51,000 129,000 858,000
Growth Strategy/2/ 129,000 124,000 593,000
Aggressive Growth Strategy/2/ 33,000 52,000 243,000
____________________
/1/ The Conservative Strategy Portfolio commenced operations on February 8,
1999.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Goldman Sachs, 4900 Sears Tower, Chicago, IL 60606, also serves as the
Portfolios' transfer and dividend disbursing agent. Under its transfer agency
agreement with the Trust, Goldman Sachs has undertaken with the Trust with
respect to each Portfolio 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 subcustodian 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
inquiries, and (ix) render certain other miscellaneous services. For its
transfer agency services, Goldman Sachs is entitled to receive a transfer agency
fee equal, on an annual basis of 0.04% of average daily net assets with respect
to each Portfolio's Institutional and Service Shares and 0.19% of average daily
net assets with respect to each Portfolio's Class A, Class B and Class C Shares
(less transfer agency expenses borne by a share class).
As compensation for the services rendered to the Portfolios' by Goldman
Sachs as transfer and dividend disbursing agent and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive fees
from each Portfolio as stated in the Prospectuses. For the periods ended
December 31, 2000, 1999 and 1998, the amounts paid to Goldman Sachs by each
Portfolio were as follows under the schedules then in effect:
2000 1999 1998
==== ==== ====
Conservative Strategy/1/ $ 26,646 $ 18,627 N/A
Balanced Strategy/2/ 164,943 189,653 $157,025
Growth and Income Strategy/2/ 765,943 803,333 414,136
Growth Strategy/2/ 606,230 576,665 399,850
Aggressive Growth Strategy/2/ 261,827 220,841 209,288
____________________
/1/ The Conservative Strategy Portfolio commenced operations on February 8,
1999.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
The foregoing distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
each provides thereunder to the Portfolios are not
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impaired thereby. Each such agreement also provides that the Trust will indemnify Goldman Sachs against certain liabilities.Expenses The Trust, on behalf of each Portfolio, is responsible for the payment of each Portfolio's respective expenses. The expenses include, without limitation, the fees payable to the Investment Adviser, service fees and shareholder administration fees paid to institutions that have agreed to provide account administration and personal account maintenance services to their customers who are beneficial owners of Service Shares ("Service Organizations"), the fees and expenses payable to the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and commissions, filing fees for the registration or qualification of the Trust's shares under federal or state securities laws, expenses of the organization of the Trust, 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 (including the cost of legal and certain accounting services rendered by employees of GSAM and Goldman Sachs with respect to the Trust), expenses of preparing and setting in type prospectuses, statements of additional information, proxy material, reports and notices and the printing and distributing of the same to the Trust's shareholders and regulatory authorities, any expenses assumed by a Portfolio pursuant to its distribution and service plans, compensation and expenses of its "non-interested" Trustees and extraordinary expenses, if any, incurred by the Trust. Except for fees and expenses under any service plan, shareholder administration plan, or distribution and service plan applicable to a particular class and transfer agency fees, all Portfolio expenses are borne on a non-class specific basis. The imposition of the Investment Adviser's fees, 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 is 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 has voluntarily agreed to reduce or limit certain "Other Expenses" (excluding management, distribution and service fees, taxes, transfer agency fees and expenses, service share fees, shareholder administration fees, interest, brokerage, litigation, indemnification costs and other extraordinary expenses) for the Portfolios to the extent such expenses exceed the percentage of average daily net assets specified in the Portfolios' Prospectuses. 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. The amounts of certain "Other Expenses" of each Portfolio then in existence that were reduced or otherwise limited were as follows under the expense limitations that were then in effect for the period ended December 31: B-76
2000 1999 1998 ==== ==== ==== Conservative Strategy/1/ $165,223 $262,794 N/A Balanced Strategy/2/ 263,831 262,656 $224,065 Growth and Income Strategy/2/ 336,825 255,735 372,932 Growth Strategy/2/ 318,300 244,702 324,585 Aggressive Growth Strategy/2/ 283,463 244,198 231,575 ____________________________ /1/ The Conservative Strategy Portfolio commenced operations February 8, 1999. /2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and Aggressive Growth Strategy Portfolios commenced operations on January 2, 1998. Fees and expenses of legal counsel, registering shares of a Portfolio, holding meetings and communicating with shareholders may include an allocable portion of the cost of maintaining an internal legal and compliance department. Each Portfolio may also bear an allocable portion of the Investment Adviser's costs of performing certain accounting services not being provided by a Portfolio's custodian.REIMBURSEMENT ------------- For the fiscal years ended December 31, 2000, December 31, 1999 and December 31, 1998, the amounts of certain "Other Expenses" of each Fund then in existence that were reduced or otherwise limited were as follows under the expense limitations that were then in effect: Fiscal year ended Fiscal year ended Fiscal year ended December 31, 2000 December 31, 1999 December 31, 1998 ----------------- ----------------- ----------------- Conservative Strategy/1/ $ 193,685 $ 282,443 N/A Balanced Strategy/2/ 441,038 464,755 $422,724 Growth and Income Strategy/2/ 1,185,522 1,137,883 985,336 Growth Strategy/2/ 965,982 859,791 861,810 Aggressive Growth Strategy/2/ 567,435 480,413 491,207 _________________________________ /1/ The Conservative Strategy Portfolio commenced operations on February 8, 1999. /2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and Aggressive Growth Strategy commenced operations on January 2, 1998. Custodian and Sub-Custodians State Street, P.O. Box 1713, Boston, Massachusetts 02105, 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 and to hold cash for the Trust. B-77
Independent Public Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, currently serves as the independent auditors of the Portfolios of the
Trust for the fiscal year ending December 31, 2000. In addition to audit
services, PricewaterhouseCoopers LLP prepares the Trust's federal and state tax
returns, and provides consultation and assistance on accounting, internal
control and related matters. The financial statements for the Portfolios for the
fiscal years or periods ended on or before December 31, 1999, and the data set
forth under "Financial Highlights" in the Portfolios' Prospectuses for the
fiscal years or periods ended on or before December 31, 1999, were audited by
Arthur Andersen LLP, the Portfolios' former auditors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible with respect to the Portfolios
(and the particular investment adviser is responsible with respect to the
Underlying Funds) 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 Underlying Fixed-Income Funds are
generally effected at a net price without a broker's commission (i.e., a dealer
is dealing with an Underlying 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 are
traded on exchanges at fixed commission rates.
In placing orders for portfolio securities of an Underlying Fund, the
Underlying Funds' investment 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 Underlying Fund may pay a
broker that provides brokerage and research services an amount of disclosed
commission in excess of the commission which another broker would have charged
for effecting that transaction. Such practice is subject to a good faith
determination by the Trustees that such commission is reasonable in light of the
services provided and to such policies as the Trustees may adopt from time to
time. While the Underlying Funds' investment advisers generally seek reasonably
competitive spreads or commissions, an Underlying 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 an Underlying Fund, the investment advisers and their
affiliates, or their other clients. Such research and
B-78
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 an Underlying 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 may be far larger than those of an
Underlying 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 an Underlying Fund as well as shares of other
investment companies or accounts managed by the Underlying Funds' investment
advisers. This policy does not imply a commitment to execute all portfolio
transactions through all broker-dealers that sell shares of the Underlying Fund.
On occasions when an Underlying Fund's investment adviser deems the
purchase or sale of a security to be in the best interest of an Underlying 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 sub-investment adviser), the investment adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Underlying 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 Underlying Fund
and such other customers. In some instances, this procedure may adversely affect
the price and size of the position obtainable for an Underlying 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 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 Underlying Funds' investment
advisers may use Goldman Sachs as a broker for an Underlying Fund. In order for
Goldman Sachs to effect any portfolio transactions for an Underlying Fund, the
commissions, fees or other remuneration received by Goldman Sachs must be
reasonable and customary. 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-79
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining
in good faith the fair value of securities of each Portfolio. In accordance with
procedures adopted by the Trustees, the net asset value per share of each class
of each Portfolio is calculated by determining the value of the net assets
attributable to each class of that Portfolio and dividing by the number of
outstanding shares of that class. All securities are valued as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 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, Washington's Birthday
(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 Portfolio may compute its
net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
In determining the net asset value of a Portfolio, the net asset value
of the Underlying Funds' shares held by the Portfolio will be their net asset
value at the time of computation. Financial Square Prime Obligations Fund values
all of its portfolio securities using the amortized cost valuation method
pursuant to Rule 2a-7 under the Act. Portfolio securities of the other
Underlying Funds 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 closing a 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 Underlying Fund's net 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 accurate
market 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
particular 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.
B-80
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 Underlying 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
an Underlying 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 Portfolio and each other series 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 Portfolio and constitute the
underlying assets of that Portfolio or series. The underlying assets of each
Portfolio will be segregated on the books of account, and will be charged with
the liabilities in respect of such Portfolio and with a share of the general
liabilities of the Trust. Expenses of the Trust with respect to the Portfolios
and the other series of the Trust are generally allocated in proportion to the
net asset values of the respective Portfolios or series except where allocations
of expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
A Portfolio 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.
Thirty-day 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.
B-81
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 applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and payment of
any contingent deferred sales charge) 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.
Total return calculations for Class A Shares reflect the effect of paying
the maximum initial sales charge. Investment at a lower sales charge would
result in higher performance figures. Total return calculations for Class B and
Class C Shares reflect deduction of the applicable contingent deferred sales
charge ("CDSC") imposed upon redemption of Class B and Class C Shares held for
the applicable period. Each Portfolio may also from time to time 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, each Portfolio may furnish total return calculations based on
investments at various sales charge levels or at NAV. Any performance
information which is based on a Portfolio's net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Portfolio may from time to time advertise its performance
relative to certain averages, performance rankings, indices, other information
prepared by recognized mutual fund statistical services and investments for
which reliable performance information is available. The Portfolios' performance
quotations do not reflect any fees charged by an Authorized Dealer, Service
Organization or other financial intermediary to its customer accounts in
connection with investments in the Portfolios.
Thirty-day yield, distribution rate and average annual total return are
calculated separately for each class of shares of each Portfolio. Each class of
shares of each Portfolio is subject to different fees and expenses and may have
different returns for the same period.
Each Portfolio's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, the type of portfolio
instruments acquired, portfolio expenses and other factors. Performance is one
basis investors may use to analyze a Portfolio as compared to other funds and
other investment vehicles. However, the performance of other funds and other
investment vehicles may not be comparable because of the foregoing variables,
and differences in the methods used in valuing their portfolio instruments,
computing net asset value and determining performance.
Occasionally, statistics may be used to specify Portfolio volatility or
risk. Measures of volatility or risk are generally used to compare a Portfolio's
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a Portfolio relative to 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.
B-82
From time to time the Trust may publish an indication of a Portfolio'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, iMoneyNet, Inc.'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 Portfolio'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, commercial paper and
repurchase agreements; (j) iMoneyNet, Inc.'s 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(R) Index - Total Return; (o) Russell 1000(R) 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 World Index, 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 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; (gg) the Tokyo Price Index; and
(hh) the Russell 3000 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 Portfolios and the
Underlying Funds. 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 Portfolio 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:
B-83
. 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 benefits of focusing on after-tax returns versus pre-tax
returns for taxable investors;
. the performance of various types of securities (for example,
common stocks, small company stocks, taxable money market
funds, U.S. Treasury securities, adjustable rate 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
Portfolio;
. the dollar and non-dollar based returns of various market
indices (for example, Morgan Stanley World Index, Morgan
Stanley Capital International EAFE Index, FT-Actuaries Europe
& Pacific Index and the S&P 500(R) Index) 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;
B-84
. volatility of total return of various market indices (i.e.
Lehman Government Bond Index, S&P 500(R), iMoneyNet, Inc.'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-85
VALUE OF $1,000 INVESTMENT (AVERAGE ANNUAL TOTAL RETURN) Gross ---------------------- Assuming no voluntary waiver of fees and no Net expense reimbursements ------------------------- -------------------------- Assumes Assumes Maximum Maximum Applicable Assumes Applicable Assumes Sales No sales Sales No Sales Portfolio Class Time Period Charge* Charge Charge* Charge --------- ----- ----------- ------- ------ ------- ------ Conservative Strategy A 1/1/00-12/31/00 - One Year (0.43)% 5.35% (1.77)% 3.93% Conservative Strategy A 2/8/99-12/31/00 - Since inception 2.64% 5.73% 0.54% 3.58% Conservative Strategy B 1/1/00-12/31/00 - One Year (0.77)% 4.45% (2.17)% 3.05% Conservative Strategy B 2/8/99-12/31/00 - Since inception 2.73% 4.94% 0.59% 2.80% Conservative Strategy C 1/1/00-12/31/00 - One Year 3.51% 4.55% 2.11% 3.15% Conservative Strategy C 2/8/99-12/31/00 - Since inception 4.93% 4.93% 2.79% 2.79% Conservative Strategy Institutional 1/1/00-12/31/00 - One Year N/A 5.88% N/A 4.46% Conservative Strategy Institutional 2/8/99-12/31/00 - Since inception N/A 6.29% N/A 4.13% Conservative Strategy Service 1/1/00-12/31/00 - One Year N/A 5.31% N/A 3.90% Conservative Strategy Service 2/8/99-12/31/00 - Since inception N/A 5.73% N/A 3.57% B-86
VALUE OF $1,000 INVESTMENT (AVERAGE ANNUAL TOTAL RETURN) Gross ---------------------- Assuming no voluntary waiver of fees and no Net expense reimbursements ------------------------- -------------------------- Assumes Assumes Maximum Maximum Applicable Assumes Applicable Assumes Sales No sales Sales No Sales Portfolio Class Time Period Charge* Charge Charge* Charge --------- ----- ----------- ------- ------ ------- ------ Balanced Strategy A 1/1/00-12/31/00 - One Year (6.12)% (0.66)% (6.59)% (1.15)% Balanced Strategy A 1/2/98-12/31/00 - Since inception 3.37% 5.33% 2.73% 4.68% Balanced Strategy B 1/1/00-12/31/00 - One Year (6.26)% (1.33)% (6.74)% (1.81)% Balanced Strategy B 1/2/98-12/31/00 - Since inception 3.55% 4.59% 2.93% 3.97% Balanced Strategy C 1/1/00-12/31/00 - One Year (2.30)% (1.31)% (2.79)% (1.80)% Balanced Strategy C 1/2/98-12/31/00 - Since inception 4.62% 4.62% 4.00% 4.00% Balanced Strategy Institutional 1/1/00-12/31/00 - One Year N/A (0.25)% N/A (0.74)% Balanced Strategy Institutional 1/2/98-12/31/00 - Since inception N/A 5.78% N/A 5.16% Balanced Strategy Service 1/1/00-12/31/00 - One Year N/A (0.11)% N/A (0.60)% Balanced Strategy Service 1/2/98-12/31/00 - Since inception N/A 5.46% N/A 4.84% B-87
VALUE OF $1,000 INVESTMENT (AVERAGE ANNUAL TOTAL RETURN) Gross ---------------------- Assuming no voluntary waiver of fees and no Net expense reimbursements ----------------------- ----------------------- Assumes Assumes Maximum Maximum Applicable Assumes Applicable Assumes Sales No sales Sales No Sales Portfolio Class Time Period Charge* Charge Charge* Charge --------- ----- ----------- ------- ------ ------- ------ Growth and Income Strategy A 1/1/00-12/31/00 - One Year (9.78)% (4.54)% (10.03)% (4.81)% Growth and Income Strategy A 1/2/98-12/31/00 - Since inception 3.64% 5.60% 3.29% 5.25% Growth and Income Strategy B 1/1/00-12/31/00 - One Year (10.01)% (5.28)% (10.27)% (5.54)% Growth and Income Strategy B 1/2/98-12/31/00 - Since inception 3.84% 4.84% 5.51% 4.51% Growth and Income Strategy C 1/1/00-12/31/00 - One Year (6.31)% (5.36)% (6.58)% (5.63)% Growth and Income Strategy C 1/2/98-12/31/00 - Since inception 4.79% 4.79% 4.47% 4.47% Growth and Income Strategy Institutional 1/1/00-12/31/00 - One Year N/A (3.99)% N/A (4.25)% Growth and Income Strategy Institutional 1/2/98-12/31/00 - Since inception N/A 6.05% N/A 5.73% Growth and Income Strategy Service 1/1/00-12/31/00 - One Year N/A (4.63)% N/A (4.90)% Growth and Income Strategy Service 1/2/98-12/31/00 - Since inception N/A 5.47% N/A 5.15% B-88
VALUE OF $1,000 INVESTMENT (AVERAGE ANNUAL TOTAL RETURN) Gross ---------------------- Assuming no voluntary waiver of fees and no Net expense reimbursements ------------------------- ----------------------- Assumes Assumes Maximum Maximum Applicable Assumes Applicable Assumes Sales No sales Sales No Sales Portfolio Class Time Period Charge* Charge Charge* Charge --------- ----- ----------- ------- ------ ------- ------ Growth Strategy A 1/1/00-12/31/00 - One Year (13.69)% (8.68)% (13.95)% (8.96)% Growth Strategy A 1/2/98-12/31/00 - Since inception 2.96% 4.91% 2.56% 4.51% Growth Strategy B 1/1/00-12/31/00 - One Year (13.92)% (9.39)% (14.19)% (9.66)% Growth Strategy B 1/2/98-12/31/00 - Since inception 3.17% 4.14% 2.80% 3.77% Growth Strategy C 1/1/00-12/31/00 - One Year (10.27)% (9.36)% (10.54)% (9.63)% Growth Strategy C 1/2/98-12/31/00 - Since inception 4.17% 4.17% 3.79% 3.79% Growth Strategy Institutional 1/1/00-12/31/00 - One Year N/A (8.28)% N/A (8.55)% Growth Strategy Institutional 1/2/98-12/31/00 - Since inception N/A 5.28% N/A 4.90% Growth Strategy Service 1/1/00-12/31/00 - One Year N/A (8.67)% N/A (8.94)% Growth Strategy Service 1/2/98-12/31/00 - Since inception N/A 4.79% N/A 4.41% B-89
VALUE OF $1,000 INVESTMENT (AVERAGE ANNUAL TOTAL RETURN) Assuming no voluntary waiver of fees and no expense reimbursements ----------------------- Assumes Assumes Maximum Maximum Applicable Assumes Applicable Assumes Sales No sales Sales No Sales Fund Class Time Period Charge* Charge Charge* Charge ---- ----- ----------- ------- ------ ------- ------ Aggressive Growth Strategy A 1/1/00-12/31/00 - One Year (16.32)% (11.47)% (16.65)% (11.83)% Aggressive Growth Strategy A 1/2/98-12/31/00 - Since inception 2.48% 4.42% 1.91% 3.84% Aggressive Growth Strategy B 1/1/00-12/31/00 - One Year (16.46)% (12.07)% (16.81)% (12.42)% Aggressive Growth Strategy B 1/2/98-12/31/00 - Since inception 2.72% 3.70% 2.17% 3.15% Aggressive Growth Strategy C 1/1/00-12/31/00 - One Year (12.88)% (12.00)% (13.24)% (12.36)% Aggressive Growth Strategy C 1/2/98-12/31/00 - Since inception 3.74% 3.74% 3.19% 3.19% Aggressive Growth Strategy Institutional 1/1/00-12/31/00 - One Year N/A (11.07)% N/A (11.42)% Aggressive Growth Strategy Institutional 1/2/98-12/31/00 - Since inception N/A 4.76% N/A 4.19% Aggressive Growth Strategy Service 1/1/00-12/31/00 - One Year N/A (11.55)% N/A (11.90)% Aggressive Growth Strategy Service 1/2/98-12/31/00 - Since inception N/A 4.32% N/A 3.77% ----------------------- All returns are average annual total returns. * Total return reflects a maximum initial sales charge of 5.5% for Class A Shares, the assumed deferred sales charge for Class B Shares (5% maximum declining to 0% after six years) and the assumed deferred sales charge for Class C Shares (1% if redeemed within 12 months of purchase). B-90
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in a Portfolio.
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 Portfolio's investments and
discussions of a Portfolio's current asset allocation.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by the Investment
Adviser 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 the Investment Adviser'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 Portfolio's performance data will be based on historical results and
will not be intended to indicate future performance. A Portfolio's total return,
yield and distribution rate will vary based on market conditions, portfolio
expenses, portfolio investments and other factors. The value of a Portfolio's
shares will fluctuate and an investor's shares may be worth more or less than
their original cost upon redemption.
The Trust may, at its discretion, from time to time make a list of a
Portfolio's holdings available to investors upon request.
SHARES OF THE TRUST
Each Portfolio is a series of Goldman Sachs Trust, which was formed
under the laws of the state of Delaware on January 28, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by
shareholders. The Trustees also have authority to classify and reclassify the
shares of the Portfolios into one or more classes of shares. As of the date of
this Additional Statement, the Trustees have authorized the issuance of five
classes of shares in each Portfolio: Institutional Shares, Service Shares, Class
A Shares, Class B Shares and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Portfolio represents a proportionate interest in the
assets belonging to the applicable class of the Portfolio. All expenses of a
Portfolio are borne at the same rate by each class of shares, except that fees
under Service Plan are borne exclusively by Service Shares, fees under the
Distribution and Service Plan are borne exclusively by Class A Shares, Class B
Shares or Class C Shares, and transfer agency fees may be borne at different
rates by different share classes. The Trustees may determine in the future that
it is appropriate to
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allocate other expenses differently between classes of shares and may do so to
the extent consistent with the rules of the SEC and positions of the Internal
Revenue Service. Each class of shares may have different minimum investment
requirements and be entitled to different shareholder services. With limited
exceptions, shares of a class may only be exchanged for shares of the same or an
equivalent class of another series. See "Shareholder Guide" in the Prospectuses
and "Other Information Regarding Maximum Sales Charge, Purchases, Redemptions,
Exchanges and Dividends" below.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Portfolio under a Plan for services provided to the
institution's customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of service fees and shareholder administration fees at the
annual rate of up to 0.25% and 0.25% respectively of the average daily net
assets of the Portfolio attributable to Service Shares.
Class A Shares are sold, with an initial sales charge, through brokers
and dealers who are members of the National Association of Securities Dealers,
Inc. (the "NASD") and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares of the Portfolios bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. With respect to Class A Shares,
the Distributor at its discretion may use compensation for distribution services
paid under the Distribution and Services Plan for personal and account
maintenance services and expenses so long as such total compensation under the
Plan does not exceed the maximum cap on "service fees" imposed by the NASD.
Class B Shares of the Portfolios are sold subject to a contingent
deferred sales charge of up to 5.5% through brokers and dealers who are members
of the NASD and certain other financial services firms that have sales
arrangements with Goldman Sachs. Class B Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.75% of the average daily net
assets attributed to Class B Shares. Class B Shares also bear the cost of a
service fee at an annual rate of up to 0.25% of the average daily net assets
attributed to Class B Shares.
Class C Shares of the Portfolios are sold subject to a contingent
deferred sales charge of up to 1.0% through brokers and dealers who are members
of the NASD and certain other financial services firms that have sales
arrangements with Goldman Sachs. Class C Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.75% of the average daily net
assets attributable to Class C Shares. Class C Shares also bear the cost of
service fees at an annual rate of up to 0.25% of the average daily net assets
attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A, Class B and Class C
Shares) to its customers and thus receive different compensation with respect to
different classes of shares of each Portfolio.
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Dividends paid by each Portfolio, if any, with respect to each class of shares
will be calculated in the same manner, at the same time on the same day and will
be in the same amount, except for differences caused by the differences in
expenses discussed above. Similarly, the net asset value per share may differ
depending upon the class of shares purchased.
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. The Trustees may,
however, cause shareholders, or shareholders of a particular series or class, to
pay certain custodian, transfer, servicing or similar agent charges by setting
of the same against declared but unpaid dividends or by reducing share ownership
(or by both means). In the event of liquidation, shareholders are entitled to
share pro rata in the net assets of the applicable class of the relevant
Portfolio available for distribution to such shareholders. All shares are freely
transferable and have no preemptive, subscription or conversion rights.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Portfolios' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent.
Portfolio shares and any dividends and distributions paid by the Portfolios are
reflected in account statements from the Transfer Agent.
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding Class A shares of the Balanced
Strategy Portfolio: Edward Jones & Co., 201 Progress Pkwy., Maryland Hts., MO
63043-3009 (12%).
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding Class A shares of the Growth &
Income Strategy Portfolio: Edward Jones & Co., 201 Progress Pkwy., Maryland
Hts., MO 63043-3009 (15%).
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding Class A shares of the Growth
Strategy Portfolio: Edward Jones & Co., 201 Progress Pkwy., Maryland Hts., MO
63043-3009 (10%).
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding Class A shares of the Aggressive
Growth Strategy Portfolio: Edward Jones & Co., 201 Progress Pkwy., Maryland
Hts., MO 63043-3009 (7%).
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding Class B shares of the Conservative
Strategy Portfolio: Merrill Lynch Pierce Fenner & Smith, For the Sole Benefit of
It's Customers, Attn: Service Team Sec#, Goldman Sachs Funds, 4800 Deer Lake
Drive East, /3rd/ Fl., Jacksonville, FL 32246-6484 (56%).
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect to assets specifically allocated to such class or series. In
addition, Rule 18f-2 under the Act provides that any
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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 without the vote or consent of the shareholders, 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,
officers, employees and agents 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, series or its respective
shareholders. The factors and 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
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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 adversely affect the voting rights
of shareholders; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; 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.
Shareholder and Trustee Liability
Under Delaware law, the shareholders of the Portfolios 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 this risk, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of a Portfolio. 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 Portfolio 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
B-95
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 Portfolio 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
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 Portfolio. 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
Portfolio. 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 Portfolio that are not described in the Prospectuses.
The discussions below and in the Prospectuses are not intended as substitutes
for careful tax planning.
Each Portfolio and each Underlying Fund is a separate taxable entity.
Each of the Portfolios and the Underlying Funds intends to qualify for each
taxable year as a regulated investment company under Subchapter M of the
Internal Revenue Code, as amended (the "Code").
There are certain tax requirements that all Portfolios and Underlying
Funds must follow in order to avoid federal taxation. In its efforts to adhere
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 Portfolio or 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 Portfolio
or 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 Portfolio's or 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%
B-96
of the value of such Portfolio's or 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 securities and securities of other
regulated investment companies) or two or more issuers controlled by the
Portfolio or the Fund and engaged in the same, similar or related trades or
businesses.
If a Portfolio or Fund complies with such provisions, then in any
taxable year in which such Portfolio or 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 Portfolio or Fund (but
not its shareholders) will be relieved of federal income tax on any income of
the Portfolio or Fund, including long-term capital gains, distributed to
shareholders. In this connection, dividends received by a Portfolio from an
Underlying Fund, other than capital gain distributions, are treated as ordinary
income to the Portfolio. Distributions from an Underlying Fund designated as
capital gain distributions are treated as long-term capital gains. In addition,
upon the sale or other disposition by a Portfolio of shares of an Underlying
Fund or other investment, the Portfolio will generally realize a capital gain or
loss which will be long-term or short-term, generally depending upon the
Portfolio's holding period.
If a Portfolio or 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 a Portfolio or Fund retains any net capital gain, the
Portfolio 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 rate capital gain, as the case may be, their
shares of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Portfolio or 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 Portfolio or 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 Portfolio and each
Underlying 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 CORE
International Equity, International Growth Opportunities, Emerging Markets
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 Portfolio
and each Underlying 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 Portfolio or Fund does not qualify as a
regulated
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investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates without any deduction for
dividends paid, and its distributions to shareholders will be taxable as
ordinary dividends to the extent of its current and accumulated earnings and
profits.
As of December 31, 2000, the Portfolios had no capital loss
carryforwards for U.S. federal tax purposes.
Note: For federal income tax purposes, each Portfolio or 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.
In order to avoid a 4% federal excise tax, each Portfolio and each
Underlying Fund must 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 Portfolio or Fund paid no federal income tax. For federal income
tax purposes, dividends declared by a Portfolio or 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. Each Portfolio and each Underlying
Fund anticipates that it 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.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by an Underlying Fund will be
required to be "marked-to-market" for federal income tax purposes, that is,
treated as having been sold at their fair market value on the last day of the
Fund's taxable year. These provisions may require an Underlying Fund to
recognize income or gains without a concurrent receipt of cash. Any gain or loss
recognized on actual or deemed sales of these futures contracts, forward
contracts, or options will (except for certain foreign currency options, forward
contracts, and futures contracts) be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. As a result of certain hedging
transactions entered into by an Underlying Fund, the Fund may be required to
defer the recognition of losses on futures contracts, forward contracts, and
options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions held by such Underlying Fund and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures and forward
contracts may affect the amount, timing and character of an Underlying Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and an Underlying Fund may therefore be
required to limit its participation in such transactions. Certain tax elections
B-98
may be available to an Underlying Fund to mitigate some of the unfavorable
consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by an Underlying Fund. Under
these rules, foreign exchange gain or loss realized with respect to foreign
currencies and certain futures and options thereon, foreign currency-denominated
debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed an Underlying Fund's
investment company taxable income (computed without regard to such loss) for a
taxable year, the resulting loss would not be deductible by the Fund or its
shareholders in future years. Net loss, if any, from certain of the foregoing
currency transactions or instruments could exceed net investment income
otherwise calculated for accounting purposes with the result being either no
dividends being paid or a portion of an Underlying Fund's dividends being
treated as a return of capital for tax purposes, nontaxable to the extent of a
shareholder's tax basis in his shares and, once such basis is exhausted,
generally giving rise to capital gains.
An Underlying Fund's investment in zero coupon securities, deferred
interest securities, certain structured securities or other securities bearing
original issue discount or, if an Underlying Fund elects to include market
discount in income currently, market discount, as well as any "mark to market"
gain from certain options, futures or forward contracts, as described above,
will generally cause it to realize income or gain prior to the receipt of cash
payments with respect to these securities or contracts. In order to obtain cash
to enable it to distribute this income or gain, maintain its qualification as a
regulated investment company and avoid federal income or excise taxes, the
Underlying Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.
If, as may occur for certain of the Underlying Funds, more than 50% of
an Underlying Fund's total assets at the close of any taxable year consists of
stock or securities of foreign corporations, the Underlying Fund may file an
election with the Internal Revenue Service pursuant to which shareholders of the
Underlying Fund would be required to (i) include in ordinary gross income (in
addition to taxable dividends actually received) their pro rata shares of
foreign income taxes paid by the Underlying Fund that are treated as income
taxes under U.S. tax regulations (which excludes, for example, stamp taxes,
securities transaction taxes, and similar taxes) even though not actually
received by such shareholders, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.
If an Underlying Fund makes this election, its shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by an Underlying
Fund, although such shareholders will be required to include their shares of
such taxes in gross income if the election is made.
B-99
While a Portfolio will be able to deduct the foreign taxes that it will
be treated as receiving from an Underlying Fund if the election is made, the
Portfolio will not itself be able to elect to treat its foreign taxes as paid by
its shareholders. Accordingly, the shareholders of the Portfolio will not have
an option of claiming a foreign tax credit for foreign taxes paid by the
Underlying Funds, while persons who invest directly in such Underlying Funds may
have that option.
If an Underlying Fund acquires stock (including, under proposed
regulations, an option to acquire stock such as is inherent in a convertible
bond) in certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties
or capital gain) or hold at least 50% of their assets in investments producing
such passive income ("passive foreign investment companies"), the Underlying
Fund could be subject to federal income tax and additional interest charges on
"excess distributions" received from such companies or gain from the sale of
stock in such companies, even if all income or gain actually received by the
Underlying Fund is timely distributed to its shareholders. The Underlying Fund
would not be able to pass through to its shareholders any credit or deduction
for such a tax. In some cases, elections may be available that would ameliorate
these adverse tax consequences, but such elections would require the Underlying
Fund to include certain amounts as income or gain (subject to the distribution
requirements described above) without a concurrent receipt of cash. Each Fund
may limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues for
an Underlying 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 an Underlying 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 an Underlying Fund, in the event it
invests in such securities, in order to seek to eliminate or minimize any
adverse tax consequences.
Taxable U.S. Shareholders - Distributions
For U.S. federal income tax purposes, distributions by a Portfolio
generally will be taxable to shareholders who are subject to tax. Shareholders
receiving a distribution in the form of newly issued shares will be treated for
U.S. federal income tax purposes as receiving a distribution in an amount equal
to the amount of cash they would have received had they elected to receive cash
and will have a cost basis in each share received equal to such amount divided
by the number of shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Portfolio's dividend income, if any, that would be eligible for the dividends
received deduction if such Portfolio were not a regulated investment company may
be eligible for the dividends-received deduction for corporate shareholders. The
dividends-received deduction, if available, is reduced to the extent the shares
with respect to which the dividends are received are treated as debt-financed
under federal income tax law and is eliminated if the shares are deemed to have
been held for
B-100
less than a minimum period, generally 46 days. The entire dividend, including
the deducted amount, is considered in determining the excess, if any, of a
corporate shareholder's adjusted current earnings over its alternative minimum
taxable income, which may increase its liability for the federal alternative
minimum tax, and the dividend may, if it is treated as an "extraordinary
dividend" under the Code, reduce such shareholder's tax basis in its shares of a
Portfolio. Capital gain dividends (i.e., dividends from net capital gain), if
designated as such in a written notice to shareholders mailed not later than 60
days after a Portfolio's taxable year closes, will be taxed to shareholders as
long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends-received deduction for
corporations. Such long-term capital gain will generally be 20%-rate gain (10%
for those shareholders in the 15% tax bracket). In addition, any long-term gain
distributions related to assets held for more than five years and sold after
December 31, 2000 will be taxed at a maximum rate of 8% for those shareholders
in the 15% tax bracket. For taxpayers in higher tax brackets, the capital gains
tax rate will be reduced from 20% to 18% for long-term gain distributions
related to assets acquired after December 31, 2000 and held for more than five
years. Distributions, if any, that are in excess of a Portfolio's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Taxable U.S. Shareholders - Sale of Shares
When a shareholder's shares are sold, redeemed or otherwise disposed of
in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. (To aid in computing its tax basis, a
shareholder should generally retain its account statement for the period that it
held shares.) Assuming the shareholder holds the shares as a capital asset at
the time of such sale, such gain or loss should be capital in character, and
long-term if the shareholder has a tax holding period for the shares of more
than one year, otherwise short-term. In general, the maximum long-term capital
gain rate will be 20% for gains on assets held more than one year (10% for those
shareholders in the 15% tax bracket). In addition, gains related to the sale of
shares held for more than five years and sold after December 31, 2000 will be
taxed at a maximum rate of 8% for those shareholders in the 15% tax bracket. For
shareholders in higher tax brackets, the capital gains tax rate will be reduced
from 20% to 18% for any shares acquired after December 31, 2000 (or
marked-to-market at the beginning of 2001) and held for more than five years.
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Portfolio shares is properly treated as a sale
for tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the
B-101
purchase of shares of a Portfolio will not be taken into account in determining
gain or loss on the redemption or exchange of such shares within 90 days after
their purchase to the extent the redemption proceeds are reinvested, or the
exchange is effected, without payment of an additional sales load pursuant to
the reinvestment or exchange privilege. The load not taken into account will be
added to the tax basis of the newly acquired shares. Additionally, any loss
realized on a sale or redemption of shares of a Portfolio may be disallowed
under "wash sale" rules to the extent the shares disposed of are replaced with
other shares of the same Portfolio within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of, such as pursuant to
a dividend reinvestment in shares of such Portfolio. If disallowed, the loss
will be reflected in an adjustment to the basis of the shares acquired.
Each Portfolio may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Portfolio with a correct
taxpayer identification number ("TIN") certified under penalties of perjury, or
if the Internal Revenue Service or a broker notifies the Portfolio that the
payee is subject to backup withholding as a result of failing to properly report
interest or dividend income to the Internal Revenue Service or that the TIN
furnished by the payee to the Portfolio is incorrect, or if (when required to do
so) the payee fails to certify under penalties of perjury that it is not subject
to backup withholding. A Portfolio may refuse to accept an application that does
not contain any required TIN or certification that the TIN provided is correct.
If the backup withholding provisions are applicable, any such dividends and
proceeds, whether paid in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. If a
shareholder does not have a TIN, it should apply for one immediately by
contacting its local office of the Social Security Administration or the
Internal Revenue Service. Backup withholding could apply to payments relating to
a shareholder's account while it is waiting receipt of a TIN. Special rules
apply for certain entities. For example, for an account established under a
Uniform Gifts for Transfer to Minors Act, the TIN of the minor should be
furnished.
Non-U.S. Shareholders
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons" (i.e., are nonresident aliens, foreign
corporations, fiduciaries of foreign trusts or estates, foreign partnerships or
other non-U.S. investors) generally will be subject to U.S. federal withholding
tax at the rate of 30% on distributions treated as ordinary income unless the
tax is reduced or eliminated pursuant to a tax treaty or the dividends are
effectively connected with a U.S. trade or business of the shareholder. In the
latter case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions of net capital gain, including amounts retained by a Portfolio
which are designated as undistributed capital gains, to a non-U.S. shareholder
will not be subject to U.S. federal income or withholding tax unless the
distributions are effectively connected with the shareholder's trade or business
in the United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met.
B-102
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Portfolio will not be subject to U.S. federal income
or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Portfolio with the proper IRS
Form W-8 (i.e., W-8 BEN, W-8 ECI, W-8 IMY or W-8 EXP) or an acceptable
substitute may be subject to backup withholding at the rate of 31% on capital
gain dividends and the proceeds of redemptions and exchanges. Also, non-U.S.
shareholders may be subject to estate tax. Each shareholder who is not a U.S.
person should consult his or her tax adviser regarding the U.S. and non-U.S. tax
consequences of ownership of shares of and receipt of distributions from the
Portfolios.
State and Local
Each Portfolio and each Underlying Fund may be subject to state or local
taxes in jurisdictions in which such Portfolio or Underlying Fund, as the case
may be, may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Portfolio and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Portfolio may have tax consequences for
shareholders different from those of a direct investment in the securities held
by the Portfolio or the Underlying Funds. Shareholders should consult their own
tax advisers concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related report of
PricewaterhouseCoopers LLP independent public accountants, contained in each
Portfolio's 2000 Annual Report are hereby incorporated by reference. The
financial statements in each Portfolio's Annual Report have been incorporated by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The financial statements and financial
highlights included in each Portfolio's Annual Report for periods ending on or
before December 31, 1999 were audited by Arthur Andersen LLP, the Portfolios'
former independent auditors. The report of Arthur Andersen LLP dated February
16, 2000 on the Portfolios' financial statements included in each Portfolio's
Annual Report to Shareholders for the fiscal period ended December 31, 1999, is
also incorporated herein by reference. No other parts of any Annual Report are
incorporated by reference herein. Copies of the Annual Reports may be obtained
without charge by writing Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606 or by calling Goldman, Sachs & Co., toll free at
800-526-7384.
OTHER INFORMATION
Each Portfolio will normally redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio during any
90-day period for any one shareholder. Each Portfolio, however, reserves the
right to pay redemptions exceeding
B-103
$250,000 or 1% of the net asset value of the Portfolio at the time of redemption
by a distribution in kind of securities (instead of cash) from such Portfolio.
The securities distributed in kind would be readily marketable and would be
valued for this purpose using the same method employed in calculating the
Portfolio'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 Portfolio 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 Portfolio 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
Portfolio. (The Trust may also suspend or postpone the recordation of the
transfer of shares upon the occurrence of any of the foregoing conditions.)
The Prospectuses 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 Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
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.
Statements contained in the Prospectuses 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 Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. In some, but not all, cases these payments will be pursuant to a
Distribution and Service Plan or Service Plan described in the Prospectuses and
the following sections. Certain Service Organizations or institutions may enter
into sub-transfer agency agreements with the Trust or Goldman Sachs with respect
to their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out
of their own assets, compensation to Authorized Dealers, Service Organizations
and other financial intermediaries ("Intermediaries") for the sale and
distribution of shares of the Portfolios and/or for the servicing of those
shares. These payments ("Additional Payments") would be in addition to the
payments by the Portfolios described in the Portfolios' Prospectuses and this
Additional Statement for distribution and shareholder servicing and processing,
and would also be in addition to the sales commissions payable to Intermediaries
as set forth in the Prospectuses. These Additional Payments may take the form of
"due diligence"
B-104
payments for an Intermediary's examination of the Portfolios and payments for
providing extra employee training and information relating to the Portfolios;
"listing" fees for the placement of the Portfolios on an Intermediary's list of
mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Portfolios; "marketing support" fees for
providing assistance in promoting the sale of the Portfolios' shares; and
payments for the sale of Shares and/or the maintenance of share balances. In
addition, the Investment Adviser, Distributor and/or their affiliates may make
Additional Payments for subaccounting, administrative and/or shareholder
processing services that are in addition to the shareholder servicing and
processing fees paid by the Portfolios. The Additional Payments made by the
Investment Adviser, Distributor and their affiliates may be a fixed dollar
amount, may be based on the number of customer accounts maintained by an
Intermediary, or may be based on a percentage of the value of shares sold to, or
held by, customers of the Intermediary involved, and may be different for
different Intermediaries. Furthermore, the Investment Adviser, Distributor
and/or their affiliates may contribute to various non-cash and cash incentive
arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions. The Adviser, Distributor
and their affiliates may also pay for the travel expenses, meals, lodging and
entertainment of Intermediaries and their salespersons and guests in connection
with educational, sales and promotional programs subject to applicable NASD
regulations. The Distributor currently expects that such additional bonuses or
incentives will not exceed 0.50% of the amount of any sales.
OTHER INFORMATION REGARDING MAXIMUM
SALES CHARGE, PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A, Class B and Class C Shares Only)
The following information supplements the information in the Prospectuses
under the captions "Shareholder Guide" and "Dividends." Please see the
Prospectuses for more complete information.
Maximum Sales Charges
Class A Shares of each Portfolio are sold at a maximum sales charge of
5.5%. Using the offering price per share, as of December 31, 2000, the maximum
offering price of each Portfolio's Class A shares would be as follows:
Net Asset Maximum Offering Price
Value Sales Charge to Public
Conservative Strategy $10.11 5.5% $10.70
Balanced Strategy $10.16 5.5% $10.75
Growth and Income Strategy $10.64 5.5% $11.26
Growth Strategy $10.88 5.5% $11.51
Aggressive Growth Strategy $10.71 5.5% $11.33
B-105
Other Purchase Information
The sales load waivers on the Portfolios' shares are due to the nature
of the investors involved and/or the reduced sales effort that is needed to
obtain such investments.
If shares of a Portfolio are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by a Portfolio and its Transfer Agent. Since the
Portfolios will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Dealer to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with a
Portfolio involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Dealer.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Portfolio shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their clients
for other investment or administrative services and may independently establish
and charge additional amounts to their clients for such services, which charges
would reduce a client's return.
Right of Accumulation - (Class A)
A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of a
Portfolio and Class A Shares of any other mutual funds sponsored by Goldman
Sachs (the "Goldman Sachs Funds") total the requisite amount for receiving a
discount. For example, if a shareholder owns shares with a current market value
of $65,000 and purchases additional Class A Shares of any Goldman Sachs Fund
with a purchase price of $45,000, the sales charge for the $45,000 purchase
would be 3.75% (the rate applicable to a single purchase of $100,000 up to (but
less than) $250,000). Class A Shares purchased without the imposition of a sales
charge and shares of another class of the Portfolios may not be aggregated with
Class A Shares purchased subject to a sales charge. Class A Shares of the
Portfolios and any other Goldman Sachs Fund purchased (i) by an individual, his
spouse and his children, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for such right of
accumulation and, if qualifying, the applicable sales charge level. For purposes
of applying the right of accumulation, (i) shares of the Portfolios and any
other Goldman Sachs Fund purchased by an existing client of the Private Client
Services Division of Goldman Sachs will be combined with Class A Shares held by
all other Private Client Services accounts, and (ii) shares of the Portfolios
and any other Goldman Sachs Fund purchased by an existing client of Goldman.com
will be combined with Class A Shares and other assets held in the client's
Goldman.com account. In addition, Class A Shares of the Portfolios and Class A
Shares of any other Goldman Sachs Fund purchased by partners, directors,
officers
B-106
or employees of the same business organization or by groups of individuals
represented by and investing on the recommendation of the same accounting firm,
certain affinity groups or other similar organizations (collectively, "eligible
persons") may be combined for the purpose of determining whether a purchase will
qualify for the right of accumulation and, if qualifying, the applicable sales
charge level. This right of accumulation is subject to the following conditions:
(i) the business organization's, group's or firm's agreement to cooperate in the
offering of the Portfolios' shares to eligible persons; and (ii) notification to
the relevant Portfolio at the time of purchase that the investor is eligible for
this right of accumulation.
Statement of Intention - (Class A)
If a shareholder anticipates purchasing at least $100,000 of Class A
Shares of a Portfolio alone or in combination with Class A Shares of any other
Goldman Sachs Fund within a 13-month period, the shareholder may purchase shares
of the Portfolio at a reduced sales charge by submitting a Statement of
Intention (the "Statement"). Shares purchased pursuant to a Statement will be
eligible for the same sales charge discount that would have been available if
all of the purchases had been made at the same time. The shareholder or his or
her Authorized Dealer must inform Goldman Sachs that the Statement is in effect
each time shares are purchased. There is no obligation to purchase the full
amount of shares indicated in the Statement. A shareholder may include the value
of all Class A Shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A Shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related
escrow agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
You may receive dividends and distributions in additional shares of the
same class of the Portfolio in which you have invested or you may elect to
receive them in cash or shares of the same class of other Goldman Sachs Funds or
ILA Service Shares of the Prime Obligations Fund or the Tax-Exempt Diversified
Fund, if you hold Class A Shares of a Portfolio, or ILA Class B or Class C
Shares of the Prime Obligations Fund, if you hold Class B or Class C Shares of a
Portfolio (the "ILA Funds").
B-107
A Portfolio shareholder should obtain and read the prospectus relating
to any other Goldman Sachs Fund or ILA Fund and its shares and consider its
investment objective, policies and applicable fees before electing
cross-reinvestment into that Fund. The election to cross-reinvest dividends and
capital gain distributions will not affect the tax treatment of such dividends
and distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends and
distributions in shares of other Goldman Sachs Funds or ILA Funds is available
only in states where such reinvestment may legally be made.
Automatic Exchange Program
A Portfolio shareholder may elect to exchange automatically a specified
dollar amount of shares of a Portfolio into an identical account of another
Goldman Sachs Fund or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established, appropriate
signatures have been obtained and the minimum initial investment requirement has
been satisfied. A Portfolio shareholder should obtain and read the prospectus
relating to any other Goldman Sachs Fund and its shares and consider its
investment objective, policies and applicable fees and expenses before electing
an automatic exchange into that Goldman Sachs Fund.
Class C Exchanges
As stated in the Prospectuses, Goldman Sachs normally begins paying the
annual 0.75% distribution fee on Class C Shares to Authorized Dealers after the
shares have been held for one year. When an Authorized Dealer enters into an
appropriate agreement with Goldman Sachs and stops receiving this payment on
Class C Shares that have been beneficially owned by the Authorized Dealer's
customers for at least ten years, those Class C Shares may be exchanged for
Class A Shares (which bear a lower distribution fee) of the same Portfolio at
their relative NAV without a sales charge in recognition of the reduced payment
to the Authorized Dealer.
Systematic Withdrawal Plan
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Portfolio whose shares are worth at least $5,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Portfolio at net asset value. The Transfer Agent acts
as agent for the shareholder in redeeming sufficient full and fractional shares
to provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. The maintenance of a withdrawal
B-108
plan concurrently with purchases of additional Class A, Class B or Class C
Shares would be disadvantageous because of the sales charge imposed on purchases
of Class A Shares or the imposition of a CDSC on redemptions of Class A, Class B
and Class C Shares. The CDSC applicable to Class B and Class C Shares redeemed
under a systematic withdrawal plan may be waived. See "Shareholder Guide" in the
Prospectuses. In addition, each withdrawal constitutes a redemption of shares,
and any gain or loss realized must be reported for federal and state income tax
purposes. A shareholder should consult his or her own tax adviser with regard to
the tax consequences of participating in the Systematic Withdrawal Plan. For
further information or to request a Systematic Withdrawal Plan, please write or
call the Transfer Agent.
DISTRIBUTION AND SERVICE PLANS
(Class A, Class B and Class C Shares Only)
As described in the Prospectuses, the Trust has adopted, on behalf of
Class A, Class B and Class C Shares of each Portfolio, distribution and service
plans (each a "Plan") pursuant to Rule 12b-1 under the Act. See "Shareholder
Guide - Distribution and Service Fees" in the Prospectuses.
The Plans for each Portfolio were most recently approved on April 24,
2001 by a majority vote of the Trustees of the Trust, including a majority of
the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Plans, cast in person at a meeting called for the
purpose of approving the Plans.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75% per annum of a Portfolio's average daily net
assets attributable to Class A, Class B and Class C Shares, respectively, of
such Portfolio. Under the Plans for Class B and Class C Shares, Goldman Sachs is
also entitled to receive a separate fee for personal and account maintenance
services equal to an annual basis of 0.25% of each Portfolio's average daily net
assets attributable to Class B or Class C Shares. With respect to Class A
Shares, the Distributor at its discretion may use compensation for distribution
services paid under the Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the
maximum cap on "service fees" imposed by the NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class A, Class B and Class C
Shares may be sold by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A,
Class B and Class C Shares. To the extent such fees are not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Portfolios' Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of each Portfolio's Class
A, Class B and Class C Shares, will provide to the Trustees of the Trust for
their review, and the Trustees of the Trust will review at least quarterly a
written report of the services provided
B-109
and amounts expended by Goldman Sachs under the Plans and the purposes for which
such services were performed and expenditures were made.
The Plans will remain in effect until May 1, 2002 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of
the outstanding Class A, Class B or Class C Shares of the affected Portfolio and
share class. All material amendments of a Plan must also be approved by the
Trustees of the Trust in the manner described above. A Plan may be terminated at
any time as to any Portfolio without payment of any penalty by a vote of a
majority of the non-interested Trustees of the Trust or by vote of a majority of
the outstanding Class A, Class B or Class C Shares, respectively, of the
affected Portfolio and share class. If a Plan was terminated by the Trustees of
the Trust and no successor plan was adopted, the Portfolio would cease to make
payments to Goldman Sachs under the Plan and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed expenditures. So long as a Plan is
in effect, the selection and nomination of non-interested Trustees of the Trust
may be committed to the discretion of the non-interested Trustees of the Trust.
The Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plans will benefit the Portfolios and their Class
A, Class B and Class C Shareholders.
For the period ended December 31, 2000, 1999 and 1998, the distribution
and service fees paid to Goldman Sachs by each Portfolio then in existence
pursuant to the Class A, Class B and Class C Plans were as follows:
Period Ended December 31, 2000
------------------------------------------------------------------------
Class A Plan Class B Plan Class C Plan
============ ============ ============
Conservative Strategy/1/ $ 2,758 $ 105,594 $23,064
Balanced Strategy/2/ 86,219 302,081 216,384
Growth and Income Strategy/2/ 445,032 1,313,964 880,595
Growth Strategy/2/ 326,864 1,164,328 706,176
Aggressive Growth Strategy/2/ 144,844 455,044 332,463
Period Ended December 31, 1999
------------------------------------------------------------------------
Class A Plan Class B Plan Class C Plan
============ ============ ============
Conservative Strategy/1/ $ 2,748 $ 60,259 $ 26,721
Balanced Strategy/2/ 101,716 336,432 251,595
Growth and Income Strategy/2/ 462,094 1,381,257 949,729
Growth Strategy/2/ 313,869 1,120,232 648,606
Aggressive Growth Strategy/2/ 127,296 414,513 233,626
B-110
Period Ended December 31, 1998 ------------------------------------------------------------------------ Class A Plan Class B Plan Class C Plan ------------ ------------ ------------ Conservative Strategy/1/ N/A N/A N/A Balanced Strategy/2/ $ 86,263 $156,644 $130,311 Growth and Income Strategy/2/ 381,299 737,771 564,141 Growth Strategy/2/ 267,938 587,857 366,555 Aggressive Growth Strategy/2/ 94,953 240,609 125,878 --------------------- 1 The Conservative Strategy Portfolio commenced operations on February 8, 1999. 2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and Aggressive Growth Strategy Portfolios commenced operations on January 2, 1998. B-111
During the period ended December 31, 2000, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan of
each applicable Portfolio with Class A Shares then in existence:
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
------------- --------- -------- ------------ -----------
Period Ended December 31, 2000:
Conservative Strategy $ 3,343 $ 17,468 $ 31,705 $ 773 $ 7,702
Balanced Strategy 146,540 62,965 81,772 3,991 22,641
Growth and Income Strategy 643,907 106,632 121,838 6,216 35,085
Growth Strategy 449,255 106,032 127,253 6,280 37,198
Aggressive Growth Strategy 234,234 48,882 103,712 5,486 29,731
---------------------
1 Advance commissions paid to dealers of 1% on Class A shares are
considered deferred assets which are amortized over a period of one
year; amounts presented above reflect amortization expense recorded
during the period presented.
B-112
During the period ended December 31, 2000, Goldman Sachs incurred the
following expenses in connection with distribution under the Class B Plan of
each applicable Portfolio with Class B Shares then in existence:
Compensation Printing and Preparation
and Expenses Allocable Mailing of And
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
To Dealers/1/ Personnel Expenses Shareholders Advertising
------------- --------- -------- ------------ -----------
Period Ended December 31, 2000:
Conservative Strategy $ 122,750 $82,333 $113,401 $ 5,305 $31,509
Balanced Strategy 536,999 49,666 68,385 33,936 37,067
Growth and Income Strategy 2,017,158 67,947 88,506 4,493 25,539
Growth Strategy 1,382,985 86,703 111,771 5,541 32,605
Aggressive Growth Strategy 959,932 66,205 88,210 4,341 24,931
--------------------
1 Advance commissions paid to dealers of 4% on Class B shares are
considered deferred assets which are amortized over a period of six
years; amounts presented above reflect amortization expense recorded
during the period presented.
B-113
During the period ended December 31, 2000, Goldman Sachs incurred the
following expenses in connection with distribution under the Class C Plan of
each applicable Portfolio with Class C Shares then in existence:
Compensation Printing and Preparation
and Expenses Allocable Mailing of And
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
------------- --------- -------- ------------ -----------
Period Ended December 31, 2000:
Conservative Strategy $ 24,028 $21,903 $32,570 $ 1,247 $ 8,764
Balanced Strategy 210,753 35,380 48,514 2,420 13,712
Growth and Income Strategy 871,335 45,771 58,818 3,000 16,984
Growth Strategy 734,720 52,072 68,917 3,363 19,941
Aggressive Growth Strategy 326,953 44,550 59,893 3,146 16,985
----------------------
1 Advance commissions paid to dealers of 1% on Class C Shares are considered
deferred assets which are amortized over a period of one year; amounts presented
above reflect amortization expense recorded during the period presented.
B-114
SERVICE PLAN
(Service Shares Only)
Each Portfolio has adopted a service plan and a separate shareholder
administration plan (the "Plans") with respect to its Service Shares which
authorizes it to compensate Service Organizations for providing personal and
account maintenance and certain shareholder administration services to their
customers who are or may become beneficial owners of such shares. Pursuant to
the Plans, a Portfolio enters into agreements with Service Organizations which
purchase Service Shares of the Portfolio on behalf of their customers ("Service
Agreements"). Under such Service Agreements the Service Organizations may
perform some or all of the following services:
(a) Personal and account maintenance services, including: (i)
providing facilities to answer inquiries and respond to correspondence with
customers and other investors about the status of their accounts or about other
aspects of the Trust or the applicable Portfolio; (ii) acting as liaison between
the Service Organization's customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and
resolving problems; (iii) providing such statistical and other information as
may be reasonably requested by the Trust or necessary for the Trust to comply
with applicable federal or state law; (iv) responding to investor requests for
prospectuses; (v) displaying and making prospectuses available on the Service
Organization's premises; and (vi) assisting customers in completing application
forms, selecting dividend and other account options and opening custody accounts
with the Service Organization.
(b) Shareholder administration services, including (i) acting or
arranging for another party to act, as recordholder and nominee of the Service
Shares beneficially owned by the Service Organization's customers; (ii)
establishing and maintaining individual accounts and records with respect to the
Service Shares owned by each customer; (iii) processing customer orders to
purchase, redeem and exchange Service Shares; (iv) receiving and transmitting
funds representing the purchase price or redemption proceeds of such Service
Shares; (v) processing dividend payments on behalf of customers; and (vi)
performing other related services which do not constitute "any activity which is
primarily intended to result in the sale of shares" within the meaning of Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act") or
"personal and account maintenance services" within the meaning of the NASD
Conduct Rules.
As compensation for such services, each Portfolio will pay each Service
Organization a service fee in an amount up to 0.25% (on an annualized basis) for
personal and account maintenance services plus an additional 0.25% (annualized)
for shareholder administration services of the average daily net assets of the
Service Shares of the Portfolio attributable to or held in the name of such
Service Organization.
The amount of the service fees paid by each Portfolio then in existence
to Service Organizations was as follows for the period ended December 31:
B-115
2000 1999 1998 ---- ---- ---- Conservative Strategy/1/ $ 64 $ 104 N/A Balanced Strategy/2/ 2,216 2,295 $1,358 Growth and Income Strategy/2/ 8,880 8,917 3,734 Growth Strategy/2/ 2,952 3,115 820 Aggressive Growth Strategy/2/ 615 639 306 ------------------- /1/ Commenced operations on February 8, 1999. /2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and Aggressive Growth Strategy Portfolios commenced operations on January 2, 1998. Each Portfolio has adopted its Plan pursuant to Rule 12b-1 under the 1940 Act in order to avoid any possibility that payments to the Service Organizations pursuant to the Service Agreements might violate the 1940 Act. Rule 12b-1, which was adopted by the SEC under the Act, regulates the circumstances under which an investment company or series thereof may bear expenses associated with the distribution of its shares. In particular, such an investment company or series thereof cannot engage directly or indirectly in financing any activity which is primarily intended to result in the sale of shares issued by the company unless it has adopted a plan pursuant to, and complies with the other requirements of, such Rule. The Trust believes that fees paid for the services provided in the Plan and described above are not expenses incurred primarily for effecting the distribution of Service Shares. However, should such payments be deemed by a court or the SEC to be distribution expenses, such payments would be duly authorized by the Plan. Conflict of interest restrictions (including the Employee Retirement Income Security Act of 1974) may apply to a Service Organization's receipt of compensation paid by a Portfolio in connection with the investment of fiduciary assets in Service Shares of such Portfolio. Service Organizations, including banks regulated by the Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit Insurance Corporation, and investment advisers and other money managers subject to the jurisdiction of the SEC, the Department of Labor or state securities regulators, are urged to consult their legal advisers before investing fiduciary assets in Service Shares of the Portfolios. In addition, under some state securities laws, banks and other financial institutions purchasing Service Shares on behalf of their customers may be required to register as dealers. The Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or the related Service Agreements, most recently voted to approve each Portfolio's Plan and related Service Agreements at a meeting called for the purpose of voting on such Plan and Service Agreements on April 24, 2001. The Plan and Service Agreements will remain in effect until May 1, 2002 and will continue in effect thereafter only if such continuance is specifically approved annually by a vote of the Board of Trustees in the manner described above. The Plan may not be amended to increase materially the amount to be spent for the services described therein without approval of the Service Shareholders of the affected Portfolio, and all material amendments of the Plan must also be approved by the Board of Trustees in the manner described above. The Plan may be terminated at any time by a majority of the Board of Trustees as described above or by vote of a majority of the affected Portfolio's outstanding Service Shares. The Service Agreements may be terminated at any B-116
time, without payment of any penalty, by vote of a majority of the Board of
Trustees as described above or by a vote of a majority of the affected
Portfolio's outstanding Service Shares on not more than sixty (60) days' written
notice to any other party to the Service Agreements. The Service Agreements will
terminate automatically if assigned. So long as the Plan is in effect, the
selection and nomination of those Trustees who are not interested persons will
be committed to the discretion of the Trust's Nominating Committee, which
consists of all of the non-interested members of the Board of Trustees. The
Board of Trustees has determined that, in its judgment, there is a reasonable
likelihood that a Portfolio's Plan will benefit such Portfolio and its holders
of Service Shares.
B-117
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.
1-A
Moody's commercial paper ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. These obligations have an
original maturity not exceeding 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.
Fitch short-term ratings apply to time horizons of less than 12 months for
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner. The following summarizes the rating categories
used by Fitch for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest 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.
2-A
"B" - Securities possess speculative credit quality. This designation
indicates minimal 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 solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
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.
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
3-A
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" - An obligation rated "C" is currently highly vulnerable to nonpayment.
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.
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.
4-A
"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 unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba" - Bonds are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
"B" - Bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa " - Bonds are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
"Ca" - Bonds represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
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 long-term ratings used by Fitch:
"AAA" - Securities 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" - Securities 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" - Securities 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
5-A
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" - Securities 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" - Securities 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" - Securities 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" - Securities 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.
"DDD," "DD" and "D" - Securities 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.
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:
6-A
"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.
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 superior credit quality.
Excellent protection afforded by established cash flows, highly reliable
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes strong credit quality. Margins
of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes acceptable credit. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
"SG" - This designation denotes speculative-grade credit quality. Debt
instruments in this category lack sufficient margins of protection.
Fitch uses the same ratings for municipal securities as described above for
other short-term credit ratings.
7-A
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 maintain
1-B
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.
2-B
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 fifty offices around the world Goldman Sachs employs over 20,000
professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issues from
1989-1999.
. The number one lead manager of U.S. common stock offerings from
1989-1999.*
. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1999).
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
Investment Trusts and Rights.
3-B
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 95 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 Telekom 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
4-B
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
Goldman Sachs Asset Management launches the Goldman Sachs Internet
Tollkeeper Fund; becomes the year's second most successful new fund
launch
2000 Goldman Sachs Research Select Fund launches; first day sales are the
highest ever for any Goldman Sachs Fund
5-B
APPENDIX C
Statement of Intention
(applicable only to Class A shares)
If a shareholder anticipates purchasing $50,000 or more of Class A Shares
of a Fund alone or in combination with Class A Shares of another Goldman Sachs
Fund within a 13-month period, the shareholder may obtain shares of the Fund at
the same reduced sales charge as though the total quantity were invested in one
lump sum by checking and filing the Statement of Intention in the Account
Application. Income dividends and capital gain distributions taken in additional
shares will not apply toward the completion of the Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that the Statement of Intention is in effect
each time shares are purchased. Subject to the conditions mentioned below, each
purchase will be made at the public offering price applicable to a single
transaction of the dollar amount specified on the Account Application. The
investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5% of
the dollar amount specified on the Account Application will be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name. All
income dividends and capital gains distributions on escrowed shares will be paid
to the investor or to his or her order. When the minimum investment so specified
is completed (either prior to or by the end of the 13th month), the investor
will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the sales
charge, the Transfer Agent will redeem, pursuant to the authority given by the
investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIOPerformance Summary December 31, 1999 The following graph shows the value as of December 31, 1999 of a $10,000 in- vestment made on February 1, 1998 in Class A (with the maximum sales charge of 5.5%), Class B (applicable maximum contingent deferred sales charges of 5% declining to 0% after six years), Class C (contingent deferred sales charges of 1% if redeemed within twelve months), Institutional (at NAV) and Service (at NAV) shares. For comparative purposes, the performance of the portfolio's benchmarks (the S&P 500 Index, Lehman Brothers High Yield Bond Index, Lehman Brothers Aggregate Bond Index and Morgan Stanley EAFE Index ("MSCI EAFE")) are also shown. All performance data shown represents past performance and should not be considered indicative of future performance which will fluctu- ate with changes in market conditions. These performance fluctuations will cause an investor's shares, when redeemed, to be worth more or less than original cost. Goldman Sachs Growth and Income Strategy Portfolio's Lifetime Performance Performance of a $10,000 Investment, Distributions Reinvested February 1, 1998 to December 31, 1999.(a) [GRAPH] Average Annual Total Return through December 31, 1999 Since Inception(b) One Year Class A Excluding sales charges 11.09% 15.79% Including sales charges 8.00% 9.46% ------------------------------------------------------------------------- Class B Excluding contingent deferred sales charges 10.31% 14.95% Including contingent deferred sales charges 8.40% 9.86% ------------------------------------------------------------------------- Class C Excluding contingent deferred sales charges 10.29% 14.94% Including contingent deferred sales charges 10.29% 13.92% ------------------------------------------------------------------------- Institutional Class 11.47% 16.14% ------------------------------------------------------------------------- Service Class 10.94% 15.60% ------------------------------------------------------------------------- (a) For comparative purposes, initial investments are assumed to be made on the first day of the month following commencement of operations. (b) All classes commenced operations on January 2, 1998. 12
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Performance Summary
December 31, 1999
The following graph shows the value as of December 31, 1999, of a $10,000 in-
vestment made on February 1, 1998 in Class A (with the maximum sales charge
of 5.5%), Class B (applicable maximum contingent deferred sales charges of 5%
declining to 0% after six years), Class C (contingent deferred sales charge
of 1% if redeemed within twelve months), Institutional (at NAV) and Service
(at NAV) shares. For comparative purposes, the performance of the portfolio's
benchmarks (the S&P 500 Index, MSCI EAFE, Russell 2000 Index and MSCI EMF)
are also shown. All performance data shown represents past performance and
should not be considered indicative of future performance which will fluctu-
ate with changes in market conditions. These performance fluctuations will
cause an investor's shares, when redeemed, to be worth more or less than
original cost.
Goldman Sachs Aggressive Growth Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1999.(a)
[GRAPH]
Class A Class B Class C Institutional Class
------- ------- ------- -------------------
2/1/98 9,450 10,000 10,000 10,000
2/98 10,050 10,635 10,635 10,635
3/98 10,327 10,928 10,928 10,928
4/98 10,382 10,977 10,977 10,986
5/98 10,041 10,615 10,615 10,625
6/98 9,930 10,488 10,488 10,508
7/98 9,708 10,254 10,244 10,273
8/98 8,084 8,525 8,525 8,555
9/98 8,223 8,672 8,672 8,701
10/98 8,786 9,248 9,258 9,297
11/98 9,173 9,658 9,668 9,707
12/98 9,466 9,954 9,965 10,039
1/99 9,587 10,082 10,093 10,167
2/99 9,298 9,768 9,779 9,661
3/99 9,680 10,161 10,171 10,266
4/99 10,276 10,789 10,790 10,908
5/99 9,988 10,475 10,485 10,602
6/99 10,509 11,015 11,025 11,165
7/99 10,476 10,907 10,917 11,066
8/99 10,360 10,848 10,858 11,017
9/99 10,248 10,720 10,721 10,888
10/99 10,658 11,142 11,153 11,333
11/99 11,031 11,525 11,536 11,738
12/99 11,869 11,806 12,391 12,623
Service S&P MSCI Russell MSCI
Class 500 EAFE 2000 EMF
------- ------ ------ ------- ------
2/1/98 10,000 10,000 10,000 10,000 10,000
2/98 10,635 10,721 10,644 10,739 11,044
3/98 10,928 11,270 10,974 11,181 11,523
4/98 10,986 11,384 11,063 11,243 11,398
5/98 10,625 11,188 11,012 10,637 9,836
6/98 10,508 11,642 11,098 11,659 8,804
7/98 10,273 11,518 11,213 9,796 9,083
8/98 8,545 9,852 9,826 7,894 6,457
9/98 8,701 10,484 9,527 8,512 6,867
10/98 9,297 11,336 10,523 8,859 7,590
11/98 9,707 12,023 11,065 9,323 8,221
12/98 10,013 12,715 11,504 9,900 8,102
1/99 10,142 13,247 11,473 10,032 7,971
2/99 9,836 12,836 11,202 9,219 8,049
3/99 10,230 13,349 11,673 9,363 9,110
4/99 10,872 13,866 12,148 10,202 10,237
5/99 10,556 13,539 11,525 10,351 10,177
6/99 11,108 14,290 11,976 10,819 11,333
7/99 11,010 13,844 12,335 10,522 11,024
8/99 10,960 13,775 12,383 10,133 11,125
9/99 10,832 13,397 12,511 10,135 10,748
10/99 11,266 14,245 12,983 10,177 10,977
11/99 11,661 14,535 13,436 10,784 11,962
12/99 12,533 15,391 14,644 12,003 13,483
Average Annual Total Return through
December 31, 1999 Since Inception(b) One Year
Class A
Excluding sales charges 13.43% 25.39%
Including sales charges 10.27% 18.51%
-------------------------------------------------------------------------
Class B
Excluding contingent deferred sales charges 12.63% 24.41%
Including contingent deferred sales charges 10.82% 19.39%
-------------------------------------------------------------------------
Class C
Excluding contingent deferred sales charges 12.66% 24.35%
Including contingent deferred sales charges 12.66% 23.35%
-------------------------------------------------------------------------
Institutional Class 13.71% 25.74%
-------------------------------------------------------------------------
Service Class 13.31% 25.17%
-------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
15
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Assets and Liabilities
December 31, 1999
Conservative Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio
Assets:
Investment in
securities, at value
(identified cost
$14,399,992,
$90,819,393,
$409,334,870,
$274,503,169,
$110,188,691,
respectively) $14,447,881 $97,988,246 $464,267,685 $329,671,922 $137,054,839
Cash 14,351 103,865 -- 90,533 --
Receivables:
Investment securities
sold -- -- 111,475 -- 50,638
Dividends and interest 81,411 360,799 712,343 137,292 --
Fund shares sold 231,200 181,006 1,327,248 722,357 1,278,570
Reimbursement from
adviser 33,650 80,770 19,903 20,786 55,615
Deferred organization
expenses, net -- 9,384 9,384 9,384 9,384
Other assets -- 36,201 80,384 30,191 23,193
-------------------------------------------------------------------------------------------------------------------------
Total assets 14,808,493 98,760,271 466,528,422 330,682,465 138,472,239
-------------------------------------------------------------------------------------------------------------------------
Liabilities:
Due to Custodian -- -- 111,475 -- 50,638
Payables:
Investment securities
purchased 114,351 288,448 -- 690,533 --
Fund shares repurchased 28,695 115,576 593,334 668,278 146,627
Dividends and
distributions 225 4,480 1,579 854 --
Amounts owed to
affiliates 16,666 84,499 368,308 275,437 110,387
Accrued expenses and
other liabilities 63,136 35,008 36,156 36,100 35,253
-------------------------------------------------------------------------------------------------------------------------
Total liabilities 223,073 528,011 1,110,852 1,671,202 342,905
-------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 14,597,966 92,232,004 419,362,341 284,730,212 117,372,230
Accumulated
undistributed net
investment income 11,141 74,007 379,632 150,904 520
Accumulated net realized
loss on investment
transactions (71,576) (1,242,604) (9,257,218) (11,038,606) (6,109,564)
Net unrealized gain on
investments 47,889 7,168,853 54,932,815 55,168,753 26,866,148
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $14,585,420 $98,232,260 $465,417,570 $329,011,263 $138,129,334
-------------------------------------------------------------------------------------------------------------------------
Net asset value,
offering and redemption
price per share:(a)
Class A $ 10.17 $ 10.99 $ 11.71 $ 12.24 $ 12.61
Class B $ 10.18 $ 10.98 $ 11.69 $ 12.21 $ 12.57
Class C $ 10.17 $ 10.99 $ 11.69 $ 12.22 $ 12.57
Institutional $ 10.18 $ 10.99 $ 11.71 $ 12.23 $ 12.60
Service $ 10.18 $ 10.99 $ 11.69 $ 12.22 $ 12.59
-------------------------------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 166,861 3,618,863 16,662,183 10,648,526 4,631,725
Class B 1,026,961 2,997,907 12,292,112 9,986,725 3,775,389
Class C 237,572 2,124,946 8,174,605 5,739,098 2,272,739
Institutional 556 159,558 2,492,818 481,574 283,292
Service 1,380 38,121 158,682 60,112 10,908
-------------------------------------------------------------------------------------------------------------------------
Total shares
outstanding, $.001 par
value
(unlimited number of
shares authorized) 1,433,330 8,939,395 39,780,400 26,916,035 10,974,053
-------------------------------------------------------------------------------------------------------------------------
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares of the Conservative, Balanced, Growth and
Income, Growth and Aggressive Growth Strategy Portfolios is $10.76,
$11.63, $12.39, $12.95 and $13.34, respectively. At redemption, Class B
and Class C shares may be subject to a contingent deferred sales charge,
assessed on the amount equal to the lesser of the current net asset value
or the original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
17
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS Statements of Operations For the Year Ended December 31, 1999 Conservative Balanced Growth and Income Growth Aggressive Growth Strategy Portfolio(a) Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio Investment income: Income distributions from underlying funds $ 492,046 $3,801,002 $11,438,999 $ 4,618,732 $ 850,148 Interest 2,871 1,368 -- -- 1,700 ------------------------------------------------------------------------------------------------------------------------------- Total income 494,917 3,802,370 11,438,999 4,618,732 851,848 ------------------------------------------------------------------------------------------------------------------------------- Expenses: Management fees 34,384 353,673 1,543,759 1,076,406 413,376 Distribution and service fees(b) 89,728 689,743 2,793,080 2,082,707 775,435 Transfer agent fees(b) 18,627 189,653 803,333 576,665 220,841 Custodian fees 31,193 37,435 40,199 37,179 35,804 Registration fees 114,522 66,156 86,504 69,841 68,140 Printing fees 53,431 78,191 77,858 78,629 78,565 Professional fees 45,750 45,299 37,543 41,031 37,511 Trustee fees 3,533 9,961 9,992 9,926 9,923 Service share fees 104 2,295 8,917 3,115 639 Amortization of deferred organization expenses -- 3,124 3,124 3,124 3,124 Other 14,758 26,533 18,157 17,273 15,855 ------------------------------------------------------------------------------------------------------------------------------- Total expenses 406,030 1,502,063 5,422,466 3,995,896 1,659,213 ------------------------------------------------------------------------------------------------------------------------------- Less -- expenses reimbursed and fees waived (282,443) (464,755) (1,137,883) (859,791) (480,413) ------------------------------------------------------------------------------------------------------------------------------- Net expenses 123,587 1,037,308 4,284,583 3,136,105 1,178,800 ------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 371,330 2,765,062 7,154,416 1,482,627 (326,952) ------------------------------------------------------------------------------------------------------------------------------- Realized and unrealized gain (loss):Capital gain distributions from underlying funds 30,617 657,854 3,794,547 3,399,319 1,625,836 Net realized loss from investment transactions (76,211) (362,801) (8,095,438) (7,977,873) (4,234,702) Net change in unrealized gain on investments 47,889 6,486,202 60,600,001 60,257,599 30,030,774 ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain 2,295 6,781,255 56,299,110 55,679,045 27,421,908 ------------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 373,625 $9,546,317 $63,453,526 $57,161,672 $27,094,956 -------------------------------------------------------------------------------------------------------------------------------
(a) Commencement date of operations was February 8, 1999. (b) The fees were as follows:Distribution and Service fees Transfer Agent fees ------------------------ ------------------- Class A Class B Class C Class A Class B Class C Institutional Service ------- ------- ------- ------- ------- ------- ------------- ------- Conservative Strategy Portfolio $ 2,748 $ 60,259 $ 26,721 $ 2,089 $ 11,450 $ 5,077 $ 2 $ 9 Balanced Strategy Portfolio 101,716 336,432 251,595 77,305 63,922 47,803 440 183 Growth and Income Strategy Portfolio 462,094 1,381,257 949,729 351,191 262,439 180,448 8,542 713 Growth Strategy Portfolio 313,869 1,120,232 648,606 238,541 212,844 123,235 1,796 249 Aggressive Growth Strategy Portfolio 127,296 414,513 233,626 96,745 78,757 44,389 899 51 The accompanying notes are an integral part of these financial statements. 18
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
Conservative Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio(a) Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio
From operations:
Net investment income
(loss) $ 371,330 $ 2,765,062 $ 7,154,416 $ 1,482,627 $ (326,952)
Net realized gain
(loss) (45,594) 295,053 (4,300,891) (4,578,554) (2,608,866)
Net change in
unrealized gain on
investments 47,889 6,486,202 60,600,001 60,257,599 30,030,774
--------------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 373,625 9,546,317 63,453,526 57,161,672 27,094,956
--------------------------------------------------------------------------------------------------------------------------------
Distributions to share-
holders:
From net investment
income
Class A shares (48,073) (1,283,422) (3,513,379) (775,133) --
Class B shares (227,566) (837,467) (1,850,557) (419,987) --
Class C shares (93,720) (604,293) (1,236,421) (239,577) --
Institutional shares (1,684) (47,311) (520,875) (43,647) --
Service shares (287) (13,741) (33,184) (4,283) --
In excess of net
investment income
Class A shares (2,527) (196,066) (1,212,004) (1,254,133) (582,900)
Class B shares (11,956) (127,938) (638,384) (679,523) (166,040)
Class C shares (4,924) (92,317) (426,526) (387,627) (112,211)
Institutional shares (88) (7,228) (179,686) (70,618) (45,376)
Service shares (15) (2,099) (11,447) (6,931) (1,221)
From net realized gain
Class A shares (331) -- (133,498) -- --
Class B shares (2,012) -- (98,778) -- --
Class C shares (750) -- (65,692) -- --
Institutional shares (36) -- (19,412) -- --
Service shares (1) -- (1,276) -- --
--------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (393,970) (3,211,882) (9,941,119) (3,881,459) (907,748)
--------------------------------------------------------------------------------------------------------------------------------
From share transac-
tions:
Proceeds from sales of
shares 17,086,075 32,867,922 136,387,842 92,727,150 46,103,886
Reinvestment of
dividends and
distributions 141,362 2,750,804 9,336,422 3,667,590 888,074
Cost of shares
repurchased (2,621,672) (42,576,876) (165,269,449) (125,249,674) (45,359,768)
--------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from share transactions 14,605,765 (6,958,150) (19,545,185) (28,854,934) 1,632,192
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) 14,585,420 (623,715) 33,967,222 24,425,279 27,819,400
--------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year -- 98,855,975 431,450,348 304,585,984 110,309,934
--------------------------------------------------------------------------------------------------------------------------------
End of year $14,585,420 $98,232,260 $465,417,570 $329,011,263 $138,129,334
--------------------------------------------------------------------------------------------------------------------------------
Accumulated
undistributed net
investment income $ 11,141 $ 74,007 $ 379,632 $ 150,904 $ 520
--------------------------------------------------------------------------------------------------------------------------------
(a) Commencement date of operations was February 8, 1999.
The accompanying notes are an integral part of these financial statements.
19
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Changes in Net Assets
For the Period Ended December 31, 1998
Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a)
From operations:
Net investment income $ 1,383,598 $ 4,786,745 $ 1,889,408 $ 290,616
Net realized gain (loss) (391,456) 1,940,943 (2,037,167) (1,809,589)
Net change in unrealized
gain (loss) on
investments 682,651 (5,667,186) (5,088,846) (3,164,626)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 1,674,793 1,060,502 (5,236,605) (4,683,599)
----------------------------------------------------------------------------------------------------------------------
Distributions to share-
holders:
From net investment
income
Class A shares (675,433) (2,306,364) (1,028,555) (235,518)
Class B shares (389,882) (1,359,409) (531,921) (33,771)
Class C shares (308,560) (990,627) (309,463) (19,874)
Institutional shares (2,105) (112,462) (16,851) (830)
Service shares (7,619) (17,883) (2,618) (623)
In excess of net
investment income
Class A shares (113,394) (822,962) (291,624) (689)
Class B shares (65,455) (485,067) (150,814) (99)
Class C shares (51,802) (353,478) (87,742) (58)
Institutional shares (353) (40,129) (4,778) (2)
Service shares (1,279) (6,381) (742) (2)
From net realized gain
Class A shares (162,793) (867,706) (595,050) (201,675)
Class B shares (140,756) (672,087) (501,683) (176,608)
Class C shares (102,275) (483,928) (297,823) (93,875)
Institutional shares (747) (43,567) (9,965) (496)
Service shares (1,869) (6,591) (1,740) (474)
----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (2,024,322) (8,568,641) (3,831,369) (764,594)
----------------------------------------------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of
shares 116,904,997 479,484,104 345,618,571 134,338,429
Reinvestment of
dividends and
distributions 1,726,504 7,902,811 3,614,716 736,661
Cost of shares
repurchased (19,425,997) (48,428,428) (35,579,329) (19,316,963)
----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
share transactions 99,205,504 438,958,487 313,653,958 115,758,127
----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 98,855,975 431,450,348 304,585,984 110,309,934
----------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period -- -- -- --
----------------------------------------------------------------------------------------------------------------------
End of period $ 98,855,975 $431,450,348 $304,585,984 $110,309,934
----------------------------------------------------------------------------------------------------------------------
Accumulated
undistributed net
investment income $ 21,172 $ -- $ -- $ 15,311
----------------------------------------------------------------------------------------------------------------------
(a) Commencement date of operations was January 2, 1998. The accompanying notes are an integral part of these financial statements. 20
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes Goldman Sachs Conservative
Strategy Portfolio (Conservative Strategy), Goldman Sachs Balanced Strategy
Portfolio (Balanced Strategy), Goldman Sachs Growth and Income Strategy Port-
folio (Growth and Income Strategy), Goldman Sachs Growth Strategy Portfolio
(Growth Strategy) and Goldman Sachs Aggressive Growth Strategy Portfolio (Ag-
gressive Growth Strategy), collectively, (the "Portfolios") or individually
(a "Portfolio"). Effective February 8, 1999, the name of Goldman Sachs Income
Strategy Portfolio was changed to Goldman Sachs Balanced Strategy Portfolio.
All of the Portfolios offer five classes of shares -- Class A, Class B, Class
C, Institutional and Service Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts. Actual
results could differ from those estimates.
A. Investment Valuation -- Each Portfolio invests in a combination of Under-
lying Funds (the "Underlying Funds") for which Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman, Sachs & Co. ("Goldman
Sachs"), Goldman Sachs Funds Management L.P. ("GSFM") and Goldman Sachs Asset
Management International ("GSAMI"), affiliates of Goldman Sachs, act as in-
vestment adviser. Investments in the Underlying Funds are valued at the clos-
ing net asset value per share of each Underlying Fund on the day of
valuation. Because each Portfolio invests primarily in other mutual funds,
which fluctuate in value, the Portfolios' shares will correspondingly fluctu-
ate in value. Short-term debt obligations maturing in sixty days or less are
valued at amortized cost.
B. Securities Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated on the identified cost basis. Dividend income
and capital gains distributions from the Underlying Funds are recorded on the
ex-dividend date. Interest income is recorded on the basis of interest ac-
crued.
C. Federal Taxes -- It is each Portfolio's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies and to distribute each year substantially all of its investment company
taxable income and capital gains to its shareholders. Accordingly, no federal
tax provisions 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.
The Portfolios, at their most recent tax year-ends of December 31, 1999,
had approximately the following amounts of capital loss carryforward for U.S.
federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
Years of
Portfolio Amount Expiration
------------------------------------------------
Growth and Income Strategy $5,807,000 2000-2007
------------------------------------------------
Growth Strategy 9,066,000 2000-2007
------------------------------------------------
Aggressive Growth Strategy 4,741,000 2000-2007
------------------------------------------------
21
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS Notes to Financial Statements December 31, 1999 At December 31, 1999, the Fund's aggregate cost of portfolio securities, gross unrealized gain on investments and gross unrealized loss on investments for federal income tax purposes were as follows: Gross Gross Net Unrealized Unrealized Unrealized Portfolio Tax Cost Gain (Loss) Gain (Loss) ------------------------------------------------------------------------------ Conservative Strategy $ 14,467,684 $ 263,076 $ (282,879) $ (19,803) ------------------------------------------------------------------------------ Balanced Strategy 92,205,693 8,104,653 (2,322,100) 5,782,553 ------------------------------------------------------------------------------ Growth and Income Strategy 412,784,980 60,504,768 (9,022,063) 51,482,705 ------------------------------------------------------------------------------ Growth Strategy 276,475,664 55,750,469 (2,554,211) 53,196,258 ------------------------------------------------------------------------------ Aggressive Growth Strategy 111,556,815 25,642,910 (144,886) 25,498,024 ------------------------------------------------------------------------------ D. Expenses -- Expenses incurred by the Trust that do not specifically relate to an individual Portfolio of the Trust are allocated to the Portfolios based on a straight-line or pro rata basis depending upon the nature of the ex- pense. Class A, Class B and Class C shareholders of the Portfolios bear all ex- penses and fees relating to their respective distribution and service plans. Shareholders of Service shares bear all expenses and fees paid to service or- ganizations. Each class of shares of the Funds separately bears its respec- tive class-specific transfer agency fees. E. Deferred Organization Expenses -- Organization-related costs are being am- ortized on a straight line basis over a period of five years beginning with the commencement of each Portfolio's operations (with the exception of the Conservative Strategy Portfolio which commenced operations in 1999). 3. AGREEMENTS As of September 1, 1999, Goldman Sachs & Co. ("Goldman Sachs") established a new operating division called the Investment Management Division ("IMD"). This newly created entity includes Goldman Sachs Asset Management ("GSAM"). Pursuant to an Investment Management Agreement (the "Agreement"), GSAM serves as the Portfolios' investment adviser. Under the Agreement, GSAM, subject to the general supervision of the Trust's Board of Trustees, manages the Portfo- lios. As compensation for the services rendered pursuant to the Agreement, the assumption of the expenses related thereto and administering the Portfo- lio's business affairs, including providing facilities, GSAM is entitled to a fee, computed daily and payable monthly at an annual rate equal to .35% of the average daily net assets of each Portfolio. For the year ended December 31, 1999, the adviser has voluntarily agreed to waive a portion of the man- agement fee equal annually to .20% of each Portfolio's average daily net as- sets. The adviser may discontinue or modify this waiver in the future at its discretion. During the period, GSAM has voluntarily agreed to limit "Other Expenses" (excluding management fees, distribution and service fees, transfer agent fees, taxes, interest, brokerage, litigation, service share fees, indemnifi- cation costs and other extraordinary expenses) to the extent that such ex- penses exceed .00% of the average daily net assets of each Portfolio. 22
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS For the year ended December 31, 1999, the adviser and distributor have vol- untarily agreed to waive certain fees and reimburse other expenses as follows (in thousands): Management Portfolio Fee Waivers Reimbursement Total ------------------------------------------------------------------------------------- Conservative Strategy $ 20 $262 $ 282 ------------------------------------------------------------------------------------- Balanced Strategy 202 263 465 ------------------------------------------------------------------------------------- Growth and Income Strategy 882 256 1,138 ------------------------------------------------------------------------------------- Growth Strategy 615 245 860 ------------------------------------------------------------------------------------- Aggressive Growth Strategy 236 244 480 ------------------------------------------------------------------------------------- Goldman Sachs serves as Distributor of the shares of the Portfolios pursu- ant to Distribution Agreements. Goldman Sachs may receive a portion of the Class A sales load and Class B and Class C contingent deferred sales charges and has advised the Portfolios that it retained approximately $4,000, $41,000, $129,000, $124,000 and $52,000 for the year ended December 31, 1999 from the Conservative, Balanced, Growth and Income, Growth and Aggressive Growth Strategy Portfolios, respectively. The Trust, on behalf of each Portfolio, has adopted Distribution and Serv- ice Plans. Under the Distribution and Service Plans, Goldman Sachs and/or Au- thorized Dealers are entitled to a monthly fee from each Portfolio for distribution and shareholder maintenance services equal, on an annual basis, to .25%, 1.00% and 1.00% of the average daily net assets attributable to Class A, Class B and Class C shares, respectively. The Trust, on behalf of each Portfolio, has adopted Service Plans. These plans allow for Service shares to compensate service organizations for pro- viding varying levels of account administration and shareholder liaison serv- ices to their customers, who are beneficial owners of such shares. The Service Plan provides for compensation to the service organizations in an amount up to .50% (on an annualized basis), respectively, of the average daily net asset value of the Service shares. Goldman Sachs also serves as Transfer Agent to the Portfolios for a fee. Fees charged for such transfer agency services are calculated daily and pay- able monthly at an annual rate as follows: 0.19% of average daily net assets for Class A, Class B and Class C shares and .04% of average daily net assets for Institutional and Service shares. At December 31, 1999, the amounts owed to affiliates were as follows (in thousands):Distribution Management Transfer and Service Portfolio Fees Agent Fees Fees Total ---------------------------------------------------------------------------------- Conservative Strategy $ 2 $ 3 $ 12 $ 17 ---------------------------------------------------------------------------------- Balanced Strategy 12 16 56 84 ---------------------------------------------------------------------------------- Growth and Income Strategy 58 70 240 368 ---------------------------------------------------------------------------------- Growth Strategy 41 50 184 275 ---------------------------------------------------------------------------------- Aggressive Growth Strategy 16 21 73 110 ----------------------------------------------------------------------------------
23
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS Notes to Financial Statements December 31, 1999 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: Portfolio Purchases Sales ----------------------------------------------------- Conservative Strategy $ 20,546,199 $ 6,169,996 ----------------------------------------------------- Balanced Strategy 51,088,458 56,127,035 ----------------------------------------------------- Growth and Income Strategy 214,400,117 230,444,438 ----------------------------------------------------- Growth Strategy 151,303,414 178,761,979 ----------------------------------------------------- Aggressive Growth Strategy 57,262,789 55,958,857 ----------------------------------------------------- 5. LINE OF CREDIT FACILITY The Portfolios participate in a $250,000,000 committed and a $250,000,000 un- committed, unsecured revolving line of credit facility. Under the most re- strictive arrangement, each Portfolio must own securities having a market 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 Portfolios based on the amount of the com- mitment, which has not been utilized. During the year ended December 31, 1999, the Portfolios did not have any borrowings under either of these facil- ities. 6. 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 Portfolios' custodian. 24
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios, together with other registered investment companies having
management agreements with GSAM or their affiliates, transfer uninvested cash
balances into joint accounts, the daily aggregate balance of which is in-
vested in one or more repurchase agreements.
At December 31, 1999, Conservative Strategy, Balanced Strategy and Growth
Strategy had an undivided interest in the repurchase agreement in the follow-
ing joint account which equaled $100,000, $200,000 and $600,000, respectively
in principal amount. At December 31, 1999, the following repurchase agree-
ments held in this joint account were fully collateralized by Federal Agency
obligations.
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
-----------------------------------------------------------------------------------------
Morgan Stanley & Co. $501,500,000 3.25% 01/03/2000 $ 501,500,000
-----------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $ 1,541,500,000
-----------------------------------------------------------------------------------------
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of position 93-2, the Conservative Strategy
Portfolio reclassified $7,799 and $22,852 from paid-in capital and accumu-
lated net realized gain, respectively, to accumulated undistributed net in-
vestment income. The Balanced Strategy Portfolio reclassified $3,124 and
$496,531 from paid-in capital and accumulated net realized gain, respective-
ly, to accumulated undistributed net investment income. The Growth and Income
Strategy Portfolio reclassified $3,124 and $2,844,555 from paid-in capital
and accumulated net realized gain, respectively, to accumulated undistributed
net investment income. The Growth Strategy Portfolio reclassified $3,124 and
$2,546,612 from paid-in capital and accumulated net realized gain, respec-
tively, to accumulated undistributed net investment income. The Aggressive
Growth Strategy Portfolio reclassified $3,124 and $1,216,785 from paid-in
capital and accumulated undistributed net investment income. These reclas-
sifications have no impact on the net asset value of the Portfolios and are
designed to present the Portfolios' capital accounts on a tax basis.
9. CHANGE IN INDEPENDENT AUDITORS
On October 26, 1999 the Board of Trustees of the Portfolios, upon the recom-
mendation of the Board's audit committee, determined not to retain Arthur An-
dersen LLP and approved a change of the Portfolios' independent auditors to
PricewaterhouseCoopers LLP. For the fiscal years ended December 31, 1999 and
December 31, 1998, Arthur Andersen LLP's audit reports contained no adverse
opinion or disclaimer of opinion; nor were their reports qualified or modi-
fied as to uncertainty, audit scope, or accounting principles. Further, there
were no disagreements between the Portfolios and Arthur Andersen LLP on ac-
counting principles or practices, financial statement disclosure or audit
scope or procedure, which if not resolved to the satisfaction of Arthur An-
dersen LLP would have caused them to make reference to the disagreement in
their report.
