As filed with the Securities and Exchange Commission on
December 29, 1995.
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 26 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 28 ( X )
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Pamela J. Wilson, Esq.
85 Broad Street - 12th Floor Hale and Dorr
New York, New York 10004 60 State Street
Boston, MA 02109
|
(Name and address of agent for service)
It is proposed that this filing will become effective (check
appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
(X) On March 1, 1996 pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
Proposed Proposed
Title of Maximum Aggregate
Securities Amount of Offering Maximum Amount
Being Shares Being Price per Offering of
Registered Registered Share Price Registration fee
- ---------- ------------ --------- --------- ----------------
Shares of
Beneficial
Interest 58,400,744 $11.96 $289,994 $100
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(1) Registrant elects to calculate the maximum aggregate offering price pursuant to Rule 24e-2. 132,627,047 shares were redeemed during the fiscal year ended October 31, 1995. 74,250,550 of such shares were used for reductions pursuant to paragraph (c) of Rule 24f-2 during the current fiscal year. 58,376,497 of the shares redeemed during the Registrant's previous fiscal year are being used for the reduction of the registration fee in this Amendment. While no fee is required for the 58,376,497 shares, the Registrant has elected to register for $100, an additional $289,994 in shares (24,247 shares at $11.96 per share). The proposed maximum offering price per share has been calculated based on the average of the prices of the Funds in the Trust as determined on December 27, 1995 pursuant to Rule 457(c).
Registrant has registered an indefinite number of its shares under the Securities Act of 1933 pursuant to Rule 24f-2. On December 29, 1995, Registrant filed a Rule 24f-2 notice for its fiscal year ended October 31, 1995.
GOLDMAN SACHS TRUST
CROSS REFERENCE SHEET
(as required by Rule 485)
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund - Institutional Shares)
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Summary; Invest
of Registrant ment Objective and Policies;
Special Investment Methods;
Yield, Market Value and Risk
Considerations of Mortgage-
Backed Securities; Other In-
vestments and Practices; Re-
ports to Shareholders; Shares
of the Trust; Additional In-
formation
5. Management of the Investment Adviser, Management
6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Trust; Additional Infor-
mation
7. Purchase of Securities Purchase of Institutional
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Institutional
Repurchase
Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
|
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund and GS Core Fixed Income Fund - Administration Shares)
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Summary; Invest
of Registrant ment Objective and Policies;
Special Investment Methods;
Yield, Market Value and Risk
Considerations of Mortgage-
Backed Securities; Other In-
vestments and Practices; Re-
ports to Shareholders; Shares
of the Trust; Additional In-
formation
5. Management of the Investment Adviser; Management
Fund
6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Trust; Additional Infor-
mation
7. Purchase of Securities Purchase of Administration
Being Offered
Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
|
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund - Service Shares)
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Summary; Invest
of Registrant ment Objective and Policies;
Special Investment Methods;
Yield, Market Value and Risk
Considerations of Mortgage-
Backed Securities; Other In-
vestments and Practices; Re-
ports to Shareholders; Shares
of the Trust; Additional In-
formation
5. Management of the Investment Adviser, Management
6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Trust; Additional Infor-
mation
7. Purchase of Securities Purchase of Service
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Service
Repurchase Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
|
(GS Adjustable Rate Government Agency Fund, Goldman Sachs Munici- pal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund-Class A Shares and Class B Shares)
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Summary; Invest
of Registrant ment Objective and Policies;
Municipal Securities and Other
Investments; Other Investments
and Practices; Reports to
Shareholders; Shares of the
Trust; Additional Information
5. Management of the Investment Adviser; Management
Fund
6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Trust; Additional Infor-
mation
7. Purchase of Securities Purchase of
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Shares;
Repurchase Additional Information
9. Pending Legal Not Applicable
Proceedings
|
Part B
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund, GS Core Fixed Income Fund, Goldman Sachs Global Income Fund- Institutional Shares
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
|
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
24. Cover Page Cover Page
25. Table of Contents Table of Contents
26. General Information Introduction
and History
27. Investment Objectives Investment Objective and
and Policies Policies; Investment Restric-
tions
28. Management of the Management
Registrant
29. Control Persons and Shares of the Trust
Principal Holders of
Securities
30. Investment Advisory and Management
Other Services
31. Brokerage Allocation Portfolio Transactions
and Other Securities
|
32. Capital Stock and Other Shares of the Trust
Securities
33. Purchase, Redemption Management; Net Asset Value
and Pricing of Securit-
ies Being Offered
34. Tax Status Taxation
35. Underwriters Management-Distributor and
Transfer Agent
36. Calculation and Performance Information
Performance Data
37. Financial Statements Financial Statements
|
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund, GS Core Fixed Income Fund, Goldman Sachs Global Income Fund- Administration Shares
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
|
20. Tax Status Taxation
21. Underwriters Management-Distributor; Admin-
istration Plan
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
24. Cover Page Cover Page
25. Table of Contents Table of Contents
26. General Information Introduction
and History
27. Investment Objectives Investment Objective and
and Policies Policies; Investment Restric-
tions
28. Management of the Management
Registrant
29. Control Persons and Shares of the Trust
Principal Holders of
Securities
30. Investment Advisory and Management
Other Services
31. Brokerage Allocation Portfolio Transactions
and Other Securities
32. Capital Stock and Other Shares of the Trust
Securities
33. Purchase, Redemption Management; Net Asset Value
and Pricing of Securit-
ies Being Offered
34. Tax Status Taxation
35. Underwriters Management-Distributor and
Transfer Agent
36. Calculation and Performance Information
Performance Data
37. Financial Statements Financial Statements
|
(GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Adjustable Rate Government Agency Fund, GS Core Fixed Income Fund, Goldman Sachs Global Income Fund- Service Shares
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor; Ser-
vice Plan
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
24. Cover Page Cover Page
25. Table of Contents Table of Contents
26. General Information Introduction
and History
|
27. Investment Objectives Investment Objective and
and Policies Policies; Investment Restric-
tions
28. Management of the Management
Registrant
29. Control Persons and Shares of the Trust
Principal Holders of
Securities
30. Investment Advisory and Management
Other Services
31. Brokerage Allocation Portfolio Transactions
and Other Securities
32. Capital Stock and Other Shares of the Trust
Securities
33. Purchase, Redemption Management; Net Asset Value
and Pricing of Securit-
ies Being Offered
34. Tax Status Taxation
35. Underwriters Management-Distributor and
Transfer Agent
36. Calculation and Performance Information
Performance Data
37. Financial Statements Financial Statements
|
(GS Adjustable Rate Government Agency Fund, Goldman Sachs Munici- pal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund- Class A Shares and Class B Shares
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
|
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
24. Cover Page Cover Page
25. Table of Contents Table of Contents
26. General Information Introduction
and History
27. Investment Objectives Investment Objective and
and Policies Policies; Investment Restric-
tions
28. Management of the Management
Registrant
29. Control Persons and Shares of the Trust
Principal Holders of
Securities
30. Investment Advisory and Management
Other Services
31. Brokerage Allocation Portfolio Transactions
and Other Securities
32. Capital Stock and Other Shares of the Trust
Securities
|
33. Purchase, Redemption Management; Net Asset Value
and Pricing of Securit-
ies Being Offered
34. Tax Status Taxation
35. Underwriters Management-Distributor and
Transfer Agent
36. Calculation and Performance Information
Performance Data
37. Financial Statements Financial Statements
|
Prospectus
______, 1995
TABLE OF CONTENTS
Page
----
Fund Highlights..................... 3
Fees and Expenses................... 7
Financial Highlights................ 10
Investment Objectives and Policies.. 14
Special Investment Methods and
Risk Factors........................ 19
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 32
Reports to Shareholders............. 36
How to Invest....................... 36
Distribution and Authorized Dealer
Service Plan........................ 43
How to Sell Shares of the Funds..... 43
Dividends........................... 45
Net Asset Value..................... 46
Performance Information............. 46
Shares of the Company............... 47
Taxation............................ 47
Additional Information.............. 49
Appendix A-1
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Account Application
Goldman Sachs Trust
Institutional Shares
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
Seeks a high level of current income, consistent with low volatility of principal primarily through investment in adjustable rate mortgage pass- through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
GS SHORT-TERM GOVERNMENT AGENCY FUND
Seeks a high level of current income and secondarily, in seeking current income, may also consider the potential for capital gain through investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements relating thereto and will maintain an option-adjusted duration of not more than 3 years.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax primarily through investments in fixed income municipal securities with remaining effective maturities of five years or less.
GS CORE FIXED INCOME FUND
Seeks total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index primarily through investments in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities and asset-backed securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.
(continued on next page)
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued)
THE CORE FIXED INCOME AND THE GLOBAL INCOME FUNDS' INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS, ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN PARTICULAR, THE SECURITIES MARKETS OF FOREIGN COUNTRIES IN WHICH THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS WILL INVEST MAY BE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF THE UNITED STATES. THESE FUNDS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the GS Short Duration Tax-Free, GS Core Fixed Income and Global Income Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as investment adviser to the GS Short-Term Government Agency and Adjustable Rate Government Agency Funds. Goldman Sachs Asset Management International ("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the "Investment Adviser." GSAM serves as administrator to Goldman Sachs Global Income Fund and Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus, which sets forth concisely the information about Goldman Sachs Trust (the "Trust") and the Funds that a prospective investor ought to know before investing, should be retained for future reference. A Statement of Additional Information (the "Additional Statement"), dated ________ 1995, containing further information about the Trust and the Funds which may be of interest to investors, has been filed with the Securities and Exchange Commission, is incorporated herein by reference in its entirety, and may be obtained without charge from Goldman Sachs by calling the telephone number, or writing to one of the addresses, listed on the back cover of this Prospectus.
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that offers its shares in several series or funds. Each Fund pools the resources of investors by selling its shares to the public and investing the proceeds in a portfolio of securities designed to achieve that Fund's stated investment objective. The Global Income Fund is a non-diversified fund and each of the other Funds is a diversified fund as defined in the Investment Company Act of 1940 (the "Act").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no assurance that a Fund's objective will be achieved. For a complete description of each Fund's investment objective and policies, see "Investment Objectives and Policies" and "Special Investment Methods and Risk Factors."
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND-The investment objective of the Fund is to provide investors with a high level of current income consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund may also invest in other mortgage-backed securities and other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund seeks to minimize fluctuation in the value of its portfolio securities and therefore its net asset value. It believes that it can achieve this objective by investing primarily in guaranteed adjustable rate mortgage-backed securities, maintaining a maximum duration equal to that of a two-year U.S. Treasury security and a target duration in a range approximately equal to that of a 6-month to one-year U.S. Treasury security (computed using the method described herein) and utilizing certain active management techniques to hedge interest rate risks and to enhance its return.
GS SHORT-TERM GOVERNMENT AGENCY FUND - The Fund's objective is to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government Securities") deemed to have remaining maturities or (in the case of mortgage- related securities) estimated average lives of 6 years or less, and (b) repurchase agreements pertaining thereto. The Fund will invest under normal market conditions, at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government Securities. The U.S. Government securities in which the Fund may invest include mortgage-related securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund will maintain an option-adjusted duration of not more than 3 years; however, its actual option-adjusted duration is expected to be approximately two years under normal interest rate conditions. The Fund may employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value.
GS SHORT DURATION TAX-FREE FUND - The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not an item of tax preference under the federal alternative minimum tax. In addition, Tax-Free Securities include certain participation interests and other securities described under "Municipal Securities in which the Short Duration Tax-Free Fund will Invest" the interest on which is exempt from such taxes. The Fund's investments in Municipal Securities at the time of investment will be rated at least A by Standard & Poor's or Moody's or their equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. The Fund, although it is not expected to do so, may also invest up to 20% of its net assets in taxable investments which are obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investment"). The Fund will maintain an average portfolio duration, of two to three years. The Individual Municipal Securities in which the Fund invests will have remaining effective maturities of five years or less. The effective maturity of a Municipal Security, unlike its stated maturity, is the period remaining until the principal can be recovered through a mandatory redemption provision or the exercise of a put or demand feature by the holder of the Municipal Securities or the period until the next scheduled auction date for an auction rate Municipal Security. Since the Fund uses duration as a criteria, there are no maximum limitations as to average weighted portfolio maturity or permissible stated maturity with respect to individual securities.
GS CORE FIXED INCOME FUND - The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, primarily in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage-backed securities, and asset-backed securities. The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent rating, by any one of Standard & Poor's, Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund will maintain, under normal market conditions, a portfolio duration within a range equal to the duration of the Index plus or minus one year. The fixed income securities in which the Fund may invest include obligations of foreign issuers and obligations denominated in U.S. dollars or foreign currencies. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund's investments in fixed income securities may also include Short-Term Investments (as defined below), convertible securities, custody receipts and municipal securities. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
GOLDMAN SACHS GLOBAL INCOME FUND-The investment objective of the Fund is to provide investors with a high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies. Under normal market conditions (i) the Fund will have at least 30% of its total assets, after considering the effect of its currency position, denominated in U.S. dollars and (ii) the Fund will invest in securities of issuers in at least three countries. High quality securities are defined as securities rated, at the time of investment, at least AA by S&P or Aa by Moody's or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund may also invest
in obligations of a sovereign issuer rated at least A by S&P or Moody's, or if not rated by such rating organizations, determined by the Investment Adviser or Subadviser to be of comparable credit quality, if the obligations are denominated in the issuers own currency. The Fund will maintain a dollar- weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the extent applicable to the Core Fixed Income and Global Income Funds, foreign exchange conditions, so that an investment in any of the Funds may be worth more or less when redeemed than when purchased. None of the Funds should be relied upon as a complete investment program. There can be no assurance that a Fund's investment objective will be achieved.
There are certain risks associated with the investment policies of each of the Funds. The securities in a Fund's portfolio will tend to decrease in value when interest rates rise and increase in value when interest rates fall. Because each Fund's investments are interest rate sensitive, the Fund's performance will depend in large part upon the ability of the Fund to respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital. A Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") entail certain risks. These risks include the failure of an issuer or guarantor to meet its obligations, adverse interest rate changes, adverse economic, real estate or unemployment trends, failures in connection with processing of transactions and the effects of prepayments on mortgage cash flows. Under certain interest rate and prepayment scenarios, a Fund may fail to recoup fully its investment in some of the Mortgage-Backed Securities it holds notwithstanding a direct or indirect governmental or agency guarantee. The Short Duration Tax-Free Fund's investments in Municipal Securities entail certain risks, including adverse income and principal value fluctuation associated with general economic conditions affecting the Municipal Securities markets, the issuers and guarantors of Municipal Securities and the facilities financed by Municipal Securities as well as adverse interest rate changes and volatility of yields of short and intermediate term Municipal Securities. See "Risk Factors." In addition, the Fund's yield will be subject to risks associated with particular issues in which it invests, including potential defaults by issuers and guarantors and the size and rating of an issue. If the Fund invests in private activity bonds, distributions attributable to the interest on such securities may be a tax preference item subject to the federal alternative minimum tax. A reduction in federal income tax rates would reduce the tax equivalent yield of the Fund and would tend to reduce the value of Municipal Securities held in the Fund's portfolio. Conversely, an increase in federal income tax rates would increase the taxable equivalent yield of the Fund. In addition, changes in federal law adversely affecting the tax-exempt status of income derived from Municipal Securities could significantly affect both the supply and demand for Municipal Securities, which in turn could affect the Fund's ability to acquire and dispose of Municipal Securities at favorable prices. In addition, a Fund's use of certain investment techniques, including derivatives, forward contracts and options and futures transactions, will subject a Fund to greater risk than funds that do not employ such techniques. To the extent the Core Fixed Income and Global Income Funds invest in securities of non-U.S. issuers and foreign currencies, the Fund may face risks that are different from those associated with investment in domestic securities. The risks of foreign investments and currencies include changes in relative currency exchange rates, political and economic developments and the imposition of exchange controls or other governmental confiscation or restrictions. Generally, there is less availability of data on foreign companies and securities markets as well as less regulation of foreign stock exchanges, brokers and issuers. In addition, because the Global Income Fund will invest primarily outside the U.S., the Fund may involve greater risks, since the securities markets of foreign countries are generally less liquid and subject to greater price volatility.
The Global Income Fund is a "non-diversified" fund as defined under the Act and is therefore subject only to certain federal tax diversification requirements, in addition to the policies adopted by the Investment Adviser. To the extent that a Fund is not diversified under the Act, it will be more susceptible to adverse developments affecting any single issuer of portfolio securities. See "Special Investment Methods and Risk Factors-Non-Diversification Status."
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, a separate operating division of Goldman Sachs, acts as administrator to the Global Income Fund and serves as the Investment Adviser to the Short Duration Tax-Free, Core Fixed Income and Global Income Funds. Goldman Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as investment adviser to the Short-Term Government Agency Fund and Adjustable Rate Government Agency Fund. Goldman Sachs Asset Management International, London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. As of ________ 1995, the Investment Advisers, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $___ billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's Institutional shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $50,000 in Institutional Shares of the Fund alone or in combination with Institutional Shares of any other mutual fund sponsored by Goldman Sachs and designated as an eligible fund for this purpose and the relevant class of any portfolio of Goldman Sachs Money Market Trust.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs. Shares of the Funds may be purchased at the current net asset value per share without the imposition of a sales load. See "How to Invest."
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under "Additional Information," at the net asset value next determined after receipt of such request in proper form. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund (other than the Global Income Fund) intends to declare a daily dividend determined with the objective of distributing the majority of net investment income. Such dividends on each Fund (other than the Global Income Fund) will accrue daily with respect to outstanding shares, commencing on the Business Day after the receipt of payment of such shares, and will be paid monthly. The Global Income Fund intends to declare and pay dividends monthly. Dividends on the Global Income Fund will commence as of the purchase of such shares. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of each Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. Each Fund also intends that substantially all net realized long-term and short- term capital gains will be declared as a dividend and paid at least annually.
You will receive dividends in additional shares of the same class of Fund in which you have invested or may elect to receive cash. For further information concerning dividends, see "Dividends."
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
Adjustable
Short-Term Rate Global
Government Government Short-Duration Core Fixed Income
Agency Fund/1/ Agency Fund/2/ Tax-Free Fund/3/ Income Fund/4/ Fund/5/
------------- -------------- ---------------- -------------- --------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases(1).............................. none none none none none
Maximum Sales Charge Imposed on
Reinvested Dividends......................... none none none none none
Redemption Fees(2)......................... none none none none none
Exchange Fees(2)........................... none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees........................... 0.40% 0.40% 0.40% 0.40% 0.55%/3/
Distribution (Rule 12b-1) Fees................ none none none none none
Other Expenses (after applicable
limitations).............................. 0.05% 0.05% 0.05% 0.05% 0.10%
------------ -----------
TOTAL FUND OPERATING EXPENSES
(AFTER FEE AND EXPENSE
LIMITATION)...................................... 0.45%/1/ 0.45%/2/ 0.45%/3/ 0.45%/4/ 0.65%/5/
========= =========== ========= ========== ===========
|
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
FUND 1 Year 3 Years 5 Years 10 Years - ---------------------------------------- ------ ------- ------- -------- Short-Term Government Agency Fund....... $5 $14 $25 $57 Adjustable Rate Government Agency Fund.. $5 $14 $25 $57 Short Duration Tax-Free Fund............ $5 $14 $25 $57 Core Fixed Income Fund.................. $5 $14 $25 $57 Global Income Fund...................... $7 $21 $34 $81 - --------------------- |
1. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on an annual basis) would not be imposed on Short-Term Government Agency Fund. The Investment Adviser also has voluntarily agreed to reduce or limit certain "Other Expenses" of the Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. Investment Adviser has no current intention of modifying or discontinuing such fee and expense limitation but may do so in the future at its discretion. Without such fee and expense limitations, Management Fees, Other Expenses and Total Operating Expenses attributable to Institutional Shares would be 0.__%, 0.__% and ___%, respectively.
2. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Adjustable Rate Government Agency Fund (excluding advisory fees, fees under distribution, administration, service and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Institutional Shares would be 0.__% and __%, respectively.
3. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Short Duration Tax-Free Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Institutional Shares would be 0.__% and __%, respectively.
4. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Core Fixed Income Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitations but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Institutional Shares would be 0.__% and __%, respectively.
5. Based upon estimated amounts for the current fiscal year. "Management Fees" paid by Global Income Fund include advisory, subadvisory and administration fees of 0.10%, 0.30% and 0.15% respectively. The Investment Advisers voluntarily have agreed to limit the advisory and subadvisory fees to such amounts. Without such limitations, advisory and subadvisory fees would be 0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily agreed to reduce or limit certain "Other Expenses" of the Global Income Fund (excluding transfer agency fees (estimated to be 0.04% of average daily net assets), advisory, subadvisory and administration fees, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.6% of the Fund's average daily net assets. The Investment Advisers have no current intention of modifying or discontinuing such fee and expense limitations but may do so in the future at their discretion. Without such fee and expense limitations, Management, Other Expenses and Total Operating Expenses attributable to Institutional Shares would be 0.90%, 0.__% and __%. The fee and expense limitations discussed above were adopted during the fiscal year ended October 31, 1995. Annual operating expenses incurred by Institutional Shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of __%, __% and __%, respectively.
The information set forth in the foregoing table and hypothetical example relates only to Institutional Shares of the Funds. Short-Term Government Agency Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer Administration and Service Shares; Adjustable Rate Government Agency Fund also offers Administration and Service Shares and Class A Shares; and Global Income Fund also offers Administration Shares, Class A Shares and Class B Shares. The other classes of the Funds are subject to different fees and expenses (which affects performance), have different minimum investment requirements and are entitled to different services. Information regarding any other class of the Funds may be obtained from your sales representative or from Goldman Sachs by calling the number of the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the various costs and expenses of a Fund that an investor will bear directly or indirectly. The information on cost and expenses included in the table and the hypothetical example above are based on estimated fees and expenses for the current fiscal year and should not be considered as representative of past or future expenses. Actual fees and expenses may be greater or less than those indicated. Moreover, while the example assumes a 5% annual return, a Fund's actual performance will vary and may result in an actual return greater or less than 5%. See "Management-Investment Advisers, Subadviser and Administrator."
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the Funds outstanding during the period(s) indicated has been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report incorporated by reference into the Additional Statement from the Annual Report to shareholders for the Funds for the year ended October 31, 1995 (the "Annual Report"). This information should be read in conjunction with the financial statements and related notes incorporated by reference and attached to the Additional Statement. The Annual Report also contains performance information and is available upon request and without charge by calling the telephone number or writing to one of the addresses on the back cover of this Prospectus.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
|
The accompanying notes are an integral part of these financial statements.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS SHORT-TERM GOVERNMENT AGENCY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.64 $0.6652/(c)/ $ 0.1666/(c)/ $ -- $0.8318/(c)/ $(0.6518) $-- $--
1995-Administration
Shares........... 9.64 0.2384/(c)/ (0.0433)/(c)/ -- 0.1951/(c)/ (0.2051) -- --
1994-Institutional
Shares........... 10.14 0.5628/(c)/ (0.4592)/(c)/ -- 0.1036/(c)/ (0.5598) (0.0438) --
1994-Administration
Shares........... 10.14 0.5329/(c)/ (0.4539)/(c)/ -- 0.0790/(c)/ (0.5352) (0.0438) --
1993-Institutional
Shares........... 10.16 0.5627 (0.0135)/(a)/ -- 0.5492 (0.5627) -- (0.0065)
1993-Administration
Shares/(f)/...... 10.23 0.2725 (0.0900)/(a)/ -- 0.1825 (0.2725) -- --
1992-Institutional
Shares........... 10.22 0.6703 (0.0600)/(a)/ -- 0.6103 (0.6703) -- --
1991-Institutional
Shares........... 10.00 0.8020 0.2200/(a)/ -- 1.0220 (0.8020) -- --
1990-Institutional
Shares........... 10.07 0.8300 (0.0700)/(a)/ -- 0.7600 (0.8300) -- --
1989-Institutional
Shares........... 10.10 0.8800 -- -- 0.8800 (0.8800) -- --
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 10.00 0.1800 0.1000/(a)/ -- 0.2800 (0.1800) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $-- $(0.6518) $ 0.1800 $ 9.82 8.97% 0.45% 6.87%
1995-Administration
Shares........... -- -- (0.2051) (0.0100) 9.63/(h)/ 2.10 0.70/(e)/ 7.91/(e)/
1994-Institutional
Shares........... -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-Administration
Shares........... -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-Institutional
Shares........... -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-Administration
Shares/(f)/...... -- -- (0.2725) (0.0900) 10.14 1.74 0.70/(e)/ 4.84/(e)/
1992-Institutional
Shares........... -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-Institutional
Shares........... -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-Institutional
Shares........... -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-Institutional
Shares........... -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... -- -- (0.1800) 0.1000 10.10 3.30 0.55/(e)/ 8.55/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 292.56% $103,760 0.72% 6.60%
1995-Administration
Shares........... 292.56 -- 0.90/(e)/ 7.71/(e)/
1994-Institutional
Shares........... 289.79 193,095 0.59 5.55
1994-Administration
Shares........... 289.79 730 0.84 5.24
1993-Institutional
Shares........... 411.66 359,708 0.64 5.31
1993-Administration
Shares/(f)/...... 411.66 16,490 0.80/(e)/ 4.74/(e)/
1992-Institutional
Shares........... 216.07 277,927 0.69 6.36
1991-Institutional
Shares........... 155.44 158,848 0.79 7.91
1990-Institutional
Shares........... 173.21 68,995 0.95 8.12
1989-Institutional
Shares........... 137.37 31,015 1.39 7.78
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 167.00(e) 39,052 1.42/(e)/ 7.68/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.79 $0.4235/(c)/ $0.1500/(c)/ $ -- $0.5735/(c)/ $(0.4235) $-- $ --
1995-Administration
Shares........... 9.79 0.3989/(c)/ 0.1500/(c)/ -- 0.5489/(c)/ (0.3989) -- --
1995-Service Shares.. 9.79 0.3744/(c)/ 0.1600/(c)/ -- 0.5344/(c)/ (0.3744) -- --
1994-Institutional
Shares........... 10.23 0.3787/(c)/ (0.3575)/(c)/ -- 0.0212/(c)/ (0.3787) (0.0825) --
1994-Administration
Shares........... 10.23 0.3537/(c)/ (0.3575)/(c)/ -- (0.0038)/(c)/ (0.3537) (0.0825) --
1994-Service
Shares/(i)/...... 9.86 0.0475/(c)/ (0.0700)/(c)/ -- (0.0225)/(c)/ (0.0475) -- --
1993-Institutional
Shares........... 9.93 0.3834 0.3000/(a)/ -- 0.6834 (0.3834) -- --
1993-Administration
Shares/(i)/...... 10.16 0.1555 0.0720/(a)/ -- 0.2275 (0.1555) -- --
For the Period October 1, 1992/(g)/through October 31,
- ------------------------------------------------------
1992-Institutional
Shares........... 10.00 0.0341 (0.0700)/(a)/ -- (0.0359) (0.0341) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.4235) $ 0.1500 $ 9.94 5.98% 0.45% 4.31%
1995-Administration
Shares........... -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service Shares.. -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-Institutional
Shares........... -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-Administration
Shares........... -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares/(i)/...... -- -- (0.0475) (0.0700) 9.79 (0.32)/(k)/ 0.95/(e)/ 4.30/(e)/
1993-Institutional
Shares........... -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-Administration
Shares/(i)/...... -- -- (0.1555) 0.0720 10.23 2.28/(k)/ 0.70/(e)/ 3.32/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... -- -- (0.0341) (0.0700) 9.93 (0.34)/(k)/ 0.05/(e)/ 4.58/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 259.52% $ 58,389 0.77% 3.99%
1995-Administration
Shares........... 259.52 46 1.02 3.82
1995-Service Shares.. 259.52 454 1.27 3.55
1994-Institutional
Shares........... 354.00 83,704 0.61 3.58
1994-Administration
Shares........... 354.00 3,866 0.86 3.35
1994-Service
Shares/(i)/...... 354.00 44 1.11/(e)/ 4.14/(e)/
1993-Institutional
Shares........... 404.60 115,803 1.06 3.05
1993-Administration
Shares/(i)/...... 404.60 911 1.07/(e)/ 2.95/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... 31.19/(k)/ 14,601 2.68/(e)/ 1.95/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Core Fixed Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ 9.24 $0.6423 $ 0.7610 $ -- $ 1.4033 $(0.6433) $ -- $ --
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6433) $ 0.7600 $10.00 15.72% 0.45% 6.56%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45/(e)/ 6.48/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... 383.26% $55,502 0.96% 6.05%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 288.25 24,508 1.46/(e)/ 5.47/(e)/
|
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS/(a)/ TRANSACTIONS/(a)/ OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 13.43 0.89 0.92 0.15 1.96
1995 - Institutional
shares/(f)/ 14.09 0.22 0.34 0.06 0.62
1994 - Class A shares 15.07 0.84 (1.37) (0.12) (0.65)
1993 - Class A shares 14.69 0.85 1.07 (0.42) 1.50
1992 - Class A shares 14.60 1.14 0.45 (0.36) 1.23
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 14.55 0.25 0.23 (0.19) 0.29
|
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares (0.94) -- -- -- -- (0.94)
1995 - Institutional
shares/(f)/ (0.26) -- -- -- -- (0.26)
1994 - Class A shares (0.22) (0.16) -- -- (0.61) (0.99)
1993 - Class A shares (0.85) (0.27) -- -- -- (1.12)
1992 - Class A shares (1.14) -- -- -- -- (1.14)
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares (0.24) -- -- -- -- (0.24)
|
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN/(b)/ NET ASSETS NET ASSETS RATE/(d)/ (IN 000S) NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995 - Institutional
shares/(f)/ 0.36 14.45 4.42 0.65/(c)/ 6.01/(c)/ 265.86 31,619 1.08/(c)/ 5.58/(c)/
1994 - Class A shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993 - Class A shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992 - Class A shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 0.05 14.60 2.00 0.38/(g)/ 1.72/(g)/ 34.22 388,744 0.44/(g)/ 1.66/(g)/
|
/(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 charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
/(c)/ Annualized.
/(e)/ Commencement of operations.
/(f)/ Institutional shares commenced operations on August 1, 1995.
/(g)/ Not annualized.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are described below. Certain other investment practices and management techniques, which involve certain risks, as well as the minimum rating criteria with respect to a Fund's investments in fixed income securities, are described under "Special Investment Methods and Risk Factors." There can be no assurance that the Fund will be successful in achieving its investment objective.
A security will be deemed to have met its rating requirement if it receives the minimum required rating from at least one rating organizations even though it has been rated below the minimum rating by one or more other rating organizations. If a fixed income security that at the time of purchase satisfies the Fund's minimum rating criteria is subsequently downgraded below such rating criteria, the Fund will not be required to dispose of such security. If a downgrading occurs, the Investment Adviser will consider what action, including the sale of such security, is in the best interest of a Fund. In most instances, a Fund expects to dispose of a downgraded security within a reasonable time after such downgrading.
Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to prevent value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration. A fund which is subject to a duration requirement will not be limited as to the Fund's maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities, unless otherwise noted.
Except as otherwise stated the Fund's investment objective and policies are not fundamental and may be changed without a vote of the shareholders. If there is a change in the Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
SHORT-TERM GOVERNMENT AGENCY FUND
The Fund seeks to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. There can be no assurance that the objective of the Fund will be realized. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government securities") deemed to have remaining maturities or (in the case of mortgage-related securities) estimated average lives of six years or less and (b) repurchase agreements collateralized by U.S. Government Securities. Under normal market conditions, the Fund will invest at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund will maintain an option-adjusted duration of not more than 3 years; however, it actual option-adjusted duration is expected to be approximately 2 years under normal interest rate conditions. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, mortgage and interest rate swaps and interest rate floors, caps and collars.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value. These techniques include, but are not limited to, mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls, forward commitments and repurchase agreements.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because the Fund will maintain a maximum option-adjusted duration of not more than 3 years and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
The Adjustable Rate Government Agency Fund seeks to provide investors with a high level of current income, consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The primary issuers or guarantors of such securities currently include the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), although the Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. The Fund may invest up to 35% of its total assets in other mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") and other obligations issued and guaranteed by the U.S. Government, its agencies or instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to minimize fluctuation in its net asset value and to enhance its return. These techniques include, but are not limited to, the use of futures contracts (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls and repurchase agreements.
The Fund will maintain a maximum duration approximately equal to that of a two-year U.S. Treasury security. Under normal interest rate conditions, the Fund's actual duration is expected to be in a range approximately equal to that of a 6-month to one-year U.S. Treasury security. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because interest rates on adjustable rate mortgage loans are reset periodically and therefore yields of portfolio securities representing interests in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such securities to fluctuate less dramatically in response to interest rate fluctuations than would fixed rate debt securities. This is because the Fund's portfolio will consist primarily of guaranteed adjustable rate Mortgage-Backed Securities and because the Fund will maintain a maximum option-adjusted duration approximately equal to that of a two-year U.S. Treasury security and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
SHORT DURATION TAX-FREE FUND
The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not a tax preference item under the federal alternative minimum tax. Tax-Free Securities are also defined to include certain participation interests in such securities the interest on which is, in the opinion of counsel, exempt from such taxes. In addition, the definition of Tax-Free Securities includes general obligation and revenue bonds and other obligations described under "Municipal Securities in which the Short Duration Tax-Free Fund Will Invest."
Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. Although the Fund is not expected to do so, the Fund may invest as must as 20% of its net assets in taxable investments, which are defined as obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). Except as set forth below, at no time will the Fund's investments in private activity bonds and Taxable Investments exceed, in the aggregate, 20% of the Fund's net assets. The Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in Taxable Investments. The Fund's investments in Municipal Securities and Taxable Investments may also generate taxable capital gains. See "Taxation." The Fund's investments in Municipal Securities will at the time of investment be rated at least A by Standard & Poor's or Moody's or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization even if it has been rated below the minimum rating by one or more other rating organizations. The credit rating assigned to Municipal Securities by these rating organizations or by the Investment Adviser 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 Fund will maintain an average portfolio duration in a range of two to three years. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, interest rate swaps and interest rate floors, caps and collars. The individual Municipal Securities in which the Fund invests will have effective maturities of five years or less. The effective maturity of a Municipal Securities is defined as the period remaining until the earliest date when the Fund can recover the principal amount of such security through mandatory redemption or prepayment by the issuer, the exercise by the Fund of a put option, demand feature or tender option granted by the issuer or a third party or the payment of the principal on the stated maturity date. The effective maturity of an auction rate Municipal Security is defined as the period remaining until the next scheduled auction date. Thus, the effective maturity of a Municipal Security may be substantially shorter than its final stated maturity.
CORE FIXED INCOME FUND
The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities, and asset-backed securities. A number of investment strategies will be used to achieve the Fund's investment objective, including market sector selection, determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage pricing inefficiencies in the fixed income markets. Market sector selection is the underweighting or overweighting of one or more of the five market sectors (i.e., U.S. treasuries, U.S. government agencies, corporate securities, mortgage-backed securities and asset-backed securities) in which the Fund primarily invests. The decision to overweight or underweight a given market sector is based on expectations of future yield spreads between different sectors. Yield curve exposure strategy consists of overweighting or underweighting different maturity sectors to take advantage of the shape of the yield curve. Issuer selection is the purchase and sale of corporate securities based on a corporation's current and expected credit standing. To take advantage of price discrepancies between securities resulting from supply and demand imbalances or other technical factors, the Fund may simultaneously purchase and sell comparable, but not identical, securities. The Investment Adviser will have access to the research of, and proprietary technical models developed by, Goldman Sachs and will apply quantitative and qualitative analysis in determining the appropriate allocations among the categories of issuers and types of securities.
The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent ratings, by any one of S&P's or Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will maintain a dollar weighted average portfolio duration within a range equal to the duration of the Index plus or minus one year. The Investment Adviser may, however, decrease the Fund's average duration without limit if the Investment Adviser believes that a shorter duration is warranted by its outlook for interest rates or market conditions.
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 or in their equivalent ratings category by Standard & Poor's, Moody's or Fitch. 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 weighing 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. The Lehman Brothers Aggregate Bond 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.
The Fund may invest up to 25% of its net assets in obligations of domestic and foreign issuers which are denominated in currencies other than the U.S. dollar. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. It is expected that the Fund will employ certain interest rate management techniques. These techniques will be used both to hedge the interest rate risks associated with the Fund's portfolio securities and to seek to increase total return. Such techniques include options, futures contracts, options on futures contracts, interest rate and mortgage swaps, interest rate caps, floors and collars, forward commitments, lending portfolio securities, repurchase agreements and mortgage dollar rolls.
GLOBAL INCOME FUND
The Global Income Fund's investment objective is to provide investors with
a high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation, primarily through investment
in a portfolio of high quality fixed income securities of U.S. and foreign
issuers and through transactions in foreign currencies. Under normal market
conditions (i) the Fund will have at least 30% of its total assets, after
considering the effect of currency positions denominated in U.S. dollars and
(ii) the Fund will invest in securities of issuers in
at least three countries. High quality securities are defined as securities which have ratings of at least AA by S&P or Aa by Moody's ("High Quality Ratings") or, if unrated by such rating organizations, are determined by the Fund's Investment Adviser to be of comparable credit quality. The Fund may also invest in obligations of a sovereign issuer rated at least A by S&P or Moody's, or if not rated by such rating organizations determined by the Investment Adviser or Subadviser to be of comparable credit quality, if the obligations are denominated in the issuers own currency. The Fund intends to invest at least 50% of its net assets in securities having the highest applicable credit quality rating, at the time of investment, or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization, at the time of investment, even though it has been rated below the minimum rating by one or more other rating organizations.
Under normal circumstances, the Global Income Fund will seek to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed income securities markets and by engaging in currency transactions to enhance returns and for the purpose of hedging its portfolio. In determining the countries and currencies in which the Fund will invest, the Fund's portfolio managers will form an opinion based primarily on the views of Goldman Sachs' economists as well as information provided by securities dealers, including information relating to factors such as interest rates, inflation, monetary and fiscal policies, taxation, and political climate. The portfolio managers will apply the Black-Litterman Model (the "Model") to their views to develop a portfolio that produces, in the view of the Investment Adviser, the optimal expected return for a given level of risk. The Model factors in the opinions of the portfolio managers, adjusting for their level of confidence in such opinions, with the views implied by an international capital asset pricing formula. The Model is also used to maintain the level of portfolio risk within the guidelines established by the Investment Adviser.
In selecting securities for the Global Income Fund's portfolio, the portfolio managers consider such factors as the security's duration, sector and credit quality rating as well as the security's yield and prospects for capital appreciation. It is expected that the Fund will use currency transactions both to enhance returns for a given level of risk and to hedge its exposure to foreign currencies. 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. The Fund may, for temporary defensive purposes, invest up to 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. See "_____________________________."
The Fund will maintain a dollar-weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to present value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, the Fund will have to estimate the duration of debt obligations that are subject to prepayment or redemption by the issuer. The Fund may use various techniques to shorten or lengthen the dollar weighted average duration of its portfolio, including the acquisition of debt obligations at a premium or discount, transactions in options, futures contracts and options on futures and interest rate swaps.
It is expected that the Global Income Fund will employ certain currency and interest rate management techniques involving risks different from those associated with investing solely in dollar-denominated fixed income securities of U.S. issuers. Such management techniques include transactions in options (including yield curve options), futures, options on futures, forward foreign currency exchange contracts, currency options and futures, currency and interest rate swaps and interest rate floors, caps and collars. 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. See "_____________."
Since the Global Income Fund is not diversified under the Act, it may be more susceptible to adverse developments affecting any single issuer in which its investments are concentrated. Not more than 25% of the Fund's total assets will be invested in the securities of any one foreign government or any other issuer (except that this limitation does not apply to the U.S. Government). However, this 25% restriction does not prohibit the Fund from concentrating more than 25% of its total assets in the securities of issuers located in Canada, Germany, Japan and the United Kingdom as well as in the United States.
SPECIAL INVESTMENTS AND RISK FACTORS FOR THE
CORE FIXED INCOME AND GLOBAL INCOME FUNDS
FOREIGN TRANSACTIONS
Foreign Securities. The Core Fixed Income and Global Income Funds' investments in securities of foreign issuers and Non-Dollar Securities may offer potential benefits that are not available from investments exclusively in securities of domestic issuers. Foreign issuers may offer better investment opportunities than domestic securities Foreign countries may have economic policies or business cycles different from those of the United States and securities markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not typically associated with investing in securities of domestic issuers. Such investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency blockage). A decline in the exchange rate would reduce the value of certain portfolio securities. In addition, if the exchange rate for the currency in which a Fund receives interest payments declines against the U.S. dollar before such interest is paid as dividends to shareholders, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have on occasion been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.
An issuer of fixed income securities purchased by the Core Fixed Income or Global Income Funds may be domiciled in a country other than the country in whose currency the instrument is denominated. The Funds may also invest in debt securities denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts in the currencies of certain of the twelve member states of the European Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Community from time to time to reflect changes in relative values of the underlying currencies. In addition, the Fund may invest in securities denominated in other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers. There may be less publicly available information about a foreign issuer than about a domestic issuer. In addition, there is generally less government regulation of foreign markets and broker-dealers than in the United States. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding taxes on dividend or interest payments, limitations on the removal of funds or other assets of the Funds, political or social instability or diplomatic developments which could affect investments in those countries.
Foreign Currency Transactions. The Core Fixed Income and Global Income Funds may, to the extent it invests in foreign securities, purchase or sell forward foreign currency exchange contracts for hedging purposes, enter into forward foreign currency exchange contracts to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, the Global Income Fund may enter into such contracts to seek to increase total return when the Investment Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities denominated or quoted in that currency do not present attractive investment opportunities
and are not held in the Fund's portfolio. When entered into to seek to increase total return, forward foreign currency exchange contracts are considered speculative. The Global Income 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 if the Investment Adviser determines that there is a pattern of correlation between the two currencies.
A Fund's custodian will place cash or liquid, high grade debt securities into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies. The segregated account will be marked to market on a daily basis. Thus, if the value of securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. If the Global Income Fund enters into a forward foreign currency exchange contract to buy or sell foreign currency to seek to increase total return, the Fund will be required to segregate appropriate liquid securities with the Fund's custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. The Fund will incur costs in connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, the Fund's net asset value to fluctuate as well. 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. 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. To the extent that a substantial portion of The Global Income 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.
The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments authorized for use by the Fund, offers less protection against defaults by the other party to such instruments than is available for currency instruments traded 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 the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price. A Fund will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the Investment Adviser.
In addition to investing in securities denominated or quoted in a foreign currency, the Global Income Fund may engage in a variety of foreign currency management techniques. The 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, based on anticipated changes in the relevant exchange rate. For a discussion of such instruments and the risks associated with their use, see "Investment Objectives and Policies" in the Additional Statement.
Because investment in foreign issuers will usually involve currencies of foreign countries, and because the Global Income Fund may have currency exposure independent of its securities positions, the value of the assets of the Fund as measured in U.S. dollars will be affected by changes in foreign currency exchange rates.
Options on Foreign Currencies. The Core Fixed Income and Global Income
Funds may, to the extent they invests in foreign securities, purchase and sell
(write) 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
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. In addition, the Global Income
Fund may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. 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. A 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 the Fund's position, a Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put and
call options for hedging purposes, the Global Income Fund may purchase call or
put options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Global Income Fund's
portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by the Funds will be traded on U.S. and foreign exchanges
or over-the-counter.
Concentration in Canada, Germany, Japan and the United Kingdom. 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 Global Income Fund's investments in such issuers or currencies 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.
SPECIAL RISK FACTORS FOR THE SHORT DURATION TAX-FREE FUND
Yields and Market Values of Municipal Securities. The yields and market values of Municipal Securities are determined primarily by the general level of interest rates, the supply of and demand for Municipal Securities, the creditworthiness of the issuers of Municipal Securities and economic and political conditions affecting such issuers. Due to their tax-exempt status, the yields and market values of Municipal Securities may be adversely affected by certain factors, such as changes in tax rates and policies, which may have less of an effect on the taxable fixed income markets. Moreover, certain types of Municipal Securities, such as housing revenue bonds, which are based on mortgage revenues, involve prepayment risks which could affect the yields of such Municipal Securities.
Certain types of instruments in which the Short Duration Tax-Free Fund invests, such as zero-coupon, deferred interest and capital appreciation bonds, are more susceptible than short or intermediate term securities to fluctuations as a result of movements in interest rates. As a result, a sudden and extreme rise in interest rates could result in a substantial decline in the value of such portfolio securities. The ability of the Fund to achieve the capital preservation aspect of its investment objective therefore depends in part on the extent to which the Fund is able to anticipate and respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital.
Default Risk. Investments in Municipal Securities, including general obligations and revenue obligations, are subject to the risk that the issuer could default on its obligations, and the Short Duration Tax-Free Fund could sustain losses on such investments. Such a default could result from the inadequacy of the sources or revenues from which interest and principal payments are to be made or the assets collateralizing such obligations. Revenue obligations, including private activity bonds, municipal leases, certificates of participation and certain other types
of instruments in which the Fund may invest, are backed only by specific assets or revenue sources and not by the full faith and credit of the governmental issuer.
Tax Consequences. While the Short Duration Tax-Free Fund, under normal market conditions, invests substantially all of its assets in Municipal Securities, the recognition of accrued market discount income (if the Short Duration Tax-Free Fund acquires Municipal Securities or other obligations at a market discount) and income and/or capital gains from certain types of instruments in which the Fund is permitted to invest, including U.S. Government securities, interest rate swaps, floors, caps and collars, futures contracts and related options, securities loans, the disposition of when-issued securities or forward commitments prior to settlement and repurchase agreements, will result in taxable income, distributions of which will be taxable to shareholders. In addition, the Short Duration Tax-Free Fund's investments in private activity bonds subject to the federal alternative minimum tax could result in income the distribution of which could cause or increase alternative minimum tax liability for some shareholders. The Short Duration Tax-Free Fund may also generate capital gains from the disposition of its investments and its distributions of such capital gains will be taxable to shareholders. Shareholders may be subject to state, local or foreign taxes on certain income received from the Fund. See "Taxation."
Because interest income from Municipal Securities is not subject to regular federal income taxation, the attractiveness of Municipal Securities in relation to other investment alternatives is affected by changes in federal income tax rates applicable to, or the continuing federal income tax-exempt status of, such interest income. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect both the supply of and demand for Municipal Securities, which could in turn affect the Fund's ability to acquire and dispose of Municipal Securities at desirable yield and price levels.
Call Risk and Reinvestment Risk. The Municipal Securities in which the Short Duration Tax-Free Fund invests 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 the Fund's portfolio are called prior to maturity, the 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 Fund's return on its portfolio securities. There is a risk that the proceeds of housing revenue bonds will be in excess of demand for mortgages, which would result in early retirement of the bonds by the issuer. Moreover, such housing revenue bonds depend for their repayment upon the cash flow from the underlying mortgages, which cannot be precisely predicted when the bonds are issued. Any difference in the actual cash flow from such mortgages from the assumed cash flow could have an adverse impact upon the ability of an issuer to make scheduled payments of principal and interest on the bonds or could result in early retirement of the bonds.
OTHER INVESTMENTS
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities. These securities in general include a variety of U.S. Treasury obligations, consisting of bills, notes and bonds, which principally differ only in their interest rates, maturities and times of issuance, and obligations issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored enterprises which are supported by (a) the full faith and credit of the U.S. Treasury (such as Ginnie Mae Certificates), (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 (such as the Fannie Mae Certificates described below), or (d) only the credit of the issuer. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies, instrumentalities or sponsored enterprises in the future.
Government securities include (to the extent consistent with the Act) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government, its agencies or
instrumentalities. 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 substantial secondary market, such participations are regarded as illiquid.
Although it does not expect to do so, the Short Duration Tax-Free Fund may invest up to 20% of its net assets in U.S. Government Securities and repurchase agreements collateralized by U.S. Government Securities. In addition, when the Investment Adviser deem appropriate, the Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in such taxable investments, which will generate taxable income.
MORTGAGE-BACKED SECURITIES
Characteristics of Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in mortgage-backed securities, which represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Each mortgage pool underlying Mortgage-Backed Securities will consist 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 (consisting of, among other things, detached residences, townhouses, individual condominium units, duplexes, triplexes, fourplexes, and units in planned unit developments), multifamily (i.e., five or more units) residential properties, agricultural properties, commercial properties and mixed use properties. Mortgage-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, prepayments of loans underlying mortgage-backed securities can be expected to accelerate, and thus impair the Funds' ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many mortgage-backed securities. This possibility is often referred to as extension risk. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other mortgage-backed securities.
Mortgage Pass-Through Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in mortgage pass-through securities ("Mortgage Pass-Throughs"), which are fixed or adjustable rate Mortgage-Backed Securities that 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.
Stripped Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in SMBS issued or guaranteed by the U.S. Government, its agencies or instrumentalities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage loans. If the underlying mortgage loans experience different than anticipated prepayments of principal, the Funds may fail to fully recoup their initial investment in these securities. Although the market for such securities is increasingly liquid, certain SMBS may not be readily marketable and will be considered illiquid for purposes of a 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
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. The Investment Adviser will seek to manage prepayment risk, liquidity concerns relating to privately issued SMBS and certain other risks (and potential benefits) by investing in a variety of such securities and by using certain hedging techniques.
Inverse Floating Rate Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in inverse floating rate Mortgage-Backed Securities, including "leveraged inverse floaters." Typically, an inverse floater is one of two components created from a pool of fixed rate mortgages. The other component is a floating rate Mortgage-Backed Security in which the rate of interest payable varies directly with a market interest rate index. The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.
Privately Issued Mortgage-Backed Securities. The Core Fixed Income and Global Income Funds may invest in Mortgage-Backed Securities issued by trusts or other entities formed or sponsored by private originators of and institutional investors in mortgage loans and other non-governmental entities (or representing custodial arrangements administered by such institutions). Privately issued Mortgage-Backed Securities are generally backed by pools of conventional (i.e., non-government guaranteed or insured) mortgage loans. Since such Mortgage- Backed Securities normally are not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive a high quality rating from the rating organizations (i.e., S&P's or Moody's), they normally are structured with one or more types of "credit enhancement".