25
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS Notes to Financial Statements December 31, 1999 10. SUMMARY OF SHARE TRANSACTIONS Share activity for the year ended December 31, 1999 was as follows: Conservative Strategy Portfolio(a) Balanced Strategy Portfolio ------------------------------------------------ Shares Dollars Shares Dollars ------------------------------------------------------------------------------ Class A Shares Shares sold 173,881 $ 1,765,520 1,452,214 $ 15,248,899 Reinvestment of divi- dends and distributions 4,900 49,622 127,553 1,355,167 Shares repurchased (11,920) (120,892) (1,862,291) (19,620,571) ------------------------------------------------ 166,861 1,694,250 (282,524) (3,016,505) ------------------------------------------------------------------------------ Class B Shares Shares sold 1,075,897 10,973,463 606,873 6,367,717 Reinvestment of divi- dends and distributions 3,547 35,869 70,976 755,337 Shares repurchased (52,483) (530,826) (954,896) (10,069,732) ------------------------------------------------ 1,026,961 10,478,506 (277,047) (2,946,678) ------------------------------------------------------------------------------ Class C Shares Shares sold 425,917 4,326,427 931,443 9,788,481 Reinvestment of divi- dends and distributions 5,474 55,366 54,712 582,252 Shares repurchased (193,819) (1,965,908) (1,206,850) (12,784,018) ------------------------------------------------ 237,572 2,415,885 (220,695) (2,413,285) ------------------------------------------------------------------------------ Institutional Shares Shares sold 543 6,876 137,748 1,461,448 Reinvestment of divi- dends and distributions 19 198 5,105 54,535 Shares repurchased (6) (62) (3,152) (33,277) ------------------------------------------------ 556 7,012 139,701 1,482,706 ------------------------------------------------------------------------------ Service Shares Shares sold 1,356 13,789 131 1,377 Reinvestment of divi- dends and distributions 30 307 330 3,513 Shares repurchased (6) (3,984) (6,511) (69,278) ------------------------------------------------ 1,380 10,112 (6,050) (64,388) ------------------------------------------------------------------------------ NET INCREASE (DECREASE) 1,433,330 $14,605,765 (646,615) $ (6,958,150) ------------------------------------------------------------------------------ (a) Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999. 26
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Growth and Income Strategy Portfolio Growth Strategy Portfolio Aggressive Growth Strategy Portfolio
------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------------
5,321,949 $ 57,499,167 2,940,937 $ 32,088,679 1,807,637 $ 19,472,820
420,316 4,671,976 161,757 1,953,023 46,124 572,389
(6,552,403) (70,781,847) (4,972,176) (54,217,259) (1,860,531) (20,223,331)
------------------------------------------------------------------------------------------------------------
(810,138) (8,610,704) (1,869,482) (20,175,557) (6,770) (178,122)
------------------------------------------------------------------------------------------------------------
2,489,932 26,764,231 2,725,853 29,543,291 1,035,164 11,351,648
209,269 2,340,983 84,773 1,021,397 13,429 165,006
(3,809,849) (40,992,020) (3,454,501) (37,424,031) (1,335,025) (14,327,319)
------------------------------------------------------------------------------------------------------------
(1,110,648) (11,886,806) (643,875) (6,859,343) (286,432) (2,810,665)
------------------------------------------------------------------------------------------------------------
2,921,455 31,397,342 2,351,893 25,617,083 1,091,686 12,048,959
143,029 1,597,077 47,622 574,333 8,448 104,481
(4,612,257) (49,632,323) (2,877,112) (31,223,289) (967,274) (10,464,012)
------------------------------------------------------------------------------------------------------------
(1,547,773) (16,637,904) (477,597) (5,031,873) 132,860 1,689,428
------------------------------------------------------------------------------------------------------------
1,887,228 20,170,815 472,955 5,210,566 297,675 3,228,730
62,592 699,173 9,005 108,686 3,656 45,376
(326,161) (3,557,595) (214,720) (2,348,650) (30,201) (331,894)
------------------------------------------------------------------------------------------------------------
1,623,659 17,312,393 267,240 2,970,602 271,130 2,942,212
------------------------------------------------------------------------------------------------------------
53,127 556,287 25,821 267,531 151 1,729
2,455 27,213 841 10,151 66 822
(27,488) (305,664) (3,260) (36,445) (1,195) (13,212)
------------------------------------------------------------------------------------------------------------
28,094 277,836 23,402 241,237 (978) (10,661)
------------------------------------------------------------------------------------------------------------
(1,816,806) $ (19,545,185) (2,700,312) $ (28,854,934) 109,810 $ 1,632,192
------------------------------------------------------------------------------------------------------------
27
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS Notes to Financial Statements December 31, 1999 11. SUMMARY OF SHARE TRANSACTIONS Share activity for the period ended December 31, 1998 was as follows: Balanced Strategy Portfolio(a) ----------------------------- Shares Dollars ------------------------------------------------------------------------------ Class A Shares Shares sold 4,997,153 $ 51,471,820 Reinvestment of dividends and distributions 82,247 838,318 Shares repurchased (1,178,013) (11,684,097) ----------------------------- 3,901,387 40,626,041 ------------------------------------------------------------------------------ Class B Shares Shares sold 3,444,664 35,434,153 Reinvestment of dividends and distributions 48,225 491,183 Shares repurchased (217,935) (2,216,520) ----------------------------- 3,274,954 33,708,816 ------------------------------------------------------------------------------ Class C Shares Shares sold 2,844,974 29,279,282 Reinvestment of dividends and distributions 38,221 389,643 Shares repurchased (537,554) (5,467,423) ----------------------------- 2,345,641 24,201,502 ------------------------------------------------------------------------------ Institutional Shares Shares sold 19,543 202,615 Reinvestment of dividends and distributions 314 3,204 Shares repurchased -- (28) ----------------------------- 19,857 205,791 ------------------------------------------------------------------------------ Service Shares Shares sold 49,317 517,127 Reinvestment of dividends and distributions 403 4,156 Shares repurchased (5,549) (57,929) ----------------------------- 44,171 463,354 ------------------------------------------------------------------------------ NET INCREASE 9,586,010 $ 99,205,504 ------------------------------------------------------------------------------ (a) Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998. 28
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Growth and Income Strategy Portfolio(a) Growth Strategy Portfolio(a) Aggressive Growth Strategy Portfolio(a)
--------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
--------------------------------------------------------------------------------------------------------------------
19,544,296 $205,404,749 14,105,119 $148,698,602 5,615,397 $ 58,906,369
371,985 3,793,531 186,185 1,875,658 43,646 434,720
(2,443,960) (24,540,186) (1,773,296) (17,687,486) (1,020,548) (10,034,193)
--------------------------------------------------------------------------------------------------------------------
17,472,321 184,658,094 12,518,008 132,886,774 4,638,495 49,306,896
--------------------------------------------------------------------------------------------------------------------
14,322,312 149,921,704 11,471,847 120,504,688 4,598,907 48,814,394
224,284 2,285,787 109,293 1,104,065 20,086 199,458
(1,143,836) (11,542,305) (950,540) (9,481,003) (557,172) (5,486,370)
--------------------------------------------------------------------------------------------------------------------
13,402,760 140,665,186 10,630,600 112,127,750 4,061,821 43,527,482
--------------------------------------------------------------------------------------------------------------------
10,771,031 113,315,585 7,001,932 73,846,842 2,517,693 26,370,878
159,052 1,620,876 59,550 601,742 10,102 100,417
(1,207,705) (12,060,724) (844,787) (8,390,385) (387,916) (3,796,390)
--------------------------------------------------------------------------------------------------------------------
9,722,378 102,875,737 6,216,695 66,058,199 2,139,879 22,674,905
--------------------------------------------------------------------------------------------------------------------
875,077 9,413,016 212,556 2,180,254 12,029 120,329
17,891 181,644 2,843 28,730 133 1,327
(23,809) (235,710) (1,065) (11,445) -- --
--------------------------------------------------------------------------------------------------------------------
869,159 9,358,950 214,334 2,197,539 12,162 121,656
--------------------------------------------------------------------------------------------------------------------
133,145 1,429,050 37,114 388,185 11,813 126,459
2,056 20,973 450 4,521 74 739
(4,613) (49,503) (854) (9,010) (1) (10)
--------------------------------------------------------------------------------------------------------------------
130,588 1,400,520 36,710 383,696 11,886 127,188
--------------------------------------------------------------------------------------------------------------------
41,597,206 $438,958,487 29,616,347 $313,653,958 10,864,243 $115,758,127
--------------------------------------------------------------------------------------------------------------------
29
GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIOFinancial Highlights Selected Data for a Share Outstanding Throughout the Period Income from investment operations(a) Distributions to shareholders -------------------------- ----------------------------------- Net asset In excess value, Net Net realized From net of net Net increase beginning investment and unrealized investment investment From net in net asset of period income gain income income realized gain valueFOR THE PERIOD ENDED DECEMBER 31,(e) 1999 - Class A Shares $10.00 $0.36 $0.18 $(0.36) $(0.01) $ -- $0.17 1999 - Class B Shares 10.00 0.30 0.19 (0.30) (0.01) -- 0.18 1999 - Class C Shares 10.00 0.29 0.18 (0.29) (0.01) -- 0.17 1999 - Institutional Shares 10.00 0.40(f) 0.20(f) (0.40) (0.02) -- 0.18 1999 - Service Shares 10.00 0.53 0.02 (0.37) -- -- 0.18 ------------------------------------------------------------------------------------------------------------- (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 dividends and distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. (c) Annualized. (d) Not annualized. (e) Class A, Class B, Class C, Institutional and Service Share activity commenced on February 8, 1999. (f) Calculated based on the average shares outstanding methodology. Goldman Sachs Conservative Strategy Portfolio -- Tax Information (unaudited) During the tax year ended December 31, 1999, 4.48% of the or- dinary income dividends paid by the Portfolio qualify for the dividend received deduction available for corporations. The accompanying notes are an integral part of these financial statements. 30
GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO Ratios assuming no voluntary waiver of fees or expense limitations ------------------------------------ Ratio of Net assets Ratio of net investment Ratio of Ratio of Net asset at end of net expenses income expenses to net investment Portfolio value, end Total period to average to average average loss to average turnover of period return(b)(d) (in 000s) net assets(c) net assets(c) net assets(c) net assets(c) rate(d) $10.17 5.52% $ 1,697 0.59% 4.38% 3.46% 1.51% 62.99% 10.18 4.92 10,451 1.34 3.74 4.21 0.87 62.99 10.17 4.79 2,417 1.34 3.62 4.21 0.75 62.99 10.18 6.04 6 0.19 4.43 3.06 1.56 62.99 10.18 5.56 14 0.69 2.39 3.56 (0.48) 62.99 ----------------------------------------------------------------------------------------------------------------------- 31
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIOFinancial Highlights Selected Data for a Share Outstanding Throughout each Period Income from investment operations(a) Distributions to shareholders ------------------------- ----------------------------------- Net asset In excess value, Net Net realized From net of net Net increase beginning investment and unrealized investment investment From net in net asset of period income gain income income realized gain valueFOR THE YEAR ENDED DECEMBER 31, 1999 - Class A Shares $10.31 $0.34 $0.73 $(0.34) $(0.05) $ -- $0.68 1999 - Class B Shares 10.31 0.26 0.72 (0.26) (0.05) -- 0.67 1999 - Class C Shares 10.32 0.27 0.71 (0.27) (0.04) -- 0.67 1999 - Institutional Shares 10.32 0.37 0.74 (0.37) (0.07) -- 0.67 1999 - Service Shares 10.31 0.33 0.73 (0.33) (0.05) -- 0.68 FOR THE PERIOD ENDED DECEMBER 31,(e) 1998 - Class A Shares 10.00 0.25 0.38 (0.25) (0.03) (0.04) 0.31 1998 - Class B Shares 10.00 0.19 0.38 (0.19) (0.03) (0.04) 0.31 1998 - Class C Shares 10.00 0.19 0.39 (0.19) (0.03) (0.04) 0.32 1998 - Institutional Shares 10.00 0.30 0.39 (0.30) (0.03) (0.04) 0.32 1998 - Service Shares 10.00 0.25 0.37 (0.25) (0.02) (0.04) 0.31 ------------------------------------------------------------------------------------------------------------ (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 dividends and distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. (c) Annualized. (d) Not annualized. (e) Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998. Goldman Sachs Balanced Strategy Portfolio -- Tax Information (unaudited) During the tax year ended December 31, 1999, 3.11% of the or- dinary income dividends paid by the Portfolio qualify for the dividend received deduction available for corporations. The accompanying notes are an integral part of these financial statements. 32
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO Ratios assuming no voluntary waiver of fees or expense limitations --------------------------------------- Ratio of Ratio of Net assets Ratio of net investment Ratio of net investment Net asset at end of net expenses income expenses to income to Portfolio value, end Total period to average to average average average turnover of period return(b) (in 000s) net assets net assets net assets net assets rate $10.99 10.58% $39,774 0.59% 3.17% 1.05% 2.71% 51.24% 10.98 9.66 32,932 1.34 2.42 1.80 1.96 51.24 10.99 9.63 23,354 1.34 2.40 1.80 1.94 51.24 10.99 10.92 1,753 0.19 3.93 0.65 3.47 51.24 10.99 10.47 419 0.69 3.04 1.15 2.58 51.24 10.31 6.38(d) 40,237 0.60(c) 3.03(c) 1.46(c) 2.17(c) 50.84(d) 10.31 5.75(d) 33,763 1.30(c) 2.38(c) 2.08(c) 1.60(c) 50.84(d) 10.32 5.83(d) 24,195 1.30(c) 2.34(c) 2.08(c) 1.56(c) 50.84(d) 10.32 6.99(d) 205 0.24(c) 3.55(c) 1.02(c) 2.77(c) 50.84(d) 10.31 6.30(d) 456 0.74(c) 2.90(c) 1.52(c) 2.12(c) 50.84(d) ------------------------------------------------------------------------------------------------------------------------- 33
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIOFinancial Highlights Selected Data for a Share Outstanding Throughout each Period Income from investment operations(a) Distributions to shareholders ------------------------- ----------------------------------- Net asset In excess value, Net Net realized From net of net Net increase beginning investment and unrealized investment investment From net in net asset of period income gain income income realized gain value FOR THE YEAR ENDED DECEMBER 31, 1999 - Class A Shares $10.38 $0.22 $1.40 $(0.22) $(0.06) $(0.01) $1.33 1999 - Class B Shares 10.36 0.14 1.40 (0.14) (0.06) (0.01) 1.33 1999 - Class C Shares 10.36 0.14 1.40 (0.14) (0.06) (0.01) 1.33 1999 - Institutional Shares 10.39 0.27 1.39 (0.27) (0.06) (0.01) 1.32 1999 - Service Shares 10.37 0.20 1.40 (0.20) (0.07) (0.01) 1.32 FOR THE PERIOD ENDED DECEMBER 31,(e) 1998 - Class A Shares 10.00 0.18 0.47 (0.18) (0.04) (0.05) 0.38 1998 - Class B Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36 1998 - Class C Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36 1998 - Institutional Shares 10.00 0.20 0.49 (0.20) (0.05) (0.05) 0.39 1998 - Service Shares 10.00 0.16 0.48 (0.16) (0.06) (0.05) 0.37 ---------------------------------------------------------------------------------------------------------- (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 dividends and distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. (c) Annualized. (d) Not annualized. (e) Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998. Goldman Sachs Growth and Income Strategy Portfolio -- Tax Information (unaudited) During the tax year ended December 31, 1999, 7.13% of the or- dinary income dividends paid by the Portfolio qualify for the dividend received deduction available for corporations. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $318,656 as capital gain dividends paid during its period ended December 31, 1999. The accompanying notes are an integral part of these financial statements. 34
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO Ratios assuming no voluntary waiver of fees or expense limitations --------------------------------------- Ratio of Ratio of Net assets Ratio of net investment Ratio of net investment Net asset at end of net expenses income expenses to income to Portfolio value, end Total period to average to average average average turnover of period return(b) (in 000s) net assets net assets net assets net assets rate $11.71 15.79% $195,153 0.59% 2.00% 0.85% 1.74% 49.06% 11.69 14.95 143,686 1.34 1.24 1.60 0.98 49.06 11.69 14.94 95,523 1.34 1.23 1.60 0.97 49.06 11.71 16.14 29,200 0.19 2.53 0.45 2.27 49.06 11.69 15.60 1,856 0.69 1.91 0.95 1.65 49.06 10.38 6.55(d) 181,441 0.60(c) 2.37(c) 1.05(c) 1.92(c) 41.91(d) 10.36 5.82(d) 138,914 1.30(c) 1.72(c) 1.68(c) 1.34(c) 41.91(d) 10.36 5.80(d) 100,711 1.30(c) 1.68(c) 1.68(c) 1.30(c) 41.91(d) 10.39 6.96(d) 9,030 0.23(c) 2.97(c) 0.61(c) 2.59(c) 41.91(d) 10.37 6.43(d) 1,354 0.73(c) 2.28(c) 1.11(c) 1.90(c) 41.91(d) ------------------------------------------------------------------------------------------------------------------------- 35
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIOFinancial Highlights Selected Data for a Share Outstanding Throughout each Period Income from investment operations(a) Distributions to shareholders ------------------------- ----------------------------------- Net asset In excess value, Net Net realized From net of net Net increase beginning investment and unrealized investment investment From net in net asset of period income gain income income realized gain valueFOR THE YEAR ENDED DECEMBER 31, 1999 - Class A Shares $10.29 $0.11 $2.03 $(0.11) $(0.08) $ -- $1.95 1999 - Class B Shares 10.28 0.02 2.02 (0.02) (0.09) -- 1.93 1999 - Class C Shares 10.28 0.02 2.03 (0.02) (0.09) -- 1.94 1999 - Institutional Shares 10.29 0.13 2.05 (0.13) (0.11) -- 1.94 1999 - Service Shares 10.29 0.09 2.03 (0.09) (0.10) -- 1.93 FOR THE PERIOD ENDED DECEMBER 31,(e) 1998 - Class A Shares 10.00 0.10 0.36 (0.10) (0.02) (0.05) 0.29 1998 - Class B Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28 1998 - Class C Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28 1998 - Institutional Shares 10.00 0.12 0.37 (0.12) (0.03) (0.05) 0.29 1998 - Service Shares 10.00 0.09 0.35 (0.09) (0.01) (0.05) 0.29 ------------------------------------------------------------------------------------------------------------ (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 dividends and distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. (c) Annualized. (d) Not annualized. (e) Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998. Goldman Sachs Growth Strategy Portfolio -- Tax Information (unaudited) During the tax year ended December 31, 1999, 17.83% of the ordinary income dividends paid by the Portfolio qualify for the dividend received deduction available for corporations. The accompanying notes are an integral part of these financial statements. 36
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO Ratios assuming no voluntary waiver of fees or expense limitations -------------------------------------- Ratio of Ratio of Net assets Ratio of net investment Ratio of net investment Net asset at end of net expenses income expenses to income to Portfolio value, end Total period to average to average average average turnover of period return(b) (in 000s) net assets net assets net assets net assets rate $12.24 20.85% $130,322 0.59% 0.90% 0.87% 0.62% 49.52% 12.21 19.87 121,937 1.34 0.17 1.62 (0.11) 49.52 12.22 19.96 70,127 1.34 0.16 1.62 (0.12) 49.52 12.23 21.24 5,891 0.19 1.40 0.47 1.12 49.52 12.22 20.62 735 0.69 0.87 0.97 0.59 49.52 10.29 4.62(d) 128,832 0.60(c) 1.50(c) 1.15(c) 0.95(c) 38.43(d) 10.28 3.98(d) 109,246 1.30(c) 0.83(c) 1.78(c) 0.35(c) 38.43(d) 10.28 3.96(d) 63,925 1.30(c) 0.79(c) 1.78(c) 0.31(c) 38.43(d) 10.29 4.92(d) 2,205 0.23(c) 2.88(c) 0.71(c) 2.40(c) 38.43(d) 10.29 4.45(d) 378 0.73(c) 1.63(c) 1.21(c) 1.15(c) 38.43(d) ----------------------------------------------------------------------------------------------------------------------- 37
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIOFinancial Highlights Selected Data for a Share Outstanding Throughout each Period Income (loss) from investment operations(a) Distributions to shareholders ---------------------------- ----------------------------------- Net asset In excess value, Net Net realized From net of net Net increase beginning investment and unrealized investment investment From net in net asset of period income (loss) gain income income realized gain valueFOR THE YEAR ENDED DECEMBER 31, 1999 - Class A Shares $10.16 $0.02 $2.56 $(0.02) $(0.11) $ -- $2.45 1999 - Class B Shares 10.14 (0.07) 2.54 -- (0.04) -- 2.43 1999 - Class C Shares 10.15 (0.06) 2.53 -- (0.05) -- 2.42 1999 - Institutional Shares 10.16 0.06 2.55 (0.06) (0.11) -- 2.44 1999 - Service Shares 10.15 -- 2.55 -- (0.11) -- 2.44 FOR THE PERIOD ENDED DECEMBER 31,(e) 1998 - Class A Shares 10.00 0.05 0.20 (0.05) -- (0.04) 0.16 1998 - Class B Shares 10.00 0.01 0.18 (0.01) -- (0.04) 0.14 1998 - Class C Shares 10.00 0.01 0.19 (0.01) -- (0.04) 0.15 1998 - Institutional Shares 10.00 0.07 0.20 (0.07) -- (0.04) 0.16 1998 - Service Shares 10.00 0.04 0.21 (0.04) (0.02) (0.04) 0.15 --------------------------------------------------------------------------------------------------------------- (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 dividends and distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if sales or redemption charges were taken into account. (c) Annualized. (d) Not annualized. (e) Class A, Class B, Class C, Institutional and Service Share activity commenced on January 2, 1998. Goldman Sachs Aggressive Growth Strategy Portfolio -- Tax Information (unaudited) During the tax year ended December 31, 1999, 39.26% of the ordinary income dividends paid by the Portfolio qualify for the dividend re- ceived deduction available for corporations. The accompanying notes are an integral part of these financial statements. 38
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO Ratios assuming no voluntary waiver of fees or expense limitations -------------------------------------- Ratio of Ratio of Net assets Ratio of net investment Ratio of net investment Net asset at end of net expenses income expenses to income to Portfolio value, end Total period to average to average average average turnover of period return(b) (in 000s) net assets net assets net assets net assets rate $12.61 25.39% $58,387 0.59% 0.12% 1.00% (0.29)% 47.34% 12.57 24.41 47,462 1.34 (0.63) 1.75 (1.04) 47.34 12.57 24.35 28,573 1.34 (0.61) 1.75 (1.02) 47.34 12.60 25.74 3,570 0.19 0.66 0.60 0.25 47.34 12.59 25.17 137 0.69 0.00 1.10 (0.41) 47.34 10.16 2.57(d) 47,135 0.60(c) 0.91(c) 1.42(c) 0.09 (c) 26.27(d) 10.14 1.93(d) 41,204 1.30(c) 0.14(c) 2.05(c) (0.61)(c) 26.27(d) 10.15 2.04(d) 21,726 1.30(c) 0.16(c) 2.05(c) (0.59)(c) 26.27(d) 10.16 2.80(d) 124 0.24(c) 8.17(c) 0.99(c) 7.42 (c) 26.27(d) 10.15 2.54(d) 121 0.74(c) 0.76(c) 1.49(c) 0.01 (c) 26.27(d) ------------------------------------------------------------------------------------------------------------------------- 39
GOLDMAN SACHS TRUST -- ASSET ALLOCATION PORTFOLIOSReport of Independent Public Accountants To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Asset Allocation Portfolios: We have audited the accompanying statements of assets and liabilities of Goldman Sachs Conservative Strategy Portfolio, Goldman Sachs Balanced Strat- egy Portfolio, Goldman Sachs Growth and Income Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio and Goldman Sachs Aggressive Growth Strategy Portfolio, the portfolios constituting Goldman Sachs Trust -- Asset Alloca- tion Portfolios (a Delaware Business Trust), including the statements of in- vestments, as of December 31, 1999, and the related statements of operations, the statements of changes in net assets and the financial highlights for the periods presented. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to ex- press 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 and financial highlights. Our procedures included confirma- tion of securities owned as of December 31, 1999 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over- all 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 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, constituting Goldman Sachs Trust -- Asset Allocation Portfolios as of December 31, 1999, the results of their operations, the changes in their net assets and the financial highlights for the periods pre- sented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 16, 2000 40
GOLDMAN SACHS MONEY MARKET FUNDS
PORTFOLIO CASH FUND
GOLDMAN SACHS -- INSTITUTIONAL LIQUID ASSETS PORTFOLIOS
FINANCIAL SQUARE FUNDS
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2001
ILA SHARES
ILA ADMINISTRATION SHARES
ILA SERVICE SHARES
ILA CLASS B SHARES
ILA CLASS C SHARES
ILA CASH MANAGEMENT SHARES
FST SHARES
FST SERVICE SHARES
FST ADMINISTRATION SHARES
FST PREFERRED SHARES
FST SELECT SHARES
PORTFOLIO CASH INSTITUTIONAL SHARES
PORTFOLIO CASH ADMINISTRATION SHARES
PORTFOLIO CASH PREFERRED SHARES
--------------------------------------------------------------------------------
Goldman Sachs Trust (the "Trust") is an open-end management investment
company (or mutual fund) which includes the Portfolio Cash Fund, Goldman Sachs -
Institutional Liquid Assets Portfolios and Financial Square Funds. This
Statement of Additional Information relates solely to the offering of (a)
Institutional, Administration and Preferred Shares of the Portfolio Cash Fund
("Portfolio Cash Fund"); (b) ILA Shares, ILA Administration Shares, ILA Service
Shares and ILA Cash Management Shares of: Prime Obligations Portfolio ("ILA
Prime Obligations Portfolio"), Money Market Portfolio ("ILA Money Market
Portfolio"), Treasury Obligations Portfolio ("ILA Treasury Obligations
Portfolio"), Treasury Instruments Portfolio ("ILA Treasury Instruments
Portfolio"), Government Portfolio ("ILA Government Portfolio"), Federal
Portfolio ("ILA Federal Portfolio"), Tax-Exempt Diversified Portfolio ("ILA Tax-
Exempt Diversified Portfolio"), Tax-Exempt California Portfolio ("ILA Tax-Exempt
California Portfolio") and Tax-Exempt New York Portfolio ("ILA Tax-Exempt New
York Portfolio") (individually, an "ILA Portfolio" and collectively the "ILA
Portfolios"); (c) ILA Class B and Class C Shares of ILA Prime Obligations
Portfolio; and (d) FST Shares, FST Service Shares, FST Administration Shares,
FST Preferred Shares and FST Select Shares of: Goldman Sachs - Financial Square
Prime Obligations Fund ("FS Prime Obligations Fund"), Goldman Sachs - Financial
Square Money Market Fund ("FS Money Market Fund"), Goldman Sachs - Financial
Square Treasury Obligations Fund ("FS Treasury Obligations Fund"), Goldman
Sachs-Financial Square Treasury Instruments Fund ("FS Treasury Instruments
Fund"), Goldman Sachs - Financial Square Government Fund ("FS Government Fund"),
Goldman Sachs - Financial Square Federal Fund ("FS Federal Fund") and Goldman
Sachs -Financial Square Tax-Free Money Market Fund ("FS Tax-Free Fund")
(individually, a "Fund," collectively the "Financial Square Funds" and together
with the ILA Portfolios and the Portfolio Cash Fund, the "Series").
Goldman Sachs Asset Management ("GSAM" or the "Investment Adviser"), a
unit of the Investment Management Division of Goldman, Sachs & Co. ("Goldman
Sachs"), serves as the Series' investment adviser. Goldman Sachs serves as
distributor and transfer agent to the Series.
The Goldman Sachs Funds offer banks, corporate cash managers,
investment advisers and other institutional investors a family of
professionally-managed mutual funds, including money market, fixed income and
equity funds, and a range of related services. All products are designed to
provide clients with the benefit of the expertise of GSAM and its affiliates in
security selection, asset allocation, portfolio construction and day-to-day
management.
The hallmark of the Goldman Sachs Funds is personalized service, which
reflects the priority that Goldman Sachs places on serving clients' interests.
Service Organizations, as defined below, and other Goldman Sachs clients will be
assigned an Account Administrator ("AA"), who is ready to help with questions
concerning their accounts. During business hours, Service Organizations and
other Goldman Sachs clients can call their AA through a toll-free number to
place purchase or redemption orders or to obtain Series and account information.
The AA can also answer inquiries about rates of return and portfolio
composition/holdings, and guide Service Organizations through operational
details. A Goldman Sachs client can also utilize the SMART personal computer
software system which allows Service Organizations to purchase and redeem shares
and also obtain Series and account information directly.
This Statement of Additional Information ("Additional Statement") is
not a Prospectus and should be read in conjunction with the Prospectuses for the
Series and share classes mentioned above, each dated May 1, 2001, as those
Prospectuses may be further amended and supplemented from time to time. A copy
of each Prospectus may be obtained without charge from Service Organizations, as
defined below, or by calling Goldman, Sachs Co. at 1-800-621-2550 or by writing
Goldman, Sachs Co., 4900 Sears Tower, Chicago, Illinois 60606.
The audited financial statements and related report of
PricewaterhouseCoopers LLP, independent public auditors for the ILA Portfolios
and Financial Square Funds, contained in the ILA Portfolios' and Financial
Square Funds' 2000 Annual Report are incorporated herein by reference in the
section "Financial Statements." No other portions of the Series' Annual Report
are incorporated by reference.
The date of this Additional Statement is May 1, 2001.
TABLE OF CONTENTS
Page in
Statement of
Additional
Information
-----------
INVESTMENT POLICIES AND PRACTICES OF THE SERIES........... 1
INVESTMENT LIMITATIONS.................................... 38
TRUSTEES AND OFFICERS..................................... 44
THE INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT.... 53
PORTFOLIO TRANSACTIONS.................................... 61
NET ASSET VALUE........................................... 64
REDEMPTIONS............................................... 65
CALCULATION OF YIELD QUOTATIONS........................... 66
TAX INFORMATION........................................... 76
ORGANIZATION AND CAPITALIZATION........................... 82
CUSTODIAN AND SUBCUSTODIAN................................ 89
INDEPENDENT AUDITORS...................................... 90
FINANCIAL STATEMENTS...................................... 90
OTHER INFORMATION......................................... 90
ADMINISTRATION PLANS...................................... 92
SERVICE AND SHAREHOLDER ADMINISTRATION PLANS.............. 95
SELECT PLAN............................................... 98
DISTRIBUTION AND SERVICE PLANS............................ 100
APPENDIX A................................................ A-1
APPENDIX B................................................ B-1
INVESTMENT POLICIES AND PRACTICES OF THE SERIES
Each Series is a separate pool of assets which pursues its investment
objective through separate investment policies. Each Series other than ILA Tax-
Exempt California Portfolio and ILA Tax-Exempt New York Portfolio is a
diversified, open-end management investment company. The ILA Tax-Exempt
California Portfolio and ILA Tax-Exempt New York Portfolio are non-diversified
open-end management investment companies. Capitalized terms used but not defined
herein have the same meaning as in the Prospectus. The following discussion
elaborates on the description of each Series' investment policies and practices
contained in the Prospectus:
U.S. Government Securities
Each Series (except the ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-
Exempt California Portfolio and ILA Tax-Exempt New York Portfolio and FS
Treasury Obligations Fund, FS Treasury Instruments Fund and FS Tax-Free Fund)
may invest in U.S. Government Securities. U.S. Government Securities are deemed
to include (a) securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. Government, its
agencies, authorities or instrumentalities and (b) participations in loans made
to foreign governments or their agencies that are so guaranteed. The secondary
market for certain of these participations is limited. Such participations may
therefore be regarded as illiquid.
Each Series (except the ILA Tax-Exempt Diversified Portfolio, ILA Tax-
Exempt California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-Free
Fund) may invest in separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The principal and
interest components of selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPS"). Under the STRIPS program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently.
Custodial Receipts
Each Series (other than ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Government Portfolio, ILA Federal Portfolio,
FS Treasury Obligations Fund, FS Treasury Instruments Fund, FS Government Fund,
and FS Federal Fund) may also acquire U.S. Government Securities in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Government notes or bonds. Such
notes and bonds are held in custody by a bank on behalf of the owners. These
custodial receipts are known by various names, including "Treasury Receipts,"
"Treasury Investors Growth Receipts" ("TIGRs"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). Although custodial receipts are not considered
U.S. Government Securities for certain securities law purposes, the securities
underlying such receipts are issued or guaranteed as to principal and interest
by the U.S. Government, its agencies, authorities or instrumentalities.
-1-
Bank and Corporate Obligations
Each Series (other than ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Government Portfolio, ILA Federal Portfolio,
FS Treasury Obligations Fund, FS Treasury Instruments Fund, FS Government Fund
and FS Federal Fund) may invest in commercial paper, including variable amount
master demand notes and asset-backed commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations, and finance companies. The commercial
paper purchased by the Series consists of direct U.S. dollar-denominated
obligations of domestic or, in the case of ILA Money Market Portfolio, FS Money
Market Fund and Portfolio Cash Fund, foreign issuers. The ILA Tax-Exempt
Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New
York Portfolio and FS Tax-Free Fund may invest only in tax-exempt commercial
paper. Bank obligations in which the Portfolio Cash Fund, ILA Prime Obligations
Portfolio, ILA Money Market Portfolio, FS Prime Obligations Fund and FS Money
Market Fund may invest include certificates of deposit, unsecured bank
promissory notes, bankers' acceptances, fixed time deposits and other debt
obligations. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return.
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time deposits
are bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
The ILA Money Market Portfolio, FS Money Market Fund and Portfolio
Cash Fund will invest more than 25% of their total assets in bank obligations
(whether foreign or domestic), including bank commercial paper. However, if
adverse economic conditions prevail in the banking industry (such as substantial
losses on loans, increases in non-performing assets and charge-offs and declines
in total deposits) these Funds may, for defensive purposes, temporarily invest
less than 25% of their total assets in bank obligations. As a result, the Funds
may be especially affected by favorable and adverse developments in or related
to the banking industry. The activities of U.S. banks and most foreign banks
are subject to comprehensive regulations which, in the case of U.S. regulations,
have undergone substantial changes in the past decade. The enactment of new
legislation or regulations, as well as changes in interpretation and enforcement
of current laws, may affect the manner of operations and profitability of
domestic and foreign banks. Significant developments in the U.S. banking
industry have included increased competition from other types of financial
institutions, increased acquisition activity and geographic expansion. Banks
may be particularly susceptible to certain economic factors,
-2-
such as interest rate changes and adverse developments in the market for real
estate. Fiscal and monetary policy and general economic cycles can affect the
availability and cost of funds, loan demand and asset quality and thereby impact
the earnings and financial conditions of banks.
The Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, FS Prime Obligations Fund and FS Money Market Fund may invest
in other short-term obligations, including short-term funding agreements payable
in U.S. dollars and issued or guaranteed by U.S. corporations, foreign
corporations (with respect to the ILA Money Market Portfolio, FS Money Market
Fund and Portfolio Cash Fund) or other entities. A funding agreement is a
contract between an issuer and a purchaser that obligates the issuer to pay a
guaranteed rate of interest on a principal sum deposited by the purchaser.
Funding agreements will also guarantee a stream of payments over time. A
funding agreement has a fixed maturity date and may have either a fixed or
variable interest rate that is based on an index and guaranteed for a set time
period. Because there is generally no secondary market for these investments,
funding agreements purchased by a Series may be regarded as illiquid.
Repurchase Agreements
Each Series (other than the ILA Treasury Instruments Portfolio, ILA
Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-
Exempt New York Portfolio, FS Treasury Instruments Fund and FS Tax-Free Fund)
may enter into repurchase agreements with dealers in U.S. Government Securities
and member banks of the Federal Reserve System. A repurchase agreement is an
arrangement under which the purchaser (i.e., the Series) purchases a U.S.
Government Security or other high quality short-term debt obligation (the
"Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. The ILA Federal Portfolio and FS
Federal Fund may, but do not presently intend to, invest in repurchase
agreements.
Custody of the Obligation will be maintained by the Series' custodian
or subcustodian for the duration of the agreement. The repurchase price may be
higher than the purchase price, the difference being income to the Series, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Series together with the repurchase price on repurchase. In
either case, the income to the Series is unrelated to the interest rate on the
Obligation subject to the repurchase agreement. The value of the purchased
securities, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement.
Repurchase agreements pose certain risks for all entities, including
the Series, that utilize them. Such risks are not unique to the Series but are
inherent in repurchase agreements. The Series seek to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the Investment Company Act of 1940, as amended (the
"Act"), and generally, for tax purposes, a repurchase agreement is deemed to be
a loan from the Series to the seller of the Obligation. It is not clear whether
for other purposes a court would consider the
-3-
Obligation purchased by the Series subject to a repurchase agreement as being
owned by the Series or as being collateral for a loan by the Series to the
seller.
If, in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Series does not have a
perfected security interest in the Obligation, the Series may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Series would be at risk of
losing some or all of the principal and income involved in the transaction. To
minimize this risk, the Series utilize custodians and subcustodians that the
Investment Adviser believes follow customary securities industry practice with
respect to repurchase agreements, and the Investment Adviser analyzes the
creditworthiness of the obligor, in this case the seller of the Obligation. But
because of the legal uncertainties, this risk, like others associated with
repurchase agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, a Series 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 Obligation.
Apart from risks associated with 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 Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued interest),
the Series will direct the seller of the Obligation to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.
Each Series may not invest in repurchase agreements maturing in more
than seven days and securities which are not readily marketable if, as a result
thereof, more than 10% of the net assets of that Series (taken at market value)
would be invested in such investments. Certain repurchase agreements which
mature 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, each Series (other than the ILA Treasury Instruments
Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio, ILA Tax-Exempt New York Portfolio, FS Treasury Instruments Fund and
FS Tax-Free Fund), together with other registered investment companies having
management 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.
Foreign Securities
The Portfolio Cash Fund, ILA Money Market Portfolio and FS Money
Market Fund may invest in certificates of deposit, commercial paper, unsecured
bank promissory notes, bankers' acceptances, fixed time deposits and other debt
obligations issued or guaranteed by major foreign banks which have more than $1
billion in total assets at the time of purchase, U.S. branches of such foreign
banks (Yankee obligations), foreign branches of such foreign banks and foreign
-4-
branches of U.S. banks. The ILA Prime Obligations Portfolio and FS Prime
Obligations Fund may invest in certificates of deposit, commercial paper,
unsecured bank promissory notes, bankers' acceptances, fixed time deposits and
other obligations issued by foreign branches of U.S. banks. The ILA Tax-Exempt
Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New
York Portfolio and FS Tax-Free Fund may also invest in municipal instruments
backed by letters of credit or other forms of credit enhancement issued by
foreign banks which have a branch, agency or subsidiary in the U.S. Under
current Securities and Exchange Commission ("SEC") rules relating to the use of
the amortized cost method of portfolio securities valuation, the Portfolio Cash
Fund, ILA Money Market Portfolio and FS Money Market Fund are restricted to
purchasing U.S. dollar-denominated securities, but are not otherwise precluded
from purchasing securities of foreign issuers.
The Portfolio Cash Fund, ILA Money Market Portfolio and FS Money
Market Fund may invest in U.S. dollar-denominated obligations (limited to
commercial paper and other notes) issued or guaranteed by a foreign government.
The Portfolio Cash Fund, ILA Money Market Portfolio and FS Money Market Fund may
also invest in U.S. dollar-denominated obligations issued or guaranteed by any
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of nationally recognized statistical rating organizations
("NRSROs"). The Portfolio Cash Fund, ILA Money Market Portfolio and FS Money
Market Fund may not invest more than 25% of their total assets in the securities
of any one foreign government.
Investments in foreign securities and bank obligations may involve
considerations different from investments in domestic securities due to limited
publicly available information; non-uniform accounting standards; the possible
imposition of withholding or confiscatory taxes; the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest; expropriation; or other adverse political or economic developments.
In addition, it may be more difficult to obtain and enforce a judgment against a
foreign issuer or a foreign branch of a domestic bank.
Asset-Backed and Receivables-Backed Securities
The Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, FS Prime Obligations Fund and FS Money Market Fund may invest
in asset-backed and receivables-backed securities. Asset-backed and
receivables-backed securities represent participations in, or are secured by and
payable from, pools of assets such as mortgages, motor vehicle installment sale
contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (credit card) agreements,
corporate receivables and other categories of receivables. Such asset pools are
securitized through the use of privately-formed trusts or special purpose
vehicles. 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 or other credit
enhancements may be present. The value of a Series' investments in asset-backed
and receivables-backed securities may be adversely affected by prepayment of the
underlying obligations. In addition, the risk of prepayment may cause the value
of these investments to be more volatile than a Series' other investments.
-5-
Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans, computer leases, trade receivables
and credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through structures. Consistent with their
respective investment objectives and policies, the Series may invest in these
and other types of asset-backed securities that may be developed. This
Additional Statement will be amended or supplemented as necessary to reflect the
Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money Market
Portfolio, FS Prime Obligations Fund and FS Money Market Fund intention to
invest in asset-backed securities with characteristics that are materially
different from the securities described in the preceding paragraph. However, a
Series will generally not invest in an asset-backed security if the income
received with respect to its investment constitutes rental income or other
income not treated as qualifying income under the 90% test described in "Tax
Information" below.
As set forth below, several types of asset-backed and receivables-
backed securities are offered to investors, including for example, Certificates
for Automobile Receivables(SM) ("CARS(SM)") and interests in pools of credit
card receivables. CARS(SM) represent undivided fractional interests in a trust
("CAR Trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS(SM) are passed through monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the CAR Trust. An investor's return on
CARS(SM) may be affected by early prepayment of principal on the underlying
vehicle sales contracts. If the letter of credit is exhausted, the CAR Trust may
be prevented from realizing the full amount due on a sales contract because of
state law requirements and restrictions relating to foreclosure sales of
vehicles and the obtaining of deficiency judgments following such sales or
because of depreciation, damage or loss of a vehicle, the application of federal
and state bankruptcy and insolvency laws, or other factors. As a result,
certificate holders may experience delays in payments or losses if the letter of
credit is exhausted.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card receivables
are generally unsecured and the debtors 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. There is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor or servicer. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the losses results
from payment of the insurance obligations on at least a portion of the assets in
the pool. This protection may be provided through guarantees, policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transactions or through a combination of such
approaches. The degree of credit support provided
-6-
for each issue is generally based on historical information reflecting the level
of credit risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could adversely
affect the value of or return on an investment in such a security.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
could require the Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA
Money Market Portfolio, FS Prime Obligations Fund and FS Money Market Fund to
dispose of any then existing holdings of such securities.
To the extent consistent with its investment objectives and policies,
each of the Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, FS Prime Obligations Fund and FS Money Market Fund may invest
in new types of mortgage-related securities and in other asset-backed securities
that may be developed in the future.
Forward Commitments and When-Issued Securities
Each Series may purchase securities on a when-issued basis and enter
into forward commitments. These transactions involve a commitment by the Series
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, but may be traded over-the-counter.
A Series will 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 Series may
dispose of or renegotiate a commitment after entering into it. A Series also may
sell securities it has committed to purchase before those securities are
delivered to the Series on the settlement date. The Series may realize a capital
gain or loss in connection with these transactions; distributions from any net
capital gains would be taxable to its shareholders. For purposes of determining
a Series' average dollar weighted maturity, the maturity of when-issued or
forward commitment securities will normally be calculated from the commitment
date.
When a Series purchases securities on a when-issued or forward
commitment basis, the Series will segregate cash or liquid assets having a value
(determined daily) at least equal to the amount of the Series' purchase
commitments. Alternatively, a Series may enter into off-setting contracts for
the forward sale of securities. These procedures are designed to ensure that the
Series will maintain sufficient assets at all times to cover its obligations
under when-issued purchases and forward commitments.
Variable Amount Master Demand Notes
Each Series (other than the ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Federal Portfolio, FS Treasury Obligations
Fund, FS Treasury Instruments Fund, and FS Federal Fund) may purchase variable
amount master demand notes.
-7-
These obligations permit the investment of fluctuating amounts at varying rates
of interest pursuant to direct arrangements between a Series, as lender, and the
borrower. Variable amount master demand notes are direct lending arrangements
between the lender and borrower and are not generally transferable, nor are they
ordinarily rated. A Series may invest in them only if the Investment Adviser
believes that the notes are of comparable quality to the other obligations in
which that Series may invest.
Variable Rate and Floating Rate Obligations
The interest rates payable on certain fixed income securities in which
a Series 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, or for other reasons.
Each Series (other than the ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Government Portfolio, ILA Federal Portfolio,
FS Treasury Obligations Fund, FS Treasury Instruments Fund, FS Government Fund
and FS Federal Fund) may purchase variable and floating rate demand instruments
that are municipal obligations or other debt securities issued by corporations
and other non-governmental issuers that possess a floating or variable interest
rate adjustment formula. These instruments permit a Series to demand payment of
the principal balance plus unpaid accrued interest upon a specified number of
days' notice to the issuer or its agent. The demand feature may be backed by a
bank letter of credit or guarantee issued with respect to such instrument.
The terms of the variable or floating rate demand instruments that a
Series may purchase provide that interest rates are adjustable at intervals
ranging from daily up to 397 calendar days, and the adjustments are based upon
current market levels, the prime rate of a bank or other appropriate interest
rate adjustment index as provided in the respective instruments. Some of these
instruments are payable on demand on a daily basis or on not more than seven
days' notice. Others, such as instruments with quarterly or semi-annual
interest rate adjustments, may be put back to the issuer on designated days,
usually on not more than thirty days' notice. Still others are automatically
called by the issuer unless the Series instructs otherwise. The Trust, on
behalf of the Series, intends to exercise the demand only (1) upon a default
under the terms of the debt security; (2) as needed to provide liquidity to a
Series; (3) to maintain the respective quality standards of a Series' investment
portfolio; or (4) to attain a more optimal portfolio structure. A Series will
determine the variable or floating rate demand instruments that it will purchase
in accordance with procedures approved by the Trustees to minimize credit risks.
To be eligible for purchase by a Series, a variable or floating rate demand
instrument which is unrated must have high quality characteristics similar to
other obligations in which the Series may invest. The Investment Adviser may
determine that an unrated variable or floating rate demand instrument meets a
Series' quality criteria by reason of being backed by a letter of credit,
guarantee, or demand feature issued by an entity that meets the quality criteria
for the Series. Thus, either the credit of the issuer of the obligation or the
provider of the credit support or both will meet the quality standards of the
Series.
-8-
As stated in the Prospectuses, the Series may consider the maturity of
a long-term variable or floating rate demand instrument to be shorter than its
ultimate stated maturity under specified conditions. The acquisition of variable
or floating rate demand notes for a Series must also meet the requirements of
rules issued by the SEC applicable to the use of the amortized cost method of
securities valuation. The Series will also consider the liquidity of the market
for variable and floating rate instruments, and in the event that such
instruments are illiquid, the Series' investments in such instruments will be
subject to the limitation on illiquid investments.
Each Series (other than ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Government Portfolio, ILA Federal Portfolio,
FS Treasury Obligations Fund, FS Treasury Instruments Fund, FS Government Fund
and FS Federal Fund) may invest in participation interests in variable or
floating rate municipal obligations held by financial institutions (usually
commercial banks). Such participation interests provide the Series with a
specific undivided interest (up to 100%) in the underlying obligation and the
right to demand payment of its proportional interest in the unpaid principal
balance plus accrued interest from the financial institution upon a specific
number of days' notice. In addition, the participation interest generally is
backed by an irrevocable letter of credit or guarantee from the institution. The
financial institution usually is entitled to a fee for servicing the obligation
and providing the letter of credit.
Restricted and Other Illiquid Securities
A Series may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"),
including restricted securities that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act. However, a Series will
not invest more than 10% of the value of its net assets in securities which are
illiquid, which includes fixed time deposits with a notice or demand period of
more than seven days that cannot be traded on a secondary market and restricted
securities. The Board of Trustees has adopted guidelines under which the
Investment Adviser determines and monitors the liquidity of restricted
securities subject to the oversight of the Trustees. Restricted securities
(including securities issued under Rule 144A and commercial paper issued under
Section 4(2) of the 1933 Act) which are determined to be liquid will not be
deemed to be illiquid investments for purposes of the foregoing restriction.
Since it is not possible to predict with assurance that the market for
restricted securities will continue to be liquid, the Investment Adviser will
monitor each Series' investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in a Series to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities.
Municipal Obligations
The Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio, FS Prime Obligations
Fund, FS Money Market Fund, and FS Tax-Free Fund may invest in municipal
obligations. Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies,
-9-
authorities and instrumentalities and the District of Columbia to obtain funds
for various public purposes. The interest on most of these obligations is
generally exempt from regular federal income tax. The two principal
classifications of municipal obligations are "notes" and "bonds." The Portfolio
Cash Fund, ILA Prime Obligations Portfolio, ILA Money Market Portfolio, FS Prime
Obligations Fund and FS Money Market Fund may invest in municipal obligations
when yields on such securities are attractive compared to other taxable
investments.
Notes. Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal notes
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, tax and revenue anticipation notes, construction loan notes, tax-exempt
commercial paper and certain receipts for municipal obligations.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. They are frequently general obligations of the
issuer, secured by the taxing power for payment of principal and interest.
Revenue anticipation notes are issued in expectation of receipt of other types
of revenue such as federal or state aid. Tax anticipation notes and revenue
anticipation notes are generally issued in anticipation of various seasonal
revenues such as income, sales, use, and business taxes. Bond anticipation notes
are sold to provide interim financing in anticipation of long-term financing in
the market. In most cases, these monies provide for the repayment of the notes.
Tax-exempt commercial paper consists of short-term unsecured promissory notes
issued by a state or local government or an authority or agency thereof. The
Series which invest in municipal obligations may also acquire securities in the
form of custodial receipts which evidence ownership of future interest payments,
principal payments or both on certain state and local governmental and authority
obligations when, in the opinion of bond counsel, if any, interest payments with
respect to such custodial receipts are excluded from gross income for federal
income tax purposes, and in the case of the ILA Tax-Exempt California and ILA
Tax-Exempt New York Portfolios, exempt from California and New York (city and
state) personal income taxes, respectively. Such obligations are held in custody
by a bank on behalf of the holders of the receipts. These custodial receipts are
known by various names, including "Municipal Receipts" ("MRs") and "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS"). There are a number
of other types of notes issued for different purposes and secured differently
from those described above.
Bonds. Municipal bonds, which generally meet longer term capital
needs and have maturities of more than one year when issued, have two principal
classifications, "general obligation" bonds and "revenue" bonds.
General obligation bonds are issued by entities such as states,
counties, cities, towns and regional districts and are used to fund a wide range
of public projects including the construction or improvement of schools,
highways and roads, water and sewer systems and a variety of other public
purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount or special assessments.
-10-
Revenue bonds have been issued to fund a wide variety of capital
projects including: electric, gas, water and sewer systems; highways, bridges
and tunnels; port and airport facilities; colleges and universities; and
hospitals. The principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Although the principal security behind these bonds varies widely, many provide
additional security in the form of a debt service reserve fund whose monies may
also be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security including
partially or fully insured, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. In addition to a
debt service reserve fund, some authorities provide further security in the form
of a state's ability (without obligation) to make up deficiencies in the debt
service reserve fund. Lease rental revenue bonds issued by a state or local
authority for capital projects are secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations.
Private activity bonds (a term that includes certain types of bonds
the proceeds of which are used to a specified extent for the benefit of persons
other than governmental units), although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by the
industrial user. Each Series (other than the ILA Treasury Obligations
Portfolio, ILA Treasury Instruments Portfolio, ILA Government Portfolio, ILA
Federal Portfolio, FS Treasury Obligations Fund, FS Treasury Instruments Fund,
FS Government and FS Federal Funds) may invest in private activity bonds. The
ILA Tax-Exempt New York Portfolio will limit its investments in private activity
bonds to not more than 20% of its net assets under normal market conditions.
The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio
and FS Tax-Free Fund do not intend to invest in private activity bonds if the
interest from such bonds would be an item of tax preference to shareholders
under the federal alternative minimum tax. If such policy should change in the
future, such investments would not exceed 20% of the net assets of each of the
ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio and
the FS Tax-Free Fund under normal market conditions. The ILA Tax-Exempt
Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New
York Portfolio and FS Tax-Free Fund do not intend to invest more than 25% of the
value of their respective total assets in private activity bonds or similar
obligations where non-governmental entities supplying the revenues from which
such bonds or obligations are to be paid are in the same industry.
Municipal bonds with a series of maturity dates are called serial
bonds. The serial bonds which the Series may purchase are limited to short-term
serial bonds---those with original or remaining maturities of thirteen months or
less. The Series may purchase long-term bonds provided that they have a
remaining maturity of thirteen months or less or, in the case of bonds called
for redemption, the date on which the redemption payment must be made is within
thirteen months. The Series may also purchase long-term bonds (sometimes
referred to as "Put Bonds"), which are subject to a Series' commitment to put
the bond back to the issuer at par at a designated time within thirteen months
and the issuer's commitment to so purchase the bond at such price and time.
-11-
The Series which invest in municipal obligations may invest in
municipal leases, certificates of participation and "moral obligation" bonds. A
municipal lease is an obligation issued by a state or local government to
acquire equipment or facilities. Certificates of participation represent
interests in municipal leases or other instruments, such as installment
contracts. Moral obligations bonds are supported by the moral commitment but
not the legal obligation of a state or municipality. In particular, these
instruments permit governmental issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt. If, however, the governmental issuer does not periodically appropriate
money to enable it to meet its payment obligations under these instruments, it
cannot be legally compelled to do so. If a default occurs, it is likely that a
Series would be unable to obtain another acceptable source of payment. Some
municipal leases, certificates of paricipation and moral obligation bonds may be
illiquid.
The Series which invest in municipal obligations may also invest in
tender option bonds. A tender option bond is a municipal obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates. The bond is typically issued in conjunction with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holder the
option, at periodic intervals, to tender its securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
bond's fixed coupon rate and the rate, as determined by a remarketing or similar
agent at or near the commencement of such period, that would cause the bond,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term, tax-
exempt rate. However, an institution will not be obligated to accept tendered
bonds in the event of certain defaults by, or a significant downgrading in the
credit rating assigned to, the issuer of the bond.
The tender option will be taken into consideration in determining the
maturity of tender option bonds and the average portfolio maturity of a Series.
The liquidity of a tender option bond is a function of the credit quality of
both the bond issuer and the financial institution providing liquidity.
Consequently, tender option bonds are deemed to be liquid unless, in the opinion
of the Investment Adviser, the credit quality of the bond issuer and the
financial institution is deemed, in light of the relevant Series' credit quality
requirements, to be inadequate.
Although the ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-Free Fund
intend to invest in tender option bonds the interest on which will, in the
opinion of counsel for the issuer and sponsor or counsel selected by the
Investment Adviser, be excluded from gross income for federal income tax
purposes, there is no assurance that the Internal Revenue Service will agree
with such counsel's opinion in any particular case. Consequently, there is a
risk that a Series will not be considered the owner of such tender option bonds
and thus will not be entitled to treat such interest as exempt from such tax. A
similar risk exists for certain other investments subject to puts or similar
rights. Additionally, the federal income tax treatment of certain other aspects
of
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these investments, including the proper tax treatment of tender options and
the associated fees, in relation to various regulated investment company tax
provisions is unclear. The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-Free Fund
intend to manage their respective portfolios in a manner designed to eliminate
or minimize any adverse impact from the tax rules applicable to these
investments.
In addition to general obligation bonds, revenue bonds and serial
bonds, there are a variety of hybrid and special types of municipal obligations
as well as numerous differences in the security of municipal obligations both
within and between the two principal classifications above.
A Fund may purchase municipal instruments that are backed by letters
of credit issued by foreign banks that have a branch, agency or subsidiary in
the United States. Such letters of credit, like other obligations of foreign
banks, may involve credit risks in addition to those of domestic obligations,
including risks relating to future political and economic developments,
nationalization, foreign governmental restrictions such as exchange controls and
difficulties in obtaining or enforcing a judgment against a foreign bank
(including branches).
For the purpose of investment restrictions of the Series, the
identification of the "issuer" of municipal obligations that are not general
obligation bonds is made by the Investment Adviser on the basis of the
characteristics of the obligations as described above, the most significant of
which is the source of funds for the payment of principal of and interest on
such obligations.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as one of the Series. Thus, the
issue may not be said to be publicly offered. Unlike securities which must be
registered under the 1933 Act prior to offer and sale, municipal obligations
which are not publicly offered may nevertheless be readily marketable. A
secondary market may exist for municipal obligations which were not publicly
offered initially.
Municipal obligations purchased for a Series may be subject to the
Series' policy on holdings of illiquid securities. The Investment Adviser
determines whether a municipal obligation is liquid based on whether it may be
sold in a reasonable time consistent with the customs of the municipal markets
(usually seven days) at a price (or interest rate) which accurately reflects its
value. The Investment Adviser believes that the quality standards applicable to
each Series' investments enhance liquidity. In addition, stand-by commitments
and demand obligations also enhance liquidity.
Yields on municipal obligations depend on a variety of factors,
including money market conditions, municipal bond market conditions, the size of
a particular offering, the maturity of the obligation and the quality of the
issue. High quality municipal obligations tend to have a lower yield than lower
rated obligations. Municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or
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more issuers to pay when due principal of and interest on its or their municipal
obligations may be materially affected.
Investing in California
The financial condition of the State of California ("California" or the
"State"), its public authorities and local governments could affect the market
values and marketability of, and therefore the net asset value per share and the
interest income of, the ILA Tax-Exempt California Portfolio, or result in the
default of existing obligations, including obligations which may be held by the
ILA Tax-Exempt California Portfolio. The following section provides only a
brief summary of the complex factors affecting the financial condition of
California, and is based on information obtained from California, as publicly
available prior to the date of this Statement of Additional Information. The
information contained in such publicly available documents has not been
independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
California, and that there is no obligation on the part of California to make
payment on such local obligations in the event of default in the absence of a
specific guarantee or pledge provided by California.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved significantly starting in 1995, with ratings increases since 1996. The
ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate again, its
credit ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.
Economic Factors. California's economy is the largest among the 50 states
and one of the largest in the world. The State's population of over 34 million
represents about 12-1/2% of the total United States population and grew by 26%
in the 1980s, more than double the national rate. Population growth slowed to
less than 1% annually in 1994 and 1995, but rose to almost 2% in the final years
of the 1990's. The bulk of population growth in the State is due to births and
foreign immigration.
Total personal income in the State, at an estimated $991 billion in 1999,
accounts for almost 13% of all personal income in the nation. Total employment
is over 15 million, the majority of which is in the service, trade and
manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Recovery did not
begin in California until 1994, later than the rest of the nation, but since
that time California's economy has outpaced the national average. By mid-2000,
unemployment in the State was under 5%, its lowest level in three decades.
Economic indicators show a steady and strong recovery underway in California
since the start of 1994 particularly in high technology manufacturing and
services, including computer
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software and other services, entertainment, tourism, and nonresidential
construction. Residential construction has increased since the lows of the early
1990's but is lower than during the previous expansion in the 1980's. Exports
have been very strong, especially to Asia, Latin America and Canada. Following
the strongest growth in a decade in 1999 and 2000, the State's economy is
projected to grow more slowly in 2001. The nationwide economic slowdown was not
felt strongly in California (which had 90% of new job growth in the nation in
the fourth quarter of 2000), but may affect the economy in 2001. Widely
publicized difficulties in California's energy supplies pose some risks to the
economy, especially if there are prolonged blackouts or shortages of natural
gas, but these factors, and the impact of rising energy prices, are mitigated by
the fact that California's economy is very energy-efficient. U.S. Department of
Energy statistics for 1997 revealed that California ranked 49th of the 50 states
in energy expenditures as a percentage of state domestic product. Nevertheless,
slower than expected economic growth, or significant interruptions in energy
supplies, could adversely affect the State's revenues.
Recent Development Regarding Energy
California has experienced difficulties with the supply and price of
electricity and natural gas in much of the State since mid-2000, which are
likely to continue for several years. Energy usage in the State has been rising
sharply with the strong economy, but no new power generating plants have been
built since the 1980's. The three major investor-owned utilities in the State
("IOUs") have been purchasing electricity to meet their needs above their own
generating capacity and contracted supplies at fluctuating short-term and spot
market rates, while the retail prices they can charge their residential and
small business customers have been capped at specified levels. Starting in mid-
2000, power purchase costs exceeded retail charges, and the IOUs incurred
substantial losses and accumulated large debts to continue to purchase power for
their customers. As a result, the credit ratings of the IOUs have deteriorated,
making it difficult to continue to purchase power. The two largest IOUs have
reported they are in default in paying certain of their obligations, and may be
forced into bankruptcy.
In mid-January 2001, and on occasion thereafter, there were rolling
electricity blackouts affecting millions of customers. The Governor declared a
state of emergency under State law on January 17, 2001, and ordered the State's
Department of Water Resources ("DWR") to begin purchasing electricity for resale
to retail end use customers, to fill the gap in supplies resulting from the
inability of the IOUs to continue to purchase power. DWR also started to enter
into long-term power supply contracts to reduce
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reliance on short-term and spot markets. DWR's purchases are initially being
funded by advances from the State's General Fund; about $2.8 billion was
expended in the first two months. DWR is entitled to repayment from a portion of
retail end use customer's payments, remitted through the IOUs, but these amounts
will not equal the power purchase costs. The balance is intended to be funded
from the issuance of up to $10 billion of revenue bonds, expected to be issued
by mid-2001. Pending implementation of these repayment mechanisms, the State has
sufficient cash reserves and available internal borrowings to fund DWR power
purchases for many months. The revenue bonds are expected to be repaid from a
dedicated revenue stream derived from customer payments. DWR has the legal power
to set retail rates at a sufficient level to recover all its costs. These bonds
will not be backed in any way by the faith and credit or taxing power of the
State.
The State is intensifying programs for energy conservation, load management
and improved energy efficiency in government, businesses and homes. Approval
for construction of new power generating facilities, especially smaller and
"peaking" power facilities, has been accelerated. A number of new larger power
plants are under construction and in permitting phase, and will come on line in
2001-2003. As noted, the State is seeking longer term power supply contracts at
lower costs. The combination of these elements is expected to lower wholesale
electricity costs in the future and promote the financial recovery of the IOUs.
Natural gas prices in California have been increasing significantly as a
result of limited pipeline capacity into the State, and nationwide price
increases. The prices nationally may remain high for some time until additional
supplies are produced, as natural gas prices are not regulated. One of the
State's IOUs also supplies natural gas, and its credit difficulties have
impaired its ability to obtain supplies. Significant interruption in natural
gas supplies could adversely affect the economy, including generation of
electricity, much of which is fueled by natural gas.
A number of additional plans are under consideration by the State
Legislature, including the authorization of State agencies to own, build or
purchase power generation or transmission facilities and assist energy
conservation efforts. Plans are also being considered to assist the IOUs repay
their debts incurred in purchasing power; these may include a State purchase of
their transmission facilities, funded also with revenue bonds. A number of
lawsuits are pending dealing with many aspects of the energy situation in
California, including disputes over the rates which the California Public
Utilities Commission may charge retail customers, financial responsibility for
purchases of power by the IOUs, and various antitrust and fraud claims against
energy suppliers.
Constitutional Limitations on Taxes, Other Charges and Appropriations
Limitation on Property Taxes. Certain California Municipal Obligations may
be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article
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XIIIA limits to 1% of full cash value of the rate of ad valorem property taxes
on real property and generally restricts the reassessment of property to 2% per
year, except under new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits were filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.
Article XIIIA prohibits local governments from raising revenues through ad
valorem taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax."
Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted
to the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a two-
thirds vote.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform
to requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.
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In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainly the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been affected.
Appropriations Limits. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations to
comply with mandates of courts or the federal government, (3) appropriations for
certain capital outlay projects, (4) appropriations by the State of post-1989
increases in gasoline taxes and vehicle weight fees, and (5) appropriations made
in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% of any excess, with the other 50% paid to schools and community colleges.
With more liberal annual adjustment factors since 1988, and depressed revenues
in the early 1990's because of the recession, few governments have been
operating near their spending limits, but this condition may change over time.
Local governments may by voter approval exceed their spending limits for up to
four years. For the last ten years, appropriations subject to limitation have
been under the State's limit.
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However, because of extraordinary revenue receipts in fiscal year 1999-2000,
State appropriations were estimated to be about $700 million above the limit. No
refund will occur unless the State also exceeds its limit in fiscal year 2000-
01; the State Department of Finance estimates the State will be about $3.6
billion below its appropriation limit in fiscal year 2000-01.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal obligations or on the ability of the
State or local governments to pay debt service on such California municipal
obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in
laws or the California Constitution may also affect the ability of the State or
local issuers to repay their obligations.
Obligations of the State of California
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of
February 1, 2001, the State had outstanding approximately $22.6 billion of long-
term general obligation bonds, plus $800 million of general obligation
commercial paper which will be refunded by long-term bonds in the future, and
$6.7 billion of lease-purchase debt supported by the State General Fund. The
State also had about $14.9 billion of authorized and unissued long-term general
obligation bonds and lease-purchase debt. In FY 1999-2000, debt service on
general obligation bonds and lease purchase debt was approximately 3.7% of
General Fund revenues.
Recent Financial Results
The principal sources of General Fund revenues in 1999-2000 were the
California personal income tax (55 percent of total revenues), the sales tax (29
percent), bank and corporation taxes (9 percent), and the gross premium tax on
insurance (2 percent). An estimated 20% of personal income tax receipts (10%
of total General Fund) is derived from capital gains realizations and stock
option income. While these sources have been extraordinarily strong in the past
few years, they are particularly volatile. The State has taken account of the
recent drop in stock market levels and reduced its estimated receipts from these
revenues in the future.
The State maintains a Special Fund for Economic Uncertainties (the "SFEU"),
derived from General Fund revenues, as a reserve to meet cash needs of the
General Fund, but which is required to be replenished as soon as sufficient
revenues are available. Year-end balances in the SFEU are included for
financial reporting purposes in the General Fund balance.
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Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 35 percent).
Recent Budgets. The State suffered a severe economic recession from 1990-
94 during which the State experienced substantial revenue shortfalls and
accumulated a budget deficit of about $2.8 billion. With the economic recovery
which began in 1994, the State's financial condition improved markedly in the
years from fiscal year 1995-96 onward, with a combination of better than
expected revenues, slowdown in growth of social welfare programs, and continued
spending restraint based on the actions taken in earlier years.
The economy grew strongly during the second half of the 1990's, and as a
result, the General Fund took in substantially greater tax revenues (around $2.2
billion in 1995-96, $1.6 billion in 1996-97, $2.4 billion in 1997-98, $1.7
billion in 1998-99 and $8.2 billion in 1999-2000) than were initially planned
when the budgets were enacted. These additional funds were largely directed to
school spending as mandated by Proposition 98, and to make up shortfalls from
reduced federal health and welfare aid in 1995-96 and 1996-97. In 1998-99 and
1999-2000, significant new spending programs were also enacted, particularly for
education. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $8.7 billion at June 30, 2000.
The growth in General Fund revenues since the end of the recession resulted
in significant increases in State funding for local school districts under
Proposition 98. From the recession level of about $4,200 per pupil, annual
State funding has increased to over $6,700 per pupil in FY 2000-01. A
significant amount of the new moneys have been directed to specific educational
reforms, including reduction of class sizes in many grade levels. The improved
budget condition also allowed annual increases in support for higher education
in the State, permitting increased enrollment and reduction of student fees.
-20-
Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal law,
new time limits are placed on receipt of welfare aid. Generally, health and
welfare costs have been contained even during the recent period of economic
recovery, with the first real increases (after inflation) in welfare support
levels occurring in 1999-2000 and additional increases in 2000-01.
One of the most important elements of recent Budget Acts was agreement on
substantial tax cuts. The largest of these was a phased-in cut in the Vehicle
License Fee (an annual tax on the value of cars registered in the State, the
"VLF"). Starting on January 1, 1999, the VLF was reduced by 25 percent, which
was increased to a 35% reduction effective January 1, 2000 and a 67.5% reduction
effective January 1, 2001. Under pre-existing law, VLF funds are automatically
transferred to cities and counties, so the new legislation provided for the
General Fund to make up the reductions. The full 67.5% percent VLF cut will be
offset by about $2.6 billion in General Fund money in FY 2000-01, and $3.6
billion for fiscal year 2001-02. Other tax cuts included an increase in the
dependent credit exemption for personal income tax filers, restoration of a
renter's tax credit for taxpayers, and a variety of business tax relief
measures.
Fiscal Year 2000-01 Budget. By the spring of 2000, as the
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fiscal year 2000-01 budget was being enacted, the Administration released
updated revenue and expenditure projections for 1999-2000 and 2000-01. These
reports showed that the State's very strong economy together with the strong
stock market, resulted in extraordinary growth in revenues, particular personal
income taxes. The Administration revised its revenue estimates for 1999-2000
upward to $71.2 billion, an increase of $8.2 billion above the original Budget
Act estimate. Expenditures were projected to increase to about $67.2 billion.
The Administration's projected balance in the SFEU at June 30, 2000 increased
from about $880 million at the time of the original Budget Act to over $8.7
billion. As noted above under "Constitutional Limitations on Taxes, Other
Charges and Appropriations," the extraordinary and rapid growth of State
revenues placed the State $700 million over its Constitutional appropriations
limit in fiscal year 1999-2000.
The Administration estimated over $12 billion additional revenue for the
fiscal years 1999-2000 and 2000-01, compared to initial estimates made in
January 2000. The 2000-01 Budget Act (the "2000 Budget Act") was signed on June
30, 2000. The spending plan assumed General Fund revenues and transfers of $73.9
billion, and appropriated $78.8 billion (the difference coming from the SFEU
surplus generated in fiscal year 1999-2000). To avoid pressures on future
budgets, the Administration devoted about $7.0 billion of the new spending on
one-time expenditures and investments.
The Administration estimated that the SFEU would have a balance of $1.781
billion at June 30, 2001. The Governor also held back $500 million as a set-
aside for litigation costs, which have been spent. Because of the State's strong
cash position, the Administration announced the State would not undertake any
revenue anticipation note borrowing in 2000-01.
The largest program in the 2000 Budget Act is aid to K-12 school districts,
which increased by $3.0 billion above 1999-2000 levels. There was also a large
increase in funding for the public higher education systems, and for health and
welfare programs. New investments were made for capital outlay, including $2.0
billion General Fund support for transportation projects, to supplement gasoline
taxes normally used for those purposes, part of a six-year $6.9 billion
transportation package. A total of about $1.5 billion was devoted to tax relief,
including the additional VLF reduction described above under "Recent Budgets."
The Legislature also enacted a one-time tax relief package for senior citizen
homeowners and renters was valued at about $150 million, a personal income tax
credit for credentialed teachers ($218 million) and a refundable tax credit for
child care expenses ($195 million). The 2000 Budget Act included a $200 million
unrestricted grant to
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cities and counties, as well as about $200 million in funding to support various
local law enforcement programs.
Although, as noted, the Administration projected a budget reserve in the
SFEU of about $1.78 billion on June 30, 2001, the General Fund fund balance on
that date also reflects $350 million of "loans" which the General Fund made to
local schools in the recession years, representing cash outlays above the
mandatory minimum funding level. Settlement of litigation over these
transactions in July 1996 calls for repayment of these loans over the period
ending in 2001-02, about equally split between outlays from the General Fund and
from schools' entitlements. The 2000-01 Budget Act contained a $350 million
appropriation from the General Fund toward this settlement.
Reports since the FY 2000-01 Budget Act was enacted showed that revenues
were significantly higher than projected through the first half of the fiscal
year. As a result, the State will reduce its sales tax by 0.25% for at least one
year, starting January 1, 2001. This will result in about $1.15 billion in lower
revenues during calendar year 2001.
On January 10, 2001, the Governor released his proposed Budget for fiscal
year 2001-02 (the "Governor's Budget"). The Governor's Budget estimated that
General Fund revenues in fiscal year 2000-01 would be about $76.9 billion, $3.0
billion above the estimates when the 2000-01 Budget Act was signed. Expenditures
for 2000-01 were estimated to be about $79.7 billion, $0.9 billion above the
original spending plan. The Governor's Budget revised the estimate for the SFEU,
the budget reserve, at June 30, 2001 from $1.78 billion to $5.85 billion. As
noted above, however, the State is currently expending some of these funds for
energy purchases, although the advances are expected to be repaid.
The Governor's Budget projects General Fund revenues in fiscal year 2001-02
of $79.4 billion, a 3.3 percent increase over the current year. This estimate
assumes slower economic growth in 2001-02 than in the previous year, and assumes
lower stock option income and the effect of the lower sales tax. A more current
estimate of fiscal year 2001-02 revenues will be made in May 2001 before the
final budget is adopted. Estimates may be reduced if economic activity is more
strongly affected by the energy situation or the national economic slowdown. The
Governor's Budget proposes $82.9 billion in expenditures, a 3.9 percent increase
over the prior year, utilizing a portion of the expected surplus. The Governor's
Budget proposes to fund reserves of $2.4 billion, of which $500 million will be
a set-aside for unplanned litigation
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costs. The final 2001-02 budget is expected to be adopted by July 1, 2001 after
further deliberation by the Legislature and the Governor.
Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be marked by mandated spending
on education, a large prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
Bond Rating
The ratings on California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the recession.
After 1996, the three major rating agencies raised their ratings of California's
general obligation bonds, which as of March, 2001 were assigned ratings of "AA"
from Standard & Poor's, "Aa2" from Moody's and "AA" from Fitch. In January,
2001, Standard & Poor's placed California's senior ratings on Credit Watch with
negative implications as a result of the energy situation.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. If the State eventually loses any of these cases, the final
remedies may not have to be implemented in one year.
Obligations of Other Issuers
Other Issuers of California Municipal Obligations. There are a number of
State agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
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State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs.
In 1997, a new program provided for the State to substantially take over
funding for local trial courts (saving cities and counties some $400 million
annually). For the last several years, the State has also provided $100 million
annually to support local law enforcement costs. In 2000-01, the State provided
$200 million in unrestricted grants to cities and counties.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY1995-96 and FY1996-97. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.
Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs exceed minimum targets; counties
are also subject to financial penalties for failure to meet such targets.
Counties remain responsible to provide "general assistance" for able-bodied
indigents who are ineligible for other welfare programs. The long-term financial
impact of the new CalWORKs system on local governments is still unknown.
Assessment Bonds. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such
-25-
reduction or slowdown, such development may not occur or may be delayed, thereby
increasing the risk of a default on the bonds. Because the special assessments
or taxes securing these bonds are not the personal liability of the owners of
the property assessed, the lien on the property is the only security for the
bonds. Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement
is not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.
Other Considerations
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective
basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
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The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event has had any long-term negative economic impact.
Any California Municipal Obligation in the Fund could be affected by an
interruption of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage rates; (ii) an insurer
to perform on its contracts of insurance in the event of widespread losses; or
(iii) the federal or State government to appropriate sufficient funds within
their respective budget limitations.
Special Risk Considerations Relating to New York Municipal Obligations
Some of the significant financial considerations relating to the ILA Tax-
Exempt New York Portfolio's investments in New York Municipal Obligations are
summarized below. This summary information is not intended to be a complete
description and is principally derived from the Annual Information Statement of
the State of New York as supplemented and contained in official statements
relating to issues of New York Municipal Obligations that were available prior
to the date of this Statement of Additional Information. The accuracy and
completeness of the information contained in those official statements have not
been independently verified.
State Economy. New York is one of the most populous states in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries.
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Relative to the nation, the State has a smaller share of manufacturing and
construction and a larger share of service-related industries. The State's
finance, insurance and real estate share, as measured by wages, is particularly
large relative to the nation. The State is likely to be less affected than the
nation as a whole during an economic recession that is concentrated in
manufacturing and construction, but likely to be more affected by any economic
downturn that is concentrated in the services sector.
Given the importance of the securities industry in the New York State
economy, a significant change in stock market performance during the forecast
horizon could result in financial sector profits and bonuses that are
significantly different from those embodied in the forecast. Any actions by the
Federal Reserve Board to moderate inflation by increasing interest rates more
than anticipated may have an adverse impact in New York given the sensitivity of
financial markets to interest rate shifts and the prominence of these markets in
the New York economy. In addition, there is a possibility that greater-than-
anticipated mergers, downsizing, and relocation of firms caused by deregulation
and global competition may have a significant adverse effect on employment
growth.
There can be no assurance that the State economy will not experience worse-
than-predicted results, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion (1995-
96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1 billion
(1998-99). The State's current fiscal year began on April 1, 2000 and ends on
March 31, 2001. On March 30, 2000, the State adopted the debt service portion
of the State budget for the 2000-01 fiscal year; the remainder of the budget was
enacted by the State Legislature on May 5, 2000, 35 days after the statutory
deadline of April 1. The Governor approved the budget as passed by the
Legislature. Prior to passing the budget in its entirety for the current fiscal
year, the State enacted interim appropriations that permitted the State to
continue its operations.
In 2000-01, General Fund disbursements, including transfers to support
capital projects, debt service and other funds, are estimated at $38.92 billion,
an increase of $1.75 billion or 4.72 percent over 1999-2000. Projected spending
under
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the 2000-01 enacted budget is $992 million above the Governor's Executive Budget
recommendations, including 30-day amendments submitted January 31, 2000.
The 2000-01 Financial Plan projects closing balances in the General Fund
and other reserves of $3.2 billion, including $1.71 billion in the General Fund.
This closing balance is comprised of $675 million in reserves for potential
labor costs resulting from new collective bargaining agreements and other
spending commitments, $547 million in the Tax Stabilization Reserve Fund
("TSRF") (for use in case of unanticipated deficits), $150 million in the
Contingency Reserve Fund ("CRF") (which helps offset litigation risks), and $338
million in the Community Projects Fund ("CPF") (which finances legislative
initiatives). In addition to the $1.71 billion balance in the General Fund, $1.2
billion is projected for reserve in the STAR Special Revenue Fund and $250
million in the Debt Reduction Reserve Fund ("DRRF").
Several developments arising from negotiations on the budget will affect
State finances in subsequent years. First, a portion of Legislative additions
to the 2000-01 Executive Budget
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will recur at higher spending levels in 2001-02 and beyond, including increased
funding for school aid, tuition assistance, and prescription drug coverage for
the elderly. Second, the Legislature enacted the Debt Reform Act of 2000 ("Debt
Reform Act"). The Debt Reform Act, which applies to new State-supported debt
issued on or after April 1, 2000, imposes caps on new debt outstanding and new
debt service costs, restricts the use of debt to capital purposes only, and
restricts the maximum term of State debt issuances to no more than 30 years.
Finally, the State adopted an additional tax relief package that will reduce tax
receipts by $1.2 billion when fully effective; this package includes the
elimination or reduction of gross receipts tax on energy ($330 million), the
expansion of the "Power for Jobs" energy tax credit program ($125 million), a
college tuition deduction or credit taken against personal income taxes ($200
million), and reduction of the marriage penalty for taxpayers who file jointly
($200 million).
The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 2000-01 fiscal year, the General Fund (exclusive of transfers) is
expected to account for approximately 46.6 percent of all Governmental funds
disbursements and 67.8 percent of total State funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total General Fund receipts and transfers from other funds are projected to
be $39.72 billion in 2000-01, an increase of $2.32 billion over 1999-2000. Total
General Fund disbursements and transfers to other funds are projected to be
$38.92 billion, an increase of $1.75 billion over 1999-2000. Total General Fund
receipts and transfers from other funds in 2000-01 are projected to be $39.72
billion, an increase of $2.32 billion from the $37.40 billion recorded in 1999-
2000. This total includes $36.35 billion in tax receipts, $1.34 billion in
miscellaneous receipts, and $2.03 billion in transfers from other funds. The
transfer of $3.4 billion in net resources through the tax refund reserve account
from 1999-2000 to the 2000-01 fiscal period has the effect of exaggerating the
growth in State receipts from year to year by depressing reported 1999-2000
figures and inflating 2000-01 projections.
General Fund disbursements, including transfers to support capital
projects, debt service and other funds, are currently estimated at $38.92
billion in 2000-01, an increase of $1.75 billion or 4.7 percent over 1999-2000.
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Following the pattern of the last three fiscal years, education programs receive
the largest share of increased funding in the 2000-01 Financial Plan. School aid
is projected to grow by $850 million or 8.0 percent over 1999-2000 (on a State
fiscal year basis). Spending on other local education and higher education
programs will also increase significantly from the prior year, growing by $376
million or 13.3 percent. Outside of education, the largest growth in spending is
for State operations ($507 million) and general State charges ($104
million).
Projected spending in the 2000-01 Financial Plan is $992 million above the
Executive Budget projections. The increase in General Fund spending is comprised
of legislative additions to the Executive Budget (primarily in education),
offset by various spending reestimates, including lower projected spending for
Medicaid, welfare, debt service and general State charges. The Financial Plan
also reflects the use of resources from the Health Care Reform Act of 2000
("HCRA 2000") that will help finance several health and mental hygiene programs
in Special Revenue Funds, including prescription drug assistance for the
elderly, supplemental Medicare insurance, and other public health services.
Despite recent budgetary surpluses recorded by the State, actions affecting
the level of receipts and disbursements, the relative strength of the State and
regional economy, and actions by the federal government could impact projected
budget gaps for the State. These gaps would result from a disparity between
recurring revenues and the costs of increasing the level of support for State
programs. To address a potential imbalance in any given fiscal year, the State
would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and, under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance,
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however, that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance in a given
fiscal year or to align recurring receipts and disbursements in future fiscal
years. There can also be no assurance that the Legislature will enact into law
the Governor's Executive Budget, as amended, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth therein.
Over the long term, uncertainties with regard to the economy present the
largest potential risk to future budget balance in New York State. For example,
a downturn in the financial markets or the wider economy is possible, a risk
that is heightened by the lengthy expansion currently underway. The securities
industry is more important to the New York economy than the national economy as
a whole, potentially amplifying the impact of an economic downturn. A large
change in stock market performance during the forecast horizon could result in
wage, bonus, and unemployment levels that are significantly different from those
embodied in the 2000-01 Financial Plan forecast. Merging and downsizing by
firms, as a consequence of deregulation or continued foreign competition, may
also have more significant adverse effects on employment than expected.
An ongoing risk to the 2000-01 Financial Plan arises from the potential
impact of certain litigation and federal disallowances now pending against the
State, which could produce adverse effects on the State's projections of
receipts and disbursements. The 2000-01 Financial Plan contains projected
reserves of $150 million in 2000-01 for such events, but assumes no significant
federal disallowances or other federal actions that could affect State finances.
The 2000-01 Financial Plan assumes the availability of certain resources to
finance portions of General Fund spending for fringe benefits, health and
welfare programs. These resources could become unavailable or decrease, placing
additional pressures on budget balance.
The State ended its 1999-2000 fiscal year in balance on a cash basis, with
a General Fund cash-basis surplus of $1.51 billion as reported by DOB. As in
recent years, strong growth in receipts above forecasted amounts produced most
of the year-end surplus. Spending was also modestly below projections, further
adding to the surplus.
The State reported a closing balance of $1.17 billion in the General Fund,
an increase of $275 million over the closing balance from the prior year. The
balance was held in four accounts within the General Fund: the TSRF, the CRF,
the DRRF and the CPF which is used to finance legislative initiatives. The
balance is comprised of $547 million in the TSRF after a deposit of $74 million
in 1999-2000; $107 million in the CRF; $250 million in the DRRF; and $263
million in the CPF.
The closing fund balance excludes $3.97 billion that the State deposited
into the tax refund reserve account at the close of 1999-2000 to pay for tax
refunds in 2000-01 of which $521 million was made available as a result of the
Local Government Assistance Corporation ("LGAC") financing program and was
required to be on deposit as of March
-32-
31, 2000. The tax refund reserve account transaction has the effect of
decreasing reported personal income tax receipts in 1999-2000, while increasing
reported receipts in 2000-01.
General Fund receipts and transfers from other funds (net of tax refund
reserve account activity) for the 1999-2000 fiscal year totaled $37.40 billion,
an increase of 1.6 percent over 1998-99. General Fund disbursements and
transfers to other funds totaled $37.17 billion, an increase of 1.6 percent from
the prior fiscal year.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other
-33-
entity, the State's obligation to make such payments is generally expressly made
subject to appropriation by the Legislature and the actual availability of money
to the State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of higher-than-
projected tax receipts and in lower-than-expected entitlement spending. In the
past, the State has taken management actions to address potential financial plan
shortfalls, and DOB believes it could take similar actions should adverse
variances occur in its projections for the current fiscal year. In addition,
the State has projected year-end fund balances of up to $3.2 billion in 2000-01.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On
March 5, 1999, S&P affirmed its A rating on the State's outstanding bonds. On
March 10, 2000, S&P assigned its A+ rating on New York State's long-term general
obligations. On December 19, 2000, S&P assigned its AA rating on New York
State's long-term general obligations.
On January 6, 1992, Moody's reduced its ratings on outstanding limited-
liability State lease purchase and contractual obligations from A to Baa1. On
February 28, 1994, Moody's reconfirmed its A rating on the State's general
obligation long-term indebtedness. On March 20, 1998, Moody's assigned the
highest commercial paper rating of P-1 to the short-term notes of the State. On
March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations. In June 2000, Moody's revised its outlook on the
State's general obligations from stable to positive.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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Litigation. The legal proceedings listed below involve State finances and
programs and miscellaneous civil rights, real property, contract and other tort
claims in which the State is a defendant and the potential monetary claims
against the State are substantial, generally in excess of $100 million. These
proceedings could adversely affect the financial condition of the State in the
2000-01 fiscal year or thereafter. The State will describe newly initiated
proceedings which the State believes to be material, as well as any material and
adverse developments in the listed proceedings, in updates or supplements to its
Annual Information Statement.
Certain litigation pending against New York State or its officers or
employees could have a substantial or long-term adverse effect on New York State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action seeking enforcement of certain
sales and excise taxes and tobacco products and motor fuel sold to non-Indian
consumers on Indian reservations; (4) a challenge to the Governor's application
of his constitutional line item veto authority; (5) a civil rights action
alleging that Yonkers and its public schools were intentionally segregated; (6)
a challenge to the funding for New York City public schools; and (7) a challenge
as to the adequacy of the shelter allowance granted to recipients of public
assistance.
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Adverse developments in the proceedings described above, other proceedings
for which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced 2000-01 Financial Plan. The State believes that the proposed 2000-01
Financial Plan includes sufficient reserves to offset the costs associated with
the payment of judgments that may be required during the 2000-01 fiscal year.
These reserves include (but are not limited to) amounts appropriated for Court
of Claims payments and projected fund balances in the General Fund. In addition,
any amounts ultimately required to be paid by the State may be subject to
settlement or may be paid over a multi-year period. There can be no assurance,
however, that adverse decisions in legal proceedings against the State would not
exceed the amount of all potential 2000-01 Financial Plan resources available
for the payment of judgments, and could therefore affect the ability of the
State to maintain a balanced 2000-01 Financial Plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
On November 23, 1998, the attorneys general for forty-six states (including
New York) entered into a master settlement agreement ("MSA") with the nation's
largest tobacco manufacturers. Under the terms of the MSA, the states agreed to
release the manufacturers from all smoking-related claims in exchange for
specified payments and the imposition of restrictions on tobacco advertising and
marketing. New York is projected to receive $25 billion over 25 years under the
MSA, with payments apportioned among the State (51 percent), counties (22
percent), and New York City (27 percent). The projected payments are an
estimate and subject to adjustments for, among other things, the annual change
in the volume of cigarette shipments and the rate of inflation. From 1999-2000
through 2002-03, the State expects to receive $1.54 billion under the nationwide
settlement with cigarette manufacturers. Counties, including New York City,
will receive settlement payments of $1.47 billion over the same period.
The State plans to use $1.29 billion in tobacco settlement money over the
next three years to finance health programs under HCRA 2000 ($1.01 billion) and
projected increased costs in Medicaid ($274 million). The remaining $250
million in one-time tobacco payments from 1999-2000 will be deposited to DRRF.
Authorities. The fiscal stability of New York State is related, in part,
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the
-36-
Authorities were to default on their respective obligations, particularly with
respect to debt that is State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
For purposes of analyzing the financial condition of the State, debt of the
State and of certain public authorities may be classified as State-supported
debt, which includes general obligation debt of the State and lease-purchase and
contractual obligations of public authorities (and municipalities) where debt
service is paid from State appropriations (including dedicated tax sources, and
other revenues such as patient charges and dormitory facilities rentals). In
addition, a broader classification, referred to as State-related debt, includes
State-supported debt, as well as certain types of contingent obligations,
including moral obligation financings, certain contingent contractual-obligation
financing arrangements, and State-guaranteed debt described above, where debt
service is expected to be paid from other sources and State appropriations are
contingent in that they may be made and used only under certain circumstances.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the
-37-
receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable. In August 2000, Moody's
upgraded approximately $26 billion of the City's general obligations from A3 to
A2.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A. Subsequent to that time, the
City's general obligation bonds have not been downgraded by Fitch IBCA.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
("NYC MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; and the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A "control period" existed from 1975 to 1986, during which
the City was subject to certain statutorily-prescribed fiscal controls. The
Control Board terminated the control period in 1986 when certain statutory
conditions were met. State law requires the Control Board to reimpose a control
period upon the occurrence, or "substantial likelihood and imminence" of the
occurrence, of certain events, including (but not limited to) a City operating
budget deficit of more than $100 million or impaired access to the public credit
markets.
Currently, the City and its Covered Organizations (i.e., those
organizations which receive or may receive moneys from the City directly,
indirectly or contingently) operate under the City's Financial Plan. The City's
Financial Plan summarizes its capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City's projections set forth in its Financial Plan are based on
-38-
various assumptions and contingencies, some of which are uncertain and may not
materialize. Unforeseen developments and changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the
-39-
gap-closing actions proposed in its Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the City's Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the Financial Plan, employment growth, the ability to
implement proposed reductions in City personnel and other cost reduction
initiatives, the ability of the Health and Hospitals Corporation and the BOE to
take actions to offset reduced revenues, the ability to complete revenue
generating transactions, provision of State and Federal aid and mandate relief
and the impact on City revenues and expenditures of Federal and State welfare
reform and any future legislation affecting Medicare or other entitlements.
To successfully implement its Financial Plan, the City and certain entities
issuing debt for the benefit of the City must market their securities
successfully. This debt is issued to finance the rehabilitation of the City's
infrastructure and other capital needs and to refinance existing debt, as well
as to finance seasonal needs. In City fiscal years 1997-98, 1998-99 and 1999-
2000, the State Constitutional debt limit would have prevented the City from
entering into new capital contracts. To prevent disruptions in the capital
program, two actions were taken to increase the City's capital financing
capacity: (i) the State Legislature created the New York City Transitional
Finance Authority ("TFA") in 1997, and (ii) in 1999, the City created TSASC,
Inc., a not-for-profit corporation empowered to issue tax-exempt debt backed by
tobacco settlement revenues. Despite these actions, the City, in order to
continue its capital program, will need additional financing capacity beginning
in City fiscal year 2000-01, which could be provided through increasing the
borrowing authority of the TFA or amending the State constitutional debt limit
-40-
for City fiscal year 2001-02 and thereafter.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State
of any future requests by localities for additional assistance is not included
in the State's projections of its receipts and disbursements for the fiscal
year.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, the City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range
-41-
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
the State assistance in the future.
Standby Commitments
In order to enhance the liquidity, stability or quality of municipal
obligations, the Portfolio Cash Fund, ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio, FS Prime Obligations
Fund, FS Money Market Fund and FS Tax-Free Fund each may acquire the right to
sell a security to another party at a guaranteed price and date. Such a right
to resell may be referred to as a put, demand feature or "standby commitment,"
depending on its characteristics. The aggregate price which a Series pays for
securities with standby commitments may be higher than the price which otherwise
would be paid for the securities. Standby commitments may not be available or
may not be available on satisfactory terms.
Standby commitments may involve letters of credit issued by domestic or
foreign banks supporting the other party's ability to purchase the security from
the Series. The right to sell may be exercisable on demand or at specified
intervals, and may form part of a security or be acquired separately by the
Series.
Management of the Trust understands that the Internal Revenue Service has
issued a favorable revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. Institutional Tax-
Exempt Assets, the predecessor company of which ILA Tax-Exempt Diversified
Portfolio and ILA Tax-Exempt California Portfolio were series, has received a
ruling from the Internal Revenue Service to the effect that it is considered the
owner of the municipal obligations subject to standby commitments so that the
interest on such instruments will be tax-exempt income to it. (Such rulings do
not, however, serve as precedent for other taxpayers, are applicable only to the
taxpayer requesting the ruling and have, on occasion, been reversed by the
Internal Revenue Service.) The Internal Revenue Service has subsequently
announced that it will not ordinarily issue advance ruling letters as to the
identity of the true owner of property in cases involving the sale of securities
or participation interests therein if the purchaser has the right to cause the
security, or the participation interest therein, to be purchased by either the
seller or a third party. Each of the ILA Tax-Exempt Diversified Portfolio, ILA
Tax-Exempt California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-
Free Fund intends to take the position that it is the owner of any municipal
obligations acquired subject to a standby commitment or acquired or held with
certain other types of put rights and that its distributions of tax-exempt
interest earned with respect to such municipal obligations will be tax-exempt
for its
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shareholders. There is no assurance that standby commitments will be available
to a Series nor has any Series assumed that such commitments will continue to be
available under all market conditions.
Borrowings
A Series can borrow money from banks in amounts not exceeding one-third of
its total assets. Borrowings involve leveraging. If the securities held by a
Series decline in value while these transactions are outstanding, the Series'
market value will decline in value by proportionately more than the decline in
value of the securities.