Guaranteed Mortgage-Backed Securities. The Core Fixed Income and Global Income Fund's investments in Mortgage-Backed Securities may, and all of the Short-Term Government Agency and Adjustable Rate Government Agency Funds' investments in Mortgage-Backed Securities will, be issued or guaranteed by the U.S. Government or one of it's agencies or instrumentalities, including but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae securities are backed by the full faith and credit of the U.S. Government, which means that the U.S. Government guarantees that the interest and principal will be paid when due. Fannie Mae and Freddie Mac securities are not backed by the full faith and credit of the U.S. Government; however, the ability of these agencies to borrow from the U.S. Treasury makes their securities high quality securities with minimal credit risks. There are several types of guaranteed Mortgage-Backed Securities currently available, including guaranteed mortgage pass-through certificates and multiple class securities, which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC") pass-through certificates and stripped Mortgage-Backed Securities. The Fund will be permitted to invest in other types of Mortgage-Backed Securities that may be available in the future to the extent investment in such securities is consistent with its investment policies and objective, which require the Fund to invest primarily in guaranteed adjustable rate Mortgage-Backed Securities.
Multiple Class Pass-Through Securities and Collateralized Mortgage Obligations. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may also invest in collateralized mortgage obligations ("CMOs") and REMIC pass-through or participation certificates, which multiple class Mortgage Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds will only invest in CMO's issued by U.S. Government agencies and instrumentalities such as Fannie Mae and Freddie Mac . 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, each with a specified fixed or floating interest rate and a final scheduled distribution date. In most 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. Sometimes, however, CMO classes are "parallel pay" (i.e., payments of principal are made to two or more classes
concurrently). A REMIC is a CMO that qualifies for special tax treatment under 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.
CMOs and REMIC pass-through certificates ("REMIC Certificates") are types of multiple class pass-through 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 mortgage pass-through certificates (the "Mortgage Assets").
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 scheduled 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 Certificate 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 the parallel pay or sequential structures. These securities include annual 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 which generally require that specified amounts of principal be applied on each payment date to one or more classes of 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 the PAC classes.
Adjustable and Fixed Rate Mortgage Loans. The following is a general description of the adjustable and fixed rate mortgage loans which may be expected to underlie Mortgage-Backed Securities in which the Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest. Since a wide variety of mortgage loans are available to borrowers, the actual mortgage loans underlying any particular issue of Mortgage-Backed Securities may differ materially from those described below. In addition, the Funds will be permitted to invest in Mortgage-Backed Securities that become available in the future to the extent such investments are consistent with its investment objectives and policies.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will 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 gross margin, which is a fixed percentage spread over the Index Rate established for each ARM at the time of its origination.
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 achieve equity and may increase the likelihood of default by such borrowers. 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.
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 ("LIBOR"), 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 the market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of the Adjustable Rate Government Agency Fund's portfolio and therefore in the net asset value of the 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.
Regulation of Mortgage Loans. Mortgage loans are subject to a variety of state and federal laws and regulations designed to protect mortgagors, which may impair the ability of the mortgage lender to enforce its rights under the mortgage documents. These laws and regulations include legal restraints on foreclosures, homeowner rights of redemption after foreclosure, federal, state bankruptcy and debtor relief laws, restrictions on enforcement of mortgage loan "due on sale" clauses and state usury laws. Even though the Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in Mortgage-Backed Securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, these regulations may adversely affect the Short- Term Government Agency and Adjustable Rate Government Agency Funds' investments by delaying the Fund's receipt of payments derived from principal of or interest on mortgage loans affected by such laws and regulations.
ASSET-BACKED SECURITIES
Asset-Backed Securities. The Core Fixed Income and Global Income Funds may invest in asset-backed securities, which represent participations in, or are secured by and payable from, assets such as motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements and other categories of receivables. Such securities are generally issued by trusts and special purpose corporations.
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 repayments of principal on the underlying loans. During periods of declining interest rates, prepayments of loans underlying asset-backed securities can be expected to accelerate, and thus impair the Fund's ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many asset-backed securities. This possibility is often referred to as extension risk. Extending the average life of an asset-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other asset-backed securities. Asset- backed securities present certain 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. There is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities. Each Fund (other than the Short Duration Tax-Free Fund) may invest in certain Mortgage-Backed Securities, such as interest-only and principal-only SMBS, that are extremely sensitive to changes in prepayments and interest rates. Even though such securities have been issued or guaranteed by an agency or instrumentality of the U.S. Government, under certain interest rate or prepayment rate scenarios, a Fund may fail to fully recover their investment in such securities.
The investment characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments, usually monthly, and the possibility that unscheduled prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater prepayment rate in a declining interest rate environment. The yields to maturity of the Mortgage-Backed Securities will be affected by the actual rate of payment (including prepayments) of principal of the underlying mortgage loans. The mortgage loans underlying such securities generally may be prepaid at any time without penalty. In a fluctuating interest rate environment, a predominant factor affecting the prepayment rate on a pool of mortgage loans is the difference between the interest rates on the mortgage loans and prevailing mortgage loan interest rates (giving consideration to the cost of any refinancing). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates existing on fixed rate mortgage loans underlying mortgage pass-through securities, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on the fixed rate mortgage loans underlying the mortgage pass-through securities, the rate of prepayment may be expected to decrease.
The reinvestment of principal payments and prepayments received on a mortgage pass-through security may be made at rates higher or lower than the rate payable on such security, thus affecting the return realized by the Funds. In addition, the receipt of interest payments monthly rather than semi-annually by the Funds has a compounding effect that may increase the yield to the Funds relative to debt obligations that may increase the yield to the Funds relative to debt obligations that pay interest semi-annually. Due to these factors, Mortgage-Backed Securities may also be less effective than U.S. Treasury securities of similar maturity at maintaining yields during
periods of changing interest rates. Prepayments may have a disproportionate effect on certain Mortgage-Backed Securities such as SMBS and certain other multiple class pass-through securities. A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
There are certain risks related to a Fund's investment in ARMs, which risks will have a greater input on the Adjustable Rate Government Agency Fund which will invest a significant portion of its assets in such securities. In recent, the rate of principal prepayments with respect to ARMs has fluctuated in recent years. As is the case with fixed rate mortgage loans, ARMs may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, ARMs could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if prevailing interest rates rise significantly, ARMs may prepay at lower rates than if prevailing rates remain at or below those in effect at the time such ARMs were originated due, for example, to the unavailability of lower rate alternatives. As with fixed rate mortgages, there can be no certainty as to the rate of prepayments on the ARMs in either stable or changing interest rate environments. In addition, there can be no certainty as to whether increases in the principal balances of the ARMs due to the addition of deferred interest may result in a default rate higher than that on ARMs that do not provide for negative amortization.
Risks Associated With Derivative Mortgage-Backed Securities. Derivative Mortgage-Backed Securities are subject to different combinations of interest rate and/or prepayment risks. 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. The Investment Adviser may use derivative Mortgage-Backed Securities and other derivative securities consistent with a Fund's investment objective for a variety of purposes including adjusting the average duration or interest rate sensitivity of each Fund's portfolio or attempting to enhance the Fund's total return. The Investment Adviser manages the risk and benefits of derivative mortgage-backed securities and other derivative securities by prudent analysis, selection and monitoring of such securities included in the Fund's portfolio.
The risk of faster than anticipated prepayments generally adversely affects interest-only securities (IOs), super floaters and premium priced Mortgage- Backed Securities. The risk of slower than anticipated prepayments generally adversely affects principal-only securities (POs), floating rate securities subject to interest rate caps, floors and collars, support tranches and discount priced Mortgage-Backed Securities.
Risks Associated With Derivative Floating Rate Securities. Other types of floating rate derivative debt securities present more complex types of 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.
MUNICIPAL SECURITIES IN WHICH THE SHORT-DURATION TAX-FREE FUND WILL INVEST
General. Municipal Securities consist of bonds, notes 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, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily from federal alternative minimum tax or from state or local taxes). 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 also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of public authorities to obtain funds for privately-operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. In addition, proceeds of certain industrial development bonds are used for constructing, equipping, repairing or improving privately operated industrial or commercial facilities. The interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Municipal Leases and Certificates of Participation. 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. 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. The primary risk associated with municipal lease obligations and certificates of participation is that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation of foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to fully recover the Fund's original investment. To the extent that the Short Duration Tax-Free Fund invests in unrated municipal leases or participates in such leases, the Trustees shall monitor on an ongoing basis the credit quality rating and risk of cancellation of such unrated leases. Certain municipal lease obligations and certificates of participation may be deemed illiquid for the purpose of the Fund's 15% limitation on investments in illiquid securities.
Municipal Notes. Municipal Securities in the form of notes generally are used to provide for short-term capital needs in anticipation of an issuer's receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and Construction Loan Notes. The obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuer's payment obligations under the notes or that refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Tax-Exempt Commercial paper is typically short-term, unsecured, negotiable promissory notes. These obligations are issued by state and local governments and their agencies to finance working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long- term debt.
Pre-Refunded Municipal Securities. The principal of and interest on pre- refunded Municipal Securities are no longer paid from the original revenue source for such securities. Instead, the source of such payments is typically an escrow fund consisting of obligations issued or guaranteed by the U.S. Government. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded Municipal Securities.
Tender Option Bonds. The Short Duration Tax-Free Fund may invest in tender option bonds. A tender option bond 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 in conjunction 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 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 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. However, an institution will 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. Although the Short Duration Tax-Free Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by the Investment Adviser, be exempt from regular federal income tax, there is a risk that the Short Duration Tax-Free Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from tax.
Insured Bonds. Insured Municipal Securities are those for which scheduled payments of interest and principal are guaranteed by a private (non- governmental) insurance company. The insurance entitles the Short Duration Tax- Free Fund to receive only the face or par value of the securities held by the Fund. The insurance does not guarantee the market value of the Municipal Securities or the value of the shares of the Fund.
Auction Rate Securities. Provided that the auction mechanism is successful, auction rate securities permit the holder to sell the securities in an auction at par value at specified intervals. The dividend or interest 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 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 the risk that an auction will fail due to insufficient demand for the securities. The Short Duration Tax-Free Fund will take the next scheduled auction date of the auction rate securities into consideration in determining the average portfolio maturity of the Fund.
OTHER INVESTMENTS AND PRACTICES
Inverse Floating Rate Instruments. Each Fund may invest in "leveraged" inverse floating rate debt instruments ("inverse floaters"). The Short Duration Tax-Free Fund may only invest up to 25% of its net assets in 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. 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.
Deferred Interest and Capital Appreciation Bonds. The Global Income and Short Duration Tax-Free Funds may invest in deferred interest and capital appreciation bonds. Deferred interest and capital appreciation bonds are debt securities issued or sold at a discount from their face value that do not entitle the holder to any payment of interest prior to maturity or a specified commencement or redemption date (or cash payment date). The amount of the discount rate 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. A portion of the discount with respect to stripped tax-exempt securities or their coupons may be taxable. The market prices of deferred interest and capital appreciation bonds 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. A Fund's investments in deferred interest and capital appreciation bonds or stripped securities may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Taxation" in the Additional Statement.
Zero Coupon Bonds. Each Fund may invest in zero coupon securities issued by financial institutions and corporations, zero coupon U.S. Treasury securities (which are Treasury notes and bonds that have been stripped
of their unmatured interest coupons), the coupons themselves and receipts or certificates representing interests in such stripped debt obligations. A zero coupon security pays no interest to its holder during its life and its value consists in the difference between its face value at maturity and its cost. The market prices of zero coupon securities generally are more volatile than market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than interest bearing securities having similar maturities and credit qualities. The Funds' investments in zero coupon securities or other stripped securities may require the Funds to sell certain of their portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
Custodial Receipts. The Core Fixed Income and Global Income Funds may acquire custodial receipts in respect of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies or instrumentalities. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. Government.
Corporate Debt Obligations. The Core Fixed Income Fund may invest in corporate debt obligations that are rated, at the time of investment, BBB by S&P or Baa by Moody's or equivalent short-term credit quality ratings and the Global Income Fund may invest in corporate debt obligations subject to its policy of generally intending to invest at least 50% of its net assets in securities having the highest applicable credit quality rating or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable quality. In addition to obligations of corporations, corporate debt obligations include bank obligations and zero coupon securities issued by financial institutions and corporations. 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.
Convertible Securities. The Core Fixed Income Fund may invest in convertible securities, which may include corporate notes or preferred stock but are ordinarily a long-term debt obligation 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 in which the Fund invests will be subject to the same rating criteria as its other investments in fixed income securities.
Structured Securities. The Global Income Fund may invest in structured notes, bonds or debentures. The value of the principal of and/or interest on such securities 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. The terms of the structured securities may provide that in certain circumstances no principal is due at maturity and, therefore, result in the loss of the Fund's investment. 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 entail a greater degree of market risk than other types of fixed income securities. Structured securities may also be more volatile, less liquid and more difficult to accurately price than less complex securities.
Mortgage Dollar Rolls. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may enter into mortgage "dollar rolls" in which the Funds sell securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period each Fund loses the right to receive principal and interest paid on the securities sold. However, a Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the "drop") or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of a Fund compared with what such performance would have been without the use of mortgage dollar rolls. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid, high grade debt securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the Investment Adviser's ability to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, each 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.
Options on Securities and Securities Indices. Each Fund, other than the Short-Term Government Agency and Adjustable Rate Government Agency Funds, may write (sell) covered call and put options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may purchase call and put options on any securities in which it may invest or options on any securities index composed of securities in which it may invest. 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 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 puts for hedging purposes also depends in part on the ability of the Investment Adviser to predict future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in securities prices or determination of the correlation between the securities indices on which options are written and purchased and the securities in a Fund's investment portfolio, the investment performance of the Fund will be less favorable than it would have been in the absence of such options transactions. The writing of options could significantly increase a Fund's portfolio turnover rate and, therefore, associated brokerage commissions or spreads.
The Core Fixed Income and Global Income Funds may also write and purchase options on the yield "spread," or yield 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.
Futures Contacts and Options on Futures Contracts. To hedge against changes in interest rates or securities prices or, currency exchange rates in the case of the Core Fixed Income and Global Income Funds, or to seek to increase total return, each Fund (other than the Short-Term Government Agency Fund) may purchase and sell various kinds of futures contracts, and purchase and write call and put options on any of such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any such contracts and options. The futures contracts may be based on various securities (such as U.S. Government securities), securities indices and other financial instruments and indices. A Fund will engage in futures and related options transactions only 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. These transactions involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to segregate and maintain cash or liquid, high grade debt securities with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. See "Investment Objectives and Policies-Futures Contracts and Options on Futures Contracts" in the Additional Statement. Thus, while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of the Fund than if it had not entered into any futures contracts or options transactions. The loss incurred by a Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's net asset value. The profitability of a Fund's trading in futures to seek to increase total return depends upon the ability of the Investment Adviser to correctly analyze the futures markets. In addition, because 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. Further, futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and 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. In addition, it is not possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is also likely to fluctuate as a result of independent factors not related to currency fluctuations. Perfect correlation between a Fund's futures positions and its portfolio positions will be impossible to achieve. A Fund's transactions in foreign currency, forward foreign currency exchange contracts, options, futures contracts and certain other derivative transactions may be limited by the requirements of the Code for qualification as a regulated investment company.
Currency Swaps, Mortgage Swaps and Interest Rate Swaps, Caps, Floors and Collars. The Core Fixed Income and Global Income Funds may enter into currency swaps both for hedging purposes and to seek to increase total return. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may enter into mortgage swaps for hedging purposes and to seek to increase total return. In addition, each Fund may each enter into 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. 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 swaps, caps, floors and collars, currency swaps and mortgage swaps 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 entered into for hedging purposes.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate or mortgage swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive, if any. In contrast, the currency swaps entered into by the Core Fixed Income and Global Income Funds 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. A Fund will maintain in a segregated account with the Fund's custodian cash and liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlements with respect to swap transactions. To the extent that the net amount payable under an interest rate or mortgage swap and the entire amount of the payment stream payable by a Fund under a currency swap or an interest rate floor, cap or collar is held in a segregated account consisting of cash or liquid, high grade debt securities, the Funds and the Investment Advisers 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 restriction.
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 rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or if unrated by such rating organizations, determined to be of comparable quality by the Investment Adviser.
The use of interest rate, mortgage 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 staff of the SEC currently take the position that swaps, caps, floors and collars are illiquid and thus subject to a Fund's 15% limitation on investments in illiquid securities.
Risks of Derivative Transactions. A Fund's transactions, if any, in options, futures, options on futures, swap transactions, structured securities, interest rate caps, floors and collars, inverse floating rate securities and currency forward contracts involve certain risks, including a possible lack of correlation between changes in the value of hedging instruments and the portfolio assets being hedged, the potential illiquidity of the markets for derivative instruments, the risks arising from the margin requirements and related leverage factors associated with such transactions. The use of these management techniques to seek to increase total return may be regarded as a speculative practice and involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-issued securities. When-issued transactions arise when securities are purchased by a Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Each Fund may also purchase securities on a forward commitment basis; that is, make contracts to purchase securities for a fixed price at a future date beyond customary settlement time. A Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. Alternatively, each Fund may enter into offsetting contracts for the forward sale of other securities that it owns. 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 prior to the settlement date. Although a Fund would generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, the Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment Adviser deems it appropriate to do so.
Illiquid and Restricted Securities. A Fund may not invest more than 10% of its total assets in securities that are subject to restrictions on resale ("restricted securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund will not invest more than 15% of its net assets in illiquid investments, which includes securities (both foreign and domestic) that are not readily marketable, swap transactions, repurchase agreements maturing in more than seven days, time deposits with a notice or demand period of more than seven days, certain over-the-counter options, and certain restricted securities, unless it is determined, based upon the continuing review of the trading markets for a specific restricted security, that such restricted security is eligible for sale under Rule 144A and, therefore, is liquid. The Board of Trustees has adopted guidelines and delegated to the Investment Adviser the daily function of determining and monitoring the liquidity of restricted securities. The Board of Trustees, however, retains oversight focusing on factors such as valuation, liquidity and availability of information and is ultimately responsible for each determination. Investing in restricted securities eligible for resale pursuant to Rule 144A could have the effect of increasing the level of illiquidity in the Fund 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. A Fund may purchase U.S. Government Securities in a private placement, subject to its 15% limitation of illiquid investments.
Other Investment Companies. Each Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the voting securities of any other investment company. Pursuant to an exemptive order obtained from the SEC, the Funds may invest in money market funds for which an Investment Adviser or any of its affiliates serves as investment adviser. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the advisory and administration fees paid by the Fund. However, to the extent that the Fund invests in a money market fund for which an Investment Adviser acts as adviser, the advisory and administration fees payable by the Fund to an 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 the Investment Adviser or any of its affiliates.
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. 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 in connection with the related repurchase agreement are less than the repurchase price. In addition, in the event of bankruptcy of the seller or failure of the seller to repurchase the securities as agreed, the Fund could suffer losses, including loss of interest on or principal of the security and costs associated with delay and enforcement of the repurchase agreement. The Trustees of the Trust have reviewed and approved certain sellers whom they believe to be creditworthy and have authorized the Funds to enter into repurchase agreements with such sellers. In addition, each Fund, together with other registered investment companies having advisory agreements with an Investment Adviser, 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 seek to increase its income by lending portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as certain broker-dealers, and are required to be secured continuously by collateral in cash, cash equivalents, or U.S. Government securities maintained on a current basis in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equivalents. If an Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 331/3% of the value of the total assets of a Fund. See "Investment Restrictions"
in the Additional Statement. A Fund may experience a loss or delay in the recovery of its securities if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund.
Temporary Investments. The Core Fixed Income and Global Income Funds may, for temporary defensive purposes (such as when instability or unfavorable conditions exist in foreign countries), invest 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. The Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated Investment Objective and invest more than 20% of its net assets in Taxable Investments.
Non-Diversification Status. Since the Global Income Fund is "non- diversified" under the Act, it is subject only to certain federal tax diversification requirements. Under federal tax laws, the Global Income Fund may, with respect to 50% of its total assets, invest up to 25% of its total assets in the securities of any issuer (except that this limitation does not apply to U.S. Government securities). With respect to the remaining 50% of the Fund's total assets, (1) the Fund may not invest more than 5% of its total assets in the securities of any one issuer (other than the U.S. Government), and (2) the Fund may not acquire more than 10% of the outstanding voting securities of any one issuer. These tests apply at the end of each quarter of its taxable year and are subject to certain conditions and limitations under the Code. With respect to 75% of a non-diversified Fund's total assets, the Fund, as a matter of investment policy, may not acquire more than 10% of the outstanding voting securities of any one issuer. Since the Global Income Fund is not diversified under the Act, it will be more susceptible to adverse developments affecting any single issuer. The Short-Term Government Agency, Adjustable Rate Government Agency , Short Duration Tax-Free and Core Fixed Income Funds are also subject to the same tax diversification requirements in addition to the diversification requirements arising out of their diversified status under the Act.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described in detail under "Investment Restrictions" in the Additional Statement. These investment restrictions are fundamental policies of a Fund that can not be changed without approval of a majority of the outstanding shares of that Fund. For more information on a Fund's investment restrictions, an investor should obtain the Additional Statement. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate of the Fund will vary from year to year. The portfolio turnover rate is computed by dividing the lesser of the amount of securities purchased or securities sold (excluding all securities whose maturities at acquisition are one year or less) by the average monthly value of such securities owned during the year. A 100% turnover rate would occur, for example, if all of the securities held by the Fund were sold and replaced within one year. The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for the Fund consistent with the Fund's investment objective and portfolio management policies. A higher rate of portfolio turnover results in increased transaction costs to the Fund. The portfolio turnover rate includes the effect of entering into mortgage dollar rolls.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for deciding matters of general policy and reviewing the actions of the Investment Advisers, Subadviser, administrator, distributor and transfer agent. The officers of the Trust conduct and supervise each Fund's daily business operations. The Additional Statement contains information as to the identity of, and other information about, the Trustees and officers of the Trust.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
Investment Advisers and Subadviser. Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to the Short Duration Tax-Free, Core Fixed Income and Global Income Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York 10004, a Delaware limited partnership which is an affiliate of Goldman Sachs, serves as the investment adviser to the Short-Term Government Agency and Adjustable Rate Government Agency Funds. Goldman Sachs Funds Management, L.P. registered as an investment adviser in 1990. Goldman Sachs Asset Management International, 140 Fleet Street, London EC4A 2BJ, England an affiliate of Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman Sachs Asset Management International became a member of the Investment Management Regulatory Organization Limited in 1990 and registered as an investment adviser in 1991. Goldman Sachs Asset Management serves as administrator to The Global Income Fund. As of _______________, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $______ billion.
Under an Investment Advisory Agreement with each Fund, the applicable Investment Adviser, and in the case of the Global Income Fund under a Subadvisory Agreement, the Subadviser, subject to the general supervision of the Trust's Board of Trustees, provides day-to-day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed to permit the Trust to use the name "Goldman Sachs" or a derivative thereof as part of each Fund's name for as long as a Fund's Investment Advisory and Subadvisory Agreements are in effect.
In performing its investment advisory and subadvisory services, each Investment Adviser, while remaining ultimately responsible for the management of the Funds, is able to draw upon the research and expertise of its affiliate offices for portfolio decisions and management with respect to certain portfolio securities.
The Short-Term Government Agency and Adjustable Rate Government Agency Funds' portfolio managers are Jonathan A. Beinner and Theodore T. Sotir. Mr. Beinner is a Vice President of Goldman Sachs and joined the Investment Adviser in 1990 after working in the trading and arbitrage group of Franklin Savings Association. Mr. Sotir is a Vice President of Goldman Sachs and joined the Investment Adviser in 1993 after working as portfolio manager at Fidelity Management Trust Company. Prior to joining Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities department for six years.
The Core Fixed Income Fund's portfolio managers are Jonathan A. Beinner, Richard C. Lucy and Theodore T. Sotir. See above for information about Messrs. Beinner and Sotir. Messrs. Beinner and Lucy each specialize in investing in a particular type of security the Fund may hold. Mr. Sotir helps with overall portfolio strategy and is a member of the Investment Adviser's risk control team. Mr. Lucy is a Vice President of Goldman Sachs and joined the Investment Adviser in 1992 after spending nine years managing fixed income assets as Brown Brothers Harriman & Co.
The Short Duration Tax-Free Fund's portfolio managers are Theodore T. Sotir and Benjamin S. Thompson. See above for information about Mr. Sotir. Mr. Thompson specializes in municipal securities, where his
responsibilities include developing investment strategy and structuring portfolios. Mr. Thompson worked in the institutional sales and marketing group at Goldman Sachs Asst Management until he joined the fixed income team in 1993. Prior to joining Goldman Sachs Asset Management in early 1992, Mr. Thompson worked in the Structured Finance Group of the Chase Manhattan Bank.
The Global Income Fund's portfolio manager is Stephen Fitzgerald. Mr. Fitzgerald joined GSAMI in 1992 and is a Vice President. Prior to 1992, he spent two years managing multi-currency fixed income and balanced portfolios at Invesco MIM Limited, where he was a senior member of the derivative products group. Prior to his employment at Invesco, Mr. Fitzgerald spent three years with Foreign and Colonial Management Limited in London managing fixed income and derivative funds, and, prior to that, in the treasury department of NRMA Insurance Limited in Sydney.
It is the responsibility of the Investment Adviser to make investment decisions for a Fund and to place the purchase and sale orders for the Fund's portfolio transactions in U.S. and foreign securities and currency markets. Such orders may be directed to any broker including, to the extent and in the manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSAM is entitled to a fee from the Short Duration Tax-Free, Core Fixed Income and Global Income Funds, computed daily and payable monthly, at the annual rates of 0.40%, 0.40% and 0.25%, respectively, of average daily net assets; however, GSAM is currently only imposing its advisory fee with respect to the Global Income Fund at the annual rate of .10% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from the Short-Term Government Agency and Adjustable Rate Government Agency Funds, computed daily and payable monthly, at the annual rates of 0.50% and 0.40% of average daily net assets; however, GSFM is currently only imposing its advisory fee with respect to the Short-Term Government Agency Fund at the annual rate of 0.40% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to a Subadvisory Agreement, GSAMI is entitled to a fee from the Global Income Fund, computed daily and payable monthly at the annual rate of 0.50% of average daily net assets; however, GSAMI is currently only imposing its subadvisory fee with respect to the Global Income Fund at the annual rate of .30% of average daily net assets. For the fiscal year ended October 31, 1995, the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free and Core Fixed Income Funds paid fees at the foregoing rates. At various times during the fiscal year ended October 31, 1995, GSAM and GSAMI waived part of their investment advisory and subadvisory fees, respectively, for the Global Income Fund. The average rate for the period paid by the Global Income Fund to GSAM and GSAMI was ___% and ___%, respectively. The advisory fees (combined with the administration fee) paid by the Global Income Fund are higher than the fees paid by most funds but the Investment Adviser believes such fees are comparable to advisory fees paid by funds with similar investment strategies. Each Investment Adviser has voluntarily agreed to reduce the fees payable to it by a Fund (to the extent of its fees) by the amount (if any) that the Fund's expenses would exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement. In addition, the Investment Adviser to the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free, Core Fixed Income and Global Income Funds has voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds (excluding advisory, administration, service, distribution and authorized dealer service fees, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05%, 0.05%, 0.05%, 0.05% and 0.10% per annum of such Funds' average daily net assets, respectively. 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.
Administrator. As administrator, pursuant to an Administration Agreement with the Global Income Fund GSAM provides personnel for supervisory, administrative, and clerical functions; oversees the performance of administrative and professional services to The Global Income Fund by others; provides office facilities; and
prepares, but does not pay for, reports to shareholders, the SEC and other regulatory authorities. As compensation for the services rendered to the Global Income Fund, GSAM is entitled to a fee from the Global Income, computed daily and payable monthly, at an annual rate equal to 0.15% of the Fund's average daily net assets. For the period ended October 31, 1995, the Global Income Fund paid GSAM a fee for administration services at the foregoing rate. GSAM has agreed to reduce its fees payable by a Fund (to the extent of its fees) by the amount (if any) that a Fund's expenses exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and their affiliates in the management of, or their interest in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to 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 and in general it is not anticipated that the Investment Advisers will have access to proprietary information for the purpose of managing a Fund. 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 and Funds achieve significant profits on their trading for proprietary or other accounts. From time to time, 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. See "Management- Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's transfer agent (the "Transfer Agent") and as such performs various shareholder servicing functions. Shareholders with inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the address or the telephone number set forth on the back cover page of this Prospectus.
DIVIDENDS
Each Fund (other than the Global Income Fund) intends to declare a daily dividend. Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago time, and will be paid monthly. The Global Income Fund intends to declare and pay dividends monthly. Such dividend will accrue to shareholders as of the date such shares are purchased. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of the Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. The Fund also intends that all net realized long-term and short-term capital gains will be declared as a dividend at least annually. In determining amounts of capital gains to be distributed, capital losses including any available capital loss carryovers from prior years will be offset against capital gains.
The Fund's net investment income is determined on a daily basis (monthly in the case of the Global Income Fund). On days on which net asset value is calculated, such determination is made immediately prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago time. On days on which net asset value is not calculated, such determination is made as of 3:00 p.m. Chicago time.
Payment of dividends from net investment income will be made on the last calendar day of each month in additional shares of the Fund at the net asset value on such day, unless cash distributions are elected, in which case,
cash payment will be made on the first Business Day of the succeeding month. Payment of dividends with respect to capital gains, if any, when declared will be made in additional shares of the Fund at the net asset value on the payment date, unless cash distributions are elected. This election to receive dividends in cash is initially made on the Account Information Form and may be changed upon written notice to the Transfer Agent at any time prior to the record date for a particular dividend or distribution. If cash dividends are elected with respect to the Fund's monthly net investment income dividends, then cash dividends must also be elected with respect to the non-long term capital gains component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of the Fund a portion of the net asset value per share may be represented by undistributed income of the Fund or realized or unrealized appreciation of the Fund's portfolio securities. Therefore, subsequent distributions (or portions thereof) of taxable income or realized appreciation on such shares may be taxable to the investor even if the net asset value 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.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the Fund's custodian as of the close of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) immediately after determination of the income to be declared as a dividend, on each Business Day (as such term is defined under "Additional Information"). Net asset value per share of each class is calculated by determining the net assets attributable to each class and dividing by the number of outstanding shares of that class.
Investments in Mortgage-Backed Securities and other debt obligations are valued at fair value, based on yield equivalents, a pricing matrix or other sources, under valuation procedures established by the Trust's Board of Trustees. Other portfolio securities for which accurate market quotations are readily available are valued on the basis of quotations, which may be furnished by a pricing service or provided by dealers in such securities. Portfolio securities for which accurate market quotations are not readily available are valued in accordance with the Trust's valuation procedures. Debt obligations with a remaining maturity of 60 days or less are valued at amortized cost. The Board of Trustees has determined that the amortized cost of such securities approximates fair market value. Portfolio securities are valued based on market quotations or, if accurate quotations are not readily available, at fair value as determined in good faith under procedures established by the Trust's Board of Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield and average annual total return and the Short Duration Tax-Free Fund may publish its tax equivalent yield in advertisements and communications to shareholders or prospective investors. Average annual total return is determined by computing the average annual percentage change in value of $1,000 invested at the maximum public offering price for specified periods ending with the most recent calendar quarter, 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 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. Any performance data which is based on a Fund's net asset value per share would be reduced if a sales charge were taken into account. In addition to the above, each Fund may from time to time advertise its performance relative to certain performance rankings and indices.
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 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, the Short Duration Tax-Free Fund tax-free yield. Tax equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most recent distribution of net investment income for a monthly, quarterly or other relevant period and dividing this amount by the net asset value per share or maximum public offering price on the last day of the period for which the distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated separately for each class of shares in existence. Because each class of shares may be subject to different expenses, the yield, total return and distribution rate calculations with respect to each class of shares for the same period will differ. Due to the fees payable under the Distribution, Authorized Dealer Service, Service and Administration Plans, the investment performance, for any period, of the Institutional Shares will always be higher than that of the Class A Shares, Class B Shares, Service Shares and Administration Shares. The investment performance of the Administration Shares will always be higher than that of the Service Shares. The investment performance of the Class A and Class B Shares will be affected by the payment of a sales charge. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any presentation of investment results for any prior period should not be considered a representation of what an investment may earn or what the Fund's performance may be in any future period. In addition to information provided in shareholder reports, the Funds may, in their discretion, from time to time, make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust under an Agreement and Declaration of Trust, as amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are authorized to issue an unlimited number of shares of beneficial interest, $.001 par value per share. The Trustees of the Trust are responsible for the overall management and supervision of its affairs. The Trustees of the Trust have authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Prospectus, the Trustees have authorized shares of the Fund and ten additional series. Additional series may be added in the future. The Trustees have authorization to classify or reclassify any series or portfolio of shares into one or more classes. The Short-Term Government Agency, Short Duration Tax-Free and Core Fixed Income Funds each offer Institutional Shares, Administration Shares and Service Shares. The Adjustable Rate Government Agency Fund offers Institutional Shares, Administration Shares, Service Shares and Class A Shares. The Global Income Fund offers Institutional Shares, Service Shares, Class A Shares and Class B Shares.
Each Institutional Share, Administration Share and Service Share of a Fund represents an equal proportionate interest in the assets belonging to the Fund. All Fund expenses are based on a percentage of the Fund's aggregate average net assets, except that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. It is contemplated that most Administration Shares and Service 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. Administration Shares and Service Shares will each be marketed only to such institutional investors at net asset value with no sales load. Institutional Shares may be purchased for accounts in the name of an investor or institution that is not compensated by the Fund for services provided to the institution's customers. Administration Shares may be purchased for accounts held in the name of an institution that provides certain account administration services to its customers, including maintenance of account records and processing
orders to purchase, redeem or exchange Administration Shares. Administration Shares bear the cost of account administration fees at the annual rate of up to 0.25% of the average daily net assets of such Administration Shares. 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 and processing orders to purchase, redeem or exchange Service Shares, responding to customer inquiries and assisting customers with investment procedures. Service Shares bear the cost of service fees at the annual rate of up to 0.50% of the average daily net assets of such Service Shares. (Institutions that provide services to holders of Administration or Service Shares are referred to in this Prospectus as "Service Organizations").
It is possible that an institution or its affiliate may offer different classes of shares (i.e., Institutional, Administration and Service Shares) to its customers and thus receive different compensation with respect to different classes of shares of the Fund. Administration Shares and Service Shares may each have certain exclusive voting rights on matters relating to their respective plans. Currently, shares of each class may be exchanged only for shares of the same class in another fund and certain money market funds sponsored by Goldman Sachs. The Fund may amend such policy in the future. 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 and on the same day and will be in the same amount, except for differences caused by the fact that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. Similarly, the net asset value per share will vary depending on the class of shares purchased.
When issued, shares are fully paid and non-assessable. In the event of liquidation, shareholders are entitled to share pro rata in the net assets of the applicable Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of Novemer 30, 1995, James F. Scott, P.O Box 8048, Charlottsville, Virginia 22906 owned beneficially and of record 35% of the Adjustable Rate Government Agency Fund Class A Shares. State Street Bank and Trust, Trustee, Attn: Box 1992, Boston, Massachusetts 02105-1992 owned beneficially and of record 30.64% of the Short-Term Government Agency Fund and 99% of the Global Income Fund Institutional Shares. MGIC, Attn: James McGinnis P.O. Box 297, Milwaukee, Wisconsin 53201 owned beneficially and of record 27.16% of the Short Duration Fund.
Unless otherwise required by the Act, ordinarily it will not be necessary for the Trust to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Trustees or the appointment of independent accountants. Shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees must promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. The Board of Trustees, however, will call a special meeting 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.
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.
Under Massachusetts law, there exists a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains provisions intended to limit such liability and to provide indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected or intends to elect to be treated as a regulated investment company and to qualify for such treatment for each taxable year under Subchapter M of the Code. To qualify as such, a Fund must satisfy certain requirements relating to the sources of its income, diversification of its assets and distribution of its income to shareholders. As a regulated investment company, a Fund will not be subject to federal income or excise tax on any net investment income and net realized capital gains that are distributed to its shareholders in accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of the Code so that it may distribute the tax-exempt interest it receives as "exempt-interest dividends," as defined in the Code. Distributions of the Short Duration Tax-Free Fund that are attributable to interest on tax-exempt obligations and that the Fund designates as exempt-interest dividends will be exempt from regular federal income tax, although all or a portion of such a distribution may be subject to the federal alternative minimum tax and the entire distribution may be includable in the tax base for determining taxability of social security or railroad retirement benefits. Persons who are "substantial users" (or related persons to such substantial users) of facilities financed by industrial development or certain private activity bonds should consult their own tax advisers before purchasing shares of the Short Duration Tax-Free Fund. Interest on indebtedness incurred or continued to purchase or carry shares of the Short Duration Tax-Free Fund is not deductible to the extent attributable to the Short Duration Tax-Free Fund's distributions that are exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net realized foreign exchange gains, the excess of net short-term capital gain over net long-term capital loss and original issue discount or market discount income will be taxable to shareholders as ordinary income. Dividends paid by a Fund from the excess of net long-term capital gain over net short-term capital loss will be taxable as long-term capital gains regardless of how long the shareholders have held their shares. These tax consequences will apply regardless of whether distributions are received in cash or reinvested in shares. A Fund's dividends that are paid to its corporate shareholders from qualifying dividends such Fund receives from U.S. domestic corporations may be eligible, in the hands of such corporate shareholders, for the corporate dividends-received deduction, subject to certain holding period requirements and debt financing limitations under the Code. Certain distributions paid by a Fund in January of a given year may be taxable to shareholders as if received the prior December 31. Shareholders will be informed annually about the amount and character of distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately prior to a distribution. Investors who purchase shares shortly before the record date for a distribution will pay a per share price that includes the value of the anticipated distribution and will be taxed on the distribution (unless it is exempt from tax) even though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31% backup withholding of federal income tax on taxable distributions, redemptions and exchanges if they fail to furnish their correct taxpayer identification number and certain certifications or if they are otherwise subject to backup withholding. Individuals, corporations and other shareholders that are not U.S. persons under the Code are subject to different tax rules and may be subject to non-resident alien withholding at the rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts treated as ordinary dividends from the Funds.
The Core Fixed Income and Global Income Funds may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. If more than 50% of the value of its total assets is
comprised of stock or securities of foreign corporations at the end of its taxable year and the Fund so elects, shareholders will include in their gross incomes (in addition to dividends they receive) their pro rata shares of qualified foreign taxes paid by the Fund and may be entitled to take federal income tax credits or deductions with respect to such taxes. It is not expected that the Core Fixed Income Fund will qualify to make this election. If the Fund cannot or does not so elect, it may deduct taxes in computing its taxable income, if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or foreign taxes on payments received from the Funds. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) a Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations and/or tax-exempt municipal obligations issued by or on behalf of the particular state or a political subdivision thereof, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. For a further discussion of certain tax consequences of investing in shares of the Funds, see "Taxation" in the Additional Statement. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means the vote of the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund.
As used in this Prospectus, 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 (observed), Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
REPORTS TO SHAREHOLDERS
Institutional Shareholders will receive an annual report containing audited financial statements and a semi-annual report. Each Institutional Shareholder will also be provided with a printed confirmation for each transaction in the shareholder's account and an individual monthly statement. A year-to-date statement for any account will be provided upon request made to Goldman Sachs.
SUB-ACCOUNTING SERVICE
The Fund has designed special procedures to assist banks and other institutional investors desiring to establish multiple accounts (master accounts and their sub-accounts). Sub-accounts may be established with registration by name and/or number. Institutions will not normally be charged for this service unless otherwise agreed upon. Upon request, master accounts will be provided with a monthly summary report which sets forth in order by account number (or name) the share balance at month end and the income, if any, together with the total share balance and income, if any, for the master account.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares of the Fund may be purchased through Goldman Sachs at the net asset value per share next determined after receipt of an order without the imposition of a sales load. If, by 3:00 p.m. Chicago time(4:00 p.m. New York time), an order, a check or a Federal Reserve draft is received by Goldman Sachs, the price per share will be the net asset value per share computed on the day the purchase order or such form of payment is received. See "Net Asset Value."
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal Funds to The Northern Trust Company ("Northern") as subcustodian for State Street Bank and Trust Company ("State Street") on the next Business Day or initiating an ACH transfer to ensure receipt by Northern on the next Business Day. Purchases may also be made by check (except that a check drawn on a foreign bank will not be accepted) or Federal Reserve draft payable to "Goldman Sachs Trust -- Name of Fund" and should be directed to Goldman Sachs Trust -- Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606. Payment of the proceeds of redemption of shares purchased by check may be delayed for a period of time as described under "Redemption of Institutional Shares."
In order to make an initial investment in the Fund, an investor must establish an account with the Fund by furnishing necessary information to the Fund or Goldman Sachs. An Account Information Form, a copy of which is attached to this Prospectus, should be used to establish such an account. Subsequent purchases of shares may be made in the manner set forth in the preceding paragraph.
The minimum initial investment is $50,000 in Institutional Shares of the Fund alone or in combination with Institutional Shares of any other mutual fund sponsored by Goldman Sachs and designated as an eligible fund for this purpose and the relevant class of any portfolio of Goldman Sachs Money Market Trust. 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. The Fund reserves the right to redeem the Institutional Shares of any Institutional Shareholder whose account balance is less than $100 as a result of earlier redemptions. Such redemptions will not be implemented if the value of an Institutional Shareholder's account falls below the minimum account balance solely as a result of market conditions. The Trust will give sixty (60) days' prior written notice to Institutional Shareholders whose Institutional Shares are being redeemed to allow them to purchase sufficient additional Institutional Shares of the Fund to avoid such redemption.
OTHER PURCHASE INFORMATION
Institutional Shares of the Global Income Fund will be issued and dividends will begin on such Institutional Shares on the day the Institutional Shares are purchased. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is received by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will be issued and dividends will begin on such shares on the next Business Day, provided that a Federal Funds wire or an ACH transfer is received by Northern on such day.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase check or Federal Reserve draft is received by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will be issued and dividends will begin on such shares on the next Business Day after the check or Federal Reserve draft is received by Goldman Sachs.
Banks, trust companies or other institutions through which investors acquire Institutional Shares may impose charges in connection with transactions in Institutional Shares. Such institutions should be consulted for information regarding such charges.
The Fund and Goldman Sachs each reserves the right to reject any specific purchase order (including exchanges) or to restrict purchases or exchanges by a particular purchaser (or group of related purchasers). The Fund or Goldman Sachs may reject or restrict purchases or exchanges of Institutional Shares by a particular purchaser or group, for example, when a pattern of frequent purchases and sales or exchanges of Institutional Shares of the Fund is evident, or if the purchase and sale or exchange orders are, or a subsequent abrupt redemption might be, of a size that would disrupt management of the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of a Fund may be exchanged for (i) Institutional Shares of any other mutual fund sponsored by Goldman Sachs and designated as an eligible fund for this purpose and (ii) the relevant class of any portfolio of Goldman Sachs Money Market Trust at the net asset value next determined either by writing to Goldman Sachs, Attention: Goldman Sachs Trust -- Name of Fund, c/o GSAM Shareholders Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account Information Form, by telephone at 800- 621-2550 (7:00 a.m. to 3:00 p.m. Chicago time). A shareholder should obtain and read the prospectus relating to any other fund and its shares or units and consider its investment objective, policies and applicable fees before making an exchange. Under the telephone exchange privilege, Institutional Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification numbers only if the exchange request is in writing and is received in accordance with the procedures set forth under "Redemption of Institutional Shares."
In times of drastic economic or market changes the telephone exchange privilege may be difficult to implement. In an effort to prevent unauthorized or fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures as set forth under "Redemption of Institutional Shares" to confirm that such instructions are genuine. For federal income tax purposes, an exchange is treated as a sale of the shares surrendered in the exchange, on which an investor may realize a gain or loss, followed by a purchase of Institutional Shares or the relevant class of any portfolio of Goldman Sachs Money Market Trust received in the exchange. Shareholders should consult their own tax advisers concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a fund must satisfy the minimum investment requirements of the fund into which the Institutional Shares are being exchanged, except that this requirement may be waived at the discretion of the officers of such fund. Exchanges are available only in states where exchanges
may legally be made. The exchange privilege may be modified or withdrawn at any time on sixty (60) days' written notice to Institutional Shareholders and is subject to certain limitations. See "Purchase of Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Fund will redeem its Institutional Shares upon request of an Institutional Shareholder on any Business Day at the net asset value next determined after the receipt by the Transfer Agent of such request in proper form. See "Net Asset Value." If Institutional Shares to be redeemed were recently purchased by check, the Fund may delay transmittal of redemption proceeds until such time as it has assured itself that good funds have been collected for the purchase of such Institutional Shares. This may take up to fifteen (15) days. Redemption requests may be made by writing to or calling the Transfer Agent at the address or telephone number set forth on the inside front cover page of this Prospectus. An Institutional Shareholder may request redemptions by telephone if the optional telephone redemption privilege is elected on the Account Information Form accompanying this Prospectus. It may be difficult to implement redemptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange requests by telephone, Goldman Sachs employs reasonable procedures specified by the Trust to confirm that such instructions are genuine. Among other things, any redemption request that requires money to go to an account or address other than that designated on the Account Information Form must be in writing and signed by an authorized person designated on the Account Information Form. Any such written request is also confirmed by telephone with both the requesting party and the designated bank account to verify instructions. Exchanges among accounts with different names, addresses and social security or other taxpayer identification numbers must be in writing and signed by an authorized person designated on the Account Information Form. Other procedures may be implemented from time to time. If reasonable procedures are not implemented, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. In all other cases, neither the Fund, the Trust nor Goldman Sachs will be responsible for the authenticity of redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each Institutional Shareholder whose signature has been guaranteed by a bank, a securities broker or dealer, a credit union having authority to issue signature guarantees, a savings and loan association, a building and loan association, a cooperative bank, a federal savings bank or association, a national securities exchange, a registered securities association or a clearing agency, provided that such institution satisfies the standards established by the Transfer Agent. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the Institutional Shares to be redeemed earn dividends declared on the day the request is received.
The Fund will arrange for the proceeds of redemptions effected by any means to be wired as Federal Funds to the bank account designated in the Institutional Shareholder's Account Information Form. Redemption proceeds will normally be wired on the next Business Day in Federal Funds (for a total one-day delay), but may be paid up to seven (7) days after receipt of a properly executed redemption request. Wiring of redemption proceeds may be delaying one additional Business Day if the Federal Reserve Bank is closed on the day redemption proceeds would ordinarily be wired. In order to change the bank designated on the Account Information Form to receive redemption proceeds, a written request must be received by the Transfer Agent. This request must be signature guaranteed as set forth above. Further documentation may be required for executors, trustees or corporations. Once wire transfer instructions have been given by Goldman Sachs, neither the Fund, the Trust nor Goldman Sachs assumes any further responsibility for the performance of intermediaries or the Institutional Shareholder's bank in the transfer process. If a problem with such performance arises, the Institutional Shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required to effect a redemption when deemed appropriate by Goldman Sachs. The request for such redemption will not be considered to have been
received in proper form until such additional documentation has been received.
Except with respect to Institutional Shareholders whose account balances are less than $100, Institutional Shares are not redeemable at the option of the Fund unless the Board of Trustees of the Trust determines in its sole discretion that failure to so redeem may have material adverse consequences to the shareholders of the Fund. The Fund, however, assumes no responsibility to compel redemptions.
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer Identification Number (TIN), regardless of whether you file tax returns. Failure to do so may subject you to penalties. Failure to provide your correct TIN and to sign your name in the Certification section of the Account Information Form could result in withholding of 31% by the Fund for the Federal backup withholding tax on distributions, redemptions, exchanges and other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income tax return.
If you do not have a TIN, you should apply for one immediately by contacting your local office of the Social Security Administration or the Internal Revenue Service (IRS). Backup withholding could apply to payments relating to your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account established under a Uniform Gifts or Transfers to Minors Act, the TIN of the minor should be furnished.
If you have been notified by the IRS that you are subject to backup withholding because you failed to report your interest and/or dividend income on your tax return and you have not been notified by the IRS that such withholding should cease, you must cross out item (2) in the Certification section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify
your exemption by signing the Certification section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, you must provide a completed Form W-8 to the Fund in order to avoid withholding on certain payments. Other payments to you may be subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding, see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your tax adviser.
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
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.) . . . . . . . . 800-526-7384
GOLDMAN SACHS TRUST
INSTITUTIONAL SHARES
___________________________________________
PROSPECTUS
51
|
Prospectus ______, 1995 |
TABLE OF CONTENTS
Page
----
Fund Highlights..................... 3
Fees and Expenses................... 7
Financial Highlights................ 10
Investment Objectives and Policies.. 14
Special Investment Methods and
Risk Factors........................ 19
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 32
Reports to Shareholders............. 36
How to Invest....................... 36
Distribution and Authorized Dealer
Service Plan........................ 43
How to Sell Shares of the Funds..... 43
Dividends........................... 45
Net Asset Value..................... 46
Performance Information............. 46
Shares of the Company............... 47
Taxation............................ 47
Additional Information.............. 49
Appendix A-1
Account Application
|
Goldman Sachs Trust Administration Shares
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
Seeks a high level of current income, consistent with low volatility of principal primarily through investment in adjustable rate mortgage pass- through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
GS SHORT-TERM GOVERNMENT AGENCY FUND
Seeks a high level of current income and secondarily, in seeking current income, may also consider the potential for capital gain through investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements relating thereto and will maintain an option-adjusted duration of not more than 3 years.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax primarily through investments in fixed income municipal securities with remaining effective maturities of five years or less.
GS CORE FIXED INCOME FUND
Seeks total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index primarily through investments in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities and asset-backed securities.
(continued on next page)
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued)
THE CORE FIXED INCOME FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE CORE FIXED INCOME FUND, ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN PARTICULAR, THE SECURITIES MARKETS OF FOREIGN COUNTRIES IN WHICH THE CORE FIXED INCOME FUND WILL INVEST MAY BE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF THE UNITED STATES. THIS FUND IS INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the GS Short Duration Tax-Free and GS Core Fixed Income Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as investment adviser to the GS Short-Term Government Agency and Adjustable Rate Government Agency Funds. GSAM and GSFM are referred to in this Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus, which sets forth concisely the information about Goldman Sachs Trust (the "Trust") and the Funds that a prospective investor ought to know before investing, should be retained for future reference. A Statement of Additional Information (the "Additional Statement"), dated ________ 1995, containing further information about the Trust and the Funds which may be of interest to investors, has been filed with the Securities and Exchange Commission, is incorporated herein by reference in its entirety, and may be obtained without charge from Goldman Sachs by calling the telephone number, or writing to one of the addresses, listed on the back cover of this Prospectus.