Non-Diversified Status
Since the ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York
Portfolio are "non-diversified" under the Act, each is subject only to
applicable tax requirements. Under federal tax laws, the ILA Tax-Exempt
California Portfolio and ILA Tax-Exempt New York Portfolio may, with respect to
50% of their total assets, invest up to 25% of their 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 each Series' total
assets, (1) the Series 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
Series may 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 Internal Revenue Code of
1986, as amended (the "Code").
INVESTMENT LIMITATIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed with respect to any Series without
the approval of the majority of outstanding voting securities of that Series.
The investment objective of each ILA Portfolio (except the ILA Tax-Exempt
California and ILA Tax-Exempt New York Portfolios' objective of providing
shareholders with income exempt from California State and New York State and New
York City personal income tax, respectively) cannot be changed without approval
of a majority of the outstanding shares of that ILA Portfolio. The investment
objective of each Financial Square Fund and the Portfolio Cash Fund, and all
other investment policies or practices of the Series, except as stated in this
paragraph, are considered by the Trust not to be fundamental and accordingly may
be changed without shareholder approval. As a matter of fundamental policy, at
least 80% of the net assets of each of the ILA Tax-Exempt Diversified Portfolio,
ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York Portfolio and FS
Tax-Free Fund will ordinarily be invested in municipal obligations, the interest
from which is in the opinion of bond counsel, if any, excluded from gross income
for federal income tax purposes. In addition, as a matter of fundamental
policy, at least 65% of the total assets of each of the ILA Tax-Exempt
California Portfolio and ILA Tax- Exempt New York Portfolio will be invested in
California and New York municipal obligations, respectively, except in
extraordinary circumstances. Each of these four Series may temporarily invest
in taxable money market instruments or, in the case of the ILA Tax-Exempt
California and ILA Tax-Exempt New York Portfolio, in municipal
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obligations that are not California or New York municipal obligations,
respectively, when acceptable California and New York obligations are not
available or when the Investment Adviser believes that the market conditions
dictate a defensive posture.
As defined in the Act and the rules thereunder and as used in the
Prospectuses and this Statement of Additional Information, "a majority of the
outstanding voting securities" of a Series means the lesser of (1) 67% of the
shares of that Series present at a meeting if the holders of more than 50% of
the outstanding shares of that Series are present in person or by proxy, or (2)
more than 50% of the outstanding shares of that Series. Investment restrictions
that involve a maximum percentage of securities or assets are not considered to
be violated unless an excess over the percentage occurs immediately after, and
is caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by or on behalf of, a Series, with the exception of borrowings
permitted by Investment Restriction (3).
Accordingly, the Trust may not, on behalf of any Series (except for FS
Government Fund):
(1) Make any investment inconsistent with the Series' classification
as a diversified company under the Act. This restriction does not,
however, apply to any Series classified as a non-diversified company under
the Act.
(2) Purchase securities if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of a Series to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and each Series (other than the Portfolio Cash
Fund and the FS Money Market Fund) reserves freedom of action, when
otherwise consistent with its investment policies, to concentrate its
investments in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, obligations (other than commercial paper)
issued or guaranteed by U.S. banks and U.S. branches of U.S. or foreign
banks and repurchase agreements and securities loans collateralized by such
U.S. government obligations or such bank obligations. Each of the
Portfolio Cash Fund and FS Money Market Fund may concentrate each Fund's
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities and repurchase agreements and securities
loans collateralized by such obligations and will invest more than 25% of
its total assets in obligations issued or guaranteed by banks (whether
foreign or domestic) and repurchase agreements and securities loans
collateralized by such obligations. However, if adverse economic
conditions prevail in the banking industry, each of the Portfolio Cash Fund
and FS Money Market Fund may, for defensive purposes, temporarily invest
less than 25% of the value of its total assets in such obligations.
Notwithstanding the foregoing, the ILA Money Market Portfolio will invest
more than 25% of the value of its total assets in bank obligations (whether
foreign or domestic) except that if adverse economic conditions prevail in
the banking industry, the ILA Money Market Portfolio may, for defensive
purposes, temporarily invest less than 25% of its total assets in bank
obligations. 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;
-44-
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.
(3) Borrow money, except that (a) the Series may borrow from banks (as
defined in the Act) and, with respect to the Portfolio Cash Fund, other
affiliated investment companies and other persons, and each Series may
borrow through reverse repurchase agreements, in amounts up to 33 1/3% of
its total assets (including the amount borrowed), (b) the Series may, to
the extent permitted by applicable law, borrow up to an additional 5% of
its total assets for temporary purposes, (c) the Series may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (d) the Series may purchase securities on
margin to the extent permitted by applicable law.
(4) Make loans, except (a) through the purchase of debt obligations in
accordance with each Series' investment objective and policies, (b) through
repurchase agreements with banks, brokers, dealers and other financial
institutions, (c) with respect to the Portfolio Cash Fund and the Financial
Square Funds, loans of securities as permitted by applicable law, (d) with
respect to the ILA Portfolios, loans of securities, and (e) with respect to
the Portfolio Cash Fund, loans to affiliates of the Series to the extent
permitted by law.
(5) Underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Series may be deemed to be an
underwriting.
(6) Purchase, hold or deal in real estate, although the Series 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 and sell real estate acquired by the Series as a
result of the ownership of securities.
(7) Invest in commodities or commodity contracts, except that the
Series may invest in currency and financial instruments and contracts that
are commodities or commodity contracts.
(8) Issue senior securities to the extent such issuance would violate
applicable law.
FS Government Fund may not:
(1) With respect to 75% of its total assets taken at market value,
invest more than 5% of the value of the total assets of that Series in the
securities of any one issuer, except U.S. Government securities and
repurchase agreements collateralized by U.S. Government securities. This
restriction does not, however, apply to any Series classified as a non-
diversified company under the Act.
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(2) With respect to 75% of its total assets taken at market value,
purchase the securities of any one issuer if, as a result of such purchase,
that Series would hold more than 10% of the outstanding voting securities
of that issuer. This restriction does not, however, apply to any Series
classified as a non-diversified company under the Act.
(3) Borrow money, except from banks on a temporary basis for
extraordinary or emergency purposes, provided that a Series is required to
maintain asset coverage of 300% for all borrowings and that no purchases of
securities will be made if such borrowings exceed 5% of the value of the
Series' assets. This restriction does not apply to cash collateral
received as a result of portfolio securities lending.
(4) Mortgage, pledge or hypothecate its assets except to secure
permitted borrowings.
(5) Act as underwriter of the securities issued by others, except to
the extent that the purchase of securities in accordance with a Series'
investment objective and policies directly from the issuer thereof and the
later disposition thereof may be deemed to be underwriting.
(6) Purchase securities if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of a Series to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and the Series reserves freedom of action, when
otherwise consistent with its investment policies, to concentrate its
investments in U.S. Government Securities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks, and U.S. branches of
foreign banks and repurchase agreements and securities loans collateralized
by U.S. Government Securities or such bank obligations. (For the purposes
of this restriction, state and municipal governments and their agencies and
authorities are not deemed to be industries, and 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. Such
concentration may be effected when the Investment Adviser determines that
risk adjusted returns in such industries are considered favorable relative
to other industries.)
(7) Issue senior securities, except as appropriate to evidence
indebtedness that a Series is permitted to incur and except for shares of
existing or additional Series of the Trust.
(8) Purchase or sell real estate (excluding securities secured by real
estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodities contracts. The Trust reserves the freedom to
hold and to sell real estate acquired for any Series as a result of the
ownership of securities.
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(9) Make loans to other persons, except loans of portfolio securities
and except to the extent that the purchase of debt obligations in
accordance with such Series' investment objective and policies may be
deemed to be loans.
(10) Purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions), make short sales of securities, maintain a
short position, or invest in or write puts, calls or combinations thereof
(except that a Series may acquire puts in connection with the acquisition
of a debt instrument).
(11) Invest in other companies for the purpose of exercising control
or management.
Each Series 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
objectives, restrictions and policies as the Series.
In addition to the fundamental policies mentioned above, the Board of
Trustees of the Trust has adopted the following non-fundamental policies with
respect to the Financial Square Funds and the Portfolio Cash Fund which may be
changed or amended by action of the Board of Trustees without approval of
shareholders. Accordingly, the Trust may not, on the behalf of any Series:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 10% of a Series' 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 Series' borrowings exceed 5% of
its net assets.
(d) Make short sales of securities, except short sales against the box.
As money market funds, all of the Series must also comply, as a non-
fundamental policy, with Rule 2a-7 under the Act. While a detailed and technical
rule, Rule 2a-7 has three basic requirements: portfolio maturity, portfolio
quality and portfolio diversification. Portfolio maturity. Rule 2a-7 requires
that the maximum maturity (as determined in accordance with Rule 2a-7) of any
security in a Series' portfolio may not exceed 13 months and a Portfolio's
average portfolio maturity may not exceed 90 days. Portfolio quality. A money
market fund may only invest in First Tier and Second Tier securities (as defined
in the Rule and the Prospectuses). Each Series, other than the ILA Tax-Exempt
Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New
York Portfolio, and FS Tax-Free Fund (the "Tax-Exempt Series"), as a matter of
non-fundamental policy, only invests in First Tier securities. Portfolio
diversification. The Portfolio Cash Fund, ILA Prime Obligations, ILA Money
Market, ILA Government, ILA Treasury Obligations, ILA Treasury Instruments, ILA
Federal and ILA Tax-
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Exempt Diversified Portfolios, FS Prime Obligations, FS Government, FS Treasury
Obligations, FS Money Market, FS Federal, FS Treasury Instruments and FS Tax-
Free Funds may not invest more than 5% of their total assets in the securities
of any one issuer (except U.S. Government Securities, repurchase agreements
collateralized by such securities and certain securities subject to a guarantee
or unconditional demand feature). Each of such Series may, however, invest up to
25% of its total assets in the First Tier Securities of a single issuer for a
period of up to three business days after the purchase thereof. ILA Tax-Exempt
New York and ILA Tax-Exempt California Portfolios, with respect to 75% of their
respective total assets, may not invest more than 5% of their total assets in
the securities of any one issuer (except U.S. Government Securities, repurchase
agreements collateralized by such securities and certain securities subject to a
guarantee or unconditional demand feature); provided that such Series may not
invest more than 5% of their respective total assets in the securities of a
single issuer unless the securities are First Tier Securities. Subject to
certain exceptions, immediately after the acquisition of any demand features or
guarantees (i.e., generally, the right to sell the security at a price equal to
its approximate amortized cost (for a demand feature) or principal amount (for a
guarantee) plus accrued interest), with respect to 75% of the assets of a
Series, no more than 10% of the Series' total assets may be invested in
securities issued by or subject to demand features or guarantees issued by the
same issuer. In the case of the Tax-Exempt Series (which are the only Series
that are permitted to invest in Second Tier securities), subject to certain
exceptions immediately after the acquisition of a demand feature or guarantee
that is a Second Tier security, no more than 5% of the Tax-Exempt Series' total
assets may be invested in securities or demand features or guarantees issued by
the institution that issued the demand feature or guarantee. The Tax-Exempt
Series' investments in Second Tier securities that are conduit securities
(which, generally, are municipal securities involving an agreement or
arrangement providing for payment by a person other than the issuer of the
municipal security) that are not U.S. Government Securities or securities with a
guarantee by a non-controlled person, are limited, and may not exceed, with
respect to a particular issuer, the greater of $1 million or 1% of the Series'
total assets. Also, the Tax-Exempt Series' investments in Second Tier conduit
securities of all issuers combined may not exceed 5% of the Series' total
assets. Securities which are rated in the highest short-term rating category by
at least two NRSROs, or if only one NRSRO has assigned a rating, by that NRSRO
are "First Tier securities." Securities rated in the top two short-term rating
categories by at least two NRSROs or by the only NRSRO which has assigned a
rating, but which are not First Tier securities are "Second Tier securities."
Unrated securities may also be First Tier or Second Tier securities if they are
of comparable quality as determined by the Investment Adviser. In accordance
with certain rules, the rating of demand feature or guarantee of a security may
be deemed to be the rating of the underlying security. NRSROs include S&P,
Moody's, Fitch and Thomson BankWatch, Inc. For a description of their rating
categories, see Appendix A.
"Value" for the purposes of all investment restrictions means the
value used in determining a Series' net asset value. "U.S. Government
Securities" shall mean securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities.
Although the fundamental policies mentioned above would allow the
Series to borrow through reverse repurchase agreements, as of the date of this
Additional Statement, the Series do not engage in reverse repurchase
transactions as a matter of non-fundamental policy.
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TRUSTEES AND OFFICERS
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 Series
daily business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- ----------------------------
Ashok N. Bakhru, 58 Chairman Chairman of the Board and Trustee -
P.O. Box 143 & Trustee Goldman Sachs Variable Insurance Trust
Lima, PA 19037 (registered investment company) (since
October 1997); 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
(1989-Present); Member of Cornell
University Council (1992-Present);
Trustee of the Walnut Street Theater
(1992-Present); Director, Private
Equity Investors - III (since November
1998); Trustee, Citizens Scholarship
Foundation of America (since 1998).
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Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- ----------------------------
*David B. Ford, 55 Trustee Trustee - Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since October 1997);
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, 38 Trustee Trustee and President - Goldman Sachs
32 Old Slip & President Variable Insurance Trust (registered
New York, NY 10005 investment company) (since October
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).
-50-
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- ----------------------------
Patrick T. Harker, 42 Trustee Trustee - Goldman Sachs Variable
Office of the Dean Insurance Trust (registered
The Wharton School investment company) (since August
University of Pennsylvania 2000); Dean and Reliance Professor of
1000 SH-DH Operations and Information
Philadelphia, PA 19104-6364 Management, The Wharton School,
University of Pennsylvania (since
February 2000); Interim and Deputy
Dean, The Wharton School, University
of Pennsylvania (since July 1999);
Professor and Chairman of Department
of Operations and Information
Management, The Wharton School,
University of Pennsylvania (July
1997-August 2000); UPS Transportation
Professor for the Private Sector,
Professor of Systems Engineering and
Chairman of Systems Engineering,
School of Engineering and Applied
Science, University of Pennsylvania
(prior thereto).
*John P. McNulty, 48 Trustee Trustee - Goldman Sachs Variable
32 Old Slip Insurance Trust (registered
New York, NY 10005 investment company) (since October
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); and Limited Partner of Goldman
Sachs (1994-November 1995).
-51-
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- ----------------------------
Mary P. McPherson, 65 Trustee Trustee - Goldman Sachs
The Andrew W. Mellon Foundation Variable Insurance Trust
140 East 62/nd/ Street (registered investment
New York, NY 10021 company) (since October 1997);
Vice President, The Andrew W.
Mellon Foundation (provider of
grants 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, 51 Trustee Trustee - Goldman Sachs
32 Old Slip Variable Insurance Trust
New York, NY 10005 (registered investment
company) (since October 1997)
Advisory Director - GSAM
(since May 1999); Limited
Partner, Goldman Sachs (prior
to May 1999); Consultant to
GSAM (since December 1994).
William H. Springer, 71 Trustee Trustee - Goldman Sachs
701 Morningside Drive Variable Insurance Trust
Lake Forest, IL 60045 (registered investment
company) (since October 1997);
Director, The Walgreen Co. (a
retail drug store business)
(April 1988-January 2000);
Director of BKF Capital Group,
Inc. (a public holding company
of a registered investment
adviser) (April 1992-present);
and Chairman and Trustee,
Northern Institutional Funds
(since April 1984); and
Northern Funds (since March
2000).
-52-
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -----------------------
Richard P. Strubel, 61 Trustee Trustee - Goldman Sachs
500 Lake Cook Road Variable Insurance Trust
Suite 150 (registered investment
Deerfield, IL 60015 company) (since October 1997);
President and COO, UNext.com
(since 1999) (provider of
educational services via the
internet); Director, Gildan
Activewear Inc. (since
February 1999); Director of
Kaynar Technologies Inc.
(since March 1997); Managing
Director, Tandem Partners,
Inc. (1990-1999); Trustee,
Northern Institutional Funds
(since December 1982) and
Northern Funds (since March
2000); and Director,
Cantilever Technologies, Inc.
(since 1999).
*John M. Perlowski, 36 Treasurer Treasurer - Goldman Sachs
32 Old Slip Variable Insurance Trust
New York, NY 10005 (registered investment
company) (since 1997); Vice
President, Goldman Sachs
(since July 1995); and
Director/Fund Accounting &
Custody, Investors Bank &
Trust Company (November 1993-
July 1995).
*Philip V. Giuca, Jr., 38 Assistant Assistant Treasurer - Goldman
32 Old Slip Treasurer Sachs Variable Insurance Trust
New York, NY 10005 (registered investment
company) (since 1997); and
Vice President, Goldman Sachs
(May 1992-Present).
*Peter Fortner, 42 Assistant Assistant Treasurer - Goldman
32 Old Slip Treasurer Sachs Variable Insurance Trust
New York, NY 10005 (registered investment
company) (since August 2000);
Vice President, Goldman Sachs
(July 2000-Present);
Associate, Prudential
Insurance Company of America
(November 1985-June 2000); and
Assistant Treasurer, certain
closed end funds administered
by Prudential (1999 and 2000).
-53-
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- --------------------
*Kenneth Curran, 37 Assistant Assistant Treasurer - Goldman Sachs
32 Old Slip Treasurer Variable Insurance Trust (registered
New York, NY 10005 investment company) (since January 2001);
Vice President, Goldman Sachs (November
1998-Present); and Senior Tax Manager,
KPMG Peat Marwick (August 1995-October
1998).
*James A. Fitzpatrick, 40 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since October 1997); Managing
Director, Goldman Sachs (since October
1999); Vice President, Goldman Sachs
(April 1997-December 1999); and Vice
President and General Manager, First Data
Corporation - Investor Services Group
(1994 to 1997).
*Jesse Cole, 37 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1998); Vice President,
Goldman Sachs (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).
*Christopher Keller, 35 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (October 2000-present); Vice
President, Goldman Sachs (April
1997-present); and Manager, Anderson
Consulting (August 1989-April 1997).
*Kerry K. Daniels, 37 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since April 2000); and Manager,
Institutional Account Administration -
Shareholder Services, Goldman Sachs
(since 1986).
54
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- --------------------
*Mary F. Hoppa, 36 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since April 2000); Vice
President, Goldman Sachs (since October
1999); and Senior Vice President and
Director of Mutual Fund Operations,
Strong Capital Management (January
1987-September 1999).
*Howard B. Surloff, 35 Secretary Secretary - Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since 2001) and Assistant
Secretary prior thereto; 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); and
Counsel to the Funds Group, GSAM
(November 1993-December 1997).
*Valerie A. Zondorak, 35 Assistant Assistant Secretary - Goldman Sachs
32 Old Slip Secretary Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
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).
55
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- --------------------
*Deborah A. Farrell, 29 Assistant Assistant Secretary - Goldman Sachs
32 Old Slip Secretary Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997); 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); and Executive
Secretary, Goldman Sachs (January
1994-January 1996).
*Kaysie P. Uniacke, 39 Assistant Assistant Secretary - Goldman Sachs
32 Old Slip Secretary Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
Managing Director, Goldman Sachs (since
1997); Vice President and Senior
Portfolio Manager, GSAM (1988 to 1997).
*Elizabeth D. Anderson, 31 Assistant Assistant Secretary - Goldman Sachs
32 Old Slip Secretary Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997); Vice
President, Goldman Sachs (since May
1997); Portfolio Manager, GSAM (since
April 1996); Junior Portfolio Manager,
GSAM (1995-April 1996); and Funds Trading
Assistant, GSAM (1993-1995).
*Amy E. Belanger, 31 Assistant Assistant Secretary - Goldman Sachs
32 Old Slip Secretary Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1999); Vice
President, Goldman Sachs (since June
1999); Counsel, Goldman Sachs (since
1998); and Associate, Dechert Price &
Rhoads (September 1996-1998).
Each interested Trustee and officer holds comparable positions with certain
other investment companies of which Goldman Sachs, GSAM or GSFM is the
investment adviser, administrator and/or distributor. As of March 20, 2001, the
Trustees and officers of the Trustees 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.
56
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,
2000:
Total Compensation
Pension or From Goldman
Retirement Sachs Trust and the
Aggregate Benefits Goldman Sachs Funds
Compensation Accrued as Complex
from the Part of Trust's (including the
Name of Trustee Series/2/ Expenses Series)/3/
--------------- --------- -------- ----------
C
Ashok N. Bakhru/1/ $ 36,986 $ - $ 142,250
David B. Ford 0 - 0
Douglas C. Grip 0 - 0
Patrick T. Harker/4/ 6,624 - 26,500
John P. McNulty 0 - 0
Mary P. McPherson 27,531 - 106,000
Alan A. Shuch 0 - 0
Jackson W. Smart/5/ 13,856 - 53,500
William H. Springer 26,989 - 104,000
Richard P. Strubel 27,531 - 106,000
_________________________
/1/ Includes compensation as Chairman of the Board of Trustees.
/2/ Reflects amount paid by the Series described in this Additional Statement
during fiscal year ended December 31, 2000.
/3/ The Goldman Sachs Funds Complex consists of Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of
54 mutual funds, including 16 money market funds, as of December 31, 2000.
Goldman Sachs Variable Insurance Trust consisted of 10 mutual funds as of
December 31, 2000.
/4/ Mr. Harker was appointed to the Board of Trustees on August 29, 2000.
/5/ No longer a Trustee of the Trust.
The Trust, its Investment Advisers and principal underwriter have
adopted codes of ethics under Rule 17j-1 of the Act that permit personnel
subject to their particular code of ethics to invest in securities, including
securities that may be purchased or held by a Series.
57
THE INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT The Investment Adviser GSAM, 32 Old Slip, New York, New York 10005, a unit of the Investment Management Division ("IMD") of Goldman Sachs, serves as the Investment Adviser to the Series. Under the Management Agreement between Goldman Sachs on behalf of GSAM and the Trust on behalf of the Series, GSAM, subject to the supervision of the Board of Trustees of the Trust and in conformity with the stated policies of each Series, acts as Investment Adviser and directs the investments of the Series. In addition, GSAM administers the Series' business affairs and, in connection therewith, furnishes the Trust with office facilities and (to the extent not provided by the Trust's custodian, transfer agent, or other organizations) clerical, recordkeeping and bookkeeping services and maintains the financial and account records required to be maintained by the Trust. As compensation for these services and for assuming expenses related thereto, GSAM is entitled to receive a fee from the Trust, computed daily and paid monthly, at an annual rate of .15%, .35% and .205% of the Portfolio Cash Fund's, each ILA Portfolio's and each Financial Square Fund's average daily net assets, respectively. GSAM has agreed to reduce or otherwise limit the operating expenses of the respective Series, excluding, among other categories of expenses, taxes, interest, brokerage and litigation, indemnification and other extraordinary expenses, on an annualized basis, as described in the Series' Prospectus. The amount of such reductions or limits, if any, are calculated monthly and are based on the cumulative difference between a Series' estimated annualized expense ratio and the expense limit for that Series. This amount will be reduced by any prior payments related to the current fiscal year. GSAM voluntarily agreed to waive a portion of its management fee for each Financial Square Fund during the fiscal year ended December 31, 2000. As of the date of this Additional Statement, GSAM is also voluntarily waiving a portion of its management fee from Portfolio Cash Fund. Goldman Sachs has agreed to permit the Financial Square Funds and the ILA Portfolios to use the name "Goldman Sachs" or a derivative thereof as part of their names for as long as the Management Agreement is in effect. Goldman Sachs has authorized any of its directors, partners, officers and employees who have been elected or appointed to the position of Trustee or officer of the Trust to serve in the capacities in which they have been elected and appointed. The Trust, on behalf of each Series, is responsible for all expenses other than those expressly borne by GSAM under the Series' Management Agreement. The expenses borne by shares of each Series include, without limitation, the fees payable to GSAM, the fees and expenses under the Trust's distribution, administration, service, select and other plans, the fees and expenses of the Series' custodian, fees and expenses of the Series' transfer agent, filing fees for the registration or qualification of shares under federal or state securities laws, expenses of the organization of the Series, taxes (including income and excise taxes, if any), interest, costs of liability insurance, fidelity bonds, indemnification or contribution, any costs, expenses or losses arising out of any liability of, or claim for damages or other relief asserted against, the Series for violation of any law, legal and auditing and tax fees and expenses (including the cost of legal and certain accounting services rendered by employees of Goldman Sachs with respect to the Series), expenses of preparing and setting in type prospectuses, statements of additional information, proxy material, reports and notices, the printing and distribution of the same to shareholders and 58
regulatory authorities, each Series' proportionate share of the compensation and
expenses of its "non-interested" Trustees, and extraordinary expenses incurred
by the Series.
The Management Agreement entered into on behalf of the Portfolio Cash Fund
(the "Portfolio Cash Management Agreement") was approved by the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not parties to
such agreement or "interested persons" (as such term is defined in the Act) of
any part thereto (the "non-interested Trustees"), on April 25, 2001. The
Portfolio Cash Fund Management Agreement was approved by the Fund's sole initial
shareholder on __________, 2001. The Portfolio Cash Management Agreement will
remain in effect until June 30, 2002 and will continue in effect with respect to
that Fund 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 the Fund or a majority of the trustees of the Trust, and
(b) the vote of a majority of the non-interested Trustees of the Trust cast in
person at a meeting called for the purpose of voting on such approval.
Prior to the date of this Additional Statement, no shares of the Portfolio
Cash Fund had been offered and, accordingly, no fees were paid by the Fund to
the Investment Adviser pursuant to the Portfolio Cash Management Agreement.
The Management Agreement entered into on behalf of the ILA Portfolios (the
"ILA Management Agreement") was most recently approved by the Board of Trustees,
including the "non-interested" Trustees, on April 24, 2001 and by the
shareholders of each ILA Portfolio (other than the ILA Treasury Instruments and
ILA Tax-Exempt New York Portfolios) on April 19, 1990 and by the shareholders of
the ILA Treasury Instruments and ILA Tax-Exempt New York Portfolios on June 3,
1991. The ILA Management Agreement will remain in effect until June 30, 2002
and will continue in effect thereafter only if such continuance is specifically
approved at least annually by a majority of the Trustees or by a vote of a
majority of the outstanding voting securities of the particular ILA Portfolio,
as defined in the Act, and, in either case, by a majority of "non-interested"
Trustees.
59
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the amount of the management fee incurred by each ILA
Portfolio was as follows:
ILA Portfolio 2000 1999 1998
------------- ---- ---- ----
Prime Obligations Portfolio 4,109,926 $ 3,897,948 $3,665,907
Money Market Portfolio 8,254,531 6,253,719 5,096,528
Treasury Obligations Portfolio 2,479,214 2,329,913 2,662,028
Treasury Instruments Portfolio 1,471,882 2,367,541 1,719,014
Government Portfolio 886,602 1,521,689 1,703,454
Federal Portfolio 16,488,873 11,279,837 7,835,799
Tax-Exempt Diversified Portfolio 7,372,730 5,795,921 4,968,471
Tax-Exempt California Portfolio 2,841,945 2,537,365 2,294,224
Tax-Exempt New York Portfolio 854,965 635,270 412,164
GSAM agreed not to impose a portion of its advisory fees for the fiscal
year ended December 31, 1998 with respect to the ILA Money Market, ILA Treasury
Instruments, ILA Federal, ILA Tax-Exempt Diversified and ILA Tax-Exempt New York
Portfolios. Had such fees been imposed, the following additional fees would have
been incurred for the period indicated:
ILA Portfolio 1998
------------- ----
Money Market Portfolio $ 224,681
Treasury Instruments Portfolio 781,082
Federal Portfolio 1,942,882
Tax-Exempt Diversified Portfolio 1,016,544
Tax-Exempt New York Portfolio 67,141
In addition, GSAM assumed certain expenses related to the operations of
each ILA Portfolio during various periods of 2000, 1999, and 1998 to the extent
such expenses would have caused each ILA Portfolio's total expenses to exceed,
on an annualized basis, certain contractual or voluntary expense limitations.
Had these expenses not been assumed, the following additional expenses would
have been incurred for such years:
ILA Portfolio 2000 1999 1998
------------- ---- ---- ----
Prime Obligations Portfolio 423,313 $41,962 $ 46,293
Money Market Portfolio 516,157 0 297,382
Treasury Obligations Portfolio 2,689 0 87,462
60
Treasury Instruments Portfolio 67,131 0 159,394 Government Portfolio 162,808 90,702 114,600 Federal Portfolio 811,175 0 234,644 Tax-Exempt Diversified Portfolio 345,228 0 0 Tax-Exempt California Portfolio 125,281 0 0 Tax-Exempt New York Portfolio 93,612 17,287 141,226 Each ILA Portfolio has entered into certain expense offset arrangements with the custodian resulting in a reduction in the ILA Portfolio's expenses. For the fiscal year ended December 31, 2000, each ILA Portfolio's custody fees were reduced by the following amounts under such arrangement:ILA Portfolio Custody Fee Reductions ------------- ---------------------- Prime Obligations $ 2,746 Money Market 2,856 Treasury Obligations 2,643 Treasury Instruments 3,878 Government 2,764 Federal 19,624 Tax-Exempt Diversified 152,575 Tax-Exempt California 72,683 Tax-Exempt New York 24,699 For the fiscal year ended December 31, 1999, the ILA Tax-Exempt California Portfolio's custody fees were reduced by approximately $77,882 pursuant to the expense offset arrangements with the custodian mentioned above. The FS Management Agreement entered into on behalf of the Financial Square Funds (the "FS Management Agreement") was most recently approved by the Trustees, including the "non-interested" Trustees, on April 24, 2001. The Financial Square Funds' shareholders approved the FS Management Agreement on April 21, 1997. The FS Management Agreement will remain in effect until June 30, 2002 and will continue in effect thereafter only if such continuance is specifically approved at least annually by a majority of the Trustees or by a vote of a majority of the outstanding voting securities of the particular Financial Square Fund (as defined in the Act) and, in either case, by a majority of "non-interested" Trustees. For the fiscal years ended December 31, 2000, December 31, 1999, and December 31, 1998 the amounts of the management fee incurred by each Financial Square Fund were as follows: 61
2000 1999 1998 ---- ----- ---- Financial Square Fund --------------------- FS Prime Obligations Fund 21,958,427 $13,046,992 $ 9,711,034 FS Money Market Fund 15,796,084 13,441,727 10,320,883 FS Treasury Obligations Fund 7,121,755 7,132,148 7,933,124 FS Government Fund 5,399,617 5,080,264 4,643,079 FS Tax-Free Fund 4,141,022 2,961,099 2,406,049 FS Treasury Instruments Fund 940,243 736,284 733,510 FS Federal Fund 13,907,137 6,939,787 4,301,134 During the periods presented, GSAM agreed voluntarily that it would not impose a portion of its management fee. Had such fees been imposed, the following additional fees (including both advisory and administration fees) would have been incurred by these Series for the periods indicated:2000 1999 1998 ---- ----- ---- Financial Square Fund --------------------- FS Prime Obligations Fund 4,520,853 $2,686,147 $1,999,543 FS Money Market Fund 3,252,135 2,767,248 2,124,889 FS Treasury Obligations Fund 1,466,245 1,468,383 1,633,292 FS Government Fund 1,111,686 1,048,119 955,928 FS Tax-Free Fund 852,563 609,445 494,669 FS Treasury Instruments Fund 193,579 151,607 151,018 FS Federal Fund 1,555,229 1,428,690 885,516 In addition, GSAM assumed certain expenses related to the operations of each Financial Square Fund during various periods of 2000, 1999 and 1998 to the extent such expenses would have caused each Fund's total expenses to exceed, on an annualized basis, certain contractual or voluntary expense limitations. Had these expenses not been assumed, the Series would have incurred the following additional expenses: 62
2000 1999 1998 ---- ---- ---- Financial Square Fund --------------------- FS Prime Obligations Fund 658,787 $619,596 $957,241 FS Money Market Fund 3,219 571,930 412,192 FS Treasury Obligations Fund 300,354 382,968 694,383 FS Government Fund 327,192 128,911 319,735 FS Tax-Free Fund 305,430 0 183,532 FS Treasury Instruments Fund 330,383 103,016 298,407 FS Federal Fund 690,851 393,045 384,419 The Financial Square Funds has entered into certain expense offset arrangements with the custodian resulting in a reduction in the Funds' expenses. For the fiscal year ended December 31, 2000, each Fund's custody fees were reduced by the following amounts under such arrangement:Financial Square Fund Custody Fee Reductions --------------------- ---------------------- FS Prime Obligations $10,230 FS Money Market 19,899 FS Treasury Obligations 2,739 FS Government 9,544 FS Tax-Free 23,962 FS Treasury Instruments 10,451 FS Federal Fund 18,823 The Portfolio Cash Management, ILA Management and FS Management Agreements provide that GSAM shall not be liable to the Portfolio Cash Fund, an ILA Portfolio or Financial Square Fund for any error of judgment by GSAM or for any loss sustained by the Portfolio Cash Fund, ILA Portfolio or Financial Square Fund except in the case of GSAM's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Portfolio Cash Management, ILA Management and FS Management Agreements also provide that they shall terminate automatically if assigned and that they may be terminated with respect to the Portfolio Cash Fund or any particular ILA Portfolio or Financial Square Fund without penalty by vote of a majority of the Trustees or a majority of the outstanding voting securities of the Portfolio Cash Fund or that ILA Portfolio or Financial Square Fund on 60 days' written notice to GSAM or by GSAM without penalty at any time on 90 days' (60 days with respect to the Portfolio Cash Fund or Financial Square Fund) written notice to the Trust. In managing the Goldman Sachs Money Market Funds, GSAM will draw upon the Goldman Sachs Credit Department. The Credit Department provides credit risk management for our portfolios through a team of 108 professionals who contribute a combination of industry analysis, fund-specific expertise and global capacity (through their local presence in foreign markets). The credit department continuously monitors all issuers approved for investment by the money market funds by monitoring news stories, business developments, financial 63
information and ratings, as well as occasional discussion with issuer management
and rating agency analysts. The Credit Department receives rating agency reports
and rating change information electronically and via fax as well as reports from
Goldman's Research Department. Specifically with respect to managing the ILA
Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-
Exempt New York Portfolio and FS Tax-Free Money Market Fund, GSAM will draw upon
the extensive research generated by Goldman Sachs' Municipal Credit Group. The
Credit Group's research team continually reviews current information regarding
the issuers of municipal and other tax-exempt securities, with particular focus
on long-term creditworthiness, short-term liquidity, debt service costs,
liability structures, and administrative and economic characteristics.
The Distributor and Transfer Agent
Goldman Sachs, 85 Broad Street, New York, NY 10004, acts as principal
underwriter and distributor of each Series' shares. Shares of the Series are
offered and sold on a continuous basis by Goldman Sachs, acting as agent. The
Distribution Agreement between Goldman Sachs and the Trust was most recently
approved by the Trustees on April 24, 2001. Goldman Sachs retained
approximately $3,500, $800, and $2,000 of commissions on redemptions of ILA
Class B and ILA Class C shares during 2000, 1999 and 1998, respectively.
Goldman Sachs also serves as the Series' transfer agent. Goldman Sachs provides
customary transfer agency services to the Series, including the handling of
shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, payment of dividends and
distributions and related functions. For these services, Goldman Sachs receives
.04% (on an annualized basis) of the average daily net assets with respect to
each class of each ILA Portfolio. Goldman Sachs currently imposes no fees under
its transfer agency agreements with the Portfolio Cash Fund and the Financial
Square Funds.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the ILA Portfolios incurred transfer agency fees as follows:
2000 1999 1998
---- ---- ----
Prime Obligations Portfolio 469,902 $ 445,314 $ 438,389
Money Market Portfolio 943,375 714,161 608,138
Treasury Obligations Portfolio 283,338 266,274 304,232
Treasury Instruments Portfolio 168,215 270,576 285,734
Government Portfolio 101,326 173,909 194,680
Federal Portfolio 1,884,443 1,289,124 1,117,564
Tax-Exempt Diversified Portfolio 842,598 662,391 684,002
Tax-Exempt California Portfolio 324,794 289,985 262,197
Tax-Exempt New York Portfolio 97,710 72,603 54,776
Goldman Sachs is one of the largest international investment banking
firms in the United States. Founded in 1869, Goldman Sachs is a major investment
banking and brokerage firm providing a broad range of financing and investment
services both in the United States and abroad. As of December 31, 2000, GSAM,
along with other units of IMD, had assets under management of approximately
$281.7 billion.
64
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
-------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Investment Adviser and 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 Series or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Adviser and its advisory affiliates have proprietary interests in,
and may manage or advise, accounts or funds (including separate accounts and
other funds and collective investment vehicles) which have investment objectives
similar to those of the Series and/or which engage in transactions in the same
types of securities, currencies and instruments as the Series. 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 Series invest. Such activities could affect the prices and
availability of the securities, currencies and instruments in which the Series
invest, which could have an adverse impact on each Series' performance. Such
transactions, particularly in respect of proprietary accounts or customer
accounts other than those included in the Investment Adviser's and its advisory
affiliates' asset management activities, will be executed independently of the
Series' transactions and thus at prices or rates that may be more or less
favorable. When the Investment Adviser and its advisory affiliates seek to
purchase or sell the same assets for their managed accounts, including the
Series, the assets actually purchased or sold may be allocated among the
accounts on a basis determined in its good faith discretion to be equitable. In
some cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Series.
From time to time, the Series' 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 Adviser, and/or its
affiliates, will not initiate or recommend certain types of transactions in
certain securities or instruments which the Investment Adviser and/or its
affiliates are performing services or when position limits have been reached.
In connection with their management of the Series, the Investment Adviser
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Investment Adviser will
not be under any obligation, however, to effect transactions on behalf of the
Series 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 Series and it is not anticipated that the
Investment Adviser will have access to such information for the purpose of
managing the Series. 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 Adviser in managing the
Series.
-65-
The results of each Series' investment activities may differ
significantly from the results achieved by the Investment Adviser and its
affiliates for their proprietary accounts or other 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 Series. Moreover, it is possible that
a Series 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.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding a Series'
activities, but will not be involved in the day-to-day management of such
Series. In such instances, those individuals may, as a result, obtain
information regarding the Series' 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 Series invests.
In addition, certain principals and certain of the employees of the
Investment Adviser are also principals or employees of Goldman Sachs or its
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 Series should be aware.
The Investment Adviser may enter into transactions and invest in
instruments 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 the Series, and such party may have no
incentive to assure that the Series 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 affiliates, the underlying securities, currencies or instruments of which
may be those in which the Series invest or which may be based on the performance
of a Series. The Series 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 into transactions with other clients of
Goldman Sachs or its affiliates where such other clients have interests adverse
to those of the Series. 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 Series. To the extent
affiliated transactions are permitted, the Series will deal with Goldman Sachs
and its affiliates on an arms-length basis.
Each Series will be required to establish business relationships with its
counterparties based on the Series' own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Series' establishment of its business relationships, nor is it
expected that a Series' counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Series' creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Series in order to increase the
assets of the Series. Increasing a
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Series' assets may enhance investment flexibility and diversification and may
contribute to economies of scale that tend to reduce a Series' expense ratio.
Goldman Sachs reserves the right to redeem at any time some or all of the shares
of a Series acquired for its own account. A large redemption of shares of a
Series by Goldman Sachs could significantly reduce the asset size of the Series,
which might have an adverse effect on a Series' investment flexibility,
portfolio diversification and expense ratio. Goldman Sachs will consider the
effect of redemptions on a Series and other shareholders in deciding whether to
redeem its shares.
It is possible that a Series' 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 Series' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Series' Investment Adviser
may be prohibited from purchasing or recommending the purchase of certain
securities of that entity for the Series.
PORTFOLIO TRANSACTIONS
GSAM places the portfolio transactions of the Series and of all other
accounts managed by GSAM for execution with many firms. GSAM uses its best
efforts to obtain execution of portfolio transactions at prices which are
advantageous to each Series and at reasonably competitive spreads or (when a
disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, GSAM will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the general
execution and operational capabilities of the firm, the reputation, reliability,
experience and financial condition of the firm, the value and quality of the
services rendered by the firm in this and other transactions, and the
reasonableness of the spread or commission, if any. Securities purchased and
sold by the Series are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting for
their own account rather than as brokers, or otherwise involve transactions
directly with the issuer of such securities.
Goldman Sachs is active as an investor, dealer and/or underwriter in many
types of municipal and money market instruments. Its activities in this regard
could have some effect on the markets for those instruments which the Series
buy, hold or sell. An order has been granted by the SEC under the Act which
permits the Series to deal with Goldman Sachs in transactions in certain
securities in which Goldman Sachs acts as principal. As a result, the Series
may trade with Goldman Sachs as principal subject to the terms and conditions of
such exemption.
Under the Act, the Series are prohibited from purchasing any instrument
of which Goldman Sachs is a principal underwriter during the existence of an
underwriting or selling syndicate relating to such instrument, absent an
exemptive order (the order referred to in the preceding paragraph will not apply
to such purchases) or the adoption of and compliance with certain procedures
under the Act. The Trust has adopted procedures which establish, among
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other things, certain limitations on the amount of debt securities that may be
purchased in any single offering and on the amount of the Trust's assets that
may be invested in any single offering. Accordingly, in view of Goldman Sachs'
active role in the underwriting of debt securities, a Series' ability to
purchase debt securities in the primary market may from time to time be limited.
In certain instances there may be securities which are suitable for more
than one Series as well as for one or more of the other clients of GSAM.
Investment decisions for each Series and for GSAM's other clients are made with
a view to achieving their respective investment objectives. It may develop that
a particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same Investment Adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Series is concerned. Each
Series believes that over time its ability to participate in volume transactions
will produce better executions for the Series.
During the fiscal year ended December 31, 2000, the Series acquired and
sold securities of their regular broker/dealers: Donaldson, Lufkin & Jenrette,
Warburg Dillon, Salomon Smith Barney, Barclay's, Nations Bank, Lehman Brothers,
ABN Amro Bank, Chase Bank, Garvin Guy Butler and Bear Stearns.
As of December 31, 2000, each ILA Portfolio 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): ILA Prime Obligations Portfolio: Chase
Manhattan Bank ($16,868), Warburg Dillon ($16,969), Barclays Bank ($13,630),
Bear Stearns ($22,717) and Salomon Smith Barney ($13,689); ILA Money Market
Portfolio: Chase Manhattan Bank ($18,263), Warburg Dillon ($18,374), Barclays
Bank ($10,904), Bear Stearns ($18,173) and Salomon Smith Barney ($10,951); ILA
Government Portfolio: Chase Manhattan Bank ($16,367), Salomon Smith Barney
($4380), Warburg Dillon ($16,467), Barclays Bank ($4,362) and Bear Stearns
($7,270); ILA Treasury Obligations Portfolio: Chase Manhattan Bank ($117,295),
Warburg Dillon ($143,010), Salomon Smith Barney ($40,000); Barclays Bank
($44,000), Lehman Brothers ($35,000), ABN Amro Securities ($44,000) and Bear
Stearns ($44,000).
As of December 31, 2000, each Financial Square Fund held the following
amounts of securities of its regular broker/dealers as defined in Rule 10b-1
under the Act, or their parents ($ in thousands): FS Prime Obligations Fund:
Chase Manhattan Bank ($334,979), Bear Stearns ($154,472), Barlays Capital PLC
($92, 683), and Salomon Smith Barney ($93,085); FS Money Market Fund: Chase
Manhattan Bank ($8,383); FS Treasury Obligations Fund: ABN/Amro, Inc.
($211,000), Barclays Capital PLC ($211,000), Bear Stearns ($211,000), Lehman
Brothers ($150,000), and Salomon Smith Barney ($50,000); FS
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Government Fund: Bear Stearns ($72,745), Salomon Smith Barney ($43,836),
Barclays Capital, Inc. ($43,647), and Chase Securities ($23,568).
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NET ASSET VALUE
The net asset value per share of each Series (except for FS Money Market
Fund, FS Prime Obligations Fund, FS Government Fund, and FS Treasury Obligations
Fund) is determined by the Series' custodian as of the close of regular trading
on the New York Stock Exchange (normally, but not always, 4:00 p.m. New York
time) (in the case of the FS Money Market Fund, FS Prime Obligations Fund, FS
Government Fund and FS Treasury Obligations Fund, net asset value is determined
normally, but not always, at 5:00 p.m. New York time) on each Business Day. A
Business Day means any day on which the New York Stock Exchange is open, except
for days on which Chicago, Boston or New York banks are closed for local
holidays. Such holidays include: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
In the event that the New York Stock Exchange adopts 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 Series may compute
its net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Each Series' securities are valued using the amortized cost method of
valuation in an effort to maintain a constant net asset value of $1.00 per
share, which the Board of Trustees has determined to be in the best interest of
each Series and its shareholders. This method involves valuing a security at
cost on the date of acquisition and thereafter assuming a constant accretion of
a discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Series would receive if it sold the instrument. During such periods, the yield
to an investor in a Series may differ somewhat from that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities. During periods of declining interest rates, the quoted
yield on shares of a Series may tend to be higher than a like computation made
by a fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by a Series resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Series would be able to obtain a somewhat higher yield if he or she purchased
shares of the Series on that day, than would result from investment in a fund
utilizing solely market values, and existing investors in the Series would
receive less investment income. The converse would apply in a period of rising
interest rates.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, each Series' price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
each Series by the Trustees, at such intervals as they deem appropriate, to
determine whether the Series' net asset value calculated by using available
market quotations (or an appropriate substitute which reflects market
conditions) deviates from $1.00 per share based on amortized cost, as well as
review of methods used to calculate the deviation. If such deviation exceeds
1/2 of 1%, the Trustees will promptly consider what action, if any, will be
initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, they will
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take such corrective action as they regard to be necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding part or
all of dividends or payment of distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations or equivalents. In addition, in order to stabilize
the net asset value per share at $1.00, the Trustees have the authority (1) to
reduce or increase the number of shares outstanding on a pro rata basis, and (2)
to offset each shareholder's pro rata portion of the deviation between the net
asset value per share and $1.00 from the shareholder's accrued dividend account
or from future dividends. Each Series may hold cash for the purpose of
stabilizing its net asset value per share. Holdings of cash, on which no return
is earned, would tend to lower the yield on such Series' shares.
In order to continue to use the amortized cost method of valuation for
each Series' investments, the Series must comply with Rule 2a-7. See
"Investment Restrictions."
The proceeds received by each Series for each 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 Series and constitute the underlying assets of that Series. The
underlying assets of each Series will be segregated on the books of account, and
will be charged with the liabilities in respect to such Series and with a share
of the general liabilities of the Trust. Expenses with respect to the Series are
to be allocated in proportion to the net asset values of the respective Series
except where allocations of direct expenses can otherwise be fairly made. In
addition, within each Series, Portfolio Cash Institutional Shares, Portfolio
Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Shares, ILA
Administration Shares, ILA Service Shares, ILA Class B and Class C Shares, ILA
Cash Management Shares, FST Shares, FST Administration Shares, FST Service
Shares, FST Preferred Shares and FST Select Shares (if any) will be subject to
different expense structures (see "Organization and Capitalization").
REDEMPTIONS
The Trust may suspend the right of redemption of shares of a Series and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed for regular trading other than customary weekend and holiday
closings or during which trading on the New York Stock Exchange is restricted;
(ii) when an emergency exists which makes the disposal of securities owned by a
Series or the determination of the fair value of the Series' net assets not
reasonably practicable; (iii) as the SEC may by order permit for the protection
of the shareholders of the Trust; or (iv) at any other time when the Trust may,
under applicable laws and regulations, suspend or postpone payment on the
redemption of the Series' shares.
The Trust agrees to redeem shares of each Series solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Series during any 90-day
period for any one shareholder. The Trust reserves the right to pay other
redemptions, either total or partial, by a distribution in kind of securities
(instead of cash) from the applicable Series' portfolio. The securities
distributed in such a distribution would be valued at the same value as that
assigned to
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them in calculating the net asset value of the shares being redeemed. If a
shareholder receives a distribution in kind, he or she should expect to incur
transaction costs when he or she converts the securities to cash.
A FST shareholder of any Financial Square Fund with balances in excess of
$100 million may elect to have a special account with State Street for the
purpose of redeeming shares from its account in that Series by check. When
State Street receives a completed signature card and authorization form, the
shareholder will be provided with a supply of checks. Checks drawn on this
account may be payable to the order of any person in any amount of $500 or more,
but cannot be certified. The payee of the check may cash or deposit it like any
other check drawn on a bank. When such a check is presented to State Street for
payment, a sufficient number of full and fractional shares will be redeemed to
cover the amount of the check. Cancelled checks will be returned to the
shareholder by State Street. The Trust and Goldman Sachs each reserves the
right to waive the minimum requirement.
The check redemption privilege enables a shareholder to receive the
dividends declared on the shares to be redeemed until such time as the check is
processed. Because of this feature, the check redemption privilege may not be
used for a complete liquidation of an account. If the amount of a check is
greater than the value of shares held in the shareholder's account, the check
will be returned unpaid, and the shareholder may be subject to extra charges.
Goldman Sachs reserves the right to impose conditions on, limit the
availability of or terminate the check redemption privilege at any time with
respect to a particular shareholder or shareholders in general. The Trust and
State Street reserve the right at any time to suspend the check redemption
privilege and intend to do so in the event that federal legislation or
regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of the Series.
CALCULATION OF YIELD QUOTATIONS
From time to time, each Series may advertise its yield, effective yield,
tax-equivalent yield, tax-equivalent effective yield and total return. Yield,
effective yield, tax-equivalent yield, tax-equivalent effective yield and total
return are calculated separately for each class of shares of a Series. Each
type of share is subject to different fees and expenses and may have differing
yields for the same period.
Each Series' yield quotations are calculated by a standard method
prescribed by the rules of the SEC. Under this method, the yield quotation is
based on a hypothetical account having a balance of exactly one share at the
beginning of a seven-day period.
The yield of a Series refers to the income generated by an investment in
that Series over a seven-day period (which period will be stated in the
advertisement). This income is then annualized; that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52 week period and is shown as a percentage of the investment. The
yield quotation is computed as follows: the net change, exclusive of capital
changes and income other than investment income (i.e., realized gains and losses
from the sale of
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securities and unrealized appreciation and depreciation), in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the base period is determined by dividing the net change in account value by
the value of the account at the beginning of the base period. This base period
return is then multiplied by 365/7 with the resulting yield figure carried to
the nearest 100th of 1%. Such yield quotation shall take into account all fees
that are charged to a Series.
Each Series also may advertise a quotation of effective yield for a 7-
calendar day period. Effective yield is computed by compounding the
unannualized base period return determined as in the preceding paragraph by
adding 1 to that return, raising the sum to the 365/7 power and subtracting one
from the result, according to the following formula:
Effective Yield = [(base period return + 1)/365/7/] - 1
The effective yield will be slightly higher than the yield because of the
compounding effect of reinvestment.
The ILA Treasury Instruments Portfolio, ILA Federal Portfolio, ILA Tax-
Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-
Exempt New York Portfolio, FS Treasury Instruments Fund, FS Federal Fund, and FS
Tax-Free Fund may also advertise a tax-equivalent yield and tax-equivalent
effective yield. Tax-equivalent yield is computed by dividing that portion of a
Series' yield (as computed above) which is tax-exempt by one minus a stated
income tax rate and adding the quotient to that portion, if any, of the yield of
the Series that is not tax-exempt. Tax-equivalent effective yield is computed by
dividing that portion of a Series' effective yield (as computed above) which is
tax-exempt by one minus a stated income tax rate and adding the quotient to that
portion, if any, of the effective yield of the Series that is not tax-exempt.
Total return is determined by computing the percentage change in value of
$1,000 invested at the maximum public offering price for a specified period,
assuming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at the
end of the relevant period. Each Series may furnish total return calculations
based on cumulative, average, year-by-year or other basis for various specified
periods by means of quotations, charts, graphs or schedules.
Unlike bank deposits or other investments which pay a fixed yield or
return for a stated period of time, the investment results for a Series are
based on historical performance and will fluctuate from time to time. Any
presentation of a Series' yield, effective yield, tax-equivalent yield, tax-
equivalent effective yield or total return for any prior period should not be
considered a representation of what an investment may earn or what a Series'
yield, effective yield, tax equivalent yield, tax equivalent effective yield or
total return may be in any future period. Return is a function of portfolio
quality, composition, maturity and market conditions as well as of the expenses
allocated to each Series. The return of a Series may not be comparable to other
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate return.
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Prior to the date of this Additional Statement, no shares of the
Portfolio Cash Fund had been offered and, accordingly, no performance
information is available.
The yield performance below is for each class of shares of the ILA
Portfolios, which would have similar yields because each class of shares will be
invested in the same portfolio of securities. Yields will differ only to the
extent that classes do not have the same expenses. In reviewing this performance
information, you should be aware that ILA Shares have no service fee, ILA
Administration Shares have a .15% administration fee, ILA Service Shares have a
.25% service fee and a .15% shareholder administration fee, ILA Class B and
Class C Shares have a .75% distribution fee and a .25% service fee with respect
to ILA Prime Obligations Portfolio and ILA Cash Management Shares have a .50%
service fee and a .50% distribution fee. The yield, effective yield, tax-
equivalent yield and tax-equivalent effective yield of each ILA Portfolio for
the seven-day period ended December 31, 2000 were as follows:
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
ILA Prime Obligations Portfolio:
ILA Shares 6.20% 6.39% N/A N/A
ILA Administration Shares 6.05% 6.23% N/A N/A
ILA Service Shares 5.80% 5.97% N/A N/A
ILA Class B Shares 5.20% 5.33% N/A N/A
ILA Class C Shares 5.20% 5.33% N/A N/A
ILA Cash Management Shares 5.63% 5.79% N/A N/A
ILA Money Market Portfolio:
ILA Shares 6.27% 6.47% N/A N/A
ILA Administration Shares 6.12% 6.31% N/A N/A
ILA Service Shares 5.87% 6.05% N/A N/A
ILA Cash Management Shares 5.70% 5.87% N/A N/A
ILA Treasury Obligations Portfolio:
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Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
ILA Shares 5.94% 6.12% N/A N/A
ILA Administration Shares 5.79% 5.96% N/A N/A
ILA Service Shares 5.55% 5.70% N/A N/A
ILA Cash Management Shares 5.38% 5.52% N/A N/A
ILA Treasury Instruments Portfolio:
ILA Shares 5.57% 5.72% N/A N/A
ILA Administration Shares 5.42% 5.57% N/A N/A
ILA Service Shares 5.17% 5.30% N/A N/A
ILA Cash Management Shares 5.00% 5.13% N/A N/A
ILA Government Portfolio:
ILA Shares 6.15% 6.34% N/A N/A
ILA Administration Shares 6.00% 6.18% N/A N/A
ILA Service Shares 5.75% 5.91% N/A N/A
ILA Cash Management Shares 5.58% 5.73% N/A N/A
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Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- ILA Federal Portfolio: ILA Shares 6.10% 6.29% N/A N/A ILA Administration Shares 5.95% 6.13% N/A N/A ILA Service Shares 5.70% 5.86% N/A N/A ILA Cash Management Shares 5.53% 5.68% N/A N/A ILA Tax-Exempt Diversified Portfolio: ILA Shares 4.23% 4.32% 7.00% 7.15% ILA Administration Shares 4.08% 4.16% 6.75% 6.89% LA Service Shares 3.83% 3.90% 6.34% 6.46% ILA Cash Management Shares 3.66% 3.73% 6.06% 6.18% -76-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- ILA Tax-Exempt California Portfolio* ILA Shares 3.58% 3.64% 5.93% 6.03% ILA Administration Shares 3.43% 3.49% 5.68% 5.78% ILA Service Shares** 3.18% 3.23% 5.26% 5.35% ILA Cash Management Shares 3.01% 3.05% 4.98% 5.05% ILA Tax-Exempt New York Portfolio*** ILA Shares 4.07% 4.15% 6.74% 6.87% ILA Administration Shares 3.92% 4.00% 6.49% 6.62% ILA Service Shares** 3.67% 3.74% 6.08% 6.19% ILA Cash Management Shares 3.50% 3.56% 5.79% 5.89% ____________ * Tax-equivalent yields would be 3.95%, 3.78%, 3.51% and 3.32% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, respectively, when taking California State taxes into account. Tax-equivalent effective yields would be 4.01%, 3.85%, 3.56% and 3.36% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, respectively, when taking California State taxes into account. -77-
** Assuming such Shares had been outstanding and were subject to maximum
service and shareholder administration fees.
*** Tax-equivalent yields would be 4.37%, 4.21%, 3.94% and 3.76% for the ILA
Shares, ILA Administration Shares, ILA Service Shares and ILA Cash
Management Shares, respectively, when taking New York State taxes into
account, and 4.23%, 4.07%, 3.81% and 3.64%, respectively, when taking
New York City taxes into account. Tax equivalent effective yields would
be 4.46%, 4.29%, 4.02% and 3.82%, respectively, when taking New York
State taxes into account, and 4.31%, 4.16%, 3.89% and 3.70%,
respectively, when taking New York City taxes into account.
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The information set forth in the foregoing table reflects certain fee
reductions and expense limitations voluntarily agreed to by the Investment
Adviser. See "The Investment Adviser, Distributor and Transfer Agent." In the
absence of such fee reductions and expense limitations, the yield of each ILA
Portfolio for the same period would have been as follows:
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
ILA Prime Obligations Portfolio:
ILA Shares 6.20% 6.39% N/A N/A
ILA Administration Shares 6.05% 6.23% N/A N/A
ILA Service Shares 5.80% 5.97% N/A N/A
ILA Class B Shares 5.20% 5.33% N/A N/A
ILA Class C Shares 5.20% 5.33% N/A N/A
ILA Cash Management Shares 5.20% 5.33% N/A N/A
ILA Money Market Portfolio:
ILA Shares 6.27% 6.47% N/A N/A
ILA Administration Shares 6.12% 6.31% N/A N/A
ILA Service Shares 5.87% 6.05% N/A N/A
ILA Cash Management Shares 5.27% 5.44% N/A N/A
ILA Treasury Obligations Portfolio:
ILA Shares 5.94% 6.12% N/A N/A
ILA Administration Shares 5.79% 5.96% N/A N/A
ILA Service Shares 5.55% 5.70% N/A N/A
ILA Cash Management Shares 4.95% 5.07% N/A N/A
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Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- ILA Treasury Instruments Portfolio: ILA Shares 5.53% 5.68% N/A N/A ILA Administration Shares 5.38% 5.53% N/A N/A ILA Service Shares 5.13% 5.26% N/A N/A ILA Cash Management Shares 4.53% 4.63% N/A N/A ILA Government Portfolio: ILA Shares 6.05% 6.23% N/A N/A ILA Administration Shares 5.90% 6.07% N/A N/A ILA Service Shares 5.65% 5.80% N/A N/A ILA Cash Management Shares 5.05% 5.18% N/A N/A ILA Federal Portfolio: ILA Shares 6.10% 6.29% N/A N/A ILA Administration Shares 5.95% 6.13% N/A N/A ILA Service Shares 5.70% 5.86% N/A N/A ILA Cash Management Shares 5.10% 5.23% N/A N/A ILA Tax-Exempt Diversified Portfolio: ILA Shares 4.23% 4.32% 7.02% 7.17% ILA Administration Shares 4.08% 4.16% 6.77% 6.90% -80-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- ILA Service Shares 3.83% 3.90% 6.36% 6.47% ILA Cash Management Shares 3.23% 3.28% 5.36% 5.45% ILA Tax-Exempt California Portfolio* ILA Shares 3.58% 3.64% 5.92% 6.03% ILA Administration Shares 3.43% 3.49% 5.67% 5.78% ILA Service Shares** 3.18% 3.23% 5.26% 5.35% ILA Cash Management Shares 2.58% 2.61% 4.27% 4.32% ILA Tax-Exempt New York Portfolio*** ILA Shares 4.05% 4.13% 6.70% 6.83% ILA Administration Shares 3.90% 3.98% 6.45% 6.59% ILA Service Shares** 3.65% 3.72% 6.04% 6.16% -81-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- ILA Cash Management Shares 3.05% 3.09% 5.05% 5.12% __________________ * Tax-equivalent yields would be 6.36%, 6.10%, 5.65% and 4.59% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, respectively, when taking California State taxes into account. Tax-equivalent effective yields would be 6.47%, 6.20%, 5.74% and 4.64% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, when taking California State taxes into account. ** Assuming such Shares had been outstanding and were subject to maximum service and shareholder administration fees. *** Tax-equivalent yields would be 7.20%, 6.93%, 6.49% and 5.42% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, respectively, when taking New York State taxes into account, and 7.50%, 7.22%, 6.76% and 5.65%, respectively, when taking New York City taxes into account. Tax-equivalent effective yields would be 7.34%, 7.07%, 6.61% and 5.49% for the ILA Shares, ILA Administration Shares, ILA Service Shares and ILA Cash Management Shares, respectively, when taking New York State taxes into account, and 7.65%, 7.37%, 6.89% and 5.72%, respectively, when taking New York City taxes into account. -82-
The yield performance below is for each class of shares of the Financial
Square Funds that would have similar yields because each class of shares will be
invested in the same portfolio of securities. Yields will differ only to the
extent that classes do not have the same expenses. In reviewing this performance
information, you should be aware that FST Shares have no service fee, FST
Administration Shares have a .25% administration fee, FST Service Shares have a
.25% service fee and a .25% shareholder administration fee, FST Preferred Shares
have a .10% preferred administration fee and FST Select Shares have a service
fee of .03%. The yield, effective yield, tax-equivalent yield and tax-equivalent
effective yield of each Financial Square Fund for the seven-day period ended
December 31, 2000 were as follows:
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
FS Prime Obligations Fund:
FST Shares 6.50% 6.72% N/A N/A
FST Administration Shares 6.25% 6.45% N/A N/A
FST Service Shares 6.00% 6.18% N/A N/A
FST Preferred Shares 6.40% 6.61% N/A N/A
FST Select Shares 6.47% 6.68% N/A N/A
FS Money Market Fund:
FST Shares 6.50% 6.72% N/A N/A
FST Administration Shares 6.25% 6.45% N/A N/A
FST Service Shares 6.01% 6.19% N/A N/A
FST Preferred Shares 6.40% 6.61% N/A N/A
FST Select Shares 6.47% 6.68% N/A N/A
FS Treasury Obligations Fund:
FST Shares 6.18% 6.37% N/A N/A
FST Administration Shares 5.93% 6.11% N/A N/A
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Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- FST Service Shares 5.68% 5.84% N/A N/A FST Preferred Shares 6.08% 6.27% N/A N/A FST Select Shares 6.15% 6.34% N/A N/A FS Treasury Instruments Fund: FST Shares 5.84% 6.01% N/A N/A FST Administration Shares 5.59% 5.75% N/A N/A FST Service Shares 5.34% 5.48% N/A N/A FST Preferred Shares 5.74% 5.91% N/A N/A FST Select Shares 5.81% 5.98% N/A N/A FS Government Fund: FST Shares 6.38% 6.58% N/A N/A FST Administration Shares 6.13% 6.31% N/A N/A FST Service Shares 5.88% 6.05% N/A N/A FST Preferred Shares 6.28% 6.47% N/A N/A FST Select Shares 6.35% 6.55% N/A N/A -84-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- FS Federal Shares: FST Shares 6.30% 6.50% N/A N/A FST Administration Shares 6.05% 6.21% N/A N/A FST Service Shares 5.80% 5.97% N/A N/A FST Preferred Shares 6.20% 6.39% N/A N/A FST Select Shares 6.27% 6.47% N/A N/A FST Tax-Free Fund: FST Shares 4.45% 4.55% 7.37% 7.53% FST Administration Shares 4.20% 4.29% 6.95% 7.10% FST Service Shares 3.96% 4.03% 6.56% 6.67% FST Preferred Shares 4.35% 4.45% 7.20% 7.37% FST Select Shares 4.42% 4.52% 7.32% 7.48% Information set forth in the foregoing table reflects certain fee reductions and expense limitations voluntarily agreed to by the Investment Adviser. See "The Investment Adviser, Distributor and Transfer Agent." In the absence of such fee reductions, the yield, effective yield, the tax-equivalent yield and tax-equivalent effective yield of each Financial Square Fund for the same period would have been as follows: -85-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- FS Prime Obligations Fund: FST Shares 6.45% 6.66% N/A N/A FST Administration Shares 6.20% 6.39% N/A N/A FST Service Shares 5.95% 6.12% N/A N/A FST Preferred Shares 6.35% 6.55% N/A N/A FST Select Shares 6.42% 6.62% N/A N/A FS Money Market Fund: FST Shares 6.47% 6.68% N/A N/A FST Administration Shares 6.22% 6.41% N/A N/A FST Service Shares 5.98% 6.15% N/A N/A FST Preferred Shares 6.37% 6.57% N/A N/A FST Select Shares 6.44% 6.64% N/A N/A FS Treasury Obligations Fund: FST Shares 6.13% 6.32% N/A N/A FST Administration Shares 5.88% 6.06% N/A N/A FST Service Shares 5.63% 5.79% N/A N/A FST Preferred Shares 6.03% 6.22% N/A N/A FST Select Shares 6.10% 6.29% N/A N/A -86-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- FST Shares 5.81% 5.97% N/A N/A FST Administration Shares 5.56% 5.71% N/A N/A FST Service Shares 5.31% 5.44% N/A N/A FST Preferred Shares 5.71% 5.87% N/A N/A FST Select Shares 5.78% 5.94% N/A N/A FS Government Fund: FS Shares 6.34% 6.54% N/A N/A FST Administration Shares 6.09% 6.27% N/A N/A FST Service Shares 5.84% 6.01% N/A N/A FST Preferred Shares 6.24% 6.43% N/A N/A FST Select Shares 6.31% 6.51% N/A N/A FS Federal Fund: FST Shares 6.28% 6.48% N/A N/A FST Administration Shares 6.03% 6.22% N/A N/A FST Service Shares 5.78% 5.95% N/A N/A FST Preferred Shares 6.18% 6.37% N/A N/A FST Select Shares 6.25% 6.45% N/A N/A -87-
Effective Tax-Equivalent Tax-Equivalent Yield Yield Yield Effective Yield ----- ----- ----- --------------- FS Tax-Free Fund: FST Shares 3.91% 3.99% 6.48% 6.60% FST Administration Shares 3.66% 3.73% 6.06% 6.17% FST Service Shares 3.42% 3.47% 5.67% 5.74% FST Preferred Shares 3.81% 3.89% 6.31% 6.44% FST Select Shares 3.88% 3.96% 6.43% 6.55% The quotations of tax-equivalent yield set forth above for the seven-day period ended December 31, 2000 are based on a federal marginal tax rate of 39.6%. With respect to the ILA Tax-Exempt California Portfolio, the California top marginal State personal income tax rate of 9.3% is being assumed in addition to the 39.6% federal tax rate, for an effective combined tax rate of 45.22%. With respect to the ILA Tax-Exempt New York Portfolio, the tax-equivalent and tax-equivalent effective yields are being shown under three scenarios. The first scenario assumes, as noted above, a federal marginal tax rate of 39.6%, the second scenario assumes a New York top marginal State personal income tax rate of 6.85% for a combined effective tax rate of 43.74% (adjusted for the federal income tax benefit of deductible state and local taxes). The third scenario assumes a New York City top marginal personal income tax rate of 3.7791% (which includes the additional New York City surcharge) in addition to the above federal and New York State tax rates, for a combined effective tax rate of 46.02% (adjusted for the federal income tax benefit of deductible state and local taxes). The combined tax rates assume full deductibility of state and, if applicable, city taxes in computing federal tax liability and does not incorporate the 3% phase-out for itemized deductions. In addition, from time to time, advertisements or information may include a discussion of asset allocation models developed or recommended by GSAM and/or its affiliates, certain -88-
attributes or benefits to be derived from asset allocation strategies and the
Goldman Sachs mutual funds that may form a part of such an asset allocation
strategy. Such advertisements and information may also include a discussion of
GSAM's current economic outlook and domestic and international market views and
recommend periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other material which
highlight or summarize the services provided in support of an asset allocation
program.
From time to time any Series may publish an indication of its past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, iMoneyNet, Inc.'s Money Fund Report, Barron's, Business Week, Changing
Times, Financial World, Forbes, Money, Morningstar Mutual Funds, Micropal,
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 Series' performance relative to certain
indices and benchmark investments, including (without limitation): inflation and
interest rates, certificates of deposit (CDs), money market deposit accounts
(MMDAs), checking accounts, savings accounts, repurchase agreements and
information prepared by recognized mutual fund statistical services. The Trust
may also compare a Series' performance with that of other mutual funds with
similar investment objectives.
The composition of the investments in such mutual funds, comparative
indices and the characteristics of such benchmark investments are not identical
to, and in some cases are very different from, those of a Series. 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 Series
to calculate its performance data.
A Series' performance data will be based on historical results and is not
intended to indicate future performance. A Series' performance will vary based
on market conditions, portfolio expenses, portfolio investments and other
factors. Return for a Series will fluctuate unlike certain bank deposits or
other investments which pay a fixed yield or return.
The Trust may also, at its discretion, from time to time make a list of a
Series' holdings available to investors upon request. 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 Series' investments and discussions of a Fund's current
holdings.
In addition, from time to time, quotations from articles from financial
and other publications, such as those listed above, may be used in
advertisements, sales literature and in reports to shareholders.
Information used in advertisement and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types
-89-
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.
TAX INFORMATION
Note: The following summary and the tax summary in the Prospectuses are
not intended as a substitute for careful tax planning. You should consult your
tax adviser for information regarding all tax consequences applicable to your
investments in the Funds.
Each Series is treated as a separate entity for tax purposes, has elected
to be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. If for any
taxable year a Series does not qualify as a regulated investment company, it
will be taxed on all of its investment company taxable income and net capital
gains at corporate rates without any deduction for dividends paid, its net tax-
exempt interest (if any) may be subject to the alternative minimum tax, and its
distributions to shareholders will be taxable as ordinary dividends to the
extent of its current and accumulated earnings and profits.
There are certain tax requirements that all Series must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Series may have to limit their investment activities in some types of
instruments. In order to qualify as a regulated investment
-90-
company, each Series must, among other things, (a) derive at least 90% of its
gross income for the taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock or securities or certain other investments (the "90% Test"); and (b)
diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the market value of the Series' total gross assets is
represented by cash and cash items (including receivables), 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 the Series' total assets, and (ii) not more than
25% of the value of the Series' total (gross) assets is invested in the
securities (other than U.S. Government securities and securities of other
regulated investment companies) of any one issuer. For purposes of these
requirements, participation interests will be treated as securities, and the
issuer will be identified on the basis of market risk and credit risk associated
with any particular interest. Certain payments received with respect to such
interests, such as commitment fees and certain facility fees, may not be treated
as income qualifying under the 90% test.
Each Series, as a regulated investment company, will not be subject to
federal income tax on any of its taxable net investment income and net realized
capital gains that are distributed to shareholders with respect to any taxable
year in accordance with the Code's timing and other requirements, provided that
the Series distributes at least 90% of its investment company taxable income
(generally, all of its net taxable income other than "net capital gain," which
is the excess of net long-term capital gain over net short-term capital loss)
for such year and, in the case of any Series that earns tax-exempt interest, at
least 90% of the excess of the tax-exempt interest it earns over certain
disallowed deductions. A Series will be subject to federal income tax at
regular corporate rates on any investment company taxable income or net capital
gain that it does not distribute for a taxable year. In order to avoid a
nondeductible 4% federal excise tax, each Series must 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 in such year and on which the Series paid no federal income tax.
Dividends paid by a Series from taxable net investment income (including
income attributable to accrued market discount and a portion of the discount on
certain stripped tax-exempt obligations and their coupons) and the excess of net
short-term capital gain over net long-term capital loss will be treated as
ordinary income in the hands of shareholders. Such distributions will not
qualify for the corporate dividends-received deduction. Dividends paid by a
Series from the excess of net long-term capital gain (if any) over net short-
term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Series have been held by such
shareholders, and also will not qualify for the corporate dividends-received
deduction. A Series' net realized capital gains for a taxable year are computed
by taking into account realized capital losses, including any capital loss
carryforward of that Series. At December 31, 2000, the following Series had
approximately the following amounts of capital loss carryforwards:
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Amount Year of Expiration ------ ------------------ ILA Tax-Exempt Diversified Portfolio $172,000 2001 to 2008 ILA Tax-Exempt California Portfolio 35,000 2007 to 2008 ILA Tax-Exempt New York 7,000 2008 FS Tax-Free Money Market Fund 39,000 2005 to 2008 Distributions paid by the ILA Tax-Exempt Diversified, ILA Tax-Exempt California, ILA Tax-Exempt New York Portfolios or FS Tax-Free Fund from tax- exempt interest received by them and properly designated as "exempt-interest dividends" will generally be exempt from regular federal income tax, provided that at least 50% of the value of the applicable Series' total assets at the close of each quarter of its taxable year consists of tax-exempt obligations, i.e., obligations described in Section 103(a) of the Code (not including shares --- of other regulated investment companies that may pay exempt-interest dividends, because such shares are not treated as tax-exempt obligations for this purpose). Dividends paid by the other Series from any tax-exempt interest they may receive will not be tax-exempt, because they will not satisfy the 50% requirement described in the preceding sentence. Tax-exempt distributions attributable to interest on certain "private activity bonds," if any, received by a Series may constitute a tax preference items and may give rise to, or increase liability under, the alternative minimum tax for particular shareholders. In addition, all tax-exempt distributions of the Series may be considered in computing the "adjusted current earnings" preference item of their corporate shareholders in determining the corporate alternative minimum tax, and will be taken into account in determining the extent to which a shareholder's social security or certain railroad retirement benefits are taxable. To the extent that the ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax- Exempt New York Portfolio and FS Tax-Free Fund invest in certain short-term instruments, including repurchase agreements, the interest on which is not exempt from federal income tax, or earn other taxable income, any distributions of income from such investments or other taxable income will be taxable to shareholders as ordinary income. All or substantially all of any interest on indebtedness incurred directly or indirectly to purchase or carry shares of these Series will generally not be deductible. The availability of tax-exempt obligations and the value of the Series may be affected by restrictive tax legislation enacted in recent years. In purchasing municipal obligations, the ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-Free Fund rely on opinions of nationally recognized bond counsel as to the excludability of interest on such obligations from gross income for federal income tax purposes and, where applicable, the tax-exempt nature of such interest under the personal income tax laws of a particular state. These Series do not undertake independent investigations concerning the tax-exempt status of such obligations, nor do they guarantee or represent that bond counsels' opinions are correct. Bond counsels' opinions will generally be based in part upon covenants by the issuers and related parties regarding continuing compliance with federal tax requirements. Tax laws not only limit the purposes for which tax-exempt bonds may be issued and the supply of such bonds, -92-
but also contain numerous and complex requirements that must be satisfied on a
continuing basis in order for bonds to be and remain tax-exempt. If the issuer
of a bond or a user of a bond-financed facility fails to comply with such
requirements at any time, interest on the bond could become taxable, retroactive
to the date the obligation was issued. In that event, a portion of a Series'
distributions attributable to interest the Series received on such bond for the
current year and for prior years could be characterized or recharacterized as
taxable income.
Distributions of net investment income and net realized capital gains will
be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis in each share so received equal to the amount of cash
they would have received had they elected to receive cash.
Certain Series may be subject to foreign taxes on their income (possibly
including, in some cases, capital gains) from securities. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes in some cases. However, neither the Series nor its shareholders will be
able to claim foreign tax credits with respect to any such taxes.
Redemptions (including exchanges) and other dispositions of shares in
transactions that are treated as sales for tax purposes will generally not
result in taxable gain or loss, provided that the Series successfully maintain a
constant net asset value per share, but a loss may be recognized to the extent a
contingent deferred sales charge ("CDSC") is imposed on the redemption or
exchange of ILA Class B or Class C Shares. All or a portion of such a loss may
be disallowed under applicable Code provisions in certain circumstances.
Shareholders should consult their own tax advisers with reference to their
circumstances to determine whether a redemption, exchange, or other disposition
of Series' shares is properly treated as a sale for tax purposes.
All distributions (including exempt-interest dividends), whether received
in shares or cash, must be reported by each shareholder who is required to file
a federal income tax return. The Series will inform shareholders of the federal
income tax status of their distributions after the end of each calendar year,
including, in the case of the ILA Tax-Exempt Diversified Portfolio, ILA Tax-
Exempt California Portfolio, ILA Tax-Exempt New York Portfolio and FS Tax-Free
Fund, the amounts that qualify as exempt-interest dividends and any portions of
such amounts that constitute tax preference items under the federal alternative
minimum tax. Shareholders who receive exempt-interest dividends and have not
held their shares of the applicable Series for its entire taxable year may have
designated as tax-exempt or as a tax preference item a percentage of their
distributions which is not exactly equal to a proportionate share of the amount
of tax-exempt interest or tax preference income earned during the period of
their investment in such Series. Each shareholder should consult his or her own
tax adviser to determine the tax consequences of an investment in a Series in
the shareholder's own state and locality.
Shares of a Series that pays primarily exempt-interest dividends would not
be suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would the shareholder not gain any additional benefit
from the Series' dividends being tax-exempt, but such dividends would be
ultimately
-93-
taxable to the beneficiaries when distributed. In addition, a Series that pays
primarily exempt-interest dividends may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities, or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
The foregoing discussion relates solely to U.S. federal income tax law as
it applies to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Each shareholder who is not a U.S. person should consult his or
her tax adviser regarding the U.S. and non-U.S. tax consequences of ownership of
shares of a Series, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable U.S. income tax treaty) on certain distributions from a Series and,
if a current IRS Form W-8, certificate of foreign status, or acceptable
substitute is not on file with the Series, may be subject to backup withholding
on certain payments.
State and Local
The Trust may be subject to state or local taxes in jurisdictions in which
the Trust may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Series and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and an investment in the Series may have tax consequences for
shareholders that are different from those of a direct investment in the Series'
securities. Shareholders should consult their own tax advisers concerning these
matters. For example, in such states or localities it may be appropriate for
shareholders to review with their tax advisers the state income and, if
applicable, intangible property tax consequences of investments by the Series in
securities issued by the particular state or the U.S. government or its various
agencies or instrumentalities, because many states (i) exempt from personal
income tax distributions made by regulated investment companies from interest on
obligations of the particular state or on direct U.S. government obligations
and/or (ii) exempt from intangible property tax the value of the shares of such
companies attributable to such obligations, subject to certain state-specific
requirements and/or limitations. See also the discussion below of these
applicable provisions in California and New York.
Provided that the Series qualify as regulated investment companies and
incur no federal income tax liability, the Series may still be subject to New
York State and City minimum taxes, which are small in amount.
California State Taxation. The following discussion of California tax law
assumes that the ILA Tax-Exempt California Portfolio will be qualified as a
regulated investment company
-94-
under Subchapter M of the Code and will be qualified thereunder to pay exempt-
interest dividends. The ILA Tax-Exempt California Portfolio intends to qualify
for each taxable year under California law to pay "exempt-interest dividends"
which will be exempt from the California personal income tax.
Individual shareholders of the ILA Tax-Exempt California Portfolio who
reside in California will not be subject to California personal income tax on
distributions received from the Portfolio to the extent such distributions are
exempt-interest dividends attributable to interest on obligations the interest
on which is exempt from California personal income tax provided that the
Portfolio satisfies the requirement of California law that at least 50% of its
assets at the close of each quarter of its taxable year be invested in such
obligations and properly designates such exempt-interest dividends under
California law. Distributions from the ILA Tax-Exempt California Portfolio which
are attributable to sources other than those described in the preceding sentence
will generally be taxable to such shareholders as ordinary income. Moreover,
California legislation which incorporates Subchapter M of the Code provides that
capital gain dividends may be treated as long-term capital gains. Such gains are
currently subject to personal income tax at ordinary income tax rates. Capital
gains that are retained by the Portfolio will be taxed to that Portfolio, and
California residents will receive no California personal income tax credit for
such tax. Distributions other than exempt-interest dividends are includible in
income subject to the California alternative minimum tax.
Distributions from investment income and long-term and short-term capital
gains will generally not be excluded from taxable income in determining
California corporate franchise taxes for corporate shareholders and will be
treated as ordinary dividend income for such purposes. In addition, such
distributions may be includible in income subject to the alternative minimum
tax.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the ILA Tax-Exempt California Portfolio will not be
deductible for California personal income tax purposes.
In addition, any loss realized by a shareholder of the ILA Tax-Exempt
California Portfolio upon the sale of shares held for six months or less may be
disallowed to the extent of any exempt-interest dividends received with respect
to such shares. Moreover, any loss realized upon the redemption of shares
within six months from the date of purchase of such shares and following receipt
of a long-term capital gains distribution will be treated as long-term capital
loss to the extent of such long-term capital gains distribution. Finally, any
loss realized upon the redemption of shares within thirty days before or after
the acquisition of other shares of the same Portfolio may be disallowed under
the "wash sale" rules.
New York City and State Taxation. Individual shareholders who are
residents of New York State will be able to exclude for New York State personal
income tax purposes that portion of the exempt-interest dividends properly
designated as such from the ILA Tax-Exempt New York Portfolio which is derived
from interest on obligations of New York State and its political subdivisions
and obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Exempt-
interest dividends may be properly designated as such only if, as anticipated,
at least 50% of the value of the assets of the Portfolio are invested at the
close of each quarter of its taxable year in
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obligations of issuers the interest on which is excluded from gross income for
federal income tax purposes. Individual shareholders who are residents of New
York City will also be able to exclude such income for New York City personal
income tax purposes. Interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares of the ILA Tax-Exempt New York Portfolio
is not deductible for New York State or New York City personal income tax
purposes. Distributions from the ILA Tax-Exempt New York Portfolio which are
attributable to sources other than those described in this paragraph will
generally be taxable to such shareholders as ordinary income.
Long-term capital gains, if any, that are distributed by the ILA Tax-Exempt
New York Portfolio and are properly designated as capital gain dividends will be
treated as capital gains for New York State and City income tax purposes in the
hands of New York State and New York City residents.
Shareholders should consult their tax advisers regarding the application of
the provisions of tax law described in this Additional Statement in light of
their particular tax situations.
This discussion of the tax treatment of the Portfolio and its shareholders
is based on the tax laws in effect as of the date of this Additional Statement.
ORGANIZATION AND CAPITALIZATION
Each Series is a series of Goldman Sachs Trust, a Delaware business trust,
established by a Declaration of Trust dated January 28, 1997. The Series (other
than Portfolio Cash Fund) were previously a series of Goldman Sachs Money Market
Trust, a Massachusetts business trust, and were reorganized into the Trust as of
April 30, 1997.
The Trustees have authority under the Trust's Declaration of Trust to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. The Act requires that where more than one class
or series of shares exists, each class or series must be preferred over all
other classes or series in respect of assets specifically allocated to such
class or series. The Trustees also have authority to classify and reclassify
any series of shares into one or more classes of shares. As of the date of this
Additional Statement, the Trustees have authorized the issuance of up to four
classes of shares of each of the ILA Portfolios: ILA Shares, ILA Administration
Shares, ILA Service Shares and ILA Cash Management Shares. In addition, the
Trustees have authorized a fifth and sixth class of shares, ILA Class B Shares
and ILA Class C Shares, with respect to the Prime Obligations Portfolio. As of
the date of this Additional Statement, the Trustees have authorized the issuance
of up to five classes of shares of each of the Financial Square Funds: FST
Shares, FST Service Shares, FST Administration Shares, FST Preferred Shares and
FST Select Shares. As of the date of this Additional Statement, the Trustees
have authorized the issuance of up to three classes of shares of the Portfolio
Cash Fund: Institutional Shares, Administration Shares and Preferred Shares.
Each Portfolio Cash Institutional Share, Portfolio Cash Administration
Share, Portfolio Cash Preferred Share, ILA Share, ILA Administration Share, ILA
Service Share, ILA Class B Share, ILA Class C Share, ILA Cash Management Share,
FST Share, FST Service Share, FST
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Administration Share, FST Preferred Share and FST Select Share of a Series
represents an equal proportionate interest in the assets belonging to that
Series. It is contemplated that most shares (other than ILA Class B or Class C
Shares) will be held in accounts of which the record owner is a bank or other
institution acting, directly or through an agent, as nominee for its customers
who are the beneficial owners of the shares or another organization designated
by such bank or institution. ILA Class B and Class C Shares generally are only
issued upon exchange from Class B or Class C Shares, respectively, of other
Series of the Goldman Sachs mutual funds. Portfolio Cash Institutional Shares,
ILA Shares and FST Shares may be purchased for accounts held in the name of an
investor or institution that is not compensated by the Trust for services
provided to the institution's investors. Portfolio Cash Administration Shares,
ILA Administration Shares and FST Administration Shares may be purchased for
accounts held in the name of an investor or an institution that provides certain
account administration services to its customers, including maintenance of
account records of its customers and processing orders to purchase, redeem and
exchange Portfolio Cash Administration Shares, Preferred Shares, ILA
Administration Shares or FST Administration Shares providing services to its
customers intended to facilitate or improve the understanding of the benefits
and risks of a Fund and provide facilities to answer inquiries and respond to
customer correspondence.
Administration Shares of the Portfolio Cash Fund bear the cost of service
fees at the annual rate of up to .25 of 1% of the average daily net assets of
such shares. ILA Administration Shares of each ILA Portfolio bear the cost of
administration fees at the annual rate of up to .15 of 1% of the average daily
net assets of such Shares. FST Administration Shares of a Financial Square Fund
bear the cost of administration fees at the annual rate of up to .25 of 1% of
the average daily net assets of such shares.
ILA Service Shares and FST Service Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
and shareholder liaison services to its customers, including maintenance of
account records, processing orders to purchase, redeem and exchange ILA Service
Shares or FST Service Shares, responding to customer inquiries and assisting
customers with investment procedures. ILA Service shares bear the cost of
service fees at the annual rate of up to .40 of 1% of the average daily net
assets of such shares. FST Service Shares of a Financial Square Fund bear the
cost of service fees at the annual rate of up to .50 of 1% of the average daily
net assets of such shares.
Portfolio Cash Preferred Shares and FST Preferred Shares may be purchased
for accounts held in the name of an institution that provides certain account
administration services to its customers, including acting directly or through
an agent, as the sole shareholder of record, maintaining account records of its
customers and processing orders to purchase, redeem and exchange such Shares and
provide services to its customers intended to facilitate or improve their
understanding of the benefits and risks of a Fund. Portfolio Cash Preferred
Shares and FST Preferred Shares of a Financial Square Fund bear the cost of
preferred administration fees at an annual rate of up to .10 of 1% of the
average daily net assets of such shares of the particular Fund involved.
FST Select Shares may be purchased for accounts held in the name of an
institution that provides certain account administration services to its
customers, including acting directly or through an agent, as the sole
shareholder of record, maintaining account records of its customers
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and processing orders to purchase, redeem and exchange FST Select Shares. FST
Select Shares of a Financial Square Fund bear the cost of service fees at an
annual rate of up to .03 of 1% of the average daily net assets of such shares.
ILA Class B Shares of the Prime Obligations Portfolio are sold subject to a
CDSC up to 5.0%, and ILA Class C Shares are sold subject to a CDSC of 1.0% if
redeemed within 12 months of purchase. ILA Class B and Class C Shares are sold
primarily through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. ILA Class B and Class C
Shares bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of
up to .75 of 1% of the average daily net assets attributable to ILA Class B and
Class C Shares, respectively. ILA Class B and Class C Shares also bear the cost
of service fees at an annual rate of up to .25 of 1% of the average daily net
assets of the Prime Obligations Portfolio attributable to ILA Class B and Class
C Shares.
ILA Cash Management Shares may be purchased for accounts held in the name
of an institution that provides certain account administration and shareholder
liaison services to its customers, including maintenance of account records,
processing orders to purchase, redeem and exchange ILA Cash Management Shares,
responding to customer inquiries and assisting customers with investment
procedures. ILA Cash Management Shares bear the cost of account service fees at
an annual rate of up to .50% of the average daily net assets of the Series
attributable to such shares. ILA Cash Management Shares also bear the cost of
distribution (Rule 12b-1) fees at an annual rate of .50 of 1% of the average
daily net assets attributable to ILA Cash Management Shares.
In addition, each class of ILA Shares bears its own transfer agency
expenses.
It is possible that an institution or its affiliates may offer different
classes of shares to its customers and thus receive different compensation with
respect to different classes of shares of the same Series. In the event a Series
is distributed by salespersons or any other persons, they may receive different
compensation with respect to different classes of shares of the Series.
Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA
Administration Shares, ILA Service Shares, ILA Class B Shares, ILA Class C
Shares, ILA Cash Management Shares, FST Service Shares, FST Administration
Shares, FST Preferred Shares and FST Select Shares each have certain exclusive
voting rights on matters relating to their respective plans. Shares of each
class may be exchanged only for shares of the same class in another ILA
Portfolio or, in the case of the Prime Obligations Portfolio, shares of the
corresponding class of certain other mutual funds sponsored by Goldman Sachs.
Except as described above, the fourteen classes of shares are identical. 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.
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
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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 directors from the separate voting requirements of Rule 18f-2.
When issued shares are fully paid and non-assessable. The Trustees may,
however, cause shareholders, or shareholders of a particular series or class, to
pay certain custodian, transfer, serving or similar agent charges by setting off
the same against declared but unpaid dividends or by reducing share ownership
(or by both means). In the event of liquidation, shareholders of each class are
entitled to share pro rata in the net assets of the applicable Series available
for distribution to the shareholders of such class. All shares are freely
transferable and have no preemptive, subscription or conversion rights.
In the interest of economy and convenience, the Trust does not issue
certificates representing interests in the Series' or shares. Instead, the
transfer agent maintains a record of each shareholder's ownership. Each
shareholder receives confirmation of purchase and redemption orders from the
transfer agent. Shares representing interests in a particular Series and any
dividends and distributions paid by a Series are reflected in account statements
from the transfer agent.
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
without the vote or consent of shareholders, 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 election 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, officers
and agents 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
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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 events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any respective series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, or any series or class thereof, 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"). To the extent
provided by the Trustees in the appointment of Series Trustees, Series Trustees
(a) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (b) may have, to the exclusion of any other
Trustee of the Trust, all the powers and authorities of Trustees under the
Declaration of Trust with respect to any other series or class; and/or (c) may
have no power or authority with respect to any other series or class. The
Trustees are not currently considering the appointment of Series Trustees for
the Trust.
As of March 20, 2001, the Portfolio Cash Fund had not commenced operations.
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Prime Obligations
Portfolio: Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (56%);
and Goldman Sachs Funds Group, 10 Hanover Square, New York, NY 10005-3505
(16%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Government
Portfolio: Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456
(48%); Harris Associated, L.P., 2 N. LaSalle St., Chicago, IL 60602-3790 (21%);
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First Union National Bank, Attn Ginny Hinkle, 1525 W Wt Harris Blvd, Charlotte,
NC 28262-8522 (9%); and Rowland & Company, 3353 Peachtree Rd, NE, 555 Atlanta
Financial Center North, Atlanta, GA 30326 (5%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Treasury
Obligations Portfolio: Goldman Sachs & Co., 85 Broad Street, New York, NY
10004-2456 (20%); First National Bank of Omaha, Trust Officer, P.O. Box 3128,
Omaha, NE 68103 (7%); and Bank of New York, STIF/FI Note, 1 Wall Street, Fl. 5,
New York, NY 10286-0001 (56%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Money Market
Portfolio: Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456
(80%); Bank of New York, 48 Wall Street, New York, NY 10286 (11%); and Charles
Schwab & Co., Inc., Attn Mutual Funds Operations, 9601 E. Panorama Cir,
Englewood, CO 80112 (6%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Federal Portfolio:
Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (90%).
As of March 20, 2001, the entity noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Tax-Exempt
Diversified Portfolio: Goldman Sachs & Co., 85 Broad Street, New York, NY 10004
-2456 (86%).
As of March 20, 2001, the entity noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Tax-Exempt
California Portfolio: Goldman Sachs Funds Group, 85 Broad Street, New York, NY
10004-2456 (98%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Tax-Exempt New York
Portfolio: Goldman Sachs Funds Group, 85 Broad Street, New York, NY 10004 2456
(74%); and Bank of New York, 48 Wall Street, New York, NY 10286 (22%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the ILA Treasury
Instruments Portfolio: Goldman Sachs & Co., 85 Broad Street, New York NY,
10004-2456 (52%); Bank of New York, 1 Wall Street, Fl. 5, New York, NY 10286
(23%); and First National Bank of Omaha, Attn: Alan E. Schulz, Trust Officer,
P.O. Box 3128, Omaha, NE 68103 (8%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Prime Obligations
Fund: Goldman
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Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (10%); and Bank of New
York, Hare & Co., Attn: Bimal Saha, Stif/Master Note, One Wall Street, New York,
NY 10286-0001 (6%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Money Market Fund:
Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (36%); Citicorp
Trust N.A., Custodian, Attn: Joan D'Andrea, 400 Royal Palm Way, Fl. 3, Palm
Beach, FL 33480-4113 (6%); and Edison International, P.O. Box 999, 2233 Walnut
Grove Ave, Rosemead CA 91770 (7%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Treasury Obligations
Fund: Commerce Bank of Kansas City, P.O. Box 248, Kansas City MO 64141 (10%);
Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (11%); Mellon
Bank, Ms. Beth Brown, Three Mellon Bank Center, 34th Floor, Pittsburgh, PA
15258-001 (7%); and Fulton Bank, P.O. Box 3215, Lancaster PA 17604-3215,
(6%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Treasury Instruments
Fund: Harris Trust & Savings Bank, Attn: Elliott A. Yurman, Mutual Funds Unit-
LLE, P.O. Box 71940, Chicago, IL 60694 (21%); Associated Bank NA, P.O. Box
12800, 200 N. Adams St., Green Bay, WI 53407-2800 (15%); Goldman Sachs & Co., 85
Broad Street, New York, NY 10004-2456 (14%); Northern Capital Trust of Fargo,
Attn: H. Michael Hardy, P.O. Box 829, Fargo, ND 58107-0829 (7%); Guaranty Bank
& Trust Co., Haws & Co., P.O. Box 5847, Denver, Co. 80217-5847 (6%); Commerce
Bank of Kansas City, NA, Mr. Mark Andreoli, P.O. Box 248, Kansas City, MO 64141
(6%); and BankBoston, Attn Ajay Ferullo, P.O. Box 1130, Boston, MA 02103-1130
(5%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Government Fund:
First Citizens Bank & Trust Co., 100 East Tryon Rd., Raleigh, NC 27603-3526
(6%); and BankBoston, Attn: Ajay Ferullo, P.O. Box 1130, Boston, MA 02103-1130
(13%).