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that offers its shares in several series or funds. Each Fund pools the resources of investors by selling its shares to the public and investing the proceeds in a portfolio of securities designed to achieve that Fund's stated investment objective. Each Fund is a diversified fund as defined in the Investment Company Act of 1940 (the "Act").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no assurance that a Fund's objective will be achieved. For a complete description of each Fund's investment objective and policies, see "Investment Objectives and Policies" and "Special Investment Methods and Risk Factors."
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND-The investment objective of the Fund is to provide investors with a high level of current income consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund may also invest in other mortgage-backed securities and other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund seeks to minimize fluctuation in the value of its portfolio securities and therefore its net asset value. It believes that it can achieve this objective by investing primarily in guaranteed adjustable rate mortgage-backed securities, maintaining a maximum duration equal to that of a two-year U.S. Treasury security and a target duration in a range approximately equal to that of a 6-month to one-year U.S. Treasury security (computed using the method described herein) and utilizing certain active management techniques to hedge interest rate risks and to enhance its return.
GS SHORT-TERM GOVERNMENT AGENCY FUND - The Fund's objective is to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government Securities") deemed to have remaining maturities or (in the case of mortgage- related securities) estimated average lives of 6 years or less, and (b) repurchase agreements pertaining thereto. The Fund will invest under normal market conditions, at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government Securities. The U.S. Government securities in which the Fund may invest include mortgage-related securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund will maintain an option-adjusted duration of not more than 3 years; however, its actual option-adjusted duration is expected to be approximately two years under normal interest rate conditions. The Fund may employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value.
GS SHORT DURATION TAX-FREE FUND - The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal
income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not an item of tax preference under the federal alternative minimum tax. In addition, Tax-Free Securities include certain participation interests and other securities described under "Municipal Securities in which the Short Duration Tax-Free Fund will Invest" the interest on which is exempt from such taxes. The Fund's investments in Municipal Securities at the time of investment will be rated at least A by Standard & Poor's or Moody's or their equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. The Fund, although it is not expected to do so, may also invest up to 20% of its net assets in taxable investments which are obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investment"). The Fund will maintain an average portfolio duration, of two to three years. The Individual Municipal Securities in which the Fund invests will have remaining effective maturities of five years or less. The effective maturity of a Municipal Security, unlike its stated maturity, is the period remaining until the principal can be recovered through a mandatory redemption provision or the exercise of a put or demand feature by the holder of the Municipal Securities or the period until the next scheduled auction date for an auction rate Municipal Security. Since the Fund uses duration as a criteria, there are no maximum limitations as to average weighted portfolio maturity or permissible stated maturity with respect to individual securities.
GS CORE FIXED INCOME FUND - The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, primarily in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage-backed securities, and asset-backed securities. The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent rating, by any one of Standard & Poor's, Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund will maintain, under normal market conditions, a portfolio duration within a range equal to the duration of the Index plus or minus one year. The fixed income securities in which the Fund may invest include obligations of foreign issuers and obligations denominated in U.S. dollars or foreign currencies. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund's investments in fixed income securities may also include Short-Term Investments (as defined below), convertible securities, custody receipts and municipal securities. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the extent applicable to the Core Fixed Income Fund, foreign exchange conditions, so that an investment in any of the Funds may be worth more or less when redeemed than when purchased. None of the Funds should be relied upon as a complete investment program. There can be no assurance that a Fund's investment objective will be achieved.
There are certain risks associated with the investment policies of each of the Funds. The securities in a Fund's portfolio will tend to decrease in value when interest rates rise and increase in value when interest rates fall.
Because each Fund's investments are interest rate sensitive, the Fund's performance will depend in large part upon the ability of the Fund to respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital. A Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") entail certain risks. These risks include the failure of an issuer or guarantor to meet its obligations, adverse interest rate changes, adverse economic, real estate or unemployment trends, failures in connection with processing of transactions and the effects of prepayments on mortgage cash flows. Under certain interest rate and prepayment scenarios, a Fund may fail to recoup fully its investment in some of the Mortgage-Backed Securities it holds notwithstanding a direct or indirect governmental or agency guarantee. The Short Duration Tax-Free Fund's investments in Municipal Securities entail certain risks, including adverse income and principal value fluctuation associated with general economic conditions affecting the Municipal Securities markets, the issuers and guarantors of Municipal Securities and the facilities financed by Municipal Securities as well as adverse interest rate changes and volatility of yields of short and intermediate term Municipal Securities. See "Risk Factors." In addition, the Fund's yield will be subject to risks associated with particular issues in which it invests, including potential defaults by issuers and guarantors and the size and rating of an issue. If the Fund invests in private activity bonds, distributions attributable to the interest on such securities may be a tax preference item subject to the federal alternative minimum tax. A reduction in federal income tax rates would reduce the tax equivalent yield of the Fund and would tend to reduce the value of Municipal Securities held in the Fund's portfolio. Conversely, an increase in federal income tax rates would increase the taxable equivalent yield of the Fund. In addition, changes in federal law adversely affecting the tax-exempt status of income derived from Municipal Securities could significantly affect both the supply and demand for Municipal Securities, which in turn could affect the Fund's ability to acquire and dispose of Municipal Securities at favorable prices. In addition, a Fund's use of certain investment techniques, including derivatives, forward contracts and options and futures transactions, will subject a Fund to greater risk than funds that do not employ such techniques. To the extent the Core Fixed Income Fund invests in securities of non-U.S. issuers and foreign currencies, the Fund may face risks that are different from those associated with investment in domestic securities. The risks of foreign investments and currencies include changes in relative currency exchange rates, political and economic developments and the imposition of exchange controls or other governmental confiscation or restrictions. Generally, there is less availability of data on foreign companies and securities markets as well as less regulation of foreign stock exchanges, brokers and issuers.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, a separate operating division of Goldman Sachs, serves as the Investment Adviser to the Short Duration Tax-Free and Core Fixed Income Funds. Goldman Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as investment adviser to the Short-Term Government Agency Fund and Adjustable Rate Government Agency Fund. As of ________ 1995, the Investment Advisers, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $___ billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's Administration Shares.
WHAT IS THE MINIMUM INVESTMENT?
The Fund does 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.
HOW DO I PURCHASE ADMINISTRATION SHARES?
It is expected that all purchasers of Administration Shares of the Fund will be Service Organizations or their nominees. Customers of Service Organizations may invest in Service Shares only through their Service Organizations. Administration Shares of the Fund may be purchased by Service Organizations through Goldman Sachs at the current net asset value per share without the imposition of a sales load.
HOW DO I SELL MY SHARES?
You may redeem Administration Shares upon request on any Business Day, as defined under "Additional Information," at the net asset value next determined after receipt of such request in proper form. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund intends to declare a daily dividend determined with the objective of distributing the majority of net investment income. Such dividends will accrue daily with respect to outstanding shares, commencing on the Business Day after the receipt of payment of such shares, and will be paid monthly. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of each Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. Each Fund also intends that substantially all net realized long-term and short-term capital gains will be declared as a dividend and paid at least annually.
Recordholders of Administration Shares will receive dividends in additional shares of the same class of Fund in which you have invested or may elect to receive cash. For further information concerning dividends, see "Dividends."
FEES AND EXPENSES
(ADMINISTRATION SHARES)
Adjustable
Short-Term Rate
Government Government Short-Duration Core Fixed
Agency Fund Agency Fund Tax-Free Fund Income Fund
----------- ----------- -------------- -----------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases.................................. none none none none
Maximum Sales Charge Imposed on
Reinvested Dividends.......................... none none none none
Redemption Fees................................. none none none none
Exchange Fees................................... none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees............................... 0.40% 0.40% 0.40% 0.40%
Administration Fees/5/.......................... 0.25% 0.25% 0.25% 0.25%
Other Expenses (after applicable
limitations).................................. 0.05% 0.05% 0.05% 0.05%
----------- ------------ ----------- -------------
TOTAL FUND OPERATING EXPENSES
(AFTER FEE AND EXPENSE
LIMITATION)................................... 0.45% 0.45%/2/ 0.45%/3/ 0.45%/4/
=========== ============== =========== ========
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EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
FUND 1 Year 3 Years 5 Years 10 Years - ---- ------ ------- ------- -------- Short-Term Government Agency Fund....... $7 $22 $39 $87 Adjustable Rate Government Agency Fund.. $7 $22 $39 $87 Short Duration Tax-Free Fund............ $7 $22 $39 $87 Core Fixed Income Fund.................. $7 $22 $39 $87 - --------------------- |
1. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on an annual basis) would not be imposed on Short-Term Government Agency Fund. The Investment Adviser also has voluntarily agreed to reduce or limit certain "Other Expenses" of the Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. Investment Adviser has no current intention of modifying or discontinuing such fee and expense limitation but may do so in the future at its discretion. Without such fee and expense limitations, Management Fees, Other Expenses and Total Operating Expenses attributable to Administration Shares would be 0.50%, 0.__% and ___%, respectively.
2. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Adjustable Rate Government Agency Fund (excluding advisory fees, fees under distribution, administration, service and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The
Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Administration Shares would be 0.__% and __%, respectively.
3. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Short Duration Tax-Free Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitations but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Administration Shares would be 0.__% and __%, respectively.
4. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Core Fixed Income Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Administration Shares would be 0.__% and __%, respectively.
5. Service Organizations (other than broker-dealers) may charge other fees to their customers who are beneficial owners of Administration Shares in connection with their customer accounts. See "Administration Plans."
The information set forth in the foregoing table and hypothetical example relates only to Administration Shares of the Funds. Short-Term Government Agency Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer Institutional and Service Shares; Adjustable Rate Government Agency Fund also offers Institutional Shares, Service Shares and Class A Shares; and Global Income Fund also offers Institutional Shares, Class A Shares and Class B Shares. The other classes of the Funds are subject to different fees and expenses (which affects performance), have different minimum investment requirements and are entitled to different services. Information regarding any other class of the Funds may be obtained from your sales representative or from Goldman Sachs by calling the number of the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the various costs and expenses of a Fund that an investor will bear directly or indirectly. The information on cost and expenses included in the table and the hypothetical example above are based on estimated fees and expenses for the current fiscal year and should not be considered as representative of past or future expenses. Actual fees and expenses may be greater or less than those indicated. Moreover, while the example assumes a 5% annual return, a Fund's actual performance will vary and may result in an actual return greater or less than 5%. See "Management-Investment Advisers.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the Funds outstanding during the period(s) indicated has been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report incorporated by reference into the Additional Statement from the Annual Report to shareholders for the Funds for the year ended October 31, 1995 (the "Annual Report"). This information should be read in conjunction with the financial statements and related notes incorporated by reference and attached to the Additional Statement. The Annual Report also contains performance information and is available upon request and without charge by calling the telephone number or writing to one of the addresses on the back cover of this Prospectus.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
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The accompanying notes are an integral part of these financial statements.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS SHORT-TERM GOVERNMENT AGENCY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.64 $0.6652/(c)/ $ 0.1666/(c)/ $ -- $0.8318/(c)/ $(0.6518) $-- $--
1995-Administration
Shares........... 9.64 0.2384/(c)/ (0.0433)/(c)/ -- 0.1951/(c)/ (0.2051) -- --
1994-Institutional
Shares........... 10.14 0.5628/(c)/ (0.4592)/(c)/ -- 0.1036/(c)/ (0.5598) (0.0438) --
1994-Administration
Shares........... 10.14 0.5329/(c)/ (0.4539)/(c)/ -- 0.0790/(c)/ (0.5352) (0.0438) --
1993-Institutional
Shares........... 10.16 0.5627 (0.0135)/(a)/ -- 0.5492 (0.5627) -- (0.0065)
1993-Administration
Shares/(f)/...... 10.23 0.2725 (0.0900)/(a)/ -- 0.1825 (0.2725) -- --
1992-Institutional
Shares........... 10.22 0.6703 (0.0600)/(a)/ -- 0.6103 (0.6703) -- --
1991-Institutional
Shares........... 10.00 0.8020 0.2200/(a)/ -- 1.0220 (0.8020) -- --
1990-Institutional
Shares........... 10.07 0.8300 (0.0700)/(a)/ -- 0.7600 (0.8300) -- --
1989-Institutional
Shares........... 10.10 0.8800 -- -- 0.8800 (0.8800) -- --
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 10.00 0.1800 0.1000/(a)/ -- 0.2800 (0.1800) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $-- $(0.6518) $ 0.1800 $ 9.82 8.97% 0.45% 6.87%
1995-Administration
Shares........... -- -- (0.2051) (0.0100) 9.63/(h)/ 2.10 0.70/(e)/ 7.91/(e)/
1994-Institutional
Shares........... -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-Administration
Shares........... -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-Institutional
Shares........... -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-Administration
Shares/(f)/...... -- -- (0.2725) (0.0900) 10.14 1.74 0.70/(e)/ 4.84/(e)/
1992-Institutional
Shares........... -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-Institutional
Shares........... -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-Institutional
Shares........... -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-Institutional
Shares........... -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... -- -- (0.1800) 0.1000 10.10 3.30 0.55/(e)/ 8.55/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 292.56% $103,760 0.72% 6.60%
1995-Administration
Shares........... 292.56 -- 0.90/(e)/ 7.71/(e)/
1994-Institutional
Shares........... 289.79 193,095 0.59 5.55
1994-Administration
Shares........... 289.79 730 0.84 5.24
1993-Institutional
Shares........... 411.66 359,708 0.64 5.31
1993-Administration
Shares/(f)/...... 411.66 16,490 0.80/(e)/ 4.74/(e)/
1992-Institutional
Shares........... 216.07 277,927 0.69 6.36
1991-Institutional
Shares........... 155.44 158,848 0.79 7.91
1990-Institutional
Shares........... 173.21 68,995 0.95 8.12
1989-Institutional
Shares........... 137.37 31,015 1.39 7.78
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 167.00(e) 39,052 1.42/(e)/ 7.68/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.79 $0.4235/(c)/ $0.1500/(c)/ $ -- $0.5735/(c)/ $(0.4235) $-- $ --
1995-Administration
Shares........... 9.79 0.3989/(c)/ 0.1500/(c)/ -- 0.5489/(c)/ (0.3989) -- --
1995-Service Shares.. 9.79 0.3744/(c)/ 0.1600/(c)/ -- 0.5344/(c)/ (0.3744) -- --
1994-Institutional
Shares........... 10.23 0.3787/(c)/ (0.3575)/(c)/ -- 0.0212/(c)/ (0.3787) (0.0825) --
1994-Administration
Shares........... 10.23 0.3537/(c)/ (0.3575)/(c)/ -- (0.0038)/(c)/ (0.3537) (0.0825) --
1994-Service
Shares/(i)/...... 9.86 0.0475/(c)/ (0.0700)/(c)/ -- (0.0225)/(c)/ (0.0475) -- --
1993-Institutional
Shares........... 9.93 0.3834 0.3000/(a)/ -- 0.6834 (0.3834) -- --
1993-Administration
Shares/(i)/...... 10.16 0.1555 0.0720/(a)/ -- 0.2275 (0.1555) -- --
For the Period October 1, 1992/(g)/through October 31,
- ------------------------------------------------------
1992-Institutional
Shares........... 10.00 0.0341 (0.0700)/(a)/ -- (0.0359) (0.0341) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.4235) $ 0.1500 $ 9.94 5.98% 0.45% 4.31%
1995-Administration
Shares........... -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service Shares.. -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-Institutional
Shares........... -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-Administration
Shares........... -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares/(i)/...... -- -- (0.0475) (0.0700) 9.79 (0.32)/(k)/ 0.95/(e)/ 4.30/(e)/
1993-Institutional
Shares........... -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-Administration
Shares/(i)/...... -- -- (0.1555) 0.0720 10.23 2.28/(k)/ 0.70/(e)/ 3.32/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... -- -- (0.0341) (0.0700) 9.93 (0.34)/(k)/ 0.05/(e)/ 4.58/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 259.52% $ 58,389 0.77% 3.99%
1995-Administration
Shares........... 259.52 46 1.02 3.82
1995-Service Shares.. 259.52 454 1.27 3.55
1994-Institutional
Shares........... 354.00 83,704 0.61 3.58
1994-Administration
Shares........... 354.00 3,866 0.86 3.35
1994-Service
Shares/(i)/...... 354.00 44 1.11/(e)/ 4.14/(e)/
1993-Institutional
Shares........... 404.60 115,803 1.06 3.05
1993-Administration
Shares/(i)/...... 404.60 911 1.07/(e)/ 2.95/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... 31.19/(k)/ 14,601 2.68/(e)/ 1.95/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Core Fixed Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ 9.24 $0.6423 $ 0.7610 $ -- $ 1.4033 $(0.6433) $ -- $ --
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6433) $ 0.7600 $10.00 15.72% 0.45% 6.56%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45/(e)/ 6.48/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... 383.26% $55,502 0.96% 6.05%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 288.25 24,508 1.46/(e)/ 5.47/(e)/
|
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are described below. Certain other investment practices and management techniques, which involve certain risks, as well as the minimum rating criteria with respect to a Fund's investments in fixed income securities, are described under "Special Investment Methods and Risk Factors." There can be no assurance that the Fund will be successful in achieving its investment objective.
A security will be deemed to have met its rating requirement if it receives the minimum required rating from at least one rating organizations even though it has been rated below the minimum rating by one or more other rating organizations. If a fixed income security that at the time of purchase satisfies the Fund's minimum rating criteria is subsequently downgraded below such rating criteria, the Fund will not be required to dispose of such security. If a downgrading occurs, the Investment Adviser will consider what action, including the sale of such security, is in the best interest of a Fund. In most instances, a Fund expects to dispose of a downgraded security within a reasonable time after such downgrading.
Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to prevent value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration. A fund which is subject to a duration requirement will not be limited as to the Fund's maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities, unless otherwise noted.
Except as otherwise stated the Fund's investment objective and policies are not fundamental and may be changed without a vote of the shareholders. If there is a change in the Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
SHORT-TERM GOVERNMENT AGENCY FUND
The Fund seeks to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. There can be no assurance that the objective of the Fund will be realized. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government securities") deemed to have remaining maturities or (in the case of mortgage-related securities) estimated average lives of six years or less and (b) repurchase agreements collateralized by U.S. Government Securities. Under normal market conditions, the Fund will invest at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund will maintain an option-adjusted duration of not more than 3 years; however, it actual option-adjusted duration is expected to be approximately 2 years under normal interest rate conditions. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, mortgage and interest rate swaps and interest rate floors, caps and collars.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value. These techniques include, but are not limited to, mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls, forward commitments and repurchase agreements.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because the Fund will maintain a maximum option-adjusted duration of not more than 3 years and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
The Adjustable Rate Government Agency Fund seeks to provide investors with a high level of current income, consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The primary issuers or guarantors of such securities currently include the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), although the Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. The Fund may invest up to 35% of its total assets in other mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") and other obligations issued and guaranteed by the U.S. Government, its agencies or instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to minimize fluctuation in its net asset value and to enhance its return. These techniques include, but are not limited to, the use of futures contracts (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls and repurchase agreements.
The Fund will maintain a maximum duration approximately equal to that of a two-year U.S. Treasury security. Under normal interest rate conditions, the Fund's actual duration is expected to be in a range approximately equal to that of a 6-month to one-year U.S. Treasury security. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because interest rates on adjustable rate mortgage loans are reset periodically and therefore yields of portfolio securities representing interests in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such securities to fluctuate less dramatically in response to interest rate fluctuations than would fixed rate debt securities. This is because the Fund's portfolio will consist primarily of guaranteed adjustable rate Mortgage-Backed Securities and because the Fund will maintain a maximum option-adjusted duration approximately equal to that of a two-year U.S. Treasury security and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
SHORT DURATION TAX-FREE FUND
The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not a tax preference item under the federal alternative minimum tax. Tax-Free Securities are also defined to include certain participation interests in such securities the interest on which is, in the opinion of counsel, exempt from such taxes. In addition, the definition of Tax-Free Securities includes general obligation and revenue bonds and other obligations described under "Municipal Securities in which the Short Duration Tax-Free Fund Will Invest."
Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. Although the Fund is not expected to do so, the Fund may invest as must as 20% of its net assets in taxable investments, which are defined as obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). Except as set forth below, at no time will the Fund's investments in private activity bonds and Taxable Investments exceed, in the aggregate, 20% of the Fund's net assets. The Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in Taxable Investments. The Fund's investments in Municipal Securities and Taxable Investments may also generate taxable capital gains. See "Taxation." The Fund's investments in Municipal Securities will at the time of investment be rated at least A by Standard & Poor's or Moody's or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization even if it has been rated below the minimum rating by one or more other rating organizations. The credit rating assigned to Municipal Securities by these rating organizations or by the Investment Adviser 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 Fund will maintain an average portfolio duration in a range of two to three years. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, interest rate swaps and interest rate floors, caps and collars. The individual Municipal Securities in which the Fund invests will have effective maturities of five years or less. The effective maturity of a Municipal Securities is defined as the period remaining until the earliest date when the Fund can recover the principal amount of such security through mandatory redemption or prepayment by the issuer, the exercise by the Fund of a put option, demand feature or tender option granted by the issuer or a third party or the payment of the principal on the stated maturity date. The effective maturity of an auction rate Municipal Security is defined as the period remaining until the next scheduled auction date. Thus, the effective maturity of a Municipal Security may be substantially shorter than its final stated maturity.
CORE FIXED INCOME FUND
The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities, and asset-backed securities. A number of investment strategies will be used to achieve the Fund's investment objective, including market sector selection, determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage pricing inefficiencies in the fixed income markets. Market sector selection is the underweighting or overweighting of one or more of the five market sectors (i.e., U.S. treasuries, U.S. government agencies, corporate securities, mortgage-backed securities and asset-backed securities) in which the Fund primarily invests. The decision to overweight or underweight a given market sector is based on expectations of future yield spreads between different sectors. Yield curve exposure strategy consists of overweighting or underweighting different maturity sectors to take advantage of the shape of the yield curve. Issuer selection is the purchase and sale of corporate securities based on a corporation's current and expected credit standing. To take advantage of price discrepancies between securities resulting from supply and demand imbalances or other technical factors, the Fund may simultaneously purchase and sell comparable, but not identical, securities. The Investment Adviser will have access to the research of, and proprietary technical models developed by, Goldman Sachs and will apply quantitative and qualitative analysis in determining the appropriate allocations among the categories of issuers and types of securities.
The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent ratings, by any one of S&P's or Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will maintain a dollar weighted average portfolio duration within a range equal to the duration of the Index plus or minus one year. The Investment Adviser may, however, decrease the Fund's average duration without limit if the Investment Adviser believes that a shorter duration is warranted by its outlook for interest rates or market conditions.
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 or in their equivalent ratings category by Standard & Poor's, Moody's or Fitch. 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 weighing 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. The Lehman Brothers Aggregate Bond 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.
The Fund may invest up to 25% of its net assets in obligations of domestic and foreign issuers which are denominated in currencies other than the U.S. dollar. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. It is expected that the Fund will employ certain interest rate management techniques. These techniques will be used both to hedge the interest rate risks associated with the Fund's portfolio securities and to seek to increase total return. Such techniques include options, futures contracts, options on futures contracts, interest rate and mortgage swaps, interest rate caps, floors and collars, forward commitments, lending portfolio securities, repurchase agreements and mortgage dollar rolls.
SPECIAL INVESTMENTS AND RISK FACTORS FOR THE
CORE FIXED INCOME FUND
FOREIGN TRANSACTIONS
Foreign Securities. The Core Fixed Income Fund's investments in securities of foreign issuers and Non-Dollar Securities may offer potential benefits that are not available from investments exclusively in securities of domestic issuers. Foreign issuers may offer better investment opportunities than domestic securities Foreign countries may have economic policies or business cycles different from those of the United States and securities markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not typically associated with investing in securities of domestic issuers. Such investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency blockage). A decline in the exchange rate would reduce the value of certain portfolio securities. In addition, if the exchange rate for the currency in which the Fund receives interest payments declines against the U.S. dollar before such interest is paid as dividends to shareholders, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have on occasion been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.
An issuer of fixed income securities purchased by the Core Fixed Income Fund may be domiciled in a country other than the country in whose currency the instrument is denominated. The Fund may also invest in debt securities denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts in the currencies of certain of the twelve member states of the European Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Community from time to time to reflect changes in relative values of the underlying currencies. In addition, the Fund may invest in securities denominated in other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers. There may be less publicly available information about a foreign issuer than about a domestic issuer. In addition, there is generally less government regulation of foreign markets and broker-dealers than in the United States. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding taxes on dividend or interest payments, limitations on the removal of funds or other assets of the Funds, political or social instability or diplomatic developments which could affect investments in those countries.
Foreign Currency Transactions. The Core Fixed Income Fund may, to the extent it invests in foreign securities, purchase or sell forward foreign currency exchange contracts for hedging purposes, enter into forward foreign currency exchange contracts to seek to protect against anticipated changes in future foreign currency exchange rates. The Fund's custodian will place cash or liquid, high grade debt securities into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies. The segregated account will be marked to market on a daily basis. Thus, if the value of securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. The Fund will incur costs in connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, the Fund's net asset value to fluctuate as well. 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. 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.
The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments authorized for use by the Fund, offers less protection against defaults by the other party to such instruments than is available for currency instruments traded 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 the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price. A Fund will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the Investment Adviser.
Options on Foreign Currencies. The Core Fixed Income Fund may, to the extent its invests in foreign securities, purchase and sell (write) 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 anticipated dividends on such 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. A 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 the Fund's position, a Fund may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies to be written or purchased by the Funds will be traded on U.S. and foreign exchanges or over-the-counter.
SPECIAL RISK FACTORS FOR THE SHORT DURATION TAX-FREE FUND
Yields and Market Values of Municipal Securities. The yields and market values of Municipal Securities are determined primarily by the general level of interest rates, the supply of and demand for Municipal Securities, the creditworthiness of the issuers of Municipal Securities and economic and political conditions affecting such issuers. Due to their tax-exempt status, the yields and market values of Municipal Securities may be adversely affected by certain factors, such as changes in tax rates and policies, which may have less of an effect on the taxable fixed income markets. Moreover, certain types of Municipal Securities, such as housing revenue bonds, which are based on mortgage revenues, involve prepayment risks which could affect the yields of such Municipal Securities.
Certain types of instruments in which the Short Duration Tax-Free Fund invests, such as zero-coupon, deferred interest and capital appreciation bonds, are more susceptible than short or intermediate term securities to fluctuations as a result of movements in interest rates. As a result, a sudden and extreme rise in interest rates could result in a substantial decline in the value of such portfolio securities. The ability of the Fund to achieve the capital preservation aspect of its investment objective therefore depends in part on the extent to which the Fund is able to anticipate and respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital.
Default Risk. Investments in Municipal Securities, including general obligations and revenue obligations, are subject to the risk that the issuer could default on its obligations, and the Short Duration Tax-Free Fund could
sustain losses on such investments. Such a default could result from the inadequacy of the sources or revenues from which interest and principal payments are to be made or the assets collateralizing such obligations. Revenue obligations, including private activity bonds, municipal leases, certificates of participation and certain other types of instruments in which the Fund may invest, are backed only by specific assets or revenue sources and not by the full faith and credit of the governmental issuer.
Tax Consequences. While the Short Duration Tax-Free Fund, under normal market conditions, invests substantially all of its assets in Municipal Securities, the recognition of accrued market discount income (if the Short Duration Tax-Free Fund acquires Municipal Securities or other obligations at a market discount) and income and/or capital gains from certain types of instruments in which the Fund is permitted to invest, including U.S. Government securities, interest rate swaps, floors, caps and collars, futures contracts and related options, securities loans, the disposition of when-issued securities or forward commitments prior to settlement and repurchase agreements, will result in taxable income, distributions of which will be taxable to shareholders. In addition, the Short Duration Tax-Free Fund's investments in private activity bonds subject to the federal alternative minimum tax could result in income the distribution of which could cause or increase alternative minimum tax liability for some shareholders. The Short Duration Tax-Free Fund may also generate capital gains from the disposition of its investments and its distributions of such capital gains will be taxable to shareholders. Shareholders may be subject to state, local or foreign taxes on certain income received from the Fund. See "Taxation."
Because interest income from Municipal Securities is not subject to regular federal income taxation, the attractiveness of Municipal Securities in relation to other investment alternatives is affected by changes in federal income tax rates applicable to, or the continuing federal income tax-exempt status of, such interest income. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect both the supply of and demand for Municipal Securities, which could in turn affect the Fund's ability to acquire and dispose of Municipal Securities at desirable yield and price levels.
Call Risk and Reinvestment Risk. The Municipal Securities in which the Short Duration Tax-Free Fund invests 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 the Fund's portfolio are called prior to maturity, the 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 Fund's return on its portfolio securities. There is a risk that the proceeds of housing revenue bonds will be in excess of demand for mortgages, which would result in early retirement of the bonds by the issuer. Moreover, such housing revenue bonds depend for their repayment upon the cash flow from the underlying mortgages, which cannot be precisely predicted when the bonds are issued. Any difference in the actual cash flow from such mortgages from the assumed cash flow could have an adverse impact upon the ability of an issuer to make scheduled payments of principal and interest on the bonds or could result in early retirement of the bonds.
OTHER INVESTMENTS
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities. These securities in general include a variety of U.S. Treasury obligations, consisting of bills, notes and bonds, which principally differ only in their interest rates, maturities and times of issuance, and obligations issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored enterprises which are supported by (a) the full faith and credit of the U.S. Treasury (such as Ginnie Mae Certificates), (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 (such as the Fannie Mae Certificates described below), or (d) only the credit of the issuer. No assurance can be given that the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises in the future.
Government securities include (to the extent consistent with the Act) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government, its agencies or instrumentalities. 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 substantial secondary market, such participations are regarded as illiquid.
Although it does not expect to do so, the Short Duration Tax-Free Fund may invest up to 20% of its net assets in U.S. Government Securities and repurchase agreements collateralized by U.S. Government Securities. In addition, when the Investment Adviser deem appropriate, the Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in such taxable investments, which will generate taxable income.
MORTGAGE-BACKED SECURITIES
Characteristics of Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in mortgage-backed securities, which represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Each mortgage pool underlying Mortgage-Backed Securities will consist 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 (consisting of, among other things, detached residences, townhouses, individual condominium units, duplexes, triplexes, fourplexes, and units in planned unit developments), multifamily (i.e., five or more units) residential properties, agricultural properties, commercial properties and mixed use properties. Mortgage-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, prepayments of loans underlying mortgage- backed securities can be expected to accelerate, and thus impair the Funds' ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many mortgage-backed securities. This possibility is often referred to as extension risk. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other mortgage-backed securities.
Mortgage Pass-Through Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in mortgage pass-through securities ("Mortgage Pass-Throughs"), which are fixed or adjustable rate Mortgage-Backed Securities that 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.
Stripped Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in SMBS issued or guaranteed by the U.S. Government, its agencies or instrumentalities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage loans. If the underlying mortgage loans experience different than anticipated prepayments of principal, the Funds may fail to fully recoup their initial investment in these
securities. Although the market for such securities is increasingly liquid, certain SMBS may not be readily marketable and will be considered illiquid for purposes of a 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 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. The Investment Adviser will seek to manage prepayment risk, liquidity concerns relating to privately issued SMBS and certain other risks (and potential benefits) by investing in a variety of such securities and by using certain hedging techniques.
Inverse Floating Rate Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in inverse floating rate Mortgage-Backed Securities, including "leveraged inverse floaters." Typically, an inverse floater is one of two components created from a pool of fixed rate mortgages. The other component is a floating rate Mortgage-Backed Security in which the rate of interest payable varies directly with a market interest rate index. The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.
Privately Issued Mortgage-Backed Securities. The Core Fixed Income Fund may invest in Mortgage-Backed Securities issued by trusts or other entities formed or sponsored by private originators of and institutional investors in mortgage loans and other non-governmental entities (or representing custodial arrangements administered by such institutions). Privately issued Mortgage- Backed Securities are generally backed by pools of conventional (i.e., non- government guaranteed or insured) mortgage loans. Since such Mortgage-Backed Securities normally are not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive a high quality rating from the rating organizations (i.e., S&P's or Moody's), they normally are structured with one or more types of "credit enhancement".
Guaranteed Mortgage-Backed Securities. The Core Fixed Income Fund's investments in Mortgage-Backed Securities may, and all of the Short-Term Government Agency and Adjustable Rate Government Agency Funds' investments in Mortgage-Backed Securities will, be issued or guaranteed by the U.S. Government or one of it's agencies or instrumentalities, including but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae securities are backed by the full faith and credit of the U.S. Government, which means that the U.S. Government guarantees that the interest and principal will be paid when due. Fannie Mae and Freddie Mac securities are not backed by the full faith and credit of the U.S. Government; however, the ability of these agencies to borrow from the U.S. Treasury makes their securities high quality securities with minimal credit risks. There are several types of guaranteed Mortgage-Backed Securities currently available, including guaranteed mortgage pass-through certificates and multiple class securities, which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC") pass-through certificates and stripped Mortgage-Backed Securities. The Fund will be permitted to invest in other types of Mortgage-Backed Securities that may be available in the future to the extent investment in such securities is consistent with its investment policies and objective, which require the Fund to invest primarily in guaranteed adjustable rate Mortgage-Backed Securities.
Multiple Class Pass-Through Securities and Collateralized Mortgage Obligations. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may also invest in collateralized mortgage obligations ("CMOs") and REMIC pass-through or participation certificates, which multiple class Mortgage Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds will only invest in CMO's issued by U.S. Government agencies and instrumentalities such as Fannie Mae and Freddie Mac . 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, each with a specified fixed
or floating interest rate and a final scheduled distribution date. In most 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. Sometimes, however, CMO classes are "parallel pay" (i.e., payments of principal are made to two or more classes concurrently). A REMIC is a CMO that qualifies for special tax treatment under 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.
CMOs and REMIC pass-through certificates ("REMIC Certificates") are types of multiple class pass-through 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 mortgage pass-through certificates (the "Mortgage Assets").
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 scheduled 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 Certificate 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 the parallel pay or sequential structures. These securities include annual 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 which generally require that specified amounts of principal be applied on each payment date to one or more classes of 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 the PAC classes.
Adjustable and Fixed Rate Mortgage Loans. The following is a general description of the adjustable and fixed rate mortgage loans which may be expected to underlie Mortgage-Backed Securities in which the Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest. Since a wide
variety of mortgage loans are available to borrowers, the actual mortgage loans underlying any particular issue of Mortgage-Backed Securities may differ materially from those described below. In addition, the Funds will be permitted to invest in Mortgage-Backed Securities that become available in the future to the extent such investments are consistent with its investment objectives and policies.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will 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 gross margin, which is a fixed percentage spread over the Index Rate established for each ARM at the time of its origination.
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 achieve equity and may increase the likelihood of default by such borrowers. 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.
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 ("LIBOR"), 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 the market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of the Adjustable Rate Government Agency Fund's portfolio and therefore in the net asset value of the 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.
Regulation of Mortgage Loans. Mortgage loans are subject to a variety of state and federal laws and regulations designed to protect mortgagors, which may impair the ability of the mortgage lender to enforce its rights under the mortgage documents. These laws and regulations include legal restraints on foreclosures, homeowner rights of redemption after foreclosure, federal, state bankruptcy and debtor relief laws, restrictions on enforcement
of mortgage loan "due on sale" clauses and state usury laws. Even though the Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in Mortgage-Backed Securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, these regulations may adversely affect the Short-Term Government Agency and Adjustable Rate Government Agency Funds' investments by delaying the Fund's receipt of payments derived from principal of or interest on mortgage loans affected by such laws and regulations.
ASSET-BACKED SECURITIES
Asset-Backed Securities. The Core Fixed Income Fund may invest in asset- backed securities, which represent participations in, or are secured by and payable from, assets such as motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements and other categories of receivables. Such securities are generally issued by trusts and special purpose corporations.
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 repayments of principal on the underlying loans. During periods of declining interest rates, prepayments of loans underlying asset-backed securities can be expected to accelerate, and thus impair the Fund's ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many asset-backed securities. This possibility is often referred to as extension risk. Extending the average life of an asset-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other asset-backed securities. Asset-backed securities present certain 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. There is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities. Each Fund (other than the Short Duration Tax-Free Fund) may invest in certain Mortgage-Backed Securities, such as interest-only and principal-only SMBS, that are extremely sensitive to changes in prepayments and interest rates. Even though such securities have been issued or guaranteed by an agency or instrumentality of the U.S. Government, under certain interest rate or prepayment rate scenarios, a Fund may fail to fully recover their investment in such securities.
The investment characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments, usually monthly, and the possibility that unscheduled prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater prepayment rate in a declining interest rate environment. The yields to maturity of the Mortgage-Backed Securities will be affected by the actual rate of payment (including prepayments) of principal of the underlying mortgage loans. The mortgage loans underlying such securities generally may be prepaid at any time without penalty. In a fluctuating interest rate environment, a predominant factor affecting the prepayment rate on a pool of mortgage loans is the difference between the interest rates on the mortgage loans and prevailing mortgage loan interest rates (giving consideration to the cost of any refinancing). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates existing on fixed rate mortgage loans underlying mortgage pass-through securities, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on the fixed rate mortgage loans underlying the mortgage pass-through securities, the rate of prepayment may be expected to decrease.
The reinvestment of principal payments and prepayments received on a mortgage pass-through security may be made at rates higher or lower than the rate payable on such security, thus affecting the return realized by the Funds. In addition, the receipt of interest payments monthly rather than semi-annually by the Funds has a compounding effect that may increase the yield to the Funds relative to debt obligations that may increase the yield to the Funds relative to debt obligations that pay interest semi-annually. Due to these factors, Mortgage-Backed Securities may also be less effective than U.S. Treasury securities of similar maturity at maintaining yields during periods of changing interest rates. Prepayments may have a disproportionate effect on certain Mortgage-Backed Securities such as SMBS and certain other multiple class pass- through securities. A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
There are certain risks related to a Fund's investment in ARMs, which risks will have a greater input on the Adjustable Rate Government Agency Fund which will invest a significant portion of its assets in such securities. In recent, the rate of principal prepayments with respect to ARMs has fluctuated in recent years. As is the case with fixed rate mortgage loans, ARMs may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, ARMs could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if prevailing interest rates rise significantly, ARMs may prepay at lower rates than if prevailing rates remain at or below those in effect at the time such ARMs were originated due, for example, to the unavailability of lower rate alternatives. As with fixed rate mortgages, there can be no certainty as to the rate of prepayments on the ARMs in either stable or changing interest rate environments. In addition, there can be no certainty as to whether increases in the principal balances of the ARMs due to the addition of deferred interest may result in a default rate higher than that on ARMs that do not provide for negative amortization.
Risks Associated With Derivative Mortgage-Backed Securities. Derivative Mortgage-Backed Securities are subject to different combinations of interest rate and/or prepayment risks. 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. The Investment Adviser may use derivative Mortgage-Backed Securities and other derivative securities consistent with a Fund's investment objective for a variety of purposes including adjusting the average duration or interest rate sensitivity of each Fund's portfolio or attempting to enhance the Fund's total return. The Investment Adviser manages the risk and benefits of derivative mortgage-backed securities and other derivative securities by prudent analysis, selection and monitoring of such securities included in the Fund's portfolio.
The risk of faster than anticipated prepayments generally adversely affects interest-only securities (IOs), super floaters and premium priced Mortgage- Backed Securities. The risk of slower than anticipated prepayments generally adversely affects principal-only securities (POs), floating rate securities subject to interest rate caps, floors and collars, support tranches and discount priced Mortgage-Backed Securities.
Risks Associated With Derivative Floating Rate Securities. Other types of floating rate derivative debt securities present more complex types of 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.
MUNICIPAL SECURITIES IN WHICH THE SHORT-DURATION TAX-FREE FUND WILL INVEST
General. Municipal Securities consist of bonds, notes 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, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily
from federal alternative minimum tax or from state or local taxes). 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 also include "private activity bonds" or industrial development bonds, which are issued by or on behalf of public authorities to obtain funds for privately-operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. In addition, proceeds of certain industrial development bonds are used for constructing, equipping, repairing or improving privately operated industrial or commercial facilities. The interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Municipal Leases and Certificates of Participation. 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. 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. The primary risk associated with municipal lease obligations and certificates of participation is that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation of foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to fully recover the Fund's original investment. To the extent that the Short Duration Tax-Free Fund invests in unrated municipal leases or participates in such leases, the Trustees shall monitor on an ongoing basis the credit quality rating and risk of cancellation of such unrated leases. Certain municipal lease obligations and certificates of participation may be deemed illiquid for the purpose of the Fund's 15% limitation on investments in illiquid securities.
Municipal Notes. Municipal Securities in the form of notes generally are used to provide for short-term capital needs in anticipation of an issuer's receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and Construction Loan Notes. The obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuer's payment obligations under the notes or that refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Tax-Exempt Commercial paper is typically short-term, unsecured, negotiable promissory notes. These obligations are issued by state and local governments and their agencies to finance working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long- term debt.
Pre-Refunded Municipal Securities. The principal of and interest on pre- refunded Municipal Securities are no longer paid from the original revenue source for such securities. Instead, the source of such payments is typically an escrow fund consisting of obligations issued or guaranteed by the U.S. Government. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded Municipal Securities.
Tender Option Bonds. The Short Duration Tax-Free Fund may invest in tender option bonds. A tender option bond 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 in conjunction 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 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 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. However, an institution will 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. Although the Short Duration Tax-Free Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by the Investment Adviser, be exempt from regular federal income tax, there is a risk that the Short Duration Tax-Free Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from tax.
Insured Bonds. Insured Municipal Securities are those for which scheduled payments of interest and principal are guaranteed by a private (non- governmental) insurance company. The insurance entitles the Short Duration Tax- Free Fund to receive only the face or par value of the securities held by the Fund. The insurance does not guarantee the market value of the Municipal Securities or the value of the shares of the Fund.
Auction Rate Securities. Provided that the auction mechanism is successful, auction rate securities permit the holder to sell the securities in an auction at par value at specified intervals. The dividend or interest 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 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 the risk that an auction will fail due to insufficient demand for the securities. The Short Duration Tax-Free Fund will take the next scheduled auction date of the auction rate securities into consideration in determining the average portfolio maturity of the Fund.
OTHER INVESTMENTS AND PRACTICES
Inverse Floating Rate Instruments. Each Fund may invest in "leveraged" inverse floating rate debt instruments ("inverse floaters"). The Short Duration Tax-Free Fund may only invest up to 25% of its net assets in 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. 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.
Deferred Interest and Capital Appreciation Bonds. The Short Duration Tax- Free Fund may invest in deferred interest and capital appreciation bonds. Deferred interest and capital appreciation bonds are debt securities issued or sold at a discount from their face value that do not entitle the holder to any payment of interest prior to maturity or a specified commencement or redemption date (or cash payment date). The amount of the discount rate 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. A portion of the discount with respect to stripped tax- exempt securities or their coupons may be taxable. The market prices of deferred interest and capital appreciation bonds 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. A Fund's investments in deferred interest and capital appreciation bonds or stripped securities may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Taxation" in the Additional Statement.
Zero Coupon Bonds. Each Fund may invest in zero coupon securities issued by financial institutions and corporations, zero coupon U.S. Treasury securities (which are Treasury notes and bonds that have been stripped of their unmatured interest coupons), the coupons themselves and receipts or certificates representing interests in such stripped debt obligations. A zero coupon security pays no interest to its holder during its life and its value consists in the difference between its face value at maturity and its cost. The market prices of zero coupon securities generally are more volatile than market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than interest bearing securities having similar maturities and credit qualities. The Funds' investments in zero coupon securities or other stripped securities may require the Funds to sell certain of their portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
Custodial Receipts. The Core Fixed Income Fund may acquire custodial receipts in respect of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies or instrumentalities. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. Government.
Corporate Debt Obligations. The Core Fixed Income Fund may invest in corporate debt obligations that are rated, at the time of investment, BBB by S&P or Baa by Moody's or equivalent short-term credit quality ratings. In addition to obligations of corporations, corporate debt obligations include bank obligations and zero coupon securities issued by financial institutions and corporations. 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.
Convertible Securities. The Core Fixed Income Fund may invest in convertible securities, which may include corporate notes or preferred stock but are ordinarily a long-term debt obligation 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 in which the Fund invests will be subject to the same rating criteria as its other investments in fixed income securities.
Mortgage Dollar Rolls. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may enter into mortgage "dollar rolls" in which the Funds sell securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period each Fund loses the right to receive principal and interest paid on the securities sold. However, a Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the "drop") or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of a Fund compared with
what such performance would have been without the use of mortgage dollar rolls. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid, high grade debt securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the Investment Adviser's ability to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, each 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.
Options on Securities and Securities Indices. Each Fund, other than the Short-Term Government Agency and Adjustable Rate Government Agency Funds, may write (sell) covered call and put options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may purchase call and put options on any securities in which it may invest or options on any securities index composed of securities in which it may invest. 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 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 puts for hedging purposes also depends in part on the ability of the Investment Adviser to predict future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in securities prices or determination of the correlation between the securities indices on which options are written and purchased and the securities in a Fund's investment portfolio, the investment performance of the Fund will be less favorable than it would have been in the absence of such options transactions. The writing of options could significantly increase a Fund's portfolio turnover rate and, therefore, associated brokerage commissions or spreads.
The Core Fixed Income Fund may also write and purchase options on the yield "spread," or yield 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.
Futures Contacts and Options on Futures Contracts. To hedge against changes in interest rates or securities prices or, currency exchange rates in the case of the Core Fixed Income Fund, or to seek to increase total return, each Fund (other than the Short-Term Government Agency Fund) may purchase and sell various kinds of futures contracts, and purchase and write call and put options on any of such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any such contracts and options. The futures contracts may be based on various securities (such as U.S. Government securities), securities indices and other financial instruments and indices. A Fund will engage in futures and related options transactions only 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. These transactions involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to segregate and maintain cash or liquid, high grade debt securities with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. See "Investment Objectives and Policies-Futures Contracts and Options on
Futures Contracts" in the Additional Statement. Thus, while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of the Fund than if it had not entered into any futures contracts or options transactions. The loss incurred by a Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's net asset value. The profitability of a Fund's trading in futures to seek to increase total return depends upon the ability of the Investment Adviser to correctly analyze the futures markets. In addition, because 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. Further, futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and 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. In addition, it is not possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is also likely to fluctuate as a result of independent factors not related to currency fluctuations. Perfect correlation between a Fund's futures positions and its portfolio positions will be impossible to achieve. A Fund's transactions in foreign currency, forward foreign currency exchange contracts, options, futures contracts and certain other derivative transactions may be limited by the requirements of the Code for qualification as a regulated investment company.
Currency Swaps, Mortgage Swaps and Interest Rate Swaps, Caps, Floors and Collars. The Core Fixed Income Fund may enter into currency swaps both for hedging purposes and to seek to increase total return. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may enter into mortgage swaps for hedging purposes and to seek to increase total return. In addition, each Fund may each enter into 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. 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 swaps, caps, floors and collars, currency swaps and mortgage swaps 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 entered into for hedging purposes.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate or mortgage swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive, if any. In contrast, the currency swaps entered into by the Core Fixed Income Fund 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. A Fund will maintain in a segregated account with the Fund's custodian cash and liquid, high grade debt securities equal to the
net amount, if any, of the excess of the Fund's obligations over its entitlements with respect to swap transactions. To the extent that the net amount payable under an interest rate or mortgage swap and the entire amount of the payment stream payable by a Fund under a currency swap or an interest rate floor, cap or collar is held in a segregated account consisting of cash or liquid, high grade debt securities, the Funds and the Investment Advisers 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 restriction.
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 rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or if unrated by such rating organizations, determined to be of comparable quality by the Investment Adviser.
The use of interest rate, mortgage 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 staff of the SEC currently take the position that swaps, caps, floors and collars are illiquid and thus subject to a Fund's 15% limitation on investments in illiquid securities.
Risks of Derivative Transactions. A Fund's transactions, if any, in options, futures, options on futures, swap transactions, structured securities, interest rate caps, floors and collars, inverse floating rate securities and currency forward contracts involve certain risks, including a possible lack of correlation between changes in the value of hedging instruments and the portfolio assets being hedged, the potential illiquidity of the markets for derivative instruments, the risks arising from the margin requirements and related leverage factors associated with such transactions. The use of these management techniques to seek to increase total return may be regarded as a speculative practice and involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-issued securities. When-issued transactions arise when securities are purchased by a Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Each Fund may also purchase securities on a forward commitment basis; that is, make contracts to purchase securities for a fixed price at a future date beyond customary settlement time. A Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. Alternatively, each Fund may enter into offsetting contracts for the forward sale of other securities that it owns. 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 prior to the settlement date. Although a Fund would generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, the Fund may dispose of when-issued securities or forward commitments prior to settlement if its Investment Adviser deems it appropriate to do so.
Illiquid and Restricted Securities. A Fund may not invest more than 10% of its total assets in securities that are subject to restrictions on resale ("restricted securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund will not invest more than 15% of its net assets in illiquid investments, which includes securities (both foreign and domestic) that are not readily marketable, swap transactions, repurchase agreements maturing in more than seven days, time deposits with a notice or demand period of more than seven days, certain over-the-counter options, and certain restricted securities, unless it is determined, based upon the continuing review of the trading markets for a specific restricted security, that such restricted security is eligible for sale under Rule 144A and, therefore, is liquid. The Board of Trustees has adopted guidelines and delegated to the Investment Adviser the daily function of
determining and monitoring the liquidity of restricted securities. The Board of Trustees, however, retains oversight focusing on factors such as valuation, liquidity and availability of information and is ultimately responsible for each determination. Investing in restricted securities eligible for resale pursuant to Rule 144A could have the effect of increasing the level of illiquidity in the Fund 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. A Fund may purchase U.S. Government Securities in a private placement, subject to its 15% limitation of illiquid investments.
Other Investment Companies. Each Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the voting securities of any other investment company. Pursuant to an exemptive order obtained from the SEC, the Funds may invest in money market funds for which an Investment Adviser or any of its affiliates serves as investment adviser. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the advisory and administration fees paid by the Fund. However, to the extent that the Fund invests in a money market fund for which an Investment Adviser acts as adviser, the advisory and administration fees payable by the Fund to an 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 the Investment Adviser or any of its affiliates.
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. 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 in connection with the related repurchase agreement are less than the repurchase price. In addition, in the event of bankruptcy of the seller or failure of the seller to repurchase the securities as agreed, the Fund could suffer losses, including loss of interest on or principal of the security and costs associated with delay and enforcement of the repurchase agreement. The Trustees of the Trust have reviewed and approved certain sellers whom they believe to be creditworthy and have authorized the Funds to enter into repurchase agreements with such sellers. In addition, each Fund, together with other registered investment companies having advisory agreements with an Investment Adviser, 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 seek to increase its income by lending portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as certain broker-dealers, and are required to be secured continuously by collateral in cash, cash equivalents, or U.S. Government securities maintained on a current basis in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equivalents. If an Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 331/3% of the value of the total assets of a Fund. See "Investment Restrictions" in the Additional Statement. A Fund may experience a loss or delay in the recovery of its securities if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund.
Temporary Investments. The Core Fixed Income Fund may, for temporary defensive purposes (such as when instability or unfavorable conditions exist in foreign countries), invest 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. The Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated Investment Objective and invest more than 20% of its net assets in Taxable Investments.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described in detail under "Investment Restrictions" in the Additional Statement. These investment restrictions are fundamental policies of a Fund that can not be changed without approval of a majority of the outstanding shares of that Fund. For more information on a Fund's investment restrictions, an investor should obtain the Additional Statement. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate of the Fund will vary from year to year. The portfolio turnover rate is computed by dividing the lesser of the amount of securities purchased or securities sold (excluding all securities whose maturities at acquisition are one year or less) by the average monthly value of such securities owned during the year. A 100% turnover rate would occur, for example, if all of the securities held by the Fund were sold and replaced within one year. The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for the Fund consistent with the Fund's investment objective and portfolio management policies. A higher rate of portfolio turnover results in increased transaction costs to the Fund. The portfolio turnover rate includes the effect of entering into mortgage dollar rolls.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for deciding matters of general policy and reviewing the actions of the Investment Advisers, distributor and transfer agent. The officers of the Trust conduct and supervise each Fund's daily business operations. The Additional Statement contains information as to the identity of, and other information about, the Trustees and officers of the Trust.
INVESTMENT ADVISERS
Investment Advisers. Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to the Short Duration Tax-Free and Core Fixed Income Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York 10004, a Delaware limited partnership which is an affiliate of Goldman Sachs, serves as the investment adviser to the Short-Term Government Agency and Adjustable Rate Government Agency Funds. Goldman Sachs Funds Management, L.P. registered as an investment adviser in 1990. As of _______________, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $______ billion.
Under an Investment Advisory Agreement with each Fund, the applicable Investment Adviser, subject to the general supervision of the Trust's Board of Trustees, provides day-to-day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed to permit the Trust to use the name "Goldman Sachs" or a derivative thereof as part of each Fund's name for as long as a Fund's Investment Advisory Agreements are in effect.
In performing its investment advisory and subadvisory services, each Investment Adviser, while remaining ultimately responsible for the management of the Funds, is able to draw upon the research and expertise of its affiliate offices for portfolio decisions and management with respect to certain portfolio securities.
The Short-Term Government Agency and Adjustable Rate Government Agency Funds' portfolio managers are Jonathan A. Beinner and Theodore T. Sotir. Mr. Beinner is a Vice President of Goldman Sachs and joined the Investment Adviser in 1990 after working in the trading and arbitrage group of Franklin Savings Association. Mr. Sotir is a Vice President of Goldman Sachs and joined the Investment Adviser in 1993 after working as portfolio manager at Fidelity Management Trust Company. Prior to joining Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities department for six years.
The Core Fixed Income Fund's portfolio managers are Jonathan A. Beinner, Richard C. Lucy and Theodore T. Sotir. See above for information about Messrs. Beinner and Sotir. Messrs. Beinner and Lucy each specialize in investing in a particular type of security the Fund may hold. Mr. Sotir helps with overall portfolio strategy and is a member of the Investment Adviser's risk control team. Mr. Lucy is a Vice President of Goldman Sachs and joined the Investment Adviser in 1992 after spending nine years managing fixed income assets as Brown Brothers Harriman & Co.
The Short Duration Tax-Free Fund's portfolio managers are Theodore T. Sotir and Benjamin S. Thompson. See above for information about Mr. Sotir. Mr. Thompson specializes in municipal securities, where his responsibilities include developing investment strategy and structuring portfolios. Mr. Thompson worked in the institutional sales and marketing group at Goldman Sachs Asst Management until he joined the fixed income team in 1993. Prior to joining Goldman Sachs Asset Management in early 1992, Mr. Thompson worked in the Structured Finance Group of the Chase Manhattan Bank.
It is the responsibility of the Investment Adviser to make investment decisions for a Fund and to place the purchase and sale orders for the Fund's portfolio transactions in U.S. and foreign securities and currency markets. Such orders may be directed to any broker including, to the extent and in the manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSAM is entitled to a fee from the Short Duration Tax-Free and Core Fixed Income Funds, computed daily and payable monthly, at the annual rates of 0.40% and 0.40%, respectively, of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from the Short-Term Government Agency and Adjustable Rate Government Agency Funds, computed daily and payable monthly, at the annual rates of 0.50% and 0.40% of average daily net assets; however, GSFM is currently only imposing its advisory fee with respect to the Short-Term Government Agency Fund at the annual rate of 0.40% of average daily net assets. For the fiscal year ended October 31, 1995, the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free and Core Fixed Income Funds paid fees at the foregoing rates. Each Investment Adviser has voluntarily agreed to reduce the fees payable to it by a Fund (to the extent of its fees) by the amount (if any) that the Fund's expenses would exceed the applicable expense limitations imposed by state securities administrators. See "Management- Expenses" in the Additional Statement. In addition, the Investment Adviser to the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free and Core Fixed Income Funds has voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds (excluding advisory, administration, service, distribution and authorized dealer service fees, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% per annum of a Fund's 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.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and their affiliates in the management of, or their interest in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to 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 and in general it is not anticipated that the Investment Advisers will have access to proprietary information for the purpose of managing a Fund. 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 and Funds achieve significant profits on their trading for proprietary or other accounts. From time to time, 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. See "Management- Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor of each Fund's Administration Shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's transfer agent (the "Transfer Agent") and as such performs various shareholder servicing functions. Shareholders of record with inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the address or the telephone number set forth on the back cover page of this Prospectus.
DIVIDENDS
Each Fund intends to declare a daily dividend. Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago time, and will be paid monthly. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of the Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. The Fund also intends that all net realized long-term and short-term capital gains will be declared as a dividend at least annually. In determining amounts of capital gains to be distributed, capital losses including any available capital loss carryovers from prior years will be offset against capital gains.
The Fund's net investment income is determined on a daily basis. On days on which net asset value is calculated, such determination is made immediately prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago time. On days on which net asset value is not calculated, such determination is made as of 3:00 p.m. Chicago time.
Payment of dividends from net investment income will be made on the last calendar day of each month in additional shares of the Fund at the net asset value on such day, unless cash distributions are elected, in which case, cash payment will be made on the first Business Day of the succeeding month. Payment of dividends with respect to capital gains, if any, when declared will be made in additional shares of the Fund at the net asset value on the payment date, unless cash distributions are elected. This election to receive dividends in cash is initially made on the Account Information Form and may be changed upon written notice to the Transfer Agent at any time prior to the record date for a particular dividend or distribution. If cash dividends are elected with respect to the Fund's monthly net investment income dividends, then cash dividends must also be elected with respect to the non-long term capital gains component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of the Fund a portion of the net asset value per share may be represented by undistributed income of the Fund or realized or unrealized appreciation of the Fund's portfolio securities. Therefore, subsequent distributions (or portions thereof) of taxable income or realized appreciation on such shares may be taxable to the investor even if the net asset value 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.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the Fund's custodian as of the close of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) immediately after determination of the income to be declared as a dividend, on each Business Day (as such term is defined under "Additional Information"). Net asset value per share of each class is calculated by determining the net assets attributable to each class and dividing by the number of outstanding shares of that class.
Investments in Mortgage-Backed Securities and other debt obligations are valued at fair value, based on yield equivalents, a pricing matrix or other sources, under valuation procedures established by the Trust's Board of Trustees. Other portfolio securities for which accurate market quotations are readily available are valued on the basis of quotations, which may be furnished by a pricing service or provided by dealers in such securities. Portfolio securities for which accurate market quotations are not readily available are valued in accordance with the Trust's valuation procedures. Debt obligations with a remaining maturity of 60 days or less are valued at amortized cost. The Board of Trustees has determined that the amortized cost of such securities approximates fair market value. Portfolio securities are valued based on market quotations or, if accurate quotations are not readily available, at fair value as determined in good faith under procedures established by the Trust's Board of Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield and average annual total return and the Short Duration Tax-Free Fund may publish its tax equivalent yield in advertisements and communications to shareholders or prospective investors. Average annual total return is determined by computing the average annual percentage change in value of $1,000 invested at the maximum public offering price for specified periods ending with the most recent calendar quarter, 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 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. Any performance data which is based on a Fund's net asset value per share would be reduced if a sales charge were taken into account. In addition to the above, each Fund may from time to time advertise its performance relative to certain performance rankings and indices.
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 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, the Short Duration Tax-Free Fund tax-free yield. Tax equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most recent distribution of net investment income for a monthly, quarterly or other relevant period and dividing this amount by the net asset value per share or maximum public offering price on the last day of the period for which the distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated separately for each class of shares in existence. Because each class of shares may be subject to different expenses, the yield, total return and distribution rate calculations with respect to each class of shares for the same period will differ. Due to the fees payable under the Distribution, Authorized Dealer Service, Service and Administration Plans, the investment performance, for any period, of the Institutional Shares will always be higher than that of the Class A Shares, Class B Shares, Service Shares and Administration Shares. The investment performance of the Administration Shares will always be higher than that of the Service Shares. The investment performance of the Class A and Class B Shares will be affected by the payment of a sales charge. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any presentation of investment results for any prior period should not be considered a representation of what an investment may earn or what the Fund's performance may be in any future period. In addition to information provided in shareholder reports, the Funds may, in their discretion, from time to time, make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust under an Agreement and Declaration of Trust, as amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are authorized to issue an unlimited number of shares of beneficial interest, $.001 par value per share. The Trustees of the Trust are responsible for the overall management and supervision of its affairs. The Trustees of the Trust have authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Prospectus, the Trustees have authorized shares of the Fund and ten additional series. Additional series may be added in the future. The Trustees have authorization to classify or reclassify any series or portfolio of shares into one or more classes. The Short-Term Government Agency, Short Duration Tax-Free and Core Fixed Income Funds each offer Institutional Shares, Administration Shares and Service Shares. The Adjustable Rate Government Agency Fund offers Institutional Shares, Administration Shares, Service Shares and Class A Shares.
Each Institutional Share, Administration Share and Service Share of a Fund represents an equal proportionate interest in the assets belonging to the Fund. All Fund expenses are based on a percentage of the Fund's aggregate average net assets, except that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. It is contemplated that most Administration Shares and Service 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. Administration Shares and Service Shares will each be marketed only to such institutional investors at net asset value with no sales load. Institutional Shares may be purchased for accounts in the name of an investor or institution that is not compensated by the Fund for services provided to the institution's customers. Administration Shares may be purchased for accounts held in the name of an institution that provides certain account administration services to its customers, including maintenance of account records and processing orders to purchase, redeem or exchange Administration Shares. Administration Shares bear the cost of account administration fees at the annual rate of up to 0.25% of the average daily net assets of such Administration Shares. 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 and processing orders to purchase, redeem or exchange Service Shares, responding to customer inquiries and assisting customers with investment procedures. Service Shares bear the cost of service fees at the annual rate of up to 0.50% of the average daily net assets of such Service Shares. (Institutions that provide services to holders of Administration or Service Shares are referred to in this Prospectus as "Service Organizations").
It is possible that an institution or its affiliate may offer different classes of shares (i.e., Institutional, Administration and Service Shares) to its customers and thus receive different compensation with respect to different
classes of shares of the Fund. Administration Shares and Service Shares may each have certain exclusive voting rights on matters relating to their respective plans. Currently, shares of each class may be exchanged only for shares of the same class in another fund and certain money market funds sponsored by Goldman Sachs. The Fund may amend such policy in the future. 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 and on the same day and will be in the same amount, except for differences caused by the fact that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. Similarly, the net asset value per share will vary depending on the class of shares purchased.
When issued, shares are fully paid and non-assessable. In the event of liquidation, shareholders are entitled to share pro rata in the net assets of the applicable Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of November 30, 1995, James F. Scott, P.O. Box 8048, Charlottsville, Virginia 22906 owned beneficially and of record 35% of the Adjustable Rate Fund Class A Shares. State Street Bank & Trust, Trustee, Attn: Box 1992, Boston, Massachusetts 02105-1992 owned beneficially and of record 30.64% of the Short- Term Government Agency Fund. MGIC, Attn: James McGinnis, P.O. Box 297, Milwaukee, Wisconsin 53201 owned beneficially and of record 27.16% of the Short Duration Fund.
Unless otherwise required by the Act, ordinarily it will not be necessary for the Trust to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Trustees or the appointment of independent accountants. Shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees must promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. The Board of Trustees, however, will call a special meeting 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.
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.
Under Massachusetts law, there exists a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains provisions intended to limit such liability and to provide indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected or intends to elect to be treated as a regulated investment company and to qualify for such treatment for each taxable year under Subchapter M of the Code. To qualify as such, a Fund must satisfy certain requirements relating to the sources of its income, diversification of its assets and distribution of its income to shareholders. As a regulated investment company, a Fund will not be subject to federal income or excise tax on any net investment income and net realized capital gains that are distributed to its shareholders in accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of the Code so that it may distribute the tax-exempt interest it receives as "exempt-interest dividends," as defined in the Code. Distributions of the Short Duration Tax-Free Fund that are attributable to interest on tax-exempt obligations and that the Fund designates as exempt-interest dividends will be exempt from regular federal income tax, although all or a portion of such a distribution may be subject to the federal alternative minimum tax and the entire distribution may be includable in the tax base for determining taxability of social security or railroad retirement benefits. Persons who are "substantial users" (or related persons to such substantial users) of facilities financed by industrial development or certain private activity bonds should consult their own tax advisers before purchasing shares of the Short Duration Tax-Free Fund. Interest on indebtedness incurred or continued to purchase or carry shares of the Short Duration Tax-Free Fund is not deductible to the extent attributable to the Short Duration Tax-Free Fund's distributions that are exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net realized foreign exchange gains, the excess of net short-term capital gain over net long-term capital loss and original issue discount or market discount income will be taxable to shareholders as ordinary income. Dividends paid by a Fund from the excess of net long-term capital gain over net short-term capital loss will be taxable as long-term capital gains regardless of how long the shareholders have held their shares. These tax consequences will apply regardless of whether distributions are received in cash or reinvested in shares. A Fund's dividends that are paid to its corporate shareholders from qualifying dividends such Fund receives from U.S. domestic corporations may be eligible, in the hands of such corporate shareholders, for the corporate dividends-received deduction, subject to certain holding period requirements and debt financing limitations under the Code. Certain distributions paid by a Fund in January of a given year may be taxable to shareholders as if received the prior December 31. Shareholders will be informed annually about the amount and character of distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately prior to a distribution. Investors who purchase shares shortly before the record date for a distribution will pay a per share price that includes the value of the anticipated distribution and will be taxed on the distribution (unless it is exempt from tax) even though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31% backup withholding of federal income tax on taxable distributions, redemptions and exchanges if they fail to furnish their correct taxpayer identification number and certain certifications or if they are otherwise subject to backup withholding. Individuals, corporations and other shareholders that are not U.S. persons under the Code are subject to different tax rules and may be subject to non-resident alien withholding at the rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts treated as ordinary dividends from the Funds.
The Core Fixed Income Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. If more than 50% of the value of its total assets is comprised of stock or securities of foreign corporations at the end of its taxable year and the Fund so elects, shareholders will include in their gross incomes (in addition to dividends they receive) their pro rata shares of qualified foreign taxes paid by the Fund and may be entitled to take federal income tax credits or deductions with respect to such taxes. It is not expected that the Core Fixed Income Fund will qualify to make this election. If the Fund cannot or does not so elect, it may deduct taxes in computing its taxable income, if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or foreign taxes on payments received from the Funds. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) a Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations and/or tax-exempt municipal obligations issued by or on behalf of the particular state or a political subdivision thereof, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. For a further discussion of certain tax consequences of investing in shares of the Funds, see "Taxation" in the Additional Statement. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means the vote of the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund.
As used in this Prospectus, 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 (observed), Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
ADMINISTRATION PLAN
The Trust, on behalf of the Funds, has adopted an Administration Plan with respect to the Administration Shares which authorizes a Fund to compensate Service Organizations for providing account administration services to their customers who are beneficial owners of such Shares. The Trust, on behalf of the Funds, will enter into agreements with Service Organizations which purchase Administration Shares on behalf of their customers ("Service Agreements"). The Service Agreements will provide for compensation to the Service Organizations in an amount up to 0.25% (on an annualized basis) of the average daily net assets of the Administration Shares of the Fund attributable to or held in the name of the Service Organization for its customers. The services provided by the Service Organizations may include acting, directly or through an agent, as the sole shareholder of record, maintaining account records for customers and processing orders to purchase, redeem or exchange Administration Shares for customers.
For the fiscal year ended October 31, 1995, the Trust, on behalf of the Funds, paid the Service Organizations fees at the annual rate of 0.25% of a Fund's average daily net assets attributable to the Administration Shares of the ________ Funds.
Holders of Administration Shares of a Fund will bear all expenses and fees paid to Service Organizations with respect to such Shares as well as any other expenses which are directly attributable to such Shares.
Service Organizations (other than broker-dealers) may charge other fees to their customers who are the beneficial owners of Administration Shares in connection with their customer accounts. These fees would be in addition to any amounts received by the service Organization under a Service Agreement and may affect the return earned on an investment in the Fund. The Trust, on behalf of the Funds, will accrue payments made pursuant to a Service Agreement daily. All inquiries of beneficial owners of Administration Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Administration Shares of the Funds will receive an annual report containing audited financial statements and a semi-annual report. Each recordholder of Administration Shares will also be provided with a printed confirmation for each transaction in its account and a monthly account statement. A year-to-date statement for any account will be provided to a Service Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to those described above to their customers who are the beneficial owners of such Shares. For example, Service Organizations are responsible for providing each customer exercising investment discretion with monthly statements with respect to such customer's account in lieu of an immediate confirmation of each transaction.
PURCHASE OF ADMINISTRATION SHARES
It is expected that all direct purchasers of Administration Shares of the Funds will be Service Organizations or their nominees. Customers of Service Organizations may invest in Administration Shares only through their Service Organizations. Administration Shares of the Funds may be purchased by a Service Organization through Goldman Sachs at the net asset value per share next determined after receipt from a Service Organization of an order without the imposition of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New York time), an order, a check or a Federal Reserve draft is received from a Service Organization by
Goldman Sachs, the price per share will be the net asset value per share computed on the day the purchase order or such form of payment is received. See 'Net Asset Value."
PURCHASE PROCEDURES
Purchase of Administration Shares by a Service Organization may be made by placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal Funds to the Northern Trust Company ("Northern") as subcustodian for State Street Bank and Trust Company (State Street) on the next Business Day or initiating an ACH transfer to ensure receipt by Northern on the next Business Day. Purchases may also be made by a Service Organization by check (except that a check drawn on a foreign bank will not be accepted) or Federal Reserve draft made payable to "Goldman Sachs Trust - Name of Fund" and should be directed to Goldman Sachs Trust - Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606. Payment of the proceeds of redemption of shares purchased by check may be delayed for a period of time as described under "Redemption of Administration Shares."
The Service Organizations are responsible for the timely transmittal of purchase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In order to facilitate timely transmittal, the Service Organizations have established times by which purchase orders and payments must be received by them.
OTHER PURCHASE INFORMATION
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 required account balances. A Service Organization may effect redemptions of noncomplying accounts, and may impose a charge for any special services rendered to its customers. Customers should contact their Service Organization for further information concerning such requirements and charges.
The Funds reserve the right to redeem Administration Shares of any Service Organization whose account balance is less than $100 as a result of earlier redemptions. Such redemptions will not be implemented if the value of such Shareholder's account falls below the minimum account balance solely as a result of market conditions. The Trust will give sixty (60) days prior written notice to Service Organizations whose Administration Shares are being redeemed to allow them to purchase sufficient additional Administration Shares to avoid such redemption.
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will be issued and dividends will begin on such shares on the next Business Day, provided that a Federal Funds wire or an ACH transfer is received by Northern on such day.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a Service Organization's check or Federal Reserve draft is received by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will be issued and dividends will begin on such shares on the next Business Day after the Service Organization's check or Federal Reserve draft is received by Goldman Sachs.
The Funds and Goldman Sachs each reserve the right to reject any specific purchase order (including exchanges) or to restrict purchases or exchanges of Administration Shares by a particular purchaser (or group of related purchasers). The Fund or Goldman Sachs may reject or restrict purchases or exchanges of Administration Shares by a particular purchaser or group, for example, when a pattern of frequent purchases and sales or exchanges of Administration Shares of a Fund is evident, or if the purchase, sale or exchange orders are, or a subsequent abrupt redemption might be, of a size that would disrupt management of the Fund.
EXCHANGE PRIVILEGE
Administration Shares of the Funds may be exchanged by Service
Organizations for (i) Administration Shares of any other mutual fund sponsored
by Goldman Sachs and designated as an eligible fund for this purpose and (ii)
the relevant class of any portfolio of Goldman Sachs Money Market Trust at the
net asset value next determined either by writing to Goldman Sachs, Attention:
Goldman Sachs Trust - Name of Fund, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares or units and consider its investment objective,
policies and applicable fees before making an exchange. Administration Shares
acquired by telephone exchange must be registered in the same name(s) and have
the same address as Administration Shares of the Fund for which the exchange is
being made.
In times of drastic economic or market changes the telephone exchange privilege may be difficult to implement. In an effort to prevent unauthorized or fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures as set forth under "Redemption of Administration Shares" to confirm that such instructions are genuine. For federal income tax purposes, an exchange is treated as a sale of the Administration Shares surrendered in the exchange, on which an investor may realize a gain or loss, followed by a purchase of Administration Shares or the relevant class of any portfolio of Goldman Sachs Money Market Trust received in the exchange. Shareholders should consult their own tax advisers concerning the tax consequences of an exchange. Exchanges are available only in states where exchanges may legally be made. The exchange privilege may be modified or withdrawn at any time on sixty (60) days' written notice to the recordholders of Administration Shares and is subject to certain limitations. See "Purchase of Administration Shares."
REDEMPTION OF ADMINISTRATION SHARES
The Funds will redeem their Administration Shares upon request of the recordholder of such Shares on any Business Day at the net asset value next determined after the receipt by the Transfer Agent of such request in proper form. See "Net Asset Value." If Administration Shares to be redeemed were recently purchased by check, the Funds may delay transmittal of redemption proceeds until such time as it has assured itself that good funds have been collected for the purchase of such Administration Shares. This may take up to fifteen (15) days. Redemption requests may be made by writing to or calling the Transfer Agent at the address or telephone number set forth on the cover page of this Prospectus. A Service Organization may request redemptions by telephone if the optional telephone redemption privilege is elected on the Account Information Form. It may be difficult to implement redemptions by telephone in times of drastic economic or market changes. In an effort to prevent unauthorized or fraudulent redemption or exchange requests by telephone, Goldman Sachs employs reasonable procedures specified by the Trust to confirm that such instructions are genuine. Among other things, any redemption request that requires money to go to an account or address other than that designated on the Account Information Form must be in writing and signed by an authorized person designated on the Account Information Form. Any such written request is also confirmed by telephone with both the requesting party and the designated bank account to verify instructions. Exchanges, among accounts with different names, addresses and social security or taxpaying identification numbers must be in writing and signed by an authorized person designated on the Account Information Form. Other procedures may be implemented from time to time. If reasonable procedures are not implemented, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. In all other cases, neither the Fund, the Trust nor Goldman Sachs will be responsible for the authenticity of redemption or exchange instructions received by telephone. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the Administration Shares to be redeemed earn dividends declared on the day the request is received.
The Funds will arrange for the proceeds of redemptions effected by any means to be wired to the recordholder of Administration Shares. Redemption proceeds will normally be wired on the next Business Day in Federal Funds (for a total one-day delay), but may be paid up to seven (7) days after receipt of a properly executed redemption request. Wiring of redemption proceeds may be delayed one additional Business Day if the Federal Reserve Bank is closed on the day redemption proceeds would ordinarily be wired. Once wire transfer instructions have been given by Goldman Sachs, neither the Fund, the Trust nor Goldman Sachs assumes any further responsibility for the performance of intermediaries or the Service Organization.
Additional documentation regarding a redemption by any means may be required to effect a redemption when deemed appropriate by the Transfer Agent. The request for such redemption will not be considered to have been received in proper form until such additional documentation has been submitted to the Transfer Agent by the recordholder of Administration Shares.
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer Agent. In order to facilitate timely transmittal of redemption requests, Service Organizations have established times by which redemption requests must be received by them. Additional documentation may be required when deemed appropriate by a Service Organization.
Except with respect to Service Organizations whose account balances are less than $100, Administration Shares of the Fund are not redeemable at the option of a Fund unless the Board of Trustees of the Trust determines in its sole discretion that failure to so redeem may have material adverse consequences to the shareholders of the Fund. The Funds, however, assumes no responsibility to compel redemptions.
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer Identification Number (TIN), regardless of whether you file tax returns. Failure to do so may subject you to penalties. Failure to provide your correct TIN and to sign your name in the Certification section of the Account Information Form could result in withholding of 31% by the Fund for the Federal backup withholding tax on distributions, redemptions, exchanges and other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income tax return.
If you do not have a TIN, you should apply for one immediately by contacting your local office of the Social Security Administration or the Internal Revenue Service (IRS). Backup withholding could apply to payments relating to your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account established under a Uniform Gifts or Transfers to Minors Act, the TIN of the minor should be furnished.
If you have been notified by the IRS that you are subject to backup withholding because you failed to report your interest and/or dividend income on your tax return and you have not been notified by the IRS that such withholding should cease, you must cross out item (2) in the Certification section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify
your exemption by signing the Certification section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, you must provide a completed Form W-8 to the Fund in order to avoid withholding on certain payments. Other payments to you may be subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding, see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your tax adviser.
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
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.) . . . . . . . . 800-526-7384
GOLDMAN SACHS TRUST
ADMINISTRATION SHARES
___________________________________________
PROSPECTUS
47
|
Prospectus ______, 1995 |
TABLE OF CONTENTS
Page
----
Fund Highlights..................... 3
Fees and Expenses................... 7
Financial Highlights................ 10
Investment Objectives and Policies.. 14
Special Investment Methods and
Risk Factors........................ 19
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 32
Reports to Shareholders............. 36
How to Invest....................... 36
Distribution and Authorized Dealer
Service Plan........................ 43
How to Sell Shares of the Funds..... 43
Dividends........................... 45
Net Asset Value..................... 46
Performance Information............. 46
Shares of the Company............... 47
Taxation............................ 47
Additional Information.............. 49
Appendix A-1
Account Application
|
GOLDMAN SACHS TRUST
SERVICE SHARES
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
Seeks a high level of current income, consistent with low volatility of principal primarily through investment in adjustable rate mortgage pass- through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
GS SHORT-TERM GOVERNMENT AGENCY FUND
Seeks a high level of current income and secondarily, in seeking current income, may also consider the potential for capital gain through investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements relating thereto and will maintain an option-adjusted duration of not more than 3 years.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax primarily through investments in fixed income municipal securities with remaining effective maturities of five years or less.
GS CORE FIXED INCOME FUND
Seeks total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index primarily through investments in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities and asset-backed securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.
(continued on next page)
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued)
THE CORE FIXED INCOME AND THE GLOBAL INCOME FUNDS' INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS, ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN PARTICULAR, THE SECURITIES MARKETS OF FOREIGN COUNTRIES IN WHICH THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS WILL INVEST MAY BE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF THE UNITED STATES. THESE FUNDS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the GS Short Duration Tax-Free, GS Core Fixed Income and Global Income Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as investment adviser to the GS Short-Term Government Agency and Adjustable Rate Government Agency Funds. Goldman Sachs Asset Management International ("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the "Investment Adviser." GSAM serves as administrator to Goldman Sachs Global Income Fund and Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus, which sets forth concisely the information about Goldman Sachs Trust (the "Trust") and the Funds that a prospective investor ought to know before investing, should be retained for future reference. A Statement of Additional Information (the "Additional Statement"), dated ________ 1995, containing further information about the Trust and the Funds which may be of interest to investors, has been filed with the Securities and Exchange Commission, is incorporated herein by reference in its entirety, and may be obtained without charge from Goldman Sachs by calling the telephone number, or writing to one of the addresses, listed on the back cover of this Prospectus.
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that offers its shares in several series or funds. Each Fund pools the resources of investors by selling its shares to the public and investing the proceeds in a portfolio of securities designed to achieve that Fund's stated investment objective. The Global Income Fund is a non-diversified fund and each of the other Funds is a diversified fund as defined in the Investment Company Act of 1940 (the "Act").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no assurance that a Fund's objective will be achieved. For a complete description of each Fund's investment objective and policies, see "Investment Objectives and Policies" and "Special Investment Methods and Risk Factors."
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND-The investment objective of the Fund is to provide investors with a high level of current income consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund may also invest in other mortgage-backed securities and other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund seeks to minimize fluctuation in the value of its portfolio securities and therefore its net asset value. It believes that it can achieve this objective by investing primarily in guaranteed adjustable rate mortgage-backed securities, maintaining a maximum duration equal to that of a two-year U.S. Treasury security and a target duration in a range approximately equal to that of a 6-month to one-year U.S. Treasury security (computed using the method described herein) and utilizing certain active management techniques to hedge interest rate risks and to enhance its return.
GS SHORT-TERM GOVERNMENT AGENCY FUND - The Fund's objective is to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government Securities") deemed to have remaining maturities or (in the case of mortgage- related securities) estimated average lives of 6 years or less, and (b) repurchase agreements pertaining thereto. The Fund will invest under normal market conditions, at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government Securities. The U.S. Government securities in which the Fund may invest include mortgage-related securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund will maintain an option-adjusted duration of not more than 3 years; however, its actual option-adjusted duration is expected to be approximately two years under normal interest rate conditions. The Fund may employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value.
GS SHORT DURATION TAX-FREE FUND - The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not an item of tax preference under the federal alternative minimum tax. In addition, Tax-Free Securities include certain participation interests and other securities described under "Municipal Securities in which the Short Duration Tax-Free Fund will Invest" the interest on which is exempt from such taxes. The Fund's investments in Municipal Securities at the time of investment will be rated at least A by Standard & Poor's or Moody's or their equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. The Fund, although it is not expected to do so, may also invest up to 20% of its net assets in taxable investments which are obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investment"). The Fund will maintain an average portfolio duration, of two to three years. The Individual Municipal Securities in which the Fund invests will have remaining effective maturities of five years or less. The effective maturity of a Municipal Security, unlike its stated maturity, is the period remaining until the principal can be recovered through a mandatory redemption provision or the exercise of a put or demand feature by the holder of the Municipal Securities or the period until the next scheduled auction date for an auction rate Municipal Security. Since the Fund uses duration as a criteria, there are no maximum limitations as to average weighted portfolio maturity or permissible stated maturity with respect to individual securities.
GS CORE FIXED INCOME FUND - The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, primarily in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage-backed securities, and asset-backed securities. The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent rating, by any one of Standard & Poor's, Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund will maintain, under normal market conditions, a portfolio duration within a range equal to the duration of the Index plus or minus one year. The fixed income securities in which the Fund may invest include obligations of foreign issuers and obligations denominated in U.S. dollars or foreign currencies. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund's investments in fixed income securities may also include Short-Term Investments (as defined below), convertible securities, custody receipts and municipal securities. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
GOLDMAN SACHS GLOBAL INCOME FUND-The investment objective of the Fund is to provide investors with a high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies. Under normal market conditions (i) the Fund will have at least 30% of its total assets, after considering the effect of its currency position, denominated in U.S. dollars and (ii) the Fund will invest in securities of issuers in at least three countries. High quality securities are defined as securities rated, at the time of investment, at least AA by S&P or Aa by Moody's or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund may also invest
in obligations of a sovereign issuer rated at least A by S&P or Moody's, or if not rated by such rating organizations, determined by the Investment Adviser or Subadviser to be of comparable credit quality, if the obligations are denominated in the issuers own currency. The Fund will maintain a dollar- weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the extent applicable to the Core Fixed Income and Global Income Funds, foreign exchange conditions, so that an investment in any of the Funds may be worth more or less when redeemed than when purchased. None of the Funds should be relied upon as a complete investment program. There can be no assurance that a Fund's investment objective will be achieved.
There are certain risks associated with the investment policies of each of the Funds. The securities in a Fund's portfolio will tend to decrease in value when interest rates rise and increase in value when interest rates fall. Because each Fund's investments are interest rate sensitive, the Fund's performance will depend in large part upon the ability of the Fund to respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital. A Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") entail certain risks. These risks include the failure of an issuer or guarantor to meet its obligations, adverse interest rate changes, adverse economic, real estate or unemployment trends, failures in connection with processing of transactions and the effects of prepayments on mortgage cash flows. Under certain interest rate and prepayment scenarios, a Fund may fail to recoup fully its investment in some of the Mortgage-Backed Securities it holds notwithstanding a direct or indirect governmental or agency guarantee. The Short Duration Tax-Free Fund's investments in Municipal Securities entail certain risks, including adverse income and principal value fluctuation associated with general economic conditions affecting the Municipal Securities markets, the issuers and guarantors of Municipal Securities and the facilities financed by Municipal Securities as well as adverse interest rate changes and volatility of yields of short and intermediate term Municipal Securities. See "Risk Factors." In addition, the Fund's yield will be subject to risks associated with particular issues in which it invests, including potential defaults by issuers and guarantors and the size and rating of an issue. If the Fund invests in private activity bonds, distributions attributable to the interest on such securities may be a tax preference item subject to the federal alternative minimum tax. A reduction in federal income tax rates would reduce the tax equivalent yield of the Fund and would tend to reduce the value of Municipal Securities held in the Fund's portfolio. Conversely, an increase in federal income tax rates would increase the taxable equivalent yield of the Fund. In addition, changes in federal law adversely affecting the tax-exempt status of income derived from Municipal Securities could significantly affect both the supply and demand for Municipal Securities, which in turn could affect the Fund's ability to acquire and dispose of Municipal Securities at favorable prices. In addition, a Fund's use of certain investment techniques, including derivatives, forward contracts and options and futures transactions, will subject a Fund to greater risk than funds that do not employ such techniques. To the extent the Core Fixed Income and Global Income Funds invest in securities of non-U.S. issuers and foreign currencies, the Fund may face risks that are different from those associated with investment in domestic securities. The risks of foreign investments and currencies include changes in relative currency exchange rates, political and economic developments and the imposition of exchange controls or other governmental confiscation or restrictions. Generally, there is less availability of data on foreign companies and securities markets as well as less regulation of foreign stock exchanges, brokers and issuers. In addition, because the Global Income Fund will invest primarily outside the U.S., the Fund may involve greater risks, since the securities markets of foreign countries are generally less liquid and subject to greater price volatility.
The Global Income Fund is a "non-diversified" fund as defined under the Act and is therefore subject only to certain federal tax diversification requirements, in addition to the policies adopted by the Investment Adviser. To the extent that a Fund is not diversified under the Act, it will be more susceptible to adverse developments affecting any single issuer of portfolio securities. See "Special Investment Methods and Risk Factors-Non-Diversification Status."
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, a separate operating division of Goldman Sachs, acts as administrator to the Global Income Fund and serves as the Investment Adviser to the Short Duration Tax-Free, Core Fixed Income and Global Income Funds. Goldman Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as investment adviser to the Short-Term Government Agency Fund and Adjustable Rate Government Agency Fund. Goldman Sachs Asset Management International, London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. As of ________ 1995, the Investment Advisers, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $___ billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's Service shares.
WHAT IS THE MINIMUM INVESTMENT?
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.
HOW DO I PURCHASE SHARES?
It is expected that all purchasers of Service Shares of the Fund will be Service Organizations or their nominees. Customers of Service Organizations may invest in Service Shares only through their Service Organizations. Service Shares of the Fund may be purchased by Service Organizations through Goldman Sachs at the current net asset value per share without the imposition of a sales load.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under "Additional Information," at the net asset value next determined after receipt of such request in proper form. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund (other than the Global Income Fund) intends to declare a daily dividend determined with the objective of distributing the majority of net investment income. Such dividends on each Fund (other than the Global Income Fund) will accrue daily with respect to outstanding shares, commencing on the Business Day after the receipt of payment of such shares, and will be paid monthly. The Global Income Fund intends to declare and pay dividends monthly. Dividends on the Global Income Fund will commence as of the purchase of such shares. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of each Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. Each Fund also intends that substantially all net realized long-term and short- term capital gains will be declared as a dividend and paid at least annually.
Recordholders of Service Shares will receive dividends in additional shares of the same class of the Fund in which you have invested or may elect to receive cash. For further information concerning dividends, see "Dividends."
FEES AND EXPENSES
(SERVICE SHARES)
Adjustable
Short-Term Rate Global
Government Government Short-Duration Core Fixed Income
Agency Fund/1/ Agency Fund/2/ Tax-Free Fund/3/ Income Fund/4/ Fund/5/
------------- ------------- ---------------- -------------- ---------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases.................................. none none none none none
Maximum Sales Charge Imposed on
Reinvested Dividends.......................... none none none none none
Redemption Fees............................. none none none none none
Exchange Fees............................... none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees............................ 0.40% 0.40% 0.40% 0.40% 0.55%
Service Fees(6)............................. 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after applicable
limitations)............................... 0.05% 0.05% 0.05% 0.05% 0.10%
-------- -------- ----------- ---------- ------------
TOTAL FUND OPERATING EXPENSES
(AFTER FEE AND EXPENSE
LIMITATION)...................................... 0.95%/1/ 0.95%/2/ 0.95%/3/ 0.95%/4/ 1.15%/5/
========== ========== =========== ============ =============
|
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
FUND 1 Year 3 Years 5 Years 10 Years - ---------------------------------------- ------ ------- ------- -------- Short-Term Government Agency Fund....... $10 $30 $53 $117 Adjustable Rate Government Agency Fund.. $10 $30 $53 $117 Short Duration Tax-Free Fund............ $10 $30 $53 $117 Core Fixed Income Fund.................. $10 $30 $53 $117 Global Income Fund...................... $10 $30 $53 $117 - --------------------- |
1. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on an annual basis) would not be imposed on Short-Term Government Agency Fund. The Investment Adviser also has voluntarily agreed to reduce or limit certain "Other Expenses" of the Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. Investment Adviser has no current intention of modifying or discontinuing such fee and expense limitation but may do so in the future at its discretion. Without such fee and expense limitations, Management Fees, Other Expenses and Total Operating Expenses attributable to Service Shares would be 0.50%, 0.__% and ___%, respectively.
2. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Adjustable Rate Government Agency Fund (excluding advisory fees, fees under distribution, administration, service and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.05% of the
Fund's average daily net assets. The Investment Adviser has no current
intention of modifying or discontinuing such expense limitation but may do so
in the future at its discretion. Without such expense limitation, Other
Expenses and Total Operating Expenses attributable to Service Shares would be
0.__% and __%.
3. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Short Duration Tax-Free Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Service Shares would be 0.__% and __%, respectively.
4. Based upon estimated amounts for the current fiscal year. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Core Fixed Income Fund (excluding advisory fees, fees under administration and service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. The Investment Adviser has no current intention of modifying or discontinuing such expense limitation but may do so in the future at its discretion. Without such expense limitation, Other Expenses and Total Operating Expenses attributable to Service Shares would be 0.__% and __%, respectively.
5. Based upon estimated amounts for the current fiscal year. "Management Fees" paid by Global Income Fund include advisory, subadvisory and administration fees of 0.10%, 0.30% and 0.15% respectively. The Investment Advisers voluntarily have agreed to limit the advisory and subadvisory fees to such amounts. Without such limitations, advisory and subadvisory fees would be 0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily agreed to reduce or limit certain "Other Expenses" of the Global Income Fund (excluding transfer agency fees (estimated to be 0.04% of average daily net assets), advisory, subadvisory and administration fees, fees under distribution, service and authorized dealer service plans, taxes, interest and brokerage litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.6% of the Fund's average daily net assets. The Investment Advisers have no current intention of modifying or discontinuing such fee and expense limitations but may do so in the future at their discretion. Without such fee and expense limitations, Management, Other Expenses and Total Operating Expenses attributable to Service Shares would be 0.90%, 0.__% and __%. The fee and expense limitations discussed above were adopted during the fiscal year ended October 31, 1995. Annual operating expenses incurred by Service Shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of __%, __% and __%, respectively.
6. Service Organizations (other than broker-dealers) may charge other fees to their customers who are beneficial owners of Service Shares in connection with their customer accounts. See "Additional Services." Investors should be aware that, due to the service fees, a long-term shareholder in the Fund may pay over time more than the economic equivalent of the maximum from end sales charge permitted under the rules of the National Association of Securities Dealers, Inc.
The information set forth in the foregoing table and hypothetical example relates only to Service Shares of the Funds. Short-Term Government Agency Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer Institutional and Administration Shares; Adjustable Rate Government Agency Fund also offers Institutional Shares, Administration Shares and Class A Shares; and Global Income Fund also offers Institutional Shares, Class A Shares and Class B Shares. The other classes of the Funds are subject to different fees and expenses (which affects performance), have different minimum investment requirements and are entitled to different services. Information regarding any other class of the Funds may be obtained from your sales representative or from Goldman Sachs by calling the number of the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the various costs and expenses of a Fund that an investor will bear directly or indirectly. The information on cost and expenses included in the table and the hypothetical example above are based on estimated fees and expenses for the current fiscal year and should not be considered as representative of past or future expenses. Actual fees and expenses may be greater or less than those indicated. Moreover, while the example assumes a 5% annual return, a Fund's actual performance will vary and may result in an actual return greater or less than 5%. See "Management-Investment Advisers, Subadviser and Administrator."
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the Funds outstanding during the period(s) indicated has been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report incorporated by reference into the Additional Statement from the Annual Report to shareholders for the Funds for the year ended October 31, 1995 (the "Annual Report"). This information should be read in conjunction with the financial statements and related notes incorporated by reference and attached to the Additional Statement. The Annual Report also contains performance information and is available upon request and without charge by calling the telephone number or writing to one of the addresses on the back cover of this Prospectus.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
|
The accompanying notes are an integral part of these financial statements.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS SHORT-TERM GOVERNMENT AGENCY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.64 $0.6652/(c)/ $ 0.1666/(c)/ $ -- $0.8318/(c)/ $(0.6518) $-- $--
1995-Administration
Shares........... 9.64 0.2384/(c)/ (0.0433)/(c)/ -- 0.1951/(c)/ (0.2051) -- --
1994-Institutional
Shares........... 10.14 0.5628/(c)/ (0.4592)/(c)/ -- 0.1036/(c)/ (0.5598) (0.0438) --
1994-Administration
Shares........... 10.14 0.5329/(c)/ (0.4539)/(c)/ -- 0.0790/(c)/ (0.5352) (0.0438) --
1993-Institutional
Shares........... 10.16 0.5627 (0.0135)/(a)/ -- 0.5492 (0.5627) -- (0.0065)
1993-Administration
Shares/(f)/...... 10.23 0.2725 (0.0900)/(a)/ -- 0.1825 (0.2725) -- --
1992-Institutional
Shares........... 10.22 0.6703 (0.0600)/(a)/ -- 0.6103 (0.6703) -- --
1991-Institutional
Shares........... 10.00 0.8020 0.2200/(a)/ -- 1.0220 (0.8020) -- --
1990-Institutional
Shares........... 10.07 0.8300 (0.0700)/(a)/ -- 0.7600 (0.8300) -- --
1989-Institutional
Shares........... 10.10 0.8800 -- -- 0.8800 (0.8800) -- --
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 10.00 0.1800 0.1000/(a)/ -- 0.2800 (0.1800) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $-- $(0.6518) $ 0.1800 $ 9.82 8.97% 0.45% 6.87%
1995-Administration
Shares........... -- -- (0.2051) (0.0100) 9.63/(h)/ 2.10 0.70/(e)/ 7.91/(e)/
1994-Institutional
Shares........... -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-Administration
Shares........... -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-Institutional
Shares........... -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-Administration
Shares/(f)/...... -- -- (0.2725) (0.0900) 10.14 1.74 0.70/(e)/ 4.84/(e)/
1992-Institutional
Shares........... -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-Institutional
Shares........... -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-Institutional
Shares........... -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-Institutional
Shares........... -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... -- -- (0.1800) 0.1000 10.10 3.30 0.55/(e)/ 8.55/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 292.56% $103,760 0.72% 6.60%
1995-Administration
Shares........... 292.56 -- 0.90/(e)/ 7.71/(e)/
1994-Institutional
Shares........... 289.79 193,095 0.59 5.55
1994-Administration
Shares........... 289.79 730 0.84 5.24
1993-Institutional
Shares........... 411.66 359,708 0.64 5.31
1993-Administration
Shares/(f)/...... 411.66 16,490 0.80/(e)/ 4.74/(e)/
1992-Institutional
Shares........... 216.07 277,927 0.69 6.36
1991-Institutional
Shares........... 155.44 158,848 0.79 7.91
1990-Institutional
Shares........... 173.21 68,995 0.95 8.12
1989-Institutional
Shares........... 137.37 31,015 1.39 7.78
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 167.00(e) 39,052 1.42/(e)/ 7.68/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.79 $0.4235/(c)/ $0.1500/(c)/ $ -- $0.5735/(c)/ $(0.4235) $-- $ --
1995-Administration
Shares........... 9.79 0.3989/(c)/ 0.1500/(c)/ -- 0.5489/(c)/ (0.3989) -- --
1995-Service Shares.. 9.79 0.3744/(c)/ 0.1600/(c)/ -- 0.5344/(c)/ (0.3744) -- --
1994-Institutional
Shares........... 10.23 0.3787/(c)/ (0.3575)/(c)/ -- 0.0212/(c)/ (0.3787) (0.0825) --
1994-Administration
Shares........... 10.23 0.3537/(c)/ (0.3575)/(c)/ -- (0.0038)/(c)/ (0.3537) (0.0825) --
1994-Service
Shares/(i)/...... 9.86 0.0475/(c)/ (0.0700)/(c)/ -- (0.0225)/(c)/ (0.0475) -- --
1993-Institutional
Shares........... 9.93 0.3834 0.3000/(a)/ -- 0.6834 (0.3834) -- --
1993-Administration
Shares/(i)/...... 10.16 0.1555 0.0720/(a)/ -- 0.2275 (0.1555) -- --
For the Period October 1, 1992/(g)/through October 31,
- ------------------------------------------------------
1992-Institutional
Shares........... 10.00 0.0341 (0.0700)/(a)/ -- (0.0359) (0.0341) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.4235) $ 0.1500 $ 9.94 5.98% 0.45% 4.31%
1995-Administration
Shares........... -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service Shares.. -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-Institutional
Shares........... -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-Administration
Shares........... -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares/(i)/...... -- -- (0.0475) (0.0700) 9.79 (0.32)/(k)/ 0.95/(e)/ 4.30/(e)/
1993-Institutional
Shares........... -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-Administration
Shares/(i)/...... -- -- (0.1555) 0.0720 10.23 2.28/(k)/ 0.70/(e)/ 3.32/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... -- -- (0.0341) (0.0700) 9.93 (0.34)/(k)/ 0.05/(e)/ 4.58/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 259.52% $ 58,389 0.77% 3.99%
1995-Administration
Shares........... 259.52 46 1.02 3.82
1995-Service Shares.. 259.52 454 1.27 3.55
1994-Institutional
Shares........... 354.00 83,704 0.61 3.58
1994-Administration
Shares........... 354.00 3,866 0.86 3.35
1994-Service
Shares/(i)/...... 354.00 44 1.11/(e)/ 4.14/(e)/
1993-Institutional
Shares........... 404.60 115,803 1.06 3.05
1993-Administration
Shares/(i)/...... 404.60 911 1.07/(e)/ 2.95/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... 31.19/(k)/ 14,601 2.68/(e)/ 1.95/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Core Fixed Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ 9.24 $0.6423 $ 0.7610 $ -- $ 1.4033 $(0.6433) $ -- $ --
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6433) $ 0.7600 $10.00 15.72% 0.45% 6.56%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45/(e)/ 6.48/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... 383.26% $55,502 0.96% 6.05%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 288.25 24,508 1.46/(e)/ 5.47/(e)/
|
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS/(a)/ TRANSACTIONS/(a)/ OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 13.43 0.89 0.92 0.15 1.96
1995 - Institutional
shares/(f)/ 14.09 0.22 0.34 0.06 0.62
1994 - Class A shares 15.07 0.84 (1.37) (0.12) (0.65)
1993 - Class A shares 14.69 0.85 1.07 (0.42) 1.50
1992 - Class A shares 14.60 1.14 0.45 (0.36) 1.23
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 14.55 0.25 0.23 (0.19) 0.29
|
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares (0.94) -- -- -- -- (0.94)
1995 - Institutional
shares/(f)/ (0.26) -- -- -- -- (0.26)
1994 - Class A shares (0.22) (0.16) -- -- (0.61) (0.99)
1993 - Class A shares (0.85) (0.27) -- -- -- (1.12)
1992 - Class A shares (1.14) -- -- -- -- (1.14)
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares (0.24) -- -- -- -- (0.24)
|
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN/(b)/ NET ASSETS NET ASSETS RATE/(d)/ (IN 000S) NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995 - Institutional
shares/(f)/ 0.36 14.45 4.42 0.65/(c)/ 6.01/(c)/ 265.86 31,619 1.08/(c)/ 5.58/(c)/
1994 - Class A shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993 - Class A shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992 - Class A shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 0.05 14.60 2.00 0.38/(g)/ 1.72/(g)/ 34.22 388,744 0.44/(g)/ 1.66/(g)/
|
/(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 charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
/(c)/ Annualized.
/(d)/ Commencement of operations.
/(e)/ Institutional shares commenced operations on August 1, 1995.
/(f)/ Not annualized.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are described below. Certain other investment practices and management techniques, which involve certain risks, as well as the minimum rating criteria with respect to a Fund's investments in fixed income securities, are described under "Special Investment Methods and Risk Factors." There can be no assurance that the Fund will be successful in achieving its investment objective.