As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Tax-Free Money
Market Fund: Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456
(53%); and Commerce Bank of Kansas City, NA, Mr. Mark Andreoli, Senior Vice
President, P.O. Box 248, Kansas City, MO 64141 (8%).
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As of March 20, 2001, the entities noted below owned of record or
beneficially 5% or more of the outstanding shares of the FS Federal Fund:
Goldman Sachs & Co., 85 Broad Street, New York, NY 10004-2456 (69%).
Shareholder and Trustee Liability
Under Delaware law, the shareholders of the Series 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 many 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 express disclaimer of shareholder liability
for acts or obligations of a Series. 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 Series 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 is
remote.
In addition to the requirements set forth under Delaware law, the
Declaration of Trust provides that shareholders may bring a derivative action on
behalf of the Trust 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 Trust, or 10% of the outstanding shares of
the Series or class to which such action relates, must 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
Trust for the expense of any such investment 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.
CUSTODIAN AND SUBCUSTODIAN
State Street Bank and Trust Company ("State Street") has been retained to
act as custodian of the Series' assets. In that capacity, State Street
maintains the accounting records and calculates the daily net asset value per
share of the Series. Its mailing address is P.O. Box 1713, Boston, MA 02105.
State Street has appointed The Northern Trust Company, 50 South
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LaSalle Street, Chicago, Illinois 60675 as subcustodian to hold cash and certain
securities purchased by the Trust.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, independent auditors, 160 Federal Street,
Boston, MA 02110, have been selected as auditors of the Series of the Trust for
the fiscal year ending December 31, 2001. In addition to audit services,
PricewaterhouseCoopers LLP will prepare the Series' federal and state tax
returns, and will provide consultation and assistance on accounting, internal
control and related matters. The financial statements of the Series for the
fiscal years or periods ended on or before December 31, 1999, and the data set
forth under "Financial Highlights" in the Prospectuses for the fiscal years or
periods ended on or before December 31, 1999, were audited by Arthur Andersen
LLP, the Series' former auditors.
FINANCIAL STATEMENTS
The audited financial statements and related report of
PricewaterhouseCoopers LLP, independent auditors, contained in the 2000 Annual
Reports for the Financial Square Funds and the ILA Portfolios are hereby
incorporated by reference. The financial statements in the Annual Reports for
these Series have been incorporated by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements and financial highlights included in the Series' Annual
Report for periods ending on or before December 31, 1999 were audited by Arthur
Andersen LLP, the prior independent auditors for the Financial Square Funds and
the ILA Portfolios. The report of Arthur Andersen LLP dated February 14, 2000
on the Financial Square Funds' and the ILA Portfolios' financial statements
included in these Series' Annual Reports to Shareholders for fiscal periods
ended December 31, 1999, is incorporated by reference herein. No other portions
of the Series' Annual Reports are incorporated herein by reference. A copy of
the Annual Reports may be obtained without charge by writing Goldman, Sachs &
Co., 4900 Sears Tower, Chicago, Illinois 60606 or by calling Goldman, Sachs &
Co., at the telephone number on the back cover of each Series' Prospectus.
OTHER INFORMATION
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Authorized Dealers, service organizations and
financial intermediaries ("Intermediaries") in connection with the sale,
distribution and/or servicing of shares of the Series. These payments
("Additional Payments") would be in addition to the payments by the Series
described in the Series' Prospectuses and this Additional Statement for
distribution and shareholder servicing and processing. These Additional
Payments may take the form of "due diligence" payments for an institution's
examination of the Series and payments for providing extra employee training and
information relating to the Series; "listing" fees for the placement of
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the Series on a dealer's list of mutual funds available for purchase by its
customers; "finders" or "referral" fees for directing investors to the Series;
"marketing support" fees for providing assistance in promoting the sale of the
Series' shares; and payments for the sale of shares and/or the maintenance of
share balances. In addition, the Investment Adviser, Distributor and/or their
affiliates may make Additional Payments for subaccounting, administrative and/or
shareholder processing services that are in addition to any shareholder
servicing and processing fees paid by the Series. The Additional Payments made
by the Investment Adviser, Distributor and their affiliates may be a fixed
dollar amount, may be based on the number of customer accounts maintained by an
Intermediary, or may be based on a percentage of the value of shares sold to, or
held by, customers of the Intermediary involved, and may be different for
different Intermediaries. Furthermore, the Investment Adviser, Distributor
and/or their affiliates may contribute to various non-cash and cash incentive
arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions. The Investment Adviser,
Distributor and their affiliates may also pay for the travel expenses, meals,
lodging and entertainment of Intermediaries and their salespersons and guests in
connection with educational, sales and promotional programs, subject to
applicable NASD regulations. The Distributor currently expects that such
additional bonuses or incentives will not exceed 0.50% of the amount of any
sales.
As stated in the Prospectuses, the Trust may authorize service
organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. In some, but not all, cases these payments will be pursuant to
an Administration, Distribution, Service, Shareholder Administration, or Select
Plan described in the Prospectuses and the following sections. Certain Service
Organizations or institutions may enter into sub-transfer agency agreements with
the Trust or Goldman Sachs with respect to their services.
The Prospectuses 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 Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
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.
Statements contained in the Prospectuses 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 Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
-105-
ADMINISTRATION PLANS
(Portfolio Cash Administration, Portfolio Cash Preferred, ILA Administration,
FST Administration and FST Preferred Shares Only)
The Trust, on behalf of the Portfolio Cash Fund and each ILA Portfolio and
Financial Square Fund, has adopted an administration plan with respect to the
Administration Shares of the Portfolio Cash Fund (the "Portfolio Cash
Administration Plan"), Preferred Shares of the Portfolio Cash Fund (the
"Portfolio Cash Preferred Administration Plan"), ILA Administration Shares (the
"ILA Administration Plan"), FST Administration Shares (the "FST Administration
Plan") and FST Preferred Shares (the "FST Preferred Plan," together with the
Portfolio Cash Administration Plan, Portfolio Cash Preferred Administration
Plan, ILA Administration Plan and the FST Administration Plan, the
"Administration Plans"). The Administration Plans authorize the Portfolio Cash
Fund, ILA Portfolios and Financial Square Funds to compensate service
organizations for providing certain account administration services to their
customers who are beneficial owners of such shares.
Pursuant to the Administration Plans, the Trust, on behalf of each Series,
enters into agreements with service organizations which purchase Portfolio Cash
Administration Shares, Portfolio Cash Preferred Shares, ILA Administration
Shares, FST Administration Shares or FST Preferred Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements, the service
organizations may agree to: (a) act, directly or through an agent, as the
shareholder of record and nominee for customers, (b) maintain account records
for customers who beneficially own Portfolio Cash Administration Shares,
Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration
Shares or FST Preferred Shares and (c) receive and transmit, or assist in
receiving and transmitting, funds for share purchases and redemptions. In
addition, with respect to Portfolio Cash Administration Shares, ILA
Administration Shares and FST Administration Shares, service organizations may
agree to: (a) provide facilities to answer questions and handle correspondence
from customers regarding their accounts, and (b) issue, or assist in issuing,
confirmations for transactions in Shares by customers.
As compensation for such services, the Trust on behalf of the Portfolio
Cash Fund and each ILA Portfolio and Financial Square Fund pays each service
organization an administration fee in an amount up to .25% and .10% (on an
annualized basis) of the average daily net assets of the Administration Shares
and Preferred Shares of the Portfolio Cash Fund, respectively, .15% (on an
annualized basis) of the average daily net assets of the ILA Administration
Shares of each ILA Portfolio, .25% (on an annualized basis) of the average daily
net assets of the FST Administration Shares and .10% (on an annualized basis) of
the average daily net assets of the FST Preferred Shares of each Financial
Square Fund, attributable to or held in the name of such service organization
for its customers. The Trust, on behalf of the Series, accrues payments made to
a service organization pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Portfolio Cash Administration Shares, Portfolio Cash
Preferred Shares, ILA Administration Shares, FST Administration Shares and FST
Preferred Shares should be directed to the owners' service organization.
-106-
As of the date of this Additional Statement, no shares of the Portfolio
Cash Fund had been offered and, accordingly, no fees were paid to Service
Organizations pursuant to its Administration Plans.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the amount of the administration fees paid by each ILA
Portfolio under its ILA Administration Plan to Service Organizations was as
follows:
2000 1999 1998
---- ---- ----
ILA Prime Obligations Portfolio 73,504 $ 57,419 $ 56,195
ILA Money Market Portfolio 142,101 53,223 482,750
ILA Treasury Obligations Portfolio 30,315 90,628 134,705
ILA Treasury Instruments Portfolio 50,634 127,026 146,145
ILA Government Portfolio 6,528 9,844 14,657
ILA Federal Portfolio 226,105 293,344 779,240
ILA Tax-Exempt Diversified Portfolio 124,154 48,148 34,749
ILA Tax-Exempt California Portfolio 25,393 19,940 1,702
ILA Tax-Exempt New York Portfolio 66,757 30,750 34,741
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the amount of administration fees paid by each Financial
Square Fund under its FST Administration Plan to Service Organizations was as
follows:
2000 1999 1998
---- ---- ----
FS Prime Obligations Fund $3,791,787 $1,608,204 $ 832,405
FS Money Market Fund 1,115,735 1,171,166 947,740
FS Treasury Obligations Fund 3,289,240 2,716,747 2,373,198
FS Government Fund 1,512,730 1,241,755 845,644
FS Tax Free Fund 227,805 352,368 360,347
FS Treasury Instruments Fund 67,089 138,125 49,689
FS Federal Fund 1,811,824 1,541,602 951,754
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the amount of administration fees paid by each Financial
Square Fund under its FST Preferred Plan was as follows:
2000 1999 1998
---- ---- ----
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FS Prime Obligations Fund 435,875 $271,735 $156,506 FS Money Market Fund 213,967 182,474 76,867 FS Treasury Obligations Fund 397,719 282,021 307,604 FS Government Fund 441,156 193,925 96,834 FS Tax Free Fund 32,449 45,428 93,209 FS Treasury Instruments Fund 595 92 0 FS Federal Fund 107,727 74,134 122,073 Conflict of interest restrictions (including the Employee Retirement Income Security Act of 1974) may apply to a service organization's receipt of compensation paid by the Trust in connection with the investment of fiduciary funds in Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration Shares and FST Preferred Shares. Service organizations, including banks regulated by the Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit Insurance Corporation, and investment advisers and other money managers subject to the jurisdiction of the SEC, the Department of Labor or State Securities Commissions, are urged to consult legal advisers before investing fiduciary assets in Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration Shares or FST Preferred Shares. In addition, under some state securities laws, banks and other financial institutions purchasing Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration Shares or FST Preferred Shares on behalf of their customers may be required to register as dealers. The Trustees of the Trust, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Administration Plans or the related Service Agreements (the "Non-Interested Trustees"), most recently voted to approve the Administration Plans and Service Agreements at a meeting called for the purpose of voting on such Administration Plans and Service Agreements on April 24, 2001. The Plans were so approved for the Portfolio Cash Fund on April 25, 2001. The Administration Plans and Service Agreements will remain in effect until May 1, 2002 and continue in effect thereafter only if such continuance is specifically approved annually by a vote of the Trustees in the manner described above. An Administration Plan may not be amended to increase materially the amount to be spent for the services described therein, and other material amendments of the Administration Plan may not be made, unless approved by the Trustees in the manner described above. An Administration Plan may be terminated at any time by a majority of the Non-Interested Trustees as described above or by vote of a majority of the outstanding Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration Shares or FST Preferred Shares of the affected Series. The Service Agreements may be terminated at any time, without payment of any penalty, by vote of a majority of the Non-Interested Trustees as described above or by a vote of a majority of the outstanding Portfolio Cash Administration Shares, Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration Shares -108-
or FST Preferred Shares of the affected Series on not more than sixty (60) days'
written notice to any other party to the Service Agreements. The Service
Agreements will terminate automatically if assigned. So long as the
Administration Plans are in effect, the selection and nomination of those
Trustees who are not interested persons will be committed to the discretion of
the non-interested Trustees of the Trust. The Trustees have determined that, in
their judgment, there is a reasonable likelihood that the Administration Plans
will benefit the Series and holders of Portfolio Cash Administration Shares,
Portfolio Cash Preferred Shares, ILA Administration Shares, FST Administration
Shares and FST Preferred Shares of such Series.
SERVICE AND SHAREHOLDER ADMINISTRATION PLANS
(ILA Service Shares, ILA Cash Management Shares and
FST Service Shares Only)
The Trust has adopted a service plan and a separate shareholder
administration plan on behalf of each Financial Square Fund with respect to the
FST Shares (the "FST Plans") and on behalf of each ILA Portfolio with respect to
the ILA Service Shares (the "ILA Plans"). The Trust has also adopted a service
plan with respect to each ILA Portfolio with respect to ILA Cash Management
Shares (the "Cash Management Shares Plan" and together with the ILA Plans and
the FST Plans, the "Service Plans"). The Service Plans authorize the Series to
compensate service organizations for providing personal and account maintenance
services and certain shareholder administration services to their customers who
are or may become beneficial owners of such shares. Pursuant to the Service
Plans, the Trust, on behalf of each ILA Portfolio or Financial Square Fund,
enters into agreements with service organizations which purchase ILA Service
Shares, ILA Cash Management Shares or FST Service Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements, the Service
Organizations may perform some or all of the following services:
(a) Personal and account maintenance services, including: (i)
providing facilities to answer inquiries and respond to correspondence with
customers and other investors about the status of their accounts or about
other aspects of the Trust or the applicable Series; (ii) acting as liaison
between the Service Organization's customers and the Trust, including
obtaining information from the Trust and assisting the Trust in correcting
errors and resolving problems; (iii) providing such statistical and other
information as may be reasonably requested by the Trust or necessary for
the Trust to comply with applicable federal or state law; (iv) responding
to investor requests for prospectuses; (v) displaying and making
prospectuses available on the Service Organization's premises; and (vi)
assisting customers in completing
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application forms, selecting dividend and other account options and opening
custody accounts with the Service Organization.
(b) Shareholder administration services, including: (i) acting or
arranging for another party to act, as recordholder and nominee of the
Service Shares beneficially owned by the Service Organization's customers;
(ii) establishing and maintaining individual accounts and records of
customers who beneficially own ILA Service Shares, ILA Cash Management or
FST Service Shares; (iii) processing customer orders to purchase, redeem
and exchange ILA Service Shares, ILA Cash Management or FST Service Shares;
(iv) receiving and transmitting funds representing the purchase price or
redemption proceeds of such ILA Service Shares, ILA Cash Management or FST
Service Shares; (v) processing dividend payments on behalf of customers;
and (vi) performing other related services which do not constitute "any
activity which is primarily intended to result in the sale of shares"
within the meaning of Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act") or "personal and account maintenance services"
within the meaning of the National Association of Securities Dealers,
Inc.'s Conduct Rules.
As compensation for such services, (a) the Trust on behalf of each ILA
Portfolio pays each service organization a service fee in an amount up to .25%
(on an annualized basis) and a shareholder administration fee in an amount up to
.15% (on an annualized basis) of the average daily net assets of the ILA Service
Shares of each ILA Portfolio attributable to or held in the name of such service
organization for its customers; provided, however, that the fee paid for
personal and account maintenance services shall not exceed .25% of such average
daily net assets; (b) the Trust on behalf of each ILA Portfolio pays each
service organization a service fee in an amount up to .50% (on an annualized
basis) of the average daily net assets of the ILA Cash Management Shares of each
ILA Portfolio attributable to or held in the name of such service organization
for its customers; provided, however, that the fee paid for personal and account
maintenance services shall not exceed .25% of such average daily net assets; and
(d) the Trust, on behalf of each Financial Square Fund, pays each service
organization a service fee in an amount up to .25% (on an annualized basis) and
a shareholder administration fee in an amount up to .25% (on an annualized
basses) of the average daily net assets of the FST Service Shares of each
Financial Square Fund attributable to or held in the name of such service
organization for its customers; provided, however, that the fee paid for
personal and account maintenance services shall not exceed .25% of such average
daily net assets. The Trust, on behalf of the Series, accrues payments made to
a service organization pursuant to a Service Agreement daily.
-110-
All inquiries of beneficial owners of ILA Service Shares, ILA Cash Management
Shares and FST Service Shares should be directed to the owners' service
organization.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, the amount of the fees paid by each ILA Portfolio then in
existence to service organizations pursuant to the ILA Plans was as follows:
2000 1999 1998
---- ---- ----
ILA Prime Obligations Portfolio $ 386,694 $ 417,319 $ 435,823
ILA Money Market Portfolio 1,448,818 1,290,742 144,733
ILA Treasury Obligations Portfolio 1,341,792 234,094 324,013
ILA Treasury Instruments Portfolio 437,100 1,292,984 1,126,342
ILA Government Portfolio 241,575 366,922 395,588
ILA Federal Portfolio 1,114,485 1,110,241 145,279
ILA Tax-Exempt Diversified Portfolio 76,396 111,352 124,850
ILA Tax-Exempt California Portfolio 22,409 33,838 0
ILA Tax-Exempt New York Portfolio 227 0 0
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, the amount of the fees paid by each ILA Portfolio then in
existence to service organizations pursuant to the Cash Management Shares Plans
was as follows:
2000 1999 1998/(1)/
---- ---- ---------
ILA Prime Obligations Portfolio $492,225 $ 8 $ 5
ILA Money Market Portfolio 599,838 8 5
ILA Treasury Obligations Portfolio 3,127 0 0
ILA Treasury Instruments Portfolio 7,747 0 0
ILA Government Portfolio 36,441 67 5
ILA Federal Portfolio 943,226 0 0
ILA Tax-Exempt Diversified Portfolio 401,066 8 5
ILA Tax-Exempt California Portfolio 145,669 8 5
ILA Tax-Exempt New York Portfolio 13,857 8 5
(1) ILA Cash Management Shares commenced operations on May 1, 1998.
-111-
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, the amount of fees paid by each Financial Square Fund to
service organizations pursuant to the FST Plans was as follows:
2000 1999 1998
---- ---- ----
FS Prime Obligations Fund $3,762,242 $2,388,719 $1,167,952
FS Money Market Fund 1,923,682 1,792,922 2,478,988
FS Treasury Obligations Fund 2,712,036 2,620,099 2,019,235
FS Government Fund 1,572,949 3,617,320 3,225,643
FS Tax-Free Fund 318,134 275,997 254,984
FS Treasury Instruments Fund 223,983 91,522 97,057
FS Federal Fund 2,866,508 1,981,259 1,312,961
The Trust has adopted each Service Plan pursuant to Rule 12b-1 under the
Act in order to avoid any possibility that payments to the service organizations
pursuant to the Service Agreements might violate the Act. Rule 12b-1, which was
adopted by the SEC under the Act, regulates the circumstances under which an
investment company such as the Trust may bear expenses associated with the
distribution of its securities. In particular, such an investment company cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of securities issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The Trust believes that fees paid for the services provided in the Service
Plans and described above are not expenses incurred primarily for effecting the
distribution of ILA Service Shares, ILA Cash Management Shares or FST Service
Shares. However, should such payments be deemed by a court or the SEC to be
distribution expenses, such payments would be duly authorized by the Service
Plans.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a service organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in Service Shares, ILA Service Shares, ILA Cash Management Shares or FST
Service Shares. Service organizations, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor or State Securities
Commissions, are urged to consult legal advisers before investing fiduciary
assets in Service Shares, ILA Service Shares, ILA Cash Management Shares or FST
Service Shares. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares, ILA Service Shares, ILA Cash
Management Shares or FST Service Shares on behalf of their customers may be
required to register as dealers.
The Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, most
recently voted to approve the Plans and Service Agreements at a meeting called
for the purpose of voting on such Plans and Service Agreements on April 24,
2001. The ILA Plan and FST Plan and related Service Agreements will remain
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in effect until May 1, 2002, and the Cash Management Shares Plan and related
Service Agreements will remain in effect until April 30, 2002. The Plans and
related Service Agreements will continue in effect thereafter only if such
continuance is specifically approved annually by a vote of the Trustees in the
manner described above.
A Service Plan may not be amended to increase materially the amount to be
spent for the services described therein without approval of the ILA Service
Shareholders, ILA Cash Management Shareholders or FST Service Shareholders of
the affected Series, and all material amendments of a Plan must also be approved
by the Trustees in the manner described above. A Service Plan may be terminated
at any time by a majority of the Board of Trustees as described above or by vote
of a majority of the outstanding ILA Service Shares, ILA Cash Management
Shareholders or FST Service Shares of the affected Series. The Service
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Board of Trustees as described above or by a vote of a
majority of the outstanding ILA Service Shares, ILA Cash Management Shares or
FST Service Shares of the affected Series on not more than sixty (60) days'
written notice to any other party to the Service Agreements. The Service
Agreements shall terminate automatically if assigned. So long as the Service
Plans are in effect, the selection and nomination of those Trustees who are not
interested persons shall be determined by the discretion of the non-interested
Trustees of the Trust. The Trustees have determined that, in their judgment,
there is a reasonable likelihood that the Service Plans will benefit the Series
and holders of ILA Service Shares, ILA Cash Management Shares and FST Service
Shares of such Series.
SELECT PLAN
(FST Select Shares Only)
The Trust, on behalf of the FS Prime Obligations, FS Money Market, FS
Treasury Obligations, FS Treasury Instruments, FS Government, FS Federal and FS
Tax-Free Funds has adopted a select plan with respect to the FST Select Shares
(the "FST Select Plan ") which authorizes the Financial Square Funds to
compensate service organizations for providing certain account administration
services to their customers who are beneficial owners of such shares. Pursuant
to the Select Plan, the Trust, on behalf of such Series, enters into agreements
with service organizations, which purchase FST Select Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements, the service
organizations may agree to: (a) act, directly or through an agent, as the
shareholder of record and nominee for customers, (b) maintain account records
for customers who beneficially own FST Select Shares, and (c) receive and
transmit, or assist in receiving and transmitting, funds for share purchases and
redemptions. As compensation for such services, the Trust on behalf of each
Financial Square Fund pays each service organization an administration fee in an
amount up to .03 of 1% (on an annualized basis) of the average daily net assets
of the FST Select Shares of each Financial Square Fund, attributable to or held
in the name of such service organization for its customers. The Trust, on
behalf of the Series, accrues payments made pursuant to a Service Agreement
daily. All inquiries of beneficial owners of Select Shares should be directed
to the owners' service organizations.
-113-
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, the amount of fees paid by each Financial Square Fund to
service organizations pursuant to the FST Select Plan was as follows:
2000 1999 1998
---- ---- ----
FS Prime Obligations Fund 11,388 N/A N/A
FS Money Market Fund 1,532 N/A N/A
FS Treasury Obligations Fund -- N/A N/A
FS Government Fund 710 N/A N/A
FS Tax-Free Fund -- N/A N/A
FS Treasury Instruments Fund -- N/A N/A
FS Federal Fund -- N/A N/A
FST Select Shares commenced operations on January 31, 2000.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a service organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in FST Select Shares. Service organizations, including banks regulated by
the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or State Securities Commissions, are urged to consult legal
advisers before investing fiduciary assets in FST Select Shares. In addition,
under some state securities laws, banks and other financial institutions
purchasing FST Select Shares on behalf of their customers may be required to
register as dealers.
The Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Select Plan or the related Service Agreements
(the "Non-Interested Trustees"), most recently voted to approve the Select Plan
and Service Agreements at a meeting called for the purpose of voting on the
Select Plan and Service Agreements on April 24, 2001. The FST Select Plan and
Service Agreements will remain in effect until May 1, 2002. The Select Plan and
Service Agreements will continue in effect thereafter only if such continuance
is specifically approved annually by a vote of the Trustees in the manner
described above.
The Select Plan may not be amended to increase materially the amount to be
spent for the services described therein, and other material amendments of the
Plan may not be made, unless approved by the Trustees in the manner described
above. The Select Plan may be terminated at any time by a majority of the Non-
Interested Trustees as described above or by vote of a majority of the
outstanding FST Select Shares of the affected Series. The Service Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Non-Interested Trustees as described above or by a vote of a
majority of the outstanding FST Select Shares of the affected Series on not more
than sixty (60) days' written notice to any other party to the Service
Agreements. The Service Agreements shall terminate automatically if assigned.
So long as the Select Plan are in effect, the selection and nomination of those
Trustees who are not interested persons shall be determined by the discretion of
the non-interested Trustees of the Trust. The Trustees have determined that, in
their judgment, there is a reasonable
-114-
likelihood that the Select Plan will benefit the Series and holders of FST
Select Shares of such Series.
DISTRIBUTION AND SERVICE PLANS
Distribution and Service Plans. As described in the Prospectuses, the
Trust has adopted distribution and service plans pursuant to Rule 12b-1 under
the Act with respect to ILA Class B and Class C Shares on behalf of the ILA
Prime Obligations Portfolio (the "Distribution and Service Plans").
The Distribution and Service Plans were most recently approved on April 24,
2001 by a majority vote of the Trustees of the Trust, including a majority of
the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Distribution and Service Plans (the "Non-Interested
Trustees"), cast in person at a meeting called for the purpose of approving the
Distribution and Service Plans.
The compensation payable under the Distribution and Service Plans may not
exceed 0.75% per annum of the average daily net assets attributable to ILA Class
B and Class C Shares, respectively, of the ILA Prime Obligations Portfolio.
Under the Distribution and Service Plans for ILA Class B and Class C
Shares, Goldman Sachs is also entitled to receive a separate fee for personal
and account maintenance services equal to an annual basis of 0.25% of each
Fund's average daily net assets attributable to ILA Class B or Class C Shares.
The Distribution and Service Plans are compensation plans which provide for
the payment of a specified fee without regard to the expenses actually incurred
by Goldman Sachs. The distribution fees received by Goldman Sachs under the
Distribution and Service Plans and CDSC on ILA Class B Shares may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of ILA Class B Shares. Goldman Sachs may
also pay up to the entire amount of its fee under the Class C Distribution and
Service Plan to service organizations or other institutions for providing
services in connection with the sale of Class C Shares. To the extent such fees
are not paid to such dealers, Goldman Sachs may retain such fee as compensation
for its services and expenses of distributing ILA Class B Shares and Class C
Shares. If such fees exceed Goldman Sachs' expenses, Goldman Sachs may realize
a profit from these arrangements.
For the fiscal year ended December 31, 2000, the amount of distribution and
service fees paid by the ILA Prime Obligation Portfolio's Class B Shares and
Class C Shares to Goldman Sachs were $146,361 and $82,638, respectively.
For the fiscal year ended December 31, 1999, the amount of distribution and
service fees paid by the ILA Prime Obligation Portfolio's Class B Shares to
Goldman Sachs was $163,044. For the fiscal year ended December 31, 1999, the
amount of distribution and service fees paid by the ILA Prime Obligations
Portfolio's Class C Shares to Goldman Sachs was $66,091.
-115-
For the fiscal year ended December 31, 1998, the amount of distribution and
service fees paid by the ILA Prime Obligation Portfolio's Class B Shares to
Goldman Sachs was $59,917. For the fiscal year ended December 31, 1998, the
amount of distribution and service fees paid by the ILA Prime Obligations
Portfolio's Class C Shares to Goldman Sachs was $43,200.
During the fiscal year ended December 31, 2000, Goldman Sachs incurred the
following expenses in connection with distribution activities under the
Distribution and Service Plan of the ILA Prime Obligations Portfolio with
respect to ILA Class B Shares and ILA Class C Shares, respectively:
compensation to dealers, $98,375 and $130,996; compensation and expenses of the
Distributor and its sales personnel, $3,984 and $2,287; allocable overhead,
telephone and travel expenses, $5,094 and $2,885; printing and mailing of
prospectuses to other than current shareholders, $138 and $79; and preparation
and distribution of sales literature and advertising, $894 and $503. These
amounts reflect expenses incurred by Goldman Sachs, which amounts are in excess
of the compensation received by Goldman Sachs under the Distribution and Service
Plan. The payments under the Distribution and Service Plan were used by Goldman
Sachs to compensate it for the expenses shown above on a pro-rata basis.
Compensation to dealers includes advance commissions paid to dealers of 4% on
ILA Class B Shares and 1% on ILA Class C Shares which are considered deferred
assets and amortized over a period of 6 years with respect to ILA Class B Shares
and one year with respect to ILA Class C Shares. The amounts presented above
reflect amortization expense recorded during the period presented.
The Distribution and Service Plans will remain in effect until May 1, 2002
and from year to year thereafter, provided such continuance is approved annually
by a majority vote of the Trustees of the Trust, including a majority of the
non-interested Trustees who have no direct or indirect financial interest in the
Distribution and Service Plans. The Distribution and Service Plans may not be
amended to increase materially the amount of distribution compensation described
therein as to a particular Portfolio without approval of a majority of the
outstanding Class B or Class C Shareholders, as applicable, of the affected
Portfolio and Share class. All material amendments to the Distribution and
Service Plans must also be approved by the Trustees of the Trust in the manner
described above. The Distribution and Service Plans may be terminated at any
time without payment of any penalty by a vote of the majority of the Non-
Interested Trustees or by vote of a majority of the Class B or Class C Shares,
as applicable, of the applicable Portfolio. If the Distribution and Service
Plans were terminated by the Trust's Board of Trustees and no successor plan
were adopted, the Series would cease to make distribution payments to Goldman
Sachs and Goldman Sachs would be unable to recover the amount of any of its
unreimbursed distribution expenditures. So long as the Distribution and Service
Plans are in effect, the selection and nomination of non-interested Trustees
will be committed to the discretion of the non-interested Trustees of the Trust.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Distribution and Service Plans will benefit the applicable
Series and their respective Shareholders.
Distribution Plan. As described in the Prospectus, the Trust has adopted a
distribution plan pursuant to Rule 12b-1 under the Act with respect to ILA Cash
Management Shares on behalf of each ILA Portfolio (the "Cash Management Shares
Distribution Plan").
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The Cash Management Shares Distribution Plan was most recently approved on
April 24, 2001 on behalf of each ILA Portfolio by a majority vote of the Trust's
Board of Trustees, including a majority of the Trustees who are not interested
persons of the Trust and have no direct or indirect financial interest in the
Cash Management Shares Distribution Plan (the "Non-Interested Trustees"), cast
in person at a meeting called for the purpose of approving the Cash Management
Shares Distribution Plan.
The compensation payable under the Cash Management Shares Distribution Plan
may not exceed 0.50% per annum of the average daily net assets attributable to
ILA Cash Management Shares of the ILA Portfolios. As of the date of this
Additional Statement, Goldman Sachs was voluntarily limiting a portion of the
fees payable under the Plan. Goldman Sachs may modify or discontinue such
limitation in the future at its discretion.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, the amount of the distribution fees paid by each ILA
Portfolio then in existence to service organizations pursuant to the Cash
Management Shares Distribution Plan was as follows:
2000 1999 1998/(1)/
---- ---- --------
ILA Prime Obligations Portfolio $ 68,920 $ 1 $ 0
ILA Money Market Portfolio 83,915 1 0
ILA Treasury Obligations Portfolio 438 0 0
ILA Treasury Instruments Portfolio 1,085 0 0
ILA Government Portfolio 5,102 9 0
ILA Federal Portfolio 132,052 0 0
ILA Tax-Exempt Diversified Portfolio 55,838 1 0
ILA Tax-Exempt California Portfolio 20,394 1 0
ILA Tax-Exempt New York Portfolio 1,940 1 0
(1) ILA Cash Management Shares commenced operations on May 1, 1998.
Goldman Sachs may pay up to the entire amount of its fee under the Cash
Management Shares Distribution Plan to service organizations or other
institutions for providing services in connection with the sale of ILA Cash
Management Shares. To the extent such fees are not paid to such dealers,
Goldman Sachs may retain such fee as compensation for its services and expenses
of distributing ILA Cash Management Shares. If such fee exceeds its expenses,
Goldman Sachs may realize a profit from these arrangements.
The Cash Management Shares Distribution Plan is a compensation plan which
provides for the payment of a specified distribution fees without regard to the
distribution expenses actually incurred by Goldman Sachs. If the Cash
Management Shares Distribution Plan was terminated by the Trust's Board of
Trustees and no successor plan were adopted, the ILA Portfolios would cease to
make distribution payments to Goldman Sachs and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
However, Goldman Sachs does not intend to make expenditures for which it may be
-117-
compensated under the Cash Management Shares Distribution Plan at a rate that
materially exceeds the rate of compensation received under the Plan.
The Cash Management Shares Distribution Plan will remain in effect until
April 30, 2002 and from year to year thereafter, provided such continuance is
approved annually by a majority vote of the Board of Trustees of the Trust,
including a majority of the non-interested Trustees who have no direct or
indirect financial interest in the Distribution Plan. The Cash Management
Shares Distribution Plan may not be amended to increase materially the amount to
be spent for the services described therein as to a particular Series without
approval of a majority of the outstanding ILA Cash Management Shareholders of
that Portfolio. All material amendments to the Distribution Plan must also be
approved by the Board of Trustees of the Trust in the manner described above.
The Cash Management Shares Distribution Plan may be terminated at any time
without payment of any penalty by a vote of the majority of the Non-Interested
Trustees or by vote of a majority of the ILA Cash Management Shares of the
applicable Portfolio. So long as the Cash Management Shares Distribution Plan
is in effect, the selection and nomination of non-interested Trustees shall be
committed to the discretion of the non-interested Trustees of the Trust. The
Trustees have determined that in their judgment there is a reasonable likelihood
that the Cash Management Shares Distribution Plan will benefit the applicable
Portfolios and their respective Shareholders.
-118-
APPENDIX A
Commercial Paper
----------------
A Standard & Poor's commercial paper credit rating is generally 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.
Moody's commercial paper debt ratings are opinions of the ability of
-------
issuers to honor senior financial obligations and contracts. These obligations
have an original maturity not exceeding 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.
Fitch short-term ratings apply to time horizons of less than 12 months for
------
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner. The following summarizes the rating categories
used by Fitch for short-term obligations:
-----
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
A-1
"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.
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.
The following ratings are 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.
A-2
"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 unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
The following summarizes the ratings used by Fitch:
-----
"AAA" - Securities 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" - Securities 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" - Securities 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" - Securities 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.
Additional 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.
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
A-3
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 superior credit quality.
Excellent protection afforded by established cash flows, highly reliable
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes strong credit quality. Margins
of protection are ample although not so large as in the preceding group.
Fitch uses the same ratings for municipal securities as described above for
-----
other short-term credit ratings.
A-4
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 helped create them. Profitability is crucial to our
future.
B-1
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 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.
B-2
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 service.
. With fifty offices worldwide Goldman Sachs employs over 20,000
professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issues from 1989-
1999.
. The number one lead manager of U.S. common stock offerings from 1989-1999.*
. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1999).
* Source: Securities Data Corporation. Common Stock ranking excludes REITS,
Investment Trusts and Rights.
B-3
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1869 Marcus Goldman opens Goldman Sachs
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 95 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
1981 Enters money market mutual fund business for institutional clients
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 Telekom 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
B-4
Dow Jones Industrial Average breaks 9000
1999 Goldman Sachs becomes a public company
Goldman Sachs Asset Management launches the Goldman Sachs Internet
Tollkeeper Fund; becomes the year's second most successful new mutual
fund launch
2000 Goldman Sachs Research Select Fund launches; first day sales are the
highest ever for any Goldman Sachs Fund
B-5
Statement of Investments
ILA Prime Obligations Portfolio
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Certificates of Deposit—4.5% | ||||||||
| First Union National Bank | ||||||||
| $ 5,000,000 | 6.55 | % | 01/24/2001 | $ 5,000,000 | ||||
| 15,000,000 | 6.73 | 02/12/2001 | 15,000,000 | |||||
| Huntington National Bank | ||||||||
| 10,000,000 | 6.52 | 01/16/2001 | 9,999,797 | |||||
| Southtrust Bank of Alabama, N.A. | ||||||||
| 10,000,000 | 6.71 | 03/09/2001 | 9,999,303 | |||||
|
|
||||||||
| Total Certificates of Deposit | $ 39,999,100 | |||||||
|
|
||||||||
| Variable Rate Obligations#—27.1% | ||||||||
| Associates Corp. of North America | ||||||||
| $ 25,000,000 | 6.60 | % | 01/16/2001 | $ 24,996,533 | ||||
| AT&T Corp. | ||||||||
| 20,000,000 | 6.69 | 01/08/2001 | 19,999,297 | |||||
| Bank of America, N.A. | ||||||||
| 25,000,000 | 6.65 | 01/02/2001 | 25,000,000 | |||||
| Comerica Bank Detroit | ||||||||
| 35,000,000 | 6.68 | 01/16/2001 | 35,000,000 | |||||
| Fleet National Bank | ||||||||
| 10,000,000 | 6.87 | 01/12/2001 | 10,008,783 | |||||
| Ford Motor Credit Co. | ||||||||
| 25,000,000 | 6.97 | 01/16/2001 | 25,021,922 | |||||
| Keybank, N.A. | ||||||||
| 20,000,000 | 6.73 | 01/02/2001 | 19,998,105 | |||||
| Merrill Lynch & Co., Inc. | ||||||||
| 13,000,000 | 6.78 | 03/05/2001 | 13,002,845 | |||||
| Monumental Life Insurance Co. | ||||||||
| 20,000,000 | 6.79 | 01/01/2001 | 20,000,000 | |||||
| Pacific Mutual Life Insurance Co. | ||||||||
| 25,000,000 | 6.85 | 01/01/2001 | 25,000,000 | |||||
| SBC Communications Capital Corp. | ||||||||
| 25,000,000 | 6.71 | 02/01/2001 | 25,000,000 | |||||
|
|
||||||||
| Total Variable Rate Obligations | $243,027,485 | |||||||
|
|
||||||||
|
Total Investments before Repurchase
Agreements |
$714,284,124 | |||||||
|
|
||||||||
| Repurchase Agreements*—19.6% | ||||||||
| Joint Repurchase Agreement Account I | ||||||||
| $ 50,700,000 | 6.15 | % | 01/02/2001 | $ 50,700,000 | ||||
| Joint Repurchase Agreement Account II | ||||||||
| 125,000,000 | 6.48 | 01/02/2001 | 125,000,000 | |||||
|
|
||||||||
| Total Repurchase Agreements | $175,700,000 | |||||||
|
|
||||||||
| Total Investments | $889,984,124 | |||||||
|
|
||||||||
|
|
The accompanying notes are an integral part of these financial statements.
5
Statement of Investments
ILA Prime Obligations Portfolio
(continued)
December 31, 2000
|
|
|
#
|
Variable rate security-based index is either LIBOR, one month Commercial Paper, Federal Funds, or Prime Lending
rate.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, or the next interest reset date for floating rate securities.
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.
6
Statement of Investments
ILA Money Market Portfolio
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
7
Statement of Investments
ILA Money Market Portfolio
(continued)
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
8
|
|
|
#
|
Variable rate security-based index is either U.S. Treasury Bill, LIBOR, Federal Funds, or Prime lending rate.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted notes, or for floating rate securities, the current reset
rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next reset date for floating rate securities.
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.
9
Statement of Investments
ILA Government Portfolio
December 31, 2000
|
|
|
#
|
Variable rate security-based index is either LIBOR, one month Commercial Paper, Federal Funds, or Prime Lending
rate.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, or the next interest reset date for floating rate securities.
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.
10
Statement of Investments
ILA Treasury Obligations Portfolio
December 31, 2000
|
|
| Total Repurchase Agreements | $847,600,000 | ||||||
|
|
|||||||
| Total Investments | $896,489,815 | ||||||
|
|
|||||||
|
Ù
|
At December 31, 2000, these agreements were fully collateralized by U.S. Treasury obligations.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate or the annualized yield on date of purchase for discounted notes.
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.
11
Statement of Investments
ILA Treasury Instruments Portfolio
December 31, 2000
Interest rates represent either the stated coupon rate or the annualized yield on date of purchase for discounted notes.
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.
12
Statement of Investments
ILA Federal Portfolio
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
13
Statement of Investments
ILA Federal Portfolio
(continued)
December 31, 2000
|
|
|
#
|
Variable rate security-based index is either U.S. Treasury Bill, LIBOR, Federal Funds, or Prime lending rate.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted notes, or for floating rate securities, the current reset
rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next reset date for floating rate securities.
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.
14
Statement of Investments
ILA Tax-Exempt Diversified Portfolio
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
15
Statement of Investments
ILA Tax-Exempt Diversified Portfolio
(continued)
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Illinois—10.3% | ||||||||
|
Chicago City RB for Chicago Midway Airport Series 1997 Societe
Generale Trustee Floating Rate Receipts (MBIA) (A-1+) |
||||||||
| $12,000,000 | 4.94 | % | 01/04/2001 | $12,000,000 | ||||
| Chicago Park District TANS Series 2000 (SP-1+/MIG1) | ||||||||
| 17,500,000 | 5.13 | 09/21/2001 | 17,599,305 | |||||
|
City of Chicago Board of Education GO VRDN Series 2000 C (Dexia
Public Finance SPA) (A-1+/VMIG1) |
||||||||
| 10,000,000 | 4.90 | 01/04/2001 | 10,000,000 | |||||
|
City of Chicago Board of Education GO VRDN Series 2000 D (Dexia
Public Finance SPA) (A-1+/VMIG1) |
||||||||
| 12,500,000 | 4.90 | 01/04/2001 | 12,500,000 | |||||
|
City of Chicago GO Series 2000 A (Landesbank Hessen-Thueringen
Girozentrale LOC) (SP-1+/VMIG1) |
||||||||
| 5,000,000 | 4.25 | 10/25/2001 | 5,000,000 | |||||
|
City of Chicago Water RB Series 2000 (Bank One, N.A. LOC)
(A-1+/VMIG1) |
||||||||
| 11,900,000 | 4.80 | 01/03/2001 | 11,900,000 | |||||
| Cook County GO VRDN Series 1996 (A-1+/VMIG1) | ||||||||
| 36,200,000 | 4.95 | 01/03/2001 | 36,200,000 | |||||
| Evanston GO VRDN for Maple Street Project Series 2000 A (VMIG1) | ||||||||
| 9,500,000 | 4.95 | 01/03/2001 | 9,500,000 | |||||
|
Evanston GO VRDN for Recreation Center Project Series 2000 C
(VMIG1) |
||||||||
| 5,000,000 | 4.95 | 01/03/2001 | 5,000,000 | |||||
| Illinois GO Eagle Tax-Exempt Trust Series 96 C1301 Class A (A-1+) | ||||||||
| 4,900,000 | 4.94 | 01/04/2001 | 4,900,000 | |||||
|
Illinois Health Facilities Authority VRDN RB for Evanston
Northwestern Corp. Series 1998 (A-1+/VMIG1) |
||||||||
| 10,000,000 | 4.75 | 05/31/2001 | 10,000,000 | |||||
|
Illinois Health Facilities Authority VRDN for The Revolving Fund
Pooled Finance Program Series 1985 C (Bank One Illinois, N.A. LOC) (A-1+/VMIG1) |
||||||||
| 28,575,000 | 4.95 | 01/03/2001 | 28,575,000 | |||||
|
Illinois Health Facilities Authority VRDN for The Revolving Fund
Pooled Finance Program Series 1985 D (BankOne, N.A. LOC) (A-1+/VMIG1) |
||||||||
| 25,550,000 | 4.95 | 01/03/2001 | 25,550,000 | |||||
|
Illinois State Toll Highway Priority Series 1993 B (Societe Generale
LOC) (MBIA) (A-1+/VMIG1) |
||||||||
| 18,600,000 | 4.70> | 01/03/2001 | 18,600,000 | |||||
|
Joliet Regional Port District VRDN RB for Exxon Project Series 1989
(A-1+/P-1) |
||||||||
| 2,100,000 | 4.85 | 01/02/2001 | 2,100,000 | |||||
|
|
The accompanying notes are an integral part of these financial statements.
16
|
|
|
|
The accompanying notes are an integral part of these financial statements.
17
Statement of Investments
ILA Tax-Exempt Diversified Portfolio
(continued)
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
18
|
|
|
|
The accompanying notes are an integral part of these financial statements.
19
Statement of Investments
ILA Tax-Exempt Diversified Portfolio
(continued)
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
20
|
|
|
|
The accompanying notes are an integral part of these financial statements.
21
Statement of Investments
ILA Tax-Exempt Diversified Portfolio
(continued)
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Wyoming (continued) | ||||||||
|
Sweetwater County PCRB for Pacificorp Project Series 1990 A
(Commerzbank LOC) (VMIG1) |
||||||||
| $ 9,400,000 | 4.70 | % | 01/03/2001 | $ 9,400,000 | ||||
| Wyoming Education Fund TRANS Series 2000 B (SP-1+) | ||||||||
| 20,000,000 | 5.25 | 06/27/2001 | 20,083,691 | |||||
|
|
||||||||
| $ 31,883,691 | ||||||||
|
|
||||||||
| Total Investments | $2,166,150,629 | |||||||
|
|
||||||||
> Forward commitments.
Interest rates represent either the stated coupon rate, or for floating rate securities, the current reset rate, which is based upon current interest rate
indices.
Maturity dates represent either the stated date on the security, the next interest reset date for floating rate securities, or the prerefunded date for those types of
securities.
Security ratings are unaudited.
The percentage shown for each 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.
22
Statement of Investments
ILA Tax-Exempt California Portfolio
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| California (continued) | ||||||||
|
Irvine Ranch Water District Consolidated Refunding GO RB Series
1993 B (Toronto Dominion Bank LOC) (A-1+/VMIG1) |
||||||||
| $ 1,200,000 | 3.70 | % | 01/02/2001 | $ 1,200,000 | ||||
|
Irvine Ranch Water District VRDN Consolidated Refunding GO RB
Series 1985 B (Landesbank Hessen-Thueringen Girozentrale) (A-1+) |
||||||||
| 1,800,000 | 3.70 | 01/02/2001 | 1,800,000 | |||||
| Kern County 2000 TRANS (SP-1+) | ||||||||
| 11,000,000 | 5.00 | 07/02/2001 | 11,037,828 | |||||
|
Kings County Housing Authority VRDN MF Hsg. Refunding for
Edgewater Series 1996 A (Wells Fargo Bank LOC) (VMIG1) |
||||||||
| 6,555,000 | 4.05 | 01/03/2001 | 6,555,000 | |||||
|
Long Beach City Housing Authority VRDN MF Hsg. RB for Channel
Point Apartment Series 1998 A (FNMA) (A-1) |
||||||||
| 6,250,000 | 3.95 | 01/04/2001 | 6,250,000 | |||||
|
Los Angeles County Adjustable RB for the Department of Water &
Power Electric Plant Second Issue Series 2000 E (A-1+/VMIG1) |
||||||||
| 25,800,000 | 4.05 | 01/04/2001 | 25,800,000 | |||||
|
Los Angeles County Adjustable RB Second Issue Department of Water
& Power Electric Plant Series 2000 F (Bank of America SPA) (A-1+/VMIG1) |
||||||||
| 1,400,000 | 4.05 | 01/04/2001 | 1,400,000 | |||||
|
Los Angeles County Housing Authority Variable Rate MF Hsg.
Refunding RB for Malibu Meadows Project II Series 1998 C (FNMA) (A-1+) |
||||||||
| 11,799,000 | 3.95 | 01/04/2001 | 11,799,000 | |||||
|
Los Angeles County Housing Authority Variable Rate MF Hsg.
Refunding RB for Malibu Meadows Project Series 1998 B (FNMA) (A-1+) |
||||||||
| 9,311,000 | 3.95 | 01/04/2001 | 9,311,000 | |||||
|
Los Angeles County Metro TRANS Sales Tax Revenue RB Series 1993 A
(MBIA) (A-1/VMIG1) |
||||||||
| 23,155,000 | 3.90 | 01/04/2001 | 23,155,000 | |||||
|
Los Angeles County Pension Obligation Adjustable Refunding RB
Series 1996 A (AMBAC) (A-1+/VMIG1) |
||||||||
| 7,600,000 | 4.00 | 01/03/2001 | 7,600,000 | |||||
|
Los Angeles County Pension Obligation Adjustable Refunding RB
Series 1996 B (AMBAC) (A-1+/VMIG1) |
||||||||
| 13,700,000 | 4.00 | 01/03/2001 | 13,700,000 | |||||
|
Los Angeles County Pension Obligation Adjustable Refunding RB
Series 1996 C (AMBAC) (A-1+/VMIG1) |
||||||||
| 14,600,000 | 4.00 | 01/03/2001 | 14,600,000 | |||||
|
Los Angeles County Public Works Financing Authority RB for Regional
Park & Open Space Series 1997 A (AA/Aa3) |
||||||||
| 2,740,000 | 5.00 | 10/01/2001 | 2,763,872 | |||||
| Los Angeles County Schools TRANS Series 2000 A (FSA) (SP-1+) | ||||||||
| 4,000,000 | 5.00 | 07/02/2001 | 4,013,960 | |||||
|
|
The accompanying notes are an integral part of these financial statements.
23
Statement of Investments
ILA Tax-Exempt California Portfolio
(continued)
December 31, 2000
|
|
|
|
The accompanying notes are an integral part of these financial statements.
24
|
|
Interest rates represent either the stated coupon rate, or for floating rate securities, the current reset rate, which is based upon current interest rate
indices.
Maturity dates represent either the stated date on the security, the next interest reset date for floating rate securities, or the prerefunded date for those types of
securities.
Security ratings are unaudited.
The percentage shown for each 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.
25
Statement of Investments
ILA Tax-Exempt New York Portfolio
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| New York (continued) | ||||||||
|
Nassau County IDA Civic Facility & Improvement RB for Cold Spring
Harbor Laboratory Series 1999 (A-1+) |
||||||||
| $ 8,650,000 | 4.90 | % | 01/02/2001 | $ 8,650,000 | ||||
|
New York City Adjustment GO VRDN Series 1992 D (FGIC)
(A-1+/VMIG1) |
||||||||
| 3,500,000 | 4.65 | 01/03/2001 | 3,500,000 | |||||
|
New York City GO Prerefunded Series 1992 H (U.S. Treasury Bond)
(AAA) |
||||||||
| 4,275,000 | 6.90 | 02/01/2001 | 4,285,020 | |||||
| New York City GO RANS Series 2000 A (SP-1+/MIG1) | ||||||||
| 5,000,000 | 5.00 | 04/12/2001 | 5,010,947 | |||||
|
New York City GO VRDN Adjustable Series 1993 E5 (Morgan Guaranty
Trust LOC) (A-1+/VMIG1) |
||||||||
| 600,000 | 5.50 | 01/02/2001 | 600,000 | |||||
|
New York City Health & Hospital Corp. Health System Bonds RB
Series 1997 C (Toronto Dominion) (A-1+/VMIG1) |
||||||||
| 3,770,000 | 4.65 | 01/03/2001 | 3,770,000 | |||||
|
New York City Health & Hospital Corp. Health System Bonds RB
Series 1997 D (Bank of Nova Scotia) (A-1+/VMIG1) |
||||||||
| 3,480,000 | 4.45 | 01/03/2001 | 3,480,000 | |||||
|
New York City Health & Hospital Corp. VRDN Health System Bonds
Series 1997 B (Canadian Imperial Bank of Commerce LOC) (A-1+/VMIG1) |
||||||||
| 9,980,000 | 4.65 | 01/03/2001 | 9,980,000 | |||||
|
New York City IDA VRDN Civic Facility Revenue for the National
Audubon Society Series 1989 (Dexia Credit Local LOC) (A-1+) |
||||||||
| 2,100,000 | 4.85 | 01/02/2001 | 2,100,000 | |||||
|
New York City Municipal Water & Sewer System Revenue VRDN
Series 2000 C (A-1+/VMIG1) |
||||||||
| 700,000 | 4.90 | 01/02/2001 | 700,000 | |||||
|
New York City Municipal Water Finance Authority Water & Sewer
System VRDN Series 1994 G (FGIC) (A-1+/VMIG1) |
||||||||
| 2,300,000 | 4.90 | 01/02/2001 | 2,300,000 | |||||
|
New York City Municipal Water Finance Authority Water & Sewer
System VRDN Series 1994 C (FGIC) (A-1+/VMIG1) |
||||||||
| 2,000,000 | 4.95 | 01/02/2001 | 2,000,000 | |||||
|
New York City Municipal Water Finance Authority Water & Sewer
System Series 1993 C (FGIC) (A-1+/VMIG1) |
||||||||
| 1,200,000 | 4.95 | 01/02/2001 | 1,200,000 | |||||
|
New York City Transitional Finance Authority Eagle Trust Class A
(A-1+) |
||||||||
| 1,000,000 | 4.86 | 01/04/2001 | 1,000,000 | |||||
|
|
The accompanying notes are an integral part of these financial statements.
26
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| New York (continued) | ||||||||
|
New York State Environmental Facilities Corp. RB Eagle Tax-Exempt
Trust Series 1996 C3204 COPS (Citibank) (A-1+) |
||||||||
| $ 6,750,000 | 4.86 | % | 01/04/2001 | $ 6,750,000 | ||||
|
New York State Environmental Facilities Corp. RB State Water
Revolving Fund Series 1991 A (AAA/Aaa) |
||||||||
| 1,050,000 | 6.80 | 06/15/2001 | 1,062,575 | |||||
|
New York State GO VRDN Series 2000 B (Dexia Credit Local LOC)
(A-1+/VMIG1) |
||||||||
| 2,000,000 | 4.35 | 08/08/2001 | 2,000,000 | |||||
|
New York State Housing Finance Agency RB VRDN for Liberty View
Apartments Housing Series 1997 A (FNMA) (A-1+) |
||||||||
| 6,000,000 | 4.45 | 01/03/2001 | 6,000,000 | |||||
|
New York State Housing Finance Agency RB VRDN for Talleyrand
Crescent Housing Series 1999 A (Fleet National Bank LOC) (VMIG1) |
||||||||
| 8,000,000 | 4.65 | 01/03/2001 | 8,000,000 | |||||
|
New York State Housing Finance Agency RB Service Contract
Obligation Revenue Series 1991 A (U.S. Treasury Bond) (AAA/Aaa) |
||||||||
| 5,000,000 | 7.80 | 03/15/2001 | 5,130,650 | |||||
|
New York State Housing Finance Agency RB VRDN AMT Tribeca Park
Series 1997 (FNMA LOC) (VMIG1) |
||||||||
| 8,700,000 | 4.60 | 01/03/2001 | 8,700,000 | |||||
|
New York State Housing Finance Agency Revenue RB VRDN AMT for
101 West End Avenue Housing Series 2000 A (Fleet Bank, N.A. LOC) (VMIG1) |
||||||||
| 3,000,000 | 4.75 | 01/03/2001 | 3,000,000 | |||||
|
New York State Housing Finance Agency Revenue RB VRDN for 150
East 44th Street Housing Series 2000 A (Fleet Bank, N.A. LOC) (VMIG1) |
||||||||
| 1,000,000 | 4.75 | 01/03/2001 | 1,000,000 | |||||
|
New York State Housing Finance Agency Revenue RB VRDN for 750
6th Avenue Housing Series 1998 A (Fleet Bank LOC) (VMIG1) |
||||||||
| 2,000,000 | 4.85 | 01/03/2001 | 2,000,000 | |||||
|
New York State Local Government Assistance Corp. RB VRDN Series
1995 B (Bank of Nova Scotia LOC) (A-1+/VMIG1) |
||||||||
| 10,975,000 | 4.60 | 01/03/2001 | 10,975,000 | |||||
|
New York State Local Government Assistance Corp. RB VRDN Series
1995 C (Landesbank Hessen-Thueringen Girozentrale) (A-1+/VMIG1) |
||||||||
| 4,500,000 | 4.60 | 01/03/2001 | 4,500,000 | |||||
|
New York State Local Government Assistance Corp. RB VRDN Series
1995 F (Toronto Dominion Bank LOC) (A-1+/VMIG1) |
||||||||
| 5,200,000 | 4.35 | 01/03/2001 | 5,200,000 | |||||
|
|
The accompanying notes are an integral part of these financial statements.
Statement of Investments
ILA Tax-Exempt New York Portfolio
(continued)
December 31, 2000
|
|
Interest rates represent either the stated coupon rate, or for floating rate securities, the current reset rate, which is based upon current interest rate
indices.
Maturity dates represent either the stated date on the security, the next interest reset date for floating rate securities, or the prerefunded date for those types of
securities.
Security ratings are unaudited.
The percentage shown for each category reflects the value of investments in that category as a percentage of total net assets.
28
|
|
Investment Abbreviations:
| AMBAC |
—Insured by American Municipal Bond
Assurance Corp. |
|
| AMT | —Alternative Minimum Tax | |
| COPS | —Certificates of Participation | |
| CP | —Commercial Paper | |
| FGIC | —Insured by Financial Guaranty Insurance Co. | |
| FHLMC | —Federal Home Loan Mortgage Corp. | |
| FNMA | —Federal National Mortgage Association | |
| FSA | —Insured by Financial Security Assistance Co. | |
| GO | —General Obligation | |
| IDA | —Industrial Development Authority | |
| IDB | —Industrial Development Bond | |
| IDRB | —Industrial Development Revenue Bond | |
| LOC | —Letter of Credit | |
| MBIA |
—Insured by Municipal Bond Investors
Assurance |
|
| MF Hsg. | —Multi-Family Housing | |
| PCRB | —Pollution Control Revenue Bond | |
| RANS | —Revenue Anticipation Notes | |
| RB | —Revenue Bond | |
| SPA | —Stand-by-Purchase Agreement | |
| TANS | —Tax Anticipation Notes | |
| TRANS | —Tax Revenue Anticipation Notes | |
| VRDN | —Variable Rate Demand Note |
|
|
The accompanying notes are an integral part of these financial statements.
29
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Statements of Assets and Liabilities
December 31, 2000
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Government
Portfolio |
|||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Assets: | |||||||
| Investment in securities, at value based on amortized cost | $714,284,124 | $2,565,964,660 | $132,057,319 | ||||
| Repurchase agreements | 175,700,000 | 154,900,000 | 89,200,000 | ||||
| Cash | 41,220 | 58,110 | 60,495 | ||||
| Receivables: | |||||||
| Interest | 7,629,834 | 18,528,594 | 920,673 | ||||
| Fund shares sold | 7,102 | 106,897 | — | ||||
| Reimbursement from investment adviser | — | — | 14,636 | ||||
| Other | 5,868 | 16,725 | 1,238 | ||||
|
|
|||||||
| Total assets | 897,668,148 | 2,739,574,986 | 222,254,361 | ||||
|
|
|||||||
| Liabilities: | |||||||
| Payables: | |||||||
| Investment securities purchased | — | — | — | ||||
| Income distribution | 769,982 | 1,058,637 | 238,955 | ||||
| Fund shares repurchased | — | 344,607 | 20,000 | ||||
| Amounts owed to affiliates | 323,004 | 1,022,169 | 71,769 | ||||
| Accrued expenses and other liabilities | 231,519 | 420,665 | 61,775 | ||||
|
|
|||||||
| Total liabilities | 1,324,505 | 2,846,078 | 392,499 | ||||
|
|
|||||||
| Net Assets: | |||||||
| Paid-in capital | 896,343,643 | 2,736,728,908 | 221,861,862 | ||||
| Accumulated net realized loss on investment transactions | — | — | — | ||||
|
|
|||||||
| NET ASSETS | $896,343,643 | $2,736,728,908 | $221,861,862 | ||||
|
|
|||||||
|
Net asset value, offering and redemption price per unit/share (net
assets/units or shares outstanding) |
$1.00 | $1.00 | $1.00 | ||||
|
|
|||||||
| Units/Shares outstanding: | |||||||
| ILA Units | 584,448,268 | 1,753,668,057 | 125,991,921 | ||||
| ILA Administration Units | 71,230,319 | 321,440,462 | 561,509 | ||||
| ILA Service Units | 170,445,587 | 346,426,719 | 50,720,279 | ||||
| ILA Class B Units | 20,332,757 | — | — | ||||
| ILA Class C Units | 10,805,694 | — | — | ||||
| Cash Management Shares | 39,081,018 | 315,193,670 | 44,532,519 | ||||
|
|
|||||||
|
Total units/shares of beneficial interest outstanding, $.001 par value
(unlimited number of shares authorized) |
896,343,643 | 2,736,728,908 | 221,806,228 | ||||
|
|
|||||||
|
|
The accompanying notes are an integral part of these financial
statements.
30
|
Treasury
Obligations Portfolio |
Treasury
Instruments Portfolio |
Federal
Portfolio |
Tax-Exempt
Diversified Portfolio |
Tax-Exempt
California Portfolio |
Tax-Exempt
New York Portfolio |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||||||
| $ 48,889,815 | $337,203,627 | $5,876,362,686 | $2,166,150,629 | $739,868,868 | $270,425,174 | |||||||||
| 847,600,000 | — | — | — | — | — | |||||||||
| 17,453 | 18,118 | 7,466 | 593,014 | 4,279,590 | 19,912 | |||||||||
| 2,471,611 | 2,491,818 | 26,119,468 | 18,102,058 | 5,939,081 | 2,373,039 | |||||||||
| — | — | 1,166,814 | — | — | 60,939 | |||||||||
| — | 10,085 | — | — | — | — | |||||||||
| 6,655 | 644 | 31,754 | 19,142 | 13,143 | 1,082 | |||||||||
|
|
||||||||||||||
| 898,985,534 | 339,724,292 | 5,903,688,188 | 2,184,864,843 | 750,100,682 | 272,880,146 | |||||||||
|
|
||||||||||||||
| — | — | — | 41,100,000 | — | — | |||||||||
| 3,507,571 | 667,737 | 2,173,147 | 816,549 | 119,324 | 39,239 | |||||||||
| — | 125,446 | 150,963 | — | — | — | |||||||||
| 316,712 | 150,815 | 1,941,496 | 753,799 | 253,720 | 84,312 | |||||||||
| 186,374 | 164,189 | 772,635 | 242,741 | 33,031 | 58,146 | |||||||||
|
|
||||||||||||||
| 4,010,657 | 1,108,187 | 5,038,241 | 42,913,089 | 406,075 | 181,697 | |||||||||
|
|
||||||||||||||
| 894,974,877 | 338,616,105 | 5,898,649,947 | 2,142,123,706 | 749,729,604 | 272,701,376 | |||||||||
| — | — | — | (171,952 | ) | (34,997 | ) | (2,927 | ) | ||||||
|
|
||||||||||||||
| $894,974,877 | $338,616,105 | $5,898,649,947 | $2,141,951,754 | $749,694,607 | $272,698,449 | |||||||||
|
|
||||||||||||||
| $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | |||||||||
|
|
||||||||||||||
| 384,022,967 | 201,087,902 | 4,221,683,867 | 1,732,824,423 | 650,932,983 | 176,620,637 | |||||||||
| 15,095,021 | 21,875,157 | 620,137,899 | 130,767,838 | 27,490,863 | 82,019,516 | |||||||||
| 493,258,695 | 104,076,358 | 278,001,835 | 51,386,186 | 63,094 | 303,474 | |||||||||
| — | — | — | — | — | — | |||||||||
| — | — | — | — | — | — | |||||||||
| 2,598,194 | 11,576,688 | 778,826,346 | 227,089,312 | 71,161,677 | 13,757,749 | |||||||||
|
|
||||||||||||||
| 894,974,877 | 338,616,105 | 5,898,649,947 | 2,142,067,759 | 749,648,617 | 272,701,376 | |||||||||
|
|
||||||||||||||
|
|
31
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Statements of Operations
For the Year Ended December 31, 2000
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Government
Portfolio |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Investment income: | ||||||||||
| Interest income | $74,975,827 | $152,800,364 | $15,899,098 | |||||||
|
|
||||||||||
| Expenses: | ||||||||||
| Management fees | 4,109,926 | 8,254,531 | 886,602 | |||||||
| Transfer Agent fees (a) | 469,902 | 943,375 | 101,326 | |||||||
| Service Share fees | 386,694 | 1,448,818 | 241,575 | |||||||
| Distribution and Service fees (b) | 721,224 | 599,838 | 36,441 | |||||||
| Cash Management Share fees | 492,225 | 599,838 | 36,441 | |||||||
| Custodian fees | 200,565 | 269,763 | 78,029 | |||||||
| Registration fees | 119,682 | 141,019 | 51,205 | |||||||
| Administration Share fees | 73,504 | 142,101 | 6,528 | |||||||
| Professional fees | 53,296 | 52,814 | 51,752 | |||||||
| Trustee fees | 5,439 | 7,779 | 5,439 | |||||||
| Other | 134,223 | 75,134 | 59,267 | |||||||
|
|
||||||||||
| Total expenses | 6,766,680 | 12,535,010 | 1,554,605 | |||||||
| Less—expense reductions | (426,059 | ) | (519,013 | ) | (165,572 | ) | ||||
|
|
||||||||||
| Net Expenses | 6,340,621 | 12,015,997 | 1,389,033 | |||||||
|
|
||||||||||
| NET INVESTMENT INCOME | 68,635,206 | 140,784,367 | 14,510,065 | |||||||
|
|
||||||||||
| Net realized gain (loss) on investment transactions | 6,508 | 563 | 3,316 | |||||||
|
|
||||||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $68,641,714 | $140,784,930 | $14,513,381 | |||||||
|
|
||||||||||
(a)
The following Portfolios had Transfer Agency fees of:
| Portfolio |
ILA
Units |
Administration
Units |
Service
Units |
Cash
Management Shares |
||||
|---|---|---|---|---|---|---|---|---|
| Prime Obligations | $ 372,005 Ù | $19,656 | $ 38,669 | $39,572 | ||||
| Money Market | 712,615 | 37,895 | 144,882 | 47,983 | ||||
| Government | 72,512 | 1,741 | 24,158 | 2,915 | ||||
| Treasury Obligations | 140,825 | 8,085 | 134,178 | 250 | ||||
| Treasury Instruments | 110,382 | 13,503 | 43,710 | 620 | ||||
| Federal | 1,637,241 | 60,294 | 111,450 | 75,458 | ||||
| Tax-Exempt Diversified | 769,768 | 33,108 | 7,639 | 32,083 | ||||
| Tax-Exempt California | 304,128 | 6,771 | 2,241 | 11,654 | ||||
| Tax-Exempt New York | 78,779 | 17,799 | 23 | 1,109 |
|
Ù
|
Includes Class B and Class C Transfer Agency fees of $5,855 and $3,305, respectively.
|
|
(b)
|
Amounts relate to Distribution and Service fees for the Cash Management Shares, except for the Prime Obligations Portfolio,
which also includes Class B and Class C Units Distribution and Service fees of $146,361 and $82,638, respectively.
|
|
|
The accompanying notes are an integral part of these financial statements.
32
|
|
33
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Statements of Changes in Net Assets
For the Year Ended December 31, 2000
|
Prime Obligations Portfolio |
Money Market Portfolio |
Government Portfolio |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| From operations: | ||||||||||
| Net investment income | $ 68,635,206 | $ 140,784,367 | $ 14,510,065 | |||||||
| Net realized gain (loss) on investment transactions | 6,508 | 563 | 3,316 | |||||||
|
|
||||||||||
| Net increase in net assets resulting from operations | 68,641,714 | 140,784,930 | 14,513,381 | |||||||
|
|
||||||||||
| Distributions to units/shareholders: | ||||||||||
| From net investment income | ||||||||||
| ILA Units | (53,803,359 | ) | (107,732,171 | ) | (10,590,546 | ) | ||||
| ILA Administration Units | (2,884,320 | ) | (5,797,986 | ) | (242,547 | ) | ||||
| ILA Service Units | (5,439,123 | ) | (20,391,946 | ) | (3,272,213 | ) | ||||
| ILA Class B Units | (727,829 | ) | — | — | ||||||
| ILA Class C Units | (414,905 | ) | — | — | ||||||
| Cash Management Shares | (5,372,178 | ) | (6,862,827 | ) | (408,075 | ) | ||||
|
|
||||||||||
| Total distributions to unit/shareholders | (68,641,714 | ) | (140,784,930 | ) | (14,513,381 | ) | ||||
|
|
||||||||||
| From units/share transactions (at $1.00 per unit/share): | ||||||||||
| Proceeds from sales of units/shares | 9,195,033,801 | 13,988,195,316 | 935,962,798 | |||||||
| Reinvestment of dividends and distributions | 53,484,094 | 129,733,394 | 10,128,147 | |||||||
| Cost of units/shares repurchased | (9,607,989,652 | ) | (13,118,859,913 | ) | (1,012,737,981 | ) | ||||
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from unit/share
transactions |
(359,471,757 | ) | 999,068,797 | (66,647,036 | ) | |||||
|
|
||||||||||
| Total increase (decrease) | (359,471,757 | ) | 999,068,797 | (66,647,036 | ) | |||||
| Net assets: | ||||||||||
| Beginning of year | 1,255,815,400 | 1,737,660,111 | 288,508,898 | |||||||
|
|
||||||||||
| End of year | $ 896,343,643 | $ 2,736,728,908 | $ 221,861,862 | |||||||
|
|
||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
34
|
|
35
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Government
Portfolio |
|||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| From operations: | |||||||||
| Net investment income | $ 52,551,422 | $ 84,369,650 | $ 19,782,686 | ||||||
| Net realized gain (loss) on investment transactions | 2,529 | — | (326 | ) | |||||
|
|
|||||||||
| Net increase in net assets resulting from operations | 52,553,951 | 84,369,650 | 19,782,360 | ||||||
|
|
|||||||||
| Distributions to unit/shareholders: | |||||||||
| From net investment income | |||||||||
| ILA Units | (45,384,123) | (68,460,223 | ) | (15,599,484 | ) | ||||
| ILA Administration Units | (1,780,071) | (1,645,299 | ) | (290,075 | ) | ||||
| ILA Service Units | (4,517,300) | (14,264,059 | ) | (3,892,170 | ) | ||||
| ILA B Units | (623,673) | — | — | ||||||
| ILA C Units | (248,714) | — | — | ||||||
| ILA Cash Management Shares | (70) | (69 | ) | (630 | ) | ||||
|
|
|||||||||
| Total distributions to unit/shareholders | (52,553,951) | (84,369,650 | ) | (19,782,359 | ) | ||||
|
|
|||||||||
| From unit/share transactions (at $1.00 per unit/share): | |||||||||
| Proceeds from sales of units/shares | 7,836,070,067 | 12,281,385,755 | 1,811,769,575 | ||||||
| Reinvestment of dividends and distributions | 45,571,600 | 84,608,022 | 15,023,063 | ||||||
| Cost of units/shares repurchased | (7,642,384,057) | (12,325,328,457 | ) | (2,034,953,029 | ) | ||||
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from
unit/share transactions |
239,257,610 | 40,665,320 | (208,160,391 | ) | |||||
|
|
|||||||||
| Total increase (decrease) | 239,257,610 | 40,665,320 | (208,160,390 | ) | |||||
| Net assets: | |||||||||
| Beginning of year | 1,016,557,790 | 1,696,994,791 | 496,669,288 | ||||||
|
|
|||||||||
| End of year | $ 1,255,815,400 | $ 1,737,660,111 | $ 288,508,898 | ||||||
|
|
|||||||||
|
|
The accompanying notes are an integral part of these financial statements.
36
|
Treasury
Obligations Portfolio |
Treasury
Instruments Portfolio |
Federal
Portfolio |
Tax-Exempt
Diversified Portfolio |
Tax-Exempt
California Portfolio |
Tax-Exempt
New York Portfolio |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||||||||
| $ 29,678,180 | $ 27,477,467 | $ 150,385,775 | $ 46,940,340 | $ 18,690,245 | $ 4,925,750 | |||||||||||
| 8,167 | 99,896 | 5,411 | 1,140 | (30,649 | ) | 114 | ||||||||||
|
|
||||||||||||||||
| 29,686,347 | 27,577,363 | 150,391,186 | 46,941,480 | 18,659,596 | 4,925,864 | |||||||||||
|
|
||||||||||||||||
| (24,606,852 | ) | (11,518,920 | ) | (129,728,192) | (45,416,285 | ) | (18,171,355 | ) | (4,390,985 | ) | ||||||
| (2,625,955 | ) | (3,465,849 | ) | (8,725,681) | (854,367 | ) | (316,939 | ) | (534,693 | ) | ||||||
| (2,453,540 | ) | (12,595,226 | ) | (11,937,454) | (669,649 | ) | (201,917 | ) | (36 | ) | ||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | (39 | ) | (34 | ) | (36 | ) | ||||||||
|
|
||||||||||||||||
| (29,686,347 | ) | (27,579,995 | ) | (150,391,327) | (46,940,340 | ) | (18,690,245 | ) | (4,925,750 | ) | ||||||
|
|
||||||||||||||||
| 3,719,606,593 | 2,554,504,387 | 17,348,923,131 | 9,977,368,160 | 4,442,494,150 | 1,075,546,032 | |||||||||||
| 18,136,217 | 11,896,253 | 139,921,416 | 46,434,419 | 18,936,186 | 5,033,322 | |||||||||||
| (3,876,771,086 | ) | (2,850,433,896 | ) | (17,220,292,178) | (9,866,750,232 | ) | (4,114,921,916 | ) | (1,026,571,140 | ) | ||||||
|
|
||||||||||||||||
| (139,028,276 | ) | (284,033,256 | ) | 268,552,369 | 157,052,347 | 346,508,420 | 54,008,214 | |||||||||
|
|
||||||||||||||||
| (139,028,276 | ) | (284,035,888 | ) | 268,552,228 | 157,053,487 | 346,477,771 | 54,008,328 | |||||||||
| 850,448,699 | 847,289,418 | 3,187,996,038 | 1,626,646,129 | 585,131,194 | 144,133,104 | |||||||||||
|
|
||||||||||||||||
| $ 711,420,423 | $ 563,253,530 | $ 3,456,548,266 | $ 1,783,699,616 | $ 931,608,965 | $ 198,141,432 | |||||||||||
|
|
||||||||||||||||
|
|
37
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Notes to Financial Statements
December 31, 2000
|
|
1. Organization
Goldman Sachs Trust (the “Trust”) is a Delaware business trust registered under the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. The Trust includes the Goldman Sachs—Institutional Liquid Assets Portfolios, collectively “ILA,” or individually, a “Portfolio.” ILA consists of nine portfolios: Prime Obligations, Money Market,
Government, Treasury Obligations, Treasury Instruments, Federal, Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York. All of the portfolios are diversified except for the Tax-Exempt California and Tax-Exempt New York Portfolios.
ILA offers the following classes of units/shares:
| Portfolio |
ILA
Units |
ILA
Administra- tion Units |
ILA
Service Units |
ILA
Class B Units |
ILA
Class C Units |
ILA
Cash Management Shares (CMS) |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Prime
Obligations |
x | x | x | x | x | x | |||||||
|
|
|||||||||||||
| Money Market | x | x | x | x | |||||||||
|
|
|||||||||||||
| Government | x | x | x | x | |||||||||
|
|
|||||||||||||
|
Treasury
Obligations |
x | x | x | x | |||||||||
|
|
|||||||||||||
|
Treasury
Instruments |
x | x | x | x | |||||||||
|
|
|||||||||||||
| Federal | x | x | x | x | |||||||||
|
|
|||||||||||||
|
Tax-Exempt
Diversified |
x | x | x | x | |||||||||
|
|
|||||||||||||
|
Tax-Exempt
California |
x | x | x | x | |||||||||
|
|
|||||||||||||
|
Tax-Exempt
New York |
x | x | x | x | |||||||||
The investment objective of the Portfolios is to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by
investing exclusively in high quality money market instruments. Tax-Exempt portfolios seek to provide unit/shareholders, to the extent consistent with the preservation of capital and prescribed portfolio standards, with a high level of income exempt
from federal income tax by investing primarily in municipal instruments.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by ILA. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts. Actual results could differ from those estimates.
A. Investment Valuation—
ILA uses the amortized-cost method for valuing portfolio securities, which approximates market value. Under this method, all investments purchased at a discount or
premium are valued by amortizing the difference between the original purchase price and maturity value of the issue over the period to maturity.
B. Security Transactions and Interest Income—
Security transactions are accounted for on a trade date basis. Realized gains and losses on sales of portfolio securities are calculated using the identified cost
basis. Interest income is recorded on the basis of interest accrued, premium amortized and discount earned. Net investment income (other than class specific expenses) and realized gains or losses are allocated daily to each class of shares of the
Portfolios based upon the relative proportion of net assets of each class.
C. Federal Taxes—
It is each Portfolio’s policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute each year
substantially all investment company taxable and tax-exempt income to its unit/shareholders. Accordingly, no federal tax provisions are required. Income distributions are declared daily and paid monthly by the Portfolios.
The characterization of distributions to unit/shareholders for financial reporting purposes is
2. Significant Accounting Policies
(continued)
determined in accordance with income tax rules. Therefore, the source of the Portfolios’ distributions is shown in the accompanying financial statements as from
net investment income.
At December 31, 2000 (tax year end), the following Portfolios had capital loss carryforwards for U.S. federal tax purposes of
approximately:
|
Portfolio
|
Amount
|
Years of
Expiration |
||
|---|---|---|---|---|
| Tax-Exempt Diversified | $172,000 | 2001 to 2008 | ||
| Tax-Exempt California | 35,000 | 2007 to 2008 | ||
| Tax-Exempt New York | 7,000 | 2008 |
These amounts are available to be carried forward to offset future capital gains to the extent permitted by applicable laws or
regulations.
The amortized cost for each Portfolio stated in the accompanying Statements of Assets and Liabilities also represents aggregate cost for federal
income tax purposes.
D. Expenses—
Expenses incurred by the Portfolios which do not specifically relate to an individual Portfolio of ILA are generally allocated to the Portfolios on a straight-line or
pro rata basis depending upon the nature of the expense.
Unit/Shareholders of ILA Administration, ILA Service, ILA Class B, ILA Class C and ILA Cash Management Share classes bear all expenses and fees
paid to service organizations. Each class of units/shares of the Portfolios separately bears its respective class-specific Transfer Agency fees.
E. Segregation Transactions—
The Portfolios may enter into forward commitments. These transactions involve a commitment by the Portfolio to purchase or sell securities for a predetermined price or
yield, with payment and delivery taking place beyond the customary settlement. As a result of entering into these transactions, the Portfolios are required to segregate liquid assets on the accounting records equal to or greater than the market
value of the corresponding transactions.
F. Repurchase Agreements
—
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price.
During the term of a repurchase agreement, the value of the underlying securities, 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 Portfolio’s custodian or designated subcustodians under triparty repurchase agreements.
3. Agreements
Goldman Sachs Asset Management (“GSAM”), a unit of the Investment Management Division of Goldman, Sachs & Co. (“Goldman Sachs”), acts as
investment adviser (the “Adviser”) pursuant to an Investment Management Agreement (the “Agreement”). Under the Agreement, GSAM, subject to the general supervision by the Trust’s Board of Trustees, manages the Portfolios. As
compensation for the services rendered pursuant to the Agreement and the assumption of the expenses related thereto and administering the Portfolio’s business affairs, including providing facilities, GSAM is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to 0.35% of each Portfolio’s average daily net assets.
Goldman Sachs acts as ILA’s distributor under a Distribution Agreement for which it receives no compensation except for a portion of the
ILA Prime Obligations Class B and Class C contingent deferred sales charges. Goldman Sachs has advised the Portfolio that it retained approximately $3,500 for the year ended December 31, 2000.
GSAM has voluntarily agreed to reduce or limit the total operating expenses of each Portfolio (excluding Distribution and Service fees,
Administration, Cash Management and Service plan fees, taxes, interest, brokerage commissions, litigation, indemnification and other extraordinary expenses) on an annualized basis to approximately 0.43% of the average net assets of each
Portfolio.
|
|
39
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Notes to Financial Statements
(continued)
December 31, 2000
|
|
3. Agreements
(continued)
For the year ended December 31, 2000, the Portfolios’ advisers have voluntarily agreed to waive certain fees and reimburse other expenses.
In addition, the Portfolios have entered into certain offset arrangements with the custodian resulting in a reduction in the Portfolios’ expenses. These expense reductions were as follows (in thousands):
| Portfolio |
Expense
Reimbursements |
Custody Fee
Reductions |
CMS
Fee Waiver |
Total | |||||
|---|---|---|---|---|---|---|---|---|---|
| Prime Obligations | $ — | $ 3 | $423 | $426 | |||||
|
|
|||||||||
| Money Market | — | 3 | 516 | 519 | |||||
|
|
|||||||||
| Government | 132 | 3 | 31 | 166 | |||||
|
|
|||||||||
| Treasury Obligations | — | 3 | 2 | 5 | |||||
|
|
|||||||||
| Treasury Instruments | 60 | 4 | 7 | 71 | |||||
|
|
|||||||||
| Federal | — | 20 | 811 | 831 | |||||
|
|
|||||||||
| Tax-Exempt Diversified | — | 153 | 345 | 498 | |||||
|
|
|||||||||
| Tax-Exempt California | — | 73 | 125 | 198 | |||||
|
|
|||||||||
| Tax-Exempt New York | 81 | 25 | 12 | 118 | |||||
The Trust, on behalf of each Portfolio that offers Class B Units, Class C Units, and Cash Management Shares, has adopted Distribution and
Service Plans. Under the Distribution and Service Plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee from each Portfolio for distribution services equal to, on an annual basis, 1.00% of the average daily net assets
attributable to Class B and Class C Units and 0.50% of the average daily net assets attributable to Cash Management Shares. GSAM has voluntarily agreed to waive a portion of the Distribution and Service fees equal to 0.43%, on an annual basis, of
the average daily net assets attributable to Cash Management Shares.
Goldman Sachs also serves as the Transfer Agent and is entitled to a fee calculated daily and payable monthly at an annual rate of 0.04% of the
average daily net assets of each class.
The Trust, on behalf of each Portfolio, has adopted Administration and Service Plans. These plans allow for ILA Administration Units, ILA
Service Units and ILA Cash Management Shares, respectively, to compensate service organizations for providing varying levels of account administration and unitholder/shareholder liaison services to their customers who are beneficial owners of such
units. The Administration, Service and Cash Management Shares Plans provide for compensation to the service organizations in an amount up to 0.15%, 0.40% and 0.50% (on an annualized basis), respectively, of the average daily net asset value of the
respective units/shares.
At December 31, 2000, the amounts owed to affiliates were as follows (in thousands):
| Portfolio | Management |
Distribution
and Service |
Transfer
Agent |
Total | |||||
|---|---|---|---|---|---|---|---|---|---|
|
Prime
Obligations |
$ 259 | $38 | $ 26 | $ 323 | |||||
|
|
|||||||||
|
Money
Market |
843 | 70 | 109 | 1,022 | |||||
|
|
|||||||||
| Government | 61 | 4 | 7 | 72 | |||||
|
|
|||||||||
|
Treasury
Obligations |
284 | — | 33 | 317 | |||||
|
|
|||||||||
|
Treasury
Instruments |
135 | — | 16 | 151 | |||||
|
|
|||||||||
| Federal | 1,696 | 48 | 197 | 1,941 | |||||
|
|
|||||||||
|
Tax-Exempt
Diversified |
654 | 21 | 79 | 754 | |||||
|
|
|||||||||
|
Tax-Exempt
California |
217 | 9 | 28 | 254 | |||||
|
|
|||||||||
|
Tax-Exempt
New York |
75 | 1 | 8 | 84 | |||||
|
|
40
|
|
4. Line of Credit Facility
Effective May 31, 2000, the Portfolios participated in a $350,000,000 committed, unsecured revolving line of credit facility. Prior thereto, the Portfolios participated
in a $250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving line of credit facility. Under the most restrictive arrangements, the Portfolios must own securities having a market 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 Portfolios based on the amount
of the commitment which has not been utilized. During the year ended December 31, 2000, the Portfolios did not have any borrowings under these facilities.
|
|
41
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Notes to Financial Statements
(continued)
December 31, 2000
|
|
5. Joint Repurchase Agreement Accounts
The ILA Portfolios, together with other registered investment companies having management agreements with GSAM or its affiliates, may transfer uninvested cash balances
into joint accounts, the daily aggregate balances of which are invested in one or more repurchase agreements.
At December 31, 2000, the Prime Obligations, Money Market, Government and Treasury Obligations Portfolios had undivided interests in the
following joint repurchase agreement account, which equaled $50,700,000, $54,900,000, $49,200,000 and $352,600,000 in principal amount, respectively. At December 31, 2000, the repurchase agreements held in this joint account were fully
collateralized by U.S. Treasury obligations.
Repurchase Agreements
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
Maturity
Value |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Chase Securities | ||||||||||
| $1,000,000,000 | 6.00 | % | 01/02/2001 | $1,000,000,000 | $1,000,666,667 | |||||
| Morgan Stanley Dean Witter | ||||||||||
| 1,000,000,000 | 6.44 | 01/02/2001 | 1,000,000,000 | 1,000,715,556 | ||||||
| UBS Warburg LLC | ||||||||||
| 1,006,100,000 | 6.00 | 01/02/2001 | 1,006,100,000 | 1,006,770,733 | ||||||
|
|
||||||||||
|
Total Joint Repurchase Agreement
Account I |
$3,006,100,000 | $3,008,152,956 | ||||||||
|
|
||||||||||
At December 31, 2000, the Prime Obligations, Money Market and Government Portfolios had undivided interests in the following joint repurchase agreement account II,
which equaled $125,000,000, $100,000,000 and $40,000,000 in principal amount, respectively. At December 31, 2000, the repurchase agreements held in this joint account II were fully collateralized by Federal Agency obligations.
Repurchase Agreements
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
Maturity
Value |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| Banc of America Securities LLC | ||||||||||
| $900,000,000 | 6.50 | % | 01/02/2001 | $ 900,000,000 | $ 900,650,000 | |||||
| Barclays Capital, Inc. | ||||||||||
| 300,000,000 | 6.47 | 01/02/2001 | 300,000,000 | 300,215,667 | ||||||
| Bear Stearns Companies, Inc. | ||||||||||
| 500,000,000 | 6.48 | 01/02/2001 | 500,000,000 | 500,360,000 | ||||||
| Deutsche Bank Securities | ||||||||||
| 250,000,000 | 6.45 | 01/02/2001 | 250,000,000 | 250,179,167 | ||||||
| Morgan Stanley Dean Witter | ||||||||||
| 500,000,000 | 6.48 | 01/02/2001 | 500,000,000 | 500,360,000 | ||||||
| Salomon Smith Barney Holdings, Inc. | ||||||||||
| 301,300,000 | 6.47 | 01/02/2001 | 301,300,000 | 301,516,601 | ||||||
|
|
||||||||||
|
Total Joint Repurchase Agreement
Account II |
$2,751,300,000 | $2,753,281,435 | ||||||||
|
|
||||||||||
6. Portfolio Concentrations
Since the Tax-Exempt California and Tax-Exempt New York Portfolios invest primarily in obligations of issuers within California and New York, respectively, they are
subject to possible concentration risks associated with economic, political or legal developments or industrial or regional matters specifically affecting California and New York.
|
|
42
|
|
7. Other Matters
Pursuant to a Securities and Exchange Commission exemptive order, certain of the Portfolios may enter into certain principal transactions, including repurchase
agreements, with Goldman Sachs subject to certain annual limitations as follows: 25% of eligible security transactions, as defined, and 10% of repurchase agreement transactions.