A security will be deemed to have met its rating requirement if it receives the minimum required rating from at least one rating organizations even though it has been rated below the minimum rating by one or more other rating organizations. If a fixed income security that at the time of purchase satisfies the Fund's minimum rating criteria is subsequently downgraded below such rating criteria, the Fund will not be required to dispose of such security. If a downgrading occurs, the Investment Adviser will consider what action, including the sale of such security, is in the best interest of a Fund. In most instances, a Fund expects to dispose of a downgraded security within a reasonable time after such downgrading.
Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to prevent value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration. A fund which is subject to a duration requirement will not be limited as to the Fund's maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities, unless otherwise noted.
Except as otherwise stated the Fund's investment objective and policies are not fundamental and may be changed without a vote of the shareholders. If there is a change in the Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
SHORT-TERM GOVERNMENT AGENCY FUND
The Fund seeks to achieve a high level of current income. Secondarily, the Fund may, in seeking current income, also consider the potential for capital gain. There can be no assurance that the objective of the Fund will be realized. The Fund invests exclusively in (a) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government securities") deemed to have remaining maturities or (in the case of mortgage-related securities) estimated average lives of six years or less and (b) repurchase agreements collateralized by U.S. Government Securities. Under normal market conditions, the Fund will invest at least 65% of its total assets in securities issued by U.S. Government agencies or instrumentalities and in repurchase agreements pertaining to U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund will maintain an option-adjusted duration of not more than 3 years; however, it actual option-adjusted duration is expected to be approximately 2 years under normal interest rate conditions. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, mortgage and interest rate swaps and interest rate floors, caps and collars.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to enhance its return and to seek to reduce fluctuation in its net asset value. These techniques include, but are not limited to, mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls, forward commitments and repurchase agreements.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because the Fund will maintain a maximum option-adjusted duration of not more than 3 years and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
The Adjustable Rate Government Agency Fund seeks to provide investors with a high level of current income, consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The primary issuers or guarantors of such securities currently include the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), although the Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. The Fund may invest up to 35% of its total assets in other mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") and other obligations issued and guaranteed by the U.S. Government, its agencies or instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to minimize fluctuation in its net asset value and to enhance its return. These techniques include, but are not limited to, the use of futures contracts (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls and repurchase agreements.
The Fund will maintain a maximum duration approximately equal to that of a two-year U.S. Treasury security. Under normal interest rate conditions, the Fund's actual duration is expected to be in a range approximately equal to that of a 6-month to one-year U.S. Treasury security. In computing the duration of its portfolio, a Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because interest rates on adjustable rate mortgage loans are reset periodically and therefore yields of portfolio securities representing interests in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such securities to fluctuate less dramatically in response to interest rate fluctuations than would fixed rate debt securities. This is because the Fund's portfolio will consist primarily of guaranteed adjustable rate Mortgage-Backed Securities and because the Fund will maintain a maximum option-adjusted duration approximately equal to that of a two-year U.S. Treasury security and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
SHORT DURATION TAX-FREE FUND
The Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. The Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax-Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not a tax preference item under the federal alternative minimum tax. Tax-Free Securities are also defined to include certain participation interests in such securities the interest on which is, in the opinion of counsel, exempt from such taxes. In addition, the definition of Tax-Free Securities includes general obligation and revenue bonds and other obligations described under "Municipal Securities in which the Short Duration Tax-Free Fund Will Invest."
Under normal market conditions, the Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in private activity bonds that may subject certain investors to the federal alternative minimum tax. Although the Fund is not expected to do so, the Fund may invest as must as 20% of its net assets in taxable investments, which are defined as obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). Except as set forth below, at no time will the Fund's investments in private activity bonds and Taxable Investments exceed, in the aggregate, 20% of the Fund's net assets. The Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in Taxable Investments. The Fund's investments in Municipal Securities and Taxable Investments may also generate taxable capital gains. See "Taxation." The Fund's investments in Municipal Securities will at the time of investment be rated at least A by Standard & Poor's or Moody's or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization even if it has been rated below the minimum rating by one or more other rating organizations. The credit rating assigned to Municipal Securities by these rating organizations or by the Investment Adviser 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 Fund will maintain an average portfolio duration in a range of two to three years. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the acquisition of debt obligations at a premium or discount, interest rate swaps and interest rate floors, caps and collars. The individual Municipal Securities in which the Fund invests will have effective maturities of five years or less. The effective maturity of a Municipal Securities is defined as the period remaining until the earliest date when the Fund can recover the principal amount of such security through mandatory redemption or prepayment by the issuer, the exercise by the Fund of a put option, demand feature or tender option granted by the issuer or a third party or the payment of the principal on the stated maturity date. The effective maturity of an auction rate Municipal Security is defined as the period remaining until the next scheduled auction date. Thus, the effective maturity of a Municipal Security may be substantially shorter than its final stated maturity.
CORE FIXED INCOME FUND
The Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). The Fund will seek to achieve its objective by investing, under normal market conditions, at least 65% of its total assets in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, mortgage- backed securities, and asset-backed securities. A number of investment strategies will be used to achieve the Fund's investment objective, including market sector selection, determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage pricing inefficiencies in the fixed income markets. Market sector selection is the underweighting or overweighting of one or more of the five market sectors (i.e., U.S. treasuries, U.S. government agencies, corporate securities, mortgage-backed securities and asset-backed securities) in which the Fund primarily invests. The decision to overweight or underweight a given market sector is based on expectations of future yield spreads between different sectors. Yield curve exposure strategy consists of overweighting or underweighting different maturity sectors to take advantage of the shape of the yield curve. Issuer selection is the purchase and sale of corporate securities based on a corporation's current and expected credit standing. To take advantage of price discrepancies between securities resulting from supply and demand imbalances or other technical factors, the Fund may simultaneously purchase and sell comparable, but not identical, securities. The Investment Adviser will have access to the research of, and proprietary technical models developed by, Goldman Sachs and will apply quantitative and qualitative analysis in determining the appropriate allocations among the categories of issuers and types of securities.
The fixed income securities in which the Fund invests, at the time of investment, will be rated at least BBB or Baa, or their equivalent ratings, by any one of S&P's or Moody's, or Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. Under normal market conditions, the Fund will maintain a dollar weighted average portfolio duration within a range equal to the duration of the Index plus or minus one year. The Investment Adviser may, however, decrease the Fund's average duration without limit if the Investment Adviser believes that a shorter duration is warranted by its outlook for interest rates or market conditions.
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 or in their equivalent ratings category by Standard & Poor's, Moody's or Fitch. 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 weighing 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. The Lehman Brothers Aggregate Bond 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.
The Fund may invest up to 25% of its net assets in obligations of domestic and foreign issuers which are denominated in currencies other than the U.S. dollar. The non-dollar denominated fixed income securities in which the Fund may invest will be rated, at the time of investment, at least AA by Standard & Poor's, Aa by Moody's, or AA by Fitch, or if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. It is expected that the Fund will employ certain interest rate management techniques. These techniques will be used both to hedge the interest rate risks associated with the Fund's portfolio securities and to seek to increase total return. Such techniques include options, futures contracts, options on futures contracts, interest rate and mortgage swaps, interest rate caps, floors and collars, forward commitments, lending portfolio securities, repurchase agreements and mortgage dollar rolls.
GLOBAL INCOME FUND
The Global Income Fund's investment objective is to provide investors with
a high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation, primarily through investment
in a portfolio of high quality fixed income securities of U.S. and foreign
issuers and through transactions in foreign currencies. Under normal market
conditions (i) the Fund will have at least 30% of its total assets, after
considering the effect of currency positions denominated in U.S. dollars and
(ii) the Fund will invest in securities of issuers in
at least three countries. High quality securities are defined as securities which have ratings of at least AA by S&P or Aa by Moody's ("High Quality Ratings") or, if unrated by such rating organizations, are determined by the Fund's Investment Adviser to be of comparable credit quality. The Fund may also invest in obligations of a sovereign issuer rated at least A by S&P or Moody's, or if not rated by such rating organizations determined by the Investment Adviser or Subadviser to be of comparable credit quality, if the obligations are denominated in the issuers own currency. The Fund intends to invest at least 50% of its net assets in securities having the highest applicable credit quality rating, at the time of investment, or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization, at the time of investment, even though it has been rated below the minimum rating by one or more other rating organizations.
Under normal circumstances, the Global Income Fund will seek to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed income securities markets and by engaging in currency transactions to enhance returns and for the purpose of hedging its portfolio. In determining the countries and currencies in which the Fund will invest, the Fund's portfolio managers will form an opinion based primarily on the views of Goldman Sachs' economists as well as information provided by securities dealers, including information relating to factors such as interest rates, inflation, monetary and fiscal policies, taxation, and political climate. The portfolio managers will apply the Black-Litterman Model (the "Model") to their views to develop a portfolio that produces, in the view of the Investment Adviser, the optimal expected return for a given level of risk. The Model factors in the opinions of the portfolio managers, adjusting for their level of confidence in such opinions, with the views implied by an international capital asset pricing formula. The Model is also used to maintain the level of portfolio risk within the guidelines established by the Investment Adviser.
In selecting securities for the Global Income Fund's portfolio, the portfolio managers consider such factors as the security's duration, sector and credit quality rating as well as the security's yield and prospects for capital appreciation. It is expected that the Fund will use currency transactions both to enhance returns for a given level of risk and to hedge its exposure to foreign currencies. 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. The Fund may, for temporary defensive purposes, invest up to 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. See "_____________________________."
The Fund will maintain a dollar-weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to present value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, the Fund will have to estimate the duration of debt obligations that are subject to prepayment or redemption by the issuer. The Fund may use various techniques to shorten or lengthen the dollar weighted average duration of its portfolio, including the acquisition of debt obligations at a premium or discount, transactions in options, futures contracts and options on futures and interest rate swaps.
It is expected that the Global Income Fund will employ certain currency and interest rate management techniques involving risks different from those associated with investing solely in dollar-denominated fixed income securities of U.S. issuers. Such management techniques include transactions in options (including yield curve options), futures, options on futures, forward foreign currency exchange contracts, currency options and futures, currency and interest rate swaps and interest rate floors, caps and collars. 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. See "_____________."
Since the Global Income Fund is not diversified under the Act, it may be more susceptible to adverse developments affecting any single issuer in which its investments are concentrated. Not more than 25% of the Fund's total assets will be invested in the securities of any one foreign government or any other issuer (except that this limitation does not apply to the U.S. Government). However, this 25% restriction does not prohibit the Fund from concentrating more than 25% of its total assets in the securities of issuers located in Canada, Germany, Japan and the United Kingdom as well as in the United States.
SPECIAL INVESTMENTS AND RISK FACTORS FOR THE
CORE FIXED INCOME AND GLOBAL INCOME FUNDS
FOREIGN TRANSACTIONS
Foreign Securities. The Core Fixed Income and Global Income Funds' investments in securities of foreign issuers and Non-Dollar Securities may offer potential benefits that are not available from investments exclusively in securities of domestic issuers. Foreign issuers may offer better investment opportunities than domestic securities Foreign countries may have economic policies or business cycles different from those of the United States and securities markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not typically associated with investing in securities of domestic issuers. Such investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency blockage). A decline in the exchange rate would reduce the value of certain portfolio securities. In addition, if the exchange rate for the currency in which a Fund receives interest payments declines against the U.S. dollar before such interest is paid as dividends to shareholders, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have on occasion been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.
An issuer of fixed income securities purchased by the Core Fixed Income or Global Income Funds may be domiciled in a country other than the country in whose currency the instrument is denominated. The Funds may also invest in debt securities denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts in the currencies of certain of the twelve member states of the European Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Community from time to time to reflect changes in relative values of the underlying currencies. In addition, the Fund may invest in securities denominated in other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers. There may be less publicly available information about a foreign issuer than about a domestic issuer. In addition, there is generally less government regulation of foreign markets and broker-dealers than in the United States. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding taxes on dividend or interest payments, limitations on the removal of funds or other assets of the Funds, political or social instability or diplomatic developments which could affect investments in those countries.
Foreign Currency Transactions. The Core Fixed Income and Global Income Funds may, to the extent it invests in foreign securities, purchase or sell forward foreign currency exchange contracts for hedging purposes, enter into forward foreign currency exchange contracts to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, the Global Income Fund may enter into such contracts to seek to increase total return when the Investment Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities denominated or quoted in that currency do not present attractive investment opportunities
and are not held in the Fund's portfolio. When entered into to seek to increase total return, forward foreign currency exchange contracts are considered speculative. The Global Income 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 if the Investment Adviser determines that there is a pattern of correlation between the two currencies.
A Fund's custodian will place cash or liquid, high grade debt securities into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies. The segregated account will be marked to market on a daily basis. Thus, if the value of securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. If the Global Income Fund enters into a forward foreign currency exchange contract to buy or sell foreign currency to seek to increase total return, the Fund will be required to segregate appropriate liquid securities with the Fund's custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. The Fund will incur costs in connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, the Fund's net asset value to fluctuate as well. 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. 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. To the extent that a substantial portion of The Global Income 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.
The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments authorized for use by the Fund, offers less protection against defaults by the other party to such instruments than is available for currency instruments traded 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 the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price. A Fund will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the Investment Adviser.
In addition to investing in securities denominated or quoted in a foreign currency, the Global Income Fund may engage in a variety of foreign currency management techniques. The 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, based on anticipated changes in the relevant exchange rate. For a discussion of such instruments and the risks associated with their use, see "Investment Objectives and Policies" in the Additional Statement.
Because investment in foreign issuers will usually involve currencies of foreign countries, and because the Global Income Fund may have currency exposure independent of its securities positions, the value of the assets of the Fund as measured in U.S. dollars will be affected by changes in foreign currency exchange rates.
Options on Foreign Currencies. The Core Fixed Income and Global Income
Funds may, to the extent they invests in foreign securities, purchase and sell
(write) 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
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. In addition, the Global Income
Fund may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. 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. A 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 the Fund's position, a Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put and
call options for hedging purposes, the Global Income Fund may purchase call or
put options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Global Income Fund's
portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by the Funds will be traded on U.S. and foreign exchanges
or over-the-counter.
Concentration in Canada, Germany, Japan and the United Kingdom. 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 Global Income Fund's investments in such issuers or currencies 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.
SPECIAL RISK FACTORS FOR THE SHORT DURATION TAX-FREE FUND
Yields and Market Values of Municipal Securities. The yields and market values of Municipal Securities are determined primarily by the general level of interest rates, the supply of and demand for Municipal Securities, the creditworthiness of the issuers of Municipal Securities and economic and political conditions affecting such issuers. Due to their tax-exempt status, the yields and market values of Municipal Securities may be adversely affected by certain factors, such as changes in tax rates and policies, which may have less of an effect on the taxable fixed income markets. Moreover, certain types of Municipal Securities, such as housing revenue bonds, which are based on mortgage revenues, involve prepayment risks which could affect the yields of such Municipal Securities.
Certain types of instruments in which the Short Duration Tax-Free Fund invests, such as zero-coupon, deferred interest and capital appreciation bonds, are more susceptible than short or intermediate term securities to fluctuations as a result of movements in interest rates. As a result, a sudden and extreme rise in interest rates could result in a substantial decline in the value of such portfolio securities. The ability of the Fund to achieve the capital preservation aspect of its investment objective therefore depends in part on the extent to which the Fund is able to anticipate and respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital.
Default Risk. Investments in Municipal Securities, including general obligations and revenue obligations, are subject to the risk that the issuer could default on its obligations, and the Short Duration Tax-Free Fund could sustain losses on such investments. Such a default could result from the inadequacy of the sources or revenues from which interest and principal payments are to be made or the assets collateralizing such obligations. Revenue obligations, including private activity bonds, municipal leases, certificates of participation and certain other types
of instruments in which the Fund may invest, are backed only by specific assets or revenue sources and not by the full faith and credit of the governmental issuer.
Tax Consequences. While the Short Duration Tax-Free Fund, under normal market conditions, invests substantially all of its assets in Municipal Securities, the recognition of accrued market discount income (if the Short Duration Tax-Free Fund acquires Municipal Securities or other obligations at a market discount) and income and/or capital gains from certain types of instruments in which the Fund is permitted to invest, including U.S. Government securities, interest rate swaps, floors, caps and collars, futures contracts and related options, securities loans, the disposition of when-issued securities or forward commitments prior to settlement and repurchase agreements, will result in taxable income, distributions of which will be taxable to shareholders. In addition, the Short Duration Tax-Free Fund's investments in private activity bonds subject to the federal alternative minimum tax could result in income the distribution of which could cause or increase alternative minimum tax liability for some shareholders. The Short Duration Tax-Free Fund may also generate capital gains from the disposition of its investments and its distributions of such capital gains will be taxable to shareholders. Shareholders may be subject to state, local or foreign taxes on certain income received from the Fund. See "Taxation."
Because interest income from Municipal Securities is not subject to regular federal income taxation, the attractiveness of Municipal Securities in relation to other investment alternatives is affected by changes in federal income tax rates applicable to, or the continuing federal income tax-exempt status of, such interest income. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect both the supply of and demand for Municipal Securities, which could in turn affect the Fund's ability to acquire and dispose of Municipal Securities at desirable yield and price levels.
Call Risk and Reinvestment Risk. The Municipal Securities in which the Short Duration Tax-Free Fund invests 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 the Fund's portfolio are called prior to maturity, the 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 Fund's return on its portfolio securities. There is a risk that the proceeds of housing revenue bonds will be in excess of demand for mortgages, which would result in early retirement of the bonds by the issuer. Moreover, such housing revenue bonds depend for their repayment upon the cash flow from the underlying mortgages, which cannot be precisely predicted when the bonds are issued. Any difference in the actual cash flow from such mortgages from the assumed cash flow could have an adverse impact upon the ability of an issuer to make scheduled payments of principal and interest on the bonds or could result in early retirement of the bonds.
OTHER INVESTMENTS
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities. These securities in general include a variety of U.S. Treasury obligations, consisting of bills, notes and bonds, which principally differ only in their interest rates, maturities and times of issuance, and obligations issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored enterprises which are supported by (a) the full faith and credit of the U.S. Treasury (such as Ginnie Mae Certificates), (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 (such as the Fannie Mae Certificates described below), or (d) only the credit of the issuer. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies, instrumentalities or sponsored enterprises in the future.
Government securities include (to the extent consistent with the Act) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government, its agencies or instrumentalities. 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 substantial secondary market, such participations are regarded as illiquid.
Although it does not expect to do so, the Short Duration Tax-Free Fund may invest up to 20% of its net assets in U.S. Government Securities and repurchase agreements collateralized by U.S. Government Securities. In addition, when the Investment Adviser deem appropriate, the Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in such taxable investments, which will generate taxable income.
MORTGAGE-BACKED SECURITIES
Characteristics of Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in mortgage-backed securities, which represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Each mortgage pool underlying Mortgage-Backed Securities will consist 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 (consisting of, among other things, detached residences, townhouses, individual condominium units, duplexes, triplexes, fourplexes, and units in planned unit developments), multifamily (i.e., five or more units) residential properties, agricultural properties, commercial properties and mixed use properties. Mortgage-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, prepayments of loans underlying mortgage-backed securities can be expected to accelerate, and thus impair the Funds' ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many mortgage-backed securities. This possibility is often referred to as extension risk. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other mortgage-backed securities.
Mortgage Pass-Through Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in mortgage pass-through securities ("Mortgage Pass-Throughs"), which are fixed or adjustable rate Mortgage-Backed Securities that 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.
Stripped Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may invest in stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in SMBS issued or guaranteed by the U.S. Government, its agencies or instrumentalities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage loans. If the underlying mortgage loans experience different than anticipated prepayments of principal, the Funds may fail to fully recoup their initial investment in these securities. Although the market for such securities is increasingly liquid, certain SMBS may not be readily marketable and will be considered illiquid for purposes of a 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 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. The Investment Adviser will seek to manage prepayment risk, liquidity concerns relating to privately issued SMBS and certain other risks (and potential benefits) by investing in a variety of such securities and by using certain hedging techniques.
Inverse Floating Rate Mortgage-Backed Securities. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest in inverse floating rate Mortgage-Backed Securities, including "leveraged inverse floaters." Typically, an inverse floater is one of two components created from a pool of fixed rate mortgages. The other component is a floating rate Mortgage-Backed Security in which the rate of interest payable varies directly with a market interest rate index. The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.
Privately Issued Mortgage-Backed Securities. The Core Fixed Income and Global Income Funds may invest in Mortgage-Backed Securities issued by trusts or other entities formed or sponsored by private originators of and institutional investors in mortgage loans and other non-governmental entities (or representing custodial arrangements administered by such institutions). Privately issued Mortgage-Backed Securities are generally backed by pools of conventional (i.e., non-government guaranteed or insured) mortgage loans. Since such Mortgage- Backed Securities normally are not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive a high quality rating from the rating organizations (i.e., S&P's or Moody's), they normally are structured with one or more types of "credit enhancement".
Guaranteed Mortgage-Backed Securities. The Core Fixed Income and Global Income Fund's investments in Mortgage-Backed Securities may, and all of the Short-Term Government Agency and Adjustable Rate Government Agency Funds' investments in Mortgage-Backed Securities will, be issued or guaranteed by the U.S. Government or one of it's agencies or instrumentalities, including but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae securities are backed by the full faith and credit of the U.S. Government, which means that the U.S. Government guarantees that the interest and principal will be paid when due. Fannie Mae and Freddie Mac securities are not backed by the full faith and credit of the U.S. Government; however, the ability of these agencies to borrow from the U.S. Treasury makes their securities high quality securities with minimal credit risks. There are several types of guaranteed Mortgage-Backed Securities currently available, including guaranteed mortgage pass-through certificates and multiple class securities, which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC") pass-through certificates and stripped Mortgage-Backed Securities. The Fund will be permitted to invest in other types of Mortgage-Backed Securities that may be available in the future to the extent investment in such securities is consistent with its investment policies and objective, which require the Fund to invest primarily in guaranteed adjustable rate Mortgage-Backed Securities.
Multiple Class Pass-Through Securities and Collateralized Mortgage Obligations. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may also invest in collateralized mortgage obligations ("CMOs") and REMIC pass-through or participation certificates, which multiple class Mortgage Backed Securities. The Short-Term Government Agency and Adjustable Rate Government Agency Funds will only invest in CMO's issued by U.S. Government agencies and instrumentalities such as Fannie Mae and Freddie Mac . 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, each with a specified fixed or floating interest rate and a final scheduled distribution date. In most 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. Sometimes, however, CMO classes are "parallel pay" (i.e., payments of principal are made to two or more classes concurrently). A REMIC is a CMO that qualifies for special tax treatment under 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.
CMOs and REMIC pass-through certificates ("REMIC Certificates") are types of multiple class pass-through 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 mortgage pass-through certificates (the "Mortgage Assets").
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 scheduled 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 Certificate 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 the parallel pay or sequential structures. These securities include annual 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 which generally require that specified amounts of principal be applied on each payment date to one or more classes of 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 the PAC classes.
Adjustable and Fixed Rate Mortgage Loans. The following is a general description of the adjustable and fixed rate mortgage loans which may be expected to underlie Mortgage-Backed Securities in which the Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may invest. Since a wide variety of mortgage loans are available to borrowers, the actual mortgage loans underlying any particular issue of Mortgage-Backed Securities may differ materially from those described below. In addition,
the Funds will be permitted to invest in Mortgage-Backed Securities that become available in the future to the extent such investments are consistent with its investment objectives and policies.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will 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 gross margin, which is a fixed percentage spread over the Index Rate established for each ARM at the time of its origination.
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 achieve equity and may increase the likelihood of default by such borrowers. 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.
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 ("LIBOR"), 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 the market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of the Adjustable Rate Government Agency Fund's portfolio and therefore in the net asset value of the 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.
Regulation of Mortgage Loans. Mortgage loans are subject to a variety of state and federal laws and regulations designed to protect mortgagors, which may impair the ability of the mortgage lender to enforce its rights under the mortgage documents. These laws and regulations include legal restraints on foreclosures, homeowner rights of redemption after foreclosure, federal, state bankruptcy and debtor relief laws, restrictions on enforcement of mortgage loan "due on sale" clauses and state usury laws. Even though the Short-Term Government Agency and Adjustable Rate Government Agency Funds may only invest in Mortgage-Backed Securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, these regulations may adversely affect the Short-Term Government Agency and Adjustable Rate Government Agency Funds' investments by delaying the Fund's receipt of payments derived from principal of or interest on mortgage loans affected by such laws and regulations.
ASSET-BACKED SECURITIES
Asset-Backed Securities. The Core Fixed Income and Global Income Funds may invest in asset-backed securities, which represent participations in, or are secured by and payable from, assets such as motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements and other categories of receivables. Such securities are generally issued by trusts and special purpose corporations.
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 repayments of principal on the underlying loans. During periods of declining interest rates, prepayments of loans underlying asset-backed securities can be expected to accelerate, and thus impair the Fund's ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many asset-backed securities. This possibility is often referred to as extension risk. Extending the average life of an asset-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other asset-backed securities. Asset-backed securities present certain 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. There is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities. Each Fund (other than the Short Duration Tax-Free Fund) may invest in certain Mortgage-Backed Securities, such as interest-only and principal-only SMBS, that are extremely sensitive to changes in prepayments and interest rates. Even though such securities have been issued or guaranteed by an agency or instrumentality of the U.S. Government, under certain interest rate or prepayment rate scenarios, a Fund may fail to fully recover their investment in such securities.
The investment characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments, usually monthly, and the possibility that unscheduled prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater prepayment rate in a declining interest rate environment. The yields to maturity of the Mortgage-Backed Securities will be affected by the actual rate of payment (including prepayments) of principal of the underlying mortgage loans. The mortgage loans underlying such securities generally may be prepaid at any time without penalty. In a fluctuating interest rate environment, a predominant factor affecting the prepayment rate on a pool of mortgage loans is the difference between the interest rates on the mortgage loans and prevailing mortgage loan interest rates (giving consideration to the cost of any refinancing). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates existing on fixed rate mortgage loans underlying mortgage pass-through securities, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on the fixed rate mortgage loans underlying the mortgage pass-through securities, the rate of prepayment may be expected to decrease.
The reinvestment of principal payments and prepayments received on a mortgage pass-through security may be made at rates higher or lower than the rate payable on such security, thus affecting the return realized by
the Funds. In addition, the receipt of interest payments monthly rather than semi-annually by the Funds has a compounding effect that may increase the yield to the Funds relative to debt obligations that may increase the yield to the Funds relative to debt obligations that pay interest semi-annually. Due to these factors, Mortgage-Backed Securities may also be less effective than U.S. Treasury securities of similar maturity at maintaining yields during periods of changing interest rates. Prepayments may have a disproportionate effect on certain Mortgage-Backed Securities such as SMBS and certain other multiple class pass-through securities. A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
There are certain risks related to a Fund's investment in ARMs, which risks will have a greater input on the Adjustable Rate Government Agency Fund which will invest a significant portion of its assets in such securities. In recent, the rate of principal prepayments with respect to ARMs has fluctuated in recent years. As is the case with fixed rate mortgage loans, ARMs may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, ARMs could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if prevailing interest rates rise significantly, ARMs may prepay at lower rates than if prevailing rates remain at or below those in effect at the time such ARMs were originated due, for example, to the unavailability of lower rate alternatives. As with fixed rate mortgages, there can be no certainty as to the rate of prepayments on the ARMs in either stable or changing interest rate environments. In addition, there can be no certainty as to whether increases in the principal balances of the ARMs due to the addition of deferred interest may result in a default rate higher than that on ARMs that do not provide for negative amortization.
Risks Associated With Derivative Mortgage-Backed Securities. Derivative Mortgage-Backed Securities are subject to different combinations of interest rate and/or prepayment risks. 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. The Investment Adviser may use derivative Mortgage-Backed Securities and other derivative securities consistent with a Fund's investment objective for a variety of purposes including adjusting the average duration or interest rate sensitivity of each Fund's portfolio or attempting to enhance the Fund's total return. The Investment Adviser manages the risk and benefits of derivative mortgage-backed securities and other derivative securities by prudent analysis, selection and monitoring of such securities included in the Fund's portfolio.
The risk of faster than anticipated prepayments generally adversely affects interest-only securities (IOs), super floaters and premium priced Mortgage- Backed Securities. The risk of slower than anticipated prepayments generally adversely affects principal-only securities (POs), floating rate securities subject to interest rate caps, floors and collars, support tranches and discount priced Mortgage-Backed Securities.
Risks Associated With Derivative Floating Rate Securities. Other types of floating rate derivative debt securities present more complex types of 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.
MUNICIPAL SECURITIES IN WHICH THE SHORT-DURATION TAX-FREE FUND WILL INVEST
General. Municipal Securities consist of bonds, notes 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, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily from federal alternative minimum tax or from state or local taxes). 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 also include "private activity bonds" or industrial development bonds, which are issued by or on behalf of public authorities to obtain funds for privately-operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. In addition, proceeds of certain industrial development bonds are used for constructing, equipping, repairing or improving privately operated industrial or commercial facilities. The interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Municipal Leases and Certificates of Participation. 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. 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. The primary risk associated with municipal lease obligations and certificates of participation is that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation of foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to fully recover the Fund's original investment. To the extent that the Short Duration Tax-Free Fund invests in unrated municipal leases or participates in such leases, the Trustees shall monitor on an ongoing basis the credit quality rating and risk of cancellation of such unrated leases. Certain municipal lease obligations and certificates of participation may be deemed illiquid for the purpose of the Fund's 15% limitation on investments in illiquid securities.
Municipal Notes. Municipal Securities in the form of notes generally are used to provide for short-term capital needs in anticipation of an issuer's receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and Construction Loan Notes. The obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuer's payment obligations under the notes or that refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Tax-Exempt Commercial paper is typically short-term, unsecured, negotiable promissory notes. These obligations are issued by state and local governments and their agencies to finance working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long- term debt.
Pre-Refunded Municipal Securities. The principal of and interest on pre- refunded Municipal Securities are no longer paid from the original revenue source for such securities. Instead, the source of such payments is typically an escrow fund consisting of obligations issued or guaranteed by the U.S. Government. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded Municipal Securities.
Tender Option Bonds. The Short Duration Tax-Free Fund may invest in tender option bonds. A tender option bond 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 in conjunction 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 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 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. However, an institution will 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. Although the Short Duration Tax-Free Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by the Investment Adviser, be exempt from regular federal income tax, there is a risk that the Short Duration Tax-Free Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from tax.
Insured Bonds. Insured Municipal Securities are those for which scheduled payments of interest and principal are guaranteed by a private (non- governmental) insurance company. The insurance entitles the Short Duration Tax- Free Fund to receive only the face or par value of the securities held by the Fund. The insurance does not guarantee the market value of the Municipal Securities or the value of the shares of the Fund.
Auction Rate Securities. Provided that the auction mechanism is successful, auction rate securities permit the holder to sell the securities in an auction at par value at specified intervals. The dividend or interest 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 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 the risk that an auction will fail due to insufficient demand for the securities. The Short Duration Tax-Free Fund will take the next scheduled auction date of the auction rate securities into consideration in determining the average portfolio maturity of the Fund.
OTHER INVESTMENTS AND PRACTICES
Inverse Floating Rate Instruments. Each Fund may invest in "leveraged" inverse floating rate debt instruments ("inverse floaters"). The Short Duration Tax-Free Fund may only invest up to 25% of its net assets in 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. 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.
Deferred Interest and Capital Appreciation Bonds. The Global Income and Short Duration Tax-Free Funds may invest in deferred interest and capital appreciation bonds. Deferred interest and capital appreciation bonds are debt securities issued or sold at a discount from their face value that do not entitle the holder to any payment of interest prior to maturity or a specified commencement or redemption date (or cash payment date). The amount of the discount rate 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. A portion of the discount with respect to stripped tax-exempt securities or their coupons may be taxable. The market prices of deferred interest and capital appreciation bonds 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. A Fund's investments in deferred interest and capital appreciation
bonds or stripped securities may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Taxation" in the Additional Statement.
Zero Coupon Bonds. Each Fund may invest in zero coupon securities issued by financial institutions and corporations, zero coupon U.S. Treasury securities (which are Treasury notes and bonds that have been stripped of their unmatured interest coupons), the coupons themselves and receipts or certificates representing interests in such stripped debt obligations. A zero coupon security pays no interest to its holder during its life and its value consists in the difference between its face value at maturity and its cost. The market prices of zero coupon securities generally are more volatile than market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than interest bearing securities having similar maturities and credit qualities. The Funds' investments in zero coupon securities or other stripped securities may require the Funds to sell certain of their portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
Custodial Receipts. The Core Fixed Income and Global Income Funds may acquire custodial receipts in respect of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies or instrumentalities. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. Government.
Corporate Debt Obligations. The Core Fixed Income Fund may invest in corporate debt obligations that are rated, at the time of investment, BBB by S&P or Baa by Moody's or equivalent short-term credit quality ratings and the Global Income Fund may invest in corporate debt obligations subject to its policy of generally intending to invest at least 50% of its net assets in securities having the highest applicable credit quality rating or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable quality. In addition to obligations of corporations, corporate debt obligations include bank obligations and zero coupon securities issued by financial institutions and corporations. 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.
Convertible Securities. The Core Fixed Income Fund may invest in convertible securities, which may include corporate notes or preferred stock but are ordinarily a long-term debt obligation 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 in which the Fund invests will be subject to the same rating criteria as its other investments in fixed income securities.
Structured Securities. The Global Income Fund may invest in structured notes, bonds or debentures. The value of the principal of and/or interest on such securities 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. The terms of the structured securities may provide that in certain circumstances no principal is due at maturity and, therefore, result in the loss of the Fund's investment. 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 entail a greater degree of market risk than other types of fixed income securities. Structured securities may also be more volatile, less liquid and more difficult to accurately price than less complex securities.
Mortgage Dollar Rolls. The Short-Term Government Agency, Adjustable Rate Government Agency and Core Fixed Income Funds may enter into mortgage "dollar rolls" in which the Funds sell securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period each Fund loses the right to receive principal and interest paid on the securities sold. However, a Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the "drop") or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of a Fund compared with what such performance would have been without the use of mortgage dollar rolls. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid, high grade debt securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the Investment Adviser's ability to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, each 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.
Options on Securities and Securities Indices. Each Fund, other than the Short-Term Government Agency and Adjustable Rate Government Agency Funds, may write (sell) covered call and put options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may purchase call and put options on any securities in which it may invest or options on any securities index composed of securities in which it may invest. 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 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 puts for hedging purposes also depends in part on the ability of the Investment Adviser to predict future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in securities prices or determination of the correlation between the securities indices on which options are written and purchased and the securities in a Fund's investment portfolio, the investment performance of the Fund will be less favorable than it would have been in the absence of such options transactions. The writing of options could significantly increase a Fund's portfolio turnover rate and, therefore, associated brokerage commissions or spreads.
The Core Fixed Income and Global Income Funds may also write and purchase options on the yield "spread," or yield 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.
Futures Contacts and Options on Futures Contracts. To hedge against changes in interest rates or securities prices or, currency exchange rates in the case of the Core Fixed Income and Global Income Funds, or to seek to increase total return, each Fund (other than the Short-Term Government Agency Fund) may purchase and sell various kinds of futures contracts, and purchase and write call and put options on any of such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any such contracts and options.
The futures contracts may be based on various securities (such as U.S. Government securities), securities indices and other financial instruments and indices. A Fund will engage in futures and related options transactions only 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. These transactions involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to segregate and maintain cash or liquid, high grade debt securities with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. See "Investment Objectives and Policies-Futures Contracts and Options on Futures Contracts" in the Additional Statement. Thus, while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of the Fund than if it had not entered into any futures contracts or options transactions. The loss incurred by a Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's net asset value. The profitability of a Fund's trading in futures to seek to increase total return depends upon the ability of the Investment Adviser to correctly analyze the futures markets. In addition, because 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. Further, futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and 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. In addition, it is not possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is also likely to fluctuate as a result of independent factors not related to currency fluctuations. Perfect correlation between a Fund's futures positions and its portfolio positions will be impossible to achieve. A Fund's transactions in foreign currency, forward foreign currency exchange contracts, options, futures contracts and certain other derivative transactions may be limited by the requirements of the Code for qualification as a regulated investment company.
Currency Swaps, Mortgage Swaps and Interest Rate Swaps, Caps, Floors and Collars. The Core Fixed Income and Global Income Funds may enter into currency swaps both for hedging purposes and to seek to increase total return. The Short-Term Government Agency, Adjustable Rate Government Agency, Core Fixed Income and Global Income Funds may enter into mortgage swaps for hedging purposes and to seek to increase total return. In addition, each Fund may each enter into 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. 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 swaps, caps, floors and collars, currency swaps and mortgage swaps 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 entered into for hedging purposes.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate or mortgage swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive, if any. In contrast, the currency swaps entered into by the Core Fixed Income and Global Income Funds 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. A Fund will maintain in a segregated account with the Fund's custodian cash and liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlements with respect to swap transactions. To the extent that the net amount payable under an interest rate or mortgage swap and the entire amount of the payment stream payable by a Fund under a currency swap or an interest rate floor, cap or collar is held in a segregated account consisting of cash or liquid, high grade debt securities, the Funds and the Investment Advisers 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 restriction.
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 rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or if unrated by such rating organizations, determined to be of comparable quality by the Investment Adviser.
The use of interest rate, mortgage 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 staff of the SEC currently take the position that swaps, caps, floors and collars are illiquid and thus subject to a Fund's 15% limitation on investments in illiquid securities.
Risks of Derivative Transactions. A Fund's transactions, if any, in options, futures, options on futures, swap transactions, structured securities, interest rate caps, floors and collars, inverse floating rate securities and currency forward contracts involve certain risks, including a possible lack of correlation between changes in the value of hedging instruments and the portfolio assets being hedged, the potential illiquidity of the markets for derivative instruments, the risks arising from the margin requirements and related leverage factors associated with such transactions. The use of these management techniques to seek to increase total return may be regarded as a speculative practice and involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-issued securities. When-issued transactions arise when securities are purchased by a Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Each Fund may also purchase securities on a forward commitment basis; that is, make contracts to purchase securities for a fixed price at a future date beyond customary settlement time. A Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. Alternatively, each Fund may enter into offsetting contracts for the forward sale of other securities that it owns. 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 prior to the settlement date. Although a Fund would generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, the Fund may dispose of when-issued securities or forward commitments prior to settlement if its Investment Adviser deems it appropriate to do so.
Illiquid and Restricted Securities. A Fund may not invest more than 10% of its total assets in securities that are subject to restrictions on resale ("restricted securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund will not invest more than 15% of its net assets in illiquid investments, which includes securities (both foreign and domestic) that are not readily marketable, swap transactions, repurchase agreements maturing in more than seven days, time deposits with a notice or demand period of more than seven days, certain over-the-counter options, and certain restricted securities, unless it is determined, based upon the continuing review of the trading markets for a specific restricted security, that such restricted security is eligible for sale under Rule 144A and, therefore, is liquid. The Board of Trustees has adopted guidelines and delegated to the Investment Adviser the daily function of determining and monitoring the liquidity of restricted securities. The Board of Trustees, however, retains oversight focusing on factors such as valuation, liquidity and availability of information and is ultimately responsible for each determination. Investing in restricted securities eligible for resale pursuant to Rule 144A could have the effect of increasing the level of illiquidity in the Fund 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. A Fund may purchase U.S. Government Securities in a private placement, subject to its 15% limitation of illiquid investments.
Other Investment Companies. Each Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the voting securities of any other investment company. Pursuant to an exemptive order obtained from the SEC, the Funds may invest in money market funds for which an Investment Adviser or any of its affiliates serves as investment adviser. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the advisory and administration fees paid by the Fund. However, to the extent that the Fund invests in a money market fund for which an Investment Adviser acts as adviser, the advisory and administration fees payable by the Fund to an 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 the Investment Adviser or any of its affiliates.
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. 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 in connection with the related repurchase agreement are less than the repurchase price. In addition, in the event of bankruptcy of the seller or failure of the seller to repurchase the securities as agreed, the Fund could suffer losses, including loss of interest on or principal of the security and costs associated with delay and enforcement of the repurchase agreement. The Trustees of the Trust have reviewed and approved certain sellers whom they believe to be creditworthy and have authorized the Funds to enter into repurchase agreements with such sellers. In addition, each Fund, together with other registered investment companies having advisory agreements with an Investment Adviser, 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 seek to increase its income by lending portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as certain broker-dealers, and are required to be secured continuously by collateral in cash, cash equivalents, or U.S. Government securities
maintained on a current basis in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equivalents. 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 a Fund. See "Investment Restrictions" in the Additional Statement. A Fund may experience a loss or delay in the recovery of its securities if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund.
Temporary Investments. The Core Fixed Income and Global Income Funds may, for temporary defensive purposes (such as when instability or unfavorable conditions exist in foreign countries), invest 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. The Short-Term Government Agency and Adjustable Rate Government Agency Funds may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. The Short Duration Tax-Free Fund may for temporary defensive purposes depart from its stated Investment Objective and invest more than 20% of its net assets in Taxable Investments.
Non-Diversification Status. Since the Global Income Fund is "non- diversified" under the Act, it is subject only to certain federal tax diversification requirements. Under federal tax laws, the Global Income Fund may, with respect to 50% of its total assets, invest up to 25% of its total assets in the securities of any issuer (except that this limitation does not apply to U.S. Government securities). With respect to the remaining 50% of the Fund's total assets, (1) the Fund may not invest more than 5% of its total assets in the securities of any one issuer (other than the U.S. Government), and (2) the Fund may not acquire more than 10% of the outstanding voting securities of any one issuer. These tests apply at the end of each quarter of its taxable year and are subject to certain conditions and limitations under the Code. With respect to 75% of a non-diversified Fund's total assets, the Fund, as a matter of investment policy, may not acquire more than 10% of the outstanding voting securities of any one issuer. Since the Global Income Fund is not diversified under the Act, it will be more susceptible to adverse developments affecting any single issuer. The Short-Term Government Agency, Adjustable Rate Government Agency , Short Duration Tax-Free and Core Fixed Income Funds are also subject to the same tax diversification requirements in addition to the diversification requirements arising out of their diversified status under the Act.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described in detail under "Investment Restrictions" in the Additional Statement. These investment restrictions are fundamental policies of a Fund that can not be changed without approval of a majority of the outstanding shares of that Fund. For more information on a Fund's investment restrictions, an investor should obtain the Additional Statement. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate of the Fund will vary from year to year. The portfolio turnover rate is computed by dividing the lesser of the amount of securities purchased or securities sold (excluding all securities whose maturities at acquisition are one year or less) by the average monthly value of such securities owned during the year. A 100% turnover rate would occur, for example, if all of the securities held by the Fund were sold and replaced within one year. The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for the Fund consistent with the Fund's investment objective and portfolio management policies. A higher rate of portfolio turnover results in increased transaction costs to the Fund. The portfolio turnover rate includes the effect of entering into mortgage dollar rolls.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for deciding matters of general policy and reviewing the actions of the Investment Advisers, Subadviser, administrator, distributor and transfer agent. The officers of the Trust conduct and supervise each Fund's daily business operations. The Additional Statement contains information as to the identity of, and other information about, the Trustees and officers of the Trust.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
Investment Advisers and Subadviser. Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to the Short Duration Tax-Free, Core Fixed Income and Global Income Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York 10004, a Delaware limited partnership which is an affiliate of Goldman Sachs, serves as the investment adviser to the Short-Term Government Agency and Adjustable Rate Government Agency Funds. Goldman Sachs Funds Management, L.P. registered as an investment adviser in 1990. Goldman Sachs Asset Management International, 140 Fleet Street, London EC4A 2BJ, England an affiliate of Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman Sachs Asset Management International became a member of the Investment Management Regulatory Organization Limited in 1990 and registered as an investment adviser in 1991. Goldman Sachs Asset Management serves as administrator to The Global Income Fund. As of _______________, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $______ billion.
Under an Investment Advisory Agreement with each Fund, the applicable Investment Adviser, and in the case of the Global Income Fund under a Subadvisory Agreement, the Subadviser, subject to the general supervision of the Trust's Board of Trustees, provides day-to-day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed to permit the Trust to use the name "Goldman Sachs" or a derivative thereof as part of each Fund's name for as long as a Fund's Investment Advisory and Subadvisory Agreements are in effect.
In performing its investment advisory and subadvisory services, each Investment Adviser, while remaining ultimately responsible for the management of the Funds, is able to draw upon the research and expertise of its affiliate offices for portfolio decisions and management with respect to certain portfolio securities.
The Short-Term Government Agency and Adjustable Rate Government Agency Funds' portfolio managers are Jonathan A. Beinner and Theodore T. Sotir. Mr. Beinner is a Vice President of Goldman Sachs and joined the Investment Adviser in 1990 after working in the trading and arbitrage group of Franklin Savings Association. Mr. Sotir is a Vice President of Goldman Sachs and joined the Investment Adviser in 1993 after working as portfolio manager at Fidelity Management Trust Company. Prior to joining Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities department for six years.
The Core Fixed Income Fund's portfolio managers are Jonathan A. Beinner, Richard C. Lucy and Theodore T. Sotir. See above for information about Messrs. Beinner and Sotir. Messrs. Beinner and Lucy each specialize in investing in a particular type of security the Fund may hold. Mr. Sotir helps with overall portfolio strategy and is a member of the Investment Adviser's risk control team. Mr. Lucy is a Vice President of Goldman Sachs and joined the Investment Adviser in 1992 after spending nine years managing fixed income assets as Brown Brothers Harriman & Co.
The Short Duration Tax-Free Fund's portfolio managers are Theodore T. Sotir and Benjamin S. Thompson. See above for information about Mr. Sotir. Mr. Thompson specializes in municipal securities, where his
responsibilities include developing investment strategy and structuring portfolios. Mr. Thompson worked in the institutional sales and marketing group at Goldman Sachs Asst Management until he joined the fixed income team in 1993. Prior to joining Goldman Sachs Asset Management in early 1992, Mr. Thompson worked in the Structured Finance Group of the Chase Manhattan Bank.
The Global Income Fund's portfolio manager is Stephen Fitzgerald. Mr. Fitzgerald joined GSAMI in 1992 and is a Vice President. Prior to 1992, he spent two years managing multi-currency fixed income and balanced portfolios at Invesco MIM Limited, where he was a senior member of the derivative products group. Prior to his employment at Invesco, Mr. Fitzgerald spent three years with Foreign and Colonial Management Limited in London managing fixed income and derivative funds, and, prior to that, in the treasury department of NRMA Insurance Limited in Sydney.
It is the responsibility of the Investment Adviser to make investment decisions for a Fund and to place the purchase and sale orders for the Fund's portfolio transactions in U.S. and foreign securities and currency markets. Such orders may be directed to any broker including, to the extent and in the manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSAM is entitled to a fee from the Short Duration Tax-Free, Core Fixed Income and Global Income Funds, computed daily and payable monthly, at the annual rates of 0.40%, 0.40% and 0.25%, respectively, of average daily net assets; however, GSAM is currently only imposing its advisory fee with respect to the Global Income Fund at the annual rate of .10% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from the Short-Term Government Agency and Adjustable Rate Government Agency Funds, computed daily and payable monthly, at the annual rates of 0.50% and 0.40% of average daily net assets; however, GSFM is currently only imposing its advisory fee with respect to the Short-Term Government Agency Fund at the annual rate of 0.40% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to a Subadvisory Agreement, GSAMI is entitled to a fee from the Global Income Fund, computed daily and payable monthly at the annual rate of 0.50% of average daily net assets; however, GSAMI is currently only imposing its subadvisory fee with respect to the Global Income Fund at the annual rate of .30% of average daily net assets. For the fiscal year ended October 31, 1995, the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free and Core Fixed Income Funds paid fees at the foregoing rates. At various times during the fiscal year ended October 31, 1995, GSAM and GSAMI waived part of their investment advisory and subadvisory fees, respectively, for the Global Income Fund. The average rate for the period paid by the Global Income Fund to GSAM and GSAMI was ___% and ___%, respectively. The advisory fees (combined with the administration fee) paid by the Global Income Fund are higher than the fees paid by most funds but the Investment Adviser believes such fees are comparable to advisory fees paid by funds with similar investment strategies. Each Investment Adviser has voluntarily agreed to reduce the fees payable to it by a Fund (to the extent of its fees) by the amount (if any) that the Fund's expenses would exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement. In addition, the Investment Adviser to the Short-Term Government Agency, Adjustable Rate Government Agency, Short Duration Tax-Free, Core Fixed Income and Global Income Funds has voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds (excluding advisory, administration, service, distribution and authorized dealer service fees, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05%, 0.05%, 0.05%, 0.05% and 0.10% per annum of such Funds' average daily net assets, respectively. 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.
Administrator. As administrator, pursuant to an Administration Agreement with the Global Income Fund GSAM provides personnel for supervisory, administrative, and clerical functions; oversees the performance of administrative and professional services to The Global Income Fund by others; provides office facilities; and
prepares, but does not pay for, reports to shareholders, the SEC and other regulatory authorities. As compensation for the services rendered to the Global Income Fund, GSAM is entitled to a fee from the Global Income, computed daily and payable monthly, at an annual rate equal to 0.15% of the Fund's average daily net assets. For the period ended October 31, 1995, the Global Income Fund paid GSAM a fee for administration services at the foregoing rate. GSAM has agreed to reduce its fees payable by a Fund (to the extent of its fees) by the amount (if any) that a Fund's expenses exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and their affiliates in the management of, or their interest in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to 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 and in general it is not anticipated that the Investment Advisers will have access to proprietary information for the purpose of managing a Fund. 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 and Funds achieve significant profits on their trading for proprietary or other accounts. From time to time, 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. See "Management- Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's transfer agent (the "Transfer Agent") and as such performs various shareholder servicing functions. Shareholders with inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the address or the telephone number set forth on the back cover page of this Prospectus.
DIVIDENDS
Each Fund (other than the Global Income Fund) intends to declare a daily dividend. Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago time, and will be paid monthly. The Global Income Fund intends to declare and pay dividends monthly. Such dividend will accrue to shareholders as of the date such shares are purchased. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of the Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. The Fund also intends that all net realized long-term and short-term capital gains will be declared as a dividend at least annually. In determining amounts of capital gains to be distributed, capital losses including any available capital loss carryovers from prior years will be offset against capital gains.
The Fund's net investment income is determined on a daily basis (monthly in the case of the Global Income Fund). On days on which net asset value is calculated, such determination is made immediately prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago time. On days on which net asset value is not calculated, such determination is made as of 3:00 p.m. Chicago time.
Payment of dividends from net investment income will be made on the last calendar day of each month in additional shares of the Fund at the net asset value on such day, unless cash distributions are elected, in which case, cash payment will be made on the first Business Day of the succeeding month. Payment of dividends with respect to capital gains, if any, when declared will be made in additional shares of the Fund at the net asset value on the payment date, unless cash distributions are elected. This election to receive dividends in cash is initially made on the Account Information Form and may be changed upon written notice to the Transfer Agent at any time prior to the record date for a particular dividend or distribution. If cash dividends are elected with respect to the Fund's monthly net investment income dividends, then cash dividends must also be elected with respect to the non-long term capital gains component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of the Fund a portion of the net asset value per share may be represented by undistributed income of the Fund or realized or unrealized appreciation of the Fund's portfolio securities. Therefore, subsequent distributions (or portions thereof) of taxable income or realized appreciation on such shares may be taxable to the investor even if the net asset value 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.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the Fund's custodian as of the close of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) immediately after determination of the income to be declared as a dividend, on each Business Day (as such term is defined under "Additional Information"). Net asset value per share of each class is calculated by determining the net assets attributable to each class and dividing by the number of outstanding shares of that class.
Investments in Mortgage-Backed Securities and other debt obligations are valued at fair value, based on yield equivalents, a pricing matrix or other sources, under valuation procedures established by the Trust's Board of Trustees. Other portfolio securities for which accurate market quotations are readily available are valued on the basis of quotations, which may be furnished by a pricing service or provided by dealers in such securities. Portfolio securities for which accurate market quotations are not readily available are valued in accordance with the Trust's valuation procedures. Debt obligations with a remaining maturity of 60 days or less are valued at amortized cost. The Board of Trustees has determined that the amortized cost of such securities approximates fair market value. Portfolio securities are valued based on market quotations or, if accurate quotations are not readily available, at fair value as determined in good faith under procedures established by the Trust's Board of Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield and average annual total return and the Short Duration Tax-Free Fund may publish its tax equivalent yield in advertisements and communications to shareholders or prospective investors. Average annual total return is determined by computing the average annual percentage change in value of $1,000 invested at the maximum public offering price for specified periods ending with the most recent calendar quarter, 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 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. Any performance data which is based on a Fund's net asset value per share would be reduced if a sales charge were taken into account. In addition to the above, each Fund may from time to time advertise its performance relative to certain performance rankings and indices.
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 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, the Short Duration Tax-Free Fund tax-free yield. Tax equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most recent distribution of net investment income for a monthly, quarterly or other relevant period and dividing this amount by the net asset value per share or maximum public offering price on the last day of the period for which the distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated separately for each class of shares in existence. Because each class of shares may be subject to different expenses, the yield, total return and distribution rate calculations with respect to each class of shares for the same period will differ. Due to the fees payable under the Distribution, Authorized Dealer Service, Service and Administration Plans, the investment performance, for any period, of the Institutional Shares will always be higher than that of the Class A Shares, Class B Shares, Service Shares and Administration Shares. The investment performance of the Administration Shares will always be higher than that of the Service Shares. The investment performance of the Class A and Class B Shares will be affected by the payment of a sales charge. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any presentation of investment results for any prior period should not be considered a representation of what an investment may earn or what the Fund's performance may be in any future period. In addition to information provided in shareholder reports, the Funds may, in their discretion, from time to time, make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust under an Agreement and Declaration of Trust, as amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are authorized to issue an unlimited number of shares of beneficial interest, $.001 par value per share. The Trustees of the Trust are responsible for the overall management and supervision of its affairs. The Trustees of the Trust have authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Prospectus, the Trustees have authorized shares of the Fund and ten additional series. Additional series may be added in the future. The Trustees have authorization to classify or reclassify any series or portfolio of shares into one or more classes. The Short-Term Government Agency, Short Duration Tax-Free and Core Fixed Income Funds each offer Institutional Shares, Administration Shares and Service Shares. The Adjustable Rate Government Agency Fund offers Institutional Shares, Administration Shares, Service Shares and Class A Shares. The Global Income Fund offers Institutional Shares, Service Shares, Class A Shares and Class B Shares.
Each Institutional Share, Administration Share and Service Share of a Fund represents an equal proportionate interest in the assets belonging to the Fund. All Fund expenses are based on a percentage of the Fund's aggregate average net assets, except that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. It is contemplated that most Administration Shares and Service 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. Administration Shares and Service Shares will each be marketed only to such institutional investors at net asset value with no sales load. Institutional Shares may be purchased for accounts
in the name of an investor or institution that is not compensated by the Fund for services provided to the institution's customers. Administration Shares may be purchased for accounts held in the name of an institution that provides certain account administration services to its customers, including maintenance of account records and processing orders to purchase, redeem or exchange Administration Shares. Administration Shares bear the cost of account administration fees at the annual rate of up to 0.25% of the average daily net assets of such Administration Shares. 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 and processing orders to purchase, redeem or exchange Service Shares, responding to customer inquiries and assisting customers with investment procedures. Service Shares bear the cost of service fees at the annual rate of up to 0.50% of the average daily net assets of such Service Shares. (Institutions that provide services to holders of Administration or Service Shares are referred to in this Prospectus as "Service Organizations").
It is possible that an institution or its affiliate may offer different classes of shares (i.e., Institutional, Administration and Service Shares) to its customers and thus receive different compensation with respect to different classes of shares of the Fund. Administration Shares and Service Shares may each have certain exclusive voting rights on matters relating to their respective plans. Currently, shares of each class may be exchanged only for shares of the same class in another fund and certain money market funds sponsored by Goldman Sachs. The Fund may amend such policy in the future. 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 and on the same day and will be in the same amount, except for differences caused by the fact that the respective account administration and service fees relating to a particular class will be borne exclusively by that class. Similarly, the net asset value per share will vary depending on the class of shares purchased.
When issued, shares are fully paid and non-assessable. In the event of liquidation, shareholders are entitled to share pro rata in the net assets of the applicable Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of November 30, 1995, James F. Scott, P.O Box 8048, Charlottsville,
Virginia 22906 owned beneficially and of record 35% of the Adjustable Rate
Government Agency Fund Class A Shares. State Street Bank & Trust, Trustee, Attn:
Box 1992, Boston, Massachusetts 02105-1992 owned beneficially and of record
30.64% of the Short-Term Government Agency Fund and 99% of the Global Income
Fund Institutional Shares. MGIC, Attn: James McGinnis, P.O. Box 297, Milwaukee,
Wisconsin 53201 owned beneficially and of record 27.16% of the Short Duration
Fund.
Unless otherwise required by the Act, ordinarily it will not be necessary for the Trust to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Trustees or the appointment of independent accountants. Shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees must promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. The Board of Trustees, however, will call a special meeting 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.
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.
Under Massachusetts law, there exists a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains provisions intended to limit such liability and to provide indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected or intends to elect to be treated as a regulated investment company and to qualify for such treatment for each taxable year under Subchapter M of the Code. To qualify as such, a Fund must satisfy certain requirements relating to the sources of its income, diversification of its assets and distribution of its income to shareholders. As a regulated investment company, a Fund will not be subject to federal income or excise tax on any net investment income and net realized capital gains that are distributed to its shareholders in accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of the Code so that it may distribute the tax-exempt interest it receives as "exempt-interest dividends," as defined in the Code. Distributions of the Short Duration Tax-Free Fund that are attributable to interest on tax-exempt obligations and that the Fund designates as exempt-interest dividends will be exempt from regular federal income tax, although all or a portion of such a distribution may be subject to the federal alternative minimum tax and the entire distribution may be includable in the tax base for determining taxability of social security or railroad retirement benefits. Persons who are "substantial users" (or related persons to such substantial users) of facilities financed by industrial development or certain private activity bonds should consult their own tax advisers before purchasing shares of the Short Duration Tax-Free Fund. Interest on indebtedness incurred or continued to purchase or carry shares of the Short Duration Tax-Free Fund is not deductible to the extent attributable to the Short Duration Tax-Free Fund's distributions that are exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net realized foreign exchange gains, the excess of net short-term capital gain over net long-term capital loss and original issue discount or market discount income will be taxable to shareholders as ordinary income. Dividends paid by a Fund from the excess of net long-term capital gain over net short-term capital loss will be taxable as long-term capital gains regardless of how long the shareholders have held their shares. These tax consequences will apply regardless of whether distributions are received in cash or reinvested in shares. A Fund's dividends that are paid to its corporate shareholders from qualifying dividends such Fund receives from U.S. domestic corporations may be eligible, in the hands of such corporate shareholders, for the corporate dividends-received deduction, subject to certain holding period requirements and debt financing limitations under the Code. Certain distributions paid by a Fund in January of a given year may be taxable to shareholders as if received the prior December 31. Shareholders will be informed annually about the amount and character of distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately prior to a distribution. Investors who purchase shares shortly before the record date for a distribution will pay a per share price that includes the value of the anticipated distribution and will be taxed on the distribution (unless it is exempt from tax) even though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31% backup withholding of federal income tax on taxable distributions, redemptions and exchanges if they fail to furnish their correct taxpayer identification number and certain certifications or if they are otherwise subject to backup withholding. Individuals, corporations and other shareholders that are not U.S. persons under the Code are subject to different tax rules and may be subject to non-resident alien withholding at the rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts treated as ordinary dividends from the Funds.
The Core Fixed Income and Global Income Funds may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. If more than 50% of the value of its total assets is
comprised of stock or securities of foreign corporations at the end of its taxable year and the Fund so elects, shareholders will include in their gross incomes (in addition to dividends they receive) their pro rata shares of qualified foreign taxes paid by the Fund and may be entitled to take federal income tax credits or deductions with respect to such taxes. It is not expected that the Core Fixed Income Fund will qualify to make this election. If the Fund cannot or does not so elect, it may deduct taxes in computing its taxable income, if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or foreign taxes on payments received from the Funds. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) a Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations and/or tax-exempt municipal obligations issued by or on behalf of the particular state or a political subdivision thereof, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. For a further discussion of certain tax consequences of investing in shares of the Funds, see "Taxation" in the Additional Statement. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means the vote of the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund.
As used in this Prospectus, 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 (observed), Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to the Service Shares which authorizes a Fund to compensate Service Organizations for providing account administration and personal and account maintenance services to their customers who are beneficial owners of such Shares. The Trust, on behalf of a Fund, will enter into agreements with Service Organizations which purchase Service Shares on behalf of their customers ("Service Agreements"). The Service Agreements will provide for compensation to the Service Organizations in an amount up to 0.50% (on an annualized basis) of the average daily net assets of the Service Shares of the Fund attributable to or held in the name of the Service Organization for its customers; provided, however, that the fee paid for personal and account maintenance services shall not exceed 0.25% of such average daily net assets. The services provided by the Service Organizations may include acting, directly or through an agent, as the sole shareholder of record, maintaining account records for customers, processing orders to purchase, redeem or exchange Service Shares for customers, responding to inquiries from prospective and existing shareholders and assisting customers with investment procedures.
For the fiscal year ended October 31, 1995, the Trust, on behalf of the Funds, paid the Service Organizations fees at the annual rate of 0.50% of a Fund's average daily net assets attributable to Service Shares of the __________ Funds.
Holders of Service Shares of a Fund will bear all expenses and fees paid to Service Organizations for their services with respect to such Shares as well as any other expenses which are directly attributable to such Shares.
Service Organizations (other than broker-dealers) may charge other fees to their customers who are the beneficial owners of Service Shares in connection with their customer accounts. These fees would be in addition to any amounts received by the Service Organization under a Service Agreement and may affect the return earned on an investment in the Fund. The Trust, on behalf of the Fund, will accrue payments made pursuant to a Service Agreement daily. All inquiries of beneficial owners of Service Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report containing audited financial statements and a semi-annual report. Each recordholder of Service Shares will also be provided with a printed confirmation for each transaction in its account and a monthly account statement. A year-to- date statement for any account will be provided to a Service Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to those described above to their customers who are beneficial owners of such Shares. For example, Service Organizations are responsible for providing each customer exercising investment discretion with monthly statements with respect to such customer's account in lieu of an immediate confirmation of each transaction.
PURCHASE OF SERVICE SHARES
It is expected that all direct purchasers of Service Shares of the Funds will be Service Organizations or their nominees. Customers of Service Organizations may invest in Service Shares only through their Service Organizations. Service Shares of the Funds may be purchased by a Service Organization through Goldman Sachs at the net asset value per share next determined after receipt from a Service Organization of an order without the imposition of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New York time), an order, a check or a Federal Reserve draft is received from a Service Organization by Goldman Sachs, the price per share will be the
net asset value per share computed on the day the purchase order or such form of payment is received. See "Net Asset Value."
PURCHASE PROCEDURES
Purchases of Service Shares by a Service Organization may be made by placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal Funds to the Northern Trust Company ("Northern") as subcustodian for State Street Bank and Trust Company ("State Street") on the next Business Day or initiating an ACH transfer to ensure receipt by Northern on the next Business Day. Purchases may also be made by a Service Organization by check (except that a check drawn on a foreign bank will not be accepted) or Federal Reserve draft made payable to "Goldman Sachs Trust - Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606. Payment of the proceeds of redemption of shares purchased by check may be delayed for a period of time as described under "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of purchase orders to Goldman Sachs payments to Northern or State Street. In order to facilitate timely transmittal, the Service Organizations have established times by which purchase orders and payments must be received by them.
OTHER PURCHASE INFORMATION
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 balances. A Service Organization may effect redemptions of noncomplying accounts, and may impose a charge for any special services rendered to its customers. Customers should contact their Service Organization for further information concerning such requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Shareholder whose account balance is less than $100 as a result of earlier redemptions. Such redemptions will not be implemented if the value of such Shareholder's account falls below the minimum account balance solely as a result of market conditions. The Trust will give sixty (60) days prior written notice to Service Shareholders whose Service Shares are being redeemed to allow them to purchase sufficient additional Service Shares to avoid such redemption.
Service Shares of the Global Income Fund will be issued and dividends will begin on such Service Shares on the day the Service Shares are purchased. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago time the purchased shares will be issued and dividends will begin on such shares on the next Business Day, provided that a Federal Funds wire or an ACH transfer is received by Northern on such day.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a Service Organization's check or Federal Reserve draft is received by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will be issued and dividends will begin on such shares on the next Business Day after the Service Organization's check or Federal Reserve draft is received by Goldman Sachs.
The Funds and Goldman Sachs each reserve the right to reject any specific purchase order (including exchanges) or to restrict purchases or exchanges of Service Shares by a particular purchaser (or group of related purchasers). The Fund or Goldman Sachs may reject or restrict purchases or exchanges of Service Shares by a particular purchaser or group, for example, when a pattern of frequent purchases and sales or exchanges of Service
Shares of a Fund is evident, or if the purchase, sale or exchange orders are, or a subsequent abrupt redemption might be, of a size that would disrupt management of the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by Service Organizations for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the relevant class of
any portfolio of Goldman Sachs Money Market Trust at the net asset value next
determined either by writing to Goldman Sachs, Attention: Goldman Sachs Trust -
Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois
60606 or, if previously elected in the Fund's Account Information Form, by
telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago time). A shareholder
should obtain and read the prospectus relating to any other fund and its shares
or units and consider its investment objective, policies and applicable fees
before making an exchange. Service Shares acquired by telephone exchange must
be registered in the same names(s) and have the same address as Service Shares
of the Fund for which the exchange is being made.
In times of drastic economic or market changes the telephone exchange privilege may be difficult to implement. In an effort to prevent unauthorized or fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures as set forth under "Redemption of Service Shares" to confirm that such instructions are genuine. For federal income tax purposes, an exchange is treated as a sale of the Service Shares surrendered in the exchange, on which an investor may realize a gain or loss, followed by a purchase of Service Shares or the relevant class of any portfolio of Goldman Sachs Money Market Trust received in the exchange. Shareholders should consult their own tax advisers concerning the tax consequences of an exchange. Exchanges are available only in states where exchanges may legally be made. The exchange privilege may be modified or withdrawn at any time on sixty (60) days' written notice to recordholders of Service Shares and is subject to certain limitations. See "Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder of such Shares on any Business Day at the net asset value next determined after the receipt by the Transfer Agent of such request in proper from. See "Net Asset Value." If Service Shares to be redeemed were recently purchased by check, the Funds may delay transmittal of redemption proceeds until such time as it has assured itself that good funds have been collected for the purchase of such Service Shares. This may take up to fifteen (15) days. Redemption requests may be made by writing to or calling the Transfer Agent at the address or telephone number set forth on the cover page of this Prospectus. A service Organization may request redemptions by telephone if the optional telephone redemption privilege is elected on the Account Information Form. It may be difficult to implement redemptions by telephone in times of drastic economic or market changes. In an effort to prevent unauthorized or fraudulent redemption or exchange requests by telephone, Goldman Sachs employs reasonable procedures specified by the Trust to confirm that such instructions are genuine. Among other things, any redemption request that requires money to go to an account or address other than that designated on the Account Information Form must be in writing and signed by an authorized person designated on the Account Information Form. Any such written request is also confirmed by telephone with both the requesting party and the designated bank account to verify instructions. Exchanges among accounts with different names, addresses and social security or other taxpayer identification numbers must be in writing and signed by an authorized person designated on the account Information Form. Other procedures may be implemented from time to time. If reasonable procedures are not implemented, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. In all other cases, neither the fund, the Trust nor Goldman Sachs will be responsible for the authenticity of redemption or exchange instructions received by telephone. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the Service Shares to be redeemed earn dividends declared on the day the request is received.
The Funds will arrange for the proceeds of redemptions effected by any means to be wired to the recordholder of Service Shares. Redemption proceeds will normally be wired on the next Business Day in Federal Funds (for a total one-day delay), but may be paid up to seven (7) days after receipt of a properly executed redemption request. Wiring of redemption proceeds may be delayed one additional Business Day if the Federal Reserve Bank is closed on the day redemption proceeds would ordinarily be wired. Once wire transfer instructions have been given by Goldman Sachs, neither the Fund, the Trust nor Goldman Sachs assumes any further responsibility for the performance of intermediaries or the customer's Service Organization in the transfer process. If a problem with such performance arises, the customer should deal directly with such intermediaries or Service Organization.
Additional documentation regarding a redemption by any means may be required to effect a redemption when deemed appropriate by the Transfer Agent. The request for such redemption will not be considered to have been received in proper form until such additional documentation has been submitted to the Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of redemption requests by their customers to the Transfer Agent. In order to facilitate timely transmittal of redemption requests, Service Organizations have established times by which redemption requests must be received by them. Additional documentation may be required when deemed appropriate by a Service Organization.
Except with respect to Service Shareholders whose account balances are less than $100, Service Shares of the Fund are not redeemable at the option of a Fund unless the Board of Trustees of the Trust determines in its sole discretion that failure to so redeem may have material adverse consequences to the shareholders of the Fund. The Funds, however, assumes no responsibility to compel redemptions.
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer Identification Number (TIN), regardless of whether you file tax returns. Failure to do so may subject you to penalties. Failure to provide your correct TIN and to sign your name in the Certification section of the Account Information Form could result in withholding of 31% by the Fund for the Federal backup withholding tax on distributions, redemptions, exchanges and other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income tax return.
If you do not have a TIN, you should apply for one immediately by contacting your local office of the Social Security Administration or the Internal Revenue Service (IRS). Backup withholding could apply to payments relating to your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account established under a Uniform Gifts or Transfers to Minors Act, the TIN of the minor should be furnished.
If you have been notified by the IRS that you are subject to backup withholding because you failed to report your interest and/or dividend income on your tax return and you have not been notified by the IRS that such withholding should cease, you must cross out item (2) in the Certification section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify
your exemption by signing the Certification section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, you must provide a completed Form W-8 to the Fund in order to avoid withholding on certain payments. Other payments to you may be subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding, see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your tax adviser.
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
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.) . . . . . . . . 800-526-7384
GOLDMAN SACHS TRUST
SERVICE SHARES
___________________________________________
PROSPECTUS
52
|
Prospectus ______, 1995 |
TABLE OF CONTENTS
Page
----
Fund Highlights..................... 3
Fees and Expenses................... 7
Financial Highlights................ 10
Investment Objectives and Policies.. 14
Special Investment Methods and
Risk Factors........................ 19
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 32
Reports to Shareholders............. 36
How to Invest....................... 36
Distribution and Authorized Dealer
Service Plan........................ 43
How to Sell Shares of the Funds..... 43
Dividends........................... 45
Net Asset Value..................... 46
Performance Information............. 46
Shares of the Company............... 47
Taxation............................ 47
Additional Information.............. 49
Appendix A-1
Account Application
|
GOLDMAN SACHS TRUST
CLASS A AND B SHARES
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND (CLASS A SHARES ONLY)
Seeks a high level of current income, consistent with low volatility of principal primarily through investment in adjustable rate mortgage pass- through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
GOLDMAN SACHS GOVERNMENT INCOME FUND
Seeks a high level of current income, consistent with safety of principal by investing primarily in securities, including mortgage-backed securities, issued or guaranteed as to principal and interest by the U.S. Government or its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS MUNICIPAL INCOME FUND
Seeks a high level of current income that is exempt from regular federal
income tax, consistent with preservation of capital through investments in
municipal securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.
(continued on next page)
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued)
THE GLOBAL INCOME FUND'S INVESTMENTS IN SECURITIES OF EMERGING MARKETS AND OTHER FOREIGN ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE GLOBAL INCOME FUND, ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN PARTICULAR, THE SECURITIES MARKETS OF FOREIGN COUNTRIES IN WHICH THE GLOBAL INCOME FUND WILL INVEST MAY BE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF THE UNITED STATES. THE FUND IS INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the Government Income, Municipal Income and Global Income Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as investment adviser to the Adjustable Rate Government Agency Fund. Goldman Sachs Asset Management International ("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the "Investment Adviser." GSAM serves as each Fund's (other than the Adjustable Rate Government Agency Fund) administrator and Goldman Sachs serves as each Fund's distributor and transfer agent.
With respect to the Adjustable Rate Government Agency Fund, all references to shares relate only to Class A shares issued by such Funds.
This Prospectus, which sets forth concisely the information about Goldman Sachs Trust (the "Trust") and the Funds that a prospective investor ought to know before investing, should be retained for future reference. A Statement of Additional Information (the "Additional Statement"), dated ________ 1995, containing further information about the Trust and the Funds which may be of interest to investors, has been filed with the Securities and Exchange Commission, is incorporated herein by reference in its entirety, and may be obtained without charge from Goldman Sachs by calling the telephone number, or writing to one of the addresses, listed on the back cover of this Prospectus.
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that offers its shares in several series or funds. Each Fund pools the resources of investors by selling its shares to the public and investing the proceeds in a portfolio of securities designed to achieve that Fund's stated investment objective. The Global Income Fund is a non-diversified fund and each of the other Funds is a diversified fund as defined in the Investment Company Act of 1940 (the "Act").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no assurance that a Fund's objective will be achieved. For a complete description of each Fund's investment objective and policies, see "Investment Objectives and Policies" and "Special Investment Methods and Risk Factors."
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND-The investment objective of the Fund is to provide investors with a high level of current income consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund may also invest in other mortgage-backed securities and other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund seeks to minimize fluctuation in the value of its portfolio securities and therefore its net asset value. It believes that it can achieve this objective by investing primarily in guaranteed adjustable rate mortgage-backed securities, maintaining a maximum duration equal to that of a two-year U.S. Treasury security and a target duration in a range approximately equal to that of a 6-month to one-year U.S. Treasury security (computed using the method described herein) and utilizing certain active management techniques to hedge interest rate risks and to enhance its return.
GOLDMAN SACHS GOVERNMENT INCOME FUND-The investment objective of the Fund is to provide a high level of current income, consistent with safety of principal. The Fund will seek to achieve its investment objective by investing primarily in securities, including mortgage-backed securities, issued or guaranteed as to principal and interest by the U.S. Government or its agencies, instrumentalities or sponsored enterprises ("Government Securities"). Under normal circumstances, at least 65% of the Fund's total assets will be invested in Government Securities and in repurchase agreements collateralized by Government Securities. The Fund also may invest in mortgage-backed securities of non-governmental issuers, asset-backed securities or corporate debt obligations that are rated, at the time of investment, AAA by Standard and Poor's Ratings Group ("S&P") or Aaa by Moody's Investor Services ("Moody's") or equivalent short-term credit quality ratings or, if unrated by such rating organizations, determined by the Fund's Investment Adviser to be of comparable quality. The Fund will normally maintain a dollar weighted average life of between five and ten years. Neither the Fund's net asset value per share nor its yield is guaranteed by the U.S. Government or by its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS MUNICIPAL INCOME FUND-The investment objective of the Fund is to provide investors with a high level of current income that is exempt from regular federal income tax, consistent with preservation of capital. The Fund will seek to achieve its objective primarily through investments in municipal securities, the
interest on which is exempt from regular federal income tax. Under normal market conditions, at least 80% of the Fund's net assets will be invested in Municipal Securities the interest on which is exempt from regular federal income tax; however, the Fund may invest up to 100% of its net assets in private activity bonds the interest from certain of which (including the Fund's distributions of such interest) may be a preference item for purposes of the federal alternative minimum tax. Although it does not expect to do so, the Fund may invest up to 20% of its net assets in taxable investments consisting of obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). The municipal securities in which the Fund invests will, at the time of investment, be rated at least A by S&P or Moody's, or their respective equivalent rating, or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. It is expected that, under normal market conditions, the weighted average credit quality of the Fund's portfolio will be approximately equivalent to that of securities rated AA by S&P or Aa by Moody's. The Fund will maintain, under normal market conditions, an average portfolio maturity approximately equal to the average maturity of the Lehman Brothers 15 Year Municipal Bond Index. There is no limitation as to the average weighted portfolio maturity or permissible stated maturity with respect to individual securities.
GOLDMAN SACHS GLOBAL INCOME FUND-The investment objective of the Fund is to provide investors with a high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies. Under normal market conditions (i) the Fund will have at least 30% of its total assets, after considering the effect of its currency position, denominated in U.S. dollars and (ii) the Fund will invest in securities of issuers in at least three countries. High quality securities are defined as securities rated, at the time of investment, at least AA by S&P or Aa by Moody's or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. The Fund may also invest in obligations of a sovereign issuer rated at least A by S&P or Moody's, or if not rated by such rating organizations, determined by the Investment Adviser or Subadviser to be of comparable credit quality, if the obligations are denominated in the issuers own currency. The Fund will maintain a dollar-weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. It is expected that the Fund will employ certain currency and interest rate management techniques. These techniques will be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities and, in the case of certain techniques, to seek to increase the total return of the Fund.
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the extent applicable to the Global Income Fund, foreign exchange conditions, so that an investment in any of the Funds may be worth more or less when redeemed than when purchased. None of the Funds should be relied upon as a complete investment program. There can be no assurance that a Fund's investment objective will be achieved.
There are certain risks associated with the investment policies of each of the Funds. The securities in a Fund's portfolio will tend to decrease in value when interest rates rise and increase in value when interest rates fall. Because each Fund's investments are interest rate sensitive, the Fund's performance will depend in large part upon the ability of the Fund to respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital. A Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") entail certain risks. These risks include the failure of an issuer or guarantor to meet its obligations, adverse interest rate changes, adverse economic, real estate or unemployment trends, failures in connection with processing of transactions and the effects of prepayments on mortgage cash flows. Under certain interest rate and prepayment scenarios, a Fund may fail to
recoup fully its investment in some of the Mortgage-Backed Securities it holds notwithstanding a direct or indirect governmental or agency guarantee. In addition, a Fund's use of certain investment techniques, including derivatives, forward contracts and options and futures transactions, will subject a Fund to greater risk than funds that do not employ such techniques. To the extent the Global Income Fund invests in securities of non-U.S. issuers and foreign currencies, the Fund may face risks that are different from those associated with investment in domestic securities. The risks of foreign investments and currencies include changes in relative currency exchange rates, political and economic developments and the imposition of exchange controls or other governmental confiscation or restrictions. Generally, there is less availability of data on foreign companies and securities markets as well as less regulation of foreign stock exchanges, brokers and issuers. In addition, because the Global Income Fund will invest primarily outside the U.S., the Fund may involve greater risks, since the securities markets of foreign countries are generally less liquid and subject to greater price volatility.
The Global Income Fund is a "non-diversified" fund as defined under the Act and is therefore subject only to certain federal tax diversification requirements, in addition to the policies adopted by the Investment Adviser. To the extent that a Fund is not diversified under the Act, it will be more susceptible to adverse developments affecting any single issuer of portfolio securities. See "Special Investment Methods and Risk Factors-Non-Diversification Status."
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, a separate operating division of Goldman Sachs, acts as administrator to each Fund (other than Adjustable Rate Government Agency Fund) and serves as the Investment Adviser to the Global Income, Government Income and Municipal Income Funds. Goldman Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as investment adviser to the Adjustable Rate Government Agency Fund. Goldman Sachs Asset Management International, London, England, an affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund. As of ________ 1995, the Investment Advisers, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $___ billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's Class A and Class B shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for purchases of shares of a Fund is $1,500. The minimum initial investment for tax sheltered retirement plans is $250. The minimum investment is $50 for purchases made through the Automatic Investment Plan. The minimum subsequent investment is $50. See "How to Invest-How to Buy Shares of the Funds."
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain investment dealers, including members of the National Association of Securities Dealers, Inc. (the "NASD") and certain other financial service firms that have sales agreements with Goldman Sachs ("Authorized Dealers"). Shares of the Funds may be purchased at the current net asset value per share plus a sales charge which may be imposed either at the time of purchase or on a deferred basis. See "How to Invest."
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds (other than the Adjustable Rate Government Agency Fund which only offers Class A shares) offer two classes of shares which may be purchased at the next determined NAV plus a sales charge which, at the
election, may be imposed either at the time of purchase (Class A shares) or on a deferrable basis (Class B shares).
. Class A shares are sold with an initial sales charge of up to 4.5% of the amount invested.
. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge or CDSC (declining from 5% to zero of the lower of the amount invested or the redemption proceeds) which will be imposed on certain redemptions made within six years of purchase.
You should understand that over time the deferred sales charge plus distribution fee of the Class B shares will exceed the initial sales charge plus the distribution fee of the Class A shares. See "How to Invest - Alternative Purchase Arrangements."
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under "Additional Information," at the net asset value next determined after receipt of such request in proper form, subject to any applicable contingent deferred sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund (other than the Global Income Fund) intends to declare a daily dividend determined with the objective of distributing the majority of net investment income. Such dividends on each Fund (other than the Global Income Fund) will accrue daily with respect to outstanding shares, commencing on the Business Day after the receipt of payment of such shares, and will be paid monthly. The Global Income Fund intends to declare and pay dividends monthly. Dividends on the Global Income Fund will commence as of the purchase of such shares. Over the course of the fiscal year, dividends accrued and paid will constitute all or substantially all of each Fund's net investment income. From time to time a portion of such dividends may constitute a return of capital. Each Fund also intends that substantially all net realized long-term and short- term capital gains will be declared as a dividend and paid at least annually.
You will receive dividends in additional shares of the same class of Fund in which you have invested or may elect to receive cash, shares of the same class of another Fund or certain other mutual funds sponsored by Goldman Sachs whose shares are subject to a sales charge (the "Goldman Sachs Portfolios") or ILA Service Units of the Prime Obligations Portfolio or the Tax-Exempt Diversified Portfolio of Goldman Sachs Money Market Trust (the "ILA Portfolios"). For further information concerning dividends, see "Dividends."
FEES AND EXPENSES
Adjustable Rate
Government Global Government Municipal
Agency Income Income Income
Fund Fund Fund Fund
---- ---- ---- ----
Class A Class A Class B Class A Class B Class A Class B
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases(1)................................. 1.5% 4.5% none 4.5% none 4.5% none
Maximum Sales Charge Imposed on
Reinvested Dividends......................... none none none none none none none
Maximum Deferred Sales Charge.................... none none 5.0% none 5.0% none 5.0%
Redemption Fees(2)............................... none none none none none none none
Exchange Fees(2)................................. none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees (including, after
applicable limitations, advisory and
administration fees)......................... 0.40% 0.55%/6/ 0.55% 0.65% 0.65% 0.55% 0.55%
Distribution (Rule 12b-1) Fees (after
applicable limitations)...................... 0.00%/3/ 0.25% 0.75% 0.00%/5/ 0.75% N/A 0.75%
Authorized Dealer Service Fee.................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses:
Other Expenses (after applicable
limitations)................................. 0.05%/3/ 0.10% 0.10% 0.30%/4/ 0.30%/4/ 0.05%/5/ 0.05%/5/
---------- -------- -------- -------- -------- -------- --------
TOTAL FUND OPERATING EXPENSES
AFTER FEE AND EXPENSE
LIMITATION)........................................ 0.70%/3/ 1.15%/6/ 1.65%/6/ 1.20%/4/ 1.95%/4/ 0.85%/5/ 1.60%/5/
========== ======== ======== ======== ======== ======== ========
|
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
FUND 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
Global Income Fund
Class A Shares........................... $57 $84 $112 $193
Class B Shares
Assuming complete redemption at end
of period............................
Assuming no redemption...............
Government Income Fund
Class A.............................. 57 81 108 184
Class B
Assuming complete redemption at end
of period............................
|
Assuming no redemption
Municipal Income Fund
Class A Shares....................... 53 71 90 145
Class B Shares
Assuming complete redemption at end
of period
Assuming no redemption
Adjustable Rate Government Agency Fund
Class A Shares 22 37 53 101
|
1. As a percentage of the offering price. No sales charge is imposed on purchases of Class A Shares by certain classes of investors. See "How to Invest-Offering Price."
2. A transaction fee of $7.50 may be charged for redemption proceeds paid by wire. In addition to free reinvestments of dividends and distributions in shares of other Goldman Sachs Portfolios or units of the ILA Portfolios and free automatic exchanges pursuant to the Automatic Exchange Program, six free exchanges are permitted in each twelve month period. A fee of $12.50 may be charged for each subsequent exchange during such period. See "How to Invest- Exchange Privilege." In the case of Class A Shares of each Fund other than the Municipal Income Fund, a contingent deferred sales charge may be imposed in connection with certain redemptions of shares sold without an initial sales charge to certain participant-directed plans. See "How to Invest- Participant-Directed Plans." The transfer agency fee incurred by each Fund (other than the Adjustable Rate Government Agency Fund) is based on a fixed per account charge plus transaction fees. See "Management-Distributor and Transfer Agent."
3. Based upon estimated amounts for the current fiscal year. Goldman Sachs voluntarily has agreed to waive its entire distribution fees, 0.25% of average daily net assets attributable to Class A shares, with respect to the Class A shares of the Fund. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Adjustable Rate Government Agency Fund (excluding advisory fees, fees under distribution and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. Goldman Sachs and Investment Adviser have no current intention of modifying or discontinuing such fee and expense limitation of modifying or discontinuing such fee and expense limitations but may do so in the future at their discretion. Without such fee and expense limitations, Distribution Fees, Other Expenses and Total Operation Expenses would be 0.25%, ___% and ___%. Annual operating expenses incurred by the Class A shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of ____%, _____% and ___%, respectively.
4. Based upon estimated amounts for the current fiscal year. "Management Fees" paid by Government Income Fund include advisory and administration fees of 0.50% and 0.15%, respectively. Goldman Sachs voluntarily has agreed to waive its entire distribution fee, 0.25% of average daily net assets attributable to Class A shares, with respect to the Class A shares of the Fund. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Government Income Fund (excluding advisory and administration fees, fees under distribution and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.30% of the Fund's average daily net assets. Goldman Sachs and Investment Adviser have no current intention of modifying or discontinuing such fee and expense limitations buy may do so in the future at their discretion. Without such fee and expense limitations, Distribution Fees, Other Expenses and Total Operating Expenses would be 0.25%, 0.__% and ___%, in the case of Class A shares, and 0.75%, ___% and ___% in the case of Class B shares. Annual operating expenses incurred by the Class A shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of ____%, _____% and ____%, respectively.
5. Based upon estimated amounts for the current fiscal year. "Management Fees" paid by Municipal Income Fund include advisory and administration fees of 0.40% and 0.15%, respectively. Goldman Sachs voluntarily has agreed to waive its entire distribution fee, 0.25% of average daily net assets attributable to Class A shares, with respect to the Class A shares of the Fund. The Investment Adviser has voluntarily agreed to reduce or limit certain "Other Expenses" of Municipal Income Fund (excluding advisory and administration fees, fees under distribution and authorized dealer service plans, taxes,
interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05% of the Fund's average daily net assets. Goldman Sachs and Investment Adviser have no current intention of modifying or discontinuing such fee and expense limitations but may do so in the future at their discretion. Without such fee and expense limitations, Distribution Fees, Other Expenses and Total Operating Expenses would be 0.25%, 0.__% and ___%, in the case of Class A shares, and 0.75%, and ___%, in the case of Class B shares. Annual operating expenses incurred by the Class A shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of ____%, ____% and ___%, respectively.
6. Based upon estimated amounts for the current fiscal year. "Management Fees" paid by Global Income Fund include advisory, subadvisory and administration fees of 0.10%, 0.30% and 0.15% respectively. The Investment Advisers voluntarily have agreed to limit the advisory and subadvisory fees to such amounts. Without such limitations, advisory and subadvisory fees would be 0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily agreed to reduce or limit certain "Other Expenses" of the Global Income Fund (excluding transfer agency fees (estimated to be ___% of average daily net assets [same for each class?]), advisory, subadvisory and administration fees, fees under distribution and authorized dealer service plans, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.6% of the Fund's average daily net assets. The Investment Advisers have no current intention of modifying or discontinuing such fee and expense limitations but may do so in the future at their discretion. Without such fee and expense limitations, Management, Other Expenses and Total Operating Expenses would be 0.90%, ___% and ___%, in the case of Class A shares, and 0.90%, ___% and ___%, in the case of Class B shares. The fee and expense limitations discussed above were adopted during the fiscal year ended October 31, 1995. Annual operating expenses incurred by the Class A shares of the Fund during the fiscal year ended October 31, 1995 (expressed as a percentage of average daily net assets) were Management Fees, Other Expenses and Total Operating Expenses of ___%, ___% and ___%, respectively.
NOTE: CONSIDER ELIMINATING LAST SENTENCE OF EACH NOTE WHICH ADDRESSES HISTORICAL EXPENSES.
Investors should be aware that, due to the distribution fees, a long-term shareholder in a Fund may pay over time more than the economic equivalent of the maximum front-end sales charge permitted under the rules of the NASD.
The information with respect to the Adjustable Rate Government Agency Fund set forth in the foregoing table and hypothetical example relates only to its Class A Shares (the Fund does not offer Class B shares). The Adjustable Rate Government Agency Fund and Global Income Fund, but not the other Funds, also offers Institutional Shares and Service Shares and the Adjustable Rate Government Agency Fund, but not the other Funds, also offers Administration Shares. Institutional, Administration and Service Shares are subject to different fees and expenses (which affects performance), have different minimum investment requirements and are entitled to different services then Class A shares and Class B shares. Information regarding Institutional, Administration and Service Shares may be obtained from your sales representative or from Goldman Sachs by calling the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the various costs and expenses of a Fund that an investor will bear directly or indirectly. The information on cost and expenses included in the table and the hypothetical example above are based on estimated fees and expenses for the current fiscal year and should not be considered as representative of past or future expenses. Actual fees and expenses may be greater or less than those indicated. Moreover, while the example assumes a 5% annual return, a Fund's actual performance will vary and may result in an actual return greater or less than 5%. See "Management-Investment Advisers, Subadviser and Administrator."
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the funds outstanding during the period(s) indicated has been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report incorporated by reference into the Additional Statement from the Annual Report to Shareholders for the Funds for the year ended October 31, 1995 (the "Annual Report"). This information should be read in conjunction with the financial statements and related notes incorporated by reference and attached to the Additional Statement. The Annual Report also contains performance information and is available upon request and without charge by calling the telephone number or writing to one of the addresses on the back cover of this prospectus.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
|
(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. For Class A
shares only, total return would be reduced if a sales charge were taken into
account.
(c) Calculated based on the average shares outstanding methodology.
(d) Class A shares commenced operations on May 15, 1995.
(e) Annualized.
(f) Administration share activity commenced on April 15, 1993.
(g) Commencement of operations.
(j) Includes the effect of mortgage dollar roll transactions.
(k) Not annualized.
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS/(a)/ TRANSACTIONS/(a)/ OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
For the Years Ended
October 31,
- --------------------------
1995...................... $13.47 $ 0.94 $ 1.00 $ -- $ 1.94
1994...................... 14.90 0.85 (1.28) -- (0.43)
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.56 0.58 -- 1.14
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 13.43 0.89 0.92 0.15 1.96
1995 - Institutional
shares/(f)/ 14.09 0.22 0.34 0.06 0.62
1994 - Class A shares 15.07 0.84 (1.37) (0.12) (0.65)
1993 - Class A shares 14.69 0.85 1.07 (0.42) 1.50
1992 - Class A shares 14.60 1.14 0.45 (0.36) 1.23
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 14.55 0.25 0.23 (0.19) 0.29
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... 13.08 0.67 1.09 -- 1.76
1994...................... 14.64 0.73 (1.51) -- (0.78)
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.22 0.32 -- 0.54
- ------------------------------------------------------------------------------------------------------------------------------------
|
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
For the Years Ended
October 31,
- --------------------------
1995...................... $(0.94) $ -- $ -- $ -- $ -- $(0.94)
1994...................... (0.85) (0.12) (0.02) (0.01) -- (1.00)
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.56) -- -- -- -- (0.56)
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares (0.94) -- -- -- -- (0.94)
1995 - Institutional
shares/(f)/ (0.26) -- -- -- -- (0.26)
1994 - Class A shares (0.22) (0.16) -- -- (0.61) (0.99)
1993 - Class A shares (0.85) (0.27) -- -- -- (1.12)
1992 - Class A shares (1.14) -- -- -- -- (1.14)
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares (0.24) -- -- -- -- (0.24)
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... (0.67) -- -- -- -- (0.67)
1994...................... (0.73) (0.05) -- -- -- (0.78)
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.22) -- -- -- -- (0.22)
|
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN/(b)/ NET ASSETS NET ASSETS RATE/(d)/ (IN 000S) NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
For the Years Ended
October 31,
- --------------------------
1995...................... $ 1.00 $14.47 14.90% 0.47% 6.67% 449.53% $ 29,503 2.34% 4.80%
1994...................... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.58 14.90 8.03 0.00/(c)/ 4.87/(c)/ 725.41 12,860 4.00/(c)/ 0.87/(c)/
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995 - Institutional
shares/(f)/ 0.36 14.45 4.42 0.65/(c)/ 6.01/(c)/ 265.86 31,619 1.08/(c)/ 5.58/(c)/
1994 - Class A shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993 - Class A shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992 - Class A shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 0.05 14.60 2.00 0.38/(g)/ 1.72/(g)/ 34.22 388,744 0.44/(g)/ 1.66/(g)/
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
1995...................... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994...................... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.32 14.64 3.73 0.00/(c)/ 5.15/(c)/ 99.99 30,166 2.42/(c)/ 2.73/(c)/
|
/(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 charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
/(c)/ Annualized.
/(d)/ Includes effect of mortgage dollar roll transactions for the Government
Income Fund.
/(e)/ Commencement of operations.
/(f)/ Institutional shares commenced operations on August 1, 1995.
/(g)/ Not annualized.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are described below. Certain other investment practices and management techniques, which involve certain risks, as well as the minimum rating criteria with respect to a Fund's investments in fixed income securities, are described under "Special Investment Methods and Risk Factors." There can be no assurance that the Fund will be successful in achieving its investment objective.
Except as otherwise stated the Fund's investment objective and policies are not fundamental and may be changed without a vote of the shareholders. If there is a change in the Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
The Adjustable Rate Government Agency Fund seeks to provide investors with a high level of current income, consistent with low volatility of principal. The Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of the Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The primary issuers or guarantors of such securities currently include the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), although the Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. The Fund may invest up to 35% of its total assets in other mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-Backed Securities") and other obligations issued and guaranteed by the U.S. Government, its agencies or instrumentalities, as well as repurchase agreements collateralized by U.S. Government securities. Under normal circumstances, substantially all of the Fund's assets will be invested in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund may also employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to minimize fluctuation in its net asset value and to enhance its return. These techniques include, but are not limited to, the use of futures contracts (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may also employ other investment techniques to enhance returns, such as loans of portfolio securities, mortgage dollar rolls and repurchase agreements.
The Fund will maintain a maximum duration approximately equal to that of a two-year U.S. Treasury security. Under normal interest rate conditions, the Fund's actual duration is expected to be in a range approximately equal to that of a 6-month to one-year U.S. Treasury security. The Fund's duration is a measure of the price sensitivity of the portfolio, including expected cash flows and mortgage prepayments under a wide range of interest rate scenarios. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time, including how cash flow is affected by prepayments and by changes in interest rates. In computing the duration of its portfolio, the Fund will have to estimate the duration of obligations that are subject to prepayment or redemption by the issuer taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as option-adjusted duration. The Fund may use various techniques to shorten or lengthen the option-adjusted duration of its portfolio, including the use of futures contracts (including options on futures), the acquisition of debt obligations at a premium or discount, mortgage and interest rate swaps and interest rate floors, caps and collars.
The Investment Adviser expects the Fund's net asset value to be relatively stable during normal market conditions. This is because interest rates on adjustable rate mortgage loans are reset periodically and therefore
yields of portfolio securities representing interests in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such securities to fluctuate less dramatically in response to interest rate fluctuations than would fixed rate debt securities. This is because the Fund's portfolio will consist primarily of guaranteed adjustable rate Mortgage-Backed Securities and because the Fund will maintain a maximum option-adjusted duration approximately equal to that of a two-year U.S. Treasury security and will utilize certain interest rate hedging techniques. However, a sudden and extreme increase in prevailing interest rates may cause a decline in the Fund's net asset value. Conversely, a sudden and extreme decline in interest rates could result in an increase in the Fund's net asset value.
GOVERNMENT INCOME FUND
The Government Income Fund's investment objective is to achieve a high level of current income, consistent with safety of principal. The Fund will seek to achieve its investment objective by investing primarily in securities, including Mortgage-Backed Securities, issued or guaranteed as to principal and interest by the U.S. Government or its agencies, instrumentalities or sponsored enterprises ("Government Securities"). Under normal circumstances, at least 65% of the Fund's total assets will be invested in Government Securities and in repurchase agreements collateralized by Government Securities. The Fund may also invest in Mortgage-Backed Securities of non-governmental issuers, asset-backed securities or corporate debt obligations that are rated, at the time of investment, AAA by S&P or Aaa by Moody's or equivalent short-term credit quality ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization even if it has been rated below the minimum rating by one or more rating organizations. The Fund is not required to dispose of portfolio securities downgraded below the ratings noted above.
The Fund will normally maintain a dollar weighted average life of between five and ten years. In computing the dollar weighted average life of the Fund's portfolio, the Investment Adviser will estimate the average life of each portfolio security based upon anticipated prepayment patterns which, in turn, are based upon past prepayments, prevailing interest rates and other factors. Due to actual prepayment experience, however, the actual average life of a security after purchase by the Fund may prove to be different from its estimated average life. The average life of a Mortgage-Backed Security is likely to be shorter than its stated maturity.
The Fund may employ certain active management techniques to hedge the interest rate risks associated with the Fund's portfolio securities, to seek to enhance safety of principal and to enhance its return. These techniques consist of transactions in futures contracts and option contracts (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. The Fund may attempt to enhance its return by utilizing portfolio securities lending, mortgage dollar rolls, repurchase agreements and other investment practices described under "_____________." Although the Fund seeks to provide safety of principal, it cannot eliminate the risk of a loss of principal.
MUNICIPAL INCOME FUND
The Municipal Income Fund's investment objective is to provide investors with a high level of current income that is exempt from regular federal income tax, consistent with preservation of capital. The Fund will seek to achieve its objective primarily through investments in municipal securities, the interest on which is exempt from regular federal income tax. Under normal market conditions, at least 80% of the Fund's net assets will be invested in securities issued by or on behalf of states, territories and possessions of the United States (including the District of Columbia) and the political subdivisions, agencies and instrumentalities thereof ("Municipal Securities") the interest on which is exempt from regular federal income tax (which is a fundamental policy which may only be changed by a vote of shareholders); however, the Fund may invest up to 100% of its net assets in private activity bonds, the interest from certain of which (including the Fund's distributions of such interest) may be a preference item for purposes of the federal alternative minimum tax and may also increase liability for the corporate environmental tax. Distributions of tax-exempt interest on Municipal Securities will be considered in computing the
"adjusted current earnings" preference item for purposes of the corporate alternative minimum tax, the corporate environmental tax, and the extent, if any, to which a shareholder's Social Security and certain railroad retirement benefits, are taxable.
The Municipal Securities in which the Municipal Income Fund invests will, at the time of investment, be rated at least A by S&P or Moody's or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one such rating organization even if it has been rated below the minimum rating by one or more other rating organizations. It is expected that, under normal market conditions, the weighted average credit quality of the Fund's portfolio will be equivalent to that of securities rated AA by S&P or Aa by Moody's. If a Municipal Security that at the time of purchase satisfied the Fund's minimum rating criteria is subsequently downgraded, the Municipal Income Fund will not be required to dispose of such security. If such a downgrading occurs, the Investment Adviser will consider what action, including the sale of such Municipal Security, is in the best interest of the Fund. The Fund will not continue to hold Municipal Securities that have been downgraded below the Fund's credit criteria if more than 10% of the Fund's total assets would consist of such downgraded securities. See the Appendix to the Additional Statement for a description of Municipal Securities ratings. The credit rating assigned to Municipal Securities by these rating organizations or by the Investment Adviser 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 Fund will maintain, under normal market conditions, an average portfolio maturity approximately equal to the average maturity of the Lehman Brothers 15 Year Municipal Bond Index, which, as of October 31, 1995, was ___ years. The Investment Adviser may, however, increase or decrease such average portfolio maturity depending upon the Investment Adviser's expectation for changes in interest rates or market conditions. There is no limitation as to the permissible stated maturity of individual securities.
Although it does not expect to do so, the Fund may invest up to 20% of its net assets in taxable investments consisting of obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities ("U.S. Government securities") and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). The Fund's investments in Municipal Securities and Taxable Investments may also generate taxable capital gains. See "Taxation."