8. Change In Independent Accountants
On October 26, 1999, the Board of Trustees of the Portfolios, upon the recommendation of the Board’s audit committee, determined not to retain Arthur Andersen LLP
and approved a change of the Portfolios’ independent accountants to PricewaterhouseCoopers LLP. For the fiscal years ended December 31, 1999 and December 31, 1998, Arthur Andersen LLP 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 Portfolios and Arthur Andersen LLP on accounting principles or practices, 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 reports.
|
Goldman Sachs Institutional Liquid Assets Portfolios—Tax information (unaudited)
|
|
During the year ended December 31, 2000, 100% of the distributions from net investment income paid by
the ILA Tax-Exempt Diversified, ILA Tax-Exempt California and ILA Tax-Exempt New York Portfolios were exempt-interest dividends and as such, are not subject to U.S. Federal income tax.
|
|
|
43
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Notes to Financial Statements
(continued)
December 31, 2000
9. Summary of Unit/Share Transactions (at $1.00 per unit/share)
|
Unit/share activity for the year ended December 31, 2000 is as follows:
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Government
Portfolio |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| ILA Units: | ||||||||||
| Units sold | 7,762,631,214 | 8,489,705,384 | 726,304,416 | |||||||
| Reinvestment of dividends and distributions | 45,258,583 | 99,496,388 | 6,690,202 | |||||||
| Units repurchased | (8,318,550,241 | ) | (8,182,298,402 | ) | (812,204,219 | ) | ||||
|
|
||||||||||
| (510,660,444 | ) | 406,903,370 | (79,209,601 | ) | ||||||
|
|
||||||||||
| ILA Administration Units: | ||||||||||
| Units sold | 249,695,398 | 706,491,578 | 13,019,402 | |||||||
| Reinvestment of dividends and distributions | 2,574,418 | 5,195,942 | 23,187 | |||||||
| Units repurchased | (221,889,557 | ) | (397,208,462 | ) | (15,746,043 | ) | ||||
|
|
||||||||||
| 30,380,259 | 314,479,058 | (2,703,454 | ) | |||||||
|
|
||||||||||
| ILA Service Units: | ||||||||||
| Units sold | 607,075,900 | 3,535,437,725 | 69,790,279 | |||||||
| Reinvestment of dividends and distributions | 4,497,877 | 18,773,862 | 3,082,570 | |||||||
| Units repurchased | (534,103,489 | ) | (3,591,717,273 | ) | (101,986,816 | ) | ||||
|
|
||||||||||
| 77,470,288 | (37,505,686 | ) | (29,113,967 | ) | ||||||
|
|
||||||||||
| ILA Class B Units: | ||||||||||
| Units sold | 34,715,831 | — | — | |||||||
| Reinvestment of dividends and distributions | 642,614 | — | — | |||||||
| Units repurchased | (34,469,493 | ) | — | — | ||||||
|
|
||||||||||
| 888,952 | — | — | ||||||||
|
|
||||||||||
| ILA Class C Units: | ||||||||||
| Units sold | 41,417,083 | — | — | |||||||
| Reinvestment of dividends and distributions | 330,388 | — | — | |||||||
| Units repurchased | (38,377,686 | ) | — | — | ||||||
|
|
||||||||||
| 3,369,785 | — | — | ||||||||
|
|
||||||||||
| Cash Management Shares: | ||||||||||
| Shares sold | 499,498,375 | 1,256,560,629 | 126,848,701 | |||||||
| Reinvestment of dividends and distributions | 180,214 | 6,267,202 | 332,188 | |||||||
| Shares repurchased | (460,599,186 | ) | (947,635,776 | ) | (82,800,903 | ) | ||||
|
|
||||||||||
| 39,079,403 | 315,192,055 | 44,379,986 | ||||||||
|
|
||||||||||
| Net increase (decrease) in units/shares | (359,471,757 | ) | 999,068,797 | (66,647,036 | ) | |||||
|
|
||||||||||
|
|
44
|
Treasury Obligations Portfolio |
Treasury
Instruments Portfolio |
Federal
Portfolio |
Tax-Exempt
Diversified Portfolio |
Tax-Exempt
California Portfolio |
Tax-Exempt
New York Portfolio |
|---|
| 1,881,098,277 | 1,111,251,653 | 22,778,581,580 | 11,023,301,371 | 3,797,087,154 | 1,147,371,565 | |||||||||||
| 12,441,771 | 13,425,555 | 215,568,102 | 63,921,491 | 21,626,283 | 6,473,465 | |||||||||||
| (1,913,816,204 | ) | (1,148,198,627 | ) | (21,943,796,299) | (11,089,113,853 | ) | (4,063,198,185 | ) | (1,137,526,989 | ) | ||||||
|
|
||||||||||||||||
| (20,276,156) | (23,521,419 | ) | 1,050,353,383 | (1,890,991 | ) | (244,484,748 | ) | 16,318,041 | ||||||||
|
|
||||||||||||||||
| 174,167,805 | 222,663,300 | 1,483,923,615 | 668,385,595 | 111,699,768 | 393,319,060 | |||||||||||
| 774,893 | 1,736,952 | 8,849,438 | 2,165,695 | 306,184 | 1,530,925 | |||||||||||
| (202,181,669 | ) | (234,686,705 | ) | (873,471,412) | (567,867,868 | ) | (93,425,651 | ) | (350,669,083 | ) | ||||||
|
|
||||||||||||||||
| (27,238,971 | ) | (10,286,453 | ) | 619,301,641 | 102,683,422 | 18,580,301 | 44,180,902 | |||||||||
|
|
||||||||||||||||
| 1,772,845,224 | 590,139,890 | 2,616,048,202 | 119,067,158 | 11,747,198 | 300,050 | |||||||||||
| 277,662 | 28,493 | 13,309,384 | 536,829 | 44 | 1,884 | |||||||||||
| (1,544,651,499 | ) | (792,574,624 | ) | (2,635,737,275) | (89,206,033 | ) | (38,912,927 | ) | (50 | ) | ||||||
|
|
||||||||||||||||
| 228,471,387 | (202,406,241 | ) | (6,379,689) | 30,397,954 | (27,165,685 | ) | 301,884 | |||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| 6,423,379 | 19,502,524 | 1,919,683,390 | 732,363,394 | 215,135,511 | 33,129,165 | |||||||||||
| 34,585 | 81,456 | 10,418,305 | 2,366,370 | 784,669 | 86,085 | |||||||||||
| (3,859,770 | ) | (8,007,292 | ) | (1,151,275,349) | (507,642,014 | ) | (144,760,058 | ) | (19,459,060 | ) | ||||||
|
|
||||||||||||||||
| 2,598,194 | 11,576,688 | 778,826,346 | 227,087,750 | 71,160,122 | 13,756,190 | |||||||||||
|
|
||||||||||||||||
| 183,554,454 | (224,637,425 | ) | 2,442,101,681 | 358,278,135 | (181,910,010 | ) | 74,557,017 | |||||||||
|
|
||||||||||||||||
|
|
|
|
45
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Notes to Financial Statements
(continued)
December 31, 2000
9. Summary of Unit/Share Transactions (at $1.00 per unit/share)
(continued)
|
Unit/share activity for the year ended December 31, 1999 is as follows:
|
|
Prime
Obligations Portfolio |
Money
Market Portfolio |
Government
Portfolio |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| ILA Units: | ||||||||||
| Units sold | 6,187,318,969 | 8,475,508,367 | 1,555,372,030 | |||||||
| Reinvestment of dividends and distributions | 38,954,021 | 68,634,390 | 10,825,271 | |||||||
| Units repurchased | (5,968,349,686 | ) | (8,547,694,426 | ) | (1,744,205,159 | ) | ||||
|
|
||||||||||
| 257,923,304 | (3,551,669 | ) | (178,007,858 | ) | ||||||
|
|
||||||||||
| ILA Administration Units: | ||||||||||
| Units sold | 341,083,548 | 316,803,676 | 14,714,311 | |||||||
| Reinvestment of dividends and distributions | 1,643,764 | 2,932,445 | 225,705 | |||||||
| Units repurchased | (340,712,788 | ) | (627,102,159 | ) | (19,357,060 | ) | ||||
|
|
||||||||||
| 2,014,524 | (307,366,038 | ) | (4,417,044 | ) | ||||||
|
|
||||||||||
| ILA Service Units: | ||||||||||
| Units sold | 1,193,649,187 | 3,489,073,712 | 241,083,651 | |||||||
| Reinvestment of dividends and distributions | 4,150,597 | 13,041,115 | 3,971,441 | |||||||
| Units repurchased | (1,224,133,407 | ) | (3,150,531,872 | ) | (270,941,573 | ) | ||||
|
|
||||||||||
| (26,333,623 | ) | 351,582,955 | (25,886,481 | ) | ||||||
|
|
||||||||||
| ILA Class B Units: | ||||||||||
| Units sold | 33,484,399 | — | — | |||||||
| Reinvestment of dividends and distributions | 599,021 | — | — | |||||||
| Units repurchased | (29,051,583 | ) | — | — | ||||||
|
|
||||||||||
| 5,031,837 | — | — | ||||||||
|
|
||||||||||
| ILA Class C Units: | ||||||||||
| Units sold | 80,533,964 | — | — | |||||||
| Reinvestment of dividends and distributions | 224,125 | — | — | |||||||
| Units repurchased | (80,136,593 | ) | — | — | ||||||
|
|
||||||||||
| 621,496 | — | — | ||||||||
|
|
||||||||||
| Cash Management Shares: | ||||||||||
| Shares sold | — | — | 599,583 | |||||||
| Reinvestment of dividends and distributions | 72 | 72 | 646 | |||||||
| Shares repurchased | — | — | (449,237 | ) | ||||||
|
|
||||||||||
| 72 | 72 | 150,992 | ||||||||
|
|
||||||||||
| Net increase (decrease) in units/shares | 239,257,610 | 40,665,320 | (208,160,391 | ) | ||||||
|
|
||||||||||
|
|
46
|
Treasury
Obligations Portfolio |
Treasury
Instruments Portfolio |
Federal
Portfolio |
Tax-Exempt
Diversified Portfolio |
Tax-Exempt
California Portfolio |
Tax-Exempt
New York Portfolio |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||
| 2,851,391,276 | 1,369,486,465 | 14,102,514,033 | 9,797,647,273 | 4,216,788,421 | 786,706,635 | |||||||||||
| 17,509,450 | 10,298,349 | 127,217,288 | 45,733,373 | 18,866,994 | 4,455,370 | |||||||||||
| (3,199,058,228 | ) | (1,496,646,180 | ) | (13,684,083,018) | (9,671,043,644 | ) | (3,924,772,626 | ) | (753,410,503 | ) | ||||||
|
|
||||||||||||||||
| (330,157,502 | ) | (116,861,366 | ) | 545,648,303 | 172,337,002 | 310,882,789 | 37,751,502 | |||||||||
|
|
||||||||||||||||
| 447,866,712 | 329,112,577 | 439,630,230 | 118,571,986 | 103,554,699 | 288,839,397 | |||||||||||
| 591,471 | 1,575,091 | 2,314,512 | 69,283 | 69,121 | 577,876 | |||||||||||
| (486,656,745 | ) | (430,207,218 | ) | (949,431,515) | (117,066,866 | ) | (95,225,456 | ) | (273,160,637 | ) | ||||||
|
|
||||||||||||||||
| (38,198,562 | ) | (99,519,550 | ) | (507,486,773) | 1,574,403 | 8,398,364 | 16,256,636 | |||||||||
|
|
||||||||||||||||
| 420,348,605 | 855,905,345 | 2,806,778,868 | 61,148,901 | 122,151,030 | — | |||||||||||
| 35,296 | 22,813 | 10,389,616 | 631,725 | 37 | 40 | |||||||||||
| (191,056,113 | ) | (923,580,498 | ) | (2,586,777,645) | (78,639,722 | ) | (94,923,834 | ) | — | |||||||
|
|
||||||||||||||||
| 229,327,788 | (67,652,340 | ) | 230,390,839 | (16,859,096 | ) | 27,227,233 | 40 | |||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | — | — | — | |||||||||||
| — | — | — | 38 | 34 | 36 | |||||||||||
| — | — | — | — | — | — | |||||||||||
|
|
||||||||||||||||
| — | — | — | 38 | 34 | 36 | |||||||||||
|
|
||||||||||||||||
| (139,028,276 | ) | (284,033,256 | ) | 268,552,369 | 157,052,347 | 346,508,42 | 0 | 54,008,214 | ||||||||
|
|
||||||||||||||||
|
|
47
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
Selected Data for a Unit/Share Outstanding Throughout Each Period
Prime Obligations Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.14 | % | $ 584,448 | 0.43 | % | 5.94 | % | 0.43 | % | 5.94 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.98 | 71,230 | 0.58 | 5.87 | 0.58 | 5.87 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.72 | 170,446 | 0.83 | 5.63 | 0.83 | 5.63 | ||||||||||||||||
| 2000-ILA B Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.09 | 20,333 | 1.43 | 4.97 | 1.43 | 4.97 | ||||||||||||||||
| 2000-ILA C Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.09 | 10,806 | 1.43 | 5.02 | 1.43 | 5.02 | ||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.54 | 39,081 | 1.00 | 5.46 | 1.43 | 5.03 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.90 | 1,095,109 | 0.43 | 4.79 | 0.43 | 4.79 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.74 | 40,850 | 0.58 | 4.65 | 0.58 | 4.65 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.48 | 92,975 | 0.83 | 4.33 | 0.83 | 4.33 | ||||||||||||||||
| 1999-ILA B Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.86 | 19,444 | 1.43 | 3.83 | 1.43 | 3.83 | ||||||||||||||||
| 1999-ILA C Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.86 | 7,436 | 1.43 | 3.76 | 1.43 | 3.76 | ||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.30 | 1 | 1.00 | 4.44 | 1.43 | 4.01 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.32 | 837,185 | 0.43 | 5.19 | 0.43 | 5.19 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.16 | 38,836 | 0.58 | 5.05 | 0.58 | 5.05 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.90 | 119,309 | 0.83 | 4.79 | 0.83 | 4.79 | ||||||||||||||||
| 1998-ILA B Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.27 | 14,412 | 1.43 | 4.07 | 1.43 | 4.07 | ||||||||||||||||
| 1998-ILA C Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.27 | 6,814 | 1.43 | 4.13 | 1.43 | 4.13 | ||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 4.69 | (c) | 2 | 0.93 | (c) | 4.81 | (c) | 1.43 | (c) | 4.31 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.38 | 866,445 | 0.42 | 5.24 | 0.43 | 5.23 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.22 | 28,110 | 0.57 | 5.11 | 0.58 | 5.10 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.96 | 78,316 | 0.82 | 4.85 | 0.83 | 4.84 | ||||||||||||||||
| 1997-ILA B Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.33 | 1,574 | 1.42 | 4.33 | 1.43 | 4.32 | ||||||||||||||||
| 1997-ILA C Units (commenced August 15) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.41 | (c) | 1,897 | 1.42 | (c) | 4.39 | (c) | 1.43 | (c) | 4.38 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.22 | 1,154,787 | 0.41 | 5.11 | 0.43 | 5.09 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.06 | 23,738 | 0.56 | 4.97 | 0.58 | 4.95 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.80 | 84,707 | 0.81 | 4.74 | 0.83 | 4.72 | ||||||||||||||||
| 1996-ILA B Units (commenced May 8) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.97 | (c) | 346 | 1.41 | (c) | 4.09 | (c) | 1.43 | (c) | 4.07 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
48
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Money Market Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.18 | % | $1,753,668 | 0.41 | % | 6.05 | % | 0.41 | % | 6.05 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.02 | 321,440 | 0.56 | 6.12 | 0.56 | 6.12 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.76 | 346,427 | 0.81 | 5.63 | 0.81 | 5.63 | ||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.60 | 315,194 | 0.98 | 5.72 | 1.41 | 5.29 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.92 | 1,346,765 | 0.41 | 4.80 | 0.41 | 4.80 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.76 | 6,961 | 0.56 | 4.64 | 0.56 | 4.64 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.50 | 383,932 | 0.81 | 4.42 | 0.81 | 4.42 | ||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.32 | 2 | 0.98 | 4.37 | 1.41 | 3.94 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.33 | 1,350,317 | 0.40 | 5.17 | 0.43 | 5.14 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.17 | 314,327 | 0.55 | 5.04 | 0.58 | 5.01 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.91 | 32,349 | 0.80 | 4.79 | 0.83 | 4.76 | ||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 4.69 | (c) | 2 | 0.90 | (c) | 4.80 | (c) | 1.43 | (c) | 4.27 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.43 | 806,096 | 0.37 | 5.31 | 0.42 | 5.26 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.28 | 307,480 | 0.52 | 5.15 | 0.57 | 5.10 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.01 | 20,517 | 0.77 | 4.90 | 0.82 | 4.85 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.27 | 703,097 | 0.36 | 5.15 | 0.43 | 5.08 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.12 | 257,258 | 0.51 | 5.00 | 0.58 | 4.93 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.86 | 28,845 | 0.76 | 4.75 | 0.83 | 4.68 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
49
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Government Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.05 | % | $126,034 | 0.43 | % | 5.84 | % | 0.48 | % | 5.79 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.89 | 562 | 0.58 | 5.57 | 0.63 | 5.52 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.63 | 50,733 | 0.83 | 5.42 | 0.88 | 5.37 | ||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.50 | 44,533 | 1.00 | 5.60 | 1.48 | 5.12 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.77 | 205,244 | 0.43 | 4.64 | 0.45 | 4.62 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.61 | 3,265 | 0.58 | 4.42 | 0.60 | 4.40 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.35 | 79,847 | 0.83 | 4.24 | 0.85 | 4.22 | ||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.18 | 153 | 1.00 | 4.68 | 1.45 | 4.23 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.21 | 383,243 | 0.43 | 5.09 | 0.45 | 5.07 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.05 | 7,692 | 0.58 | 4.94 | 0.60 | 4.92 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.79 | 105,732 | 0.83 | 4.67 | 0.85 | 4.65 | ||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 4.57 | (c) | 2 | 0.93 | (c) | 4.60 | (c) | 1.45 | (c) | 4.08 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.31 | 460,457 | 0.42 | 5.16 | 0.42 | 5.16 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.15 | 10,192 | 0.57 | 4.98 | 0.57 | 4.98 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.89 | 83,799 | 0.82 | 4.78 | 0.82 | 4.78 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.15 | 694,651 | 0.41 | 5.04 | 0.44 | 5.01 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.99 | 36,055 | 0.56 | 4.89 | 0.59 | 4.86 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.73 | 94,228 | 0.81 | 4.63 | 0.84 | 4.60 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
50
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Treasury Obligations Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 5.95 | % | $384,023 | 0.42 | % | 5.77 | % | 0.42 | % | 5.77 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.79 | 15,095 | 0.57 | 5.51 | 0.57 | 5.51 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.52 | 493,259 | 0.82 | 5.49 | 0.82 | 5.49 | ||||||||||||||||
| 2000-Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.33 | (d) | 2,598 | 0.99 | (c) | 5.53 | (c) | 1.42 | (c) | 5.10 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.63 | 404,299 | 0.42 | 4.50 | 0.42 | 4.50 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.48 | 42,334 | 0.57 | 4.35 | 0.57 | 4.35 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.22 | 264,787 | 0.82 | 4.19 | 0.82 | 4.19 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.15 | 734,553 | 0.42 | 4.96 | 0.43 | 4.95 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.99 | 80,464 | 0.57 | 4.88 | 0.58 | 4.87 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.73 | 35,432 | 0.82 | 4.67 | 0.83 | 4.66 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.26 | 590,381 | 0.42 | 5.12 | 0.42 | 5.12 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.10 | 124,159 | 0.57 | 4.99 | 0.57 | 4.99 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.84 | 104,133 | 0.82 | 4.73 | 0.82 | 4.73 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.11 | 574,734 | 0.41 | 4.98 | 0.43 | 4.96 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.95 | 108,850 | 0.56 | 4.83 | 0.58 | 4.81 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.69 | 123,483 | 0.81 | 4.59 | 0.83 | 4.57 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
51
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Treasury Instruments Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.05 | $(0.05 | ) | $1.00 | 5.62 | % | $201,088 | 0.43 | % | 5.49 | % | 0.45 | % | 5.47 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.46 | 21,875 | 0.58 | 5.20 | 0.60 | 5.18 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.20 | 104,076 | 0.83 | 4.96 | 0.85 | 4.94 | ||||||||||||||||
| 2000-Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.21 | (d) | 11,577 | 1.00 | (c) | 5.22 | (c) | 1.45 | (c) | 4.77 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.38 | 224,609 | 0.43 | 4.29 | 0.43 | 4.29 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.22 | 32,162 | 0.58 | 4.09 | 0.58 | 4.09 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.96 | 306,483 | 0.83 | 3.90 | 0.83 | 3.90 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.96 | 341,476 | 0.30 | 4.83 | 0.43 | 4.70 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.80 | 131,685 | 0.45 | 4.68 | 0.58 | 4.55 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.54 | 374,128 | 0.70 | 4.43 | 0.83 | 4.30 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.17 | 330,241 | 0.22 | 5.02 | 0.42 | 4.82 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.01 | 98,667 | 0.37 | 4.88 | 0.57 | 4.68 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.75 | 295,404 | 0.62 | 4.63 | 0.82 | 4.43 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.10 | 708,999 | 0.21 | 4.96 | 0.43 | 4.74 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.95 | 137,706 | 0.36 | 4.82 | 0.58 | 4.60 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.68 | 383,901 | 0.61 | 4.56 | 0.83 | 4.34 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
52
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Federal Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.03 | % | $4,221,684 | 0.40 | % | 5.90 | % | 0.40 | % | 5.90 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.87 | 620,138 | 0.55 | 6.01 | 0.55 | 6.01 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.61 | 278,002 | 0.80 | 5.48 | 0.80 | 5.48 | ||||||||||||||||
| 2000-Cash Management Shares (commenced August 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.36 | (d) | 778,826 | 1.00 | (c) | 5.59 | (c) | 1.43 | (c) | 5.16 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.81 | 3,171,330 | 0.41 | 4.72 | 0.41 | 4.72 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.66 | 836 | 0.56 | 4.46 | 0.56 | 4.46 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.39 | 284,382 | 0.81 | 4.30 | 0.81 | 4.30 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.25 | 2,625,705 | 0.34 | 5.10 | 0.42 | 5.02 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.09 | 508,297 | 0.49 | 4.97 | 0.57 | 4.89 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.83 | 53,994 | 0.74 | 4.71 | 0.82 | 4.63 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.40 | 2,050,559 | 0.27 | 5.26 | 0.41 | 5.12 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.24 | 530,001 | 0.42 | 5.11 | 0.56 | 4.97 | ||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.98 | 34,540 | 0.67 | 4.83 | 0.81 | 4.69 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.24 | 2,303,677 | 0.26 | 5.13 | 0.43 | 4.96 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.09 | 794,537 | 0.41 | 4.98 | 0.58 | 4.81 | ||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.83 | 192,416 | 0.66 | 4.73 | 0.83 | 4.56 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
53
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt Diversified Portfolio
|
Ratios assuming no
expense reductions |
||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.04 | $(0.04 | ) | $1.00 | 3.74 | % | $1,732,707 | 0.41 | % | 3.67 | % | 0.42 | % | 3.66 | % | ||||||||||||||
| 2000-ILA Administration Units | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.58 | 130,767 | 0.56 | 3.64 | 0.57 | 3.63 | |||||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.33 | 51,389 | 0.81 | 3.26 | 0.82 | 3.25 | |||||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.19 | 227,089 | 0.98 | 3.32 | 1.42 | 2.88 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.89 | 1,734,623 | 0.42 | 2.85 | 0.42 | 2.85 | |||||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.73 | 28,084 | 0.57 | 2.66 | 0.57 | 2.66 | |||||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.48 | 20,991 | 0.82 | 2.41 | 0.82 | 2.41 | |||||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.30 | 2 | 0.99 | 2.51 | 1.42 | 2.08 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.17 | 1,562,285 | 0.35 | 3.12 | 0.41 | 3.06 | |||||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.02 | 26,509 | 0.50 | 2.98 | 0.56 | 2.92 | |||||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.76 | 37,850 | 0.75 | 2.72 | 0.81 | 2.66 | |||||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.61 | (c) | 2 | 0.85 | (c) | 2.66 | (c) | 1.41 | (c) | 2.10 | (c) | ||||||||||||||
|
|
||||||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.39 | 1,479,486 | 0.32 | 3.33 | 0.41 | 3.24 | |||||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.23 | 27,967 | 0.47 | 3.16 | 0.56 | 3.07 | |||||||||||||||||||
| 1997-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.97 | 30,513 | 0.72 | 2.97 | 0.81 | 2.88 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.25 | 1,514,443 | 0.31 | 3.20 | 0.41 | 3.10 | |||||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.09 | 59,097 | 0.46 | 3.06 | 0.56 | 2.96 | |||||||||||||||||||
| 1996-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.84 | 28,921 | 0.71 | 2.79 | 0.81 | 2.69 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
54
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt California Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distribution
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.03 | $(0.03 | ) | $1.00 | 3.17 | % | $650,980 | 0.42 | % | 3.08 | % | 0.43 | % | 3.07 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.02 | 27,490 | 0.56 | 2.99 | 0.57 | 2.98 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.76 | 63 | 0.82 | 2.22 | 0.83 | 2.21 | ||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.63 | 71,162 | 0.98 | 2.74 | 1.42 | 2.30 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.60 | 895,469 | 0.42 | 2.58 | 0.42 | 2.58 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.45 | 8,910 | 0.57 | 2.38 | 0.57 | 2.38 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.19 | 27,229 | 0.82 | 2.39 | 0.82 | 2.39 | ||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.02 | 1 | 0.99 | 2.15 | 1.42 | 1.72 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.84 | 584,615 | 0.41 | 2.79 | 0.41 | 2.79 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.68 | 512 | 0.56 | 2.84 | 0.56 | 2.84 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.43 | 2 | 0.81 | 2.48 | 0.81 | 2.48 | ||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.25 | (c) | 2 | 0.91 | (c) | 2.37 | (c) | 1.41 | (c) | 1.87 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.15 | 591,003 | 0.42 | 3.10 | 0.42 | 3.10 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.00 | 360 | 0.57 | 2.98 | 0.57 | 2.98 | ||||||||||||||||
| 1997-ILA Service Units (Re-commenced September 1) | 1.00 | 0.01 | (0.01 | ) | 1.00 | 2.87 | (c) | 2 | 0.82 | (c) | 2.90 | (c) | 0.82 | (c) | 2.90 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.03 | 440,476 | 0.41 | 2.99 | 0.42 | 2.98 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.88 | 142 | 0.56 | 2.84 | 0.57 | 2.83 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
55
Goldman Sachs Trust—Institutional Liquid Assets Portfolios
Financial Highlights
(continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt New York Portfolio
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to unit/ shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-ILA Units | $1.00 | $0.04 | $(0.04 | ) | $1.00 | 3.57 | % | $176,618 | 0.43 | % | 3.51 | % | 0.47 | % | 3.47 | % | |||||||||||
| 2000-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.41 | 82,019 | 0.58 | 3.44 | 0.62 | 3.40 | ||||||||||||||||
| 2000-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.15 | 303 | 0.83 | 3.33 | 0.87 | 3.29 | ||||||||||||||||
| 2000-Cash Management Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.02 | 13,758 | 1.00 | 3.15 | 1.47 | 2.68 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.76 | 160,301 | 0.43 | 2.73 | 0.44 | 2.72 | ||||||||||||||||
| 1999-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.60 | 37,836 | 0.58 | 2.61 | 0.59 | 2.60 | ||||||||||||||||
| 1999-ILA Service Units | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.35 | 2 | 0.83 | 2.29 | 0.84 | 2.28 | ||||||||||||||||
| 1999-Cash Management Shares | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.17 | 2 | 1.00 | 2.34 | 1.44 | 1.90 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.02 | 122,550 | 0.36 | 2.96 | 0.51 | 2.81 | ||||||||||||||||
| 1998-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.87 | 21,580 | 0.51 | 2.85 | 0.66 | 2.70 | ||||||||||||||||
| 1998-ILA Service Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.61 | 2 | 0.76 | 2.61 | 0.91 | 2.46 | ||||||||||||||||
| 1998-Cash Management Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.46 | (c) | 1 | 0.86 | (c) | 2.56 | (c) | 1.51 | (c) | 1.91 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.29 | 102,887 | 0.33 | 3.24 | 0.43 | 3.14 | ||||||||||||||||
| 1997-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.14 | 31,993 | 0.48 | 3.09 | 0.58 | 2.99 | ||||||||||||||||
| 1997-ILA Service Units (commenced September 15) | 1.00 | 0.01 | (0.01 | ) | 1.00 | 3.02 | (c) | 2 | 0.73 | (c) | 3.04 | (c) | 0.83 | (c) | 2.94 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-ILA Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.05 | 70,175 | 0.32 | 3.01 | 0.43 | 2.90 | ||||||||||||||||
| 1996-ILA Administration Units | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.90 | 44,319 | 0.47 | 2.88 | 0.58 | 2.77 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average units/shares outstanding methodology.
|
|
(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.
|
56
Report of Independent Accountants
|
|
To Board of Trustees of Goldman Sachs Trust and the Shareholders of Institutional Liquid Assets Portfolios:
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of
operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prime Obligations Portfolio, Money Market Portfolio, Government Portfolio, Treasury Obligations Portfolio,
Treasury Instruments Portfolio, Federal Portfolio, Tax-Exempt Diversified Portfolio, Tax-Exempt California Portfolio and Tax-Exempt New York Portfolio (collectively, the “Institutional Liquid Assets Portfolios”), portfolios of Goldman
Sachs Trust at December 31, 2000 and the results of each of their operations, the changes in each of their net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Institutional Liquid Assets Portfolios’ management; our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2000 by
correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statements of changes in net assets of the Institutional Liquid Assets Portfolios’ for the year ended December 31, 1999 and the financial highlights
for each of the periods ended on or before December 31, 1999 were audited by other independent accountants whose report dated February 14, 2000 expressed an unqualified opinion thereon.
|
P
RICEWATERHOUSE
C
OOPERS
LLP
|
Boston, Massachusetts
February 15, 2001
57
Statement of Investments
Financial Square Prime Obligations Fund
December 31, 2000
|
|
4
|
|
5
Statement of Investments
Financial Square Prime Obligations Fund
(continued)
December 31, 2000
|
|
6
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Variable Rate Obligations (continued) | ||||||||
| Wells Fargo & Co. | ||||||||
| $225,000,000 | 6.49% | 03/19/2001 | $ 224,975,250 | |||||
|
|
||||||||
| Total Variable Rate Obligations | $ 4,795,062,645 | |||||||
|
|
||||||||
|
Total Investments before
Repurchase Agreements |
$ 15,472,403,722 | |||||||
|
|
||||||||
| Repurchase Agreements* — 5.4% | ||||||||
| Joint Repurchase Agreement Account I | ||||||||
| $ 30,000,000 | 6.15 | % | 01/02/2001 | $ 30,000,000 | ||||
| Joint Repurchase Agreement Account II | ||||||||
| 850,000,000 | 6.48 | 01/02/2001 | 850,000,000 | |||||
|
|
||||||||
| Total Repurchase Agreements | $ 880,000,000 | |||||||
|
|
||||||||
| Total Investments | $ 16,352,403,722 | |||||||
|
|
||||||||
|
#
|
Variable rate security index is based on either Federal Funds, LIBOR or Prime lending rate.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next interest reset rate for floating rate securities.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
|
|
|||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
7
Statement of Investments
Financial Square Money Market Fund
December 31, 2000
|
|
8
|
|
9
Statement of Investments
Financial Square Money Market Fund
(continued)
December 31, 2000
|
|
| Total Variable Rate Obligations | $3,104,701,962 | ||||||
|
|
|||||||
|
Total Investments before Repurchase
Agreement |
$6,875,210,484 | ||||||
|
|
|||||||
|
#
|
Variable rate security index is based on either Federal Funds, LIBOR, or Prime lending rate.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next interest reset date for floating rate securities.
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.
Statement of Investments
Financial Square Treasury Obligations Fund
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Repurchase Agreements (continued) | ||||||||
| Lehman Brothers Holdings, Inc. | ||||||||
| $ 150,000,000 | 6.37 | % | 01/02/2001 | $ 150,000,000 | ||||
| Maturity Value: $150,769,708 | ||||||||
| Dated: 12/04/00 | ||||||||
| Merrill Lynch & Co., Inc. | ||||||||
| 211,000,000 | 6.10 | 01/02/2001 | 211,000,000 | |||||
| Maturity Value: $211,143,011 | ||||||||
| Salomon Smith Barney, Inc. | ||||||||
| 50,000,000 | 5.50 | 01/02/2001 | 50,000,000 | |||||
| Maturity Value: $50,030,556 | ||||||||
| 135,000,000 | 6.25 | 01/05/2001 | 135,000,000 | |||||
| Maturity Value: $135,679,688 | ||||||||
| Dated: 12/07/00 | ||||||||
| Societe Generale | ||||||||
| 165,000,000 | 6.00 | 01/02/2001 | 165,000,000 | |||||
| Maturity Value: $165,110,000 | ||||||||
| UBS Warburg LLC | ||||||||
| 125,000,000 | 6.52 | 02/02/2001 | 125,000,000 | |||||
| Maturity Value: $129,029,722 | ||||||||
| Dated: 08/08/00 | ||||||||
|
|
||||||||
| Total Repurchase Agreements | $4,507,800,000 | |||||||
|
|
||||||||
| Total Investments | $4,823,089,608 | |||||||
|
|
||||||||
|
Ù
|
At December 31, 2000, these agreements were fully collateralized by U.S. Treasury obligations.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
11
Statement of Investments
Financial Square Treasury Instruments Fund
December 31, 2000
|
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
|
|
|
|
|
||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
12
Statement of Investments
Financial Square Government Fund
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| U.S. Government Agency Obligations—73.2% | ||||||||
| Federal Home Loan Bank | ||||||||
| $ 50,000,000 | 6.62 | %# | 01/01/2001 | $ 49,978,219 | ||||
| 40,000,000 | 6.52 | # | 01/15/2001 | 39,982,997 | ||||
| 75,000,000 | 6.51 | # | 01/17/2001 | 74,975,712 | ||||
| 140,000,000 | 6.55 | # | 01/19/2001 | 139,923,822 | ||||
| 50,000,000 | 6.50 | # | 01/20/2001 | 49,983,562 | ||||
| 25,000,000 | 6.35 | 02/01/2001 | 24,998,355 | |||||
| 30,000,000 | 6.30 | 02/07/2001 | 29,992,782 | |||||
| 35,000,000 | 6.39 | 02/07/2001 | 34,998,715 | |||||
| 25,000,000 | 6.52 | 03/28/2001 | 24,988,128 | |||||
| 40,000,000 | 6.68 | 05/08/2001 | 40,000,000 | |||||
| Federal Home Loan Mortgage Corp. | ||||||||
| 50,000,000 | 6.35 | 01/05/2001 | 49,998,842 | |||||
| 220,000,000 | 6.59 | # | 01/10/2001 | 219,996,349 | ||||
| 35,000,000 | 6.26 | 01/12/2001 | 34,998,864 | |||||
| 175,000,000 | 6.45 | # | 01/21/2001 | 174,914,715 | ||||
| 75,000,000 | 6.47 | # | 01/26/2001 | 74,982,259 | ||||
| 93,000,000 | 6.39 | 03/01/2001 | 92,026,058 | |||||
| Federal National Mortgage Association | ||||||||
| 117,000,000 | 6.52 | # | 01/02/2001 | 116,971,551 | ||||
| 40,000,000 | 5.00 | 01/05/2001 | 39,990,400 | |||||
| 126,000,000 | 6.45 | 01/18/2001 | 125,616,225 | |||||
| 79,964,000 | 6.41 | 02/15/2001 | 79,323,788 | |||||
| 100,000,000 | 6.49 | # | 03/01/2001 | 99,987,069 | ||||
| 100,000,000 | 6.54 | # | 03/03/2001 | 99,964,294 | ||||
| 35,000,000 | 6.55 | 03/20/2001 | 34,997,689 | |||||
| 20,445,000 | 6.06 | 11/02/2001 | 19,395,320 | |||||
| 25,000,000 | 6.07 | 11/02/2001 | 23,714,340 | |||||
| 65,000,000 | 6.50 | 11/14/2001 | 65,010,841 | |||||
| 17,000,000 | 6.06 | 11/16/2001 | 16,087,128 | |||||
| 40,000,000 | 6.41 | 11/27/2001 | 39,984,702 | |||||
| 50,000,000 | 6.26 | 12/06/2001 | 49,990,248 | |||||
| Student Loan Marketing Association | ||||||||
| 100,000,000 | 6.30 | # | 01/03/2001 | 99,991,100 | ||||
| 120,000,000 | 6.31 | # | 01/03/2001 | 119,995,070 | ||||
| 50,000,000 | 6.31 | # | 01/03/2001 | 49,985,600 | ||||
| 30,000,000 | 6.45 | # | 01/03/2001 | 29,999,707 | ||||
|
|
||||||||
|
Total U.S. Government Agency
Obligations |
$ 2,267,744,451 | |||||||
|
|
||||||||
|
Total Investments before Repurchase
Agreements |
$ 2,267,744,451 | |||||||
|
|
||||||||
|
#
|
Variable rate security index is based on either Federal Funds, LIBOR, U.S. Treasury Bill, or Prime lending rate.
|
|
Ù
|
At December 31, 2000, these agreements were fully collateralized by U.S. Treasury or Federal Agency obligations.
|
|
*
|
Unless noted, all repurchase agreements were entered into on December 29, 2000.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next interest reset date for floating rate securities.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
13
Statement of Investments
Financial Square Federal Fund
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| U.S. Government Agency Obligations (continued) | ||||||||
| Federal Farm Credit Bank (continued) | ||||||||
| $ 25,000,000 | 6.33 | % | 03/08/2001 | $ 24,709,875 | ||||
| 18,000,000 | 6.15 | 03/15/2001 | 17,775,525 | |||||
| 48,000,000 | 6.08 | 03/22/2001 | 47,351,467 | |||||
| 17,150,000 | 5.13 | 04/02/2001 | 17,099,544 | |||||
| 150,000,000 | 6.40 | 11/01/2001 | 150,187,987 | |||||
| 15,939,000 | 6.07 | 11/07/2001 | 15,106,564 | |||||
| Federal Home Loan Bank | ||||||||
| 70,000,000 | 6.45 | # | 01/02/2001 | 69,968,001 | ||||
| 100,000,000 | 6.47 | # | 01/02/2001 | 99,979,120 | ||||
| 100,000,000 | 6.49 | # | 01/02/2001 | 99,994,932 | ||||
| 60,000,000 | 6.50 | # | 01/02/2001 | 59,997,763 | ||||
| 60,000,000 | 6.51 | # | 01/02/2001 | 60,000,000 | ||||
| 200,000,000 | 6.62 | # | 01/02/2001 | 199,912,877 | ||||
| 9,866,000 | 6.32 | 01/03/2001 | 9,862,536 | |||||
| 60,000,000 | 6.38 | # | 01/03/2001 | 60,000,000 | ||||
| 46,000,000 | 6.43 | 01/05/2001 | 45,967,136 | |||||
| 73,900,000 | 6.36 | 01/10/2001 | 73,782,499 | |||||
| 95,400,000 | 6.42 | 01/10/2001 | 95,246,883 | |||||
| 9,300,000 | 6.43 | 01/10/2001 | 9,285,050 | |||||
| 20,608,000 | 6.44 | 01/10/2001 | 20,574,821 | |||||
| 225,000,000 | 6.42 | 01/12/2001 | 224,558,625 | |||||
| 65,000,000 | 6.43 | 01/12/2001 | 64,872,293 | |||||
| 100,000,000 | 6.58 | # | 01/12/2001 | 99,946,896 | ||||
| 180,000,000 | 6.51 | # | 01/15/2001 | 179,923,488 | ||||
| 175,000,000 | 6.52 | # | 01/15/2001 | 174,925,614 | ||||
| 80,000,000 | 6.42 | 01/17/2001 | 79,771,734 | |||||
| 29,806,000 | 6.43 | 01/17/2001 | 29,720,821 | |||||
| 6,294,000 | 6.45 | 01/17/2001 | 6,275,957 | |||||
| 190,000,000 | 6.51 | # | 01/17/2001 | 189,938,471 | ||||
| 65,000,000 | 6.36 | 01/18/2001 | 64,999,124 | |||||
| 121,805,000 | 6.42 | 01/19/2001 | 121,414,006 | |||||
| 150,000,000 | 6.55 | # | 01/19/2001 | 149,918,380 | ||||
| 190,000,000 | 6.50 | # | 01/20/2001 | 189,937,534 | ||||
| 55,000,000 | 6.20 | 01/24/2001 | 54,782,139 | |||||
| 73,199,000 | 6.42 | 01/24/2001 | 72,898,762 | |||||
| 60,000,000 | 6.43 | 01/26/2001 | 59,732,083 | |||||
| 370,748,000 | 6.42 | 01/31/2001 | 368,764,498 | |||||
| 207,254,000 | 6.44 | 01/31/2001 | 206,142,601 | |||||
| 23,942,000 | 6.46 | 01/31/2001 | 23,813,112 | |||||
| 60,000,000 | 6.35 | 02/01/2001 | 59,996,849 | |||||
| 21,970,000 | 6.40 | 02/07/2001 | 21,825,486 | |||||
| 54,000,000 | 6.40 | 02/16/2001 | 53,558,745 | |||||
| 28,871,000 | 6.40 | 02/16/2001 | 28,634,899 | |||||
| 200,000,000 | 6.53 | # | 02/17/2001 | 199,914,672 | ||||
14
|
|
|
#
|
Variable rate security index is based on either U.S. Treasury Bill, Federal Funds, LIBOR or Prime lending rate.
|
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next interest reset date for floating rate securities.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
15
Statement of Investments
Financial Square Tax-Free Money Market Fund
December 31, 2000
|
|
16
|
|
17
Statement of Investments
Financial Square Tax-Free Money Market Fund
(continued)
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Illinois (continued) | ||||||||
|
Illinois Health Facilities Authority VRDN for The Revolving Fund
Pooled Finance Program Series 1985 D (Bank One, N.A. LOC) (A-1/VMIG1) |
||||||||
| $ 27,200,000 | 4.95 | % | 01/03/2001 | $ 27,200,000 | ||||
|
Illinois State GO Eagle Tax-Exempt Trust Series 96C 1305 Class A COPS
(FGIC) (A-1/VMIG1) |
||||||||
| 14,850,000 | 4.94 | 01/04/2001 | 14,850,000 | |||||
| Illinois State GO Series 2000 (A-1/VMIG1) | ||||||||
| 3,600,000 | 4.75 | 12/01/2001 | 3,614,903 | |||||
|
Illinois State Toll Highway Authority VRDN RB Series 1998 B (FSA)
(F-1+/VMIG1) |
||||||||
| 24,500,000 | 4.75 | 01/04/2001 | 24,500,000 | |||||
|
Illinois State Toll Highway Priority Series 1993 B (Societe Generale LOC)
(MBIA) (A-1+/VMIG1) |
||||||||
| 600,000 | 4.70 | 01/03/2001 | 600,000 | |||||
| Metropolitan Pier Eagle Tax-Exempt Trust Series 2000 1307 (FGIC) (A-1+) | ||||||||
| 7,205,000 | 4.94 | 01/04/2001 | 7,205,000 | |||||
| Village of Sauget VRDN PCRB for Pharmacia Corp. Project Series 1992 (P1) | ||||||||
| 1,000,000 | 4.95 | 01/03/2001 | 1,000,000 | |||||
| Village of Sauget VRDN PCRB for Pharmacia Corp. Project Series 1993 (P1) | ||||||||
| 1,900,000 | 4.95 | 01/03/2001 | 1,900,000 | |||||
|
|
||||||||
| $ 252,334,208 | ||||||||
|
|
||||||||
| Indiana—1.1% | ||||||||
|
Fort Wayne City Hospital Authority VRDN RB for Parkview Memorial
Hospital Series 1985 B (Bank of America LOC) (VMIG1) |
||||||||
| $ 1,600,000 | 4.65 | % | 01/03/2001 | $ 1,600,000 | ||||
|
Fort Wayne City Hospital Authority VRDN RB for Parkview Memorial
Hospital Series 1989 B (Bank of America LOC) (VMIG1) |
||||||||
| 15,700,000 | 4.70 | 01/04/2001 | 15,700,000 | |||||
| Indiana TFA Eagle Tax-Exempt Trust Series 20001401 (A-1+) | ||||||||
| 5,000,000 | 4.94 | 01/04/2001 | 5,000,000 | |||||
|
Princeton Indiana VRDN PCRB Refunding for PSI Energy, Inc. Project
Series 1996 (Canadian Imperial Bank of Commerce LOC) (A-1+/VMIG1) |
||||||||
| 3,000,000 | 4.90 | 01/02/2001 | 3,000,000 | |||||
| Warrick County VRDN PCRB for ALCOA Project Series 1992 (A-1) | ||||||||
| 7,475,000 | 4.75 | 01/04/2001 | 7,475,000 | |||||
|
|
||||||||
| $ 32,775,000 | ||||||||
|
|
||||||||
18
|
|
19
Statement of Investments
Financial Square Tax-Free Money Market Fund
(continued)
December 31, 2000
|
|
20
|
|
21
Statement of Investments
Financial Square Tax-Free Money Market Fund
(continued)
December 31, 2000
|
|
22
|
|
23
Statement of Investments
Financial Square Tax-Free Money Market Fund
(continued)
December 31, 2000
|
|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
|||||
|---|---|---|---|---|---|---|---|---|
|
|
||||||||
| Wisconsin—1.5% | ||||||||
|
Milwaukee Metropolitan Sewage District GO Capital Purpose Bonds
Series 1992 A Eagle Tax-Exempt Trust Series 944905 (A-1+) |
||||||||
| $ 10,300,000 | 4.94 | % | 01/04/2001 | $ 10,300,000 | ||||
|
Southeast Professional Baseball Park District Sales Tax Revenue PT 425
(A-1+) |
||||||||
| 5,500,000 | 4.94 | 01/04/2001 | 5,500,000 | |||||
| Wisconsin TRANS Eagle Tax-Exempt Trust Series 20004901 | ||||||||
| 7,615,000 | 4.94 | 01/04/2001 | 7,615,000 | |||||
|
Wisconsin Health & Educational Facilities Authority VRDN RB for
Wheaton Franciscan Services Series 1997 (Toronto Domion Bank LOC) (A-1+/VMIG1) |
||||||||
| 8,675,000 | 4.80 | 01/04/2001 | 8,675,000 | |||||
|
Wisconsin Health Facilities Authority VRDN RB for Franciscan Health
Care, Inc. Series 1985 A-1 (Toronto Dominion Bank LOC) (A-1+/VMIG1) |
||||||||
| 6,000,000 | 4.90 | 01/03/2001 | 6,000,000 | |||||
| Wisconsin State Refunding GO Bonds Series 1992 (AA/Aa2) | ||||||||
| 4,490,000 | 5.80 | 05/01/2001 | 4,510,275 | |||||
|
|
||||||||
| $ 42,600,275 | ||||||||
|
|
||||||||
| Wyoming—1.9% | ||||||||
|
Converse County VRDN PCRB RB for Pacificorp Projects (Bank of New
York SPA)(AMBAC) (VMIG1) |
||||||||
| $ 3,590,000 | 5.00 | % | 01/02/2001 | $ 3,590,000 | ||||
|
Sweetwater County PCRB Daily Refunding for Idaho Power Co. Project
Series 1996 (A-1/VMIG1) |
||||||||
| 7,500,000 | 4.90 | 01/02/2001 | 7,500,000 | |||||
|
Sweetwater County PCRB for Pacificorp Project Series 1990 A
(Commerzbank LOC) (VMIG1) |
||||||||
| 23,500,000 | 4.70 | 01/03/2001 | 23,500,000 | |||||
| Wyoming State Education Fund TRANS Series 2000 B (SP1+/F-1+) | ||||||||
| 20,000,000 | 5.25 | 06/27/2001 | 20,083,691 | |||||
|
|
||||||||
| $ 54,673,691 | ||||||||
|
|
||||||||
| Total Investments | $ 2,884,262,444 | |||||||
|
|
||||||||
> Forward commitment.
Interest rates represent either the stated coupon rate, annualized yield on date of purchase for discounted securities, or, for floating rate securities, the current
reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security or the next interest reset date for floating rate securities.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets.
24
|
|
Investment Abbreviations:
| AMBAC |
—Insured by American Municipal Bond
Assurance Corp. |
||
| BANS | —Bond Anticipation Notes | ||
| CP | —Commercial Paper | ||
| COPS | —Certificates of Participation | ||
| EBA | —Educational Building Authority | ||
| FGIC |
—Insured by Financial Guaranty Insurance
Co. |
||
| FNMA |
—Insured by Federal National Mortgage
Assoc. |
||
| FSA | —Insured by Financial Security Assurance Co. | ||
| GO | —General Obligation | ||
| IDA | —Industrial Development Authority | ||
| IDB | —Industrial Development Bond | ||
| IDRB | —Industrial Development Revenue Bond | ||
| LOC | —Letter of Credit | ||
| MBIA |
—Insured by Municipal Bond Investors
Assurance |
||
| MF Hsg. | —Multi-Family Housing | ||
| NRU |
—National Rural Utilities Cooperation
Finance Corp. |
||
| PCRB | —Pollution Control Revenue Bond | ||
| RANS | —Revenue Anticipation Notes | ||
| RB | —Revenue Bond | ||
| SPA | —Stand-by-Purchase Agreement | ||
| TANS | —Tax Anticipation Notes | ||
| TFA | —Transportation Finance Authority | ||
| TRANS | —Tax Revenue Anticipation Notes | ||
| VRDN | —Variable Rate Demand Note | ||
|
|
|||
25
Goldman Sachs Trust—Financial Square Funds
Statements of Assets and Liabilities
December 31, 2000
|
Prime
Obligations Fund |
Money Market
Fund |
||||
|---|---|---|---|---|---|
|
|
|||||
| Assets: | |||||
| Investment in securities, at value based on amortized cost | $15,472,403,722 | $6,875,210,484 | |||
| Repurchase Agreements | 880,000,000 | 25,200,000 | |||
| Cash | — | 55,381 | |||
| Receivables: | |||||
| Interest | 86,943,388 | 74,961,855 | |||
| Fund shares sold | 82,060 | 35,985 | |||
| Reimbursement from adviser | 658,788 | — | |||
| Other assets | 98,403 | 48,626 | |||
|
|
|||||
| Total assets | 16,440,186,361 | 6,975,512,331 | |||
|
|
|||||
| Liabilities: | |||||
| Due to custodian | 256,543 | — | |||
| Payables: | |||||
| Investment securities purchased | — | — | |||
| Income distribution | 42,931,104 | 13,728,443 | |||
| Fund shares repurchased | — | — | |||
| Management fee | 2,328,191 | 1,644,285 | |||
| Accrued expenses and other liabilities | 1,850,154 | 478,675 | |||
|
|
|||||
| Total liabilities | 47,365,992 | 15,851,403 | |||
|
|
|||||
| Net Assets: | |||||
| Paid-in capital | 16,392,820,369 | 6,959,660,928 | |||
| Accumulated net realized loss on investment transactions | — | — | |||
|
|
|||||
| Net assets | $16,392,820,369 | $6,959,660,928 | |||
|
|
|||||
| Net asset value, offering and redemption price per share: | $1.00 | $1.00 | |||
|
|
|||||
| Shares outstanding: | |||||
| FST Shares | 12,777,000,414 | 5,954,862,484 | |||
| FST Select Shares | 70,819,653 | 22,595,176 | |||
| FST Preferred Shares | 454,882,788 | 163,779,179 | |||
| FST Administration Shares | 2,084,744,779 | 421,497,597 | |||
| FST Service Shares | 1,005,372,735 | 396,926,492 | |||
|
|
|||||
| Total shares outstanding, $.001 par value (unlimited number of shares authorized) | 16,392,820,369 | 6,959,660,928 | |||
|
|
|||||
|
The accompanying notes are an integral part of these financial statements.
|
|
26
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free Money
Market Fund |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
||||||||||
| $ 315,289,608 | $846,543,434 | $2,267,744,451 | $10,346,402,710 | $2,884,262,444 | ||||||
| 4,507,800,000 | — | 820,800,000 | — | — | ||||||
| 33,874 | 62,289 | 29,037 | 20,634 | 1,914,202 | ||||||
| 13,445,180 | 3,950,089 | 22,753,459 | 37,327,219 | 22,070,177 | ||||||
| — | 183,085 | 5,574 | 625,482 | 2,633 | ||||||
| 71,900 | 221,876 | 152,541 | 690,851 | 99,507 | ||||||
| 38,448 | 4,944 | 18,409 | 51,512 | 23,097 | ||||||
|
|
||||||||||
| 4,836,679,010 | 850,965,717 | 3,111,503,471 | 10,385,118,408 | 2,908,372,060 | ||||||
|
|
||||||||||
| — | — | — | — | — | ||||||
| — | — | — | — | 12,500,000 | ||||||
| 14,355,763 | 3,073,281 | 9,898,124 | 16,474,936 | 3,530,333 | ||||||
| 232,582 | — | 751,383 | — | 58,115 | ||||||
| 664,362 | 111,857 | 462,729 | 1,570,050 | 394,013 | ||||||
| 741,207 | 245,346 | 375,572 | 1,409,135 | 273,112 | ||||||
|
|
||||||||||
| 15,993,914 | 3,430,484 | 11,487,808 | 19,454,121 | 16,755,573 | ||||||
|
|
||||||||||
| 4,820,685,096 | 847,535,233 | 3,100,015,663 | 10,365,664,287 | 2,891,655,638 | ||||||
| — | — | — | — | (39,151 | ) | |||||
|
|
||||||||||
| $4,820,685,096 | $847,535,233 | $3,100,015,663 | $10,365,664,287 | $2,891,616,487 | ||||||
|
|
||||||||||
| $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | ||||||
|
|
||||||||||
| 2,493,450,479 | 734,426,466 | 1,859,265,908 | 8,296,788,047 | 2,693,134,481 | ||||||
| 1,057 | 1,054 | 11,247,341 | 1,058 | 1,036 | ||||||
| 271,387,655 | 2,380,127 | 361,110,415 | 145,000,319 | 18,568,322 | ||||||
| 1,379,728,246 | 42,533,416 | 595,037,365 | 1,024,184,036 | 108,336,685 | ||||||
| 676,117,659 | 68,194,170 | 273,354,634 | 899,690,827 | 71,615,114 | ||||||
|
|
||||||||||
| 4,820,685,096 | 847,535,233 | 3,100,015,663 | 10,365,664,287 | 2,891,655,638 | ||||||
|
|
||||||||||
|
|
27
Goldman Sachs Trust—Financial Square Funds
Statements of Operations
For the Year Ended December 31, 2000
|
Prime
Obligations Fund(a) |
Money Market
Fund(a) |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| Investment income: | |||||||
| Interest | $840,536,972 | $597,955,185 | |||||
|
|
|||||||
| Total income | 840,536,972 | 597,955,185 | |||||
|
|
|||||||
| Expenses: | |||||||
| Management fees | 26,479,280 | 19,048,219 | |||||
| Service share fees | 3,762,242 | 1,923,682 | |||||
| Administration share fees | 3,791,787 | 1,115,735 | |||||
| Custodian fees | 1,064,717 | 850,003 | |||||
| Registration fees | 1,073,848 | 222,701 | |||||
| Preferred share fees | 435,875 | 213,967 | |||||
| Professional fees | 55,061 | 55,165 | |||||
| Trustee fees | 8,628 | 8,657 | |||||
| Select share fees | 11,388 | 1,532 | |||||
| Other | 275,105 | 187,446 | |||||
|
|
|||||||
| Total expenses | 36,957,931 | 23,627,107 | |||||
| Less—expense reductions | (5,189,870 | ) | (3,275,253 | ) | |||
|
|
|||||||
| Net expenses | 31,768,061 | 20,351,854 | |||||
|
|
|||||||
| Net investment income | 808,768,911 | 577,603,331 | |||||
|
|
|||||||
| Net realized gain (loss) on investment transactions | 27,972 | 5,515 | |||||
|
|
|||||||
| Net increase in net assets resulting from operations | $808,796,883 | $577,608,846 | |||||
|
|
|||||||
(a) FST Select Shares commenced operations on January 31, 2000.
|
The accompanying notes are an integral part of these financial statements.
|
|
28
|
Treasury
Obligations Fund(a) |
Treasury
Instruments Fund(a) |
Government
Fund(a) |
Federal
Fund(a) |
Tax-Free
Money Market Fund(a) |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| $261,398,697 | $32,825,620 | $201,607,019 | $478,656,297 | $100,232,095 | |||||||||
|
|
|||||||||||||
| 261,398,697 | 32,825,620 | 201,607,019 | 478,656,297 | 100,232,095 | |||||||||
|
|
|||||||||||||
| 8,588,000 | 1,133,822 | 6,511,303 | 15,462,366 | 4,993,585 | |||||||||
| 2,712,036 | 223,983 | 1,572,949 | 2,866,508 | 318,134 | |||||||||
| 3,289,240 | 67,089 | 1,512,730 | 1,811,824 | 227,805 | |||||||||
| 575,951 | 198,164 | 477,633 | 671,671 | 184,922 | |||||||||
| 105,956 | 85,197 | 121,139 | 878,274 | 282,478 | |||||||||
| 397,719 | 595 | 441,156 | 107,727 | 32,449 | |||||||||
| 53,199 | 51,832 | 53,185 | 52,458 | 53,290 | |||||||||
| 8,613 | 8,657 | 8,628 | 8,658 | 8,658 | |||||||||
| — | — | 710 | — | — | |||||||||
| 145,895 | 74,415 | 120,825 | 154,579 | 83,448 | |||||||||
|
|
|||||||||||||
| 15,876,609 | 1,843,754 | 10,820,258 | 22,014,065 | 6,184,769 | |||||||||
| (1,769,337) | (534,413 | ) | (1,448,422 | ) | (2,264,903 | ) | (1,181,955 | ) | |||||
|
|
|||||||||||||
| 14,107,272 | 1,309,341 | 9,371,836 | 19,749,162 | 5,002,814 | |||||||||
|
|
|||||||||||||
| 247,291,425 | 31,516,279 | 192,235,183 | 458,907,135 | 95,229,281 | |||||||||
|
|
|||||||||||||
| 6,292 | 173,452 | 10,401 | 238,948 | (23,859 | ) | ||||||||
|
|
|||||||||||||
| $247,297,717 | $31,689,731 | $192,245,584 | $459,146,083 | $ 95,205,422 | |||||||||
|
|
|||||||||||||
|
|
29
Goldman Sachs Trust—Financial Square Funds
Statements of Changes in Net Assets
For the Year Ended December 31, 2000
|
Prime
Obligations Fund(a) |
Money
Market Fund(a) |
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| From operations: | |||||||||
| Net investment income | $ 808,768,911 | $ 577,603,331 | |||||||
| Net realized gain (loss) on investment transactions | 27,972 | 5,515 | |||||||
|
|
|||||||||
| Net increase in net assets resulting from operations | 808,796,883 | 577,608,846 | |||||||
|
|
|||||||||
| Distributions to shareholders: | |||||||||
| From net investment income | |||||||||
| FST Shares | (643,277,956 | ) | (515,108,094 | ) | |||||
| FST Select Shares | (2,461,641 | ) | (327,474 | ) | |||||
| FST Preferred Shares | (27,072,025 | ) | (13,064,980 | ) | |||||
| FST Administration Shares | (92,292,548 | ) | (26,876,202 | ) | |||||
| FST Service Shares | (43,692,713 | ) | (22,232,096 | ) | |||||
|
|
|||||||||
| Total distributions to shareholders | (808,796,883 | ) | (577,608,846 | ) | |||||
|
|
|||||||||
| From share transactions (at $1.00 per share): | |||||||||
| Net proceeds from sales of shares | 128,093,497,046 | 74,298,995,541 | |||||||
| Reinvestment of dividends and distributions | 349,176,937 | 367,410,588 | |||||||
| Cost of shares repurchased | (122,074,685,613 | ) | (77,405,359,510 | ) | |||||
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from share
transactions |
6,367,988,370 | (2,738,953,381 | ) | ||||||
|
|
|||||||||
| Total increase (decrease) | 6,367,988,370 | (2,738,953,381 | ) | ||||||
| Net assets: | |||||||||
| Beginning of year | 10,024,831,999 | 9,698,614,309 | |||||||
|
|
|||||||||
| End of year | $ 16,392,820,369 | $ 6,959,660,928 | |||||||
|
|
|||||||||
(a) FST Select Shares commenced operations on January 31, 2000.
|
The accompanying notes are an integral part of these financial statements.
|
|
30
|
Treasury
Obligations Fund(a) |
Treasury
Instruments Fund(a) |
Government
Fund(a) |
Federal
Fund(a) |
Tax-Free
Money Market Fund(a) |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| $ 247,291,425 | $ 31,516,279 | $ 192,235,183 | $ 458,907,135 | $ 95,229,281 | |||||||||
| 6,292 | 173,452 | 10,401 | 238,948 | (23,859 | ) | ||||||||
|
|
|||||||||||||
| 247,297,717 | 31,689,731 | 192,245,584 | 459,146,083 | 95,205,422 | |||||||||
|
|
|||||||||||||
| (116,853,843) | (27,885,616 | ) | (111,273,944 | ) | (377,913,586 | ) | (88,460,899 | ) | |||||
| (5,356) | (55 | ) | (149,439 | ) | (58 | ) | (38 | ) | |||||
| (23,660,183) | (33,742 | ) | (27,326,705 | ) | (6,384,452 | ) | (1,235,018 | ) | |||||
| (76,653,762) | (1,448,524 | ) | (35,886,505 | ) | (42,660,019 | ) | (3,332,807 | ) | |||||
| (30,124,573) | (2,321,794 | ) | (17,608,991 | ) | (32,187,968 | ) | (2,200,519 | ) | |||||
|
|
|||||||||||||
| (247,297,717) | (31,689,731 | ) | (192,245,584 | ) | (459,146,083 | ) | (95,229,281 | ) | |||||
|
|
|||||||||||||
| 54,354,375,017 | 3,517,963,434 | 25,479,473,292 | 47,953,357,097 | 19,454,021,407 | |||||||||
| 97,707,550 | 7,131,397 | 73,907,133 | 297,496,918 | 55,898,926 | |||||||||
| (53,977,721,246) | (3,216,342,869 | ) | (25,849,253,116 | ) | (43,546,062,945 | ) | (18,622,397,813 | ) | |||||
|
|
|||||||||||||
| 474,361,321 | 308,751,962 | (295,872,691 | ) | 4,704,791,070 | 887,522,520 | ||||||||
|
|
|||||||||||||
| 474,361,321 | 308,751,962 | (295,872,691 | ) | 4,704,791,070 | 887,498,661 | ||||||||
| 4,346,323,775 | 538,783,271 | 3,395,888,354 | 5,660,873,217 | 2,004,117,826 | |||||||||
|
|
|||||||||||||
| $ 4,820,685,096 | $ 847,535,233 | $ 3,100,015,663 | $ 10,365,664,287 | $ 2,891,616,487 | |||||||||
|
|
|||||||||||||
|
|
31
Goldman Sachs Trust—Financial Square Funds
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
|
Prime
Obligations Fund |
Money Market
Fund |
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| From operations: | |||||||||
| Net investment income | $ 386,301,816 | $ 398,037,623 | |||||||
| Net realized gain (loss) on investment transactions | 27,505 | 14,080 | |||||||
|
|
|||||||||
| Net increase in net assets resulting from operations | 386,329,321 | 398,051,703 | |||||||
|
|
|||||||||
| Distribution to shareholders: | |||||||||
| From net investment income | |||||||||
| FST shares | (319,734,377 | ) | (350,173,540 | ) | |||||
| FST Preferred shares | (13,245,261 | ) | (9,102,769 | ) | |||||
| FST Administration shares | (31,384,131 | ) | (22,518,305 | ) | |||||
| FST Service shares | (21,965,552 | ) | (16,257,089 | ) | |||||
|
|
|||||||||
| Total distributions to shareholders | (386,329,321 | ) | (398,051,703 | ) | |||||
|
|
|||||||||
| From share transactions (at $1.00 per share): | |||||||||
| Proceeds from sales of shares | 79,579,532,778 | 78,515,803,235 | |||||||
| Reinvestment of dividends and distributions | 151,750,248 | 264,541,691 | |||||||
| Cost of shares repurchased | (76,338,183,110 | ) | (75,066,724,370 | ) | |||||
|
|
|||||||||
|
Net increase (decrease) in net assets resulting
from share transactions |
3,393,099,916 | 3,713,620,556 | |||||||
|
|
|||||||||
| Total increase (decrease) | 3,393,099,916 | 3,713,620,556 | |||||||
| Net assets: | |||||||||
| Beginning of year | 6,631,732,083 | 5,984,993,753 | |||||||
|
|
|||||||||
| End of year | $ 10,024,831,999 | $ 9,698,614,309 | |||||||
|
|
|||||||||
|
The accompanying notes are an integral part of these financial statements.
|
|
32
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| $ 194,127,369 | $ 19,290,675 | $ 141,298,265 | $ 198,859,437 | $ 53,505,376 | |||||||||
| 7,186 | 51,713 | 7,180 | 46,182 | (1,673 | ) | ||||||||
|
|
|||||||||||||
| 194,134,555 | 19,342,388 | 141,305,445 | 198,905,619 | 53,503,703 | |||||||||
|
|
|||||||||||||
| (109,297,057) | (16,226,463 | ) | (77,286,766 | ) | (148,425,766 | ) | (46,739,196 | ) | |||||
| (13,167,759) | (4,200 | ) | (9,320,232 | ) | (3,744,402 | ) | (1,359,653 | ) | |||||
| (49,244,678) | (2,371,266 | ) | (23,202,438 | ) | (29,061,008 | ) | (3,963,701 | ) | |||||
| (22,425,061) | (745,112 | ) | (31,496,009 | ) | (17,674,951 | ) | (1,442,826 | ) | |||||
|
|
|||||||||||||
| (194,134,555) | (19,347,041 | ) | (141,305,445 | ) | (198,906,127 | ) | (53,505,376 | ) | |||||
|
|
|||||||||||||
| 41,201,456,868 | 3,987,971,816 | 26,420,363,747 | 28,097,430,341 | 13,621,514,785 | |||||||||
| 83,752,356 | 11,588,203 | 48,048,760 | 132,421,372 | 28,266,083 | |||||||||
| (42,327,587,736) | (4,323,784,819 | ) | (25,988,871,304 | ) | (25,953,163,766 | ) | (13,320,335,659 | ) | |||||
|
|
|||||||||||||
| (1,042,378,512) | (324,224,800 | ) | 479,541,203 | 2,276,687,947 | 329,445,209 | ||||||||
|
|
|||||||||||||
| (1,042,378,512) | (324,229,453 | ) | 479,541,203 | 2,276,687,439 | 329,443,536 | ||||||||
| 5,388,702,287 | 863,012,724 | 2,916,347,151 | 3,384,185,778 | 1,674,674,290 | |||||||||
|
|
|||||||||||||
| $ 4,346,323,775 | $ 538,783,271 | $ 3,395,888,354 | $ 5,660,873,217 | $ 2,004,117,826 | |||||||||
|
|
|||||||||||||
|
|
33
Goldman Sachs Trust—Financial Square Funds
Notes to Financial Statements
December 31, 2000
|
|
1. Organization
Goldman Sachs Trust (the “Trust”) is a Delaware business trust registered under the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. The Trust includes the Financial Square Funds, collectively, “the Funds”, or individually, a “Fund”. Financial Square consists of seven diversified funds: Prime Obligations, Money Market, Treasury Obligations,
Treasury Instruments, Government, Federal and Tax-Free Money Market. On March 31, 2000, the Premium Money Market Fund was terminated. The Funds offer five classes of shares—FST Shares, FST Select Shares (commenced January 31, 2000), FST
Preferred Shares, FST Administration Shares and FST Service Shares. The investment objective of the Funds is to maximize current income to the extent consistent with the preservation of capital and maintenance of liquidity by investing exclusively
in high quality money market instruments.
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 estimates and assumptions that may affect the reported amounts. Actual results could differ from those estimates.
A. Investment Valuation—
Each Fund uses the amortized-cost method for valuing portfolio securities, which approximates market value. Under this method, all investments purchased at a discount
or premium are valued by amortizing the difference between the original purchase price and maturity value of the issue over the period to maturity.
B. Security Transactions and Interest Income—
Security transactions are accounted for on a trade date basis. Realized gains and losses on sales of portfolio securities are calculated using the identified cost
basis. Interest income is recorded on the basis of interest accrued, premium amortized and discount earned. Net investment income (other than class specific expenses) and realized gains or losses are allocated daily to each class of shares of the
Fund based upon the relative proportion of net assets of each class.
C. 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 tax-exempt and taxable income to its shareholders. Accordingly, no federal tax provisions are required. Income distributions are declared daily and paid monthly by the Funds.
The characterization of distributions to shareholders for financial reporting purposes is determined in accordance with income tax rules.
Therefore, the source of the Funds’ distributions is shown in the accompanying financial statements as from net investment income.
At December 31, 2000 (tax year-end), the following Fund had a capital loss carryforward for U.S. federal tax purposes of
approximately:
|
Fund
|
Amount
|
Years of
Expiration |
||
|---|---|---|---|---|
| Tax-Free Money Market | $39,000 | 2005-2008 |
This amount is available to be carried forward to offset future net capital gains to the extent permitted by applicable laws or regulations.
The amortized cost for each Fund stated in the accompanying Statements of Assets and Liabilities also represents aggregate cost for federal
income tax purposes.
D. Expenses—
Expenses incurred by the Funds which do not specifically relate to an individual Fund are allocated to the Funds on a straight-line or pro rata basis depending upon the
nature of the expense.
Shareholders of FST Select, FST Preferred, FST Administration and FST Service shares bear all expenses and fees paid to service
organizations.
|
|
34
|
|
E. Segregation Transactions—
The Funds may enter into forward commitments. These transactions involve a commitment by the Funds to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place beyond a customary settlement. As a result of entering into these 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.
F. Repurchase Agreements—
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. During the
term of a repurchase agreement, the value of the underlying securities, 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 or designated subcustodians under triparty repurchase agreements.
3. Agreements
Goldman Sachs Asset Management (“GSAM”), a unit of the Investment Management Division of Goldman, Sachs & Co. (“Goldman Sachs”), acts as
investment adviser (the “Adviser”), pursuant to an Investment Management Agreement (the “Agreement”). Under the Agreement, GSAM, subject to the general supervision of the Trust’s Board of Trustees, manages the Funds’
portfolios. As compensation for the services rendered pursuant to the Agreement and the assumption of the expenses related thereto and administering the Funds’ business affairs, including providing facilities, GSAM is entitled to a fee,
computed daily and payable monthly, at an annual rate equal to .205% of each Fund’s average daily net assets. For the year ended December 31, 2000, GSAM has voluntarily agreed to waive a portion of its management fee equal annually to .035% of
the average daily net assets of Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments, Government and Tax-Free Money Market Funds and .015% of the average daily net assets of the Federal Fund, effective May 1, 2000 (previously
.035%).
GSAM has voluntarily agreed to limit “Other Expenses” of each Fund (excluding management fees, service organization fees, taxes,
interest, brokerage commissions, litigation, indemnification, and other extraordinary expenses) to the extent such expenses exceed, on an annual basis, .01% of the average daily net assets of each Fund.
In addition, the Funds have entered into certain expense offset arrangements with the custodian resulting in a reduction in the Funds’
expenses.
For the year ended December 31, 2000, the expense reductions were as follows (in thousands):
| Fund |
Management
Fees Waived |
Expenses
Reimbursed by Adviser |
Custody
Fee Reductions |
Total | |||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Prime Obligations | $4,521 | $659 | $10 | $5,190 | |||||
|
|
|||||||||
| Money Market | 3,252 | 3 | 20 | 3,275 | |||||
|
|
|||||||||
| Treasury Obligations | 1,466 | 300 | 3 | 1,769 | |||||
|
|
|||||||||
| Treasury Instruments | 194 | 330 | 10 | 534 | |||||
|
|
|||||||||
| Government | 1,112 | 327 | 9 | 1,448 | |||||
|
|
|||||||||
| Federal | 1,555 | 691 | 19 | 2,265 | |||||
|
|
|||||||||
|
Tax-Free Money
Market |
853 | 305 | 24 | 1,182 | |||||
|
|
|||||||||
Goldman Sachs serves as Transfer Agent and Distributor of shares of the Funds pursuant to Transfer Agent and Distribution Agreements and
receives no separate fee.
|
|
35
Goldman Sachs Trust—Financial Square Funds
Notes to Financial Statements
(continued)
December 31, 2000
|
|
4. Select, Preferred, Administration and Service Plans
The Trust, on behalf of each Fund, has adopted Service Plans. These plans allow for FST Select, FST Preferred, FST Administration and FST Service shares,
respectively, to compensate service organizations for providing varying levels of account administration and shareholder liaison services to their customers who are beneficial owners of such shares. The Service Plans for FST Select, FST Preferred,
FST Administration and FST Service shares provide for compensation to the service organizations in an amount up to 0.03%, 0.10%, 0.25% and 0.50% (on an annual basis), respectively, of the average daily net asset value of the respective
shares.
5. Line of Credit Facility
Effective May 31, 2000, the Funds participate in a $350,000,000 committed, unsecured revolving line of credit facility. Prior to May 31, 2000, the Funds participated 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 market 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, 2000, the Funds did not have any borrowings under any of these facilities.
6. Joint Repurchase Agreement Accounts
The Funds, together with other registered investment companies having management agreements with GSAM or its affiliates, may transfer uninvested cash balances into
joint accounts, the daily aggregate balances of which are invested in one or more repurchase agreements.
At December 31, 2000, the Prime Obligations, Money Market, Treasury Obligations and Government Funds had undivided interests in the following
joint repurchase agreement account, which equaled $30,000,000, $25,200,000, $2,227,800,000 and $70,800,000 in principal amount, respectively. At December 31, 2000, the repurchase agreements held in this joint account were fully collateralized by
U.S. Treasury obligations.
|
|
36
|
|
At December 31, 2000, the Prime Obligations and Government Funds had undivided interests in the repurchase agreements in the following joint account which equaled
$850,000,000, and $400,000,000, respectively, in principal amount. At December 31, 2000, the following repurchase agreements held in this joint account were fully collateralized by Federal Agency obligations.
| Repurchase Agreements | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Amortized
Cost |
Maturity
Value |
|||||||||||
|
|
|||||||||||||||
| Banc of America Securities LLC | |||||||||||||||
| $900,000,000 | 6.50 | % | 01/02/2001 | $ 900,000,000 | $900,650,000 | ||||||||||
| Barclays Capital, Inc. | |||||||||||||||
| 300,000,000 | 6.47 | 01/02/2001 | 300,000,000 | 300,215,667 | |||||||||||
| Bear Stearns Companies, Inc. | |||||||||||||||
| 500,000,000 | 6.48 | 01/02/2001 | 500,000,000 | 500,360,000 | |||||||||||
| Deutsche Bank Securities | |||||||||||||||
| 250,000,000 | 6.45 | 01/02/2001 | 250,000,000 | 250,179,167 | |||||||||||
| Morgan Stanley Dean Witter | |||||||||||||||
| 500,000,000 | 6.48 | 01/02/2001 | 500,000,000 | 500,360,000 | |||||||||||
| Salomon Smith Barney Holdings, Inc. | |||||||||||||||
| 301,300,000 | 6.47 | 01/02/2001 | 301,300,000 | 301,516,601 | |||||||||||
|
|
|||||||||||||||
|
TOTAL JOINT REPURCHASE
AGREEMENT ACCOUNT II |
$2,751,300,000 | $2,753,281,435 | |||||||||||||
|
|
|||||||||||||||
7. Other Matters (Unaudited)
Pursuant to a Securities and Exchange Commission exemptive order, certain of the Funds may enter into certain principal transactions, including repurchase agreements,
with Goldman Sachs subject to certain annual limitations as follows: 25% of eligible security transactions, as defined, and 10% of repurchase agreement transactions.
During the year ended December 31, 2000, 100% of the distributions from net investment income paid by Financial Square Tax-Free Money Market
Fund were exempt-interest dividends and as such, are not subject to U.S. Federal income tax.
8. Change in Independent Accountants
On October 26, 1999, the Board of Trustees of the Funds, upon the recommendation of the Board’s audit committee, determined not to retain Arthur Andersen LLP and
approved a change of the Funds’ independent accountants to PricewaterhouseCoopers LLP. For the fiscal years ended December 31, 1999 and December 31, 1998, Arthur 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 practices, 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 reports.
37
Goldman Sachs Trust—Financial Square Funds
Notes to Financial Statements
(continued)
December 31, 2000
9. Summary of Share Transactions (at $1.00 per share)
Share activity for the Year ended December 31, 2000 is as follows:
|
Prime
Obligations Fund |
Money Market
Fund |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| FST Shares: | |||||||
| Shares sold | 102,891,021,919 | 66,636,093,834 | |||||
| Reinvestment of dividends and distributions | 272,908,478 | 327,844,842 | |||||
| Shares repurchased | (98,449,479,423 | ) | (69,756,937,689 | ) | |||
|
|
|||||||
| 4,714,450,974 | (2,792,999,013 | ) | |||||
|
|
|||||||
| FST Select Shares (commenced on January 31, 2000): | |||||||
| Shares sold | 793,375,221 | 40,444,998 | |||||
| Reinvestment of dividends and distributions | 2,461,591 | 318,584 | |||||
| Shares repurchased | (725,017,159 | ) | (18,168,406 | ) | |||
|
|
|||||||
| 70,819,653 | 22,595,176 | ||||||
|
|
|||||||
| FST Preferred Shares: | |||||||
| Shares sold | 3,770,935,490 | 2,434,200,707 | |||||
| Reinvestment of dividends and distributions | 12,186,809 | 12,225,392 | |||||
| Shares repurchased | (3,547,950,556 | ) | (2,523,826,153 | ) | |||
|
|
|||||||
| 235,171,743 | (77,400,054 | ) | |||||
|
|
|||||||
| FST Administration Shares: | |||||||
| Shares sold | 13,084,591,947 | 3,276,071,791 | |||||
| Reinvestment of dividends and distributions | 34,513,852 | 16,330,366 | |||||
| Shares repurchased | (12,086,191,646 | ) | (3,274,506,124 | ) | |||
|
|
|||||||
| 1,032,914,153 | 17,896,033 | ||||||
|
|
|||||||
| FST Service Shares: | |||||||
| Shares sold | 7,553,572,469 | 1,912,184,211 | |||||
| Reinvestment of dividends and distributions | 27,106,207 | 10,691,404 | |||||
| Shares repurchased | (7,266,046,829 | ) | (1,831,921,138 | ) | |||
|
|
|||||||
| 314,631,847 | 90,954,477 | ||||||
|
|
|||||||
| Net increase (decrease) in shares | 6,367,988,370 | (2,738,953,381 | ) | ||||
|
|
|||||||
38
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free Money
Market Fund |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| 31,981,727,498 | 2,861,629,691 | 17,435,631,891 | 37,948,158,960 | 18,438,277,468 | |||||||||
| 44,837,086 | 5,512,891 | 29,298,236 | 270,093,560 | 53,529,498 | |||||||||
| (31,853,694,886) | (2,561,448,611 | ) | (17,865,938,892 | ) | (34,127,583,073 | ) | (17,574,013,923 | ) | |||||
|
|
|||||||||||||
| 172,869,698 | 305,693,971 | (401,008,765 | ) | 4,090,669,447 | 917,793,043 | ||||||||
|
|
|||||||||||||
| 4,377,000 | 1,000 | 24,668,019 | 1,000 | 1,000 | |||||||||
| 58 | 54 | 133,072 | 58 | 36 | |||||||||
| (4,376,001) | — | (13,553,750 | ) | — | — | ||||||||
|
|
|||||||||||||
| 1,057 | 1,054 | 11,247,341 | 1,058 | 1,036 | |||||||||
|
|
|||||||||||||
| 4,350,400,865 | 9,022,426 | 3,165,841,841 | 2,070,715,437 | 274,893,832 | |||||||||
| 2,146,623 | 29,784 | 23,161,441 | 5,553,169 | 317,644 | |||||||||
| (4,379,084,563) | (6,880,023 | ) | (3,009,048,773 | ) | (2,117,858,493 | ) | (288,002,410 | ) | |||||
|
|
|||||||||||||
| (26,537,075) | 2,172,187 | 179,954,509 | (41,589,887 | ) | (12,790,934 | ) | |||||||
|
|
|||||||||||||
| 12,504,308,044 | 74,270,517 | 3,574,596,460 | 3,203,045,905 | 377,741,557 | |||||||||
| 26,352,607 | 717,324 | 15,861,101 | 10,108,187 | 1,066,922 | |||||||||
| (12,308,757,661) | (100,201,925 | ) | (3,514,686,352 | ) | (2,978,499,168 | ) | (398,438,930 | ) | |||||
|
|
|||||||||||||
| 221,902,990 | (25,214,084 | ) | 75,771,209 | 234,654,924 | (19,630,451 | ) | |||||||
|
|
|||||||||||||
| 5,513,561,610 | 573,039,800 | 1,278,735,081 | 4,731,435,795 | 363,107,550 | |||||||||
| 24,371,176 | 871,344 | 5,453,283 | 11,741,944 | 984,826 | |||||||||
| (5,431,808,135) | (547,812,310 | ) | (1,446,025,349 | ) | (4,322,122,211 | ) | (361,942,550 | ) | |||||
|
|
|||||||||||||
| 106,124,651 | 26,098,834 | (161,836,985 | ) | 421,055,528 | 2,149,826 | ||||||||
|
|
|||||||||||||
| 474,361,321 | 308,751,962 | (295,872,691 | ) | 4,704,791,070 | 887,522,520 | ||||||||
|
|
|||||||||||||
39
Goldman Sachs Trust—Financial Square Funds
Notes to Financial Statements
(continued)
December 31, 2000
9. Summary of Share Transactions (at $1.00 per share)
(continued)
Share activity for the year ended December 31, 1999 is as follows:
|
Prime
Obligations Fund |
Money Market
Fund |
||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
| FST Shares: | |||||||
| Shares sold | 64,383,395,508 | 70,907,338,993 | |||||
| Reinvestment of dividends and distributions | 119,603,587 | 234,988,734 | |||||
| Shares repurchased | (62,272,217,843 | ) | (67,390,246,268 | ) | |||
|
|
|||||||
| 2,230,781,252 | 3,752,081,459 | ||||||
|
|
|||||||
| FST Preferred Shares: | |||||||
| Shares sold | 3,347,403,106 | 2,317,273,791 | |||||
| Reinvestment of dividends and distributions | 8,655,703 | 7,987,294 | |||||
| Shares repurchased | (3,268,909,435 | ) | (2,177,300,025 | ) | |||
|
|
|||||||
| 87,149,374 | 147,961,060 | ||||||
|
|
|||||||
| FST Administration Shares: | |||||||
| Shares sold | 6,580,990,548 | 3,606,115,900 | |||||
| Reinvestment of dividends and distributions | 10,434,546 | 14,795,343 | |||||
| Shares repurchased | (5,870,792,290 | ) | (3,616,780,939 | ) | |||
|
|
|||||||
| 720,632,804 | 4,130,304 | ||||||
|
|
|||||||
| FST Service Shares: | |||||||
| Shares sold | 5,267,743,616 | 1,685,074,551 | |||||
| Reinvestment of dividends and distributions | 13,056,412 | 6,770,320 | |||||
| Shares repurchased | (4,926,263,542 | ) | (1,882,397,138 | ) | |||
|
|
|||||||
| 354,536,486 | (190,552,267 | ) | |||||
|
|
|||||||
| Net increase (decrease) in shares | 3,393,099,916 | 3,713,620,556 | |||||
|
|
|||||||
40
|
Treasury
Obligations Fund |
Treasury
Instruments Fund |
Government
Fund |
Federal
Fund |
Tax-Free
Money Market Fund |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
| 23,009,203,473 | 3,663,990,081 | 17,578,801,495 | 18,264,327,905 | 12,815,993,017 | |||||||||
| 44,674,187 | 9,299,834 | 25,486,580 | 105,168,778 | 24,551,976 | |||||||||
| (24,254,629,116) | (4,066,763,789 | ) | (16,907,884,304 | ) | (16,509,631,916 | ) | (12,521,218,623 | ) | |||||
|
|
|||||||||||||
| (1,200,751,456) | (393,473,874 | ) | 696,403,771 | 1,859,864,767 | 319,326,370 | ||||||||
|
|
|||||||||||||
| 4,027,430,083 | 204,597 | 1,803,540,334 | 1,349,295,944 | 156,777,353 | |||||||||
| 3,527,064 | 4,204 | 6,337,649 | 2,813,787 | 491,031 | |||||||||
| (4,018,277,017) | (2,477 | ) | (1,874,350,374 | ) | (1,192,243,405 | ) | (146,791,183 | ) | |||||
|
|
|||||||||||||
| 12,680,130 | 206,324 | (64,472,391 | ) | 159,866,326 | 10,477,201 | ||||||||
|
|
|||||||||||||
| 8,793,649,044 | 115,095,488 | 4,360,433,701 | 4,962,474,534 | 340,711,614 | |||||||||
| 16,304,690 | 2,127,294 | 12,566,113 | 16,095,704 | 2,659,134 | |||||||||
| (8,732,624,675) | (73,148,918 | ) | (4,261,094,613 | ) | (4,879,125,175 | ) | (362,204,367 | ) | |||||
|
|
|||||||||||||
| 77,329,059 | 44,073,864 | 111,905,201 | 99,445,063 | (18,833,619 | ) | ||||||||
|
|
|||||||||||||
| 5,371,174,268 | 208,681,650 | 2,677,588,217 | 3,521,331,958 | 308,032,801 | |||||||||
| 19,246,415 | 156,871 | 3,658,418 | 8,343,103 | 563,942 | |||||||||
| (5,322,056,928) | (183,869,635 | ) | (2,945,542,013 | ) | (3,372,163,270 | ) | (290,121,486 | ) | |||||
|
|
|||||||||||||
| 68,363,755 | 24,968,886 | (264,295,378 | ) | 157,511,791 | 18,475,257 | ||||||||
|
|
|||||||||||||
| (1,042,378,512) | (324,224,800 | ) | 479,541,203 | 2,276,687,947 | 329,445,209 | ||||||||
|
|
|||||||||||||
41
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
Prime Obligations Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.44 | % | $12,777,000 | 0.18 | % | 6.32 | % | 0.22 | % | 6.28 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.06 | $(0.06 | ) | 1.00 | 5.93 | (d) | 70,819 | 0.21 | (c) | 6.48 | (c) | 0.25 | (c) | 6.44 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | $(0.06 | ) | 1.00 | 6.34 | 454,883 | 0.28 | 6.21 | 0.32 | 6.17 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | $(0.06 | ) | 1.00 | 6.18 | 2,084,745 | 0.43 | 6.09 | 0.47 | 6.05 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.06 | $(0.06 | ) | 1.00 | 5.91 | 1,005,373 | 0.68 | 5.81 | 0.72 | 5.77 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.18 | 8,062,549 | 0.18 | 5.09 | 0.23 | 5.04 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.07 | 219,711 | 0.28 | 4.87 | 0.33 | 4.82 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.91 | 1,051,831 | 0.43 | 4.88 | 0.48 | 4.83 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.65 | 690,741 | 0.68 | 4.60 | 0.73 | 4.55 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.55 | 5,831,773 | 0.18 | 5.39 | 0.24 | 5.33 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.45 | 132,558 | 0.28 | 5.26 | 0.34 | 5.20 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.29 | 331,196 | 0.43 | 5.14 | 0.49 | 5.08 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.03 | 336,205 | 0.68 | 4.89 | 0.74 | 4.83 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.60 | 3,867,739 | 0.18 | 5.46 | 0.23 | 5.41 | ||||||||||||||||
| 1997-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.50 | 152,767 | 0.28 | 5.38 | 0.33 | 5.33 | ||||||||||||||||
| 1997-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.34 | 241,607 | 0.43 | 5.22 | 0.48 | 5.17 | ||||||||||||||||
| 1997-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.08 | 176,133 | 0.68 | 4.97 | 0.73 | 4.92 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.41 | 3,901,797 | 0.18 | 5.29 | 0.23 | 5.24 | ||||||||||||||||
| 1996-FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.28 | (c) | 127,126 | 0.28 | (c) | 5.19 | (c) | 0.33 | (c) | 5.14 | (c) | |||||||||||
| 1996-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.14 | 215,898 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||||||
| 1996-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.88 | 115,114 | 0.68 | 4.78 | 0.73 | 4.73 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
42
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Money Market Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.44 | % | $5,954,862 | 0.18 | % | 6.25 | % | 0.22 | % | 6.21 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.93 | (d) | 22,595 | 0.21 | (c) | 6.41 | (c) | 0.25 | (c) | 6.37 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.34 | 163,779 | 0.28 | 6.11 | 0.32 | 6.07 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.18 | 421,498 | 0.43 | 6.02 | 0.47 | 5.98 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.92 | 396,927 | 0.68 | 5.78 | 0.72 | 5.74 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.18 | 8,747,861 | 0.18 | 5.08 | 0.22 | 5.04 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.07 | 241,179 | 0.28 | 4.99 | 0.32 | 4.95 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.92 | 403,602 | 0.43 | 4.81 | 0.47 | 4.77 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.66 | 305,972 | 0.68 | 4.53 | 0.72 | 4.49 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.55 | 4,995,782 | 0.18 | 5.40 | 0.23 | 5.35 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.45 | 93,218 | 0.28 | 5.30 | 0.33 | 5.25 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.29 | 399,474 | 0.43 | 5.16 | 0.48 | 5.11 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.03 | 496,520 | 0.68 | 4.86 | 0.73 | 4.81 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-FST Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.63 | 4,346,519 | 0.18 | 5.50 | 0.23 | 5.45 | ||||||||||||||||
| 1997-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.53 | 20,258 | 0.28 | 5.44 | 0.33 | 5.39 | ||||||||||||||||
| 1997-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.37 | 221,256 | 0.43 | 5.26 | 0.48 | 5.21 | ||||||||||||||||
| 1997-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.11 | 316,304 | 0.68 | 4.99 | 0.73 | 4.94 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.45 | 2,540,366 | 0.18 | 5.33 | 0.23 | 5.28 | ||||||||||||||||
| 1996-FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.31 | (c) | 17,510 | 0.28 | (c) | 5.23 | (c) | 0.33 | (c) | 5.18 | (c) | |||||||||||
| 1996-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.19 | 165,766 | 0.43 | 5.04 | 0.48 | 4.99 | ||||||||||||||||
| 1996-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.93 | 234,376 | 0.68 | 4.84 | 0.73 | 4.79 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
43
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Obligations Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.18 | % | $2,493,450 | 0.18 | % | 6.04 | % | 0.23 | % | 5.99 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.75 | (d) | 1 | 0.21 | (c) | 6.33 | (c) | 0.26 | (c) | 6.28 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.08 | 271,388 | 0.28 | 5.95 | 0.33 | 5.90 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.92 | 1,379,728 | 0.43 | 5.83 | 0.48 | 5.78 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.66 | 676,118 | 0.68 | 5.55 | 0.73 | 5.50 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.88 | 2,320,581 | 0.18 | 4.75 | 0.23 | 4.70 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.78 | 297,925 | 0.28 | 4.67 | 0.33 | 4.62 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.62 | 1,157,825 | 0.43 | 4.53 | 0.48 | 4.48 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.36 | 569,993 | 0.68 | 4.28 | 0.73 | 4.23 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.40 | 3,521,389 | 0.18 | 5.22 | 0.23 | 5.17 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.29 | 285,240 | 0.28 | 5.20 | 0.33 | 5.15 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.14 | 1,080,454 | 0.43 | 4.94 | 0.48 | 4.89 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.87 | 501,619 | 0.68 | 4.69 | 0.73 | 4.64 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.50 | 2,217,943 | 0.18 | 5.36 | 0.23 | 5.31 | ||||||||||||||||
| 1997-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.40 | 245,355 | 0.28 | 5.32 | 0.33 | 5.27 | ||||||||||||||||
| 1997-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.24 | 738,865 | 0.43 | 5.12 | 0.48 | 5.07 | ||||||||||||||||
| 1997-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.98 | 312,991 | 0.68 | 4.87 | 0.73 | 4.82 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.35 | 2,291,051 | 0.18 | 5.22 | 0.24 | 5.16 | ||||||||||||||||
| 1996-FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.24 | (c) | 46,637 | 0.28 | (c) | 5.11 | (c) | 0.34 | (c) | 5.05 | (c) | |||||||||||
| 1996-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.09 | 536,895 | 0.43 | 4.97 | 0.49 | 4.91 | ||||||||||||||||
| 1996-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.83 | 220,560 | 0.68 | 4.72 | 0.74 | 4.66 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
44
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Instruments Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 5.90 | % | $734,427 | 0.18 | % | 5.80 | % | 0.28 | % | 5.70 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.44 | (d) | 1 | 0.21 | (c) | 5.85 | (c) | 0.31 | (c) | 5.75 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.79 | 2,380 | 0.28 | 5.67 | 0.38 | 5.57 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.64 | 42,533 | 0.43 | 5.40 | 0.53 | 5.30 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.38 | 68,194 | 0.68 | 5.18 | 0.78 | 5.08 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.60 | 428,732 | 0.18 | 4.51 | 0.24 | 4.45 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.49 | 208 | 0.28 | 4.53 | 0.34 | 4.47 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.34 | 67,748 | 0.43 | 4.29 | 0.49 | 4.23 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.08 | 42,095 | 0.68 | 4.07 | 0.74 | 4.01 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.05 | 822,207 | 0.18 | 4.74 | 0.29 | 4.63 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.94 | 2 | 0.28 | 4.68 | 0.39 | 4.57 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.79 | 23,676 | 0.43 | 4.62 | 0.54 | 4.51 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.53 | 17,128 | 0.68 | 4.37 | 0.79 | 4.26 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Period Ended December 31, | |||||||||||||||||||||||||||
| 1997-FST Shares (commenced March 3) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 5.25 | (c) | 496,419 | 0.18 | (c) | 5.09 | (c) | 0.29 | (c) | 4.98 | (c) | |||||||||||
| 1997-FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.13 | (c) | 2 | 0.28 | (c) | 5.00 | (c) | 0.39 | (c) | 4.89 | (c) | |||||||||||
| 1997-FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.99 | (c) | 4,159 | 0.43 | (c) | 4.84 | (c) | 0.54 | (c) | 4.73 | (c) | |||||||||||
| 1997-FST Service Shares (commenced March 5) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.71 | (c) | 20,177 | 0.68 | (c) | 4.62 | (c) | 0.79 | (c) | 4.51 | (c) | |||||||||||
|
|
|||||||||||||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
45
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Government Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.31 | % | $1,859,266 | 0.18 | % | 6.14 | % | 0.23 | % | 6.09 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.84 | (d) | 11,247 | 0.21 | (c) | 6.30 | (c) | 0.26 | (c) | 6.25 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.21 | 361,111 | 0.28 | 6.19 | 0.33 | 6.14 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.05 | 595,037 | 0.43 | 5.93 | 0.48 | 5.88 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.79 | 273,355 | 0.68 | 5.60 | 0.73 | 5.55 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.03 | 2,260,275 | 0.18 | 4.91 | 0.22 | 4.87 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.93 | 181,155 | 0.28 | 4.81 | 0.32 | 4.77 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.77 | 519,266 | 0.43 | 4.67 | 0.47 | 4.63 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.51 | 435,192 | 0.68 | 4.35 | 0.72 | 4.31 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.46 | 1,563,875 | 0.18 | 5.32 | 0.23 | 5.27 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.36 | 245,628 | 0.28 | 5.15 | 0.33 | 5.10 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.20 | 407,363 | 0.43 | 5.06 | 0.48 | 5.01 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.94 | 699,481 | 0.68 | 4.83 | 0.73 | 4.78 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.54 | 1,478,539 | 0.18 | 5.41 | 0.24 | 5.35 | ||||||||||||||||
| 1997-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.43 | 7,147 | 0.28 | 5.34 | 0.34 | 5.28 | ||||||||||||||||
| 1997-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.28 | 299,804 | 0.43 | 5.15 | 0.49 | 5.09 | ||||||||||||||||
| 1997-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.02 | 580,200 | 0.68 | 4.91 | 0.74 | 4.85 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.38 | 858,769 | 0.18 | 5.25 | 0.24 | 5.19 | ||||||||||||||||
| 1996-FST Preferred Shares (commenced May 1) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.26 | (c) | 112 | 0.28 | (c) | 5.14 | (c) | 0.34 | (c) | 5.08 | (c) | |||||||||||
| 1996-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.12 | 145,108 | 0.43 | 5.01 | 0.49 | 4.95 | ||||||||||||||||
| 1996-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.86 | 223,554 | 0.68 | 4.74 | 0.74 | 4.68 | ||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(b)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions and complete
redemption of the investment at the net asset value at the end of the period.
|
|
(c)
|
Annualized.
|
|
(d)
|
Not annualized.
|
46
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Federal Fund
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratios assuming no
expense reductions |
|||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.06 | $(0.06 | ) | $1.00 | 6.26 | % | $8,296,788 | 0.20 | % | 6.16 | % | 0.23 | % | 6.13 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.77 | (d) | 1 | 0.23 | (c) | 6.16 | (c) | 0.24 | (c) | 6.13 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.16 | 145,000 | 0.30 | 5.93 | 0.32 | 5.90 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 6.00 | 1,024,184 | 0.45 | 5.89 | 0.48 | 5.86 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.06 | (0.06 | ) | 1.00 | 5.74 | 899,691 | 0.70 | 5.61 | 0.73 | 5.58 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.05 | 4,206,119 | 0.18 | 4.96 | 0.23 | 4.91 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.94 | 186,590 | 0.28 | 5.05 | 0.33 | 5.00 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.79 | 789,529 | 0.43 | 4.71 | 0.48 | 4.66 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.53 | 478,635 | 0.68 | 4.46 | 0.73 | 4.41 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.41 | 2,346,254 | 0.18 | 5.24 | 0.24 | 5.18 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.31 | 26,724 | 0.28 | 5.20 | 0.34 | 5.14 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.15 | 690,084 | 0.43 | 5.02 | 0.49 | 4.96 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.05 | (0.05 | ) | 1.00 | 4.89 | 321,124 | 0.68 | 4.78 | 0.74 | 4.72 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Period Ended December 31, | |||||||||||||||||||||||||||
| 1997-FST Shares (commenced February 28) | 1.00 | 0.05 | (0.05 | ) | 1.00 | 5.51 | (c) | 1,125,681 | 0.18 | (c) | 5.39 | (c) | 0.27 | (c) | 5.30 | (c) | |||||||||||
| 1997-FST Preferred Shares (commenced May 30) | 1.00 | 0.03 | (0.03 | ) | 1.00 | 5.43 | (c) | 194,375 | 0.28 | (c) | 5.26 | (c) | 0.37 | (c) | 5.17 | (c) | |||||||||||
| 1997-FST Administration Shares (commenced April 1) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 5.27 | (c) | 625,334 | 0.43 | (c) | 5.15 | (c) | 0.52 | (c) | 5.06 | (c) | |||||||||||
| 1997-FST Service Shares (commenced March 25) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 5.00 | (c) | 228,447 | 0.68 | (c) | 4.78 | (c) | 0.77 | (c) | 4.69 | (c) | |||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
47
Goldman Sachs Trust—Financial Square Funds
Financial Highlights
(continued)
Selected Data for a Share Outstanding Throughout Each Period
Tax-Free Money Market Fund
|
Ratios assuming no
expense reductions |
|||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value at beginning of period |
Net
investment income (a) |
Distributions
to shareholders |
Net asset
value at end of period |
Total
return (b) |
Net
assets at end of period (in 000’s) |
Ratio of net
expenses to average net assets |
Ratio of net
investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of net
investment income to average net assets |
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||||||||||||
| 2000-FST Shares | $1.00 | $0.04 | $(0.04 | ) | $1.00 | 3.95 | % | $2,693,098 | 0.18 | % | 3.93 | % | 0.23 | % | 3.88 | % | |||||||||||
| 2000-FST Select Shares (commenced January 31) | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.66 | (d) | 1 | 0.21 | (c) | 3.97 | (c) | 0.26 | (c) | 3.92 | (c) | |||||||||||
| 2000-FST Preferred Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.85 | 18,568 | 0.28 | 3.81 | 0.33 | 3.76 | ||||||||||||||||
| 2000-FST Administration Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.69 | 108,335 | 0.43 | 3.66 | 0.48 | 3.61 | ||||||||||||||||
| 2000-FST Service Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.43 | 71,614 | 0.68 | 3.46 | 0.73 | 3.41 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1999-FST Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.13 | 1,775,327 | 0.18 | 3.12 | 0.22 | 3.08 | ||||||||||||||||
| 1999-FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.03 | 31,359 | 0.28 | 2.99 | 0.32 | 2.95 | ||||||||||||||||
| 1999-FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.88 | 127,967 | 0.43 | 2.81 | 0.47 | 2.77 | ||||||||||||||||
| 1999-FST Service Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.62 | 69,465 | 0.68 | 2.61 | 0.72 | 2.57 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1998-FST Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.34 | 1,456,002 | 0.18 | 3.28 | 0.23 | 3.23 | ||||||||||||||||
| 1998-FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.24 | 20,882 | 0.28 | 3.17 | 0.33 | 3.12 | ||||||||||||||||
| 1998-FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.08 | 146,800 | 0.43 | 3.04 | 0.48 | 2.99 | ||||||||||||||||
| 1998-FST Service Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.83 | 50,990 | 0.68 | 2.77 | 0.73 | 2.72 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1997-FST Shares | 1.00 | 0.04 | (0.04 | ) | 1.00 | 3.54 | 939,407 | 0.18 | 3.50 | 0.24 | 3.44 | ||||||||||||||||
| 1997-FST Preferred Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.43 | 35,152 | 0.28 | 3.39 | 0.34 | 3.33 | ||||||||||||||||
| 1997-FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.28 | 103,049 | 0.43 | 3.27 | 0.49 | 3.21 | ||||||||||||||||
| 1997-FST Service Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.02 | 42,578 | 0.68 | 3.01 | 0.74 | 2.95 | ||||||||||||||||
|
|
|||||||||||||||||||||||||||
| 1996-FST Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.39 | 440,838 | 0.18 | 3.35 | 0.23 | 3.30 | ||||||||||||||||
| 1996-FST Preferred Shares (commenced May 1) | 1.00 | 0.02 | (0.02 | ) | 1.00 | 3.30 | (c) | 28,731 | 0.28 | (c) | 3.26 | (c) | 0.33 | (c) | 3.21 | (c) | |||||||||||
| 1996-FST Administration Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 3.13 | 51,661 | 0.43 | 3.10 | 0.48 | 3.05 | ||||||||||||||||
| 1996-FST Service Shares | 1.00 | 0.03 | (0.03 | ) | 1.00 | 2.88 | 19,855 | 0.68 | 2.85 | 0.73 | 2.80 | ||||||||||||||||
|
(a)
|
Calculated based on the average shares outstanding methodology.
|
|
(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.
|
48
Report of Independent Accountants
To the Board of Trustees of Goldman Sachs Trust and
the Shareholders of Financial Square Funds:
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the
related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prime Obligations Fund, Money Market Fund, Treasury Obligations Fund, Treasury Instruments
Fund, Government Fund, Federal Fund and Tax-Free Money Market Fund (collectively, the “Financial Square Funds”), funds of Goldman Sachs Trust at December 31, 2000, and the results of each of their operations, the changes in each of their
net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as
“financial statements”) are the responsibility of the Financial Square Funds’ management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial
statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2000 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statements of
changes in net assets of the Financial Square Funds for the year ended December 31, 1999 and the financial highlights for each of the periods ended on or before December 31, 1999 were audited by other independent accountants whose report dated
February 14, 2000 expressed an unqualified opinion thereon.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 13, 2001
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
SERVICE SHARES
INSTITUTIONAL SHARES
GOLDMAN SACHS INTERNET TOLLKEEPER FUND(SM)
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(Each a Specialty Fund of Goldman Sachs 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 Prospectuses for the Class A Shares, Class B Shares, Class C Shares, Service
Shares and Institutional Shares of: Goldman Sachs Internet Tollkeeper Fund and
Goldman Sachs Real Estate Securities Fund dated May 1, 2001 (the
"Prospectuses"), 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 Ernst & Young
LLP, independent auditors for each Fund, contained in each Fund's 2000 Annual
Report are incorporated herein by reference in the section "Financial
Statements." No other portions of the Funds' Annual Report are incorporated by
reference.