GLOBAL INCOME FUND
The Global Income Fund's investment objective is to provide investors with
a high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation, primarily through investment
in a portfolio of high quality fixed income securities of U.S. and foreign
issuers and through transactions in foreign currencies. Under normal market
conditions (i) the Fund will have at least 30% of its total assets, after
considering the effect of currency positions denominated in U.S. dollars and
(ii) the Fund will invest in securities of issuers in at least three countries.
High quality securities are defined as securities which have ratings of at least
AA by S&P or Aa by Moody's ("High Quality Ratings") or, if unrated by such
rating organizations, are determined by the Fund's Investment Adviser to be of
comparable credit quality. The Fund may also invest in obligations of a
sovereign issuer rated at least A by S&P or Moody's, or if not rated by such
rating organizations determined by the Investment Adviser or Subadviser to be of
comparable credit quality, if the obligations are denominated in the issuers own
currency. The Fund intends to invest at least 50% of its net assets in
securities having the highest applicable credit quality rating, at the time of
investment, or, if unrated by such rating organizations, determined by the
Investment Adviser to be of comparable credit quality. A security will be
deemed to have met this requirement if it receives the minimum required rating
from at least one such rating organization, at the time of investment, even
though it has been rated below the minimum rating by one or more other rating
organizations.
Under normal circumstances, the Global Income Fund will seek to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed income securities markets and by engaging in
currency transactions to enhance returns and for the purpose of hedging its portfolio. In determining the countries and currencies in which the Fund will invest, the Fund's portfolio managers will form an opinion based primarily on the views of Goldman Sachs' economists as well as information provided by securities dealers, including information relating to factors such as interest rates, inflation, monetary and fiscal policies, taxation, and political climate. The portfolio managers will apply the Black-Litterman Model (the "Model") to their views to develop a portfolio that produces, in the view of the Investment Adviser, the optimal expected return for a given level of risk. The Model factors in the opinions of the portfolio managers, adjusting for their level of confidence in such opinions, with the views implied by an international capital asset pricing formula. The Model is also used to maintain the level of portfolio risk within the guidelines established by the Investment Adviser.
In selecting securities for the Global Income Fund's portfolio, the portfolio managers consider such factors as the security's duration, sector and credit quality rating as well as the security's yield and prospects for capital appreciation. It is expected that the Fund will use currency transactions both to enhance returns for a given level of risk and to hedge its exposure to foreign currencies. 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. The Fund may, for temporary defensive purposes, invest up to 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. See "_____________________________."
The Fund will maintain a dollar-weighted average duration of not more than 7.5 years. The Fund is not subject to any limitation with respect to the average maturity of its portfolio or the individual securities in which the Fund may invest. Duration represents the weighted average maturity of expected cash flows on a debt obligation, discounted to present value. The longer the duration of a debt obligation, the more sensitive its value is to changes in interest rates. Maturity measures only the time until final payment is due on a bond or other debt security; it takes no account of the pattern of a security's cash flows over time. In computing the duration of its portfolio, the Fund will have to estimate the duration of debt obligations that are subject to prepayment or redemption by the issuer. The Fund may use various techniques to shorten or lengthen the dollar weighted average duration of its portfolio, including the acquisition of debt obligations at a premium or discount, transactions in options, futures contracts and options on futures and interest rate swaps.
It is expected that the Global Income Fund will employ certain currency and interest rate management techniques involving risks different from those associated with investing solely in dollar-denominated fixed income securities of U.S. issuers. Such management techniques include transactions in options (including yield curve options), futures, options on futures, forward foreign currency exchange contracts, currency options and futures, currency and interest rate swaps and interest rate floors, caps and collars. 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. See "_____________."
Since the Global Income Fund is not diversified under the Act, it may be more susceptible to adverse developments affecting any single issuer in which its investments are concentrated. Not more than 25% of the Fund's total assets will be invested in the securities of any one foreign government or any other issuer (except that this limitation does not apply to the U.S. Government). However, this 25% restriction does not prohibit the Fund from concentrating more than 25% of its total assets in the securities of issuers located in Canada, Germany, Japan and the United Kingdom as well as in the United States.
SPECIAL INVESTMENTS AND RISK FACTORS FOR THE GLOBAL INCOME FUND
CONCENTRATION IN CANADA, GERMANY, JAPAN AND THE UNITED KINGDOM
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 Global Income Fund's investments in such issuers or currencies
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.
FOREIGN TRANSACTIONS
Foreign Securities. Investments in securities of foreign issuers and Non- Dollar Securities may offer potential benefits that are not available from investments exclusively in securities of domestic issuers. Foreign issuers may offer better investment opportunities than domestic securities Foreign countries may have economic policies or business cycles different from those of the United States and securities markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not typically associated with investing in securities of domestic issuers. Such investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency blockage). A decline in the exchange rate would reduce the value of certain portfolio securities. In addition, if the exchange rate for the currency in which the Global Income Fund receives interest payments declines against the U.S. dollar before such interest is paid as dividends to shareholders, the Global Income Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have on occasion been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.
An issuer of fixed income securities purchased by the Global Income Fund may be domiciled in a country other than the country in whose currency the instrument is denominated. The Global Income Fund may also invest in debt securities denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts in the currencies of certain of the twelve member states of the European Community. The specific amounts of currencies comprising the ECU may be adjusted by the Council of Ministers of the European Community from time to time to reflect changes in relative values of the underlying currencies. In addition, the Fund may invest in securities denominated in other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers. There may be less publicly available information about a foreign issuer than about a domestic issuer. In addition, there is generally less government regulation of foreign markets and broker-dealers than in the United States. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding taxes on dividend or interest payments, limitations on the removal of funds or other assets of the Funds, political or social instability or diplomatic developments which could affect investments in those countries.
Foreign Currency Transactions. The Global Income Fund may, to the extent it invests in foreign securities, purchase or sell forward foreign currency exchange contracts for hedging purposes, enter into forward foreign currency exchange contracts to seek to protect against anticipated changes in future foreign currency exchange rates or may enter into such contracts to seek to increase total return when the Investment Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio. When entered into to seek to increase total return, forward foreign currency exchange contracts are considered speculative. The 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 if the Investment Adviser determines that there is a pattern of correlation between the two currencies. If the Fund enters into a forward foreign currency exchange contract to buy or sell foreign currency to seek to increase total return, the Fund will be required to place and maintain cash or liquid, high grade debt securities in a segregated account with the Fund's custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. The Fund will incur costs in connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, the Fund's net asset value to fluctuate as well. 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. 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. 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.
The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments authorized for use by the Fund, offers less protection against defaults by the other party to such instruments than is available for currency instruments traded 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 the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price. A Fund will not enter into such transactions unless the credit quality of the unsecured senior debt or the claims-paying ability of the counterparty is considered to be investment grade by the Investment Adviser.
In addition to investing in securities denominated or quoted in a foreign currency, the Fund may engage in a variety of foreign currency management techniques. The 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, based on anticipated changes in the relevant exchange rate. For a discussion of such instruments and the risks associated with their use, see "Investment Objectives and Policies" in the Additional Statement.
Because investment in foreign issuers will usually involve currencies of foreign countries, and because the Global Income Fund may have currency exposure independent of its securities positions, the value of the assets of the Fund as measured in U.S. dollars will be affected by changes in foreign currency exchange rates.
Options on Foreign Currencies. The Global Income Fund may, to the extent it invests in foreign securities, purchase and sell (write) 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 anticipated dividends on such securities and against increases in the U.S. dollar cost of foreign securities to be acquired. In addition, the Global Income Fund may use options on currency to cross-hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different currency, if there is a pattern of correlation between the two currencies. 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. The Global Income 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 the Fund's position, the Global Income Fund may forfeit the entire amount of the premium plus related transaction costs. In addition to purchasing put and call options for hedging purposes, the Global Income Fund may purchase call or put options on currency to seek to increase total return when the Investment Adviser anticipates that the currency will appreciate or depreciate in value, but the securities quoted or denominated in that currency do not present attractive investment opportunities and are not held in the Global Income Fund's portfolio. When purchased or sold to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or purchased by the Funds will be traded on U.S. and foreign exchanges or over-the-counter.
SPECIAL RISK FACTORS FOR THE MUNICIPAL INCOME FUND
Yields and Market Values of Municipal Securities. The yields and market values of Municipal Securities are determined primarily by the general level of interest rates, the supply of and demand for Municipal Securities, the creditworthiness of the issuers of Municipal Securities and economic and political conditions affecting such issuers. Due to their tax-exempt status, the yields and market values of Municipal Securities may be adversely affected by certain factors, such as changes in tax rates and policies, which may have less of an effect on the taxable fixed income markets. Moreover, certain types of Municipal Securities, such as housing revenue bonds, which are based on mortgage revenues, involve prepayment risks which could affect the yields of such Municipal Securities.
Certain types of instruments in which the Municipal Income Fund invests, such as zero-coupon, deferred interest and capital appreciation bonds, are more susceptible than short or intermediate term securities to fluctuations as a result of movements in interest rates. As a result, a sudden and extreme rise in interest rates could result in a substantial decline in the value of such portfolio securities. The ability of the Fund to achieve the capital preservation aspect of its investment objective therefore depends in part on the extent to which the Fund is able to anticipate and respond to fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to the Fund, while attempting to minimize the associated risks to its invested capital.
Default Risk. Investments in Municipal Securities, including general obligations and revenue obligations, are subject to the risk that the issuer could default on its obligations, and the Municipal Income Fund could sustain losses on such investments. Such a default could result from the inadequacy of the sources or revenues from which interest and principal payments are to be made or the assets collateralizing such obligations. Revenue obligations, including private activity bonds, municipal leases, certificates of participation and certain other types of instruments in which the Fund may invest, are backed only by specific assets or revenue sources and not by the full faith and credit of the governmental issuer.
Tax Consequences. While the Municipal Income Fund, under normal market conditions, invests substantially all of its assets in Municipal Securities, the recognition of accrued market discount income (if the Municipal Income Fund acquires Municipal Securities or other obligations at a market discount) and income and/or capital gains from certain types of instruments in which the Fund is permitted to invest, including U.S. Government securities, interest rate swaps, floors, caps and collars, futures contracts and related options, securities loans, the disposition of when-issued securities or forward commitments prior to settlement and repurchase agreements, will result in taxable income, distributions of which will be taxable to shareholders. In addition, the Municipal Income Fund's investments in private activity bonds subject to the federal alternative minimum tax could result in income the distribution of which could cause or increase alternative minimum tax liability for some shareholders. The Municipal Income Fund may also generate capital gains from the disposition of its investments and its distributions of such capital gains will be taxable to shareholders. Shareholders may be subject to state, local or foreign taxes on certain income received from the Fund. See "Taxation."
Because interest income from Municipal Securities is not subject to regular federal income taxation, the attractiveness of Municipal Securities in relation to other investment alternatives is affected by changes in federal income tax rates applicable to, or the continuing federal income tax-exempt status of, such interest income. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect both the supply of and demand for Municipal Securities, which could in turn affect the Fund's ability to acquire and dispose of Municipal Securities at desirable yield and price levels.
Call Risk and Reinvestment Risk. The Municipal Securities in which the Municipal Income Fund invests 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 the Fund's portfolio are called prior to maturity, the 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 Fund's return on its portfolio securities. There is a risk that the proceeds of housing revenue bonds will be in excess of demand for mortgages, which would result in early retirement of the bonds by the issuer. Moreover, such housing revenue bonds depend for their repayment upon the cash flow from the underlying mortgages, which cannot be precisely predicted when the bonds are issued. Any difference in the actual cash flow from such mortgages from the assumed cash flow could have an adverse impact upon the ability of an issuer to make scheduled payments of principal and interest on the bonds or could result in early retirement of the bonds.
OTHER INVESTMENTS
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities. These securities in general include a variety of U.S. Treasury obligations, consisting of bills, notes and bonds, which principally differ only in their interest rates, maturities and times of issuance, and obligations issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored enterprises which are supported by (a) the full faith and credit of the U.S. Treasury (such as Ginnie Mae Certificates), (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 (such as the Fannie Mae Certificates described below), or (d) only the credit of the issuer. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies, instrumentalities or sponsored enterprises in the future.
Government securities include (to the extent consistent with the Act) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government, its agencies or instrumentalities. 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 substantial secondary market, such participations are regarded as illiquid.
Although it does not expect to do so, the Municipal Income Fund may invest up to 20% of its net assets in U.S. Government Securities and repurchase agreements collateralized by U.S. Government Securities. In addition, when the Investment Adviser deem appropriate, the Municipal Income Fund may for temporary defensive purposes depart from its stated investment objective and invest more than 20% of its net assets in such taxable investments, which will generate taxable income.
MORTGAGE-BACKED SECURITIES
Characteristics of Mortgage-Backed Securities. The Government Income and Adjustable Rate Government Agency and Global Income Funds may invest in mortgage-backed securities, which represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Each mortgage pool underlying Mortgage-Backed Securities will consist 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 (consisting of, among other things, detached residences, townhouses, individual condominium units, duplexes, triplexes, fourplexes, and units in planned unit developments), multifamily (i.e., five or more units) residential properties, agricultural properties, commercial
properties and mixed use properties. Mortgage-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, prepayments of loans underlying mortgage-backed securities can be expected to accelerate, and thus impair the Funds' ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many mortgage-backed securities. This possibility is often referred to as extension risk. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other mortgage-backed securities.
Mortgage Pass-Through Securities. The Government Income, Adjustable Rate Government Agency and Global Income Funds may invest in mortgage pass-through securities ("Mortgage Pass-Throughs"), which are fixed or adjustable rate Mortgage-Backed Securities that 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.
Stripped Mortgage-Backed Securities. The Government Income and Adjustable Rate Government Agency Funds may invest in stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. The Adjustable Rate Government Agency Fund may only invest in SMBS issued or guaranteed by the U.S. Government, its agencies or instrumentalities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage loans. If the underlying mortgage loans experience different than anticipated prepayments of principal, the Government Income and Adjustable Rate Government Agency Funds may fail to fully recoup their initial investment in these securities. Although the market for such securities is increasingly liquid, certain SMBS may not be readily marketable and will be considered illiquid for purposes of a 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 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. The Investment Adviser will seek to manage prepayment risk, liquidity concerns relating to privately issued SMBS and certain other risks (and potential benefits) by investing in a variety of such securities and by using certain hedging techniques.
Inverse Floating Rate Mortgage-Backed Securities. The Government Income, Adjustable Rate Government Agency and Global Income Funds may invest in inverse floating rate Mortgage-Backed Securities, including "leveraged inverse floaters." Typically, an inverse floater is one of two components created from a pool of fixed rate mortgages. The other component is a floating rate Mortgage-Backed Security in which the rate of interest payable varies directly with a market interest rate index. The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.
Privately Issued Mortgage-Backed Securities. The Government Income and Global Income Funds may invest in Mortgage-Backed Securities issued by trusts or other entities formed or sponsored by private originators of and institutional investors in mortgage loans and other non-governmental entities (or representing custodial arrangements administered by such institutions). Privately issued Mortgage-Backed Securities are generally backed by pools of conventional (i.e., non-government guaranteed or insured) mortgage loans. Since such Mortgage- Backed Securities normally are not guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae
or Freddie Mac, in order to receive a high quality rating from the rating organizations (i.e., S&P's or Moody's), they normally are structured with one or more types of "credit enhancement".
Guaranteed Mortgage-Backed Securities. The Government Income and Global Income Fund's investments in Mortgage-Backed Securities may, and all of the Adjustable Rate Government Agency Fund's investments in Mortgage-Backed Securities will, be issued or guaranteed by the U.S. Government or one of it's agencies or instrumentalities, including but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae securities are backed by the full faith and credit of the U.S. Government, which means that the U.S. Government guarantees that the interest and principal will be paid when due. Fannie Mae and Freddie Mac securities are not backed by the full faith and credit of the U.S. Government; however, the ability of these agencies to borrow from the U.S. Treasury makes their securities high quality securities with minimal credit risks. There are several types of guaranteed Mortgage-Backed Securities currently available, including guaranteed mortgage pass-through certificates and multiple class securities, which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC") pass-through certificates and stripped Mortgage- Backed Securities. The Fund will be permitted to invest in other types of Mortgage-Backed Securities that may be available in the future to the extent investment in such securities is consistent with its investment policies and objective, which require the Fund to invest primarily in guaranteed adjustable rate Mortgage-Backed Securities.
Multiple Class Pass-Through Securities and Collateralized Mortgage Obligations. The Government Income and Adjustable Rate Government Agency and Global Income Funds may also invest in collateralized mortgage obligations ("CMOs") and REMIC pass-through or participation certificates, which multiple class Mortgage Backed Securities. The Adjustable Rate Government Agency Fund will only invest in CMO's issued by U.S. Government agencies and instrumentalities such as Fannie Mae and Freddie Mac . 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, each with a specified fixed or floating interest rate and a final scheduled distribution date. In most 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. Sometimes, however, CMO classes are "parallel pay" (i.e., payments of principal are made to two or more classes concurrently). A REMIC is a CMO that qualifies for special tax treatment under 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.
CMOs and REMIC pass-through certificates ("REMIC Certificates") are types of multiple class pass-through 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 mortgage pass-through certificates (the "Mortgage Assets").
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 scheduled 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 Certificate 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 the parallel pay or sequential structures. These securities include annual 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 which generally require that specified amounts of principal be applied on each payment date to one or more classes of 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 the PAC classes.
Adjustable and Fixed Rate Mortgage Loans. The following is a general description of the adjustable and fixed rate mortgage loans which may be expected to underlie Mortgage-Backed Securities in which the Government Income, Adjustable Rate Government Agency and Global Income Funds may invest. Since a wide variety of mortgage loans are available to borrowers, the actual mortgage loans underlying any particular issue of Mortgage-Backed Securities may differ materially from those described below. In addition, the Funds will be permitted to invest in Mortgage-Backed Securities that become available in the future to the extent such investments are consistent with its investment objectives and policies.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs included in a mortgage pool will 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 gross margin, which is a fixed percentage spread over the Index Rate established for each ARM at the time of its origination.
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 achieve equity and may increase the likelihood of default by such borrowers. 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.
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 ("LIBOR"), 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 the market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of the Adjustable Rate Government Agency Fund's portfolio and therefore in the net asset value of the 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.
Regulation of Mortgage Loans. Mortgage loans are subject to a variety of state and federal laws and regulations designed to protect mortgagors, which may impair the ability of the mortgage lender to enforce its rights under the mortgage documents. These laws and regulations include legal restraints on foreclosures, homeowner rights of redemption after foreclosure, federal, state bankruptcy and debtor relief laws, restrictions on enforcement of mortgage loan "due on sale" clauses and state usury laws. Even though the Adjustable Rate Government Agency Fund may only invest in Mortgage-Backed Securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, these regulations may adversely affect the Adjustable Rate Government Agency Fund's investments by delaying the Fund's receipt of payments derived from principal of or interest on mortgage loans affected by such laws and regulations.
ASSET-BACKED SECURITIES
Asset-Backed Securities. The Government Income and Global Income Funds may invest in asset-backed securities, which represent participations in, or are secured by and payable from, assets such as motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements and other categories of receivables. Such securities are generally issued by trusts and special purpose corporations.
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 repayments of principal on the underlying loans. During periods of declining interest rates, prepayments of loans underlying asset-backed securities can be expected to accelerate, and thus impair the Fund's ability to reinvest the returns of principal at comparable yields. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many asset-backed securities. This possibility is often referred to as extension risk. Extending the average life of an asset-backed security increases the risk of depreciation due to future increases in market interest rates. Accordingly, the market values of such securities will vary with changes in market interest rates generally and in yield differentials among various kinds of U.S. Government securities and other asset-backed securities. Asset- backed securities present certain 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. There is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities. Each Fund (other than the Municipal Income Fund) may invest in certain Mortgage- Backed Securities, such as interest-only and principal-only SMBS, that are extremely sensitive to changes in prepayments and interest rates. Even though such securities have been issued or guaranteed by an agency or instrumentality of the U.S. Government, under certain interest rate or prepayment rate scenarios, a Fund may fail to fully recover their investment in such securities.
The investment characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments, usually monthly, and the possibility that unscheduled prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater prepayment rate in a declining interest rate environment. The yields to maturity of the Mortgage-Backed Securities will be affected by the actual rate of payment (including prepayments) of principal of the underlying mortgage loans. The mortgage loans underlying such securities generally may be prepaid at any time without penalty. In a fluctuating interest rate environment, a predominant factor affecting the prepayment rate on a pool of mortgage loans is the difference between the interest rates on the mortgage loans and prevailing mortgage loan interest rates (giving consideration to the cost of any refinancing). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates existing on fixed rate mortgage loans underlying mortgage pass-through securities, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on the fixed rate mortgage loans underlying the mortgage pass-through securities, the rate of prepayment may be expected to decrease.
The reinvestment of principal payments and prepayments received on a mortgage pass-through security may be made at rates higher or lower than the rate payable on such security, thus affecting the return realized by the Funds. In addition, the receipt of interest payments monthly rather than semi-annually by the Funds has a compounding effect that may increase the yield to the Funds relative to debt obligations that may increase the yield to the Funds relative to debt obligations that pay interest semi-annually. Due to these factors, Mortgage-Backed Securities may also be less effective than U.S. Treasury securities of similar maturity at maintaining yields during periods of changing interest rates. Prepayments may have a disproportionate effect on certain Mortgage-Backed Securities such as SMBS and certain other multiple class pass- through securities. A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
There are certain risks related to a Fund's investment in ARMs, which risks will have a greater input on the Adjustable Rate Government Agency Fund which will invest a significant portion of its assets in such securities. In recent, the rate of principal prepayments with respect to ARMs has fluctuated in recent years. As is the case with fixed rate mortgage loans, ARMs may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, ARMs could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if prevailing interest rates rise significantly, ARMs may prepay at lower rates than if prevailing rates remain at or below those in effect at the time such ARMs were originated due, for example, to the unavailability of lower rate alternatives. As with fixed rate mortgages, there can be no certainty as to the rate of prepayments on the ARMs in either stable or changing interest rate environments. In addition, there can be no certainty as to whether increases in the principal balances of the ARMs due to the addition of deferred interest may result in a default rate higher than that on ARMs that do not provide for negative amortization.
Risks Associated With Derivative Mortgage-Backed Securities. Derivative Mortgage-Backed Securities are subject to different combinations of interest rate and/or prepayment risks. 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. The Investment Adviser may use derivative Mortgage-Backed Securities and other derivative securities consistent with each of the Government Income and Adjustable Rate Government Agency Fund's investment objective for a variety of purposes including adjusting the average duration or interest rate sensitivity of each Fund's portfolio or attempting to enhance the Fund's total return. The Investment Adviser manages the risk and benefits of derivative mortgage-backed securities and other derivative securities by prudent analysis, selection and monitoring of such securities included in the Fund's portfolio.
The risk of faster than anticipated prepayments generally adversely affects interest-only securities (IOs), super floaters and premium priced Mortgage- Backed Securities. The risk of slower than anticipated prepayments generally adversely affects principal-only securities (POs), floating rate securities subject to interest rate caps, floors and collars, support tranches and discount priced Mortgage-Backed Securities.
Risks Associated With Derivative Floating Rate Securities. Other types of floating rate derivative debt securities present more complex types of 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.
MUNICIPAL SECURITIES IN WHICH THE MUNICIPAL INCOME FUND WILL INVEST
General. Municipal Securities consist of bonds, notes 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, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily from federal alternative minimum tax or from state or local taxes). 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 also include "private activity bonds" or industrial development bonds, which are issued by or on behalf of public authorities to obtain funds for privately-operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. In addition, proceeds of certain industrial development bonds are used for constructing, equipping, repairing or improving privately operated industrial or commercial facilities. The interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Municipal Leases and Certificates of Participation. 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. 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. The primary risk associated with municipal lease obligations and certificates of participation is that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation of foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to fully recover the Fund's original investment. To the extent that the Municipal Income Fund invests in unrated municipal leases or participates in such leases, the Trustees shall monitor on an ongoing basis the credit quality rating and risk of cancellation of such unrated leases. Certain municipal lease obligations
and certificates of participation may be deemed illiquid for the purpose of the Fund's 15% limitation on investments in illiquid securities.
Municipal Notes. Municipal Securities in the form of notes generally are used to provide for short-term capital needs in anticipation of an issuer's receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and Construction Loan Notes. The obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuer's payment obligations under the notes or that refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Tax-Exempt Commercial paper is typically short-term, unsecured, negotiable promissory notes. These obligations are issued by state and local governments and their agencies to finance working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long- term debt.
Pre-Refunded Municipal Securities. The principal of and interest on pre- refunded Municipal Securities are no longer paid from the original revenue source for such securities. Instead, the source of such payments is typically an escrow fund consisting of obligations issued or guaranteed by the U.S. Government. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded Municipal Securities.
Tender Option Bonds. The Municipal Income Fund may invest in tender option bonds. A tender option bond 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 in conjunction 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 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 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. However, an institution will 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. Although the Municipal Income Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by the Investment Adviser, be exempt from regular federal income tax, there is a risk that the Municipal Income Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from tax.
Insured Bonds. Insured Municipal Securities are those for which scheduled payments of interest and principal are guaranteed by a private (non- governmental) insurance company. The insurance entitles the Municipal Income Fund to receive only the face or par value of the securities held by the Fund. The insurance does not guarantee the market value of the Municipal Securities or the value of the shares of the Fund.
Auction Rate Securities. Provided that the auction mechanism is successful, auction rate securities permit the holder to sell the securities in an auction at par value at specified intervals. The dividend or interest 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 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 the risk that an auction will fail due to insufficient demand for the securities. The Municipal
Income Fund will take the next scheduled auction date of the auction rate securities into consideration in determining the average portfolio maturity of the Fund.
OTHER INVESTMENTS AND PRACTICES
Inverse Floating Rate Instruments. Each Funds may invest in "leveraged" inverse floating rate debt instruments ("inverse floaters"). The Municipal Income Fund may only invest up to 25% of its net assets in inverse floaters. Currently the Municipal Income Fund has no intention of investing in such instruments. 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. 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.
Deferred Interest and Capital Appreciation Bonds. The Global Income and Municipal Income Funds may invest in deferred interest and capital appreciation bonds. Deferred interest and capital appreciation bonds are debt securities issued or sold at a discount from their face value that do not entitle the holder to any payment of interest prior to maturity or a specified commencement or redemption date (or cash payment date). The amount of the discount rate 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. A portion of the discount with respect to stripped tax-exempt securities or their coupons may be taxable. The market prices of deferred interest and capital appreciation bonds 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. A Fund's investments in deferred interest and capital appreciation bonds or stripped securities may require the Fund to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements. See "Taxation" in the Additional Statement.
Zero Coupon Bonds. Each Fund may invest in zero coupon securities issued by financial institutions and corporations, zero coupon U.S. Treasury securities (which are Treasury notes and bonds that have been stripped of their unmatured interest coupons), the coupons themselves and receipts or certificates representing interests in such stripped debt obligations. A zero coupon security pays no interest to its holder during its life and its value consists in the difference between its face value at maturity and its cost. The market prices of zero coupon securities generally are more volatile than market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than interest bearing securities having similar maturities and credit qualities. The Funds' investments in zero coupon securities or other stripped securities may require the Funds to sell certain of their portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
Custodial Receipts. The Global Income Fund may acquire custodial receipts in respect of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies or instrumentalities. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. Government.
Corporate Debt Obligations. The Government Income Fund may invest in corporate debt obligations that are rated, at the time of investment, AAA by S&P or Aaa by Moody's or equivalent short-term credit quality ratings and the Global Income Fund may invest in corporate debt obligations subject to its policy of generally intending to
invest at least 50% of its net assets in securities having the highest applicable credit quality rating or, if unrated by such rating organizations, determined by the Investment Adviser to be of comparable quality. In addition to obligations of corporations, corporate debt obligations include bank obligations and zero coupon securities issued by financial institutions and corporations. 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.
Structured Securities. The Global Income Fund may invest in structured notes, bonds or debentures. The value of the principal of and/or interest on such securities 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. The terms of the structured securities may provide that in certain circumstances no principal is due at maturity and, therefore, result in the loss of the Fund's investment. 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 entail a greater degree of market risk than other types of fixed income securities. Structured securities may also be more volatile, less liquid and more difficult to accurately price than less complex securities.
Mortgage Dollar Rolls. The Government Income and Adjustable Rate Government Agency Funds may enter into mortgage "dollar rolls" in which the Funds sell securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period each Fund loses the right to receive principal and interest paid on the securities sold. However, a Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the "drop") or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of a Fund compared with what such performance would have been without the use of mortgage dollar rolls. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid, high grade debt securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the Investment Adviser's ability to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, each 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.
Options on Securities and Securities Indices. Each Fund, other than the Adjustable Rate Government Agency Fund, may write (sell) covered call and put options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may purchase call and put options on any securities in which it may invest or options on any securities index composed of securities in which it may invest. 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 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 puts for hedging purposes also depends in part on the ability of the Investment Adviser to predict future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in securities prices or determination of the correlation between the securities indices on which options are written and purchased and the securities in a Fund's investment portfolio, the investment performance of the Fund will be less favorable than it
would have been in the absence of such options transactions. The writing of options could significantly increase a Fund's portfolio turnover rate and, therefore, associated brokerage commissions or spreads.
The Global Income and Government Income Funds may also write and purchase options on the yield "spread," or yield 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.
Futures Contacts and Options on Futures Contracts. To hedge against changes in interest rates or securities prices or, currency exchange rates in the case of the Global Income Fund, or to seek to increase total return, each Fund may purchase and sell various kinds of futures contracts, and purchase and write call and put options on any of such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any such contracts and options. The futures contracts may be based on various securities (such as U.S. Government securities), securities indices and other financial instruments and indices. A Fund will engage in futures and related options transactions only 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. These transactions involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to segregate and maintain cash or liquid, high grade debt securities with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. See "Investment Objectives and Policies-Futures Contracts and Options on Futures Contracts" in the Additional Statement. Thus, while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of the Fund than if it had not entered into any futures contracts or options transactions. The loss incurred by a Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's net asset value. The profitability of a Fund's trading in futures to seek to increase total return depends upon the ability of the Investment Adviser to correctly analyze the futures markets. In addition, because 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. Further, futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and 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. In addition, it is not possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in foreign currencies because the value of such securities is also likely to fluctuate as a result of independent factors not related to currency fluctuations. Perfect correlation between a Fund's futures positions and its portfolio positions will be impossible to achieve. A Fund's transactions in foreign currency, forward foreign currency exchange contracts, options, futures contracts and certain other derivative transactions may be limited by the requirements of the Code for qualification as a regulated investment company.
Currency Swaps, Mortgage Swaps and Interest Rate Swaps, Caps, Floors and Collars. The Global Income Fund may enter into currency swaps both for hedging purposes and to seek to increase total return. The Government Income, Adjustable Rate Government Agency and Global Income Funds may enter into mortgage swaps
for hedging purposes and to seek to increase total return. In addition, each Fund may each enter into 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. 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 swaps, caps, floors and collars, currency swaps and mortgage swaps 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 entered into for hedging purposes.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate or mortgage swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive, if any. In contrast, the currency swaps entered into by the Global Income Fund 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. A Fund will maintain in a segregated account with the Fund's custodian cash and liquid, high grade debt securities equal to the net amount, if any, of the excess of the Fund's obligations over its entitlements with respect to swap transactions. To the extent that the net amount payable under an interest rate or mortgage swap and the entire amount of the payment stream payable by a Fund under a currency swap or an interest rate floor, cap or collar is held in a segregated account consisting of cash or liquid, high grade debt securities, the Funds and the Investment Advisers 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 restriction.
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 rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or if unrated by such rating organizations, determined to be of comparable quality by the Investment Adviser.
The use of interest rate, mortgage 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 staff of the SEC currently take the position that swaps, caps, floors and collars are illiquid and thus subject to a Fund's 15% limitation on investments in illiquid securities.
Risks of Derivative Transactions. A Fund's transactions, if any, in options, futures, options on futures, swap transactions, structured securities, interest rate caps, floors and collars, inverse floating rate securities and currency forward contracts involve certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets being hedged, the potential illiquidity of the markets for derivative instruments, the risks arising from the margin requirements and related leverage factors associated with such transactions. The use of these management techniques to seek to increase total return may be regarded as a speculative practice and involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-issued securities. When-issued transactions arise when securities are purchased by a Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Each Fund may also purchase securities on a forward commitment basis; that is, make contracts to purchase securities for a fixed price at a future date beyond customary settlement time. A Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. Alternatively, each Fund may enter into offsetting contracts for the forward sale of other securities that it owns. 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 prior to the settlement date. Although a Fund would generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, the Fund may dispose of when-issued securities or forward commitments prior to settlement if its Investment Adviser deems it appropriate to do so.
Illiquid and Restricted Securities. A Fund may not invest more than 10% of its total assets in securities that are subject to restrictions on resale ("restricted securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund will not invest more than 15% of its net assets in illiquid investments, which includes securities (both foreign and domestic) that are not readily marketable, swap transactions, repurchase agreements maturing in more than seven days, time deposits with a notice or demand period of more than seven days, certain over-the-counter options, and certain restricted securities, unless it is determined, based upon the continuing review of the trading markets for a specific restricted security, that such restricted security is eligible for sale under Rule 144A and, therefore, is liquid. The Board of Trustees has adopted guidelines and delegated to the Investment Adviser the daily function of determining and monitoring the liquidity of restricted securities. The Board of Trustees, however, retains oversight focusing on factors such as valuation, liquidity and availability of information and is ultimately responsible for each determination. Investing in restricted securities eligible for resale pursuant to Rule 144A could have the effect of increasing the level of illiquidity in the Fund 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. A Fund may purchase U.S. Government Securities in a private placement, subject to its 15% limitation of illiquid investments.
Other Investment Companies. Each Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the voting securities of any other investment company. Pursuant to an exemptive order obtained from the SEC, the Funds may invest in money market funds for which an Investment Adviser or any of its affiliates serves as investment adviser. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the advisory and administration fees paid by the Fund. However, to the extent that the Fund invests in a money market fund for which an Investment Adviser acts as adviser, the advisory and administration fees payable by the Fund to an 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 the Investment Adviser or any of its affiliates.
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. 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 in connection with the related repurchase agreement are less than the repurchase price. In addition, in the event of bankruptcy of the seller or failure of the seller to repurchase the securities as agreed, the Fund could suffer losses, including loss of interest on or principal of the security and costs associated with delay and enforcement of the repurchase agreement. The Trustees of the Trust have reviewed and approved certain sellers whom they believe to be creditworthy and have authorized the Funds to enter into repurchase agreements with such sellers. In addition, each Fund, together with other registered investment companies having advisory agreements with an Investment Adviser, 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 seek to increase its income by lending portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as certain broker-dealers, and are required to be secured continuously by collateral in cash, cash equivalents, or U.S. Government securities maintained on a current basis in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equivalents. If an Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 331/3% of the value of the total assets of a Fund. See "Investment Restrictions" in the Additional Statement. A Fund may experience a loss or delay in the recovery of its securities if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund.
Temporary Investments. The Global Income Fund may, for temporary defensive purposes (such as when instability or unfavorable conditions exist in foreign countries), invest 100% of its total assets in dollar-denominated securities or securities of U.S. issuers. The Government Income Fund may for temporary defensive purposes to preserve capital, hold part or all of its assets in (a) cash, (b) cash equivalents, such as certificates of deposit, commercial paper, time deposits and bankers' acceptances issued by a bank the unsecured commercial paper of which is rated A-1+ by S&P or P-1 by Moody's or (c) repurchase agreements collateralized by such instruments. The Adjustable Rate Government Agency Fund may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. The Municipal Income Fund may for temporary defensive purposes depart from its stated Investment Objective and invest more than 20% of its net assets in Taxable Investments.
Non-Diversification Status. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government), and
(2) the Fund may not acquire more than 10% of the outstanding voting securities
of any one issuer. These tests apply at the end of each quarter of its taxable
year and are subject to certain conditions and limitations under the Code. With
respect to 75% of a non-diversified Fund's total assets, the Fund, as a matter
of investment policy, may not acquire more than 10% of the outstanding voting
securities of any one issuer. Since the Global Income Fund is not diversified
under the Act, it will be more susceptible to adverse developments affecting any
single issuer. The Government Income, Municipal Income and Adjustable Rate
Government Agency Funds are also subject to the same tax diversification
requirements in addition to the diversification requirements arising out of
their diversified status under the Act.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described in detail under "Investment Restrictions" in the Additional Statement. These investment restrictions are fundamental policies of a Fund that can
not be changed without approval of a majority of the outstanding shares of that Fund. For more information on a Fund's investment restrictions, an investor should obtain the Additional Statement. All investment objectives and policies not specifically designated as fundamental are non-fundamental and may be changed without shareholder approval. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate of the Fund will vary from year to year. The portfolio turnover rate is computed by dividing the lesser of the amount of securities purchased or securities sold (excluding all securities whose maturities at acquisition are one year or less) by the average monthly value of such securities owned during the year. A 100% turnover rate would occur for example, if all of the securities held by the Fund were sold and replaced within one year. The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for the Fund consistent with the Fund's investment objective and portfolio management policies. A higher rate of portfolio turnover results in increased transaction costs to the Fund. The portfolio turnover rate includes the effect of entering into mortgage dollar rolls.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for deciding matters of general policy and reviewing the actions of the Investment Advisers, Subadviser, administrator, distributor and transfer agent. The officers of the Trust conduct and supervise each Fund's daily business operations. The Additional Statement contains information as to the identity of, and other information about, the Trustees and officers of the Trust.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
Investment Advisers and Subadviser. Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to the Global Income, Government Income and Municipal Income Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York 10004, a Delaware limited partnership which is an affiliate of Goldman Sachs, serves as the investment adviser to the Adjustable Rate Government Agency Fund. Goldman Sachs Funds Management, L.P. registered as an investment adviser in 1990. Goldman Sachs Asset Management International, 140 Fleet Street, London EC4A 2BJ, England an affiliate of Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman Sachs Asset Management International became a member of the Investment Management Regulatory Organization Limited in 1990 and registered as an investment adviser in 1991. Goldman Sachs Asset Management serves as administrator to each Fund other than the Adjustable Rate Government Agency Fund. As of _______________, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted as investment adviser, administrator or distributor for assets in excess of $______ billion.
Under an Investment Advisory Agreement with each Fund, the applicable Investment Adviser, and in the case of the Global Income Fund under a Subadvisory Agreement, the Subadviser, subject to the general supervision of the Trust's Board of Trustees, provides day-to-day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed to permit the Trust to use the name "Goldman Sachs" or a derivative thereof as part of each Fund's name for as long as a Fund's Investment Advisory and Subadvisory Agreements are in effect.
In performing its investment advisory and subadvisory services, each Investment Adviser, while remaining ultimately responsible for the management of the Funds, is able to draw upon the research and expertise of its affiliate offices for portfolio decisions and management with respect to certain portfolio securities.
The Adjustable Rate Government Agency Fund's portfolio managers are Jonathan A. Beinner and Theodore T. Sotir. Mr. Beinner is a Vice President of Goldman Sachs and joined the Investment Adviser in 1990 after working in the trading and arbitrage group of Franklin Savings Association. Mr. Sotir is a Vice President of Goldman Sachs and joined the Investment Adviser in 1993 after working as portfolio manager at Fidelity Management Trust Company. Prior to joining Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities department for six years.
The Government Income Fund's portfolio managers are Jonathan A. Beinner, Richard C. Lucy and Theodore T. Sotir. See above for information about Messrs. Beinner and Sotir. Messrs. Beinner and Lucy each specialize in investing in a particular type of security the Fund may hold. Mr. Sotir helps with overall portfolio strategy and is a member of the Investment Adviser's risk control team. Mr. Lucy is a Vice President of Goldman Sachs and joined the Investment Adviser in 1992 after spending nine years managing fixed income assets as Brown Brothers Harriman & Co.
The Municipal Income Fund's portfolio managers are Theodore T. Sotir and Benjamin S. Thompson. See above for information about Mr. Sotir. Mr. Thompson specializes in municipal securities, where his responsibilities include developing investment strategy and structuring portfolios. Mr. Thompson worked in the institutional sales and marketing group at Goldman Sachs Asst Management until he joined the fixed income team in 1993. Prior to joining Goldman Sachs Asset Management in early 1992, Mr. Thompson worked in the Structured Finance Group of the Chase Manhattan Bank.
The Global Income Fund's portfolio manager is Stephen Fitzgerald. Mr. Fitzgerald joined GSAMI in 1992 and is a Vice President. Prior to 1992, he spent two years managing multi-currency fixed income and balanced portfolios at Invesco MIM Limited, where he was a senior member of the derivative products group. Prior to his employment at Invesco, Mr. Fitzgerald spent three years with Foreign and Colonial Management Limited in London managing fixed income and derivative funds, and, prior to that, in the treasury department of NRMA Insurance Limited in Sydney.
It is the responsibility of the Investment Adviser to make investment decisions for a Fund and to place the purchase and sale orders for the Fund's portfolio transactions in U.S. and foreign securities and currency markets. Such orders may be directed to any broker including, to the extent and in the manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSAM is entitled to a fee from the Global Income, Government Income and Municipal Income Funds, computed daily and payable monthly, at the annual rates of 0.25%, 0.50% and 0.40%, respectively, of average daily net assets; however, GSAM is currently only imposing its advisory fee with respect to the Global Income Fund at the annual rate of .10% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from the Adjustable Rate Government Agency Fund, computed daily and payable monthly, at the annual rates of 0.40% of average daily net assets. As compensation for its services rendered and assumption of certain expenses pursuant to a Subadvisory Agreement, GSAMI is entitled to a fee from the Global Income Fund, computed daily and payable monthly at the annual rate of 0.50% of average daily net assets; however, GSAMI is currently only imposing its subadvisory fee with respect to the Global Income Fund at the annual rate of .30% of average daily net assets. For the fiscal year ended October 31, 1995, the Adjustable Rate Government Agency and Government Income Funds paid fees at the foregoing rates. At various times during the fiscal year ended October 31, 1995, GSAM waived part of its investment advisory fee for the Municipal Income Fund and GSAM and GSAMI waived part of their investment advisory and subadvisory fees, respectively, for the Global Income Fund. The average rate for the
period paid by the Municipal Income Fund to GSAM was ____% and the average rate for the period paid by the Global Income Fund to GSAM and GSAMI was ___% and ___%, respectively. The advisory fees (combined with the administration fee) paid by the Global Income Fund are higher than the fees paid by most funds but the Investment Adviser believes such fees are comparable to advisory fees paid by funds with similar investment strategies. Each Investment Adviser has voluntarily agreed to reduce the fees payable to it by a Fund (to the extent of its fees) by the amount (if any) that the Fund's expenses would exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement. In addition, the Investment Adviser to the Adjustable Rate Government Agency, Government Income, Municipal Income and Global Income Funds has voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds (excluding advisory, administration, service, distribution and authorized dealer service fees, taxes, interest and brokerage and litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.05%, 0.30%, 0.05% and 0.10% per annum of such Funds' average daily net assets, respectively. 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.
Administrator. As administrator, pursuant to an Administration Agreement with each Fund (other than Adjustable Rate Government Agency Fund) GSAM provides personnel for supervisory, administrative, and clerical functions; oversees the performance of administrative and professional services to each Fund by others; provides office facilities; and prepares, but does not pay for, reports to shareholders, the SEC and other regulatory authorities. As compensation for the services rendered to the Funds, GSAM is entitled to a fee from the Global Income, Government Income and Municipal Income Funds, computed daily and payable monthly, at an annual rate equal to 0.15% of a Fund's average daily net assets. For the fiscal year ended October 31, 1995, GSAM waived part of its administration fee for the Municipal Income Fund and all of its fee for the Government Income Fund. GSAM may discontinue or modify such limitation in the future at its discretion, although it has no current intention to do so. For the period ended October 31, 1995, the Global Income Fund paid GSAM a fee for administration services at the foregoing rate and the Municipal Income Fund paid an administrative fee equal to _____% of its average daily net assets. GSAM has agreed to reduce its fees payable by a Fund (to the extent of its fees) by the amount (if any) that a Fund's expenses exceed the applicable expense limitations imposed by state securities administrators. See "Management-Expenses" in the Additional Statement.
Goldman Sachs may from time to time, at its own expense, provide compensation to certain Authorized Dealers for performing administrative services for their customers. These services include maintaining account records, processing orders to purchase, redeem and exchange Fund shares and responding to certain customer inquiries. The amount of such compensation may be up to 0.125% annually of the average daily net assets of the Government Income Fund, 0.10% annually of the average daily net assets of the Municipal Income Fund and 0.1875% annually of the average daily net assets of the Global Income Fund attributable to shares held by customers of such Authorized Dealers. In addition, Goldman Sachs may from time to time, at its own expense, provide compensation to certain Authorized Dealers who perform administrative services with respect to depository institutions whose customers purchase shares of a Fund. These services include responding to certain inquiries from and providing written materials to depository institutions about a Fund; furnishing advice about and assisting depository institutions in obtaining from state regulatory agencies any rulings, exemptions or other authorizations that may be required to conduct a mutual fund sales program; acting as liaison between depository institutions and national regulatory organizations; assisting with the preparation of sales material; and providing general assistance and advice in establishing and maintaining mutual fund sales programs on the premises of depository institutions. The amount of such compensation may be up to 0.08% annually of the average net assets of a Fund's shares attributable to purchases through, and held by the customers of, such depository institutions. Such compensation does not represent an additional expense to a Fund or its shareholders, since it will be paid from the assets of Goldman Sachs or its affiliates.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and their affiliates in the management of, or their interest
in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to 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 and in general it is not anticipated that the Investment Advisers will have access to proprietary information for the purpose of managing a Fund. 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 and Funds achieve significant profits on their trading for proprietary or other accounts. From time to time, 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. See "Management-Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor of each Fund's shares. Shares may also be sold by Authorized Dealers. Authorized Dealers include investment dealers that are members of the NASD and certain other financial service firms. To become an Authorized Dealer, a dealer or financial service firm must enter into a sales agreement with Goldman Sachs. The minimum investment requirements, services, programs and purchase and redemption options for shares purchased through a particular Authorized Dealer may be different from those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's transfer agent (the "Transfer Agent") and as such performs various shareholder servicing functions. As compensation for the services rendered to each Fund by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a fee from each Fund, and in the case of the Adjustable Rate Government Agency Fund from Class A shares of the Fund, equal to $12,000 per year plus $3.50 per account, together with out-of-pocket and transaction-related expenses (including those out-of-pocket expenses payable to servicing agents). Shareholders with inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the address or the telephone number set forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial statements and a semi-annual report. Each shareholder will also be provided with a printed confirmation for each transaction in the shareholder's account and an individual quarterly account statement. A year-to-date statement for any account will be provided upon request made to Goldman Sachs. The Funds do not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers two classes of shares designated as Class A and Class B shares (except that the Adjustable Rate Government Agency Fund does not offer Class B shares), as described more fully in "How to Purchase Shares." Class B shares of [Money Market Fund] will be typically issued only upon an exchange of Class B shares of any of the other Funds. If you do not specify in your instructions to the Funds which class of shares you wish to purchase, exchange or redeem, the Funds will assume that your instructions apply to Class A shares.
Class A Shares. If you invest less than $3 million in Class A shares ($1,000,000 in the case of the Adjustable Rate Government Agency Fund), you will pay an initial sales charge. Certain purchases may qualify for reduced initial sales charges. If you invest $3 million or more in Class A shares ($1,000,000 in the case of the Adjustable Rate Government Agency Fund), no sales charge will be imposed at the time of purchase.
Class B Shares. Class B shares are sold without an initial sales charge, but are subject to a contingent deferred sales charge ("CDSC") of up to 5% if redeemed within six years. Class B shares are subject to a distribution and authorized dealer service fee at the annual rate of .75% and .25%, respectively, of each Fund's average daily net assets attributable to Class B shares. See "Class B Distribution Plan". Your entire investment in Class B shares is available to work for you from the time you make your investment, but the distribution 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 to pay lower dividends, to the extent dividends are paid, than Class A shares. Class B shares will automatically convert to Class A shares, based on their relative net asset values, seven years after the initial purchase.
Factors to Consider in Choosing Class A or Class B 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. For instance, if you are making an investment of excess of $50,000 that qualifies for a reduced sales charge, you should consider purchasing Class A shares. A brief description of when the initial sales charge may be reduced or eliminated is set forth below under "Right of Accumulation" and "Statement of Intention." If you prefer not to pay an initial sales charge on an investment, you might consider purchasing Class B shares.
HOW TO BUY SHARES OF THE FUNDS
You may purchase shares of the Funds through any Authorized Dealer (including Goldman Sachs) or directly from a Fund c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any Business Day (as defined under "Additional Information") at the net asset value next determined after receipt of an order, plus any applicable sales charge applicable to purchases of Class A shares. If, by the close of regular trading on the New York Stock Exchange (currently 4:00 p.m. New York time), a purchase order is received by a Fund, Goldman Sachs or an Authorized Dealer, the price per share will be based on the net asset value computed on the day the purchase order is received. If a purchase order for shares of the Adjustable Rate Government Agency Fund, Government Income Fund or Municipal Income Fund is received by an Authorized Dealer by 3:00 p.m., Chicago time and payment is made by wire transfer or ACH transfer, Class A Shares will be issued and dividends will begin to accrue on the purchased Shares on the later of (i) the Business Day after receipt by the Authorized Dealer of the purchase order or (ii) the date or receipt of payment for the Shares; If a purchase order is received by an Authorized Dealer by 3:00 p.m., Chicago time and payment is made by check, Federal Reserve draft or bank wire, Class A Shares will be issued and dividends will begin to accrue on the Business Day after the date payment is received. Dividends on the Global Income Fund will commence as of the purchase of such shares. The minimum initial investment is $1500. An initial investment minimum of $250 applies to purchases in connection with Individual Retirement Account Plans. For purchases through the Automatic Investment Plan, the minimum investment is $50. The minimum subsequent investment is $50. These requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of shares by check (except that a check drawn on a foreign bank will not be accepted), Federal Reserve draft, Federal Funds wire, ACH transfer or bank wire. Purchases of shares by check or Federal Reserve draft should be made payable as follows: (i) to an investor's Authorized Dealer, if purchased through such Authorized Dealer, or (ii) to Goldman Sachs Trust-(Name of Fund and Class of shares) and sent to NFDS, Inc., P.O. Box 419711, Kansas City, MO 64141-6711. Federal Funds wires, ACH transfers and bank wires should be sent to State Street Bank and Trust Company ("State Street"). Payment must be received within three Business Days of receipt of the purchase order. An investor's Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish an account with the Fund by furnishing to the Fund, Goldman Sachs or the investor's Authorized Dealer the information in the Account Application attached to this Prospectus. The Fund may refuse to open an account for any investor who fails to (1) provide a social security number or other taxpayer identification number, or (2) certify that such number is correct (if required to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose account balance is less than $50 as a result of earlier redemptions. Such redemptions will not be implemented if the value of a shareholder's account falls below the minimum account balance solely as a result of market conditions. A Fund will give sixty (60) days' prior written notice to shareholders whose shares are being redeemed to allow them to purchase sufficient additional shares of the Fund to avoid such redemption. In addition, the Funds and Goldman Sachs reserve the right to modify the minimum investment, the manner in which shares are offered and the sales charge rates applicable to future purchases of shares.