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
Investment Adviser Distributor
32 Old Slip 85 Broad Street
New York, New York 10005 New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free (in U.S.) . . . 800-621-2550
The date of this Additional Statement is May 1, 2001.
TABLE OF CONTENTS
Page
INTRODUCTION............................................................................. B-3
INVESTMENT POLICIES...................................................................... B-4
INVESTMENT RESTRICTIONS.................................................................. B-42
MANAGEMENT............................................................................... B-44
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................................... B-62
NET ASSET VALUE.......................................................................... B-67
PERFORMANCE INFORMATION.................................................................. B-68
SHARES OF THE TRUST...................................................................... B-74
TAXATION................................................................................. B-79
FINANCIAL STATEMENTS..................................................................... B-85
OTHER INFORMATION........................................................................ B-86
DISTRIBUTION AND SERVICE PLANS........................................................... B-87
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS, EXCHANGES
AND DIVIDENDS.................................................................... B-94
SERVICE PLAN AND SHAREHOLDER ADMINISTRATION PLAN........................................ B-98
Appendix A (Description of Securities Ratings)........................................... 1-A
Appendix B (Business Principles of Goldman Sachs & Co.).................................. 1-B
Appendix C (Statement of Intention and Escrow Agreement)................................. 1-C
B-2
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The Trust is organized as a Delaware business trust, established by a
Declaration of Trust dated January 28, 1997. The Trust is a successor to a
Massachusetts business trust that was combined with the Trust on April 30, 1997.
The following series of the Trust are described in this Additional Statement:
Goldman Sachs Internet Tollkeeper Fund ("Internet Tollkeeper Fund") and Goldman
Sachs Real Estate Securities Fund ("Real Estate Securities Fund") (collectively
referred to herein as the "Funds").
The Trustees have authority under the Trust's charter to create and
classify shares into separate series and to classify and reclassify any series
or portfolio of shares into one or more classes without further action by
shareholders. Pursuant thereto, the Trustees have created the Funds and other
series. Additional series may be added in the future from time to time. Each
Fund currently offers five classes of shares: Class A Shares, Class B Shares,
Class C Shares, Institutional Shares and Service Shares. See "Shares of the
Trust."
Goldman Sachs Asset Management, ("GSAM" or the "Investment Adviser") a
unit of the Investment Management Division of Goldman, Sachs & Co. ("Goldman
Sachs"), serves as the Investment Adviser to the Funds. 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 contained in the Prospectuses. See the
Prospectuses for a more complete description of the Funds' investment objectives
and policies. There is no assurance that a Fund will achieve its objective.
Capitalized terms used but not defined herein have the same meaning as in the
Prospectuses.
B-3
INVESTMENT POLICIES
Each Fund has a distinct investment objective and policies. There can be
no assurance that a Fund's objective will be achieved. Each Fund is a
diversified, open-end management company as defined in the Investment Company
Act of 1940, as amended (the "Act"). The investment objective and policies of
each Fund, and the associated risks of each Fund, are discussed in the Funds'
Prospectuses, which should be read carefully before an investment is made.
Additional information about the Funds, their policies, and the investment
instruments they may hold, is provided below.
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in either
Fund may be worth more or less when redeemed than when purchased. Neither Fund
should be relied upon as a complete investment program.
General Information Regarding The Funds.
---------------------------------------
The Investment Adviser may purchase for the 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"). The
Investment Adviser utilizes first-hand fundamental research, including visiting
company facilities to assess operations and to meet decision-makers, in choosing
a Fund's securities. 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 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.
Internet Tollkeeper Fund - Growth Style. The Internet Tollkeeper 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 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
B-4
flexibility; strength of management; and general operating characteristics that
will enable the company to compete successfully in its marketplace.
The Internet Generally. The Internet is a global collection of connected
computers that allows commercial and professional organizations, educational
institutions, government agencies, and consumers to communicate electronically,
access and share information and conduct business. It is dramatically changing
the way consumers and businesses are buying and selling goods and services. The
World Wide Web, a means of graphically interfacing with the Internet, provides
companies with the ability to reach a global audience with greater operating
efficiency and conveniently provides consumers with a broad selection of
services and products.
Historical technological breakthroughs like the invention of the
telephone, electricity and the automobile changed the way people lived and
conducted commerce. As with previous advancements in communication there is a
tremendous amount of excitement and activity being generated by people
researching information, consumers shopping for products, companies improving
their business plans and investors seeking to capitalize on opportunities. The
advent of the radio, television and the personal computer was also met with a
high degree of excitement and many of the companies that were associated with
the new technology received high stock valuations. Only a few of these original
companies were able to achieve long-term success. The Investment Adviser
believes that it is difficult to predict which of the new Internet companies
will ultimately succeed but that there will be many established companies that
will benefit from the growth of the Internet.
Origins of the Internet. The evolution of the Internet began as a result
of the Cold War. In 1962, The Rand Corporation was asked by the United States
Military to devise a military communication network that could survive a nuclear
war. The basic premise of the network was to have a decentralized network that
would still be able to deliver messages to their destinations even if some nodes
(cities) were destroyed along the route.
The first network called ARAPNET connected four universities in 1969.
The original use of the network was for long-distance computation that allowed
researchers to collaborate on projects. A secondary use also evolved as people
began to use the network as an electronic post office to trade e-mails. As
networking technology improved and the number of personal computers increased
the Internet evolved into much more than a global communications medium. Today,
electronic commerce has become an integral part of the global economy.
International Data Corporation (IDC) estimates that as of June 2000, there were
approximately 289.78 million web users worldwide and estimates that, by 2002,
there will be 320 million web users worldwide.
Growth of the Internet. Personal and business use of the Internet is
growing quickly. Personal uses of the Internet now include sending electronic
mail, researching a wide variety of information, shopping for goods and
services, accessing on-line versions of publications, getting maps and driving
directions and listing group or association schedules and events. Businesses are
offering products and services to both consumers and business clients. According
to IDC, electronic commerce on the web was $32 billion in 1998 and is
B-5
expected to grow to $425 billion by 2002. Companies are offering products and
services that do not require the customer's physical presence to purchase
including books, apparel, music, videos, computer hardware and software,
consumer electronics, appliances, airline tickets and stock trading.
Additionally, consumers are able to use the internet to comparison shop for
prices and to track on-line purchases, adding to the convenience of purchasing
through use of the internet. Forrester Research, Inc. estimates that 40 million
U.S. households will shop on-line by 2003 as compared to 9 million U.S.
households which shopped on-line in 1998. Electronic commerce offers businesses
the opportunity to improve communication with employees, suppliers and customers
thereby streamlining the purchasing process.
Risk Considerations Regarding the Internet Industry. The market in which
many Internet companies compete is characterized by rapidly changing technology,
evolving industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. The failure of an
Internet company to adapt to such changes could have a material adverse effect
on the company's business, results of operations and financial condition. In
addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by an Internet company to modify or adapt its services
or infrastructure, which could have a material adverse effect on an Internet
company's business, results of operations and financial condition.
The success of the many Internet companies will also depend in large
part upon the development and maintenance of the infrastructure of the World
Wide Web for providing reliable Web access and services, such as a reliable
network backbone with the necessary speed, data capacity and security, or timely
development of complementary products such as high speed modems. There can be no
assurance that the infrastructure or complementary products or services
necessary to make the Web a viable commercial marketplace for the long term will
be developed or that if they are developed, that the Web will become a viable
commercial marketplace for services such as those offered by Internet companies.
The market for the purchase of products and services over the Internet
is a new and emerging market. If acceptance and growth of Internet use does not
occur, an Internet company's business and financial performance will suffer.
Although there has been substantial interest in the commercial possibilities for
the Internet, many businesses and consumers have been slow to purchase Internet
access services for a number of reasons, including inconsistent quality of
service, lack of availability of cost-effective, high-speed service, a limited
number of local access points for corporate users, inability to integrate
business applications on the Internet, the need to deal with multiple and
frequently incompatible vendors, inadequate protection of the confidentiality of
stored data and information moving across the Internet and a lack of tools to
simplify Internet access and use. It is possible that a sufficiently broad base
of consumers may not adopt, or continue to use, the Internet as a medium of
commerce.
Despite the implementation of security measures, an Internet company's
networks may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. Internet companies have in the past experienced, and may in
the future experience, interruptions in
B-6
service as a result of the accidental or intentional actions of Internet users,
current and former employees or others. Unauthorized access could also
potentially jeopardize the security of confidential information stored in the
computer systems of a company and its subscribers. These events may result in
liability of the company to its subscribers and also may deter potential
subscribers.
The law relating to the liability of online services companies for
information carried on or disseminated through their services is currently
unsettled. It is possible that claims could be made against online services
companies under both United States and foreign law for defamation, libel,
invasion of privacy, negligence, copyright or trademark infringement, or other
theories based on the nature and content of the materials disseminated through
their services. Certain of these types of claims have been brought, and in some
cases successfully argued, against on-line services. In addition, legislation
has been proposed that imposes liability for or prohibits the transmission over
the Internet of certain types of information. The increased attention focused
upon liability issues as a result of these lawsuits and legislative proposals
could also impact the growth of Internet use.
It is possible that a number of laws and regulations may be adopted with
respect to the Internet or other online services covering issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. The nature of such governmental action and the manner in which it may
be interpreted and enforced cannot be fully determined. Such action could
subject an Internet company and/or its customers to potential liability, which
in turn could have an adverse effect on the Internet company's business, results
of operations and financial condition. The adoption of any such laws or
regulations might also decrease the rate of growth of Internet use, which in
turn could decrease the demand for the services of Internet companies or
increase the cost of doing business or in some other manner have a material
adverse effect on an Internet company's business, results of operations and
financial condition. In addition, applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
The vast majority of such laws were adopted prior to the advent of the Internet
and related technologies and, as a result, do not contemplate or address the
unique issues of the Internet and related technologies.
The U.S. Congress has adopted legislation, and is considering certain
proposed legislation, to protect the privacy of personal information collected
on the internet. This legislation could require an online service to adopt
safeguards to protect the confidentiality, security and integrity of personal
information and provide a process for individuals to consent or limit the
disclosure of such information. Several states have also proposed legislation
that would limit the uses of personal user information gathered online or
require online services to establish privacy policies. Further, the U.S.
Congress recently passed legislation requiring schools, libraries and other
entities who receive public funding to filter certain forms of internet media.
This law is currently being challenged in United States District Court. Changes
to existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace
B-7
that could reduce demand for the services of an internet company or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs, or could in some other manner have a material adverse effect an
internet company's business, results of operations and financial condition.
Internet companies do not collect sales or other similar taxes. However,
one or more states may seek to impose sales tax collection obligations on
Internet companies which engage in or facilitate online commerce, and a number
of proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of electronic
commerce, and could adversely affect an Internet company's opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or any foreign country that an Internet company should collect
sales or other taxes on the exchange of merchandise on its system could have a
material adverse effect on an Internet company's business, results of operations
and financial condition.
Legislation limiting the ability of the states to impose taxes on
internet access or impose multiple or discriminatory taxes on electronic
commerce has been adopted by the U.S. Congress, with a tax moratorium ending in
2001. While there can be no assurance that the legislation will be renewed at
the end of such period or that the tax moratorium will be continued, there is
proposed legislation before the U.S. Congress to extend the tax moratorium
through December 31, 2006 and to encourage states to simplify their sales and
use taxes. Failure to renew this legislation or extend the tax moratorium could
allow various states to impose taxes on internet-based commerce and the
imposition of such taxes could have a material adverse affect on an internet
company's business, results of operations and financial condition.
Real Estate Securities Fund. The investment strategy of the Real Estate
Securities Fund is based on the premise that property market fundamentals are
the primary determinant of growth which underlies the success of companies in
the real estate industry. The Fund's research and investment process focuses on
companies that can achieve sustainable growth in cash flow and dividend paying
capability. This process is comprised of real estate market research and
securities analysis. The Fund's Investment Adviser will take into account
fundamental trends in underlying property markets as determined by proprietary
models, research of local real estate market, earnings, cash flow growth and
stability, the relationship between asset values and market prices of the
securities and dividend payment history. The Investment Adviser will attempt to
purchase securities so that its underlying portfolio will be diversified
geographically and by property type.
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. Additionally, the Funds may purchase futures contracts to manage their
cash position. 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
B-8
net assets. As cash balances fluctuate based on new contributions or
withdrawals, a Fund may enter into additional contracts or close out existing
positions.
Corporate Debt Obligations
--------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
Corporate debt obligations include bonds, notes, debentures and other
obligations of corporations to pay interest and repay principal. 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.
An economic downturn could severely affect the ability of highly
leveraged issuers of junk bond securities to service their debt obligations or
to repay their obligations upon maturity. Factors having an adverse impact on
the market value of junk bonds will have an adverse effect on a Fund's net asset
value to the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of the Funds to dispose of a particular security when necessary to meet
their redemption requests or other liquidity needs. Under adverse market or
economic conditions, the secondary market for junk bonds could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the Investment Adviser could find it difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under such circumstances, may be less than
the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks
associated with the medium to lower rated securities of the type in which the
Funds may 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 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.
B-9
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 Adviser will
attempt to reduce these risks through portfolio diversification and by analysis
of each issuer and its ability to make timely payments of income and principal,
as well as broad economic trends and corporate developments.
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
continually 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.
Commercial Paper and Other Short-Term Corporate Obligations
-----------------------------------------------------------
The Funds may invest in commercial paper and other short-term
obligations payable in U.S. dollars and issued or guaranteed by U.S.
corporations, non-U.S. corporations or other entities. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations and finance companies.
U.S. Government Securities
--------------------------
Each Fund may invest in U.S. Government securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include Treasury receipts and other
stripped U.S. Government securities, where the interest and principal components
of stripped U.S. Government Securities are traded independently. Each Fund may
also invest in zero coupon U.S. Treasury securities and in zero coupon
securities issued by financial institutions, which represent a proportionate
interest in underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and its value consists of the difference
between its face value at maturity and its cost. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically.
Bank Obligations
----------------
Each Fund may invest in 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
B-10
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.
Zero Coupon Bonds
-----------------
A Fund's investments in fixed-income securities may include zero coupon
bonds. Zero coupon bonds 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. A 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.
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.
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
"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.
B-11
Mortgage-Backed Securities
--------------------------
General Characteristics. Each Fund 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.
Government Guaranteed Mortgage-Backed Securities. There are several types
of government 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"), 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").
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating federal sponsorship of Fannie Mae and
Freddie Mac that issue guaranteed mortgage-backed securities. The Trust
cannot
B-12
predict what legislation, if any, may be proposed in the future in Congress as
regards such sponsorship or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially and adversely affect the availability of
guaranteed mortgage-backed securities and the Funds' liquidity and value.
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 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
B-13
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 up to forty 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.
Mortgage Pass-Through Securities. Each Fund 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 seller or servicer of the underlying mortgage obligations
will generally make representations and warranties to certificate-holders as to
certain characteristics of the mortgage loans and as to the accuracy of certain
information furnished to the trustee in respect of each such mortgage loan. Upon
a breach of any representation or warranty that materially and adversely affects
the interests of the related certificate-holders in a mortgage loan, the seller
or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement
so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation may
constitute the sole remedy available to the related certificate-holders or the
trustee for the material breach of any such representation or warranty by the
seller or servicer.
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.
B-14
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 normally 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 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 may 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
B-15
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 them and will
protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event 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. In the event of delinquencies in payments on the
mortgage loans underlying the Mortgage Pass-Throughs, the servicer may agree to
make
B-16
advances of cash for the benefit of certificate-holders, but generally will do
so 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.
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 participation 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
B-17
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 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 Real Estate Securities Fund may
invest in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities. Although the market for such securities has
become more 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
B-18
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.
Inverse Floating Rate Securities
--------------------------------
The Real Estate Securities Fund may invest in inverse floating rate debt
securities ("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 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 a Fund's 15% limitation on investments in such
securities.
Asset-Backed Securities
-----------------------
Each Fund 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 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
B-19
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, if the issuer of an
asset-backed security defaults on its payment obligations there is the
possibility that, in some cases, a Fund will be unable to possess and sell the
underlying collateral and that the Funds' recoveries on repossessed collateral
may not be available to support payments on the securities.
Futures Contracts and Options on Futures Contracts
--------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write call and put options on futures contracts. The 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.
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 rates are falling or 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 can purchase and sell futures
contracts on a specified currency in order to seek to increase total return or
to hedge against changes in
B-20
currency exchange rates. Each Fund 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.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency 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 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, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. 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 foreign currency rates that would adversely affect the dollar
value of such Fund's portfolio securities. Similarly, each Fund may sell futures
contracts on a currency 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, 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 Adviser 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 or rates 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
B-21
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 the 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
will engage in 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 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. A Fund will engage in transactions in futures contracts and, for a
Fund permitted to do so, related options transactions only to the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification 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.
B-22
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 depends upon the ability of the
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. A Fund may also, to the extent
it invests in foreign securities, write (sell) put and call options on foreign
currencies. 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 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.
A Fund may also write (sell) covered call and put options on any securities
index consisting of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
B-23
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 consideration which has been
segregated by the Fund) upon conversion or exchange of other securities in its
portfolio. A Fund may cover call and put options on a securities index by
segregating cash or liquid assets with a value equal to the exercise price.
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 on any securities index consisting of
securities in which it may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase put and call options on foreign
currencies. 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 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 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.
A Fund may purchase put options in anticipation of a decline in the market
value of securities in its portfolio ("protective puts") or in securities in
which it may invest. 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 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 such a 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 Real Estate Securities 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
B-24
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 Real Estate Securities Fund may purchase or write yield curve options
for the same purposes as other options on securities. For example, the Fund may
purchase a call option on the yield spread between two securities if it 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 Real Estate Securities Fund may also purchase or write yield curve options
in an effort to increase current income if, in the judgment of the Investment
Adviser, the Fund 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 Real Estate Securities 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 such 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 because they have been only recently introduced, established
trading markets for these options have not yet developed.
Risks Associated with Options Transactions. There is no assurance that a
liquid secondary market on an 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. 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
B-25
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 on securities and indices 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 Adviser. 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 ability of the Investment Adviser to manage future price fluctuations and
the degree of correlation between the options and securities (or currency)
markets. If the Investment Adviser is incorrect in its expectation of changes in
securities prices or determination of the correlation between the securities or
securities indices on which options are written and purchased and the securities
in a Fund's investment portfolio, the Fund may incur losses that it would not
otherwise incur. The writing of options could increase a Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
Real Estate Investment Trusts
-----------------------------
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its assets will be invested in REITs and
real estate industry companies. REITs are pooled investment vehicles which
invest primarily in real estate or real estate related loans. 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. Like
regulated investment companies such as the Funds, REITs are not taxed on income
distributed to shareholders provided they comply with certain requirements under
the
B-26
Code. A Fund will indirectly bear its proportionate share of any expenses
paid by REITs in which it invests in addition to the expenses paid by a 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 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.
Warrants and Stock Purchase Rights
----------------------------------
Each 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 equity 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 Securities
------------------
The Internet Tollkeeper and Real Estate Securities Funds may invest in the
aggregate up to 25% and 15%, respectively, of their total assets in foreign
securities, including securities of issuers in emerging countries. Investments
in foreign securities may offer potential benefits not available from
investments solely in U.S. dollar-denominated or quoted securities of domestic
issuers. Such benefits may include the opportunity to invest in foreign issuers
that appear, in the opinion of the 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 stock markets that do not necessarily move in a
manner parallel to U.S. markets.
Investing in foreign securities involves certain special risks, including
those discussed in the Funds' Prospectuses and 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, a 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 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.
B-27
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.
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 may invest in foreign securities which take the form of
sponsored and unsponsored American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs") and may also invest in European Depositary Receipts
("EDRs") or other similar instruments representing securities of foreign issuers
(together, "Depositary 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-
B-28
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.
To the extent a Fund acquires Depositary Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depositary Receipts to issue and service such unsponsored
Depositary Receipts, 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 Depositary Receipts does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depositary Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depositary Receipts and the underlying securities are quoted.
However, by investing in Depositary 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 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
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, including Asia
and Eastern Europe," below.
Investing in Emerging Countries, including Asia and Eastern Europe. The
securities markets of emerging countries are less liquid and subject to greater
price volatility, and have a smaller market capitalization, than the U.S.
securities markets. 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.
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
B-29
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 the securities issuers. 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
markets may also affect a Fund's ability to accurately value its portfolio
securities or to acquire or dispose of securities at the price and time it
wishes to do so or in order to meet redemption requests.
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.
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 emerging countries may
be subject to restrictions which require governmental 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.
Emerging countries may be subject to a substantially greater degree of
economic, political and social instability and disruption 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
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 can also be adversely affected by any
increase in taxes or by political, economic or diplomatic developments.
B-30
A Fund may seek investment opportunities within former "east bloc"
countries in Eastern Europe. Most Eastern European countries had a centrally
planned, socialist economy for a substantial period of time. The governments of
many Eastern European countries have more recently been 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 an extended 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. Other emerging countries, on the other hand, have recently
experienced deflationary pressure and are in economic recessions. 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.
See "Taxation."
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 a portion of the assets of a Fund remain uninvested and no return
is earned on such assets. The inability of a Fund 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 securities, could result in
possible liability to the purchaser.
Forward Foreign Currency Exchange Contracts. The Funds may enter into
forward foreign currency exchange contracts for hedging purposes and to seek to
protect against anticipated changes in future foreign currency exchange rates. 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
B-31
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 transaction involving the purchase or sale of an offsetting
contract. Closing 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 a 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 dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will 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 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.
Unless otherwise covered in accordance with applicable regulations, cash or
liquid assets of a Fund 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. The segregated assets will be marked-to-market on a
daily basis. If the value of the segregated assets
B-32
declines, additional cash or liquid assets will be segregated on a daily basis
so that the value of the assets 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.
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 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 forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments 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. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries.
Writing and Purchasing Currency Call and Put Options. Each Fund may, to
the extent that it invests in foreign securities, write 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 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 to be written or purchased by a Fund will be
traded on U.S. and foreign exchanges or over-the-counter.
B-33
Options on currency may be used for either hedging or cross-hedging
purposes, which involves writing or purchasing options on one currency to hedge
against changes in exchange rates for a different currency with a pattern of
correlation, or 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 a 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
would obligate a 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 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 options
purchased by the Fund.
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 a Fund are quoted or denominated. The purchase of a
call option would entitle the 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 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 specified currency at
a specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the 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 Funds may use options on currency to seek to increase total return. The
Funds may write (sell) covered put and call options on any currency in order to
realize greater income than would be realized on
B-34
portfolio securities transactions alone. However, in writing covered call
options for additional income, the Funds may forego the opportunity to profit
from an increase in the market value of the underlying currency. Also, when
writing put options, the 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
options 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 will 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.
Currency Swaps, Mortgage Swaps, Credit Swaps, Index Swaps and Interest Rate
---------------------------------------------------------------------------
Swaps, Caps, Floors and Collars
-------------------------------
The Real Estate Securities Fund may enter into currency, mortgage, credit,
index 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. Index swaps involve the exchange by a Fund with
B-35
another party of the respective amounts payable with respect to a notional
principal amount at interest rates equal to two specified indices. 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 for 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, mortgage and index 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, index 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, index and mortgage swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to an interest rate, index 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 payment stream under 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 Adviser believe that
swaps 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 transactions involving swaps, caps, floors or
collars 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 use of interest rate, mortgage, index, 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. The
Investment Adviser, under the supervision of the Board of Trustees, is
responsible for determining and monitoring the liquidity of the Funds'
transactions in swaps, caps, floors and collars.
B-36
Convertible Securities
----------------------
Each 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 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 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
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.
Equity Swaps
------------
Each Fund 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
contracts 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 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
B-37
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 Funds' potential
exposure, the Funds and their Investment Adviser 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
thereto is considered to be investment grade by the Investment Adviser. A Fund's
ability to enter into certain swap transactions may be limited by tax
considerations.
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,
letters of credit or U.S. Government securities 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 Adviser to be of good
standing, and when, in the judgment of the Investment Adviser, the consideration
which can be earned currently from securities loans of this type justifies the
attendant risk. If the Investment Adviser determines 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).
B-38
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 realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued 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
--------------------------
A Fund reserves the right to invest up to 10% of its total assets in the
securities of all investment companies (including exchange-traded funds such as
SPDRs and iShares(SM), as defined below) but may neither invest more than 5% of
its total assets in any one investment company nor 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 the 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 administration fees
B-39
(and other expenses) paid by the Fund. However, to the extent that the Fund
invests in a money market fund for which the Investment Adviser or any of its
affiliates acts as Investment Adviser, the advisory and administration fees
payable by the Fund to the Investment Adviser will be reduced by an amount equal
to the Fund's proportionate share of the advisory and administration fees paid
by such money market fund to its Investment Adviser.
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 was established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P Index"). The UIT is sponsored by a subsidiary of the AMEX. SPDRs may be
used for several reasons, including, but not limited to, facilitating the
handling of cash flows or trading or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price activity of the S&P
Index. 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
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.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, an investor 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, an investor
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 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 iShares(SM) (formerly called World Equity Benchmark Shares or "WEBS")
and similar securities that invest in securities included in foreign securities
indices. iShares(SM) are shares of an investment company that invests
substantially all of its assets in securities included in the MSCI indices for
specified countries or regions. iShares(SM) are listed on the AMEX and were
initially offered to the public in 1996. The market prices of iShares(SM) are
expected to fluctuate in accordance with both changes in the NAVs of their
underlying indices and supply and demand of iShares(SM) on the AMEX. To date,
iShares(SM) have traded
B-40
at relatively modest discounts and premiums to the NAVs. However, iShares(SM)
have a limited operating history and information is lacking regarding the actual
performance and trading liquidity of iShares(SM) 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 iShares(SM) will continue to be
met or will remain unchanged. In the event substantial market or other
disruptions affecting iShares(SM) 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 iShares(SM) as part of its investment strategy.
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. 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 (or subcustodian). 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 price 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 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
B-41
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 advisory agreements with the Investment Adviser or 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.
Short Sales
-----------
Short Sales "Against the Box." The Funds may engage in short sales against
the box. In a short sale, the seller sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
seller does not immediately deliver the securities sold and is said to have a
short position in those securities until delivery occurs. While a short sale is
made by selling a security the seller does not own, a short sale is "against the
box" to the extent that the seller contemporaneously owns or has the right to
obtain, at no added cost, securities identical to those sold short. It may be
entered into by a Fund, for example, to lock in a sales price for a security the
Fund does not wish to sell immediately. If a Fund sells securities short against
the box, it may protect itself from loss if the price of the securities declines
in the future, but will lose the opportunity to profit on such securities if the
price rises.
If a Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
Mortgage Dollar Rolls
---------------------
When Real Estate Securities Fund enters into a mortgage dollar roll, it
will segregate cash or liquid assets in an amount equal to the forward purchase
price until the settlement date.
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 equity
securities, or for other reasons. It is anticipated that the portfolio turnover
rate of each Fund will vary from year to year.
B-42
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. 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 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.
A Fund may not:
(1) Make any investment inconsistent with the Fund's classification
as a 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 (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry and the Goldman Sachs
Internet Tollkeeper Fund which will invest at least 25% of its
total assets in companies in one or more of the media,
telecommunications, technology and/or internet industries)
(excluding 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 in 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)
B-43
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 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.
(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.
(d) Make short sales of securities, except short sales against the box.
B-44
MANAGEMENT
The Trustees 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. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
Ashok N. Bakhru, 58 Chairman Chairman of the Board and
P.O. Box 143 & Trustee Trustee - Goldman Sachs Variable
Lima, PA 19037 Insurance Trust (registered
investment company) (since
October 1997); 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); Director of Arkwright
Mutual Insurance Company (1984-
1999); Trustee of International
House of Philadelphia (1989-
Present); Member of Cornell
University Council (1992-
Present); Trustee of the Walnut
Street Theater (1992-Present);
Director, Private Equity
Investors-III (since November
1998); and Trustee, Citizens
Scholarship Foundation of America
(since 1998).
B-45
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
*David B. Ford, 55 Trustee Trustee- Goldman Sachs Variable
32 Old Slip Insurance Trust (registered
New York, NY 10005 investment company) (since
October 1997); 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, 38 Trustee Trustee and President - Goldman
32 Old Slip & President Sachs Variable Insurance Trust
New York, NY 10005 investment company) (since
October 1997); Trustee, Trust for
Credit Unions (registered
investment company) (since March
1998); Managing Director, Goldman
Sachs (since November 1997);
President, Goldman Sachs Funds
Group (since April 1996); and
President, MFS Retirement
Services Inc., of Massachusetts
Financial Services (prior
thereto).
B-46
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
Patrick T. Harker, 42 Trustee Trustee - Goldman Sachs Variable
Office of the Dean Insurance Trust (registered
The Wharton School investment company) (since August
University of Pennsylvania 2000); Dean and Reliance
1000 SH-DH Professors of Operations and
Philadelphia, PA 19104-6364 Information Management, The
Wharton School, University of
Pennsylvania (since February
2000); Interim and Deputy Dean,
The Wharton School, University of
Pennsylvania (since July 1999);
Professor and Chairman of
Department of Operations and
Information Management, The
Wharton School, University of
Pennsylvania (July 1997-August
2000); UPS Transportation
Professor for the Private Sector,
Professor of Systems Engineering
and Chairman of Systems
Engineering, School of
Engineering and Applied Science,
University of Pennsylvania (prior
thereto).
B-47
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
*John P. McNulty, 48 Trustee Trustee - Goldman Sachs Variable
32 Old Slip Insurance Trust (registered
New York, NY 10005 investment company) (since
Managing Director, Goldman Sachs
(since November 1996) and Head of
Investment Management Division
(since September 1999); General
Partner, J. Aron & Company
(commodity dealer and risk
management adviser) (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); and Director, Commodities
Corp. LLC (since April 1997).
B-48
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
Mary P. McPherson, 65 Trustee Trustee - Goldman Sachs Variable
The Andrew W. Mellon Insurance Trust (registered
Foundation investment company) (since
140 East 62/nd/ Street October 1997); Vice President,
New York, NY 10021 The Andrew W. Mellon Foundation
(provider of grants 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, 51 Trustee Trustee - Goldman Sachs Variable
32 Old Slip Insurance Trust (registered
New York, NY 10005 investment company) (since
October 1997); Advisory Director
- GSAM (since May 1999); Limited
Partner, Goldman Sachs (prior to
May 1999); Consultant to GSAM
(since December 1994).
B-49
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- -----------------------
William H. Springer, 71 Trustee Trustee - Goldman Sachs Variable
701 Morningside Drive Insurance Trust (registered
Lake Forest, IL 60045 investment company) (since
October 1997); Director, The
Walgreen Co. (a retail drug store
business) (April 1988 -January
2000); Director of BKF Capital
Group, Inc. (a public holding
company of a registered
investment adviser) (April 1992 -
present); and Chairman and
Trustee, Northern Institutional
Funds and Northern Funds (since
April 1984 and March 2000,
respectively).
Richard P. Strubel, 61 Trustee Trustee - Goldman Sachs Variable
500 Lake Cook Road Insurance Trust (registered
Suite 150 investment company) (since
Deerfield, IL 60015 October 1997); President and COO,
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); Trustee, Northern
Institutional Funds and Northern
Funds (since December 1982 and
March 2000, respectively); and
Director of Cantilever
Technologies, Inc. (since 1999).
*John M. Perlowski, 36 Treasurer Treasurer - Goldman Sachs
32 Old Slip Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
and Vice President, Goldman
Sachs (since July 1995).
*Philip V. Giuca, Jr., 38 Assistant Assistant Treasurer - Goldman
32 Old Slip Treasurer Sachs Variable Insurance Trust
New York, NY 10005 investment company) (since
1997); Vice President, Goldman
Sachs (May 1992-Present).
B-50
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- ----------------------- *Peter Fortner, 42 Assistant Assistant Treasurer - 32 Old Slip Treasurer Goldman Sachs Variable New York, NY 10005 Insurance Trust (registered investment company) (since August 2000); Vice President, Goldman Sachs (July 2000 - present); Associate, Prudential Insurance Company of America (November 1985-- June 2000); and Assistant Treasurer; certain closed-end funds administered by Prudential (1999 and 2000). *Kenneth Curran, 37 Assistant Assistant Treasurer - 32 Old Slip Treasurer Goldman Sachs Variable New York, NY 10005 Insurance Trust (registered investment company) (since January 2001); Vice President, Goldman Sachs (November 1998-Present); and Senior Tax Manager, KPMG Peat Marwick (August 1995- October 1998). *James A. Fitzpatrick, 40 Vice President Vice President - Goldman 4900 Sears Tower Sachs Variable Insurance Chicago, IL 60606 Trust (registered investment company) (since October 1997); Managing Director, Goldman Sachs (since October 1999); Vice President, Goldman Sachs (April 1997- December 1999); and Vice President and General Manager, First Data Corporation -Investor Services Group (1994 to 1997). B-51
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- ----------------------- *Jesse Cole, 37 Vice President Vice President - Goldman 4900 Sears Tower Sachs Variable Insurance Chicago, IL 60606 Trust (registered investment company) (since 1998); Vice President, Goldman Sachs (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). *Kerry K. Daniels, 37 Vice President Vice President - Goldman 4900 Sears Tower Sachs Variable Insurance Chicago, IL 60606 investment company) (since April 2000); and Manager, Institutional Account Administration -Shareholder Services, Goldman Sachs (since 1986). *Mary F. Hoppa, 36 Vice President Vice President - Goldman 4900 Sears Tower Sachs Variable Insurance Chicago, IL 60606 Trust (registered investment company) (since April 2000); Vice President, Goldman Sachs (since Strong Capital Management (January 1987 - September 1999). *Christopher Keller, 35 Vice President Vice President, Goldman 4900 Sears Tower Sachs Variable Insurance Chicago, IL 60606 Trust (registered investmentcompany) (October 2000 - present); Vice President, Goldman Sachs (April 1997-present); and Manager, Andersen Consulting (August 1989 - April 1997). B-52
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- ------------------------ *Howard B. Surloff, 35 Secretary Secretary - Goldman Sachs 32 Old Slip Variable Insurance Trust New York, NY 10005 (registered investment company) (since 2001) and Assistant Secretary prior thereto; 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); and Counsel to the Funds Group, GSAM (November 1993 - December 1997). *Valerie A. Zondorak, 35 Assistant Assistant Secretary - 32 Old Slip Secretary Goldman Sachs Insurance New York, NY 10005 Trust (registered investment company) (since 1997); 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, 29 Assistant Assistant Secretary - 32 Old Slip Secretary Goldman Sachs Variable New York, NY 10005 Insurance Trust (registered investment company) (since 1997); Legal Products Analyst, Goldman Sachs (since December 1998); Legal Assistant, Goldman Sachs (January 1996-December 1998); and Assistant Secretary to the Funds Group (1996 to present). B-53
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- ------------------------ *Kaysie P. Uniacke, 39 Assistant Assistant Secretary -Goldman 32 Old Slip Secretary Sachs Variable Insurance New York, NY 10005 Trust (registered investment company) (since 1997); Managing Director, Goldman Sachs (since 1997); and Vice President and Senior Portfolio Manager, GSAM (1988 to 1997). *Elizabeth D. Anderson, 31 Assistant Assistant Secretary -Goldman 32 Old Slip Secretary Sachs Variable Insurance New York, NY 10005 Trust (registered investment company) (since 1997); Vice President, Goldman Sachs (since May 1997); Portfolio Manager, GSAM (since April 1996); and Junior Portfolio Manager, GSAM (1995 -April 1996). *Amy E. Belanger, 31 Assistant Assistant Secretary -Goldman 32 Old Slip Secretary Sachs Variable Insurance New York, NY 10005 Trust (registered investment company) (since 1999); Vice President, Goldman Sachs (since June 1999); Counsel, Goldman Sachs (since 1998); and Associate, Dechert Price & Rhoads (September 1996 - 1998). Each interested Trustee and officer holds comparable positions with certain other companies of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser, administrator and/or distributor. As of March 20, 2001, the Trustees and officers of the Trust as a group owned less than 1% of the outstanding shares of beneficial interest of the Funds. 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. B-54
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, 2000:Total Compensation from Aggregate Pension or Retirement Benefits Goldman Sachs Trust and the Compensation Accrued as Part of Funds' Goldman Sachs Fund complex Name of Trustee from the Funds/2/ Expenses (including the Funds)/3/ --------------- -------------- -------- Ashok N. Bakhru/1/ $4,071 $0 $142,250 David B. Ford 0 0 0 Douglas C. Grip 0 0 0 Patrick T. Harker/4/ 828 0 26,500 John P. McNulty 0 0 0 Mary P. McPherson 3,062 0 106,000 Alan A. Shuch 0 0 0 Jackson W. Smart/5/ 1,352 0 53,000 William H. Springer 2,994 0 104,000 Richard P. Strubel 3,062 0 106,000 ________________________ 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, 2000. 3 The Goldman Sachs Fund complex consists of the Goldman Sachs Trust and Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of 54 mutual funds, including the Funds, on December 31, 2000. Goldman Sachs Variable Insurance Trust consisted of 10 mutual funds as of December 31, 2000. 4 Mr. Harker was elected to the Board of Trustees on August 29, 2000. 5 No longer a trustee of the Trust. B-55
Class A Shares of the Funds may be sold at net asset value without
payment of any sales charge to Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including rehired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any trustee or officer of the Trust and designated family members of any of the
above individuals. These and the Funds' other sales load waivers are due to the
nature of the investors and/or the reduced sales effort and expense that are
needed to obtain such investments.
The Trust, its Investment Adviser and principal underwriter have adopted
codes of ethics under Rule 17j-1 of the 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.
Management Services
As stated in the Funds' Prospectuses, GSAM, 32 Old Slip, New York, New
York, a unit of the Investment Management Division of Goldman Sachs, 85 Broad
Street, New York, New York, serves as Investment Adviser to the Funds. See
"Service Providers" in the Funds' Prospectuses for a description of the
Investment Adviser's duties to the Funds.
The Goldman Sachs Group, L.P., which controlled the Funds' Investment
Adviser, merged into The Goldman Sachs Group, Inc. as a result of an initial
public offering in 1999.
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 is in effect.
The Investment Adviser is 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
Adviser.
B-56
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 United States 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.
In managing the Funds, the Investment Adviser has 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 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, 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, the Investment Adviser 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 Adviser 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 Management Agreement provides that GSAM, in its capacity as
Investment Adviser, may render similar services to others as long as the
services under the Management Agreement are not impaired thereby. The Internet
Tollkeeper and Real Estate Securities Funds' Management Agreement was initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the Management Agreement, on July 27,
1999 and July 22, 1997, respectively. The sole shareholder of the Internet
Tollkeeper and Real Estate Securities Funds approved these arrangements on
September 23, 1999 and July 21, 1997, respectively. The Management Agreement was
most recently approved with respect to each Fund 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 April 24, 2001. The Management Agreement
will remain in effect until June 30, 2002 and will continue in effect with
respect to the applicable Fund from year to year thereafter provided such
continuance is specifically approved at least annually by (a) the vote of a
majority of such Fund's outstanding voting securities or a majority of the
Trustees of the Trust, and (b) the vote of a majority of the
B-57
non-interested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
The Management Agreement will terminate automatically if assigned (as
defined in the Act). The Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the particular 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 Agreement the Investment Adviser is entitled
to receive fees, payable monthly, at the annual rate of 1.00% of each Fund's
average daily net assets. The Funds had no fee waiver arrangements with respect
to the management fee at the fiscal years ended December 31, 2000, December 31,
1999 or December 31, 1998.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998 the amounts of the investment advisory fees incurred by each
Fund then in existence were as follows:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, December 31, December 31,
2000 1999 1998
---- ---- ----
Real Estate Securities Fund1 $ 1,560,870 $1,490,779 $82,560
Internet Tollkeeper Fund1 $ 24,341,896 1,347,758 N/A
----------------------------------
1 The Real Estate Securities and Internet Tollkeeper Funds commenced operations
on July 27, 1998 and October 1, 1999, respectively.
Under its Management Agreement, the 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 Adviser and 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.
B-58
Goldman Sachs and its affiliates, including, without limitation, the
Investment Adviser and its 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 Adviser's and its 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
Adviser and its 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 its good faith
discretion 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 Adviser and/or its
affiliates will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Adviser
and/or its affiliates are performing services or when position limits have been
reached.
In connection with their management of the Funds, the Investment Adviser
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Investment Adviser 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 Adviser 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 Adviser in managing the
Funds.
The results of each Fund's investment activities may differ
significantly from the results achieved by the Investment Adviser and its
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
B-59
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 and investments similar to those in which the Fund
invests.
In addition, certain principals and certain of the employees of the
Investment Adviser 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.
The 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 affiliates, the underlying securities 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 client.
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.
B-60
From time to time, Goldman Sachs or any of its affiliates may, but is
not required to, purchase and hold shares of a Fund in order to increase the
assets of the Fund. Increasing a Fund's assets may enhance investment
flexibility and diversification and may contribute to economies of scale that
tend to reduce the Fund's expense ratio. Goldman Sachs reserves the right to
redeem at any time some or all of the shares of a Fund acquired for its own
account. A large redemption of shares of a Fund by Goldman Sachs could
significantly reduce the asset size of the Fund, which might have an adverse
effect on the Fund's investment flexibility, portfolio diversification and
expense ratio.
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 Adviser 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. Pursuant to the distribution agreement, after
the Prospectuses and periodic reports have been prepared, set in type and mailed
to shareholders, Goldman Sachs will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares
(and in certain cases, Class A Shares), of such Fund shares.
Goldman Sachs retained approximately the following combined commissions
on sales of Class A, Class B and Class C Shares during the following periods:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, December 31, December 31,
2000 1999 1998
---- ---- ----
Real Estate Securities Fund/1/ $ 266,000 $ 962,000 $125,000
Internet Tollkeeper Fund/1/ $ 4,745,000 2,076,000 N/A
-------------------------------------------------
B-61
/1/ The Real Estate Securities and Internet Tollkeeper Funds commenced
operations on July 27, 1998 and October 1, 1999, respectively.
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 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 inquiries, and (ix) render certain other miscellaneous services. For
its transfer agency services, Goldman Sachs is entitled to receive a transfer
agency fee equal, on an ongoing basis, to 0.04% of average daily net assets with
respect to each Fund's Institutional and Service Shares and 0.19% of average
daily net assets with respect to each Fund's Class A, Class B and Class C Shares
(less transfer agency expenses borne by a share class).
As compensation for the services rendered to the Trust by Goldman Sachs
as transfer agent and the assumption by Goldman Sachs of the expenses related
thereto, Goldman Sachs received fees for the fiscal years ended December 31,
2000, December 31, 1999 and December 31, 1998 from each Fund then in existence
as follows under the fee schedules then in effect:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, December 31, December 31,
2000 1999 1998
---- ---- ----
Real Estate Securities Fund1 $ 216,573 $203,038 $4,197
Internet Tollkeeper Fund1 $ 4,426,223 246,740 N/A
-------------------------------------------------
/1/ Real Estate Securities and Internet Tollkeeper Funds commenced operations on
July 27, 1998 and October 1, 1999, respectively.
The Trust's distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements also
provide that the Trust will indemnify Goldman Sachs against certain liabilities.
B-62
Expenses
--------
The Trust, on behalf of each Fund, is responsible for the payment of
each Fund's respective expenses. The expenses include, without limitation, the
fees payable to the Investment Adviser, service fees and shareholder
administration fees paid to institutions that have agreed to provide account
administration and personal account maintenance services to their customers who
are the beneficial owners of Service Shares ("Service Organizations"), the fees
and expenses of the Trust's custodian and subcustodians, transfer agent fees,
brokerage fees and commissions, filing fees for the registration or
qualification of the Trust's shares under federal or state securities laws,
expenses of the organization of the Trust, 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 (including the cost of legal and certain accounting
services rendered by employees of GSAM, Goldman Sachs Asset Management
International ("GSAMI") and Goldman Sachs with respect to the Trust), expenses
of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution and service plans,
compensation and expenses of its "non-interested" Trustees and extraordinary
expenses, if any, incurred by the Trust. Except for fees and expenses under any
service plan, shareholder administration plan or distribution and service plan
applicable to a particular class and transfer agency fees and expenses, all Fund
expenses are borne on a non-class specific basis.
The imposition of the Investment Adviser's fees, 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 is
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 has agreed to reduce or limit certain
"Other Expenses" (excluding management fees, distribution and service fees,
transfer agency fees and expenses, service share fees, shareholder
administration fees, taxes, interest, brokerage, and litigation, indemnification
and other extraordinary expenses) for the Internet Tollkeeper and Real Estate
Securities Funds to the extent such expenses exceed 0.06% and 0.00%, of each
Fund's average daily net assets.
Such reductions or limits, if any, are calculated monthly on a
cumulative basis during the Funds' fiscal year and may be discontinued or
modified by the applicable 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
B-63
Investment Adviser's costs of performing certain accounting services not being
provided by a Fund's Custodian.
B-64
Reimbursement ------------- For the fiscal years ended December 31, 2000, December 31, 1999 and December 31, 1998, the amounts of certain "Other Expenses" of each Fund then in existence that were reduced or otherwise limited were as follows under the expense limitations that were then in effect: Fiscal year ended Fiscal year ended Fiscal year ended December 31, 2000 December 31, 1999 December 31, 1998 ----------------- ----------------- ----------------- Real Estate Securities Fund/1/ $ 466,500 $404,669 $151,035 Internet Tollkeeper Fund/1/ $ 57,049 390,663 N/A ------------------------------------------------- /1/ The Real Estate Securities and Internet Tollkeeper Funds commenced operations on July 27, 1998 and October 1, 1999, respectively. Custodian and Sub-Custodians ---------------------------- State Street, P.O. Box 1713, Boston, Massachusetts 02105, 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 and to hold cash for the Trust. Independent Auditors -------------------- Ernst & Young LLP, independent auditors, 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, 2001. In addition to audit services, Ernst & Young LLP prepares the Funds' federal and state tax returns, and provides consultation and assistance on accounting, internal control and related matters. The financial statements of the Funds for the fiscal years or periods ended on or before December 31, 1999, and the data set forth under "Financial Highlights" in the Prospectuses for the fiscal years or periods ended on or before December 31, 1999, were audited by Arthur Andersen LLP, the Funds' former auditors.PORTFOLIO TRANSACTIONS AND BROKERAGE The Investment Adviser is responsible for decisions to buy and sell securities for the Funds, the selection of brokers and dealers to effect the transactions and the negotiation of B-65
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.
In placing orders for portfolio securities of a Fund, the Investment
Adviser is generally required to give primary consideration to obtaining the
most favorable execution and net price available. This means that the 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 which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination that such
commission is reasonable in light of the services provided and to such policies
as the Trustees may adopt from time to time. While the Investment Adviser
generally seeks 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 Adviser will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Investment Adviser and its 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 Adviser in the performance
of their decision-making responsibilities. Such services are used by the
Investment Adviser 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 may be larger than
those of a Fund, and the services furnished by such brokers may be used by the
Investment Adviser in providing management services for the Trust.
B-66
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 Adviser. 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 the 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 the Investment Adviser acts as investment adviser or sub-investment
adviser), 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 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 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 Adviser 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 customary. 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.
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, each Fund in existence paid brokerage commissions as
indicated in the following charts. The amount of brokerage commissions paid by a
Fund may vary substantially from year to year because of differences in
shareholder purchase and redemption activity, portfolio turnover rates and other
factors.
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B-68
Total Total Brokerage Brokerage Amount of Amount of Commissions Total Commissions Transactions Transactions Paid Brokerage Paid to on which Effected through to Brokers Commissions Goldman Commissions Brokers Providing Providing Paid Sachs3 Paid Research Research Fiscal Year Ended December 31, 2000: Real Estate Securities Fund $ 540,669 $ 51,918 (10%)/1/ $ 179,775,702 (10%)/2/ $ 128,075 $ 564 Internet Tollkeeper Fund 2,022,799 44,999 (2%)/1/ 4,850,388,779 (1%)/2/ 3,686,145 6,630 /1/ Percentage of total commissions paid to Goldman Sachs. /2/ Percentage of total amount of transactions involving the payment of commissions effected through Goldman Sachs. /3/ The figures in the table report brokerage commissions only from securities transactions. During the year ended December 31, 2000, Goldman Sachs earned no commissions from futures transactions. B-69
Total Total Brokerage Amount of Total Commissions Transaction Brokerage Paid to on which Commissions Affiliated Commissions Paid Persons Paid Fiscal Year Ended December 31, 1999: Real Estate Securities Fund $452,425 $ 17,090 $ 190,627,802 Internet Tollkeeper Fund/1/ $512,326 $ 11,040 $1,234,176,060 ------------------------------------------- /1/ The Internet Tollkeeper Fund commenced operations on October 1, 1999.Total Total Brokerage Amount of Total Commissions Transaction Brokerage Paid to on which Commissions Affiliated Commissions Paid Persons Paid Fiscal Year Ended December 31, 1998: Real Estate Securities Fund $ 133,807 $ 5,806 $ 61,448,321 Internet Tollkeeper Fund/1/ N/A N/A N/A ------------------------------------------------- B-70
/1/ The Internet Tollkeeper Fund commenced operations on October 1, 1999. During the fiscal year ended December 31, 2000, the Funds acquired and sold securities of their regular broker-dealers. As of December 31, 2000, the Funds held the following amounts of securities of their regular broker-dealers, as defined in Rule 10b-1 under the Act, or their parents:Fund Broker/Dealer Amount ---- ------------- ------ Real Estate Securities Fund Morgan Stanley Dean Witter $1,163,000 Deutsche Bank Securities $ 582,000 Salomon Smith Barney $ 701,000 Internet Tollkeeper Fund Morgan Stanley Dean Witter $4,943,000 Deutsche Bank Securities $2,472,000 Salomon Smith Barney $2,979,000 NET ASSET VALUE Under the Act, the Trustees of the Trust 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 class of each Fund is calculated by determining the value of the net assets attributable to each class of that Fund and dividing by the number of outstanding shares of that class. All securities are valued as of the close of regular trading on the New York Stock Exchange (normally, but not always, 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, Washington's Birthday (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 B-71
exchange or system has not closed by the above-mentioned time for determining
the Funds net 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 section (a) or (b) 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
accurate market 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 NAV 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 and each other series 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 or series. The underlying assets of each Fund will be segregated on
the books of account, and will be charged with the liabilities in respect of
such
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Fund and with a share of the general liabilities of 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 Each Fund may from time to time quote or otherwise use yield and total return information in advertisements, shareholder reports or sales literature. Average annual total return and yield are computed pursuant to formulas specified by the SEC. Thirty-day yield is derived by dividing net investment income per share earned during the period by the product of the average daily number of Shares outstanding and entitled to receive dividends and the maximum public offering price per share on the last day of such 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. 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 applicable to the relevant class 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. The table set forth below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of $1,000 in a Fund for the periods indicated. Total return calculations for Class A Shares reflect the effect of paying the maximum initial sales charge. Investment at a lower sales charge would result in higher performance figures. Total return calculations for Class B and Class C Shares reflect deduction of the applicable contingent deferred sales charge ("CDSC") imposed upon redemption of Class B and Class C Shares held for the applicable period. Each Fund may also from time to time B-73
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, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on a Fund's NAV per Share would be reduced if any applicable sales charge
were taken into account. In addition to the above, each Fund may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance information
is available. The Funds' performance quotations do not reflect any fees charged
by an Authorized Dealer, Service Organization or other financial intermediary to
its customer accounts in connection with investments in the Funds.
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, the type of portfolio
instruments acquired, portfolio expenses and other factors. Performance is one
basis investors may use to analyze a Fund as compared to other funds and other
investment vehicles. However, the performance of other funds and other
investment vehicles may not be comparable because of the foregoing variables,
and differences in the methods used in valuing their portfolio instruments,
computing net asset value and determining performance.
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 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, 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);
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(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) the Money Fund Report, a service of
iMoneyNet, Inc. (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) the
Russell 1000 Value Index; (p) the Russell 1000 Growth Index-Total Return; (q)
the Value-Line Composite-Price Return; (r) the Wilshire 4500 Index; (s) the FT-
Actuaries Europe and Pacific Index; (t) 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
World Index, 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; (u) CDA/Wiesenberger Investment Companies Services or
Wiesenberger Investment Companies Service; (v) The Goldman Sachs Commodities
Index; (w) information produced by Micropal, Inc.; (x) The Tokyo Price Index and
(y) the Russell 3000 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 a 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);
B-75
. 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 benefits of focusing on after-tax returns versus pre-tax
returns for taxable investors;
. the performance of various types of securities (common
stocks, small company stocks, long-term government bonds,
treasury bills and certificates of deposit) over time.
However, the characteristics of these securities are not
identical to, and may be very different from, those of a
Fund's portfolio;
. the dollar and non-dollar based returns of various market
indices (for example, Morgan Stanley World Index, 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; and
B-76
. value of a dollar amount invested in a particular market or
type of 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-77
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Fund Class Time Period maximum maximum
---- ----- ----------- Applicable Assumes Applicable Assumes
sales no sales sales no sales
Charge* Charge Charge* Charge
------- ------ ------- ------
Real Estate Securities Fund A 7/27/98-12/31/00 - Since inception 6.02% 8.50% 5.21% 7.68%
Real Estate Securities Fund A 1/1/00-12/31/00 - One year 24.54% 31.86% 23.88% 31.16%
Real Estate Securities Fund B 7/27/98-12/31/00 - Since inception 6.53% 7.74% 5.94% 7.15%
Real Estate Securities Fund B 1/1/00-12/31/00 - One year 25.86% 31.04% 25.48% 30.66%
Real Estate Securities Fund C 7/27/98-12/31/00 - Since inception 7.76% 7.76% 7.17% 7.17%
Real Estate Securities Fund C 1/1/00-12/31/00 - One year 30.10% 31.14% 29.72% 30.76%
Real Estate Securities Fund Institutional 7/27/98-12/31/00 - Since inception N/A 8.95% N/A 8.35%
Real Estate Securities Fund Institutional 1/1/00-12/31/00 - One year N/A 32.45% N/A 32.07%
Real Estate Securities Fund Service 7/27/98-12/31/00 - Since inception N/A 8.48% N/A 7.85%
Real Estate Securities Fund Service 1/1/00-12/31/00 - One Year N/A 31.99% N/A 31.60%
Internet Tollkeeper Fund A 10/1/99-12/31/00 - Since inception 11.15% 16.26% 11.08% 16.18%
Internet Tollkeeper Fund A 1/1/00-12/31/00 - One year (40.70)% (37.24)% (40.71)% (37.26)%
Internet Tollkeeper Fund B 10/1/99-12/31/00 - Since inception 12.28% 15.41% 12.21% 15.34%
Internet Tollkeeper Fund B 1/1/00-12/31/00 - One year (40.77)% (37.65)% (40.79)% (37.67)%
Internet Tollkeeper Fund C 10/1/99-12/31/00 - Since inception 15.33% 15.33% 15.26% 15.26%
Internet Tollkeeper fund C 1/1/00-12/31/00 - One year (38.30)% (37.67)% (38.32)% (37.69)%
Internet Tollkeeper Fund Institutional 10/1/99-12/31/00 - Since inception N/A 16.79% N/A 16.72%
Internet Tollkeeper Fund Institutional 1/1/00-12/31/00 - One year N/A (36.88)% N/A (36.89)%
Internet Tollkeeper Fund Service 10/1/99-12/31/00 - Since inception N/A 16.10% N/A 16.04%
Internet Tollkeeper Fund Service 1/1/00-12/31/00 - One year N/A (37.28)% N/A (37.29)%
--------------------------
From time to time advertisements or information may include a discussion of
the origin, evolution and growth of the Internet, the benefits of the Internet
to consumers and businesses and the impact of the Internet on society in general
and more specifically on the investment landscape.
From time to time, advertisements or shareholder communications may include
a discussion of certain attributes or benefits to be derived by an investment in
a 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 and yield 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.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares is subject to different expenses, total
return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Trustees have authority under the Trust's Declaration of Trust to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. The Trustees also have authority to classify and
reclassify any series of shares into one or more classes of shares. As of the
date of this Additional Statement, the Trustees have classified the shares of
each of the Funds into five classes: Institutional Shares, Service Shares, Class
A Shares, Class B Shares and Class C Shares.
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Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Service
Plans are borne exclusively by Class A, Class B or Class C Shares and transfer
agency fees are borne at different rates by different share classes. The
Trustees may determine in the future that it is appropriate to allocate other
expenses differently between classes of shares and may do so to the extent
consistent with the rules of the SEC and positions of the Internal Revenue
Service. Each class of shares may have different minimum investment requirements
and be entitled to different shareholder services. With limited exceptions,
shares of a class may only be exchanged for shares of the same or an equivalent
class of another fund. See "Shareholder Guide" in the Prospectus and "Other
Information Regarding Maximum Sales Charge, Purchases, Redemptions, Exchanges
and Dividends" below. In addition, the fees and expenses set forth below for
each class may be subject to voluntary fee waivers or reimbursements, as
discussed more fully in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund under a Plan for services provided to the institution's
customers.
Service Shares may be purchased at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain shareholder administration services and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of service fees and shareholder administration fees at the
annual rate of up to 0.25% and 0.25%, respectively, of the average daily net
assets of the Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") and certain other financial service firms that
have sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution and service fees at the aggregate rate of up to 0.25% of the
average daily net assets of Class A Shares of the Internet Tollkeeper Fund and
0.50% of the average daily net assets of the Real Estate Securities Fund. With
respect to Class A Shares, the Distributor at its discretion may use
compensation for distribution services paid under the Distribution and Services
Plan for personal and account maintenance services and expenses so long as such
total compensation under the Plan does not exceed the maximum cap on "service
fees" imposed by the NASD.
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the NASD and
certain other financial services firms that have sales arrangements with Goldman
Sachs. Class B Shares bear the cost of distribution (Rule 12b-1) fees at the
aggregate rate of up to 0.75% of the average daily net assets attributable to
Class B Shares. Class B Shares also bear the cost of service fees at an annual
rate of up to 0.25% of the average daily net assets attributable to Class B
Shares.
B-80
Class C Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 1.0% through brokers and dealers who are members of the
NASD and certain other financial services firms that have sales arrangements
with Goldman Sachs. Class C Shares bear the cost of distribution (Rule 12b-1)
fees at the aggregate rate of up to 0.75% of the average daily net assets
attributable to Class C Shares. Class C Shares also bear the cost of service
fees at an annual rate of up to 0.25% of the average daily net assets
attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by each
Fund, if any, with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
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 for the consideration described in the Prospectus, shares
are fully paid and non-assessable. The Trustees may, however, cause
shareholders, or shareholders of a particular series or class, to pay certain
custodian, transfer, servicing or similar agent charges by setting of the same
against declared but unpaid dividends or by reducing share ownership (or by both
means). 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.
As of March 20, 2001 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Real Estate
Securities Fund's Institutional Shares: First National Bank North Dakota, Attn:
Josie Wahl, P.O. Box 6001, Grand Forks, ND 58206 (7%).
As of March 20, 2001 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Internet Tollkeeper
Fund's Class B Shares: Merrill Lynch Pierce Fenner & Smith, For the Sole Benefit
of Its Customers, Attn: Service Team Sec #9EH18, Goldman Sachs Funds, 4800 Deer
Lake Dr. East, 3/rd/ Floor, Jacksonville, FL 32246 (5%).
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. In
addition, 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
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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 without the vote or consent of the shareholders, 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,
officers, employees and agents 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, series or its respective
shareholders. The factors and 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.
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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 their 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 adversely affect the voting rights
of shareholder; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; 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 Declaration of Trust with respect to any other series or class.
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
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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 series 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 error 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
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 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
-------
Each Fund is a separate taxable entity. The Real Estate Securities and
Internet Tollkeeper Funds have elected to be treated and intend 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 securities and securities of other
regulated investment companies) or two or more issuers
B-84
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 under current
law to 65% 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 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
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
B-85
In order to avoid a 4% federal excise tax, each Fund must 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. Each Fund
anticipates that it 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. 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. These amounts are available to be carried forward to offset future capital
gains to the extent permitted by the Code and applicable tax regulations. At
December 31, 2000, the Funds had no capital loss carry forwards for federal tax
purposes.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
B-86
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foregoing currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result being either no dividends being paid or a portion of a Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund anticipates that it will be subject to foreign taxes on its
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.
If a Fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or capital gain)
or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. In some cases, elections
may be available that would ameliorate these adverse tax consequences, but such
elections would require the Fund to include each year certain amounts as income
or gain (subject to the distribution requirements described above) without a
concurrent receipt of cash. Each Fund may limit and/or manage its holdings in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
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
B-87
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.Taxable U.S. Shareholders - Distributions ----------------------------------------- For U.S. federal income tax purposes, distributions by a Fund, whether reinvested in additional shares or paid in cash, generally will be taxable to shareholders who are subject to tax. Shareholders receiving a distribution in the form of newly issued shares will be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of cash they would have received had they elected to receive cash and will have a cost basis in each share received equal to such amount divided by the number of shares received. Distributions from investment company taxable income for the year will be taxable as ordinary income. Distributions designated as derived from a Fund's dividend income, if any, that would be eligible for the dividends received deduction if such Fund were not a regulated investment company may be eligible, for the dividends received deduction for corporate shareholders. The dividends-received deduction, if available, is reduced to the extent the shares with respect to which the dividends are received are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held for less than a minimum period, generally 46 days. The entire dividend, including the deducted amount, is considered in determining the excess, if any, of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its liability for the federal alternative minimum tax, and the dividend may, if it is treated as an "extraordinary dividend" under the Code, reduce such shareholder's tax basis in its shares of a Fund. Capital gain dividends (i.e., dividends from net capital gain) if designated as such in a written notice to shareholders mailed not later than 60 days after a Fund's taxable year closes, will be taxed to shareholders as long-term capital gain regardless of how long shares have been held by shareholders, but are not eligible for the dividends received deduction for corporations. Such long-term capital gain will be taxed at a maximum rate of 20% (10% for those shareholders in the 15% tax bracket.) In addition, any long-term gain distributions related to assets held for more than five years and sold after December 31, 2000 will be taxed at a maximum rate of 8% for those shareholders in the 15% tax bracket. For taxpayers in higher tax brackets, the capital gains tax rate will be reduced from 20% to 18% for long-term gain distributions related to assets acquired after December 31, 2000 and held for more than five years. Distributions, if any, that are in excess of a Fund's current and accumulated earnings and profits will first reduce a shareholder's tax basis in his shares and, after such basis is reduced to zero, will generally constitute capital gains to a shareholder who holds his shares as capital assets. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions, and certain prohibited transactions is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. B-88
Taxable U.S. Shareholders - Sale of Shares
------------------------------------------
When a shareholder's shares are sold, redeemed or otherwise disposed of
in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. (To aid in computing its tax basis, a
shareholder should generally retain its account statement for the period that it
held shares). If the shareholder holds the shares as a capital asset at the time
of sale, the character of the gain or loss should be capital, and treated as
long-term if the shareholder's holding period is more than one year, and
short-term otherwise. In general, the maximum long-term capital gain rate will
be 20% for capital gains on assets held more than one year (10% for those
shareholders in the 15% tax bracket.) In addition, gains related to the sale of
shares held for more than five years and sold after December 31, 2000 will be
taxed at a maximum rate of 8% for those shareholders in the 15% tax bracket. For
shareholders in higher tax brackets, the capital gains tax rate will be reduced
from 20% to 18% for any shares acquired after December 31, 2000 (or
marked-to-market at the beginning of 2001) and held for more than five years.
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Fund will not
be taken into account in determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the newly-acquired
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from dividends (including capital gain dividends)
and share redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding
B-89
provisions are applicable, any such dividends and proceeds, whether paid in cash
or reinvested in additional shares, will be reduced by the amounts required to
be withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. If a shareholder does not have a TIN, it should
apply for one immediately by contacting its local office of the Social Security
Administration or the Internal Revenue Service (IRS). Backup withholding could
apply to payments relating a shareholder's account while it is waiting receipt
of a TIN. Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfer to Minors Act, the TIN of the
minor should be furnished.
Non-U.S. Shareholders
---------------------
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by a
Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with the proper IRS Form W-8
(i.e., W-8 BEN, W-8 ECI, W-8 IMY or W-8 EXP) or an acceptable substitute may be
subject to backup withholding at the rate of 31% on capital gain dividends and
the proceeds of redemptions and exchanges. Also, non-U.S. shareholders may be
subject to estate tax. Each shareholder who is not a U.S. person should consult
his or her tax adviser regarding the U.S. and non-U.S. tax consequences of
ownership of shares of and receipt of distributions from the Funds.
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
B-90
consequences for shareholders different from those of a direct investment in such Fund's portfolio securities. Shareholders should consult their own tax advisers concerning these matters.FINANCIAL STATEMENTS The audited financial statements and related report of Ernst & Young LLP, independent auditors, contained in each Fund's 2000 Annual Report are incorporated by reference. The financial statements in each Fund's Annual Report have been incorporated by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements and financial highlights included in each Fund's Annual Report for periods ending on or before December 31, 1999 were audited by Arthur Andersen LLP, the Funds' former independent auditors. The reports of Arthur Andersen LLP dated February 16, 2000 and February 17, 2000 with respect to the Real Estate Securities Fund and Internet Tollkeeper Fund, respectively, on the Funds' financial statements included in each Fund's Annual Report to Shareholders for the fiscal year or period ended December 31, 1999, is also incorporated herein by reference. No other parts of any Annual Report are incorporated by reference herein. A copy of the Annual Reports may be obtained upon request and without charge by writing Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606 or by calling Goldman, Sachs & Co., at the telephone number on the back cover of each Fund's Prospectus. OTHER INFORMATION Each Fund will 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.) B-91
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. Certain Service Organizations or institutions may enter into
sub-transfer agency agreements with the Trust or Goldman Sachs with respect to
their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out
of their own assets, compensation to Authorized Dealers, Service Organizations
and other financial intermediaries ("Intermediaries") for the sale and
distribution of Shares of the Funds and/or for the servicing of those shares.
These payments ("Additional Payments") would be in addition to the payments by
the Funds described in the Funds' Prospectus and this Additional Statement for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to Intermediaries as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Funds and payments for
providing extra employee training and information relating to the Funds;
"listing" fees for the placement of the Funds on an Intermediary's list of
mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Funds; "marketing support" fees for
providing assistance in promoting the sale of the Funds' shares; and payments
for the sale of shares and/or the maintenance of share balances. In addition,
the Investment Adviser, Distributor and/or their affiliates may make Additional
Payments for subaccounting, administrative and/or shareholder processing
services that are in addition to the shareholder administration, servicing and
processing fees paid by the Funds. The Additional Payments made by the
Investment Adviser, Distributor and their affiliates may be a fixed dollar
amount, may be based on the number of customer accounts maintained by an
Intermediary, or may be based on a percentage of the value of shares sold to, or
held by, customers of the Intermediary involved, and may be different for
different Intermediaries. Furthermore, the Investment Adviser, Distributor
and/or their affiliates may, to the extent permitted by applicable regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales contests
and/or promotions. The Investment Adviser, Distributor and their affiliates may
also pay for the travel expenses, meals, lodging and entertainment of
Intermediaries and their salespersons and guests in connection with educational,
sales and promotional programs subject to applicable NASD regulations.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
The Prospectuses 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
B-92
securities offered by the Prospectuses. Certain portions of the Registration
Statement have been omitted from the Prospectuses 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.
Statements contained in the Prospectuses 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 Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
DISTRIBUTION AND SERVICE PLANS
(Class A Shares, Class B Shares and Class C Shares Only)
Distribution and Service Plans. As described in the Prospectus, the
Trust has adopted, on behalf of Class A, Class B and Class C Shares of each
Fund, distribution and service plans (each a "Plan") pursuant to Rule 12b-1
under the Act. See "Shareholder Guide - Distribution Services and Fees" in the
Prospectus.
The Plans for each Fund were most recently approved on April 24, 2001,
in each instance by a majority vote of the Trustees of the Trust, including a
majority of the non-interested Trustees of the Trust who have no direct or
indirect financial interest in the Plans, cast in person at a meeting called for
the purpose of approving the Plans.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75%, per annum of a Fund's average daily net assets
attributable to Class A, Class B and Class C Shares respectively, of such Fund.
Under the Plans for Class A, Class B and Class C Shares, Goldman Sachs is also
entitled to received a separate fee for personal and account maintenance
services equal to an annual basis of 0.25% of each Fund's average daily net
assets attributable to Class A (Real Estate Securities Fund only), Class B or
Class C Shares. Goldman Sachs has voluntarily agreed to waive a portion of the
distribution and services fees equal, on an annual basis, to 0.25% of the
average daily net assets attributable to Class A Shares of the Real Estate
Securities Fund. With respect to Class A Shares, the Distributor at its
discretion may use compensation for distribution services paid under the Plan
for personal and account maintenance services and expenses so long as such total
compensation under the Plan does not exceed the maximum cap on "service fees"
imposed by the NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class A, Class B and Class C
Shares may be sold by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A,
Class B and Class C Shares. To the extent such fees are not paid to such
dealers, Goldman
B-93
Sachs may retain such fee as compensation for its services and expenses of
distributing the Funds' Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of each Fund's Class A,
Class B and Class C Shares, will provide to the Trustees of the Trust for their
review, and the Trustees of the Trust will review at least quarterly, a written
report of the services provided and amounts expended by Goldman Sachs under the
Plans and the purposes for which such services were performed and expenditures
were made.
The Plans will remain in effect until May 1, 2002 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation without approval of a majority of the outstanding
Class A, Class B or Class C Shares of the affected Fund and share class. All
material amendments of a Plan must also be approved by the Trustees of the Trust
in the manner described above. A Plan may be terminated at any time as to any
Fund without payment of any penalty by a vote of a majority of the
non-interested Trustees of the Trust or by vote of a majority of the Class A,
Class B or Class C Shares, respectively, of the affected Fund and share class.
If a Plan was so terminated, and no successor plan was adopted, the Fund would
cease to make payments to Goldman Sachs under the Plan and Goldman Sachs would
be unable to recover the amount of any of its unreimbursed expenditures. So long
as a Plan is in effect, the selection and nomination of non-interested Trustees
of the Trust will be committed to the discretion of the non-interested Trustees
of the Trust. The Trustees of the Trust have determined that in their judgment
there is a reasonable likelihood that the Plans will benefit the Funds and their
Class A, Class B and Class C Shareholders.
The following chart shows the distribution and service fees paid to
Goldman Sachs for the fiscal years ended December 31, 2000, December 31, 1999
and December 31, 1998 by each applicable Fund then in existence pursuant to the
Class A Plan:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Real Estate Securities Fund/1/ $ 245,225 $237,988 $1,681
Internet Tollkeeper Fund/1/ $2,361,606 130,302 N/A
__________________
/1/ The Class A Share class of the Real Estate Securities and Internet
Tollkeeper Funds commenced operations on July 27, 1998 and October 1, 1999,
respectively.
The following chart shows the distribution and service fees that would
have been paid to Goldman Sachs for the fiscal years ended December 31, 2000,
December 31, 1999 and
B-94
December 31, 1998 by each applicable Fund then in existence pursuant to the Class A Plan, without the voluntary limitations then in effect:Fiscal year ended Fiscal year ended Fiscal year ended December 31, 2000 December 31, 1999 December 31, 1998 ----------------- ----------------- ----------------- Real Estate Securities Fund/1/ $ 491,225 $475,977 $2,963 Internet Tollkeeper Fund/1/ $2,361,606 130,302 N/A __________________ /1/ The Class A Share class of the Real Estate Securities and Internet Tollkeeper Funds commenced operations on July 27, 1998 and October 1, 1999, respectively. B-95
The following chart shows the distribution and service fees paid to
Goldman Sachs for the fiscal years ended December 31, 2000, December 31, 1999
and December 31, 1998 by each applicable Fund then in existence pursuant to the
Class B Plan:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Real Estate Securities Fund/1/ $ 27,470 $ 1,779 $31
Internet Tollkeeper Fund/1/ $8,585,346 478,409 N/A
__________________
/1/ The Class B Share class of the Real Estate Securities and Internet
Tollkeeper Funds commenced operations on July 27, 1998 and October 1, 1999,
respectively.
The following chart shows the distribution and service fees paid to
Goldman Sachs for the fiscal years ended December 31, 2000, December 31, 1999
and December 31, 1998 by each applicable Fund then in existence pursuant to the
Class C Plan:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Real Estate Securities Fund/1/ $ 17,666 $ 2,309 $6
Internet Tollkeeper Fund/1/ $4,985,213 285,912 N/A
_____________________
/1/ The Class C Share class of the Real Estate Securities and Internet
Tollkeeper Funds commenced operations on July 27, 1998 and October 1, 1999,
respectively.
B-96
During the fiscal year ended December 31, 2000, Goldman Sachs incurred
the following expenses in connection with distribution under the Class A Plan of
each applicable Fund:
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
------------- --------- -------- ------------ -----------
Fiscal Year Ended December 31, 2000:
Real Estate Securities Fund $ 383,208 $ 449,543 $ 312,649 $17,346 $ 89,508
Internet Tollkeeper Fund 3,959,102 1,584,054 1,129,621 58,132 336,490
___________________________
/1/ Advance commissions paid to dealers of 1% on Class A Shares are
considered deferred assets which are amortized over a period of 1 year;
amounts presented above reflect amortization expense recorded during the
period presented.
B-97
During the fiscal year ended December 31, 2000, Goldman Sachs incurred
the following expenses in connection with distribution under the Class B Plan of
each applicable Fund with Class B Shares:
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
Fiscal Year Ended December 31, 2000:
Real Estate Securities Fund $ 19,787 $ 7,115 $ 14,722 $ 509 $ 3,553
Internet Tollkeeper Fund 9,624,414 873,897 882,716 45,005 270,298
___________________________
/1/ Advance commissions paid to dealers of 4% on Class B shares are
considered deferred assets which are amortized over a period of 6 years;
amounts presented above reflect amortization expense recorded during the
period presented.
B-98
During the fiscal year ended December 31, 2000, Goldman Sachs incurred
the following expenses in connection with distribution under the Class C Plan of
each applicable Fund with Class C Shares:
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
------------ --------- -------- ------------ -----------
Fiscal Year Ended December 31, 2000:
Real Estate Securities Fund $ 17,236 $ 5,091 $ 10,093 $ 330 $ 2,448
Internet Tollkeeper Fund 5,074,048 522,851 521,563 26,603 160,395
----------- --------- --------- -------- ---------
____________________________
/1/ Advance commissions paid to dealers of 1% on Class C shares are considered
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
B-99
The information contained in the preceding tables reflects amounts expended by Goldman Sachs, which amounts are in excess of the compensation received by Goldman Sachs under the Plans. The payments under the Plans were used by Goldman Sachs to compensate it for the expenses shown above on a pro-rata basis.OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS, EXCHANGES AND DIVIDENDS (Class A Shares, Class B Shares and Class C Shares Only) Maximum Sales Charges --------------------- Class A Shares of each Fund are sold with a maximum sales charge of 5.5%. Using the net asset value per share as of December 31, 2000, the maximum offering price of each Fund's Class A shares would be as follows: Maximum Offering Net Asset Sales Price to Value Charge Public ----- ------ ------ Internet Tollkeeper Fund $11.90 5.5% $12.59 Real Estate Securities Fund $11.00 5.5% $11.64 The following information supplements the information in the Prospectus under the captions "Shareholder Guide" and "Dividends." Please see the Prospectus for more complete information. Other Purchase Information -------------------------- If shares of a Fund are held in a "street name" account with an Authorized Dealer, all recordkeeping, transaction processing and payments of distributions relating to the beneficial owner's account will be performed by the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have no record of the beneficial owner's transactions, a beneficial owner should contact the Authorized Dealer to purchase, redeem or exchange shares, to make changes in or give instructions concerning the account or to obtain information about the account. The transfer of shares in a "street name" account to an account with another dealer or to an account directly with the Fund involves special procedures and will require the beneficial owner to obtain historical purchase information about the shares in the account from the Authorized Dealer. Right of Accumulation (Class A) ------------------------------- A Class A shareholder qualifies for cumulative quantity discounts if the current purchase price of the new investment plus the shareholder's current holdings of existing Class A Shares (acquired by purchase or exchange) of Fund and Class A Shares of any other Goldman Sachs Fund (as defined in the Prospectus) total the requisite amount for receiving a discount. For B-100
example, if a shareholder owns shares with a current market value of $65,000 and
purchases additional Class A Shares of any Goldman Sachs Fund with a purchase
price of $45,000, the sales charge for the $45,000 purchase would be 3.75% (the
rate applicable to a single purchase of $100,000 or more). Class A Shares
purchased without the imposition of a sales charge may not be aggregated with
Class A Shares purchased subject to a sales charge. Class A Shares of the Funds
and any other Goldman Sachs Fund purchased (i) by an individual, his spouse and
his children, and (ii) by a trustee, guardian or other fiduciary of a single
trust estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, (i) shares of the Funds and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by all other Private
Client Services accounts, and (ii) shares of the Funds and any other Goldman
Sachs Fund purchased by an existing client of Goldman.com will be combined with
Class A Shares and other assets held in the client's Goldman.com account. In
addition, Class A Shares of the Funds and Class A Shares of any other Goldman
Sachs Fund purchased by partners, directors, officers or employees of the same
business organization, groups of individuals represented by and investing on the
recommendation of the same accounting firm, certain affinity groups or other
similar organizations (collectively, "eligible persons") may be combined for the
purpose of determining whether a purchase will qualify for the right of
accumulation and, if qualifying, the applicable sales charge level. This right
of accumulation is subject to the following conditions: (i) the business
organization's, group's or firm's agreement to cooperate in the offering of the
Funds' shares to eligible persons; and (ii) notification to the relevant Fund at
the time of purchase that the investor is eligible for this right of
accumulation. In addition, in connection with SIMPLE IRA accounts, cumulative
quantity discounts are available on a per plan basis if (i) your employee has
been assigned a cumulative discount number by Goldman Sachs, and (ii) your
account, alone or in combination with the accounts of other plan participants
also invested in Class A Shares of the Goldman Sachs Funds, totals the requisite
aggregate amount as described in the Prospectus.
Statement of Intention (Class A)
--------------------------------
If a shareholder anticipates purchasing at least $50,000 of Class A
Shares of a Fund alone or in combination with Class A Shares of any other
Goldman Sachs Fund within a 13-month period, the shareholder may purchase shares
of the Fund at a reduced sales charge by submitting a Statement of Intention
(the "Statement"). Shares purchased pursuant to a Statement will be eligible for
the same sales charge discount that would have been available if all of the
purchases had been made at the same time. The shareholder or his Authorized
Dealer must inform Goldman Sachs that the Statement is in effect each time
shares are purchased. There is no obligation to purchase the full amount of
shares indicated in the Statement. A shareholder may include the value of all
Class A Shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A Shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually
B-101
invested. For purposes of satisfying the amount specified on the Statement, the
gross amount of each investment, exclusive of any appreciation on shares
previously purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related
escrow agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
-------------------------------------------------
Shareholders may receive dividends and distributions in additional
shares of the same class of a Fund or they may elect to receive them in cash or
shares of the same class of other Goldman Sachs Funds or ILA Service Shares of
the Prime Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if they
hold Class A Shares of a Fund, or ILA, Class B or Class C Shares of the Prime
Obligations Portfolio, if they hold Class B or Class C Shares of a Fund (the
"ILA Portfolios").
A Fund shareholder should obtain and read the prospectus relating to any
other Fund, Goldman Sachs Fund or ILA Portfolio and its shares and consider its
investment objective, policies and applicable fees before electing
cross-reinvestment into that Fund. The election to cross-reinvest dividends and
capital gain distributions will not affect the tax treatment of such dividends
and distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends and
distributions in shares of other Goldman Sachs Funds or ILA Portfolios is
available only in states where such reinvestment may legally be made.
Automatic Exchange Program
--------------------------
A Fund shareholder may elect to exchange automatically a specified
dollar amount of shares of a Fund for shares of the same class or an equivalent
class of any other Goldman Sachs Fund into an identical account or an account
registered in a different name or with a different address, social security or
other taxpayer identification number, provided that the account in the acquired
fund has been established, appropriate signatures have been obtained and the
minimum initial investment requirement has been satisfied. A Fund shareholder
should obtain and read the prospectus relating to any other Goldman Sachs Fund
and its shares and consider its investment objective, policies and applicable
fees and expenses before electing an automatic exchange into that Goldman Sachs
Fund.
Class C Exchanges
-----------------
As stated in the Prospectus, Goldman Sachs normally begins paying the
annual 0.75% distribution fee on Class C Shares to Authorized Dealers after the
shares have been held for one year. When an Authorized Dealer enters into an
appropriate agreement with Goldman Sachs and stops receiving this payment on
Class C Shares that have been beneficially owned by the Authorized Dealer's
customers for at least ten years, those Class C Shares may be exchanged for
Class A Shares (which bear a lower distribution fee) of the
B-102
same Fund at their relative NAV without a sales charge in recognition of the
reduced payment to the Authorized Dealer.
Systematic Withdrawal Plan
--------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $5,000. The
Systematic Withdrawal Plan provides for monthly payments to the participating
shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. The maintenance of a withdrawal plan concurrently with purchases of
additional Class A, Class B or Class C Shares would be disadvantageous because
of the sales charge imposed on purchases of Class A Shares or the imposition of
a CDSC on redemptions of Class A, Class B or Class C Shares. The CDSC applicable
to Class A, Class B or Class C Shares redeemed under a systematic withdrawal
plan may be waived. See "Shareholder Guide" in the Prospectus. In addition, each
withdrawal constitutes a redemption of shares, and any gain or loss realized
must be reported for federal and state income tax purposes. A shareholder should
consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to
request a Systematic Withdrawal Plan, please write or call the Transfer
Agent.
B-103
SERVICE PLAN AND
SHAREHOLDER ADMINISTRATION PLAN
(Service Shares Only)
The Funds have adopted a service plan and a separate shareholder
administration plan (the "Plans") with respect to its Service Shares which
authorizes it to compensate Service Organizations for providing personal and
account maintenance and certain shareholder administration services to their
customers who are or may become beneficial owners of such Shares. Pursuant to
the Plans, each Fund enters into agreements with Service Organizations which
purchase Service Shares of the Fund on behalf of their customers ("Service
Agreements"). Under such Service Agreements the Service Organizations may
perform some or all of the following services:
(a) Personal and account maintenance services, including: (i)
providing facilities to answer inquiries and respond to correspondence with
customers and other investors about the status of their accounts or about other
aspects of the Trust or the applicable Fund; (ii) acting as liaison between the
Service Organization's customers and the Trust, including obtaining information
from the Trust and assisting the Trust in correcting errors and resolving
problems; (iii) providing such statistical and other information as may be
reasonably requested by the Trust or necessary for the Trust to comply with
applicable federal or state law; (iv) responding to investor requests for
prospectuses; (v) displaying and making prospectuses available on the Service
Organization's premises; and (vi) assisting customers in completing application
forms, selecting dividend and other account options and opening custody accounts
with the Service Organization.
(b) Shareholder administration services, including (i) acting or
arranging for another party to act, as recordholder and nominee of the Service
Shares beneficially owned by the Service Organization's customers; (ii)
establishing and maintaining individual accounts and records with respect to the
Service Shares owned by each customer; (iii) processing customer orders to
purchase, redeem and exchange Service Shares; (iv) receiving and transmitting
funds representing the purchase price or redemption proceeds of such Service
Shares; (v) processing dividend payments on behalf of customers; and (vi)
performing other related services which do not constitute "any activity which is
primarily intended to result in the sale of shares" within the meaning of Rule
12b-1 under the Act or "personal and account maintenance services" within the
meaning of the NASD's Conduct Rules.
As compensation for such services, each Fund will pay each Service
Organization a service fee in an amount up to 0.25% (on an annualized basis) for
personal and account maintenance services, plus an additional 0.25% (annualized)
for shareholder administration services, of the average daily net assets of the
Service Shares of such Fund attributable to or held in the name of such Service
Organization.
B-104
For the fiscal years ended December 31, 2000, December 31, 1999 and
December 31, 1998, fees were paid by the Funds then in existence to Service
Organizations under Servicing Agreements as follows:
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Real Estate Fund/1/ $ 7 $ 7 $ 3
Internet Tollkeeper Fund/1/ $ 1,255 39 N/A
--------------------------
/1/ The Real Estate Securities and Internet Tollkeeper Funds commenced
operations on July 27, 1998 and October 1, 1999, respectively.
The Funds have adopted the service plan pursuant to Rule 12b-1 under the
Act in order to avoid any possibility that service fees paid to the Service
Organizations pursuant to the Service Agreements might violate the Act. Rule
12b-1, which was adopted by the SEC under the Act, regulates the circumstances
under which an investment company or series thereof may bear expenses associated
with the distribution of its shares. In particular, such an investment company
or series thereof cannot engage directly or indirectly in financing any activity
which is primarily intended to result in the sale of shares issued by the
company unless it has adopted a plan pursuant to, and complies with the other
requirements of, such Rule. The Trust believes that fees paid for the services
provided in the service plan and described above are not expenses incurred
primarily for effecting the distribution of Service Shares. However, should such
payments be deemed by a court or the SEC to be distribution expenses, such
payments would be duly authorized by the Plan. The shareholder administration
plan has not been adopted pursuant to Rule 12b-1 under the Act.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult their legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under some
state securities laws, banks and other financial institutions purchasing Service
Shares on behalf of their customers may be required to register as dealers.
The Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, most
recently voted to approve the Plans and related Service
B-105
Agreements with respect to the Funds on April 24, 2001 in each instance at a
meeting called for the purpose of voting on such Plans and Service Agreements.
The Plans and related Service Agreements will remain in effect until May 1, 2002
and will continue in effect thereafter only if such continuance is specifically
approved annually by a vote of the Trustees in the manner described above. The
service plan may not be amended (but the shareholder administration plan may be
amended) to increase materially the amount to be spent for the services
described therein without approval of the shareholders of the affected Fund's
Service Class and all material amendments of the Plans must also be approved by
the Trustees in the manner described above. The Plans may be terminated at any
time by a majority of the Trustees as described above or by a vote of a majority
of the outstanding Service Shares of the affected Fund. The Service Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Trustees as described above or by a vote of a majority of the
outstanding Service Shares of the affected Fund on not more than sixty (60)
days' written notice to any other party to the Service Agreements. The Service
Agreements will terminate automatically if assigned. So long as the Plans are in
effect, the selection and nomination of those Trustees who are not interested
persons will be committed to the discretion of the non-interested Trustees. The
Trustees have determined that, in its judgment, there is a reasonable likelihood
that the Plans will benefit the Funds and the holders of Service Shares.
B-106
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.
Moody's commercial paper ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. These obligations have an
original maturity not exceeding one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
1-A
"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.
Fitch short-term ratings apply to time horizons of less than 12 months for
most obligations, or up to three years for U.S. public finance securities, and
thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner. The following summarizes the rating categories
used by Fitch for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest 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 minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic
conditions.
2-A
"C" - Securities possess high default risk. This designation indicates a
capacity for meeting financial commitments which is solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
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.
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
3-A
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" - An obligation rated "C" is currently highly vulnerable to nonpayment.
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.
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
4-A
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 unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba" - Bonds are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
"B" - Bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa " - Bonds are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
"Ca" - Bonds represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
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 long-term ratings used by Fitch:
"AAA" - Securities 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" - Securities 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.
5-A
"A" - Securities 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" - Securities 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" - Securities 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" - Securities 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" - Securities 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.
"DDD," "DD" and "D" - Securities 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.
6-A
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.
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 superior credit quality.
Excellent protection afforded by established cash flows, highly reliable
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes strong credit quality. Margins
of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes acceptable credit. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
"SG" - This designation denotes speculative-grade credit quality. Debt
instruments in this category lack sufficient margins of protection.
Fitch uses the same ratings for municipal securities as described above for
other short-term credit ratings.
7-A
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.
1-B
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 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.
2-B
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 fifty offices around the world Goldman Sachs employs over 20,000
professionals focused on opportunities in major markets.
The number one underwriter of all international equity issues from
1989-1999.
The number one lead manager of U.S. common stock offerings from 1989-
1999.*
The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1999).
_____________________
* Source: Securities Data Corporation. Common stock ranking excludes
REITs Investment Trusts and Rights.
3-B
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 95 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 Telekom public Dow Jones Industrial Average breaks 6000 1997 Goldman Sachs Asset Management increases assets under management by 100% over 1996 Dow Jones Industrial Average breaks 7000 4-B
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 Goldman Sachs Asset Management launches the Goldman Sachs Internet Tollkeeper Fund; becomes the year's second most successful new fund launch 2000 Goldman Sachs Research Select Fund launches; first day sales are the highest ever for any Goldman Sachs Fund 5-B
APPENDIX C
----------
Statement of Intention
(applicable only to Class A shares)
If a shareholder anticipates purchasing $50,000 or more of Class A
Shares of a Fund alone or in combination with Class A Shares of another Goldman
Sachs Fund within a 13-month period, the shareholder may obtain shares of the
Fund at the same reduced sales charge as though the total quantity were invested
in one lump sum by checking and filing the Statement of Intention in the Account
Application. Income dividends and capital gain distributions taken in additional
shares will not apply toward the completion of the Statement of Intention.
To ensure that the reduced price will be received on future purchases,
the investor must inform Goldman Sachs that the Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5%
of the dollar amount specified on the Account Application will be held in escrow
by the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked
to remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the sales
charge, the Transfer Agent will redeem, pursuant to the authority given by the
investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
1-C
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Statement of Investments
December 31, 2000
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
|
|
|
*
|
Non-income producing security.
|
|
Ù
|
Joint repurchase agreement was entered into on December 29, 2000.
|
|
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 Depositary Receipt
|
|
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Statement of Assets and Liabilities
December 31, 2000
| Assets: | ||||
| Investment in securities, at value (identified cost $2,309,140,779) | $1,727,063,164 | |||
| Cash | 85,986 | |||
| Receivables: | ||||
| Investment securities sold | 29,442,093 | |||
| Fund shares sold | 7,096,440 | |||
| Dividends and interest | 24,865 | |||
|
|
||||
| Total assets | 1,763,712,548 | |||
|
|
||||
| Liabilities: | ||||
| Payables: | ||||
| Fund shares repurchased | 23,817,282 | |||
| Investment securities purchased | 5,105,650 | |||
| Amounts owed to affiliates | 2,941,488 | |||
| Accrued expenses and other liabilities | 435,677 | |||
|
|
||||
| Total liabilities | 32,300,097 | |||
|
|
||||
| Net Assets: | ||||
| Paid-in capital | 2,466,294,123 | |||
| Accumulated net realized loss on investment transactions | (152,804,057 | ) | ||
| Net unrealized loss on investments | (582,077,615 | ) | ||
|
|
||||
| NET ASSETS | $1,731,412,451 | |||
|
|
||||
| Net asset value, offering and redemption price per share: (a) | ||||
| Class A | $11.90 | |||
| Class B | $11.79 | |||
| Class C | $11.78 | |||
| Institutional | $11.97 | |||
| Service | $11.88 | |||
|
|
||||
| Shares outstanding: | ||||
| Class A | 55,884,906 | |||
| Class B | 52,757,295 | |||
| Class C | 28,818,091 | |||
| Institutional | 8,741,557 | |||
| Service | 47,594 | |||
|
|
||||
| Total shares outstanding, $.001 par value (unlimited number of shares authorized) | 146,249,443 | |||
|
|
||||
|
(a)
|
Maximum public offering price per share (NAV per share multiplied by 1.0582) for Class A Shares is $12.59. At redemption,
Class B and Class C Shares may be subject to a contingent deferred sales charge, assessed on the amount equal to the lesser of the current net asset value or the original purchase price of the shares.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Statement of Operations
For the Year Ended December 31, 2000
| Investment income: | |||
| Dividends (a) | $ 944,268 | ||
| Interest | 7,885,794 | ||
|
|
|||
| Total income | 8,830,062 | ||
|
|
|||
| Expenses: | |||
| Management fees | 24,341,896 | ||
| Distribution and Service fees (b) | 15,932,165 | ||
| Transfer Agent fees (c) | 4,426,223 | ||
| Registration fees | 523,740 | ||
| Custodian fees | 243,102 | ||
| Printing fees | 239,038 | ||
| Professional fees | 29,773 | ||
| Trustee fees | 6,833 | ||
| Service Share fees | 1,255 | ||
| Other | 394,154 | ||
|
|
|||
| Total expenses | 46,138,179 | ||
|
|
|||
| Less — expense reductions | (57,049 | ) | |
|
|
|||
| Net expenses | 46,081,130 | ||
|
|
|||
| NET INVESTMENT LOSS | (37,251,068 | ) | |
|
|
|||
| Realized and unrealized loss on investment transactions: | |||
| Net realized loss from investment transactions | (143,421,240 | ) | |
| Net change in unrealized loss on investments | (927,470,699 | ) | |
|
|
|||
| Net realized and unrealized loss on investment transactions | (1,070,891,939 | ) | |
|
|
|||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $(1,108,143,007 | ) | |
|
|
|||
|
(a)
|
Foreign taxes withheld on dividends were $24,401.
|
|
(b)
|
Class A, Class B and Class C had Distribution and Service fees of $2,361,606, $8,585,346 and $4,985,213,
respectively.
|
|
(c)
|
Class A, Class B, Class C, Institutional Class and Service Class had Transfer Agent fees of $1,794,821, $1,631,216, $947,190,
$52,896 and $100, respectively.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Statements of Changes in Net Assets
|
For the Year
Ended December 31, 2000 |
For the Period
Ended December 31, 1999 (a) |
||||||
|---|---|---|---|---|---|---|---|
| From operations: | |||||||
| Net investment loss | $ (37,251,068 | ) | $ (2,291,334 | ) | |||
| Net realized gain (loss) on investment transactions | (143,421,240 | ) | 28,576,273 | ||||
| Net change in unrealized gain (loss) on investments | (927,470,699 | ) | 345,393,084 | ||||
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations | (1,108,143,007 | ) | 371,678,023 | ||||
|
|
|||||||
| Distributions to shareholders: | |||||||
| From net realized gain on investment transactions | |||||||
| Class A shares | (12,416,816 | ) | — | ||||
| Class B shares | (11,416,015 | ) | — | ||||
| Class C shares | (6,375,111 | ) | — | ||||
| Institutional shares | (1,864,030 | ) | — | ||||
| Service shares | (10,326 | ) | — | ||||
|
|
|||||||
| Total distributions to shareholders | (32,082,298 | ) | — | ||||
|
|
|||||||
| From share transactions: | |||||||
| Proceeds from sales of shares | 1,980,084,307 | 1,167,201,530 | |||||
| Reinvestment of dividends and distributions | 26,454,506 | — | |||||
| Cost of shares repurchased | (645,181,450 | ) | (28,599,160 | ) | |||
|
|
|||||||
| Net increase in net assets resulting from share transactions | 1,361,357,363 | 1,138,602,370 | |||||
|
|
|||||||
| TOTAL INCREASE | 221,132,058 | 1,510,280,393 | |||||
|
|
|||||||
| Net assets: | |||||||
| Beginning of year | 1,510,280,393 | — | |||||
|
|
|||||||
| End of year | $ 1,731,412,451 | $1,510,280,393 | |||||
|
|
|||||||
|
(a)
|
Commencement of operations was October 1, 1999 for all classes.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Notes to Financial Statements
December 31, 2000
|
1. ORGANIZATION
|
|
Goldman Sachs Trust (the “Trust”) is a Delaware business trust registered under the Investment Company Act of 1940
(as amended) as an open-end management investment company. The Trust includes the Goldman Sachs Internet Tollkeeper Fund (the “Fund”). The Fund is a diversified portfolio offering five classes of shares — Class A, Class B,
Class C, Institutional and Service.
|
|
2. SIGNIFICANT ACCOUNTING POLICIES
|
|
The following is a summary of the significant accounting policies consistently followed by the Fund. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates 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 foreign securities exchange or the NASDAQ system are valued daily at their last sale price on the principal exchange on which they are traded. If no sale occurs, securities are valued at the last bid price. Unlisted
equity and debt securities 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. Securities for which quotations are not readily available, are valued at fair value using methods approved by the Trust’s 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 investments are calculated using the identified-cost basis. Dividend income is recorded on the ex-dividend date, net of
foreign withholding taxes where applicable. Dividends for which the Fund has the choice to receive either cash or stock are recognized as investment income in an amount equal to the cash dividend. This amount is also used as an estimate of the fair
value of the stock received. Interest income is determined on the basis of interest accrued, premium amortized and discount earned.
|
|
Net investment income (other than class specific expenses) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund based upon the relative proportion of net assets of each class.
|
|
C. Expenses —
Expenses incurred by
the Trust which do not specifically relate to an individual fund of the Trust are allocated to the funds on a straight-line or pro-rata basis depending upon the nature of the expense.
|
|
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service Plans. Each class of shares separately bears its respective class-specific Transfer Agency fees. Shareholders of Service Shares bear all expenses and fees paid to service
organizations.
|
|
D. Federal Taxes —
It is the
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 income and capital gains to its
shareholders. Accordingly, no federal tax provision is required. Income and capital gain distributions, if any, are declared and paid annually.
|
|
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the source of the Fund’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, depending on the type of book/tax differences that may exist.
|
|
Capital losses incurred after October 31 (post-October losses) within the
taxable year are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and will elect to defer net capital losses of $125,877,481 for
the fiscal year ended December 31, 2000. To the extent that the carryover losses are used to offset future capital gains, it is probable that the gain so offset will not be distributed to shareholders. |
|
The Trust had no capital loss carryforwards for federal tax
purposes.
|
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
At December 31, 2000, the aggregate cost of portfolio securities for federal
income tax purposes is $2,336,075,366. Accordingly, the gross unrealized gain on investments was $85,323,684 and the gross unrealized loss was $694,335,886, resulting in a net unrealized loss of $609,012,202.
|
|
E. Repurchase Agreements
— Repurchase
agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. During the term of a repurchase agreement, the value of the underlying securities, 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 Fund’s custodian.
|
|
F. Segregation Transactions —
The
Fund may enter into certain derivative transactions to seek to increase total return. Forward foreign currency exchange contracts, futures contracts, written options, mortgage dollar rolls, when-issued securities and forward commitments represent
examples of such transactions. As a result of entering into these transactions, the Fund is 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 unit of the Investment Management Division of Goldman, Sachs & Co. (“Goldman Sachs”), serves as investment adviser to the Fund. Under the Agreement, GSAM, subject to the general supervision of the Trust’s
Board of Trustees, manages the Fund’s portfolio. As compensation for the services rendered pursuant to the Agreement, the assumption of the expenses related thereto and administering the Fund’s business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly, at an annual rate equal to 1.00% of the average daily net assets of the Fund.
|
|
Goldman Sachs has voluntarily agreed to limit “Other Expenses” for
the Fund (excluding Management fees, Service Share fees, Distribution and Service fees, Transfer Agent fees, litigation and indemnification costs, taxes, interest, brokerage commissions, and extraordinary expenses) to the extent such expenses exceed
.06% of the average daily net assets of the Fund. For the year ended December 31, 2000, there was no expense reimbursement. However, the Fund has entered into certain expense offset arrangements with the custodian resulting in a reduction in the
Fund’s expenses. For the year ended December 31, 2000, the Custody fees were reduced by approximately $57,000 under such arrangements.
|
|
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the Class A sales load and Class B and Class C contingent deferred sales charges and has advised the Fund that it retained approximately $4,745,000 for the year ended December 31,
2000.
|
|
The Trust, on behalf of the Fund, has adopted Distribution and Service plans.
Under the Distribution and Service plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee for distribution and shareholder maintenance services equal, on an annual basis, to .25%, 1.00% and 1.00% of the average daily net assets
attributable to Class A, Class B and Class C Shares, respectively.
|
|
The Trust, on behalf of the Fund, has adopted a Service Plan. This Plan
allows for Service Shares to compensate service organizations for providing varying levels of account administration and shareholder liaison services to their customers who are beneficial owners of such shares. The Service Plan provides for
compensation to the service organizations in an amount up to .50% (on an annualized basis), of the average daily net asset value of the Service Shares.
|
|
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Fees
charged for such Transfer Agency services are calculated daily and payable monthly at an annual rate as follows: .19% of the average daily net assets for Class A, Class B and Class C Shares and .04% of the average daily net assets for Institutional
and Service Shares.
|
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
|
3. AGREEMENTS (continued)
|
|
At December 31, 2000, the Fund owed approximately $1,608,000, $1,042,000 and
$291,000 for Management, Distribution and Service and Transfer Agent fees, respectively.
|
|
4. PORTFOLIO SECURITIES TRANSACTIONS
|
|
The cost of purchases and proceeds of sales and maturities of securities (excluding short-term investments) for the year
ended December 31, 2000, were $3,190,825,460 and $1,844,996,118, respectively. For the year ended December 31, 2000, Goldman Sachs earned approximately $45,000 of brokerage commissions from portfolio transactions.
|
|
5. JOINT REPURCHASE AGREEMENT ACCOUNT
|
|
The Fund, together with other registered investment companies having management agreements with GSAM or its affiliates,
transfers uninvested cash into joint accounts, the daily aggregate balance of which is invested in one or more repurchase agreements.
|
|
At December 31, 2000, the Fund had an undivided interest in the repurchase
agreement in the following joint account which equaled $27,200,000 in principal amount. At December 31, 2000 the following repurchase agreements held in this joint account were fully collateralized by Federal Agency obligations.
|
|
6. CERTAIN RECLASSIFICATIONS
|
|
In accordance with AICPA Statement of Position 93-2, the Fund has reclassified $32,970,612 from paid-in capital to
accumulated net investment loss and $4,280,456 from accumulated net realized loss on investment transactions to accumulated net investment loss. These reclassifications have no impact on the net asset value of the Fund and are designed to present
the Fund’s capital accounts on a tax basis. Reclassifications result primarily from the difference in the tax treatment of net operating losses and organization costs.
|
|
7. LINE OF CREDIT FACILITY
|
|
Effective May 31, 2000, the Fund participates in a $350,000,000 committed, unsecured revolving line of credit facility. Prior
thereto, the Fund participated in a $250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving line of credit facility. Under the most restrictive arrangement, the Fund must own securities having a market value in excess of 400% of
the total bank borrowings. This facility is to be used solely for temporary or emergency purposes. The interest rate
7. LINE OF CREDIT FACILITY (continued)
|
|
on borrowings is based on the Federal Funds rate. The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the year ended December 31, 2000, the Fund did not have any borrowings under these facilities.
|
|
8. CHANGE IN INDEPENDENT AUDITOR
|
|
On October 26, 1999, the Board of Trustees of the Fund, upon the recommendation of the Board’s audit committee,
determined not to retain Arthur Andersen LLP and approved a change of the Fund’s independent auditors to Ernst & Young LLP. For the fiscal year ended December 31, 1999, Arthur Andersen LLP’s audit report contained no adverse opinion or
disclaimer of opinion; nor was their report qualified or modified as to uncertainty, audit scope, or accounting principles. Further, there were no disagreements between the Fund and Arthur Andersen LLP on accounting principles or practices,
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.
|
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
|
9. SUMMARY OF SHARE TRANSACTIONS
|
|
Share activity is as follows:
|
|
For the Year Ended December 31, 2000
|
For the Period Ended December 31, 1999
(a)
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Dollars | Shares | Dollars | ||||||||||
|
|
|||||||||||||
| Class A Shares | |||||||||||||
| Shares sold | 45,608,881 | $ 853,013,004 | 30,877,360 | $ 446,765,899 | |||||||||
| Reinvestment of dividends and distributions | 748,039 | 10,524,915 | — | — | |||||||||
| Shares repurchased | (20,372,806 | ) | (327,255,413 | ) | (976,568 | ) | (15,181,934 | ) | |||||
|
|
|||||||||||||
| 25,984,114 | 536,282,506 | 29,900,792 | 431,583,965 | ||||||||||
|
|
|||||||||||||
| Class B Shares | |||||||||||||
| Shares sold | 32,824,493 | 615,775,310 | 28,306,620 | 410,588,840 | |||||||||
| Reinvestment of dividends and distributions | 667,484 | 9,313,505 | — | — | |||||||||
| Shares repurchased | (8,708,908 | ) | (138,973,664 | ) | (332,394 | ) | (5,542,861 | ) | |||||
|
|
|||||||||||||
| 24,783,069 | 486,115,151 | 27,974,226 | 405,045,979 | ||||||||||
|
|
|||||||||||||
| Class C Shares | |||||||||||||
| Shares sold | 19,106,783 | 358,830,187 | 17,453,014 | 255,619,532 | |||||||||
| Reinvestment of dividends and distributions | 352,847 | 4,915,377 | — | — | |||||||||
| Shares repurchased | (7,791,870 | ) | (126,281,702 | ) | (302,683 | ) | (4,835,240 | ) | |||||
|
|
|||||||||||||
| 11,667,760 | 237,463,862 | 17,150,331 | 250,784,292 | ||||||||||
|
|
|||||||||||||
| Institutional Shares | |||||||||||||
| Shares sold | 8,391,336 | 151,507,146 | 3,805,337 | 54,197,768 | |||||||||
| Reinvestment of dividends and distributions | 119,474 | 1,690,559 | — | — | |||||||||
| Shares repurchased | (3,315,319 | ) | (52,404,910 | ) | (259,271 | ) | (3,039,125 | ) | |||||
|
|
|||||||||||||
| 5,195,491 | 100,792,795 | 3,546,066 | 51,158,643 | ||||||||||
|
|
|||||||||||||
| Service Shares | |||||||||||||
| Shares sold | 64,279 | 958,660 | 2,764 | 29,491 | |||||||||
| Reinvestment of dividends and distributions | 722 | 10,150 | — | — | |||||||||
| Shares repurchased | (20,171 | ) | (265,761 | ) | — | — | |||||||
|
|
|||||||||||||
| 44,830 | 703,049 | 2,764 | 29,491 | ||||||||||
|
|
|||||||||||||
| NET INCREASE | 67,675,264 | $1,361,357,363 | 78,574,179 | $1,138,602,370 | |||||||||
|
|
|||||||||||||
|
(a)
|
Commencement of operations was October 1, 1999 for all classes.
|
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
|
Income (loss) from
investment operations |
||||||||||||||||||
|
Net asset
value, beginning of period |
Net
investment loss (c) |
Net realized
and unrealized gain (loss) |
Total
income (loss) from investment operations |
Total
distributions to shareholders from net realized gains |
Net asset
value, end of period |
|||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||
| 2000 - Class A Shares |
$19.25
|
$(0.20)
|
$(6.94)
|
$(7.14)
|
$(0.21)
|
$11.90
|
||||||||||||
| 2000 - Class B Shares |
19.20
|
(0.33)
|
(6.87)
|
(7.20)
|
(0.21)
|
11.79
|
||||||||||||
| 2000 - Class C Shares |
19.19
|
(0.33)
|
(6.87)
|
(7.20)
|
(0.21)
|
11.78
|
||||||||||||
| 2000 - Institutional Shares |
19.25
|
(0.13)
|
(6.94)
|
(7.07)
|
(0.21)
|
11.97
|
||||||||||||
| 2000 - Service Shares |
19.23
|
(0.21)
|
(6.93)
|
(7.14)
|
(0.21)
|
11.88
|
||||||||||||
| FOR THE PERIOD ENDED DECEMBER 31, | ||||||||||||||||||
| 1999 - Class A Shares (Commenced October 1) |
10.00
|
(0.05)
|
9.30
|
9.25
|
—
|
19.25
|
||||||||||||
| 1999 - Class B Shares (Commenced October 1) |
10.00
|
(0.08)
|
9.28
|
9.20
|
—
|
19.20
|
||||||||||||
| 1999 - Class C Shares (Commenced October 1) |
10.00
|
(0.08)
|
9.27
|
9.19
|
—
|
19.19
|
||||||||||||
| 1999 - Institutional Shares (Commenced October 1) |
10.00
|
(0.03)
|
9.28
|
9.25
|
—
|
19.25
|
||||||||||||
| 1999 - Service Shares (Commenced October 1) |
10.00
|
(0.05)
|
9.28
|
9.23
|
—
|
19.23
|
||||||||||||
|
|
||||||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, a
complete redemption of
the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for periods less than one full year are not annualized. |
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
|
Ratios assuming no expense reductions |
|||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total
return (a) |
Net assets at end of period (in 000s) |
Ratio of
net expenses to average net assets |
Ratio of
net investment loss to average net assets |
Ratio of
expenses to average net assets |
Ratio of
net investment loss to average net assets |
Portfolio
turnover rate |
|||||||||||||
| (37.24 | )% | $664,994 | 1.50 | % | (1.13 | )% | 1.50 | % | (1.13 | )% | 82 | % | |||||||
| (37.65 | ) | 621,790 | 2.25 | (1.88 | ) | 2.25 | (1.88 | ) | 82 | ||||||||||
| (37.67 | ) | 339,431 | 2.25 | (1.88 | ) | 2.25 | (1.88 | ) | 82 | ||||||||||
| (36.88 | ) | 104,631 | 1.10 | (0.74 | ) | 1.10 | (0.74 | ) | 82 | ||||||||||
| (37.28 | ) | 566 | 1.60 | (1.29 | ) | 1.60 | (1.29 | ) | 82 | ||||||||||
| 92.50 | 575,535 | 1.50 | (b) | (1.29 | ) (b) | 1.79 | (b) | (1.58 | ) (b) | 16 | |||||||||
| 92.00 | 537,282 | 2.25 | (b) | (2.04 | ) (b) | 2.54 | (b) | (2.33 | ) (b) | 16 | |||||||||
| 91.90 | 329,135 | 2.25 | (b) | (2.05 | ) (b) | 2.54 | (b) | (2.34 | ) (b) | 16 | |||||||||
| 92.50 | 68,275 | 1.10 | (b) | (0.88 | ) (b) | 1.39 | (b) | (1.17 | ) (b) | 16 | |||||||||
| 92.30 | 53 | 1.60 | (b) | (1.35 | ) (b) | 1.89 | (b) | (1.64 | ) (b) | 16 | |||||||||
|
|
|||||||||||||||||||
GOLDMAN SACHS INTERNET TOLLKEEPER FUND
Report of Ernst & Young LLP, Independent Auditors
|
To the Shareholders and Board of Trustees
|
|
Goldman Sachs Trust
|
|
We have audited the accompanying statement of assets and liabilities of the Goldman Sachs Internet Tollkeeper Fund (one of
the funds comprising the Goldman Sachs Trust) (the “Fund”), including the statement of investments, as of December 31, 2000, and the related statement of operations, the statement of changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The
statement of changes in net assets and the financial highlights for the period ended December 31, 1999 were audited by other auditors whose report, dated February 17, 2000, expressed an unqualified opinion on the statement and financial
highlights.
|
|
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
|
|
In our opinion, the 2000 financial statements and financial highlights referred to above present fairly, in all material
respects, the financial position of the Goldman Sachs Internet Tollkeeper Fund at December 31, 2000, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended in conformity with accounting
principles generally accepted in the United States.
|
|
|
New York, New York
|
|
February 5, 2001
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Investments
December 31, 2000
| Shares | Description | Value | ||
|---|---|---|---|---|
| Common Stocks – 97.4% | ||||
| Shares | Description | Value | |||
|---|---|---|---|---|---|
| Common Stocks – (continued) | |||||
| Self Storage – 2.4% | |||||
| 204,000 | Public Storage, Inc. | $ 4,959,750 | |||
|
|
|||||
| Shopping Centers – 5.1% | |||||
| 397,200 | JDN Realty Corp. | 4,195,425 | |||
| 92,500 | Kimco Realty Corp. | 4,087,344 | |||
| 97,600 | Pan Pacific Retail Properties, Inc. | 2,177,700 | |||
|
|
|||||
| 10,460,469 | |||||
|
|
|||||
|
TOTAL COMMON STOCKS
(Cost $171,434,853) |
$200,097,758 | ||||
|
|
|||||
|
*
|
Non-income producing security.
|
|
Ù
|
Joint repurchase agreement was entered into on December 29, 2000.
|
|
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 Depositary Receipt
|
|
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Assets and Liabilities
December 31, 2000
|
Assets:
|
| Investment in securities, at value (identified cost $177,834,853) | $206,497,758 | |||
| Cash | 400,849 | |||
| Receivables: | ||||
| Investment securities sold | 1,128,274 | |||
| Dividends and interest | 927,364 | |||
| Fund shares sold | 806,814 | |||
| Reimbursement from adviser | 189,194 | |||
|
|
||||
| Total assets | 209,950,253 | |||
|
|
||||
| Liabilities: | ||||
| Payables: | ||||
| Investment securities purchased | 3,443,002 | |||
| Options written, at value (premium received $427,096) | 586,500 | |||
| Amounts owed to affiliates | 219,527 | |||
| Fund shares repurchased | 175,745 | |||
| Accrued expenses and other liabilities | 88,701 | |||
|
|
||||
| Total liabilities | 4,513,475 | |||
|
|
||||
| Net Assets: | ||||
| Paid-in capital | 177,656,688 | |||
| Accumulated net investment income | 571,854 | |||
| Accumulated net realized loss from investment transactions | (1,295,265 | ) | ||
| Net unrealized gain on investments | 28,503,501 | |||
|
|
||||
| NET ASSETS | $205,436,778 | |||
|
|
||||
| Net asset value, offering and redemption price per share: (a) | ||||
| Class A | $11.00 | |||
| Class B | $11.05 | |||
| Class C | $10.98 | |||
| Institutional | $11.03 | |||
| Service | $11.04 | |||
|
|
||||
| Shares outstanding: | ||||
| Class A | 11,179,572 | |||
| Class B | 484,787 | |||
| Class C | 272,490 | |||
| Institutional | 6,725,542 | |||
| Service | 165 | |||
|
|
||||
| Total shares outstanding, $.001 par value (unlimited number of shares authorized) | 18,662,556 | |||
|
|
||||
|
(a)
|
Maximum public offering price per share (NAV per share multiplied by 1.0582) for Class A Shares is $11.64. At redemption,
Class B and Class C Shares may be subject to a contingent sales charge, assessed on the amount equal to the lesser of the current net asset value or the original purchase price of the shares.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Operations
For the Year Ended December 31, 2000
| Investment income: | ||||
| Dividends (a) | $ 7,843,762 | |||
| Interest | 253,591 | |||
|
|
||||
| Total income | 8,097,353 | |||
|
|
||||
| Expenses: | ||||
| Management fees | 1,560,870 | |||
| Distribution and Service fees (b) | 536,361 | |||
| Transfer Agent fees (c) | 216,573 | |||
| Printing fees | 151,105 | |||
| Custodian fees | 91,679 | |||
| Registration fees | 55,627 | |||
| Professional fees | 44,425 | |||
| Trustee fees | 8,586 | |||
| Other | 121,992 | |||
|
|
||||
| Total expenses | 2,787,218 | |||
|
|
||||
| Less — expense reductions | (712,776 | ) | ||
|
|
||||
| Net expenses | 2,074,442 | |||
|
|
||||
| NET INVESTMENT INCOME | 6,022,911 | |||
|
|
||||
| Realized and unrealized gain (loss) on investment and written option transactions: | ||||
| Net realized gain from: | ||||
| Investment transactions | 1,014,338 | |||
| Options written | 524,251 | |||
| Net change in unrealized gain (loss) on: | ||||
| Investments | 35,238,168 | |||
| Options written | (159,404 | ) | ||
|
|
||||
| Net realized and unrealized gain on investment and written option transactions | 36,617,353 | |||
|
|
||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | 42,640,264 | |||
|
|
||||
|
(a)
|
Foreign taxes withheld on dividends were $28,706.
|
|
(b)
|
Class A, Class B and Class C had Distribution and Service fees of $491,225, $27,470 and $17,666, respectively.
|
|
(c)
|
Class A, Class B, Class C, Institutional Class and Service Class had Transfer Agent fees of $186,665, $5,219, $3,357, $21,331
and $1, respectively.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statements of Changes in Net Assets
|
For the Year
Ended December 31, 2000 |
For the Year
Ended December 31, 1999 |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| From operations: | |||||||||||||||||
| Net investment income | $ 6,022,911 | $ 6,326,342 | |||||||||||||||
| Net realized gain (loss) on investment and written option transactions | 1,538,589 | (2,340,890 | ) | ||||||||||||||
| Net change in unrealized gain (loss) on investments and options written | 35,078,764 | (6,845,259 | ) | ||||||||||||||
|
|
|||||||||||||||||
| Net increase (decrease) in net assets resulting from operations | 42,640,264 | (2,859,807 | ) | ||||||||||||||
|
|
|||||||||||||||||
| Distributions to shareholders: | |||||||||||||||||
| From net investment income | |||||||||||||||||
| Class A Shares | (3,635,674 | ) | (4,206,708 | ) | |||||||||||||
| Class B Shares | (97,285 | ) | (9,242 | ) | |||||||||||||
| Class C Shares | (61,115 | ) | (12,545 | ) | |||||||||||||
| Institutional Shares | (2,213,685 | ) | (2,276,191 | ) | |||||||||||||
| Service Shares | (59 | ) | (59 | ) | |||||||||||||
| In excess of net investment income | |||||||||||||||||
| Class A Shares | — | (252,747 | ) | ||||||||||||||
| Class B Shares | — | (555 | ) | ||||||||||||||
| Class C Shares | — | (754 | ) | ||||||||||||||
| Institutional Shares | — | (136,758 | ) | ||||||||||||||
| Service Shares | — | (4 | ) | ||||||||||||||
| From tax return of capital | |||||||||||||||||
| Class A Shares | (333,125 | ) | (228,429 | ) | |||||||||||||
| Class B Shares | (8,914 | ) | (502 | ) | |||||||||||||
| Class C Shares | (5,600 | ) | (681 | ) | |||||||||||||
| Institutional Shares | (202,833 | ) | (123,600 | ) | |||||||||||||
| Service Shares | (5 | ) | (3 | ) | |||||||||||||
|
|
|||||||||||||||||
| Total distributions to shareholders | (6,558,295 | ) | (7,248,778 | ) | |||||||||||||
|
|
|||||||||||||||||
| From share transactions: | |||||||||||||||||
| Proceeds from sales of shares | 87,783,466 | 129,535,822 | |||||||||||||||
| Reinvestment of dividends and distributions | 4,486,239 | 4,492,219 | |||||||||||||||
| Cost of shares repurchased | (60,302,596 | ) | (54,013,009 | ) | |||||||||||||
|
|
|||||||||||||||||
| Net increase in net assets resulting from share transactions | 31,967,109 | 80,015,032 | |||||||||||||||
|
|
|||||||||||||||||
| TOTAL INCREASE | 68,049,078 | 69,906,447 | |||||||||||||||
|
|
|||||||||||||||||
| Net assets: | |||||||||||||||||
| Beginning of year | 137,387,700 | 67,481,253 | |||||||||||||||
|
|
|||||||||||||||||
| End of year | $205,436,778 | $137,387,700 | |||||||||||||||
|
|
|||||||||||||||||
| Accumulated net investment income | $ 571,854 | $ 34,187 | |||||||||||||||
|
|
|||||||||||||||||
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
|
Income (loss) from
investment operations |
Distributions to shareholders
|
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, beginning of period |
Net
investment income |
Net realized
and unrealized gain (loss) |
Total from
investment operations |
From net
investment income |
In excess
of net investment income |
From tax
return of capital |
Total
distributions |
|||||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||
| 2000 - Class A Shares | $8.68 | $0.44 | (c) | $2.28 | $2.72 | $(0.36 | ) | $ — | $(0.04 | ) | $(0.40 ) | |||||||||||
| 2000 - Class B Shares | $8.73 | $0.40 | (c) | $2.27 | 2.67 | (0.31 | ) | — | (0.04 | ) | (0.35 ) | |||||||||||
| 2000 - Class C Shares | $8.66 | $0.39 | (c) | $2.27 | 2.66 | (0.30 | ) | — | (0.04 | ) | (0.34 ) | |||||||||||
| 2000 - Institutional Shares | $8.69 | $0.48 | (c) | $2.30 | 2.78 | (0.40 | ) | — | (0.04 | ) | (0.44 ) | |||||||||||
| 2000 - Service Shares | $8.69 | $0.44 | (c) | $2.30 | 2.74 | (0.35 | ) | — | (0.04 | ) | (0.39 ) | |||||||||||
| FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||
| 1999 - Class A Shares | 9.20 | 0.38 | (c) | (0.48) | (0.10 | ) | (0.38 | ) | (0.02 | ) | (0.02 | ) | (0.42 ) | |||||||||
| 1999 - Class B Shares | 9.27 | 0.28 | (c) | (0.45) | (0.17 | ) | (0.28 | ) | (0.07 | ) | (0.02 | ) | (0.37 ) | |||||||||
| 1999 - Class C Shares | 9.21 | 0.30 | (c) | (0.48) | (0.18 | ) | (0.30 | ) | (0.05 | ) | (0.02 | ) | (0.37) | |||||||||
| 1999 - Institutional Shares | 9.21 | 0.40 | (c) | (0.47) | (0.07 | ) | (0.40 | ) | (0.03 | ) | (0.02 | ) | (0.45) | |||||||||
| 1999 - Service Shares | 9.21 | 0.38 | (c) | (0.49) | (0.11 | ) | (0.38 | ) | (0.01 | ) | (0.02 | ) | (0.41) | |||||||||
| FOR THE PERIOD ENDED DECEMBER 31, | ||||||||||||||||||||||
| 1998 - Class A Shares (commenced July 27) | 10.00 | 0.15 | (0.80) | (0.65 | ) | (0.15 | ) | — | — | (0.15) | ||||||||||||
| 1998 - Class B Shares (commenced July 27) | 10.00 | 0.14 | (c) | (0.83) | (0.69 | ) | (0.04 | ) | — | — | (0.04) | |||||||||||
| 1998 - Class C Shares (commenced July 27) | 10.00 | 0.22 | (c) | (0.91) | (0.69 | ) | (0.10 | ) | — | — | (0.10) | |||||||||||
| 1998 - Institutional Shares (commenced July 27) | 10.00 | 0.31 | (c) | (0.95) | (0.64 | ) | (0.15 | ) | — | — | (0.15) | |||||||||||
| 1998 - Service Shares (commenced July 27) | 10.00 | 0.25 | (c) | (0.910 | (0.66 | ) | (0.13 | ) | — | — | (0.13) | |||||||||||
|
|
||||||||||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, a
complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for periods less than one
full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
|
Ratios assuming
no expense reductions |
||||||||||||||||||||||
|
Net asset
value, end of period |
Total
return (a) |
Net assets
at end of period (in 000s) |
Ratio of
net expenses to average net assets |
Ratio of
net investment income to average net assets |
Ratio of
expenses to average net assets |
Ratio of
net investment income to average net assets |
Portfolio
turnover rate |
|||||||||||||||
| $11.00 | 31.86 | % | $122,964 | 1.44 | % | 4.43 | % | 1.99 | % | 3.88 | % | 49 | % | |||||||||
| 11.05 | 31.04 | 5,355 | 2.19 | 3.93 | 2.49 | 3.63 | 49 | |||||||||||||||
| 10.98 | 31.14 | 2,991 | 2.19 | 3.90 | 2.49 | 3.60 | 49 | |||||||||||||||
| 11.03 | 32.45 | 74,125 | 1.04 | 4.89 | 1.34 | 4.59 | 49 | |||||||||||||||
| 11.04 | 31.99 | 2 | 1.54 | 4.46 | 1.84 | 4.16 | 49 | |||||||||||||||
| 8.68 | (1.02 | ) | 93,443 | 1.44 | 4.14 | 1.96 | 3.62 | 37 | ||||||||||||||
| 8.73 | (1.73 | ) | 457 | 2.19 | 3.21 | 2.46 | 2.94 | 37 | ||||||||||||||
| 8.66 | (1.80 | ) | 697 | 2.19 | 3.38 | 2.46 | 3.11 | 37 | ||||||||||||||
| 8.69 | (0.64 | ) | 42,790 | 1.04 | 4.43 | 1.31 | 4.16 | 37 | ||||||||||||||
| 8.69 | (1.12 | ) | 1 | 1.54 | 4.17 | 1.81 | 3.90 | 37 | ||||||||||||||
| 9.20 | (6.53 | ) | 19,961 | 1.47 | (b) | 23.52 | (b) | 3.52 | (b) | 21.47 | (b) | 6 | ||||||||||
| 9.27 | (6.88 | ) | 2 | 2.19 | (b) | 3.60 | (b) | 4.02 | (b) | 1.77 | (b) | 6 | ||||||||||
| 9.21 | (6.85 | ) | 1 | 2.19 | (b) | 5.49 | (b) | 4.02 | (b) | 3.66 | (b) | 6 | ||||||||||
| 9.21 | (6.37 | ) | 47,516 | 1.04 | (b) | 8.05 | (b) | 2.87 | (b) | 6.22 | (b) | 6 | ||||||||||
| 9.21 | (6.56 | ) | 1 | 1.54 | (b) | 6.29 | (b) | 3.37 | (b) | 4.46 | (b) | 6 | ||||||||||
|
|
||||||||||||||||||||||
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
December 31, 2000
|
1. ORGANIZATION
|
|
Goldman Sachs Trust (the “Trust”) is a Delaware business trust registered under the Investment Company Act of 1940
(as amended) as an open-end management investment company. The Trust includes the Goldman Sachs Real Estate Securities Fund (the “Fund”). The Fund is a diversified portfolio offering five classes of shares — Class A, Class
B, Class C, Institutional and Service.
|
|
The Fund invests primarily in securities of issuers that are engaged in or related to the real estate
industry and has a policy of concentrating its investments in the real estate industry. Therefore, an investment in the Fund is subject to certain risks associated with the direct ownership of real estate and with the real estate industry in
general.
|
|
2. SIGNIFICANT ACCOUNTING POLICIES
|
|
The following is a summary of the significant accounting policies consistently followed by the Fund. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates 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 foreign securities exchange or the NASDAQ system are valued daily at their last sale price on the principal exchange on which they are traded. If no sale occurs, securities are valued at the last bid price. Unlisted
equity and debt securities 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. Securities for which quotations are not readily available, are valued at fair value using methods approved by the Trust’s 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, net of foreign withholding taxes where applicable. Dividends for which the Fund has the choice to receive either cash or stock are recognized as investment income in an amount equal to the cash dividend. This amount is also used as an estimate
of the fair value of the stock received. Interest income is recorded on the basis of interest accrued, premium amortized and discount earned.
|
|
Net investment income (other than class specific expenses) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund based upon the relative proportion of net assets of each class.
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
|
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
C. Federal Taxes —
It is the
Fund’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute each year substantially all of its investment company taxable income and capital
gains to its shareholders. Accordingly, no federal tax provision is required. Income and capital gain distributions, if any, are declared and paid annually.
|
|
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the source of the Fund’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 capital, depending on the type of book/tax differences that may exist.
|
|
In addition, distributions paid by the Fund’s investments in real estate
investment trusts (“REITs”) often include a “return of capital” which is recorded by the Fund as a reduction of the cost basis of the securities held. The Code requires a REIT to distribute at least 95% of its taxable income to
investors. In many cases, however, because of “non-cash” expenses such as property depreciation, an equity REIT’s cash flow will exceed its taxable income. The REIT may distribute this excess cash to offer a more competitive yield.
This portion of the distribution is deemed a return of capital, and is generally not taxable to shareholders.
|
|
At December 31, 2000, the aggregate cost of portfolio securities for federal
income tax purposes is $179,130,118. Accordingly, the gross unrealized gain on investments was $28,192,781 and the gross unrealized loss on investments was $825,141 resulting in a net unrealized gain of $27,367,640.
|
|
The Fund had no capital loss carryforwards for federal tax
purposes.
|
|
D. Expenses —
Expenses incurred by
the Trust which do not specifically relate to an individual fund of the Trust are allocated to the funds on a straight-line or pro-rata basis depending upon the nature of the expense.
|
|
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service Plans. Each class of shares separately bears its respective class-specific Transfer Agency fees. Shareholders of Service Shares bear all expenses and fees paid to service
organizations.
|
|
E. Segregation Transactions —
The
Fund may enter into certain derivative transactions to seek to increase total return. Forward foreign currency exchange contracts, futures contracts, written options, mortgage dollar rolls, when-issued securities and forward commitments represent
examples of such transactions. As a result of entering into those transactions, the Fund is required to segregate liquid assets on the accounting records equal to or greater than the market value of the corresponding transactions.
|
|
F. Repurchase Agreements —
Repurchase
agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. During the term of a repurchase agreement, the value of the underlying securities, 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 Fund’s custodian.
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
3. AGREEMENTS
|
|
Pursuant to the Investment Management Agreement (“The Agreement”) Goldman Sachs Asset Management
(“GSAM”), a unit of the Investment Management Division of Goldman Sachs & Co. (“Goldman Sachs”), serves as investment adviser to the Fund. Under the Agreement, GSAM, subject to the general supervision of the Trust’s
Board of Trustees, manages the Fund’s portfolio. As compensation for the services rendered under the Agreement, the assumption of the expenses related thereto and administering the Fund’s business affairs, including providing facilities,
GSAM is entitled to a fee, computed daily and payable monthly, at an annual rate equal to 1.00% of the average daily net assets of the Fund.
|
|
Goldman Sachs has voluntarily agreed to reduce or limit certain “Other
Expenses” for the Fund (excluding Management fees, Service Share fees, Distribution and Service fees, Transfer Agent fees, litigation and indemnification costs, taxes, interest, brokerage commissions and extraordinary expenses) until further
notice to the extent such expenses exceed .00% of the average daily net assets of the Fund. For the year ended December 31, 2000, the adviser reimbursed approximately $460,000. In addition, the Fund has entered into certain expense offset
arrangements with the custodian resulting in a reduction in the Fund’s expenses. For the year ended December 31, 2000, the Custody fees were reduced by approximately $6,500 under such arrangements.
|
|
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the Class A sales load and Class B and Class C contingent deferred sales charges and has advised the Fund that it retained approximately $266,000 for the year ended December 31,
2000.
|
|
The Trust, on behalf of the Fund, has adopted Distribution and Service plans.
Under the Distribution and Service plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee for distribution and shareholder maintenance services equal, on an annual basis, to .50%, 1.00% and 1.00% of the average daily net assets
attributable to Class A, Class B and Class C Shares, respectively. Goldman Sachs has voluntarily agreed to waive a portion of the Distribution and Service fees equal, on an annual basis, to .25% of the average daily net assets attributable to the
Class A Shares. For the year ended December 31, 2000, Goldman Sachs has waived approximately $246,000 of the Distribution and Service fees attributable to the Class A Shares. Goldman Sachs may discontinue or modify this waiver in the future at its
discretion.
|
|
The Trust, on behalf of the Fund, has adopted a Service Plan. This Plan
allows for Service shares to compensate service organizations for providing varying levels of account administration and shareholder liaison services to their customers who are beneficial owners of such shares. The Service Plan provides for
compensation to the service organizations in an amount up to .50% (on an annualized basis), of the average daily net asset value of the Service Shares.
|
|
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee
calculated daily and payable monthly at an annual rate as follows: .19% of the average daily net assets for Class A, Class B and Class C Shares and .04% of the average daily net assets for Institutional and Service Shares.
|
|
At December 31, 2000, the Fund owed approximately $167,000, $31,000 and
$22,000 for Management, Distribution and Service and Transfer Agent fees, respectively.
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
|
4. PORTFOLIO SECURITIES TRANSACTIONS
|
|
The cost of purchases and proceeds and sales or maturities of securities (excluding short-term investments) for the year
ended December 31, 2000, were $107,006,150 and $73,864,968, respectively.
|
|
For the year ended December 31, 2000, Goldman Sachs earned approximately
$52,000 of brokerage commissions from portfolio transactions.
|
|
Option Accounting Principles —
When the Fund
writes call or put options, an amount equal to the premium received is recorded as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When
a written option expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes 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 exercised, the Fund realizes a gain or loss from the sale of the underlying security, 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 Fund purchases 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 Fund,
the premium paid is recorded as an investment and subsequently marked-to-market to reflect the current market value of the option. If an option which the Fund has purchased expires on the stipulated expiration date, the Fund will realize a loss in
the amount of the cost of the option. If the Fund enters into a closing sale transaction, the Fund 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 Fund exercises a purchased put option, the Fund 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 Fund exercises a purchased call
option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid.
|
|
For the year ended December 31, 2000, written call option transactions in the Fund were as follows:
|
| Written Options |
Number of
Contracts |
Premium
Received |
|||
|---|---|---|---|---|---|
|
|
|||||
| Options outstanding at December 31, 1999 | — | $ — | |||
|
|
|||||
| Options written | 3,802 | 1,100,032 | |||
|
|
|||||
| Options terminated in closing purchase transactions | (152 | ) | (35,643 | ) | |
|
|
|||||
| Options exercised | (2,270 | ) | (637,293 | ) | |
|
|
|||||
| Options outstanding at December 31, 2000 | 1,380 | $427,096 | |||
|
|
|||||
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
5. JOINT REPURCHASE AGREEMENT ACCOUNT
|
|
The Fund, together with other registered investment companies having management agreements with GSAM or its affiliates,
transfers uninvested cash into joint accounts, the daily aggregate balance of which is invested in one or more repurchase agreements.
|
|
At December 31, 2000, the Fund had an undivided interest in the repurchase
agreement in the following joint account which equaled $6,400,000 in principal amount. At December 31, 2000, the following repurchase agreements held in this joint account were fully collateralized by Federal Agency obligations.
|
|
6. LINE OF CREDIT FACILITY
|
|
Effective May 31, 2000, the Fund participates in a $350,000,000 committed, unsecured revolving line of credit facility. Prior
thereto, the Fund participated in a $250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving line of credit facility. Under the most restrictive arrangement, the Fund must own securities having a market value in excess of 400% of
the total bank borrowings. This facility is 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 Fund based on the
amount of the commitment which has not been utilized. During the year ended December 31, 2000, the Fund did not have any borrowings under this facility.
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
|
7. CHANGE IN INDEPENDENT AUDITOR
|
|
On October 26, 1999, the Board of Trustees of the Fund, upon the recommendation of the Board’s audit committee,
determined not to retain Arthur Andersen LLP and approved a change of the Fund’s independent auditors to Ernst & Young LLP. For the fiscal years ended December 31, 1999 and December 31, 1998, Arthur 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 Fund and Arthur Andersen LLP on accounting
principles or practices, 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 reports.
|
|
8. CERTAIN RECLASSIFICATIONS
|
|
In accordance with AICPA statement of Position 93-2, the Fund has reclassified $499,487 from paid-in capital to accumulated
net investment income and $23,087 from accumulated net realized loss on investment transactions to accumulated net investment income. This reclassification has no impact on the net asset value of the Fund and is designed to present the Fund’s
capital accounts on a tax basis. Reclassifications result primarily from the difference in the tax treatment of foreign currency, net operating losses and organization costs.
|
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
9. SUMMARY OF SHARE TRANSACTIONS
|
|
Share activity for the years ended December 31, 2000 and 1999 is as follows:
|
| For the year Ended December 31, 2000 | For the year Ended December 31, 1999 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| Shares | Dollars | Shares | Dollars | ||||||
|
|
|||||||||
| Class A Shares | |||||||||
| Shares sold | 4,481,246 | $44,366,103 | 11,403,124 | $104,642,563 | |||||
| Reinvestment of dividends and distributions | 348,684 | 3,496,677 | 412,356 | 3,571,008 | |||||
| Shares repurchased | (4,419,577 | ) | (40,792,578 | ) | (3,215,626 | ) | (27,495,073 | ) | |
|
|
|||||||||
| 410,353 | 7,070,202 | 8,599,854 | 80,718,498 | ||||||
|
|
|||||||||
| Class B Shares | |||||||||
| Shares sold | 509,751 | 5,080,349 | 51,929 | 468,345 | |||||
| Reinvestment of dividends and distributions | 4,026 | 41,604 | 1,151 | 9,653 | |||||
| Shares repurchased | (81,256 | ) | (839,352 | ) | (1,003 | ) | (8,393 | ) | |
|
|
|||||||||
| 432,521 | 4,282,601 | 52,077 | 469,605 | ||||||
|
|
|||||||||
| Class C Shares | |||||||||
| Shares sold | 234,120 | 2,332,550 | 88,350 | 792,983 | |||||
| Reinvestment of dividends and distributions | 4,737 | 48,073 | 1,413 | 11,869 | |||||
| Shares repurchased | (46,844 | ) | (472,069 | ) | (9,449 | ) | (80,747 | ) | |
|
|
|||||||||
| 192,013 | 1,908,554 | 80,314 | 724,105 | ||||||
|
|
|||||||||
| Institutional Shares | |||||||||
| Shares sold | 3,547,497 | 36,004,464 | 2,581,373 | 23,631,931 | |||||
| Reinvestment of dividends and distributions | 87,295 | 899,821 | 101,530 | 899,623 | |||||
| Shares repurchased | (1,831,521 | ) | (18,198,597 | ) | (2,917,766 | ) | (26,428,706 | ) | |
|
|
|||||||||
| 1,803,271 | 18,705,688 | (234,863 | ) | (1,897,152 | ) | ||||
|
|
|||||||||
| Service Shares | |||||||||
| Shares sold | — | — | — | — | |||||
| Reinvestment of dividends and distributions | 6 | 64 | 7 | 66 | |||||
| Shares repurchased | — | — | (11 | ) | (90 | ) | |||
|
|
|||||||||
| 6 | 64 | (4 | ) | (24 | ) | ||||
|
|
|||||||||
| NET INCREASE | 2,838,164 | $31,967,109 | 8,497,378 | $ 80,015,032 | |||||
|
|
|||||||||
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Report of Ernst & Young LLP, Independent Auditors
|
To the Shareholders and Board of Trustees
|
|
Goldman Sachs Trust
|
|
We have audited the accompanying statement of assets and liabilities of the Goldman Sachs Real Estate Securities Fund (one of
the funds comprising the Goldman Sachs Trust) (the “Fund”), including the statement of investments, as of December 31, 2000, and the related statement of operations, the statement of changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The
statement of changes in net assets for the year ended December 31, 1999 and the financial highlights for each of the two periods in the period then ended, were audited by other auditors whose report, dated February 16, 2000, expressed an unqualified
opinion on the statement and financial highlights.
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We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
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In our opinion, the 2000 financial statements and financial highlights referred to above present fairly, in all material
respects, the financial position of the Goldman Sachs Real Estate Securities Fund at December 31, 2000, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
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New York, New York
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February 5, 2001
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PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
SERVICE SHARES
INSTITUTIONAL SHARES
GOLDMAN SACHS CORE(SM) TAX-MANAGED EQUITY FUND
(An Equity Portfolio of Goldman Sachs 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 Prospectuses for the Class A Shares, Class B Shares, Class C Shares, Service
Shares and Institutional Shares of the Goldman Sachs CORE Tax-Managed Equity
Fund dated May 1, 2001 (the "Prospectuses"), 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 Ernst & Young
LLP, independent auditors, contained in the Fund's 2000 Annual Report are
incorporated herein by reference in the section "Financial Statements." No other
portions of the Fund's Annual Report are incorporated by reference.
CORE(SM) is a service mark of Goldman, Sachs & Co.
TABLE OF CONTENTS
Page
----
INTRODUCTION.............................................................. 1
INVESTMENT POLICIES....................................................... 1
INVESTMENT RESTRICTIONS................................................... 17
MANAGEMENT................................................................ 19
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 36
NET ASSET VALUE........................................................... 38
PERFORMANCE INFORMATION................................................... 39
SHARES OF THE TRUST....................................................... 45
TAXATION.................................................................. 49
FINANCIAL STATEMENTS...................................................... 55
OTHER INFORMATION......................................................... 55
DISTRIBUTION AND SERVICE PLANS............................................ 58
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE,
PURCHASES, REDEMPTIONS, EXCHANGES AND DIVIDENDS....................... 59
SERVICE PLAN AND SHAREHOLDER ADMINISTRATION PLAN.......................... 63
Appendix A (Description of Securities Ratings)............................ 1-A
Appendix B (Business Principles of Goldman Sachs & Co.)................... 1-B
Appendix C (Statement of Intention and Escrow Agreement).................. 1-C
The date of this Additional Statement is May 1, 2001
-i-
GOLDMAN SACHS ASSET MANAGEMENT Investment Adviser 32 Old Slip New York, New York 10005 GOLDMAN, SACHS & CO. Distributor 85 Broad Street New York, New York 10004 GOLDMAN, SACHS & CO. Transfer Agent 4900 Sears Tower Chicago, Illinois 60606 Toll free (in U.S.)...800-621-2550 -ii-
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The Trust is organized as a Delaware business trust, and is a successor
to a Massachusetts business trust that was combined with the Trust on April 30,
1997. This Additional Statement describes the Trust's Goldman Sachs CORE
Tax-Managed Equity Fund ("Fund").
The Trustees have authority under the Trust's charter to create and
classify shares into separate series and to classify and reclassify any series
or portfolio of shares into one or more classes without further action by
shareholders. Pursuant thereto, the Trustees have created the Fund and other
series. Additional series may be added in the future from time to time. The Fund
currently offers five classes of shares: Class A Shares, Class B Shares, Class C
Shares, Institutional Shares and Service Shares. See "Shares of the Trust."
Goldman Sachs Asset Management ("GSAM" or the "Investment Adviser"), a
unit of the Investment Management Division of Goldman, Sachs & Co. ("Goldman
Sachs"), serves as the Investment Adviser to the Fund. In addition, Goldman
Sachs serves as the Fund's distributor and transfer agent. The Fund's custodian
is State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
the Fund's investment policies contained in the Prospectuses. See the
Prospectuses for a more complete description of the Fund's investment objective
and policies. There is no assurance that the Fund will achieve its objective.
Capitalized terms used but not defined herein have the same meaning as in the
Prospectuses.
INVESTMENT POLICIES
The Fund has a distinct investment objective and policies. There can be
no assurance that the Fund's objective will be achieved. The Fund is a
diversified open-end management company as defined in the Investment Company Act
of 1940, as amended (the "Act"). The Fund's investment objective and policies,
and the associated risks, are discussed in the Fund's prospectuses, which should
be read carefully before an investment is made. Additional information about the
Fund, its policies, and the investment instruments it may hold, is provided
below.
The Fund's share price will fluctuate with market and economic
conditions, so that an investment in the Fund may be worth more or less when
redeemed than when purchased. The Fund should not be relied upon as a complete
investment program.
General Information Regarding the Fund.
--------------------------------------
The Investment Adviser may purchase for the Fund 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"). The
Investment Adviser utilizes advanced quantitative tools for both stock selection
and portfolio construction. The Investment
B-1
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 and other affiliates of
the Investment Adviser, as well as information provided by other securities
dealers. For rebalancings, the computer optimizer calculates numerous security
combinations at numerous weightings to identify an efficient risk/return
portfolio given the CORE Funds benchmark.
Quantitative Style. The CORE Tax-Managed Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the Fund's 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. As described more fully below, the Investment Adviser
uses a proprietary multifactor model (the "Multifactor Model") to forecast the
returns of individual securities. In the case of an equity security followed by
the Goldman Sachs Global Investment Research Department (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 the Fund, the Investment Adviser
utilizes optimization techniques to seek to construct the most efficient
risk/return portfolio given the Fund's benchmark. The portfolio is primarily
composed of securities rated highest by the foregoing investment process and has
risk characteristics and industry weightings similar to the Russell 3000 Index.
Multifactor Model. The Multifactor Model is a rigorous computerized
rating system for forecasting the returns of different equity markets,
currencies and individual equity securities according to fundamental investment
characteristics. The CORE Tax-Managed Equity Fund uses one Multifactor Model to
forecast the returns of securities held in its portfolio. The Multifactor Model
incorporates 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 and earnings
stability). All of the factors used in the Multifactor Model have been shown to
significantly impact the performance of the securities, currencies and markets
they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by
the CORE Tax-Managed Equity Fund are derived using a statistical formulation
that considers each factor's historical performance in different market
environments. As such, the 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 the Multifactor Model is broader in scope and
provides a more
B-2
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the 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 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 are selected for or weighted in
the 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 the Fund
uses futures); or (iii) changes in the method by which securities or markets are
weighted in the Fund. Any such changes will preserve the 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, the CORE
Tax-Managed Equity Fund seeks to capitalize on the strengths of each discipline.
Other Information. The Fund intends to be fully invested in portfolio
securities during normal market conditions. The Fund may invest any cash in
futures transactions with respect to U.S. equity indices in order to keep the
Fund's effective equity exposure close to 100%. As cash balances fluctuate based
on new contributions or withdrawals, the Fund may enter into additional
contracts or close out existing positions.
Corporate Debt Obligations
--------------------------
The Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
Corporate debt obligations include bonds, notes, debentures and other
obligations of corporations to pay interest and repay principal. The Fund 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.
B-3
Another factor which causes fluctuations in the prices of 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 the Fund's net asset value.
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.
Commercial Paper and Other Short-Term Corporate Obligations
-----------------------------------------------------------
The Fund may invest in commercial paper and other short-term obligations
payable in the U.S. dollars and issued or guaranteed by U.S. corporations, non-
U.S. corporation or other entities. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies.
U.S. Government Securities
--------------------------
The Fund may invest in U.S. government securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises.
Bank Obligations
----------------
The Fund may invest in 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.
Custodial Receipts
------------------
The 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 "Treasury Receipts," "Treasury Investors Growth Receipts"
("TIGRs"), and "Certificates of
B-4
Accrual on Treasury Securities" ("CATs"). For certain securities law purposes,
custodial receipts are not considered U.S. Government securities.
Futures Contracts and Options on Futures Contracts
--------------------------------------------------
The Fund may purchase and sell futures contracts and may also purchase
and write call and put options on futures contracts. The Fund may engage in
futures transactions only with respect to U.S. equity indices. The Fund will
engage in futures and related options transactions 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 the Fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC.
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, the
Fund can seek through the sale of futures contracts to offset a decline in the
value of its current portfolio securities. When rates are falling or prices are
rising, the 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.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While the Fund will usually liquidate futures contracts on
securities in this manner, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for the Fund
to do so. A clearing corporation associated with the exchange on which futures
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, rate of return on portfolio securities or securities that the Fund owns
or proposes to acquire. The 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. If, in the
opinion of the Investment Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on representative securities indices, the Fund may also enter into such
futures contracts as part of its hedging strategy. Although under some
circumstances prices of securities in the Fund's portfolio may be more or less
volatile than prices of such futures contracts, the Investment Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the Fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting the Fund's securities portfolio.
When hedging of this character is successful, any depreciation in the value of
portfolio securities
B-5
will be substantially offset by appreciation in the value of the futures
position. On the other hand, any unanticipated appreciation in the value of the
Fund's portfolio securities would be substantially offset by a decline in the
value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing
such futures contracts. This may be done, for example, when the Fund anticipates
the subsequent purchase of particular securities when it has the necessary cash,
but expects the prices then available in the applicable market to be less
favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give the 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, the 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 the Fund's assets. By
writing a call option, the 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 the Fund intends to purchase. However, the 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 the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. The
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. The 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. The Fund will engage in futures transactions and
will engage in 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 the 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 the 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. The Fund will engage in transactions in futures contracts and related
options transactions only to the extent such transactions are consistent with
the requirements of the Internal Revenue Code of
B-6
1986, as amended (the "Code") for maintaining its qualification 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 or securities prices may result in
a poorer overall performance for the 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 the
Fund may be exposed to risk of loss.
Perfect correlation between the 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.
Options on Securities and Securities Indices
--------------------------------------------
Writing Covered Options. The Fund may write (sell) covered call and put
options on any securities in which it may invest. A call option written by the
Fund obligates the 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 the Fund are covered, which means
that the Fund will own the securities subject to the option as long as the
option is outstanding or the Fund will use the other methods described below.
The Fund's purpose in writing covered call options is to realize greater income
than would be realized on portfolio securities transactions alone. However, the
Fund may forego the opportunity to profit from an increase in the market price
of the underlying security.
A put option written by the Fund would obligate the 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
the Fund would be covered, which means that the Fund will segregate cash or
liquid assets with a value at least equal to the exercise price of the 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, the 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 the 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 the Fund's net exposure on its written option position.
B-7
The Fund may also write (sell) covered call and put options on any
securities index consisting of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The 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
consideration which has been segregated by the Fund) upon conversion or exchange
of other securities in its portfolio. The Fund may cover call and put options on
a securities index by segregating cash or liquid assets with a value equal to
the exercise price.
The 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. The Fund may purchase put and call options on any
securities in which it may invest or options on any securities index consisting
of securities in which it may invest. The Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
The Fund may purchase call options in anticipation of an increase in the
market value of securities of the type in which it may invest. The purchase of a
call option would entitle the Fund, in return for the premium paid, to purchase
specified securities at a specified price during the option period. The Fund
would ordinarily realize a gain if, during the option period, the value of such
securities 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.
The Fund may purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle the 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 the Fund's securities. Put
options may also be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
Fund would 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.
B-8
The 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.
Risks Associated with Options Transactions. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If the 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. Similarly, if
the 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.
The 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.
The Fund's transactions in options on securities and indices 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 the Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Investment Adviser. 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
B-9
rates. The successful use of options for hedging purposes also 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 markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities or securities
indices on which options are written and purchased and the securities in the
Fund's investment portfolio, the Fund may incur losses that it would not
otherwise incur. The writing of options could increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
Real Estate Investment Trusts
-----------------------------
The Fund may invest in shares of REITs. REITs are pooled investment
vehicles which invest primarily in real estate or real estate related loans.
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. Like regulated investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. The Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the
expenses paid 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 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.
Warrants and Stock Purchase Rights
----------------------------------
The 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. The Fund will
invest in warrants and rights only if such equity securities are deemed
appropriate by the Investment Adviser for investment by the Fund. However, the
Fund has no present intention of acquiring warrants or rights. Warrants and
rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
B-10
Convertible Securities
----------------------
The 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 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 the Fund's investment policies.
Foreign Securities
------------------
The Fund may invest in equity securities of foreign issuers which are
traded in the United States. Investments in foreign securities may offer
potential benefits not available from investments solely in U.S. dollar
denominated or quoted securities of domestic issuers. Such benefits may include
the opportunity to invest in foreign issuers that appear, in the opinion of the
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 stock
markets that do not necessarily move in a manner parallel to U.S. markets.
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.
The Fund may invest in foreign securities which take the form of
sponsored and unsponsored American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs") or other similar instruments representing
securities of foreign issuers (together, "Depositary 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. 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-
B-11
U.S. securities markets. GDRs are not necessarily quoted in the same currency as
the underlying security.
To the extent the Fund acquires Depositary Receipts through banks which
do not have a contractual relationship with the foreign issuer of the security
underlying the Depositary Receipts to issue and service such unsponsored
Depositary Receipts, 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 Depositary Receipts does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depositary Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depositary Receipts and the underlying securities are quoted.
However, by investing in Depositary Receipts, such as ADRs, that are quoted in
U.S. dollars, the Fund may avoid currency risks during the settlement period for
purchases and sales.
Preferred Securities
--------------------
The 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
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.
Equity Swaps
------------
The Fund 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
contracts 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 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
B-12
notional amount of the equity swap contract had been invested in different
stocks (or indices of stocks).
The 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 the Fund is contractually obligated to make. If
the other party to an equity swap defaults, the Fund's risk of loss consists of
the net amount of payments that the 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
exposure, the Fund and its Investment Adviser believes that transactions do not
constitute senior securities under the Act and, accordingly, will not treat them
as being subject to the Fund's borrowing restrictions.
The 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
Fund's ability to enter into certain swap transactions may be limited by tax
considerations.
Lending of Portfolio Securities
-------------------------------
The 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, letters of credit or U.S. government securities maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. The 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, the 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. The Fund would not have the
right to vote any securities having voting rights during the existence of the
loan, but the 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 Adviser to be of good
standing, and when, in the judgment of the Investment Adviser, the consideration
which can be earned currently from securities loans of this type justifies the
attendant risk. If the Investment Adviser determines 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 the 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
B-13
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
----------------------------------------------
The 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 the 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. The 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, the Fund may dispose of or negotiate a
commitment after entering into it. The Fund may realize a capital gain or loss
in connection with these transactions. For purposes of determining the Fund's
duration, the maturity of when-issued or forward commitment securities will be
calculated from the commitment date. The 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
----------------------------------
The 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
--------------------------
The Fund reserves the right to invest up to 10% of its total assets in
the securities of all investment companies (including exchange-traded funds such
as SPDRs and iSharessm, as defined below) but may neither invest more than 5% of
its total assets in any one investment company nor acquire more than 3% of the
voting securities of any one investment company. Pursuant to an exemptive order
obtained from the SEC, the Fund may invest in money market funds for which the
Investment Adviser or any of its affiliates serves as investment adviser. The
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 administration fees (and other expenses) paid by the Fund.
However, to the extent that the Fund invests in a money market fund for which
the Investment Adviser or any of its affiliates acts as Investment Adviser, the
advisory and administration fees payable by the Fund to the Investment
Adviser
B-14
will be reduced by an amount equal to the Fund's proportionate share of the
advisory and administration fees paid by such money market fund to its
Investment Adviser.
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 was established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P Index"). The UIT is sponsored by a subsidiary of the AMEX. SPDRs may be
used for several reasons, including, but not limited to, facilitating the
handling of cash flows or trading or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price activity of the S&P
Index. 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
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.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, an investor 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, an
investor 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 Fund could result in losses on SPDRs.
The Fund may, subject to the limitations stated above, invest in
iShares(SM) (formerly called World Equity Benchmark Shares or "WEBS") and
similar securities that invest in securities included in foreign securities
indices. iShares(SM) are shares of an investment company that invests
substantially all of its assets in securities included in the MSCI indices for
specified countries or regions. iShares(SM) are listed on the AMEX and were
initially offered to the public in 1996. The market prices of iShares(SM) are
expected to fluctuate in accordance with both changes in the NAVs of their
underlying indices and supply and demand of iShares(SM) on the AMEX. To date,
iShares(SM) have traded at relatively modest discounts and premiums to their
NAVs. However, iShares(SM) have a limited operating history and information is
lacking regarding the actual performance and trading liquidity of iShares 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
iShares(SM) will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting iShares(SM) should occur in
the future, the liquidity and value of the Fund's shares could also be
substantially and adversely affected. If
B-15
such disruptions were to occur, the Fund could be required to reconsider the use
of iShares(SM) as part of its investment strategy.
Repurchase Agreements
---------------------
The 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. A repurchase agreement is an arrangement under
which the 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 the Fund's custodian (or subcustodian). The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price on
repurchase. In either case, the income to the 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 the Fund to the seller of the security.
For other purposes, it is not always clear whether a court would consider the
security purchased by the Fund subject to a repurchase agreement as being owned
by the Fund or as being collateral for a loan by the 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, the 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
price of the security. If the court characterizes the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the 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),
the 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, the Fund, together with other registered investment
companies having advisory agreements with the Investment Adviser or 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.
B-16
Portfolio Turnover
------------------
It is anticipated that the portfolio turnover rate of the Fund will vary
from year to year. To the extent that the Fund sells securities to generate
capital losses, such sales will increase the Fund's portfolio turnover rate and
result in more commission expenses.
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 Fund. The investment objective of the Fund and all other
investment policies or practices are considered by the Trust not to be
fundamental and accordingly may be changed without shareholder approval. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or Fund are present or represented by
proxy; or (b) more than 50% of the shares of the Trust or 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 caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by, the Fund. With respect to the Fund's 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.
The Fund may not:
(1) Make any investment inconsistent with the Fund's
classification as a 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).
(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; and (d) the Fund may purchase
securities on margin to the extent permitted by applicable
law.
(4) Make loans, except through (a) the purchase of debt
obligations in accordance with the Fund's investment
objective and policies; (b)
B-17
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 the Fund
may purchase and sell securities that are secured by real
estate or interests therein, securities of REITs and
mortgage-related securities and may hold and sell real
estate acquired by the 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.
(8) Issue senior securities to the extent such issuance would
violate applicable law.
The 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.
The Fund may not:
(a) Invest in companies for the purpose of exercising control or
management;
(b) Invest more than 15% of its 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 Securities Act of 1933 (the "1933 Act");
(c) Purchase additional securities if its borrowings exceed 5% of its
net assets; or
(d) Make short sales of securities.
B-18
MANAGEMENT
The Trustees 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 the Fund's daily business
operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
----------- ---------- ---------------------
Ashok N. Bakhru, 58 Chairman Chairman of the Board and Trustee -
P.O. Box 143 & Trustee Goldman Sachs Variable Insurance Trust
Lima, PA 19037 (registered investment company) (since
October 1997); 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);
Director of Arkwright Mutual Insurance Company (1984-1999);
Trustee of International House of Philadelphia
(1989-Present); Member of Cornell University Council
(1992-Present); Trustee of the Walnut Street Theater
(1992-Present); Director, Private Equity Investors-III
(since November 1998); and Trustee, Citizens
Scholarship Foundation of America (since 1998).
B-19
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *David B. Ford, 55 Trustee Trustee - Goldman Sachs Variable 32 Old Slip Insurance Trust (registered investment New York, NY 10005 company) (since October 1997); 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, 38 Trustee Trustee and President - Goldman Sachs 32 Old Slip & President Variable Insurance Trust (registered New York, NY 10005 investment company) (since October 1997); Trustee, Trust for Credit Unions (registered investment company) (since March 1998); Managing Director, Goldman Sachs (since November 1997); President, Goldman Sachs Funds Group (since April 1996); and President, MFS Retirement Services Inc., of Massachusetts Financial Services (prior thereto). B-20
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- Patrick T. Harker, 42 Trustee Trustee - Goldman Sachs Variable Office of the Dean Insurance Trust (registered investment The Wharton School company) (since August 2000); Dean and University of Pennsylvania Reliance Professor of Operations and 1000 SH-DH Information Management, The Wharton Philadelphia, PA 19104-6364 School, University of Pennsylvania (since February 2000); Interim and Deputy Dean, The Wharton School, University of Pennsylvania (since July 1999); Professor and Chairman of Department of Operations and Information Management, The Wharton School, University of Pennsylvania (July 1997 - August 2000); UPS Transportation Professor for the Private Sector, Professor of Systems Engineering and Chairman of Systems Engineering, School of Engineering and Applied Science, University of Pennsylvania (prior thereto). B-21
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *John P. McNulty, 48 Trustee Trustee - Goldman Sachs Variable 32 Old Slip Insurance Trust (registered investment New York, NY 10005 company) (since October 1997); Managing Director, Goldman Sachs (since November 1996) and Head of Investment Management Division (since September 1999); General Partner, J. Aron & Company (commodity dealer and risk management adviser) (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); and Director, Commodities Corp. LLC (since April 1997); B-22
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- Mary P. McPherson, 65 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment The Andrew W. Mellon Foundation company) (since October 1997); Vice President, The Andrew W. Mellon 140 East 62nd Street Foundation (provider of grants for conservation, environmental and New York, NY 10021 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 of 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, 51 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since October 1997); Advisory Director - GSAM (since May 1999); New York, NY 10005 Limited Partner, Goldman Sachs (prior to May 1999); Consultant to GSAM (since December 1994). B-23
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- William H. Springer, 71 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 701 Morningside Drive company) (since October 1997); Director, The Walgreen Co. (a retail drug Lake Forest, IL 60045 store business) (April 1988-January 2000); Director of BKF Capital Group, Inc. (a public holding company of a registered investment adviser) (April 1992-present); and Chairman and Trustee, Northern Institutional Funds and Northern Funds (since April 1984 and March 2000, respectively). Richard P. Strubel, 61 Trustee Trustee - Goldman Sachs Variable Insurance Trust (registered investment 500 Lake Cook Road company) (since October 1997); President and COO, UNext.com (since Suite 150 1999) (provider of educational services via the internet); Director, Deerfield, IL 60015 Gildan Activewear Inc. (since February 1999); Director of Kaynar Technologies Inc. (since March 1997); Managing Director, Tandem Partners, Inc. (1990-1999); Trustee, Northern Institutional Funds and Northern Funds (since December 1982 and March 2000, respectively); Director of Cantilever Technologies, Inc. (since 1999). *John M. Perlowski, 36 Treasurer Treasurer - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since 1997); and Vice President, Goldman Sachs (since July New York, NY 10005 1995). B-24
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *Philip V. Giuca, Jr., 38 Assistant Assistant Treasurer - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since 1997); and Vice President, Goldman Sachs (May New York, NY 10005 1992-Present). *Peter Fortner, 42 Assistant Assistant Treasurer-Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since August 2000); Vice President, New York, NY 10005 Goldman Sachs (July 2000 - Present); Associate, Prudential Insurance Company of America (November 1985-June 2000); and Assistant Treasurer, certain closed end funds administered by Prudential (1999 and 2000). *Kenneth Curran, 37 Assistant Assistant Treasurer-Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Treasurer investment company) (since January 2001); Vice President, Goldman Sachs New York, NY 10005 (November 1998-Present); and Senior Tax Manager, KPMG Peat Marwick (August 1995-October 1998). *James A. Fitzpatrick, 40 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since October 1997); Managing Director, Goldman Chicago, IL 60606 Sachs (since October 1999); Vice President Goldman Sachs (April 1997- December 1999); and Vice President and General Manager, First Data Corporation -Investor Services Group (1994 to 1997). B-25
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *Jesse Cole, 37 Vice President Vice President - Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since 1998); Vice President, Goldman Sachs (since Chicago, IL 60606 June 1998); Vice President, AIM Management Group, Inc. (investment advisor) (April 1996-June 1998); and Assistant Vice President, The Northern Trust Company (June 1987-April 1996). *Kerry K. Daniels, 37 Vice President Vice President-Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since April 2000); and Manager, Institutional Account Chicago, IL 60606 Administration - Shareholder Services, Goldman Sachs (since 1986). *Mary F. Hoppa, 36 Vice President Vice President-Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (since April 2000); Vice President, Goldman Sachs Chicago, IL 60606 (since October 1999); and Senior Vice President and Director of Mutual Fund Operations, Strong Capital Management (January 1987-September 1999); *Christopher Keller, 35 Vice President Vice President, Goldman Sachs Variable Insurance Trust (registered 4900 Sears Tower investment company) (October 2000 - present); Vice President, Goldman Chicago, IL 60606 Sachs (April 1997-present): and Manager, Andersen Consulting (August 1989 - April 1997); B-26
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *Howard B. Surloff, 35 Secretary Secretary - Goldman Sachs Variable Insurance Trust (registered investment 32 Old Slip company) (since 2001) and Assistant Secretary prior thereto; Assistant New York, NY 10005 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); and Counsel to the Funds Group, GSAM (November 1993-December 1997); *Valerie A. Zondorak, 35 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Assistant General Counsel, GSAM and New York, NY 10005 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, 29 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Legal Products Analyst, Goldman Sachs New York, NY 10005 (since December 1998); Legal Assistant, Goldman Sachs (January 1996- December 1998); and Assistant Secretary to the Funds Group (1996 to present); B-27
Name, Age Positions Principal Occupation(s) and Address with Trust During Past 5 Years ----------- ---------- --------------------- *Kaysie P. Uniacke, 39 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Managing Director, Goldman Sachs (since New York, NY 10005 1997); and Vice President and Senior Portfolio Manager, GSAM (1988 to 1997). *Elizabeth D. Anderson, 31 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1997); Vice President, Goldman Sachs (since May New York, NY 10005 1997); Portfolio Manager, GSAM (since April 1996); and Junior Portfolio Manager, Goldman Sachs (1995-April 1996). *Amy E. Belanger, 31 Assistant Assistant Secretary - Goldman Sachs Variable Insurance Trust (registered 32 Old Slip Secretary investment company) (since 1999); Vice President, Goldman Sachs (since New York, NY 10005 June 1999); Counsel, Goldman Sachs (since 1998); Associate, Dechert Price & Rhoads (September 1996-1998). Each interested Trustee and officer holds comparable positions with certain other companies of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser, administrator and/or distributor. As of March 20, 2001, the Trustees and officers of the Trust as a group owned less than 1% of the Fund's outstanding shares of beneficial interest. 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. B-28
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,
2000:
Total Compensation from
Aggregate Pension or Retirement Benefits Goldman Sachs Trust and the
Compensation Accrued as Part of Fund's Goldman Sachs Fund complex
Name of Trustee From the Fund/2/ Expenses (including the Fund)/3/
--------------- ---------------- -------- -----------------------
Ashok N. Bakhru1 $570 $0 $142,250
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
Patrick T. Harker/4/ 414 0 26,500
John P. McNulty 0 0 0
Mary P. McPherson 414 0 106,000
Alan A. Shuch 0 0 0
Jackson W. Smart/5/ 0 0 53,000
William H. Springer 414 0 104,000
Richard P. Strube/l/ 414 0 106,000
/1/ Includes compensation as Chairman of the Board of Trustees.
/2/ Reflects amount paid by the Fund described in this Additional Statement
during the fiscal year ended December 31, 2000. The CORE Tax-Managed Equity
Fund commenced investment operations on April 3, 2000.
/3/ The Goldman Sachs Fund complex consists of the Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of 54
mutual funds, including 23 equity funds, as of December 31, 2000. Goldman
Sachs Variable Insurance Trust consisted of 10 mutual funds as of December
31, 2000
/4/ Mr. Harker was elected to the Board of Trustees on August 29, 2000.
/5/ No longer a trustee of the Trust.
B-29
Class A Shares of the Fund may be sold at net asset value without
payment of any sales charge to Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including rehired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any trustee or officer of the Trust and designated family members of any of the
above individuals. These and the Fund's other sales load waivers are due to the
nature of the investors and/or the reduced sales effort and expenses that are
needed to obtain such investments.
The Trust, its Investment Adviser and principal underwriter have adopted
codes of ethics under Rule 17j-1 of the 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 Fund.
Management Services
As stated in the Fund's Prospectuses, GSAM, 32 Old Slip, New York, New
York, a unit of the Investment Management Division of Goldman Sachs, serves as
Investment Adviser to the Fund. See "Service Providers" in the Fund's
Prospectuses for a description of the Investment Adviser's duties to the Fund.
The Goldman Sachs Group, L.P. which controlled the Fund's Investment
Adviser, merged into The Goldman Sachs Group, Inc. as a result of an initial
public offering in 1999.
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 Fund to use the name "Goldman Sachs" or a derivative thereof as part of its
name for as long as the Fund's Management Agreement is in effect.
The Investment Adviser is 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
Adviser.
B-30
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 United States 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.
In managing the Fund, the Investment Adviser has 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 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, Institutional Investor and Reuters.
These rankings acknowledge the achievements of the firm's economists,
strategists and equity analysts.
The Management Agreement provides that GSAM, in its capacity as
Investment Adviser, may render similar services to others as long as the
services under the Management Agreement are not impaired thereby. The Management
Agreement was initially approved with respect to the Fund by the Trustees,
including a majority of the non-interested Trustees (as defined below) who are
not parties to the Management Agreement, on February 3, 2000. The Fund's sole
shareholder approved these arrangements on April 3, 2000. The Management
Agreement was most recently approved with respect to the Fund 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 April 24, 2001. The Management
Agreement will remain in effect until June 30, 2002 and will continue in effect
with respect to the Fund from year to year thereafter provided such continuance
is specifically approved at least annually by (a) the vote of a majority of the
Fund's outstanding voting securities or a majority of the Trustees of the Trust,
and (b) the vote of a majority of the non-interested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such approval.
The Management Agreement will terminate automatically if assigned (as
defined in the Act). The Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the 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 Agreement, the Investment Adviser is entitled
to receive fees, payable monthly, at the annual rate of 0.75% of the Fund's
average daily net assets. The Fund had no fee waiver arrangements at the fiscal
period ended December 31, 2000. For the period from April 3, 2000 (commencement
of investment operations) through
B-31
December 31, 2000, the Fund incurred $383,282 in investment advisory and
administration fees pursuant to the Management Agreement.
Under its Management Agreement, the Investment Adviser also: (i)
supervises all of the Fund's non-advisory operations; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii) arranges for at
the 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 the 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 Adviser and 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 Fund or impede its investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Adviser and its 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 Fund and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Fund. 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 Fund invests, which could have an
adverse impact on the Fund's performance. Such transactions, particularly in
respect of proprietary accounts or customer accounts other than those included
in the Investment Adviser's and its advisory affiliates' asset management
activities, will be executed independently of the Fund's transactions and thus
at prices or rates that may be more or less favorable. When the Investment
Adviser and its advisory affiliates seek to purchase or sell the same assets for
their managed accounts, including the Fund, the assets actually purchased or
sold may be allocated among the accounts on a basis determined in their good
faith discretion to be equitable. In some cases, this system may adversely
affect the size or the price of the assets purchased or sold for the Fund.
From time to time, the Fund's 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 Adviser and/or its
affiliates will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Adviser
and/or its affiliates are performing services or when position limits have been
reached.
In connection with their management of the Fund, the Investment Adviser
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman
B-32
Sachs and other affiliates. The Investment Adviser will not be under any
obligation, however, to effect transactions on behalf of the Fund 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
Fund and it is not anticipated that the Investment Adviser will have access to
such information for the purpose of managing the Fund. 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 Adviser in managing the Fund.
The results of the Fund's investment activities may differ significantly
from the results achieved by the Investment Adviser and its 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 the
Fund. Moreover, it is possible that the 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.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding the Fund's
activities but will not be involved in the day-to-day management of the 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
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Investment Adviser 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 Fund should be aware.
The 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 the
Fund, and such party may have no incentive to assure that the Fund obtains 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 affiliates, the underlying securities or
instruments of which may be those in which the Fund invests or which may be
based on the performance of the Fund. The Fund 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 into
transactions with other clients of Goldman Sachs or its affiliates where such
other clients have interests adverse to those
B-33
of the Fund. 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 client. To the extent affiliated
transactions are permitted, the Fund will deal with Goldman Sachs and its
affiliates on an arms-length basis.
The 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 the Fund's establishment of its business relationships, nor is
it expected that the Fund's counterparties will rely on the credit of Goldman
Sachs or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is
not required to, purchase and hold shares of the Fund in order to increase the
assets of the Fund or for other reasons. Increasing the Fund's assets may
enhance investment flexibility and diversification and may contribute to
economies of scale that tend to reduce the Fund's expense ratio. Goldman Sachs
reserves the right to redeem at any time some or all of the shares of the Fund
acquired for its own account. A large redemption of shares of the Fund by
Goldman Sachs could significantly reduce the asset size of the Fund, which might
have an adverse effect on the Fund's investment flexibility, portfolio
diversification and expense ratio.
It is possible that the 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 Fund's 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 Adviser may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Fund.
Distributor and Transfer Agent
------------------------------
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of shares of the Fund pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
the Fund. Shares of the Fund are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. Pursuant to the distribution agreement, after
the Prospectuses and periodic reports have been prepared, set in type and mailed
to shareholders, Goldman Sachs will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C shares of the Fund.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares
(and in certain cases, Class A Shares), of such Fund shares. Goldman Sachs
retained approximately $196,000 in combined commissions on sales of Class A,
Class B and Class C Shares for the period from April 3, 2000 (commencement of
investment operations) through December 31, 2000.
B-34
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 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 inquiries, and (ix) render certain other miscellaneous services. For
its transfer agency services, Goldman Sachs is entitled to receive a transfer
agency fee equal, on an ongoing basis, to 0.04% of average daily net assets with
respect to the Fund's Institutional and Service Shares and 0.19% of average
daily net assets with respect to the Fund's Class A, Class B and Class C Shares
(less transfer agency expenses borne by a share class).
As compensation for the services rendered to the Trust by Goldman Sachs
as transfer agent, and the assumption by Goldman Sachs of the expenses related
thereto, Goldman Sachs received $87,584 in fees for the period from April 3,
2000 (commencement of investment operations) through December 31, 2000 from the
Fund under the fee schedules then in effect.
The Trust's distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements also
provide that the Trust will indemnify Goldman Sachs against certain liabilities.
Expenses
--------
The Trust, on behalf of the Fund, is responsible for the payment of the
Fund's expenses. The expenses include, without limitation, the fees payable to
the Investment Adviser, service fees and shareholder administration fees paid to
institutions that have agreed to provide account administration and personal
account maintenance services to their customers who are the beneficial owners of
Service Shares ("Service Organizations"), the fees and expenses of the Trust's
custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, 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 (including the cost of legal and certain accounting services rendered
by employees of GSAM and Goldman Sachs with respect to the Trust), expenses of
preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by the Fund pursuant to its distribution and service plans,
compensation and expenses of its "non-interested" Trustees and
B-35
extraordinary expenses, if any, incurred by the Trust. Except for fees and
expenses under any service plan, shareholder administration plan or distribution
and service plan applicable to a particular class and transfer agency fees and
expenses, all Fund expenses are borne on a non-class specific basis.
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 the Fund, which would have
the effect of lowering the 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 has agreed to reduce or limit certain
"Other Expenses" (excluding management fees, distribution and service fees,
transfer agency fees and expenses, service share fees, shareholder
administration fees, taxes, interest, brokerage and litigation, indemnification
and other extraordinary expenses) for the Fund to the extent such expenses
exceed 0.05% of average daily net assets. 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 the Fund,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
The Fund may also bear an allocable portion of the Investment Adviser's costs of
performing certain accounting services not being provided by the Fund's
Custodian.
Reimbursement
-------------
For the period April 3, 2000 (commencement of investment operations)
through December 31, 2000, certain "Other Expenses" of the Fund were reduced or
otherwise limited in the amount of $405,591 under the expense limitations that
were then in effect.
Custodian and Sub-Custodians
----------------------------
State Street, P.O. Box 1713, Boston, Massachusetts 02105, 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 and to hold cash for the Trust.
Independent Auditors
--------------------
Ernst & Young LLP, independent auditors, 787 Seventh Avenue, New York,
New York 10019, have been selected as auditors of the Fund for the fiscal year
ending December 31, 2001. In addition to audit services, Ernst & Young LLP
prepares the Fund's federal and state tax returns and provides consultation and
assistance on accounting, internal control and related matters.
B-36
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible for decisions to buy and sell
securities for the Fund, 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.
In placing orders for portfolio securities of the Fund, the Investment
Adviser is generally required to give primary consideration to obtaining the
most favorable execution and net price available. This means that the 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 to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination that such
commission is reasonable in light of the services provided and to such policies
as the Trustees may adopt from time to time. While the Investment Adviser
generally seeks reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available. Within the
framework of this policy, the Investment Adviser will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund, the Investment Adviser and its 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 Adviser in the performance
of its decision-making responsibilities. Such services are used by the
Investment Adviser in connection with all of its investment activities, and some
of such services obtained in connection with the execution of transactions for
the Fund may be used in managing other investment accounts. Conversely,
B-37
brokers furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets may be larger than
those of the Fund, and the services furnished by such brokers may be used by the
Investment Adviser 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 Adviser. 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 the Investment Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as its other customers
(including any other fund or other investment company or advisory account for
which the Investment Adviser acts as investment adviser or sub-investment
adviser), 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 Investment Adviser in
the manner it considers to be equitable and consistent with its fiduciary
obligations to the Fund and the other customers. In some instances, this
procedure may adversely affect the price and size of the position obtainable for
the Fund.
Commission rates in the United States 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 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 Adviser may use
Goldman Sachs as a broker for the Fund. In order for Goldman Sachs to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Goldman Sachs must be reasonable and customary. 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.
For the period April 3, 2000 (commencement of investment operations)
through December 31, 2000, the Fund paid $ 167,165 in total brokerage
commissions, including approximately $ 3,600 (representing 2% of total brokerage
commissions) in brokerage commissions paid to Goldman Sachs, from portfolio
transactions, including futures transactions, executed on behalf of the Fund.
During this period, the total amount of the
B-38
Fund's transactions on which commissions were paid was $ 246,902,504, less than
1% of which were effected through Goldman Sachs. During this period no
transactions were effected through brokers providing research and, accordingly,
no brokerage commissions were paid to these brokers. The amount of brokerage
commissions paid by the Fund may vary substantially from year to year because of
differences in shareholder purchase and redemption activity, portfolio turnover
rates and other factors.
During the period ended December 31, 2000, the Fund acquired and sold
securities of its regular broker-dealers. As of December 31, 2000, the Fund held
the following amount of securities through its regular broker-dealers, as
defined in Rule 10b-1 under the Act, or their parents: Lehman Brothers,
$595,000; Merrill Lynch; $961,000; Morgan Stanley Dean Witter, $6,666,000;
Deutsche Bank Securities, $2,980,000 and Salomon Smith Barney, $3,592,000.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining
in good faith the fair value of the Fund's securities. In accordance with
procedures adopted by the Trustees, the net asset value per share of each class
of the Fund is calculated by determining the value of the net assets
attributable to each class and dividing by the number of outstanding shares of
that class. All securities are valued as of the close of regular trading on the
New York Stock Exchange (normally, but not always, 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, Washington's Birthday (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, the 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 the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. 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 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
B-39
time net asset value is determined; (c) equity securities for which no prices
are obtained under section (a) or (b) 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 accurate
market 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 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). The impact of events that occur after the publication of
market quotations used by the Fund to price its securities but before the close
of regular trading on the New York Stock Exchange will normally not be reflected
in the 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 effect on
Fund operations and other relevant factors.
The proceeds received by the Fund and each other series 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 the Fund or series and constitute
the underlying assets of the Fund or series. The underlying assets of the 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 the Trust. Expenses of the Trust with respect to the Fund 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
The Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Average annual total return and yield are computed pursuant to formulas
specified by the SEC.
B-40
Thirty-day yield is derived by dividing net investment income per share
earned during the period by the product of the average daily number of Shares
outstanding and entitled to receive dividends and the maximum public offering
price per share on the last day of such 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.
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 applicable to the relevant
class 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. The table set forth
below indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in the Fund for the period
indicated.
Total return calculations for Class A Shares reflect the effect of
paying the maximum initial sales charge. Investment at a lower sales charge
would result in higher performance figures. Total return calculations for Class
B and Class C Shares reflect deduction of the applicable contingent deferred
sales charge ("CDSC") imposed upon redemption of Class B and Class C Shares held
for the applicable period. The Fund may also from time to time 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, the Fund may furnish total return calculations based on investments at
various sales charge levels or at NAV. An after-tax total return for the Fund
may be calculated by taking its total return and subtracting applicable federal
taxes from the portions of the Fund's total return attributable to capital gain
and ordinary income distributions. This after-tax total return may be compared
to that of other mutual funds with similar investment objectives as reported by
independent sources. Any performance information which is based on the Fund's
NAV per share would be reduced if any applicable sales charge were taken into
account. In addition to the above, the Fund may from time to time advertise its
performance relative to certain averages, performance rankings, indices, other
information prepared by recognized mutual fund statistical services and
investments for which reliable
B-41
performance information is available. The Fund's performance quotations do not
reflect any fees charged by an Authorized Dealer, Service Organization or other
financial intermediary to its customer accounts in connection with investments
in the Fund.
The Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicated of future return. Actual performance
will depend on such variables as portfolio quality, the type of portfolio
instruments acquired, portfolio expenses and other factors. Performance is one
basis investors may use to analyze a Fund as compared to other funds and other
investment vehicles. However, the performance of other funds and other
investment vehicles may not be comparable because of the foregoing variables,
and differences in the methods used in valuing their portfolio instruments,
computing net asset value and determining performance.
Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance relative to a market index. One measure of volatility
is beta. Beta is the volatility of the Fund relative to 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 the 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, 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 the 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);
B-42
(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) the Money Fund Report, a service of iMoneyNet, Inc. (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) the Russell 1000
Value Index; (p) the Russell 1000 Growth Index-Total Return; (q) the Value-Line
Composite-Price Return; (R) the Wilshire 4500 Index; (s) the FT-Actuaries Europe
and Pacific Index; (t) 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 World Index, 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;
(u) CDA/Wiesenberger Investment Companies Services or Wiesenberger Investment
Companies Service; (v) The Goldman Sachs Commodities Index; (w) information
produced by Micropal, Inc.; (x) The Tokyo Price Index; and (y) the Russell 3000
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 the 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;
B-43
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 benefits of focusing on after-tax returns versus pre-tax
returns for taxable investors.
the performance of various types of securities (common stocks,
small company stocks, long-term government bonds, treasury bills
and certificates of deposit) over time. However, the
characteristics of these securities are not identical to, and may
be very different from, those of the Fund's portfolio;
the dollar and non-dollar based returns of various market indices
(for example, Morgan Stanley World Index, 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; and
value of a dollar amount invested in a particular market or type
of 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-44
For the period from April 3, 2000 (commencement of investment
operations) through December 31, 2000, the Fund's aggregate total return was as
follows:
--------------------------------------------------------------------------------
Assuming no voluntary
waiver of fees and no
expense reimbursements
--------------------------------------------------------------------------------
Class Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
sales no sales sales no sales
Charge* Charge Charge* Charge
--------------------------------------------------------------------------------
A (15.60) (10.70) (16.10) (11.23)
--------------------------------------------------------------------------------
B (15.55) (11.10) (16.08) (11.63)
--------------------------------------------------------------------------------
C (12.09) (11.20) (12.62) (11.73)
--------------------------------------------------------------------------------
Institutional N/A (10.40) N/A (10.93)
--------------------------------------------------------------------------------
Service N/A (10.70) N/A (11.23)
--------------------------------------------------------------------------------
* Total return reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed deferred sales charge for Class B Shares (5% maximum
declining to 0% after six years) and the assumed deferred sales charge for Class
C Shares (1% if redeemed within 12 months of purchase).
From time to time, advertisements or shareholder communications 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 the Fund's investments and
discussions of the 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.
The Fund's performance data will be based on historical results and will
not be intended to indicate future performance. The Fund's total return and
yield will vary based on market conditions, portfolio expenses, portfolio
investments and other factors. The value of the Fund's
B-45
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 the Fund's holdings available to investors upon
request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares is subject to different expenses, total
return with respect to each class of shares of the Fund will differ.
SHARES OF THE TRUST
Goldman Sachs Trust, a Delaware business trust, was established by a
Declaration of Trust dated January 28, 1997. The Trustees have authority under
the Trust's Declaration of Trust to create and classify shares of beneficial
interest in separate series, without further action by shareholders. The
Trustees also have authority to classify and reclassify any series of shares
into one or more classes of shares. As of the date of this Additional Statement,
the Trustees have classified the shares of the Fund into five classes:
Institutional Shares, Service Shares, Class A Shares, Class B Shares and Class C
Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of the Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of the Fund are
borne at the same rate by each class of shares, except that fees under Service
Plans are borne exclusively by Service Shares, fees under Distribution and
Service Plans are borne exclusively by Class A, Class B or Class C Shares and
transfer agency fees are borne at different rates by different share classes.
The Trustees may determine in the future that it is appropriate to allocate
other expenses differently between classes of shares and may do so to the extent
consistent with the rules of the SEC and positions of the Internal Revenue
Service. Each class of shares may have different minimum investment requirements
and be entitled to different shareholder services. With limited exceptions,
shares of a class may only be exchanged for shares of the same or an equivalent
class of another fund. See "Shareholder Guide" in the Prospectus and "Other
Information Regarding Maximum Sales Charge, Purchases, Redemptions, Exchanges
and Dividends" below. In addition, the fees and expenses set forth below for
each class may be subject to voluntary fee waivers or reimbursements, as
discussed more fully in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by the Fund under a Plan for services provided to the institution's
customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain shareholder administration services and shareholder
liaison services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of service fees and shareholder administration fees at the
annual rate of up to 0.25% and 0.25%, respectively of the average daily net
assets of the Fund attributable to Service Shares.
B-46
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service firms
that have sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution and service fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. With respect to Class A Shares,
the Distributor at its discretion may use compensation for distribution services
paid under the Distribution and Services Plan for personal and account
maintenance services and expenses so long as such total compensation under the
Plan does not exceed the maximum cap on "service fees" imposed by the NASD.
Class B Shares of the Fund are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
NASD and certain other financial services firms that have sales arrangements
with Goldman Sachs. Class B Shares bear the cost of distribution (Rule 12b-1)
fees at the aggregate rate of up to 0.75% of the average daily net assets
attributable to Class B Shares. Class B Shares also bear the cost of service
fees at an annual rate of up to 0.25% of the average daily net assets
attributable to Class B Shares.
Class C Shares of the Fund are sold subject to a contingent deferred
sales charge of up to 1.0% through brokers and dealers who are members of the
NASD and certain other financial services firms that have sales arrangements
with Goldman Sachs. Class C Shares bear the cost of distribution (Rule 12b-1)
fees at the aggregate rate of up to 0.75% of the average daily net assets
attributable to Class C Shares. Class C Shares also bear the cost of service
fees at an annual rate of up to 0.25% of the average daily net assets
attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of the Fund. Dividends paid by the
Fund, if any, with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
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 for the consideration described in the Prospectus, shares
are fully paid and non-assessable. The Trustees may, however, cause
shareholders, or shareholders of a particular series or class, to pay certain
custodian, transfer, servicing or similar agent charges by setting of the same
against declared but unpaid dividends or by reducing share ownership (or by both
means). In the event of liquidation, shareholders are entitled to share pro rata
in the net assets of the applicable class of the Fund available for distribution
to such shareholders. All shares are freely transferable and have no preemptive,
subscription or conversion rights.
B-47
As of March 20, 2001, the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Fund's Class A
Shares: Edward Jones & Co., 201 Progress Parkway, Maryland Hts., MO 63043
(10%).
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. In
addition, 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 without the vote or consent of the shareholders, 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,
officers, employees and agents 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
B-48
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, series or its respective
shareholders. The factors and 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 their 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 adversely affect the voting rights
of shareholder; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; 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 Declaration of Trust with respect to any other series or class.
Shareholder and Trustee Liability
---------------------------------
Under Delaware Law, the shareholders of the Fund 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 the 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
B-49
Trust provides for indemnification by the 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
series 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 error 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
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 the Fund. 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 own tax adviser with respect to the specific federal,
state, local and foreign tax consequences of investing in the Fund. The summary
is based on the laws in effect on the date of this Additional Statement, which
are subject to change.
General
-------
The Fund is a separate taxable entity. The Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
There are certain tax requirements that the Fund must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the Fund
may have to limit its investment activities in some types of instruments.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) the Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains
B-50
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) the 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 the 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 the 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 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 the 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 the Fund as in the
hands of such an entity; consequently, the 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 the
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 the
Fund's portfolio or anticipated to be acquired may not qualify as "directly-
related" under these tests.
If the Fund complies with such provisions, then in any taxable year in
which the 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, the 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 the 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 under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. The Fund intends to distribute for each
B-51
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest. The
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 the 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 rates, and its distributions to shareholders will be taxable
as ordinary dividends to the extent of its current and accumulated earnings and
profits.
In order to avoid a 4% federal excise tax, the Fund must 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 the 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 Fund
anticipates that it will generally make timely distributions of income and
capital gains in compliance with these requirements so that it will generally
not be required to pay the excise tax. For federal income tax purposes, the 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.
These amounts are available to be carried forward to offset future capital gains
to the extent permitted by the Code and applicable tax regulations. At December
31, 2000, the Fund had capital loss carry forwards approximating $4,726,734 for
federal tax purposes, expiring in 2008.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by the Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require the Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by the Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by the Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of the Fund's
distributions to shareholders. Certain tax elections may be available to the
Fund to mitigate some of the unfavorable consequences described in this
paragraph.
B-52
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed the Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foreign currency transactions or
instruments could exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of the Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
The Fund's investment in deferred interest securities, certain
structured securities or other securities bearing original issue discount or, if
the Fund elects to include market discount in income currently, market discount,
as well as any "mark to market" gain from certain options, futures or forward
contracts, as described above, will generally cause it to realize income or gain
prior to the receipt of cash payments with respect to these securities or
contracts. In order to obtain cash to enable it to distribute this income or
gain, maintain its qualification as a regulated investment company and avoid
federal income or excise taxes, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
Taxable U.S. Shareholders - Distributions
-----------------------------------------
For U.S. federal income tax purposes, distributions by the Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from the
Fund's dividend income, if any, that would be eligible for the dividends-
received deduction if the Fund were not a regulated investment company may be
eligible for the dividends received deduction for corporate shareholders. The
dividends-received deduction, if available, is reduced to the extent the shares
with respect to which the dividends are received are treated as debt-financed
under federal income tax law and is eliminated if the shares are deemed to have
been held for less than a minimum period, generally 46 days. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary
B-53
dividend" under the Code, reduce such shareholder's tax basis in its shares of
the Fund. Capital gain dividends (i.e., dividends from net capital gain) if
designated as such in a written notice to shareholders mailed not later than 60
days after the Fund's taxable year closes, will be taxed to shareholders as
long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends-received deduction for
corporations. Such long-term capital gain will be taxed at a maximum rate of 20%
(10% for those shareholders in the 15% tax bracket). In addition, any long-term
gain distributions related to assets held for more than five years and sold
after December 31, 2000 will be taxed at a maximum rate of 8% for those
shareholders in the 15% tax bracket. For taxpayers in higher tax brackets, the
capital gains tax rate will be reduced from 20% to 18% for long-term gain
distributions related to assets acquired after December 31, 2000 and held for
more than five years. Distributions, if any, that are in excess of the Fund's
current and accumulated earnings and profits will first reduce a shareholder's
tax basis in his shares and, after such basis is reduced to zero, will generally
constitute capital gains to a shareholder who holds his shares as capital
assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Taxable U.S. Shareholders - Sale of Shares
------------------------------------------
When a shareholder's shares are sold, redeemed or otherwise disposed of
in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received (To aid in computing its tax basis, a
shareholder should generally retain its account statement for the period that it
held shares). If the shareholder holds the shares as a capital asset at the time
of sale, the character of the gain or loss should be capital, and treated as
long-term if the shareholder's holding period is more than one year, and
short-term otherwise. In general, the maximum long-term capital gain rate for
non corporate shareholders will be 20% for capital gains on assets held more
than one year (10% for those shareholders in the 15% tax bracket). In addition,
gains related to the sale of shares held for more than five years and sold after
December 31, 2000 will be taxed at a maximum rate of 8% for those shareholders
in the 15% tax bracket. For shareholders in higher tax brackets, the capital
gains tax rate will be reduced from 20% to 18% for any shares acquired after
December 31, 2000 (or marked-to-market at the beginning of 2001) and held for
more than five years. Shareholders should consult their own tax advisers with
reference to their particular circumstances to determine whether a redemption
(including an exchange) or other disposition of Fund shares is properly treated
as a sale for tax purposes, as is assumed in this discussion. If a shareholder
receives a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of a sale or redemption of
such shares, then any loss the shareholder realizes on the sale or redemption
will be treated as a long-term capital loss to the extent of such capital gain
dividend. All or a portion of any sales load paid upon the purchase of shares of
the Fund will not be taken into account in determining gain
B-54
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent the redemption proceeds are reinvested, or the exchange
is effected, without payment of an additional sales load pursuant to the
reinvestment or exchange privilege. The load not taken into account will be
added to the tax basis of the newly-acquired shares. Additionally, any loss
realized on a sale or redemption of shares of the Fund may be disallowed under
"wash sale" rules to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to a dividend
reinvestment in shares of the Fund. If disallowed, the loss will be reflected in
an adjustment to the basis of the shares acquired.
The Fund may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from dividends (including capital gain dividends)
and share redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish the Fund with a correct taxpayer identification
number ("TIN") certified under penalties of perjury, or if the Internal Revenue
Service or a broker notifies the Fund that the payee is subject to backup
withholding as a result of failing to properly report interest or dividend
income to the Internal Revenue Service or that the TIN furnished by the payee to
the Fund is incorrect, or if (when required to do so) the payee fails to certify
under penalties of perjury that it is not subject to backup withholding. The
Fund may refuse to accept an application that does not contain any required TIN
or certification that the TIN provided is correct. If the backup withholding
provisions are applicable, any such dividends and proceeds, whether paid in cash
or reinvested in additional shares, will be reduced by the amounts required to
be withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. If a shareholder does not have a TIN, it should
apply for one immediately by contacting its local office of the Social Security
Administration or the Internal Revenue Service (IRS). Backup withholding could
apply to payments relating to a shareholder's account while it is waiting
receipt of a TIN. Special rules apply for certain entities. For example, for an
account established under a Uniform Gifts or Transfer to Minors Act, the TIN of
the minor should be furnished.
Non-U.S. Shareholders
---------------------
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
the Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.
B-55
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of the Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish the Fund with the proper IRS Form W-8
(i.e., W-8 BEN, W-8 ECI, W-8 IMY or W-8 EXP) or an acceptable substitute may be
subject to backup withholding at the rate of 31% on capital gain dividends and
the proceeds of redemptions and exchanges. Also, non-U.S. shareholders may be
subject to estate tax. Each shareholder who is not a U.S. person should consult
his or her tax adviser regarding the U.S. and non-U.S. tax consequences of
ownership of shares of and receipt of distributions from the Fund.
State and Local
The Fund may be subject to state or local taxes in jurisdictions in which
the Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of the Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
FINANCIAL STATEMENTS
The audited financial statements and related report of Ernst & Young LLP,
independent auditors contained in the Fund's 2000 Annual Report are incorporated
by reference. The financial statements in the Fund's Annual Report have been
incorporated by reference in reliance upon such report given upon the authority
of such Firmas experts in accounting and auditing. No other parts of the Fund's
Annual Report are incorporated by referenced herein. A copy of the Annual Report
may be obtained upon request and without charge by writing Goldman Sachs & Co.,
4900 Sears Tower, Chicago, Illinois 60606 or by calling Goldman Sachs & Co., at
the telephone number on the back cover of the Fund's Prospectus.
OTHER INFORMATION
The Fund may pay redemptions, in part or in whole, by a distribution in
kind of securities (instead of cash) from the Fund. Unlike other funds of the
Goldman Sachs Trust, the Fund has not elected, pursuant to Rule 18f-1 under the
Act, to pay in cash all requests for redemptions 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. The securities distributed in kind 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.
B-56
The right of a shareholder to redeem shares and the date of payment by the
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 the 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 the Fund. (The
Trust may also suspend or postpone the recordation of the transfer of shares
upon the occurrence of any of the foregoing conditions).
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. Certain Service Organizations or institutions may enter into
sub-transfer agency agreements with the Trust or Goldman Sachs with respect to
their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Authorized Dealers, Service Organizations and
other financial intermediaries ("Intermediaries") for the sale and distribution
of Shares of the Fund and/or for the servicing of those shares. These payments
("Additional Payments") would be in addition to the payments by the Fund
described in the Fund's Prospectus and this Additional Statement for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to Intermediaries as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Fund and payments for
providing extra employee training and information relating to the Fund;
"listing" fees for the placement of the Fund on an Intermediary's list of mutual
funds available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Fund; "marketing support" fees for providing
assistance in promoting the sale of the Fund's shares; and payments for the sale
of shares and/or the maintenance of share balances. In addition, the Investment
Adviser, Distributor and/or their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to the shareholder administration, servicing and processing fees paid
by the Fund. The Additional Payments made by the Investment Adviser, Distributor
and their affiliates may be a fixed dollar amount, may be based on the number of
customer accounts maintained by an Intermediary, or may be based on a percentage
of the value of shares sold to, or held by, customers of the Intermediary
involved, and may be different for different Intermediaries. Furthermore, the
Investment Adviser, Distributor and/or their affiliates may, to the extent
permitted by applicable regulations, contribute to various non-cash and cash
incentive arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions. The Investment Adviser,
Distributor and their affiliates may also pay for the travel expenses, meals,
lodging and entertainment of Intermediaries and their
B-57
salespersons and guests in connection with educational, sales and promotional
programs subject to applicable NASD regulations.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
The Prospectuses 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 Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
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.
Statements contained in the Prospectuses 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 Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-58
DISTRIBUTION AND SERVICE PLANS
(Class A Shares,Class B Shares and Class C Shares Only)
Distribution and Service Plans. As described in the Prospectus, the Trust
has adopted, on behalf of the Fund's Class A, Class B and Class C Shares,
distribution and service plans (each a "Plan") pursuant to Rule 12b-1 under the
Act. See "Shareholder Guide - Distribution Services and Fees" in the
Prospectus.
The Plans were most recently approved with respect to the Fund on April
24, 2001 by a majority vote of the Trustees of the Trust, including a majority
of the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Plans, cast in person at a meeting called for the
purpose of approving the Plans.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75%, per annum of the Fund's average daily net assets
attributable to Class A, Class B and Class C Shares, respectively. Under the
Plans for Class B and Class C Shares, Goldman Sachs is also entitled to received
a separate fee for personal and account maintenance services equal to an annual
basis of 0.25% of the Fund's average daily net assets attributable to Class B or
Class C Shares. With respect to Class A Shares, the Distributor at its
discretion may use compensation for distribution services paid under the Plan
for personal and account maintenance services and expenses so long as such total
compensation under the Plan does not exceed the maximum cap on "service fees"
imposed by the NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class A, Class B and Class C
Shares may be sold by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A,
Class B and Class C Shares. To the extent such fees are not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Fund's Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of the Fund's Class A, Class
B and Class C Shares, will provide to the Trustees of the Trust for their
review, and the Trustees of the Trust will review at least quarterly, a written
report of the services provided and amounts expended by Goldman Sachs under the
Plans and the purposes for which such services were performed and expenditures
were made.
The Plans will remain in effect until May 1, 2002 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation without approval of a majority of the outstanding
Class A, Class B or Class C Shares, respectively, of the Fund. All material
amendments of a Plan must
B-59
also be approved by the Trustees of the Trust in the manner described above. A
Plan may be terminated at any time without payment of any penalty by a vote of a
majority of the non-interested Trustees of the Trust or by vote of a majority of
the Class A, Class B or Class C Shares, respectively, of the Fund. If a Plan was
terminated by the Trustees of the Trust and no successor plan was adopted, the
Fund would cease to make payments to Goldman Sachs under the Plan and Goldman
Sachs would be unable to recover the amount of any of its unreimbursed
expenditures. So long as a Plan is in effect, the selection and nomination of
non-interested Trustees of the Trust will be committed to the discretion of the
non-interested Trustees of the Trust. The Trustees of the Trust have determined
that in their judgment there is a reasonable likelihood that the Plans will
benefit the Fund and its Class A, Class B and Class C Shareholders.
During the period April 3, 2000 (commencement of investment operations)
through December 31, 2000, the Fund paid $ 52,290, $ 134,807 and $ 103,803 in
distribution and service fees to Goldman Sachs pursuant to the Class A Plan,
Class B Plan and Class C Plan, respectively.
During the period April 3, 2000 (commencement of investment operations)
through December 31, 2000, Goldman Sachs incurred the following expenses in
connection with distribution under the Fund's Class A Plan, Class B Plan and
Class C Plan, respectively: compensation to dealers, $ 68,039, $ 84,357 and $
95,325; compensation and expenses of the Distributor and its sales personnel, $
131,270, $ 89,857 and $ 65,912; allocable overhead, telephone and travel
expenses, $ 269,301, $ 178,735 and $ 127,568; printing and mailing of
prospectuses to other than current shareholders, $ 10,189, $ 6,565 and $ 4,956;
and preparation and distribution of sales literature and advertising, $ 64,812,
$ 44,615 and $ 32,619. Advance commissions paid to dealers of 1%, 4% and 1% on
Class A Shares, Class B Shares and Class C Shares, respectively, are considered
deferred assets which are amortized over a period of one year, six years and one
year, respectively, for such classes. Amounts presented above reflect
amortization expenses recorded during the period presented.
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
(Class A Shares, Class B Shares and Class C Shares Only)
Maximum Sales Charges
---------------------
Class A Shares of the Fund are sold with a maximum sales charge of 5.5%.
Using the Fund's net asset value per share as of December 31, 2000, the maximum
offering price of the Fund's Class A shares would be as follows: Net Asset
Value, $8.93; Maximum Sales Charge, 5.5%; Offering Price to Public, $9.45.
The following information supplements the information in the Prospectus
under the captions "Shareholder Guide" and "Dividends." Please see the
Prospectus for more complete information.
B-60
Other Purchase Information
--------------------------
If shares of the Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Fund will have no record of the beneficial owner's transactions, a beneficial
owner should contact the Authorized Dealer to purchase, redeem or exchange
shares, to make changes in or give instructions concerning the account or to
obtain information about the account. The transfer of shares in a "street name"
account to an account with another dealer or to an account directly with the
Fund involves special procedures and will require the beneficial owner to obtain
historical purchase information about the shares in the account from the
Authorized Dealer.
Right of Accumulation (Class A)
-------------------------------
A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Fund and Class A Shares of any other Goldman Sachs Fund (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example, if
a shareholder owns shares with a current market value of $65,000 and purchases
additional Class A Shares of any Goldman Sachs Fund with a purchase price of
$45,000, the sales charge for the $45,000 purchase would be 3.75% (the rate
applicable to a single purchase of $100,000 or more). Class A Shares purchased
without the imposition of a sales charge may not be aggregated with Class A
Shares purchased subject to a sales charge. Class A Shares of the Fund and any
other Goldman Sachs Fund purchased (i) by an individual, his spouse and his
children, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, (i) shares of the Fund and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by all other Private
Client Services accounts and (ii) shares of the Fund and any other Goldman Sachs
Fund purchased by an existing client of Goldman.com will be combined with Class
A Shares and other assets held in the client's Goldman.com account. In addition,
Class A Shares of the Fund and Class A Shares of any other Goldman Sachs Fund
purchased by partners, directors, officers or employees of the same business
organization, groups of individuals represented by and investing on the
recommendation of the same accounting firm, certain affinity groups or other
similar organizations (collectively, "eligible persons") may be combined for the
purpose of determining whether a purchase will qualify for the right of
accumulation and, if qualifying, the applicable sales charge level. This right
of accumulation is subject to the following conditions: (i) the business
organization's, group's or firm's agreement to cooperate in the offering of the
Fund's
B-61
shares to eligible persons; and (ii) notification to the Fund at the time of
purchase that the investor is eligible for this right of accumulation.
Statement of Intention (Class A)
--------------------------------
If a shareholder anticipates purchasing at least $50,000 of Class A Shares
of the Fund alone or in combination with Class A Shares of any other Goldman
Sachs Fund within a 13-month period, the shareholder may purchase shares of the
Fund at a reduced sales charge by submitting a Statement of Intention (the
"Statement"). Shares purchased pursuant to a Statement will be eligible for the
same sales charge discount that would have been available if all of the
purchases had been made at the same time. The shareholder or his Authorized
Dealer must inform Goldman Sachs that the Statement is in effect each time
shares are purchased. There is no obligation to purchase the full amount of
shares indicated in the Statement. A shareholder may include the value of all
Class A Shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A Shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related
escrow agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
-------------------------------------------------
Shareholders may receive dividends and distributions in additional shares
of the same class of the Fund or they may elect to receive them in cash or
shares of the same class of other Goldman Sachs Funds or ILA Service Shares of
the Prime Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if they
hold Class A Shares of the Fund, or ILA, Class B or Class C Shares of the Prime
Obligations Portfolio, if they hold Class B or Class C Shares of the Fund (the
"ILA Portfolios").
A Fund shareholder should obtain and read the prospectus relating to any
other Goldman Sachs Fund or ILA Portfolio and its shares and consider its
investment objective, policies and applicable fees before electing cross-
reinvestment into that Fund or Portfolio. The election to cross-reinvest
dividends and capital gain distributions will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase shares of the acquired fund. Such
reinvestment of dividends and distributions in shares of other Goldman Sachs
Funds or ILA Portfolios is available only in states where such reinvestment may
legally be made.
B-62
Automatic Exchange Program
--------------------------
A Fund shareholder may elect to exchange automatically a specified dollar
amount of shares of the Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund into an identical account or an account
registered in a different name or with a different address, social security or
other taxpayer identification number, provided that the account in the acquired
fund has been established, appropriate signatures have been obtained and the
minimum initial investment requirement has been satisfied. A Fund shareholder
should obtain and read the prospectus relating to any other Goldman Sachs Fund
and its shares and consider its investment objective, policies and applicable
fees and expenses before electing an automatic exchange into that Goldman Sachs
Fund.
Class C Exchanges
-----------------
As stated in the Prospectus, Goldman Sachs normally begins paying the
annual 0.75% distribution fee on Class C Shares to Authorized Dealers after the
shares have been held for one year. When an Authorized Dealer enters into an
appropriate agreement with Goldman Sachs and stops receiving this payment on
Class C Shares that have been beneficially owned by the Authorized Dealer's
customers for at least ten years, those Class C Shares may be exchanged for
Class A Shares (which bear a lower distribution fee) of the same Fund at their
relative NAV without a sales charge in recognition of the reduced payment to the
Authorized Dealer.
Systematic Withdrawal Plan
--------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of the Fund whose shares are worth at least $5,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any time. Goldman Sachs reserves the right to initiate a fee of
up to $5 per withdrawal, upon thirty (30) days written notice to the
shareholder. Withdrawal payments should not be considered to be dividends, yield
or income. If periodic withdrawals continuously exceed new purchases and
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. The
maintenance of a withdrawal plan concurrently with purchases of additional Class
A, Class B or Class C Shares would be disadvantageous because of the sales
charge imposed on purchases of Class A Shares or the imposition of a CDSC on
redemptions of Class A, Class B or Class C Shares. The CDSC applicable to Class
A, Class B or Class C Shares redeemed under a systematic withdrawal plan may be
waived. See "Shareholder Guide" in the Prospectus. In addition, each withdrawal
constitutes a redemption of shares, and any gain or loss realized must be
reported for federal and
B-63
state income tax purposes. A shareholder should consult his or her own tax
adviser with regard to the tax consequences of participating in the Systematic
Withdrawal Plan. For further information or to request a Systematic Withdrawal
Plan, please write or call the Transfer Agent.
SERVICE PLAN and
SHAREHOLDER ADMINISTRATION PLAN
(Service Shares Only)
The Fund has adopted a service plan and a separate shareholder
administration plan (the "Plans") with respect to its Service Shares which
authorizes it to compensate Service Organizations for providing personal and
account maintenance and certain shareholder administration services to their
customers who are or may become beneficial owners of such shares. Pursuant to
the Plans, the Fund enters into agreements with Service Organizations which
purchase Service Shares of the Fund on behalf of their customers ("Service
Agreements"). Under such Service Agreements the Service Organizations may
perform some or all of the following services:
(a) Personal and account maintenance services, including: (i) providing
facilities to answer inquiries and respond to correspondence with customers and
other investors about the status of their accounts or about other aspects of the
Trust or the applicable Fund; (ii) acting as liaison between the Service
Organization's customers and the Trust, including obtaining information from the
Trust and assisting the Trust in correcting errors and resolving problems; (iii)
providing such statistical and other information as may be reasonably requested
by the Trust or necessary for the Trust to comply with applicable federal or
state law; (iv) responding to investor requests for prospectuses; (v) displaying
and making prospectuses available on the Service Organization's premises; and
(vi) assisting customers in completing application forms, selecting dividend and
other account options and opening custody accounts with the Service
Organization.
(b) Shareholder administration services, including (i) acting or arranging
for another party to act, as recordholder and nominee of the Service Shares
beneficially owned by the Service Organization's customers; (ii) establishing
and maintaining individual accounts and records with respect to the Service
Shares owned by each customer; (iii) processing customer orders to purchase,
redeem and exchange Service Shares; (iv) receiving and transmitting funds
representing the purchase price or redemption proceeds of such Service Shares;
(v) processing dividend payments on behalf of customers; and (vi) performing
other related services which do not constitute "any activity which is primarily
intended to result in the sale of shares" within the meaning of Rule 12b-
B-64
1 under the Investment Company Act of 1940, as amended (the "1940 Act") or
"personal and account maintenance services" within the meaning of the NASD
Conduct Rules.
As compensation for such services, the Fund will pay each Service
Organization a service fee in an amount up to 0.25% (on an annualized basis) for
personal and account maintenance services plus an additional 0.25% (annualized)
for shareholder administration services of the average daily net assets of the
Service Shares of the Fund attributable to or held in the name of such Service
Organization. For the period April 3, 2000 (commencement of investment
operations) through December 31, 2000, the Fund paid $ 0 in fees to Service
Organizations under the Servicing Agreements.
The Fund has adopted the service plan pursuant to Rule 12b-1 under the Act
in order to avoid any possibility that service fees paid to the Service
Organizations pursuant to the Service Agreements might violate the Act. Rule
12b-1, which was adopted by the SEC under the Act, regulates the circumstances
under which an investment company or series thereof may bear expenses associated
with the distribution of its shares. In particular, such an investment company
or series thereof cannot engage directly or indirectly in financing any activity
which is primarily intended to result in the sale of shares issued by the
company unless it has adopted a plan pursuant to, and complies with the other
requirements of, such Rule. The Trust believes that fees paid for the services
provided in the service plan and described above are not expenses incurred
primarily for effecting the distribution of Service Shares. However, should such
payments be deemed by a court or the SEC to be distribution expenses, such
payments would be duly authorized by the Plan. The shareholder administration
plan has not been adopted pursuant to Rule 12b-1 under the Act.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
assets in Service Shares. Service Organizations, including banks regulated by
the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult their legal advisers before
investing fiduciary assets in Service Shares. In addition, under some state
securities laws, banks and other financial institutions purchasing Service
Shares on behalf of their customers may be required to register as dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plans or the related Service Agreements, most recently
voted to approve the Plans and related Service Agreements with respect to the
Fund at a meeting called for the purpose of voting on such Plans and Service
Agreements on April 24, 2001. The Plans and related Service Agreements will
remain in effect until May 1, 2002 and will continue in effect thereafter only
if such continuance is specifically approved annually by a vote of the Trustees
in the manner described above. The service plan may not be amended (but the
shareholder administration plan may be amended) to increase materially the
amount to be spent for the services described
B-65
therein without approval of the Service Shareholders of the Fund and all
material amendments of the Plans must also be approved by the Trustees in the
manner described above. The Plans may be terminated at any time by a majority of
the Trustees as described above or by a vote of a majority of the Fund's
outstanding Service Shares. The Service Agreements may be terminated at any
time, without payment of any penalty, by vote of a majority of the Trustees as
described above or by a vote of a majority of the Fund's outstanding Service
Shares on not more than sixty (60) days' written notice to any other party to
the Service Agreements. The Service Agreements will terminate automatically if
assigned. So long as the Plans are in effect, the selection and nomination of
those Trustees who are not interested persons will be committed to the
discretion of the non-interested Trustees. The Trustees have determined that, in
their judgment, there is a reasonable likelihood that the Plans will benefit the
Fund and the holders of Service Shares.
B-66
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.
1-A
Moody's commercial paper ratings are opinions of the ability of issuers
to honor senior financial obligations and contracts. These obligations have an
original maturity not exceeding 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.
Fitch short-term ratings apply to time horizons of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner. The following summarizes the rating categories
used by Fitch for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest 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.
2-A
"B" - Securities possess speculative credit quality. This designation
indicates minimal 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 solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
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.
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.
3-A
"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" - An obligation rated "C" is currently highly vulnerable to
nonpayment. 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.
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.
4-A
"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 unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba" - Bonds are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
"B" - Bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa " - Bonds are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
"Ca" - Bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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 long-term ratings used by Fitch:
"AAA" - Securities 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" - Securities 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
5-A
timely payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
"A" - Securities 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" - Securities 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" - Securities 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" - Securities 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" - Securities 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.
"DDD," "DD" and "D" - Securities 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.
6-A
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.
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 superior credit quality.
Excellent protection afforded by established cash flows, highly reliable
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes strong credit quality.
Margins of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes acceptable credit. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
"SG" - This designation denotes speculative-grade credit quality. Debt
instruments in this category lack sufficient margins of protection.
Fitch uses the same ratings for municipal securities as described above
for other short-term credit ratings.
7-A
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.
1-B
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 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 to 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.
2-B
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 fifty offices around the world Goldman Sachs employs over 20,000
professionals focused on opportunities in major markets.
The number one underwriter of all international equity issues from
1989-1999.
The number one lead manager of U.S. common stock offerings from 1989-
1999.*
The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1999).
_____________________
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
Investment Trusts and Rights.
3-B
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 95 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 Telekom public
Dow Jones Industrial Average breaks 6000
1997 Goldman Sachs Asset Management increases assets under management by
100% over 1996
Dow Jones Industrial Average breaks 7000
4-B
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
Goldman Sachs Asset Management launches the Goldman Sachs
Internet Tollkeeper Fund; becomes the year's second most
successful new fund launch.
2000 Goldman Sachs Research Select Fund launches; first day sales are the
highest ever for any Goldman Sachs Fund
5-B
APPENDIX C
----------
Statement of Intention
(applicable only to Class A shares)
If a shareholder anticipates purchasing $50,000 or more of Class A
Shares of the Fund alone or in combination with Class A Shares of another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by checking and filing the Statement of Intention in
the Account Application. Income dividends and capital gain distributions taken
in additional shares will not apply toward the completion of the Statement of
Intention.
To ensure that the reduced price will be received on future purchases,
the investor must inform Goldman Sachs that the Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5%
of the dollar amount specified on the Account Application will be held in escrow
by the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked
to remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the sales
charge, the Transfer Agent will redeem, pursuant to the authority given by the
investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
1-C
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Investments
December 31, 2000
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
Shares |
Description | Value | |||
|---|---|---|---|---|---|
| Common Stocks – (continued) | |||||
| Defense/Aerospace – continued | |||||
| 3,800 | Precision Castparts Corp. | $ 159,838 | |||
| 8,700 | The Boeing Co. | 574,200 | |||
|
|
|||||
| 1,320,969 | |||||
|
|
|||||
| Department Stores – 2.4% | |||||
| 7,200 | Family Dollar Stores, Inc. | 154,350 | |||
| 4,000 | Federated Department Stores, Inc.* | 140,000 | |||
| 20,300 | J. C. Penney Co., Inc. | 220,762 | |||
| 3,900 | Sears, Roebuck & Co. | 135,525 | |||
| 27,200 | Target Corp. | 877,200 | |||
| 32,200 | Wal-Mart Stores, Inc. | 1,710,625 | |||
|
|
|||||
| 3,238,462 | |||||
|
|
|||||
| Drugs – 9.1% | |||||
| 700 | Abgenix, Inc.* | 41,344 | |||
| 1,400 | Allergan, Inc. | 135,538 | |||
| 17,000 | American Home Products Corp. | 1,080,350 | |||
| 5,500 | Amgen, Inc.* | 351,656 | |||
| 5,700 |
Applera Corp.- Applied Biosystems
Group* |
536,156 | |||
| 8,700 | Bergen Brunswig Corp. | 137,721 | |||
| 3,200 | Bindley Western Industries, Inc. | 133,000 | |||
| 17,500 | Bristol-Myers Squibb Co. | 1,293,906 | |||
| 7,300 | Cardinal Health, Inc. | 727,262 | |||
| 1,745 | Elan Corp. PLC ADR* | 81,688 | |||
| 7,900 | Eli Lilly & Co. | 735,194 | |||
| 1,000 | Forest Laboratories, Inc.* | 132,875 | |||
| 3,100 | Immunex Corp.* | 125,938 | |||
| 5,100 | IVAX Corp.* | 195,330 | |||
| 3,900 | McKesson HBOC, Inc. | 139,971 | |||
| 24,400 | Merck & Co., Inc. | 2,284,450 | |||
| 1,600 | Millennium Pharmaceuticals* | 99,000 | |||
| 63,300 | Pfizer, Inc. | 2,911,800 | |||
| 9,700 | Pharmacia Corp. | 591,700 | |||
| 1,600 | Priority Healthcare Corp. Class B* | 65,300 | |||
| 1,000 | Protein Design Labs, Inc.* | 86,875 | |||
| 10,100 | Schering-Plough Corp. | 573,175 | |||
|
|
|||||
| 12,460,229 | |||||
|
|
|||||
| Electrical Equipment - 5.2% | |||||
| 8,702 | Agilent Technologies, Inc.* | 476,434 | |||
| 3,800 | American Tower Corp.* | 143,925 | |||
| 8,300 | Amphenol Corp.* | 325,256 | |||
| 100 | C-Cube Microsystems, Inc.* | 1,231 | |||
| 2,500 | Cabot Microelectronics Corp.* | 129,844 | |||
| 5,600 | CIENA Corp.* | 455,700 | |||
| 4,600 | Comverse Technology, Inc.* | 499,675 | |||
| 7,000 | Corning, Inc. | 369,687 | |||
| 2,100 | Danaher Corp. | 143,588 | |||
| 7,700 | Esterline Technologies Corp.* | 202,125 | |||
| 2,400 | General Dynamics Corp. | 187,200 | |||
| 2,600 | Level 3 Communications, Inc.* | 85,313 | |||
| 21,400 | Lucent Technologies, Inc. | 288,900 | |||
| 4,201 | Nortel Networks Corp. | 134,695 | |||
| 2,600 | PerkinElmer, Inc. | 273,000 | |||
| 4,300 | Polycom, Inc.* | 138,406 | |||
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Investments
(continued)
December 31, 2000
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
Shares |
Description | Value | |||
|---|---|---|---|---|---|
| Common Stocks – (continued) | |||||
| Internet – continued | |||||
| 500 | Interwoven, Inc.* | $ 32,969 | |||
| 2,300 | Juniper Networks, Inc.* | 289,944 | |||
| 1,100 | Kana Communications, Inc.* | 12,650 | |||
| 800 | Macromedia, Inc.* | 48,600 | |||
| 500 | Netegrity, Inc.* | 27,188 | |||
| 1,022 | Openwave Systems, Inc.* | 48,992 | |||
| 22,500 | Safeguard Scientifics, Inc.* | 149,062 | |||
| 2,207 | VeriSign, Inc.* | 163,732 | |||
| 4,800 | WebMD Corp.* | 38,100 | |||
| 3,100 | Yahoo!, Inc. | 93,533 | |||
|
|
|||||
| 2,365,644 | |||||
|
|
|||||
| Leisure – 1.4% | |||||
| 9,800 | Brunswick Corp. | 161,087 | |||
| 7,500 | Callaway Golf Co. | 139,688 | |||
| 12,500 | Harley-Davidson, Inc. | 496,875 | |||
| 3,700 | Harman International Industries, Inc. | 135,050 | |||
| 10,600 | International Game Technology* | 508,800 | |||
| 8,600 | Oakley, Inc.* | 116,100 | |||
| 6,400 | Polaris Industries, Inc. | 254,400 | |||
| 4,700 | Rightchoice Managed Care, Inc.* | 163,619 | |||
|
|
|||||
| 1,975,619 | |||||
|
|
|||||
| Life Insurance – 1.5% | |||||
| 700 | American General Corp. | 57,050 | |||
| 2,500 | Cigna Corp. | 330,750 | |||
| 3,100 | Liberty Financial Cos., Inc. | 138,144 | |||
| 700 | Lincoln National Corp. | 33,119 | |||
| 3,900 | MetLife, Inc. | 136,500 | |||
| 9,600 | Nationwide Financial Services, Inc. | 456,000 | |||
| 2,400 | StanCorp Financial Group, Inc. | 114,600 | |||
| 8,400 | The MONY Group, Inc. | 415,275 | |||
| 7,100 | UnitedHealth Group, Inc.* | 435,762 | |||
|
|
|||||
| 2,117,200 | |||||
|
|
|||||
| Media – 1.5% | |||||
| 3,500 | Automatic Data Processing, Inc. | 221,594 | |||
| 14,200 | Comcast Corp.* | 592,850 | |||
| 1,800 | Cox Communications, Inc.* | 83,812 | |||
| 11,900 | Infinity Broadcasting Corp.* | 332,456 | |||
| 5,100 | Pegasus Communications Corp.* | 131,325 | |||
| 11,200 | Time Warner, Inc. | 585,088 | |||
| 3,300 | Tribune Co. | 139,425 | |||
|
|
|||||
| 2,086,550 | |||||
|
|
|||||
| Medical Products – 4.3% | |||||
| 32,000 | Abbott Laboratories | 1,550,000 | |||
| 1,600 | Baxter International, Inc. | 141,300 | |||
| 1,000 | Becton, Dickinson & Co. | 34,625 | |||
| 2,600 | DENTSPLY International, Inc. | 101,725 | |||
| 5,500 | Henry Schein, Inc.* | 190,437 | |||
| 17,700 | Johnson & Johnson | 1,859,606 | |||
| 21,200 | Medtronic, Inc. | 1,279,950 | |||
| 4,300 | Patterson Dental Co.* | 145,663 | |||
| 10,300 | Stryker Corp. | 521,077 | |||
|
|
|||||
| 5,824,383 | |||||
|
|
|||||
|
Oil Services – 0.9%
|
|||||
| 6,100 | Baker Hughes, Inc. | 253,531 | |||
| 8,500 | BJ Services Co.* | 585,437 | |||
| 3,900 | Schlumberger Ltd. | 311,756 | |||
| 1,800 | Smith International, Inc.* | 134,213 | |||
|
|
|||||
| 1,284,937 | |||||
|
|
|||||
|
Publishing – 0.1%
|
|||||
| 2,000 | Quebecor World | 50,375 | |||
| 500 | R.R. Donnelley & Sons Co. | 13,500 | |||
| 600 | Scholastic Corp.* | 53,175 | |||
|
|
|||||
| 117,050 | |||||
|
|
|||||
| Railroads – 0.9% | ||||
| 8,700 | Burlington Northern Santa Fe Corp. | 246,319 | ||
| 3,300 | Canadian National Railway Co. | 97,969 | ||
| 19,000 | CSX Corp. | 492,812 | ||
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Investments
(continued)
December 31, 2000
|
Shares |
Description | Value | |||
|---|---|---|---|---|---|
| Common Stocks – (continued) | |||||
| Railroads – continued | |||||
| 200 | Kansas City Southern Industries, Inc.* | $ 2,025 | |||
| 6,900 | Union Pacific Corp. | 350,175 | |||
|
|
|||||
| 1,189,300 | |||||
|
|
|||||
| Restaurants – 0.2% | |||||
| 1,600 | Brinker International, Inc.* | 67,600 | |||
| 8,800 | CBRL Group, Inc. | 160,050 | |||
|
|
|||||
| 227,650 | |||||
|
|
|||||
| Security/Asset Management – 2.0% | |||||
| 7,100 | CVS Corp. | 425,556 | |||
| 7,300 | MSC Industrial Direct, Inc.* | 131,856 | |||
| 21,800 | The Home Depot, Inc. | 995,988 | |||
| 5,600 | Toys “R” Us, Inc.* | 93,450 | |||
| 5,500 | Walgreen Co. | 229,969 | |||
|
|
|||||
| 1,876,819 | |||||
|
|
|||||
| Telephone – 6.0% | ||||
| 7,900 | AT&T Corp. | 136,769 | ||
| 108,100 | AT&T Corp.-Liberty Media Corp.* | 1,466,106 | ||
| 11,200 | BCE, Inc. | 324,100 | ||
| 17,800 | BellSouth Corp. | 728,687 | ||
| 3,300 | Downey Financial Corp. | 181,500 | |||
| 6,800 | Golden West Financial Corp. | 459,000 | |||
|
|
|||||
| 640,500 | |||||
|
|
|||||
| Tobacco – 1.2% | |||||
| 27,300 | Philip Morris Cos., Inc. | 1,201,200 | |||
| 7,600 | R.J. Reynolds Tobacco Holdings, Inc. | 370,500 | |||
| 2,300 | Universal Corp. | 80,500 | |||
|
|
|||||
| 1,652,200 | |||||
|
|
|||||
| Truck Freight – 0.2% | |||||
| 3,600 | United Parcel Service, Inc. | 211,725 | |||
|
|
|||||
| Wireless – 0.4% | |||||
| 2,200 | ALLTEL Corp. | 137,363 | |||
| 6,000 | Nextel Communications, Inc.* | 148,500 | |||
| 13,400 | Sprint Corp. (PCS Group)* | 273,862 | |||
|
|
|||||
| 559,725 | |||||
|
|
|||||
| TOTAL COMMON STOCKS | |||||
| (Cost $132,341,128) | $134,446,260 | ||||
|
|
|||||
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | ||||
|---|---|---|---|---|---|---|---|
| Repurchase Agreement – 24.0% | |||||||
| Joint Repurchase Agreement Account II Ù Ÿ | |||||||
| $32,800,000 | 6.48% | 01/02/2001 | $ 32,800,000 | ||||
|
|
|||||||
| TOTAL REPURCHASE AGREEMENT | |||||||
| (Cost $32,800,000) | $ 32,800,000 | ||||||
|
|
|||||||
| TOTAL INVESTMENTS | |||||||
| (Cost $165,141,128) | $167,246,260 | ||||||
|
|
|||||||
|
*
|
Non-income producing security.
|
|
Ù
|
Joint repurchase agreement was entered into on December 29, 2000.
|
|
Ÿ
|
A portion of this security is segregated as collateral for initial margin requirement 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 Depositary Receipt | |||||||
|
|
|||||||
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Assets and Liabilities
December 31, 2000
| Assets: | ||||
| Investment in securities, at value (identified cost $132,341,128) | $134,446,260 | |||
| Repurchase Agreement | 32,800,000 | |||
| Cash | 2,311,700 | |||
| Receivables: | ||||
| Investment securities sold | 22,211,592 | |||
| Dividends and interest | 116,637 | |||
| Fund shares sold | 1,891,382 | |||
| Reimbursement from adviser | 177,690 | |||
| Other assets | 642 | |||
|
|
||||
| Total assets | 193,955,903 | |||
|
|
||||
| Liabilities: | ||||
| Payables: | ||||
| Investment securities purchased | 56,140,929 | |||
| Fund shares repurchased | 684,621 | |||
| Amounts owed to affiliates | 160,329 | |||
| Variation margin | 4,550 | |||
| Accrued expenses and other liabilities | 71,821 | |||
|
|
||||
| Total liabilities | 57,062,250 | |||
|
|
||||
| Net Assets: | ||||
| Paid-in capital | 147,779,105 | |||
| Undistributed net investment income | 291,963 | |||
| Accumulated net realized loss on investment transactions | (13,284,818 | ) | ||
| Net unrealized gain on investments | 2,107,403 | |||
|
|
||||
| NET ASSETS | $136,893,653 | |||
|
|
||||
| Net asset value, offering and redemption price per share: (a) | ||||
| Class A | $8.93 | |||
| Class B | $8.89 | |||
| Class C | $8.88 | |||
| Institutional | $8.96 | |||
| Service | $8.93 | |||
|
|
||||
| Shares outstanding: | ||||
| Class A | 7,210,781 | |||
| Class B | 3,884,743 | |||
| Class C | 2,888,728 | |||
| Institutional | 1,315,412 | |||
| Service | 59,667 | |||
|
|
||||
| Total shares outstanding, $.001 par value (unlimited number of shares authorized) | 15,359,331 | |||
|
|
||||
|
(a)
|
Maximum public offering price per share (NAV per share multiplied by 1.0582) for Class A Shares is $9.45. At redemption,
Class B and Class C Shares may be subject to a contingent deferred sales charge, assessed on the amount equal to the lesser of the current net asset value or the original purchase price of the shares.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Operations
For the Period Ended December 31, 2000
(a)
| Investment income: | ||||
| Dividends (b) | $ 680,722 | |||
| Interest | 349,075 | |||
|
|
||||
| Total income | 1,029,797 | |||
|
|
||||
| Expenses: | ||||
| Management fees | 383,282 | |||
| Distribution and Service fees (c) | 290,900 | |||
| Registration fees | 158,662 | |||
| Custodian fees | 104,502 | |||
| Printing fees | 94,813 | |||
| Transfer Agent fees (d) | 87,584 | |||
| Professional fees | 59,687 | |||
| Trustee fees | 4,495 | |||
| Other | 11,028 | |||
|
|
||||
| Total expenses | 1,194,953 | |||
|
|
||||
| Less — expense reductions | (405,591 | ) | ||
|
|
||||
| Net expenses | 789,362 | |||
|
|
||||
| NET INVESTMENT INCOME | 240,435 | |||
|
|
||||
| Realized and unrealized gain (loss) on investment, futures and foreign currency related transactions: | ||||
| Net realized gain (loss) from: | ||||
| Investment transactions | (11,316,078 | ) | ||
| Futures transactions | (1,968,740 | ) | ||
| Foreign currency related transactions | 15 | |||
| Net change in unrealized gain on: | ||||
| Investments | 2,105,132 | |||
| Futures | 2,245 | |||
| Translation of assets and liabilities denominated in foreign currencies | 26 | |||
|
|
||||
| Net realized and unrealized loss on investment, futures and foreign currency related transactions | (11,177,400 | ) | ||
|
|
||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $(10,936,965 | ) | ||
|
|
||||
|
(a)
|
Commencement of operations was April 3, 2000 for all classes.
|
|
(b)
|
Foreign taxes withheld on dividends were $2,065
|
|
(c)
|
Class A, Class B and Class C had Distribution and Service fees of $52,290, $134,807 and $103,803, respectively.
|
|
(d)
|
Class A, Class B, Class C, Institutional Class and Service Class had Transfer Agent fees of $39,740, $25,584, $19,723, $2,525
and $12, respectively.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Statement of Changes in Net Assets
For the Period Ended December 31, 2000
(a)
| From operations: | ||||||
| Net investment income | $ 240,435 | |||||
| Net realized loss on investment, futures and foreign currency related transactions | (13,284,803 | ) | ||||
|
Net change in unrealized gain on investments, futures and translation of assets and liabilities denominated in foreign
currencies |
2,107,403 | |||||
|
|
||||||
| Net decrease in net assets resulting from operations | (10,936,965 | ) | ||||
|
|
||||||
| From share transactions: | ||||||
| Proceeds from sales of shares | 166,828,077 | |||||
| Cost of shares repurchased | (18,997,459 | ) | ||||
|
|
||||||
| Net increase in net assets resulting from share transactions | 147,830,618 | |||||
|
|
||||||
| TOTAL INCREASE | 136,893,653 | |||||
|
|
||||||
| Net assets: | ||||||
| Beginning of period | — | |||||
|
|
||||||
| End of period | $136,893,653 | |||||
|
|
||||||
| Undistributed net investment income | $ 291,963 | |||||
|
|
||||||
|
(a)
|
Commencement of operations was April 3, 2000.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Notes to Financial Statements
December 31, 2000
|
1. ORGANIZATION
|
|
Goldman Sachs Trust (the “Trust”) is a Delaware business trust registered under the Investment Company Act of 1940
(as amended) as an open-end management investment company. The Trust includes the Goldman Sachs CORE Tax-Managed Equity Fund (the “Fund”). The Fund is a diversified portfolio offering five classes of shares — Class A, Class
B, Class C, Institutional and Service.
|
|
2. SIGNIFICANT ACCOUNTING POLICIES
|
|
The following is a summary of the significant accounting policies consistently followed by the Fund. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates 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 foreign securities exchange or the NASDAQ system are valued daily at their last sale price on the principal exchange on which they are traded. If no sale occurs, securities are valued at the last bid price. Unlisted
equity and debt securities 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. Securities for which quotations are not readily available are valued at fair value using methods approved by the Trust’s 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 investments are calculated using the identified-cost basis. Dividend income is recorded on the ex-dividend date, net of
foreign withholding taxes where applicable. Dividends for which the Fund has the choice to receive either cash or stock are recognized as investment income in an amount equal to the cash dividend. This amount is also used as an estimate of the fair
value of the stock received. Interest income is determined on the basis of interest accrued, premium amortized and discount earned.
|
|
Net investment income (other than class specific expenses) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund based upon the relative proportion of net assets of each class.
|
|
C. Foreign Currency Translations —
The books and records of the Fund are maintained in U.S. dollars. Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investment valuations, foreign currency and
other assets and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based on current exchange rates; (ii) purchases and sales of foreign investments, income and expenses are converted into U.S.
dollars based on currency exchange rates prevailing on the respective dates of such transactions.
|
|
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of foreign currencies; (ii) currency gains and losses between trade date and settlement date on investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of dividends, interest and foreign withholding taxes recorded and the amounts actually received.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
D. Expenses —
Expenses incurred by
the Trust which do not specifically relate to an individual fund of the Trust are allocated to the funds on a straight-line or pro rata basis depending upon the nature of the expense.
|
|
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service Plans. Each class of shares separately bears its respective class-specific Transfer Agency fees. Shareholders of Service Shares bear all expenses and fees paid to service
organizations.
|
|
E. Federal Taxes —
It is the
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 income and capital gains to its
shareholders. Accordingly, no federal tax provision is required. Income and capital gain distributions, if any, are declared and paid annually.
|
|
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the source of the Fund’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, depending on the type of book/tax differences that may exist.
|
|
The Fund had approximately $4,726,734 at December 31, 2000 of capital loss
carryforward expiring in 2008 for 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.
|
|
At December 31, 2000, the aggregate cost of portfolio securities for federal
income tax purposes is $165,141,136. Accordingly, the gross unrealized gain on investments was $9,714,472 and the gross unrealized loss was $7,609,348 resulting in a net unrealized gain of $2,105,124.
|
|
F. Repurchase Agreements —
Repurchase
agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. During the term of a repurchase agreement, the value of the underlying securities, 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 Fund’s custodian.
|
|
G. Segregation Transactions —
The
Fund may enter into certain derivative transactions to seek to increase total return. Forward foreign currency exchange contracts, futures contracts, written options, when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into these transactions, the Fund is required to segregate liquid assets on the accounting records equal to or greater than the market value of the corresponding transactions.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
3. AGREEMENTS
|
|
Pursuant to the Investment Management Agreement (“the Agreement”) Goldman Sachs Asset Management
(“GSAM”), a unit of the Investment Management Division of Goldman, Sachs & Co. (“Goldman Sachs”), serves as investment adviser to the Fund. Under the Agreement, GSAM, subject to the general supervision of the Trust’s
Board of Trustees, manages the Fund’s portfolio. As compensation for the services rendered pursuant to the Agreement, the assumption of the expenses related thereto and administering the Fund’s business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly, at an annual rate equal to .75% of the average daily net assets of the Fund.
|
|
Goldman Sachs has voluntarily agreed to limit “Other Expenses” for
the Fund (excluding Management fees, Service Share fees, Distribution and Service fees, Transfer Agent fees, litigation and indemnification costs, taxes, interest, brokerage commissions, and extraordinary expenses) to the extent such expenses exceed
.05% of the average daily net assets of the Fund. For the period ended December 31, 2000, GSAM reimbursed approximately $403,000. In addition, the Fund has entered into certain expense offset arrangements with the custodian resulting in a reduction
in the Fund’s expenses. For the period ended December 31, 2000, the Custody fees were reduced by approximately $3,000 under such arrangements.
|
|
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the Class A sales load and Class B and Class C contingent deferred sales charges and has advised the Fund that it retained approximately $196,000 for the period ended December 31,
2000.
|
|
The Trust, on behalf of the Fund, has adopted Distribution and Service plans.
Under the Distribution and Service plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee for distribution and shareholder maintenance services equal, on an annual basis, to .25%, 1.00% and 1.00% of the average daily net assets
attributable to Class A, Class B and Class C Shares, respectively.
|
|
The Trust, on behalf of the Fund, has adopted a Service Plan. This Plan
allows for Service Shares to compensate service organizations for providing varying levels of account administration and shareholder liaison services to their customers who are beneficial owners of such shares. The Service Plan provides for
compensation to the service organizations in an amount up to .50% (on an annualized basis), of the average daily net asset value of the Service Shares.
|
|
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Fees
charged for such Transfer Agency services are calculated daily and payable monthly at an annual rate as follows: .19% of the average daily net assets for Class A, Class B and Class C Shares and .04% of the average daily net assets for Institutional
and Service Shares.
|
|
At December 31, 2000, the Fund owed approximately $80,000, $61,000 and
$19,000 for Management, Distribution and Service and Transfer Agent fees, respectively.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
4. PORTFOLIO SECURITIES TRANSACTIONS
|
|
The cost of purchases and proceeds of sales and maturities of securities (excluding short-term investments) for the period
ended December 31, 2000, were $195,841,889 and $52,080,469, respectively.
|
|
For the period ended December 31, 2000, Goldman Sachs earned approximately
$3,600 of brokerage commissions from portfolio transactions including futures transactions executed on behalf of the Fund.
|
|
Futures Contracts —
The Fund may enter into
futures transactions to hedge against changes in interest rates, securities prices, or seek to increase total return. Upon entering into a futures contract, the Fund is 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 Fund 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 Fund realizes a gain or loss which
is reported in the Statement of Operations.
|
|
The use of futures contracts involves, to varying degrees, elements of market
and counterparty risk which may exceed the amounts recognized in the Statement of Assets and Liabilities. Changes in the value of the futures contract may not directly correlate with changes in the value of the underlying securities. This risk may
decrease the effectiveness of the Fund’s strategies and potentially result in a loss.
|
|
At December 31, 2000, the following futures contract was open:
|
| Type |
Number of
Contracts Long |
Settlement
Month |
Market
Value |
Unrealized
Gain |
|||||
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
| S&P 500 Index |
1
|
Mar-01 | $333,750 | $2,245 | |||||
|
|
|||||||||
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
5. JOINT REPURCHASE AGREEMENT ACCOUNT
|
|
The Fund, together with other registered investment companies having management agreements with GSAM or its affiliates,
transfers uninvested cash into joint accounts, the daily aggregate balance of which is invested in one or more repurchase agreements.
|
|
At December 31, 2000, the Fund had an undivided interest in the repurchase
agreement in the following joint account which equaled $32,800,000 in principal amount. At December 31, 2000, the following repurchase agreements held in this joint account were fully collateralized by Federal Agency obligations.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Notes to Financial Statements
(continued)
December 31, 2000
|
6. LINE OF CREDIT FACILITY
|
|
Effective May 31, 2000, the Fund participates in a $350,000,000 committed, unsecured revolving line of credit facility. Prior
thereto, the Fund participated in a $250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving line of credit facility. Under the most restrictive arrangement, the Fund must own securities having a market value in excess of 400% of
the total bank borrowings. This facility is 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 Fund based on the
amount of the commitment which has not been utilized. During the period ended December 31, 2000, the Fund did not have any borrowings under this facility.
|
|
7. CERTAIN RECLASSIFICATIONS
|
|
In accordance with AICPA Statement of Position 93-2, the Fund reclassified $15 from accumulated net realized loss on
investment transactions to undistributed net investment income and $51,513 from paid-in capital to undistributed net investment income. These reclassifications have no impact on the net asset value of the Fund and are designed to present the
Fund’s capital accounts on a tax basis. Reclassifications result primarily from the difference in the tax treatment of foreign currency, net operating losses and organization costs.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
8. SUMMARY OF SHARE TRANSACTIONS
|
|
Share activity is as follows:
|
| For the Period Ended December 31, 2000 (a) | |||||||
|---|---|---|---|---|---|---|---|
|
|
|||||||
|
Shares
|
Dollars
|
||||||
|
|
|||||||
| Class A Shares | |||||||
| Shares sold | 7,605,643 | $ 72,622,224 | |||||
| Shares repurchased | (394,862 | ) | (3,615,932 | ) | |||
|
|
|||||||
| 7,210,781 | 69,006,292 | ||||||
|
|
|||||||
| Class B Shares | |||||||
| Shares sold | 4,027,788 | 38,690,283 | |||||
| Shares repurchased | (143,045 | ) | (1,331,151 | ) | |||
|
|
|||||||
| 3,884,743 | 37,359,132 | ||||||
|
|
|||||||
| Class C Shares | |||||||
| Shares sold | 3,180,745 | 30,668,307 | |||||
| Shares repurchased | (292,017 | ) | (2,692,446 | ) | |||
|
|
|||||||
| 2,888,728 | 27,975,861 | ||||||
|
|
|||||||
| Institutional Shares | |||||||
| Shares sold | 2,457,043 | 24,301,763 | |||||
| Shares repurchased | (1,141,631 | ) | (11,357,930 | ) | |||
|
|
|||||||
| 1,315,412 | 12,943,833 | ||||||
|
|
|||||||
| Service Shares | |||||||
| Shares sold | 59,667 | 545,500 | |||||
|
|
|||||||
| 59,667 | 545,500 | ||||||
|
|
|||||||
| NET INCREASE | 15,359,331 | $147,830,618 | |||||
|
|
|||||||
|
(a)
|
Commencement of operations was April 3, 2000 for all classes.
|
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout The Period
|
Income (loss) from
investment operations |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net asset
value, beginning of period |
Net
investment income (c) |
Net realized
and unrealized loss |
Total from
investment operations |
Net asset
value, end of period |
|||||||||||
| FOR THE PERIOD ENDED DECEMBER 31, | |||||||||||||||
| 2000 - Class A Shares (commenced April 3) | $10.00 | $ 0.04 | $(1.11 | ) | $(1.07 | ) | $8.93 | ||||||||
| 2000 - Class B Shares (commenced April 3) | 10.00 | — | (1.11 | ) | (1.11 | ) | 8.89 | ||||||||
| 2000 - Class C Shares (commenced April 3) | 10.00 | — | (1.12 | ) | (1.12 | ) | 8.88 | ||||||||
| 2000 - Institutional Shares (commenced April 3) | 10.00 | 0.13 | (1.17 | ) | (1.04 | ) | 8.96 | ||||||||
| 2000 - Service Shares (commenced April 3) | 10.00 | 0.06 | (1.13 | ) | (1.07 | ) | 8.93 | ||||||||
|
|
|||||||||||||||
|
(a)
|
Assumes investment at the net asset value at the beginning of the period, reinvestment of all dividends and distributions, a
complete redemption of the investment at the net asset value at the end of the period and no sales or redemption charges. Total return would be reduced if a sales or redemption charge were taken into account. Total returns for periods less than a
full year are not annualized.
|
|
(b)
|
Annualized.
|
|
(c)
|
Calculated based on the average shares outstanding methodology.
|
The accompanying notes are an integral part of these financial statements.
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
|
Ratios assuming
no expense reductions |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total
return (a) |
Net assets
at end of period (in 000s) |
Ratio of
net expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Ratio of
expenses to average net assets (b) |
Ratio of
net investment income (loss) to average net assets (b) |
Portfolio
turnover rate |
||||||||||||
| (10.70 | )% | $64,396 | 1.24 | % | 0.63 | % | 2.03 | % | (0.16 | )% | 77 | % | ||||||
| (11.10 | ) | 34,538 | 1.99 | (0.03 | ) | 2.78 | (0.82 | ) | 77 | |||||||||
| (11.20 | ) | 25,640 | 1.99 | (0.05 | ) | 2.78 | (0.84 | ) | 77 | |||||||||
| (10.40 | ) | 11,787 | 0.84 | 1.87 | 1.63 | 1.08 | 77 | |||||||||||
| (10.70 | ) | 533 | 1.34 | 0.94 | 2.13 | 0.15 | 77 | |||||||||||
|
|
||||||||||||||||||
GOLDMAN SACHS CORE TAX-MANAGED EQUITY FUND
Report of Ernst & Young LLP, Independent Auditors
|
To the Shareholders and Board of Trustees
|
|
Goldman Sachs Trust
|
|
We have audited the accompanying statement of assets and liabilities of the Goldman Sachs CORE Tax-Managed Equity Fund (one
of the funds comprising the Goldman Sachs Trust) (the “Fund”), including the statement of investments, as of December 31, 2000, and the related statement of operations, the statement of changes in net assets and the financial highlights
for the period from April 3, 2000 (commencement of operations) to December 31, 2000. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
|
|
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
|
|
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects,
the financial position of the Goldman Sachs CORE Tax-Managed Equity Fund at December 31, 2000, the results of its operations, the changes in its net assets, and the financial highlights for the period from April 3, 2000 to December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
|
|
|
New York, New York
|
|
February 5, 2001
|
PART C OTHER INFORMATIONItem 23. Exhibits -------- The following exhibits relating to Goldman Sachs Trust are incorporated herein by reference to Post-Effective Amendment No. 26 to Goldman Sachs Trust's Registration Statement on Form N-1A (Accession No. 000950130-95-002856); to Post-Effective Amendment No. 27 to such Registration Statement (Accession No. 0000950130-96-004931); to Post-Effective Amendment No. 29 to such Registration Statement (Accession No. 0000950130-97-000573); to Post-Effective Amendment No. 31 to such Registration Statement (Accession No. 0000950130-97-000805); to Post- Effective Amendment No. 32 to such Registration Statement (Accession No. 0000950130-97-0001846); to Post-Effective Amendment No. 40 to such Registration Statement (Accession No. 0000950130-97-004495); to Post-Effective Amendment No. 41 to such Registration Statement (Accession No 0000950130-98-000676); to Post- Effective Amendment No. 43 to such Registration Statement (Accession No. 0000950130-98-000965); to Post-Effective Amendment No. 44 to such Registration Statement (Accession No. 0000950130-98-002160); to Post-Effective Amendment No. 46 to such Registration Statement (Accession No. 0000950130-98-003563); to Post- Effective Amendment No. 47 to such Registration Statement (Accession No. 0000950130-98-004845); to Post-Effective Amendment No. 48 to such Registration Statement (Accession No. 0000950109-98-005275); to Post-Effective Amendment No. 50 to such Registration Statement (Accession No. 0000950130-98-006081); to Post- Effective Amendment No. 51 to such Registration Statement (Accession No. 0000950130-99-000178); to Post-Effective Amendment No. 52 to such Registration Statement (Accession No. 0000950130-99-000742); to Post-Effective Amendment No. 53 to such Registration Statement (Accession No. 0000950130-99-001069); to Post- Effective Amendment No. 54 to such Registration Statement (Accession No. 0000950130-99-002212); to Post-Effective Amendment No. 55 to such Registration Statement (Accession No. 0000950109-99-002544); to Post-Effective Amendment No. 56 to such Registration Statement (Accession No. 0000950130-99-005294); to Post- Effective Amendment No. 57 to such Registration Statement (Accession No. 0000950109-99-003474); to Post-Effective Amendment No. 58 to such Registration Statement (Accession No. 0000950109-99-004208); to Post-Effective Amendment No. 59 to such Registration Statement (Accession No. 0000950130-99-006810); to Post- Effective Amendment No. 60 to such Registration Statement (Accession No. 0000950109-99-004538) (no exhibits filed as part of this Amendment); to Post- Effective Amendment No. 61 to such Registration Statement (Accession No. 0000950130-00-000099) (no exhibits filed as part of this Amendment); to Post- Effective Amendment No. 62 to such Registration Statement (Accession No. 0000950109-00-000585); to Post-Effective Amendment No. 63 to such Registration Statement (Accession No. 0000950109-00-001365); to Post-Effective Amendment No. 64 to such Registration Statement (Accession No. 0000950130-00-002072); to Post- Effective Amendment No. 65 to such Registration Statement (Accession No. 0000950130-00-002509); to Post-Effective Amendment No. 66 to such Registration Statement (Accession No. 0000950130-00-003033); to Post-Effective Amendment No. 67 to such Registration Statement (Accession No. 0000950130-00-003405), to Post- -1-
Effective Amendment No. 68 to such Registration Statement (Accession No.
0000950109-00-500123), to Post-Effective Amendment No. 69 to such Registration
Statement (Accession No. 0000950109-00-500156), to Post-Effective Amendment No.
70 to such Registration Statement (Accession No. 0000950109-01-000419 and to
Post-Effective Amendment No. 71 to such Registration Statement (Accession No.
0000950109-01-500094).
(a)(1). Agreement and Declaration of Trust dated January 28, 1997.
(Accession No. 0000950130-97-000573.)
(a)(2). Amendment No. 1 dated April 24, 1997 to Agreement and
Declaration of Trust January 28, 1997. (Accession No.
0000950130-97-004495.)
(a)(3). Amendment No. 2 dated July 21, 1997 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-97-004495.)
(a)(4). Amendment No. 3 dated October 21, 1997 to the Agreement
and Declaration of Trust as amended, dated January 28,
1997. (Accession No. 0000950130-98-000676.)
(a)(5) Amendment No. 4 dated January 28, 1998 to the Agreement
and Declaration of Trust as amended, dated January 28,
1997. (Accession No. 0000950130-98-000676.)
(a)(6). Amendment No. 5 dated April 23, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-98-004845.)
(a)(7). Amendment No. 6 dated July 22, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-98-004845.)
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-98-006081.)
(a)(9). Amendment No. 8 dated January 22, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-000742.)
(a)(10). Amendment No. 9 dated April 28, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950109-99-002544.)
-2-
(a)(11). Amendment No. 10 dated July 27, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-005294.)
(a)(12). Amendment No. 11 dated July 27, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-005294.)
(a)(13). Amendment No. 12 dated October 26, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-004208.)
(a)(14). Amendment No. 13 dated February 3, 2000 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950109-00-000585.)
(a)(15). Amendment No. 14 dated April 26, 2000 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-00-002509.)
(a)(16). Amendment No.15 dated August 1, 2000 to Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950109-00-500123).
(b). Amended and Restated By-laws of the Delaware business
trust dated January 28, 1997. (Accession No. 0000950130-
97-000573.)
(b)(2). Amended and Restated By-laws of the Delaware business
trust dated January 28, 1997 as amended and restated July
27, 1999. (Accession No. 0000950130-99-005294.)
(c). Not applicable.
(d)(1). Management Agreement dated April 30, 1997 between
Registrant, on behalf of Goldman Sachs Short Duration
Government Fund, and Goldman Sachs Funds Management, L.P.
(Accession No. 0000950130-98-000676.)
(d)(2). Management Agreement dated April 30, 1997 between
Registrant, on behalf of Goldman Sachs Adjustable Rate
Government Fund, and Goldman Sachs Funds Management, L.P.
(Accession No. 0000950130-98-000676.)
(d)(3). Management Agreement dated April 30, 1997 between
Registrant, on behalf of Goldman Sachs Short Duration Tax-
Free Fund, and
-3-
Goldman Sachs Asset Management. (Accession No. 0000950130-
98-000676.)
(d)(4). Management Agreement dated April 30, 1997 between
Registrant, on behalf of Goldman Sachs Core Fixed Income
Fund, and Goldman Sachs Asset Management. (Accession No.
0000950130-98-000676.)
(d)(5). Management Agreement dated April 30, 1997 between the
Registrant, on behalf of Goldman Sachs - Institutional
Liquid Assets, and Goldman Sachs Asset Management.
(Accession No. 0000950130-98-000676.)
(d)(6). Management Agreement dated April 30, 1997 between
Registrant, Goldman Sachs Asset Management, Goldman Sachs
Fund Management L.P. and Goldman, Sachs Asset Management
International. (Accession No. 0000950109-98-005275.)
(d)(7). Management Agreement dated January 1, 1998 on behalf of
the Goldman Sachs Asset Allocation Portfolios and Goldman
Sachs Asset Management. (Accession No. 0000950130-98-
000676.)
(d)(8). Amended Annex A to Management Agreement dated January 1,
1998 on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman Sachs Asset Management
(Conservative Strategy Portfolio) (Accession No.
0000950130-99-000742.)
(d)(9). Amended Annex A dated April 28, 1999 to Management
Agreement dated April 30, 1997. (Accession No. 0000950109-
99-002544.)
(d)(10). Amended Annex A dated July 27, 1999 to Management
Agreement dated April 30, 1997. (Accession No. 0000950130-
99-005294.)
(d)(11). Amended Annex A dated October 26, 1999 to Management
Agreement dated April 30, 1997. (Accession No. 0000950130-
99-004208.)
(d)(12). Amended Annex A dated February 3, 2000 to Management
Agreement dated April 30, 1997 (Accession No. 0000950109-
00-001365.)
(d)(13). Amended Annex A dated April 26, 2000 to Management
Agreement dated April 30, 1997 (Accession No. 0000950130-
00-002509).
-4-
(d)(14). Amended Annex A dated January 30, 2001 to Management
Agreement dated April 30, 1997 (Accession No. 0000950109-
01-500094).
(e). Distribution Agreement dated April 30, 1997, as amended
January 30, 2001 between Registrant and Goldman Sachs &
Co. (Accession No. 0000950109-01-500094).
(f). Not applicable.
(g)(1). Custodian Agreement dated July 15, 1991, between
Registrant and State Street Bank and Trust Company.
(Accession No. 0000950130-95-002856.)
(g)(2). Custodian Agreement dated December 27, 1978 between
Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs -Institutional Liquid Assets,
filed as Exhibit 8(a). (Accession No. 0000950130-98-
000965.)
(g)(3). Letter Agreement dated December 27, 1978 between
Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
pertaining to the fees payable by Registrant pursuant to
the Custodian Agreement, filed as Exhibit 8(b). (Accession
No. 0000950130-98-000965.)
(g)(4). Amendment dated May 28, 1981 to the Custodian Agreement
referred to above as Exhibit (g)(2) (Accession No.
0000950130-98-000965.)
(g)(5). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank and Trust Company.
(Accession No. 0000950130-97-004495.)
(g)(6). Letter Agreement dated June 14, 1984 between Registrant
and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets, pertaining to
a change in wire charges under the Custodian Agreement,
filed as Exhibit 8(d). (Accession No. 0000950130-98-
000965.)
(g)(7). Letter Agreement dated March 29, 1983 between Registrant
and State Street Bank and Trust Company, on behalf of
Goldman Sachs -Institutional Liquid Assets, pertaining to
the latter's designation of Bank of America, N.T. and S.A.
as its subcustodian
-5-
and certain other matters, filed as Exhibit 8(f).
(Accession No. 0000950130-98-000965.)
(g)(8). Letter Agreement dated March 21, 1985 between Registrant
and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets, pertaining to
the creation of a joint repurchase agreement account,
filed as Exhibit 8(g). (Accession No. 0000950130-98-
000965.)
(g)(9). Letter Agreement dated November 7, 1985, with attachments,
between Registrant and State Street Bank and Trust
Company, on behalf of Goldman Sachs - Institutional Liquid
Assets, authorizing State Street Bank and Trust Company to
permit redemption of units by check, filed as Exhibit
8(h). (Accession No. 0000950130-98-000965.)
(g)(10). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street
Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to transfers of
funds on deposit with State Street Bank and Trust Company,
filed as Exhibit 8(i). (Accession No. 0000950130-98-
000965.)
(g)(11). Letter Agreement dated November 27, 1985 between
Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
amending the Custodian Agreement. (Accession No.
0000950130-98-000965.)
(g)(12). Letter Agreement dated July 22, 1986 between Registrant
and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets, pertaining to
a change in wire charges. (Accession No. 0000950130-98-
000965.)
(g)(13). Letter Agreement dated June 20, 1987 between Registrant
and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets, amending the
Custodian Agreement. (Accession No. 0000950130-98-000965.)
(g)(14). Letter Agreement between Registrant and State Street Bank
and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the latter's
designation of Security Pacific National Bank as its
subcustodian and certain other matters. (Accession No.
0000950130-98-000965.)
(g)(15). Amendment dated July 19, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust
Company, on
-6-
behalf of Goldman Sachs - Institutional Liquid Assets.
Accession No. 0000950130-98-000965.)
(g)(16). Amendment dated December 19, 1988 to the Custodian
Agreement between Registrant and State Street Bank and
Trust Company, on behalf of Goldman Sachs - Institutional
Liquid Assets. Accession No. 0000950130-98-000965.)
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant
and State Street Bank and Trust Company on behalf of
Goldman Sachs Capital Growth Fund. (Accession No.
0000950130-98-006081.)
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State
Street Bank and Trust Company and Bank of America,
National Trust and Savings Association on behalf of
Goldman Sachs Institutional Liquid Assets. (Accession No.
0000950130-98-006081.)
(g)(19). Fee schedule dated January 8, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State
Street Bank and Trust Company (Conservative Strategy
Portfolio). (Accession No. 0000950130-99-000742.)
(g)(20). Fee schedule dated April 12, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State
Street Bank and Trust Company (Strategic Growth and Growth
Opportunities Portfolios). (Accession No. 0000950109-99-
002544.)
(g)(21). Fee schedule dated July 19, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State
Street Bank and Trust Company (Internet Tollkeeper Fund).
(Accession No. 0000950130-99-005294.)
(g)(22). Fee schedule dated October 1, 1999 relating to the
Custodian Agreement dated April 6, 1990 between Registrant
and State Street Bank and Trust Company (Large Cap Value
Fund). (Accession No. 0000950130-99-006810.)
(g)(23). Fee schedule dated January 12, 2000 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State
Street Bank and Trust Company (CORE Tax-Managed Equity
Fund). (Accession No. 0000950109-00-000585.)
(g)(24). Fee schedule dated January 6, 2000 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State
Street
-7-
Bank and Trust Company (High Yield Municipal Fund).
(Acession No. 0000950109-00-000585.)
(g)(25). Fee schedule dated April 14, 2000 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State
Street Bank and Trust Company (Research Select Fund).
(Accession No. 0000950130-00-002509.)
(g)(26). Fee schedule dated April 14, 2000 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State
Street Bank and Trust Company (Enhanced Income Fund).
(Accession No. 0000950130-00-002509.)
(g)(27). Additional Portfolio Agreement dated September 27, 1999
between Registrant and State Street Bank and Trust
Company. (Accession No. 0000950109-00-000585.)
(g)(28). Letter Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company
relating to Custodian Agreement dated December 27, 1978.
(Accession No. 0000950109-00-000585.)
(g)(29). Letter Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company
relating to Custodian Agreement dated April 6, 1990.
(Accession No. 0000950109-00-000585.)
(g)(30). Letter Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company
relating to Custodian Agreement dated July 15, 1991.
(Accession No. 0000950109-00-000585.)
(h)(1). Wiring Agreement dated June 20, 1987 among Goldman, Sachs
& Co., State Street Bank and Trust Company and The
Northern Trust Company. (Accession No. 0000950130-98-
000965.)
(h)(2). Letter Agreement dated June 20, 1987 regarding use of
checking account between Registrant and The Northern Trust
Company. (Accession No. 0000950130-98-000965.)
(h)(3). Transfer Agency Agreement dated July 15, 1991 between
Registrant and Goldman, Sachs & Co. (Accession No.
0000950130-95-002856.)
-8-
(h)(4). Transfer Agency Agreement dated May 1, 1988 between
Goldman Sachs Institutional Liquid Assets and Goldman,
Sachs & Co. (Accession No. 0000950130-98-006081.)
(h)(5). Transfer Agency Agreement dated April 30, 1997 between
Registrant and Goldman, Sachs & Co. on behalf of the
Financial Square Funds. (Accession No. 0000950130-98-
006081.)
(h)(6). Transfer Agency Agreement dated April 6, 1990 between GS-
Capital Growth Fund, Inc. and Goldman Sachs & Co.
(Accession No. 0000950130-98-006081.)
(h)(7). Goldman Sachs - Institutional Liquid Assets Administration
Class Administration Plan dated April 22, 1998. (Accession
No. 0000950130-98-006081).
(h)(8) Cash Management Shares Service Plan dated May 1, 1998
(Accession No. 0000950130-98-006081.)
(h)(9). Form of Retail Service Agreement on behalf of Goldman
Sachs Trust relating to Class A Shares of Goldman Sachs
Asset Allocation Portfolios, Goldman Sachs Fixed Income
Funds, Goldman Sachs Domestic Equity Funds and Goldman
Sachs International Equity Funds. (Accession No.
0000950130-98-006081.)
(h)(10). Form of Supplemental Service Agreement on behalf of
Goldman Sachs Trust relating to the Administrative Class,
Service Class and Cash Management Class of Goldman Sachs -
Institutional Liquid Assets Portfolios. (Accession No.
0000950130-98-006081.)
(h)(11). Form of Supplemental Service Agreement on behalf of
Goldman Sachs Trust relating to the FST Shares, FST
Preferred Shares, FST Administration Shares and FST
Service Shares of Goldman Sachs Financial Square Funds.
(Accession No. 0000950130-98-006081.)
-9-
(h)(12). FST Select Shares Plan dated October 26, 1999. (Accession
No. 0000950130-99-006810.)
(h)(13). FST Administration Class Administration Plan dated April
25, 2000. (Accession No. 0000950130-00-002509.)
(h)(14). FST Preferred Class Preferred Administration Plan dated
April 25, 2000. (Accession No. 0000950130-00-002509.)
(h)(15). Administration Class Administration Plan dated April 26,
2000. (Accession No. 0000950130-00-002509.)
(i)(1). Opinion of Drinker, Biddle & Reath LLP. (With respect to
the Asset Allocation Portfolios). (Accession No.
0000950130-97-004495.)
(i)(2). Opinion of Morris, Nichols, Arsht & Tunnell. (Accession
No. 0000950130-97-001846.)
(i)(3). Opinion of Drinker Biddle & Reath LLP. (With respect to
Japanese Equity and International Small Cap). (Accession
No. 0000950130-98-003563.)
(i)(4). Opinion of Drinker Biddle & Reath LLP. (With respect to
Cash Management Shares). (Accession No. 0000950130-98-
003563.)
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to
the European Equity Fund). (Accession No. 0000950130-98-
006081.)
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to
the CORE Large Cap Value Fund). (Accession No. 0000950130-
98-006081.)
(i)(7). Opinion of Drinker Biddle & Reath LLP (with respect to the
Conservative Strategy Portfolio). (Accession No.
0000950130-99-001069.)
(i)(8). Opinion of Drinker Biddle & Reath LLP (with respect to the
Strategic Growth and Growth Opportunities Portfolios).
(Accession No. 0000950109-99-002544.)
-10-
(i)(9). Opinion of Drinker Biddle & Reath LLP (with respect to the
Internet Tollkeeper Fund). Accession No. 0000950109-99-
004208.)
(i)(10). Opinion of Drinker Biddle & Reath LLP (with respect to the
Large Cap Value Fund). (Accession No. 0000950130-99-
006810.)
(i)(11). Opinion of Drinker Biddle & Reath LLP (with respect to FST
Select Shares). (Accession No. 0000950109-00-000585.)
(i)(12). Opinion of Drinker Biddle & Reath LLP (with respect to the
High Yield Municipal Fund). (Accession No. 0000950109-00-
001365.)
(i)(13). Opinion of Drinker Biddle & Reath LLP (with respect to the
CORE Tax-Managed Equity Fund). (Accession No. 0000950109-
00-001365.)
(i)(14). Opinion of Drinker Biddle & Reath LLP (with respect to the
Research Select Fund). (Accession No. 0000950109-00-
500123).
(i)(15). Opinion of Drinker Biddle & Reath LLP (with respect to the
Enhanced Income Fund). (Accession No. 0000950109-00-
500123).
(i)(16) Opinion of Drinker Biddle & Reath LLP (with respect to
Cash Management Shares of certain ILA Portfolios).
(Accession No. 0000950109-00-500123).
(j). None.
(k). Not applicable.
(l). Not applicable.
(m)(1). Class A Distribution and Service Plan amended and restated
as of September 1, 1998. (Accession No. 0000950130-98-
004845.)
(m)(2). Class B Distribution and Service Plan amended and restated
as of September 1, 1998. (Accession No. 0000950130-98-
004845.)
(m)(3). Class C Distribution and Service Plan amended and restated
as of September 1, 1998. (Accession No. 0000950130-98-
004845.)
(m)(4). Cash Management Shares Plan of Distribution pursuant to
Rule 12b-1 dated May 1, 1998. (Accession No. 0000950130-
98-006081.)
-11-
(n). None.
(o). None.
(p)(1). Code of Ethics - Goldman Sachs Trust and Goldman Sachs
Variable Insurance Trust, dated April 23, 1997, as amended
October 21, 1997 and April 25, 2000. (Accession No.
0000950130-00-002509.)
(p)(2). Code of Ethics - Goldman Sachs Asset Management, Goldman
Sachs Funds Management L.P. and Goldman Sachs Asset
Management International, effective January 23, 1991 (as
revised April 1, 2000). (Accession No. 0000950130-00-
002509.)
(q)(1). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch,
Smart, Springer, Strubel, McNulty, Mosior, Gilman,
Perlowski, Richman, Surloff, Mmes. McPherson, Mucker and
Taylor. (Accession No. 0000950130-97-000805.)
(q)(2). Powers of Attorney dated October 21, 1997 on behalf of
James A. Fitzpatrick and Valerie A. Zondorak. (Accession
No. 0000950130-98-000676.)
(q)(3). Power of Attorney dated November 15, 2000 on behalf of
Patrick T. Harker (Accession No. 0000950109-00-500123.)
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
(a)(17) Amendment No. 16 dated January 30, 2001 to Agreement and
Declaration of Trust, dated January 28, 1997.
(g)(31) Letter Agreement dated January 29, 2001 relating to
Custodian Agreement dated July 15, 1991 between Registrant
and State Street Bank and Trust Company (Global Consumer
Growth Fund, Global Financial Services Fund, Global Health
Sciences Fund, Global Infrastructure and Resources Fund
and Global Technology Fund).
(h)(16) Fee schedule relating to Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. on behalf of all Funds
other than ILA and FST money market funds.
-12-
(h)(17) Fee schedule relating to Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. on behalf of the ILA
portfolios.
(h)(18) Goldman Sachs Institutional Liquid Assets Service Class
Service Plan and Shareholder Administration Plan, amended
and restated as of January 30, 2001.
(h)(19) FST Service Class Service Plan, amended and restated as of
January 30, 2001.
(h)(20) Service Class Service Plan and Shareholder Administration
Plan, amended and restated as of January 30, 2001.
(h)(21) Form of Service Agreement on behalf of Goldman Sachs Trust
relating to the Select Class, the Preferred Class, the
Administration Class, the Service Class and the Cash
Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs Institutional Liquid
Assets Portfolios, Goldman Sachs Fixed Income Funds,
Goldman Sachs Domestic Equity Funds, Goldman Sachs
International Equity Funds and Goldman Sachs Asset
Allocation Portfolios.
(i)(17) Opinion of Drinker Biddle & Reath LLP (with respect to
Global Consumer Growth Fund, Global Financial Services
Fund, Global Health Sciences Fund, Global Infrastructure
and Resources Fund and Global Technology Fund).
(o) Plan dated January 30, 2001 entered into by Registrant
pursuant to Rule 18f-3.
(j)(1) Consent of Ernst & Young LLP.
(j)(2) Consent of Arthur Andersen LLP.
(j)(3) Consent of PricewaterhouseCoopers LLP.
Item 24. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
Article IV of the Declaration of Trust of Goldman Sachs Trust, Delaware business
trust, provides for indemnification of the Trustees, officers and agents of the
Trust, subject to
-13-
certain limitations. The Declaration of Trust is incorporated by reference to Exhibit (a)(1). The Management Agreement with each of the Funds (other than the ILA Portfolios) provides that the applicable Investment Adviser will not be liable for any error of judgment or mistake of law or 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 or duties under the Management Agreement. Section 7 of the Management Agreement with respect to the ILA Portfolios provides that the ILA Portfolios will indemnify the Adviser against certain liabilities; provided, however, that such indemnification does not apply to any loss by reason of its willful misfeasance, bad faith or gross negligence or the Adviser's reckless disregard of its obligation under the Management Agreement. The Management Agreements are incorporated by reference to Exhibits (d)(1) through (d)(7). Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs dated April 30, 1997, as amended January 30, 2001 and Section 7 of the Transfer Agency Agreements between the Registrant and Goldman, Sachs & Co. dated July 15, 1991, May 1, 1988, April 30, 1997 and April 6, 1990 each provide that the Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A copy of the Distribution Agreement is incorporated herein by reference as Exhibit (e). The Transfer Agency Agreements are incorporated by reference as Exhibits (h)(3), (h)(4), (h)(5) and (h)(6), respectively, to the Registrant's Registration Statement. Mutual fund and Trustees and officers liability policies purchased jointly by the Registrant, Trust for Credit Unions, Goldman Sachs Variable Insurance Trust and The Commerce Funds insure 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 texts of which are hereby incorporated by reference. Item 27. Principal Underwriters. ---------------------- (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. -14-
(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 with Goldman Sachs & Co. ---------------- -------------------------------- 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) Senior Counsel and Managing Director John P. McNulty (2) Managing Director Philip D. Murphy (2) 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 -15-
Name and Principal
Business Address Position with Goldman Sachs & Co.
---------------- --------------------------------
David A. Viniar (5) Managing Director
Patrick J. Ward (3) Managing Director
Peter A. Weinberg (3) Managing Director
Gregory K. Palm (1) Counsel and Managing Director
John Winkelried (1)(3) Managing Director
John F.W. Rogers (1) 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
(5) 10 Hanover Square, New York, NY 10005
(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 Rules 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 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.
-16-
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. 72 under
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 72 to its Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City and State of New
York on the 12th day of April, 2001.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/ Howard B. Surloff
---------------------
Howard B. Surloff
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
---- ----- ----
*Douglas C. Grip President and
---------------- Trustee April 12, 2001
Douglas C. Grip
*John M. Perlowski Principal Accounting Officer
------------------ and Principal Financial Officer April 12, 2001
John M. Perlowski
*David B. Ford Trustee April 12, 2001
--------------
David B. Ford
*Mary Patterson McPherson Trustee April 12, 2001
------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee April 12, 2001
----------------
Ashok N. Bakhru
*Alan A. Shuch Trustee April 12, 2001
--------------
Alan A. Shuch
*John P. McNulty Trustee April 12, 2001
----------------
John P. McNulty
*William H. Springer Trustee April 12, 2001
--------------------
William H. Springer
*Richard P. Strubel Trustee April 12, 2001
--------------------
Richard P. Strubel
*Patrick T. Harker Trustee April 12, 2001
-------------------
Patrick T. Harker
*By:/s/ Howard B. Surloff
---------------------
Howard B. Surloff,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
-17-
CERTIFICATE
-----------
The undersigned Secretary for Goldman Sachs Trust (the "Trust") hereby
certifies that the Board of Trustees of the Trust duly adopted the following
resolution at a meeting of the Board held on April 25, 2000.
RESOLVED, that the Trustees and Officers of the Trusts who may be
required to execute any amendments to the Trust's Registration Statement be, and
each hereby is, authorized to execute a power of attorney appointing James A.
Fitzpatrick, Douglas C. Grip, Nancy L. Mucker, John W. Perlowski, Michael J.
Richman, Howard B. Surloff and Valerie A. Zondorak, jointly and severally, their
attorneys-in-fact, each with power of substitution, for said Trustees and
Officers in any and all capacities to sign the Registration Statement under the
Securities Act of 1933 and the Investment Company Act of 1940 of the Trusts and
any and all amendments to such Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, the Trustees and Officers hereby ratifying
and confirming all that each of said attorneys-in-fact, or his or her substitute
or substitutes, may do or caused to be done by virtue hereof.
Dated: April 12, 2001
/s/ Howard B. Surloff
---------------------
Howard B. Surloff,
Secretary
-18-
EXHIBIT INDEX
(a)(17) Amendment No. 16 dated January 30, 2001 to Agreement and
Declaration of Trust, dated January 28, 1997.
(g)(31) Letter Agreement dated January 29, 2001 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State Street
Bank and Trust Company (Global Consumer Growth Fund, Global
Financial Services Fund, Global Health Sciences Fund, Global
Infrastructure and Resources Fund and Global Technology Fund).
(h)(16) Fee schedule relating to Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. on behalf of all Funds other
than ILA and FST money market funds.
(h)(17) Fee schedule relating to Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. on behalf of the ILA
portfolios.
(h)(18) Goldman Sachs Institutional Liquid Assets Services Class Service
Plan and Shareholder Administration Plan, amended and restated as
of January 30, 2001.
(h)(19) FST Service Class Service Plan, amended and restated as of
January 30, 2001.
(h)(20) Service Class Service Plan and Shareholder Administration Plan,
amended and restated as of January 30, 2001.
(h)(21) Form of Service Agreement on behalf of Goldman Sachs Trust
relating to the Select Class, the Preferred Class, the
Administration Class, the Service Class and the Cash Management
Class, as applicable, of Goldman Sachs Financial Square Funds,
Goldman Sachs Institutional Liquid Assets Portfolios, Goldman
Sachs Fixed Income Funds, Goldman Sachs Domestic Equity Funds,
Goldman Sachs International Equity Funds and Goldman Sachs Asset
Allocation Portfolios.
(i)(17) Opinion of Drinker Biddle & Reath LLP (with respect to Global
Consumer Growth Fund, Global Financial Services Fund, Global
Health Sciences Fund, Global Infrastructure and Resources Fund
and Global Technology Fund).
(o) Plan dated January 30, 2001 entered into by Registrant pursuant
to Rule 18f-3.
-19-
(j)(1) Consent of Ernst & Young LLP.
(j)(2) Consent of Arthur Andersen LLP.
(j)(3) Consent of PricewaterhouseCoopers LLP.
-20-