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the Automated Clearing House Network or a shareholder's checking account via bank draft each month. Required forms are available from Goldman Sachs or any Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain distributions paid by a Fund at net asset value without a sales charge in shares of any other Fund, Goldman Sachs Portfolio or units of the ILA Portfolios. Shareholders may also elect to exchange automatically a specified dollar amount of shares of a Fund at net asset value without an additional sales charge for shares of any other Fund, Goldman Sachs Portfolio or units of the ILA Portfolios. Automatic exchanges are made monthly on the fifteenth day of each month or the first Business Day thereafter. The minimum dollar amount for automatic exchanges must be at least $50 per month. Cross-reinvestments and automatic exchanges are subject to the following conditions: (i) the value of the shareholder's account(s) in the fund which is paying the dividend or from which the automatic exchange is being made must equal or exceed $10,000 and (ii) the value of the account in the acquired fund must equal or exceed the acquired fund's minimum initial investment requirement or the shareholder must elect to continue cross reinvestment or automatic exchanges until the value of acquired fund shares in the shareholder's account equals or exceeds the acquired fund's minimum initial investment requirement. A Fund shareholder may elect cross- reinvestment 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 of the Fund into which dividends are invested or automatic exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds (other than the Municipal Income Fund) offer their shares for purchase by retirement plans, including IRA Plans for individuals and their non- employed spouses and defined contribution plans such as 401(k) Salary Reduction Plans. See "Participant-Directed Plans." Detailed information concerning these plans and copies of the plans may be obtained from the Transfer Agent. This information should be read carefully, and consultation with an attorney or tax adviser may be advisable. The information sets forth the service fee charged for retirement plans and describes the federal income tax consequences of establishing a plan. Under all plans, dividends and distributions will be automatically reinvested in additional shares of a Fund or, if so directed by the shareholder, in cash, in shares of another Goldman Sachs Portfolio or in units of the ILA Portfolios.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition of an initial or contingent deferred sales charge for: (i) shares of the same class of any other Fund or any Goldman Sachs Portfolio; and (ii) units of the ILA Portfolios (The ______ Portfolio for Class B shares). A shareholder needs to obtain and read the prospectus of the fund into which the exchange is made. The shares or units of these other funds acquired by an exchange may later be exchanged for shares of the original Fund at the next determined net asset value without a sales charge if the dollar amount in the Fund resulting from such exchanges is below the shareholder's all-time highest dollar amount on which it has previously paid a sales charge. Shares or units of these other funds purchased through dividends and/or capital gains reinvestment may be exchanged for shares of the Funds without a sales charge. In addition to free automatic exchanges pursuant to the Automatic Exchange Program, six free exchanges are permitted in each twelve-month period. A fee of $12.50 may be charged for each subsequent exchange during such period. The exchange privilege may be modified or withdrawn at any time upon sixty (60) days' notice to shareholders and is subject to certain limitations.
An exchange may be made by identifying the applicable Fund and class of shares and either writing to Goldman Sachs, Attention: Goldman Sachs Trust, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711 or, if previously elected in the Fund's Account Application, by telephone at 800- 526-7384 (8:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are employed to prevent unauthorized or fraudulent exchange requests as set forth under "How to Sell Shares of the Funds." Under the telephone exchange privilege, shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification numbers only if the exchange request is in writing and is received in accordance with the procedures set forth under "How to Sell Shares of the Funds." In times of drastic economic or market changes the telephone exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic exchange, is treated as a sale of the shares surrendered in the exchange, on which an investor may realize a gain or loss, followed by a purchase of shares or units received in the exchange. If such sale occurs within ninety (90) days after the purchase of such shares, to the extent a sales charge that would otherwise apply to the shares or units received in the exchange is not imposed, the sales charge paid on such purchase cannot be taken into account by the exchanging shareholder for purposes of determining gain or loss realized on such sale for federal income tax purposes, but instead will be added to the tax basis of the shares or units received in the exchange. Shareholders should consult their own tax advisers concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a Fund must satisfy the minimum investment requirements of the Fund into which the shares are being exchanged. Exchanges are available only in states where exchanges may legally be made.
OFFERING PRICE - CLASS A SHARES
The offering price is the next determined net asset value per share plus a sales charge, if any, paid to Goldman Sachs at the time of purchase of shares of the Funds (other than the Adjustable Rate Government Agency Fund) as shown in the following table or as set forth under "Participant-Directed Plans":
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price
- -------------------------------- --------------- ------------- --------------
Less Than $100,000........................ 4.50% 4.71% 4.00%
$100,000 up to (but less than) $250,000... 3.00 3.09 2.50
$250,000 up to (but less than) $500,000... 2.50 2.56 2.00
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$500,000 up to (but less than) $1 million 2.00 2.04 1.75 $1 million up to (but less than) $3 million 1.25 1.27 1.15 $3 million or more......................... 0.00 0.00 * |
The offering price for the Adjustable Rate Government Agency Fund is the next determined net asset value per share plus a sales charge, if any, paid at the time of purchase of shares as shown in the following table or as set forth under "Participant-Directed Plans."
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price
-------------------------------- -------------- -------------- ---------------
Less Than $500,000......................... 1.50% 1.52% 1.25%
$500,000 up to (but less than) $1 million.. 1.00 1.01 0.75
$1 million or more......................... 0.00 0.00 0.00
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The entire amount of the sales charge will be reallowed to Authorized Dealers on each Fund (other than the Municipal Income Fund) during the period January 2, 1996 through April 17, 1996 if shares of a Fund are purchased through any Individual Retirement Account (IRA), including self-directed IRAs.
In addition to concessions allowed to Authorized Dealers, Goldman Sachs may, from time to time, assist Authorized Dealers by, among other things, providing sales literature to and holding informational programs for the benefit of Authorized Dealers' registered representatives. Authorized Dealers may limit the participation of registered representatives in such informational programs by means of sales incentive programs which may require the sale of minimum dollar amounts of shares of the Goldman Sachs Portfolios. Goldman Sachs may also provide additional promotional incentives to Authorized Dealers in connection with sales of shares of the Goldman Sachs Portfolios. These incentives may include payment for travel expenses, including lodging, incurred in connection with trips taken by qualified registered representatives and members of their families within or without the United States. Incentive payments will be provided for out of the sales charge and distribution fees or out of Goldman Sachs' other resources. Other than sales charges and distribution fees, a Fund and its shareholders do not bear distribution expenses. An Authorized Dealer receiving such incentives may be deemed to be an underwriter under the 1933 Act. In some instances, such incentives may be made available only to certain Authorized Dealers whose representatives have sold or are expected to sell significant amounts of shares.
Shares of the Funds may be sold at net asset value without payment of any initial sales charge to (a) 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; (b) qualified retirement plans of Goldman Sachs; (c) trustees or directors or investment companies for which Goldman Sachs or an affiliate acts as sponsor; (d) any employee or registered representative of any Authorized Dealer or their respective spouses and minor children; (e) banks, trust companies or other types of depository institutions investing for their own account or investing for accounts for which they have investment discretion; (f) banks, trust companies or other types of depository institutions investing for accounts for which they do not have investment discretion, provided they have entered into an agreement with GSAM specifying aggregate minimums and certain operating policies and standards; (g) 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; (h) pension and profit sharing plans, pension funds and other
company-sponsored benefit plans having either 200 eligible employees or at least
$500,000 under management with GSAM and its affiliates; (i) qualified non-profit
organizations, foundations and endowments that have at least $1,000,000 under
management with GSAM and its affiliates; (j) shareholders whose purchase is
attributable to redemption proceeds (subject to appropriate documentation) from
a registered open-end management investment company not distributed or managed
by Goldman Sachs or its affiliates, if such redemption has occurred no more than
60 days prior to the purchase of shares of the Funds and the shareholder either
(i) paid an initial sales charge or (ii) was at some time subject to a deferred
sales charge with respect to the redemption proceeds; (k) "wrap" accounts for
the benefit of clients of broker-dealers, financial institutions or financial
planners, provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; and (l)
registered investment advisers who have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards.
Purchasers must certify eligibility for an exemption on the Account Application
and notify Goldman Sachs if the shareholder is no longer eligible for an
exemption. Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing shares of the Funds at net asset value without
payment of any initial sales charge may be charged a fee if they effect
transactions in shares through a broker or agent. Goldman Sachs reserves the
right to limit the participation in the Fund of its partners and employees. In
addition, under certain circumstances, dividends and distributions from any of
the Goldman Sachs Portfolios may be reinvested in shares of each Fund at net
asset value, as described under "Cross-Reinvestment of Dividends and
Distributions and Automatic Exchange Program."
PARTICIPANT-DIRECTED PLANS
Participant-directed qualified retirement plans, including 401(k), 403(b), 457 and tax-sheltered annuity plans, may purchase Class A shares of the Global Income and Government Income Funds at the next determined net asset value per share plus a sales charge paid, except as set forth below, at the time of purchase of shares of the Funds, as shown in the following table:
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price
-------------------------------- -------------- -------------- ---------------
Less than $100,000..................... 4.50% 4.71% 4.00%
$100,000 up to (but less than) $250,000 3.00 3.09 2.50
$250,000 up to (but less than) $500,000 2.50 2.56 2.00
$500,000 or more....................... 0.00* 0.00* **
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Participant-directed qualified retirement plans, including 401(k), 403(b), 457 and tax-sheltered annuity plans, may purchase Class A shares of the Adjustable Rate Government Agency Fund at net asset value per share plus a sales charge, except as set forth below, at the time of purchase of shares, as shown in the following table.
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price
-------------------------------- -------------- -------------- ---------------
Less than $500,000.................. 1.50% 1.52% 1.25%
$500,000 or more.................... 0.00* 0.00* **
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** Goldman Sachs may pay a one-time commission equal to a percentage of the amount of shares purchased to Authorized Dealers who initiate or are responsible for purchases by participant-directed plans of $500,000 or more of shares of the Funds, at the rates shown in the following table:
Maximum Dealer
Allowance as
Percentage of
Amount of Purchase Offering Price
------------------ --------------
$500,000 up to (but less than) $2 million..................................... 1.00%
$2 million up to (but less than) $3 million................................... 0.80
$3 million up to (but less than) $50 million.................................. 0.50
$50 million up to (but less than) $100 million................................ 0.25
$100 million or more.......................................................... 0.15
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Participant-directed plans are defined as qualified employee benefit plans not affiliated with Goldman Sachs which allow their participants to select among one or more investment options, including any of the Funds. In order to take advantage of the reduced sales charge rate described herein, the sponsor of a participant-directed plan must submit an investment authorization form to Goldman Sachs (the "Authorization Form") which establishes a Fund as an eligible investment for the plan.
Cumulative Quantity Discounts. In determining the amount of purchase and the sales charge rate applicable to purchases by participant-directed plans, shares of the Funds and any other Goldman Sachs Portfolio will be combined with shares purchased or held for all participants in the same participant-directed plan. Participant-directed plans may qualify for cumulative quantity discounts by using the right of accumulation and statement of intention described below. If a plan does not purchase the entire amount of shares contemplated by a statement of intention, Goldman Sachs may elect not to pursue the recovery of any additional sales charge due if the amount of the sales charge or the investment shortfall is considered de minimis by Goldman Sachs.
Contingent Deferred Sales Charge. Purchases by participant-directed plans of $500,000 or more of a Fund's Class A shares will be made at net asset value without an initial sales charge. However, if, within 12 months after the effective date of the applicable Authorization Form, the plan sponsor notifies Goldman Sachs that it is terminating the eligibility of the Funds as an investment for its plan, a contingent deferred sales charge ("CDSC") will be imposed on all redemptions resulting from such termination. Any CDSCs will be paid to the Funds' principal distributor, Goldman Sachs. The amount of the CDSC will be equal to 1% of the current market value or the original purchase cost of the redeemed shares, whichever is less. No CDSC will be imposed on increases in account value above the initial purchase price, including any dividends that have been reinvested in additional Fund shares. In determining whether a CDSC applies to a redemption, the calculation will be made in a manner that results in the lowest possible CDSC.
Exchanges. No CDSC is imposed upon exchanges between the Funds and another Goldman Sachs Portfolio or an ILA Portfolio. However, shares acquired in an exchange will be subject to the CDSC to the same extent as if there had been no exchange. (As stated above, no CDSC will be imposed unless the plan sponsor terminates the eligibility of the Fund as an investment for the plan within the first twelve months). For purposes of determining whether the CDSC is applicable, the length of time a plan has owned shares acquired by exchange will be measured from the date the plan acquired the original shares and will not be affected by any subsequent exchange.
OTHER PURCHASE INFORMATION
If shares of a Fund are held in a "street name" account or were purchased through an Authorized Dealer, shareholders 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. Authorized Dealers who receive a portion of the sales charge applicable to the purchase of shares of the Fund will not be permitted to impose any other fees in connection with the purchase of such shares.
The Funds and Goldman Sachs each reserves the right to reject any specific purchase order (including exchanges) or to restrict purchases or exchanges by a particular purchaser (or group of related purchasers). The Funds or Goldman Sachs may reject or restrict purchases or exchanges of shares by a particular purchaser or group, for example, when a pattern of frequent purchases and sales of shares of a Fund is evident, or if the purchase and sale or exchange orders are, or a subsequent abrupt redemption might be, of a size that would disrupt management of a Fund.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who redeems shares of a Fund may reinvest at net asset value any portion or all of his redemption proceeds (plus that amount necessary to acquire a fractional share to round off his purchase to the nearest full share) in shares of a Fund or any other Goldman Sachs Portfolio. Shareholders should obtain and read the applicable prospectuses of such other funds and consider their objectives, policies and applicable fees carefully before investing in any of such funds. This reinvestment privilege is subject to the condition that the shares redeemed have been held for at least thirty (30) days before the redemption and that the reinvestment is effected within ninety (90) days after such redemption. Shares are sold to a reinvesting shareholder at the net asset value next determined following timely receipt by Goldman Sachs or an Authorized Dealer of a written purchase order indicating that the shares are eligible for reinvestment at net asset value.
A reinvesting shareholder may realize a gain or loss for federal tax
purposes as a result of such redemption. If the redemption occurs within ninety
(90) days after the original purchase of the shares, any sales charge paid on
the original purchase cannot be taken into account by a shareholder reinvesting
at net asset value pursuant to the reinvestment privilege for purposes of
determining gain or loss realized on the redemption, but instead will be added
to the tax basis of the shares received in the reinvestment. To the extent that
any loss is realized and shares of the same Fund are purchased within thirty
(30) days before or after the redemption, some or all of the loss may not be
allowed as a deduction depending upon the number of shares purchased.
Shareholders should consult their own tax advisers concerning the tax
consequences of a reinvestment. Upon receipt of a written request, the
reinvestment privilege may be exercised once annually by a shareholder, except
that there is no such time limit as to the availability of this privilege in
connection with transactions the sole purpose of which is to reinvest the
proceeds at net asset value in a tax-sheltered retirement plan.
RIGHT OF ACCUMULATION
Purchases 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. Shares of the Goldman Sachs Portfolios may be combined under the Right of Accumulation. See Additional Statement for more information about the Right of Accumulation.
STATEMENT OF INTENTION
Purchases of $50,000 ($500,000 in the case of the Adjustable Rate Government Agency Fund) or more made over a 13-month period are eligible for reduced sales charges. Shares of the Goldman Sachs Portfolios may be combined under the Statement of Intention. See Additional Statement for more information about the Statement of Intention.
OFFERING PRICE - CLASS B SHARES
Investors may purchase Class B shares of the Government Income, Municipal Income and Global Income Funds at net asset value without the imposition of 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 that follows. At redemption, the charge will be assessed on the amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. No CDSC will be imposed on increases in account value above the initial purchase price, including shares derived from the reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from the time of purchase until the time of redemption of Class B shares. For the purpose of determining the number of years from the time of any purchase, all payments during a month will be aggregated and deemed to have been made on the first day of that month. In processing redemptions of Class B shares, the Funds will first redeem shares not subject to any CDSC, and then shares hold longest during the seven-year period. As a result, an investor will pay the lowest possible CDSC.
CDSC as a
Percentage of
Year Since
Dollar Amount
Purchase Subject to CDSC
- -------- ---------------
First.............................. 5.0%
Second............................. 4.0%
Third.............................. 3.0%
Fourth............................. 3.0%
Fifth.............................. 2.0%
Sixth.............................. 1.0%
Seventh............................ none
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Proceeds from the CDSC are payable to the Distributor and may be used in whole or 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.
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 seven years after the purchase date, except as noted below. Class B shares of a Fund acquired by exchange from Class B shares of another Fund will convert into Class A shares of such Fund based on the date of the initial purchase. Class B shares acquired through reinvestment of distributions will convert into Class A shares based on the date of the initial purchase to which such shares relate. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service, for which the Funds have applied, or an opinion of counsel that such conversions will not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available. The conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available and, therefore, Class B shares would continue to be subject to higher expenses than Class A shares for an indeterminate period.
Waiver or Reduction of Contingent Deferred Sales Charge. The CDSC on Class B shares may be waived or reduced if the redemption results from the death or disability (as defined in Section 72 of the Internal Revenue Code or 1986, as amended (the "Code")), of a shareholder if the redemption is made within one year of such event.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLAN
DISTRIBUTION PLAN - CLASS A SHARES
The Trust, on behalf of each Fund's Class A shares, has adopted a Distribution Plan pursuant to Rule 12b-1 under the Act (the "Distribution Plan"). Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from each Fund for distribution services equal, on an annual basis, to 0.25% of a Fund's average daily net assets. Currently, Goldman Sachs has voluntarily agreed to waive the entire amount of such fee for the Adjustable Rate Government Agency, Government Income and Municipal Income Funds). Goldman Sachs has no current intention of modifying or discontinuing such waiver, but may do so in the future at its discretion. Each Fund's Distribution Plan was amended to reduce the fee to 0.25% of average daily net assets from 0.50% of such assets and to eliminate the provision of certain services under the Distribution Plan which are currently provided under the Authorized Dealer Service Plan, discussed below. For the period ended October 31, 1995, the Global Income Fund paid Goldman Sachs a fee at the rate of _______% of the Fund's average daily net assets.
Goldman Sachs may use the distribution fee for its expenses of distribution of shares of the Funds. The types of expenses for which Goldman Sachs may be compensated for distribution services under the Distribution Plan include compensation paid to and expenses incurred by their respective officers, employees and sales representatives, allocable overhead, telephone and travel expenses, the printing of prospectuses for prospective shareholders, preparation and distribution of sales literature, advertising of any type and all other expenses incurred in connection with activities primarily intended to result in the sale of Fund shares. If the fee received by Goldman Sachs pursuant to the Distribution Plan exceeds its expenses, Goldman Sachs may realize a profit from these arrangements. The Distribution Plan will be reviewed and is subject to approval annually by the Board of Trustees of the Trust. The aggregate compensation that may be received under the Distribution Plan for distribution services may not exceed the limitations imposed by the NASD's Rules of Fair Practice.
DISTRIBUTION PLAN - CLASS B SHARES
The Trust, on behalf of each Fund (other than the Adjustable Rate Government Agency Fund which does not offer Class B shares), has adopted a Distribution Plan pursuant to Rule 12b-1 under the Act (the "Distribution Plan"). Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from each Fund for distribution services equal, on an annual basis, to 0.75% of a Fund's average daily net assets.
Goldman Sachs may use the distribution fee for its expenses of distribution of shares of the Funds. The types of expenses for which Goldman Sachs may be compensated for distribution services under the Distribution Plan include compensation paid to and expenses incurred by their respective officers, employees and sales representatives, allocable overhead, telephone and travel expenses, the printing of prospectuses for prospective shareholders, preparation and distribution of sales literature, advertising of any type and all other expenses incurred in connection with activities primarily intended to result in the sale of Fund shares. If the fee received by Goldman Sachs pursuant to the Distribution Plan exceeds its expenses, Goldman Sachs may realize a profit from these arrangements. The Distribution Plan will be reviewed and is subject to approval annually by the Board of Trustees of the Trust. The aggregate compensation that may be received under the Distribution Plan for distribution services may not exceed the limitations imposed by the NASD's Rules of Fair Practice.
AUTHORIZED DEALER SERVICE PLAN
The Trust on behalf of each Fund's Class A and Class B shares has adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers are compensated for providing personal and account maintenance services. Each Fund pays a fee under its Service Plan equal on an annual basis to 0.25% of its average daily net assets (or, in the case of Adjustable Rate Government Agency Fund, the average daily net assets attributable to Class A shares). The fee for personal and account maintenance services
paid pursuant to the Service Plan 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. The Service Plan will be reviewed and subject to approval annually by the Board of Trustees. For the period ended October 31, 1995, each Fund paid Authorized Dealer Service Fees at the foregoing rate for each Funds' Class A shares.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any Business Day at the net asset value next determined after the receipt of such request in proper form, subject to any applicable contingent deferred sales charge. See "Net Asset Value." Redemption proceeds will be mailed by check to a shareholder within three (3) Business Days of receipt of a properly executed request. If shares to be redeemed were recently purchased by check, a Fund may delay transmittal of redemption proceeds until such time as it has assured itself that good funds have been collected for the purchase of such shares. This may take up to fifteen (15) days. Redemption requests may be made by writing to or calling the Transfer Agent at the address or telephone number set forth on the back cover page of this Prospectus or an Authorized Dealer.
A shareholder may request redemptions by telephone if the optional telephone redemption privilege is elected on the Account Application. It may be difficult to implement redemptions by telephone in times of drastic economic or market changes. 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. Consequently, proceeds of telephone redemption requests will be sent only to the shareholder's address of record or authorized bank account designated in the Account Application and exchanges of shares will be made only to an identical account. Telephone requests will also be recorded. The Trust may implement other procedures from time to time. If reasonable procedures are not implemented, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. In all other cases, neither a Fund, the Trust nor Goldman Sachs will be responsible for the authenticity of instructions received by telephone. Proceeds of telephone redemptions will be mailed to the shareholder's address of record or wired to the authorized bank account indicated on the Account Application, unless the shareholder provides written instructions (accompanied by a signature guarantee) indicating another address. Shares of the Adjustable Rate Government Agency Fund earn dividends accrued through the day on which such shares are redeemed.
Written requests for redemptions must be signed by each shareholder with its signature guaranteed by a bank, a securities broker or dealer, a credit union having authority to issue signature guarantees, a savings and loan association, a building and loan association, a cooperative bank, a federal savings bank or association, a national securities exchange, a registered securities association or a clearing agency, provided that such institution satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any means to be wired as Federal Funds to the bank account designated in the shareholder's Account Application. Redemption proceeds will normally be wired on the next Business Day in Federal Funds (for a total one Business Day delay) following receipt of a properly executed wire transfer redemption request. Wiring of redemption proceeds may be delayed one additional Business Day if the Federal Reserve Bank is closed on the day redemption proceeds would ordinarily be wired. A transaction fee of $7.50 may be charged for payments of redemption proceeds by wire. In order to change the bank designated on the Account Application to receive redemption proceeds, a written request must be received by the Transfer Agent. This request must be signature guaranteed as set forth above. Further documentation may be required for executors, trustees or corporations. Once wire transfer instructions have been given by Goldman Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor any Authorized Dealer assumes any further responsibility for the performance of intermediaries or the shareholder's bank in the transfer process. If a problem with such performance arises, the shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required to effect a redemption when deemed appropriate by the Transfer Agent. The request for such redemption will not be considered to have been received in proper form until such additional documentation has been received.
Except with respect to shareholders whose account balances are less than $50 or who have not provided a social security number or other taxpayer identification number and certification (if required) that such number is correct, shares are not redeemable at the option of a Fund unless the Board of Trustees of the Trust determines in its sole discretion that failure to so redeem may have material adverse consequences to the shareholders of that Fund. The Trust, however, assumes no responsibility to compel redemptions of a Fund.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically with monthly checks in any amount specified by the shareholder over $50. Each systematic withdrawal is a sale for tax purposes. A minimum balance of $10,000 in Fund shares is required. The maintenance of a withdrawal plan concurrently with purchases of additional shares would be disadvantageous because of the sales charge included in such purchases. See Additional Statement for more information about the Systematic Withdrawal Plan.
DIVIDENDS
Each dividend and capital gains distribution, if any, declared by a Fund on its outstanding shares will, at the election of each shareholder, be paid (i) in cash, (ii) in additional shares of the same class of the Fund or (iii) in shares of the same class of any of the Goldman Sachs Portfolios or units of the ILA Portfolios (the _________ fund only for Class B shares as described under "Cross-Reinvestment of Dividends and Distributions and Automatic Exchange Program." This election should initially be made on a shareholder's Account Application and may be changed upon written notice to Goldman Sachs at any time prior to the record date for a particular dividend or distribution. If no election is made, all dividends and capital gains distributions will be reinvested in the Fund. If cash dividends are elected with respect to the Fund's net reinvestment income dividends then cash dividends must also be elected with respect to the short-term capital gains component, if any, of the Fund's annual dividend. Reinvestments of dividends from net investment income in additional shares of the Fund will be made on the last Business Day of each month. Reinvestment of dividends from net investment income in additional shares of another Goldman Sachs Portfolio or in units of the ILA Portfolios will be made on the payment date. Cash dividends will be paid on or about the last calendar day of the month. Capital gains distributions will be reinvested or paid in cash, in accordance with the shareholder's prior election, on the payment date.
The election to reinvest dividends and distributions paid by the Fund in additional shares or units of the Fund or any other Goldman Sachs Portfolio or ILA Portfolio 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 or units of the Fund, another Goldman Sachs Portfolio or an ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income and net realized long-term and short-term capital gains, after reduction by available capital losses, including any capital losses carried forward from prior years, will be declared as dividends for each taxable year. The Adjustable Rate Government Agency, Government Income and Municipal Income Funds will declare dividends daily and pay dividends monthly. The Global Income Fund will declare and pay dividends monthly. Each other Fund will pay dividends from net investment income at least annually. All of the Funds will pay dividends from net realized long-term and short-term capital gains, reduced by available capital losses, at least annually. From time to time a portion of any Fund's dividends may constitute a return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the net asset value per share may be represented by undistributed income of the Fund or realized or unrealized appreciation of the Fund's portfolio securities. Therefore, subsequent distributions (or portions thereof) of taxable income or realized appreciation on such shares may be taxable to the investor even if the net asset value of the investor's 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.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the Fund's custodian as of the close of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) immediately after determination of the income to be declared as a dividend, on each Business Day (as such term is defined under "Additional Information"). Net asset value per share of each class is calculated by determining the net assets attributable to each class and dividing by the number of outstanding shares of that class.
With respect to the Global Income, Government Income and Adjustable Rate Government Agency Funds, investments in Mortgage-Backed Securities and other debt obligations are valued at fair value, based on yield equivalents, a pricing matrix or other sources, under valuation procedures established by the Trust's Board of Trustees. Other portfolio securities for which accurate market quotations are readily available are valued on the basis of quotations, which may be furnished by a pricing service or provided by dealers in such securities. Portfolio securities for which accurate market quotations are not readily available are valued in accordance with the Trust's valuation procedures. Debt obligations with a remaining maturity of 60 days or less are valued at amortized cost. The Board of Trustees has determined that the amortized cost of such securities approximates fair market value. Portfolio securities are valued based on market quotations or, if accurate quotations are not readily available, at fair value as determined in good faith under procedures established by the Trust's Board of Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield and average annual total return and the Municipal Income Fund may publish its tax equivalent yield in advertisements and communications to shareholders or prospective investors. Average annual total return is determined by computing the average annual percentage change in value of $1,000 invested at the maximum public offering price for specified periods ending with the most recent calendar quarter, 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 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, each Fund may furnish total return calculations based on investments at various sales charge levels or at net asset value. Any performance data which is based on a Fund's net asset value per share would be reduced if a sales charge were taken into account. In addition to the above, each Fund may from time to time advertise its performance relative to certain performance rankings and indices.
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 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, the Municipal Income Fund's tax-free yield. Tax equivalent yield is calculated by dividing the Municipal income Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most recent distribution of net investment income for a monthly, quarterly or other relevant period and dividing this amount by the net asset value per share or maximum public offering price on the last day of the period for which the distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated separately for each class of shares in existence. Because each class of shares may be subject to different expenses, the yield, total return and distribution rate calculations with respect to each class of shares for the same period will differ. Due to the fees payable under the Distribution, Authorized Dealer Service, Service and Administration Plans, the investment performance, for any period, of the Institutional Shares will always be higher than that of the Class A Shares, Class B Shares, Service Shares and Administration Shares. The investment performance of the Administration Shares will always be higher than that of the Service Shares. The investment performance of the Class A and Class B Shares will be affected by the payment of a sales charge. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any presentation of investment results for any prior period should not be considered a representation of what an investment may earn or what the Fund's performance may be in any future period. In addition to information provided in shareholder reports, the Funds may, in their discretion, from time to time, make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust under an Agreement and Declaration of Trust, as amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are authorized to issue an unlimited number of shares of beneficial interest, $.001 par value per share. The Trustees of the Trust are responsible for the overall management and supervision of its affairs. The Trustees of the Trust have authority to create and classify shares of beneficial interest in separate series, without further action by shareholders. As of the date of this Prospectus, the Trustees have authorized shares of the Fund and ten additional series. Additional series may be added in the future. The Trustees have authorization to classify or reclassify any series or portfolio of shares into one or more classes. The Adjustable Rate Government Agency Fund offers Institutional Shares, Administration Shares, Service Shares and Class A Shares. The Government Income and Municipal Income Funds offer Class A and Class B shares. The Global Income Fund offers Institutional Shares, Service Shares, Class A Shares and Class B Shares.
When issued, shares are fully paid and non-assessable. In the event of liquidation, shareholders are entitled to share pro rata in the net assets of the applicable Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of November 30, 1995, James F. Scott, P.O. Box 8048, Charlottesville, Virginia 22906 owned beneficially and of record 35% of the Adjustable Rate Government Agency Fund Class A Shares. State Street Bank & Trust, Trustee-GS Profit Sharing Master Trust, Attn: Box 1992, Boston Massachusetts 02105-1992 owned beneficially and of record 99% of the Global Income Fund Institutional Shares.
Unless otherwise required by the Act, ordinarily it will not be necessary for the Trust to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Trustees or the appointment of independent accountants. Shareholders may remove a Trustee by the affirmative vote of at least two-thirds of the Trust's outstanding shares and the Trustees must promptly call a meeting for such purpose when requested to do so in writing by the record holders of not less than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances, communicate with other shareholders in connection with requesting a special meeting of shareholders. The Board of Trustees, however, will call a special meeting 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.
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.
Under Massachusetts law, there exists a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains provisions intended to limit such liability and to provide indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected or intends to elect to be treated as a regulated investment company and to qualify for such treatment for each taxable year under Subchapter M of the Code. To qualify as such, a Fund must satisfy certain requirements relating to the sources of its income, diversification of its assets and distribution of its income to shareholders. As a regulated investment company, a Fund will not be subject to federal income or excise tax on any net investment income and net realized capital gains that are distributed to its shareholders in accordance with certain timing requirements of the Code.
The Municipal Income Fund intends to satisfy certain requirements of the Code so that it may distribute the tax-exempt interest it receives as "exempt- interest dividends," as defined in the Code. Distributions of the Municipal Income Fund that are attributable to interest on tax-exempt obligations and that the Fund designates as exempt-interest dividends will be exempt from regular federal income tax, although all or a portion of such a distribution may be subject to the federal alternative minimum tax and the entire distribution may be includable in the tax base for determining taxability of social security or railroad retirement benefits. Persons who are "substantial users" (or related persons to such substantial users) of facilities financed by industrial development or certain private activity bonds should consult their own tax advisers before purchasing shares of the Municipal Income Fund. Interest on indebtedness incurred or continued to purchase or carry shares of the Municipal Income Fund is not deductible to the extent attributable to the Municipal Income Fund's distributions that are exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net realized foreign exchange gains, the excess of net short-term capital gain over net long-term capital loss and original issue discount or market discount income will be taxable to shareholders as ordinary income. Dividends paid by a Fund from the excess of net long-term capital gain over net short-term capital loss will be taxable as long-term capital gains regardless of how long the shareholders have held their shares. These tax consequences will apply regardless of whether distributions are received in cash or reinvested in shares. A Fund's dividends that are paid to its corporate shareholders from qualifying dividends such Fund receives from U.S. domestic corporations may be eligible, in the hands of such corporate shareholders, for the corporate dividends-received deduction, subject to certain holding period requirements and debt financing limitations under the Code. Certain distributions paid by a Fund in January of a given year may be taxable to shareholders as if received the prior December 31. Shareholders will be informed annually about the amount and character of distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately prior to a distribution. Investors who purchase shares shortly before the record date for a distribution will pay a per share price that
includes the value of the anticipated distribution and will be taxed on the distribution (unless it is exempt from tax) even though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31% backup withholding of federal income tax on taxable distributions, redemptions and exchanges if they fail to furnish their correct taxpayer identification number and certain certifications or if they are otherwise subject to backup withholding. Individuals, corporations and other shareholders that are not U.S. persons under the Code are subject to different tax rules and may be subject to non-resident alien withholding at the rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts treated as ordinary dividends from the Funds.
The Global Income Fund may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. If more than 50% of the value of its total assets is comprised of stock or securities of foreign corporations at the end of its taxable year and the Global Income Fund so elects, shareholders will include in their gross incomes (in addition to dividends they receive) their pro rata shares of qualified foreign taxes paid by the Global Income Fund and may be entitled to take federal income tax credits or deductions with respect to such taxes. If the Fund cannot or does not so elect, it may deduct taxes in computing its taxable income, if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or foreign taxes on payments received from the Funds. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent (if any) a Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations and/or tax-exempt municipal obligations issued by or on behalf of the particular state or a political subdivision thereof, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. For a further discussion of certain tax consequences of investing in shares of the Funds, see "Taxation" in the Additional Statement. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means the vote of the lesser of (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund.
As used in this Prospectus, 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 (observed), Presidents' Day (observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of shares of a Fund alone or in combination with shares of another fund described in this Prospectus 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 filing this Statement of Intention incorporated by reference in the Account Application. Income dividends and capital gain distributions taken in additional shares will apply toward the completion of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the investor must inform Goldman, Sachs & Co. that this 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 his purchases within 13 months plus the value of shares credited toward completion do not total the sum specified, he 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 shall 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 order. When the minimum investment so specified is completed (either prior to or by the end of the thirteenth month), the shareholder will be notified and the escrowed shares will be released. In signing the Account Application, the investor irrevocably constitutes and appoints the Transfer Agent his attorney to surrender for redemption any or all escrowed shares with full power of substitution in the premises.
If the intended investment is not completed, the investor will be asked to remit to Goldman, Sachs & Co. 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 & Co. pay such difference in the sales charge, the Transfer Agent will redeem 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 ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
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.) . . . . . . . . 800-526-7384 GOLDMAN SACHS TRUST CLASS A AND B SHARES ____________________ |
PROSPECTUS
PART B
STATEMENT OF ADDITIONAL INFORMATION
ADMINISTRATION SHARES
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
GS SHORT-TERM GOVERNMENT AGENCY FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
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 Administration Shares of each of GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income, each dated March 1, 1996, as amended and/or supplemented from time to time (each a "Prospectus"), which may be obtained without charge from institutions ("Service Organizations") that hold Administration Shares for the benefit of their customers, or from Goldman, Sachs & Co. by calling the telephone number, or writing to one of the addresses, listed below. Goldman Sachs Global Income Fund does not offer Administration Shares.
TABLE OF CONTENTS
Introduction....................... B-3
Investment Objective and Policies.. B-7
Investment Restrictions............ B-12
Management......................... B-47
Portfolio Transactions............. B-57
Shares of the Trust................ B-71
Net Asset Value.................... B-72
Taxation........................... B-76
Performance Information............ B-76
Other Information.................. B-95
Financial Statements............... B-96
Administration Plan................ B-97
Appendix A......................... 1-A
Appendix B......................... 1-B
Appendix C......................... 1-C
Appendix D......................... 1-D
Appendix E......................... 1-E
|
The date of this Additional Statement is March 1, 1996.
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND AND GS CORE FIXED 85 BROAD STREET
INCOME FUND NEW YORK, NEW YORK 10004
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE RATE 4900 SEARS TOWER
GOVERNMENT AGENCY FUND CHICAGO, ILLINOIS 60606
AND GS SHORT-TERM
GOVERNMENT AGENCY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
TOLL FREE .......800-621-2550
|
ADMINISTRATION PLAN
Each Fund has adopted an administration plan (the "Plan") with respect
to its Administration Shares which authorizes it to compensate Service
Organizations for providing certain account administration services to their
customers who are beneficial owners of such Shares. Pursuant to the Plans, a
Fund enters into agreements with Service Organizations which purchase
Administration 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) act, directly or through an agent, as the sole
shareholder of record and nominee for all customers, (b) maintain account
records for each customer who beneficially owns Administration Shares of a Fund,
(c) answer questions and handle correspondence from customers regarding their
accounts, (d) process customer orders to purchase, redeem and exchange
Administration Shares of a Fund and handle the transmission of funds
representing the customers' purchase price or redemption proceeds, and (e) issue
confirmations for transactions in shares by customers. As compensation for such
services, a Fund will pay each Service Organization an account administration
fee in an amount up to 0.25% (on an annualized basis) of the average daily net
assets of the Administration Shares of such Fund attributable to or held in the
name of such Service Organization. For the fiscal year ended October 31, 1995,
administration fees of $______, $______ and $_______ were accrued by Adjustable
Rate Fund, Short Duration Fund and Short-Term Fund, respectively. For the
fiscal year ended October 31, 1994, administration fees of $17,648, $13,825 and
$28,422 were accrued by Adjustable Rate Fund, Short Duration Fund and Short-Term
Fund, respectively. No Administration Shares of Core Fund were outstanding at
October 31, 1994. For the fiscal year ended October 31, 1993, Administration
fees of $14,814, $464 and $15,264 were accrued by Adjustable Rate Fund, Short
Duration Fund and Short-Term Fund, respectively.
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 Administration 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 legal advisers before investing fiduciary assets in Administration Shares of a Fund. In addition, under some state securities laws, banks and other financial institutions purchasing Administration Shares on behalf of their customers may be required to register as dealers.
The Plans with respect to Adjustable Rate Fund, Short Duration Fund, Short-Term Fund and Core Fund were approved by The Goldman Sachs Group, L.P., as the sole shareholder of Administration Shares of each Fund. The Board of 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 each Plan and Service Agreements at a meeting called for the purpose of voting on such Plans and Service Agreements on April 26, 1995. The Plans and Service Agreements will remain in effect until June 30, 1996 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. No Plan may be amended to increase materially the amount to be spent for the services described therein without approval of the Administration Shareholders of the applicable Fund and all material amendments of the Plans must also be approved by the Board of Trustees in the manner described above. Each 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 Administration Shares of the applicable Fund. The Service Agreements may be terminated at any time, without payment of any penalty, by a vote of a majority of the Board of Trustees as described above or by a vote of a majority of the outstanding Administration Shares of the applicable 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 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 each Fund's Plan will benefit such Fund and the holders of its Administration Shares. In the Board of Trustees' quarterly review of the Plans and Service Agreements, the Board will consider continued appropriateness and the level of compensation provided therein.
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
GS SHORT-TERM GOVERNMENT AGENCY FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
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 Service Shares of each of GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income and Goldman Sachs Global Income Fund, each dated March 1, 1996, as amended and/or supplemented from time to time (each a "Prospectus"), which may be obtained without charge from institutions ("Service Organizations") that hold Service Shares for the benefit of their customers, or by calling Goldman, Sachs & Co. at the telephone number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
Introduction B-3
Investment Objective and Policies.. B-7
Investment Restrictions............ B-12
Management......................... B-47
Portfolio Transactions............. B-57
Shares of the Trust................ B-71
Net Asset Value.................... B-72
Taxation........................... B-76
Performance Information............ B-76
Other Information.................. B-95
Financial Statements............... B-96
Service Plan....................... B-97
Appendix A......................... 1-A
Appendix B......................... 1-B
Appendix C......................... 1-C
Appendix D......................... 1-D
Appendix E......................... 1-E
Appendix F......................... 1-F
Appendix G......................... 1-G
|
The date of this Additional Statement is March 1, 1996.
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND, GS CORE FIXED 85 BROAD STREET
INCOME FUND AND GOLDMAN SACHS NEW YORK, NEW YORK 10004
GLOBAL INCOME FUND AND
ADMINISTRATOR TO GOLDMAN SACHS
GLOBAL INCOME FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE RATE 4900 SEARS TOWER
GOVERNMENT AGENCY FUND CHICAGO, ILLINOIS 60606
AND GS SHORT-TERM
GOVERNMENT AGENCY FUND GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA INTERNATIONAL
NEW YORK, NEW YORK 10004 SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ, ENGLAND
|
TOLL FREE (IN U.S.) .......800-621-2550
SERVICE PLAN
Each Fund has adopted a service plan (the "Plan") with respect to its
Service Shares which authorizes it to compensate Service Organizations for
providing certain administration services and personal and account maintenance
services to their customers who are or may become beneficial owners of such
Shares. Pursuant to the Plan, a Fund will enter 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) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund, (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from a Fund, working with a Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, a Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization; provided, however, that the fee paid for
personal and account maintenance services shall not exceed 0.25% such average
daily net assets. No Service Shares of Adjustable Rate Fund, Core Fund, Global
Fund and Short-Term Fund were outstanding during the fiscal year ended October
31, 1995. For the fiscal year ended October 31, 1995, service fees in the
amount of $___ were paid by Short Duration Fund.
Each Fund 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.
The Glass-Steagall Act prohibits all entities which receive deposits from engaging to any extent in the business of issuing, underwriting, selling or distribution securities, although institutions such as national banks are permitted to purchase and sell securities upon the order and for the account of their customers. 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. Should future legislative or administrative action or judicial or administrative decisions or interpretations prohibit or restrict the activities of one or more of the Service Organizations in connection with the Funds, such Service Organizations might be required to alter materially or discontinue the services performed under their Service Agreements. If one or more of the Service Organizations were restricted from effecting purchases or sales of Service Shares automatically pursuant to pre- authorized instructions, for example, effecting such transactions on a manual basis might affect the size and/or growth of a Fund. Any such alteration or discontinuance of services could require the Board of Trustees to consider changing a Fund's method of operations or providing alternative means of offering Service Shares of a Fund to customers of such Service Organizations, in which case the operation of such Fund, its size and/or its growth might be significantly altered. It is not anticipated, however, that any alternation of a Fund's operations would have any effect on the net asset value per share or result in financial losses to any shareholder.
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 such 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 regulators, are urged to consult legal advisers before investing fiduciary assets in Service Shares of the Funds.
The Plans with respect to Adjustable Rate Fund, Short-Term Fund, Short Duration Fund and Core Fund was approved by The Goldman Sachs Group, L.P., as the sole shareholder of Service Shares of
each Fund. 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 each Fund's Plan and Service Agreements (except Global Fund) at a meeting called for the purpose of voting on such Plans and Service Agreements on April 26, 1995. The Trustees most recently voted to approve the Plan and Service Agreements for the Global Fund at a meeting held on January 30, 1996. Each Plan and Service Agreement will remain in effect until June 30, 1996 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. No Plan may be amended to increase materially the amount to be spent for the services described therein without approval of the Service Shareholders of the applicable Fund, and all material amendments of each Plan must also be approved by the Board of Trustees in the manner described above. Each 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 Service Shares of the applicable Fund. 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 Service Shares of the applicable 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 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 Fund's Plan will benefit such Fund and its holders of Service Shares. In the Board of Trustees' quarterly review of the Plans and Service Agreements, the Board will consider their continued appropriateness and the level of compensation provided therein.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
GS SHORT-TERM GOVERNMENT AGENCY FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
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 Institutional Shares of each of GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income and Goldman Sachs Global Income Fund, each dated March 1, 1996, as amended and/or supplemented from time to time (each a "Prospectus"), which may be obtained without charge from Goldman, Sachs & Co. by calling the telephone number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
Introduction....................... B-3
Investment Objective and Policies.. B-7
Other Investments and Practices.... B-12
Investment Restrictions............ B-47
Management......................... B-57
Portfolio Transactions............. B-71
Shares of the Trust................ B-72
Net Asset Value.................... B-76
Taxation........................... B-76
Performance Information............ B-87
Other Information.................. B-95
Financial Statements............... B-96
Appendix A......................... 1-A
Appendix B......................... 1-B
Appendix C......................... 1-C
Appendix D......................... 1-D
Appendix E......................... 1-E
Appendix F......................... 1-F
Appendix G......................... 1-G
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The date of this Additional Statement is March 1, 1996.
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND; GS CORE 85 BROAD STREET
FIXED INCOME FUND AND NEW YORK, NEW YORK 10004
GOLDMAN SACHS GLOBAL INCOME
FUND AND ADMINISTRATOR TO
GOLDMAN SACHS GLOBAL INCOME
FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE 4900 SEARS TOWER
RATE GOVERNMENT AGENCY FUND CHICAGO, ILLINOIS 60606
AND GS SHORT-TERM
GOVERNMENT AGENCY FUND
ONE NEW YORK PLAZA GOLDMAN SACHS ASSET
NEW YORK, NEW YORK 10004 MANAGEMENT INTERNATIONAL
SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ, ENGLAND
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TOLL FREE (IN U.S.) .......800-621-2550
INTRODUCTION
Goldman Sachs Trust (the "Trust") was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust. 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 GS Adjustable Rate Government Agency Fund ("Adjustable Rate Fund"), GS Short-Term Government Agency Fund ("Short-Term Fund"), GS Short Duration Tax-Free Fund ("Short Duration Fund"), GS Core Fixed Income Fund, ("Core Fund") and Goldman Sachs Global Income Fund ("Global Fund"). Adjustable Rate Fund, Short-Term Fund, Short Duration Fund, Core Fund, and Global Fund are each sometimes referred to herein as a "Fund" and collectively as the "Funds." Short-Term Fund, Short Duration Fund and Core Fund are each authorized to issue three classes of shares: Institutional Shares, Administration Shares and Service Shares. Adjustable Rate Fund is authorized to issue four classes of shares: Institutional Shares, Administration Shares, Service Shares and Class A Shares. Global Fund is authorized to issue four classes of shares: Institutional Shares, Service Shares, Class A Shares and Class B Shares.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to Short Duration Fund, Core Fund and Global Fund. In addition, GSAM serves as Global Fund's administrator. Goldman Sachs Asset Management International ("GSAM International" or the "Subadviser"), an affiliate of Goldman Sachs, serves as subadviser to the Global Fund. Goldman Sachs Funds Management, L.P. ("FMLP"), an affiliate of Goldman Sachs, serves as the investment adviser to Adjustable Rate Fund and Short-Term Fund. GSAM, GSAM International and FMLP are each sometimes referred to herein as the "Adviser" and collectively herein as the "Advisers." In addition, Goldman Sachs serves as each Fund's distributor and transfer agent. Each Fund's custodian is State Street Bank and Trust Company.
The Goldman Sachs Mutual Funds Group ("MFG") offers banks, corporate cash managers, investment advisers and other institutional investors a family of professionally-managed mutual and money market funds, including fixed income and equity funds, and a range of related services. MFG is part of GSAM, a separate operating division of Goldman Sachs. 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 MFG is personalized service, which reflects the priority that Goldman Sachs places on serving client interests.
As MFG clients, shareholders will be assigned an Account Administrator ("AA"), who is ready to help shareholders with questions concerning their accounts. During business hours, shareholders can call their AA through a toll-free number to place purchase or redemption orders or obtain portfolio and account information. The AA can also answer inquiries about rates of return, portfolio composition and holdings and guide shareholders through operational details. An MFG client can also utilize SMART/sm/ personal computer software system which allows holders to purchase and redeem shares and also obtain portfolio and account information directly.
Because each Fund's shares may be redeemed upon request of a shareholder on any business day at net asset value, the Funds offer greater liquidity than many competing investments, such as certificates of deposit and direct investments in certain securities in which the respective Fund may invest.
The following information relates to and supplements the description of each Fund's investment policies contained in their respective Prospectuses. See each Fund's Prospectus for a fuller description of the Fund's investment objective and policies. Investing in the Funds entails certain risks and there is no assurance that a Fund will achieve its objective.
ADJUSTABLE RATE FUND AND SHORT-TERM FUND
Adjustable Rate Fund and Short-Term Fund are both designed for investors who seek a high level of high current income, relative stability of principal and the highest credit quality of U.S. Government agency guaranteed securities, without incurring the administrative and accounting burdens involved in direct investment. Such investors also prefer experienced professional management and administration, and liquidity.
Market and economic conditions may affect the investments of Adjustable Rate Fund and Short-Term Fund differently than the investments normally purchased by such investors. Relative to U.S. Treasury and non-fluctuating money market instruments, the market value of adjustable rate mortgage securities in which Adjustable Rate Fund will invest and in which Short-Term Fund may invest may be adversely affected by sharp increases in market interest rates. Conversely, sharp decreases in market interest rates may result in less capital appreciation for adjustable rate mortgage securities in relation to U.S. Treasury and money market investments.
deposit and money market accounts. However, the Adjustable Rate Fund and Short- Term Fund do not maintain a constant net asset value per share and are subject to greater fluctuations in the value of their shares than a money market fund. Unlike bank certificates of deposit and money market accounts, investments in shares of the Funds are not insured or guaranteed by any government agency. Each of the Adjustable Rate Fund and Short-Term Fund seeks to provide such high current income without sacrificing credit quality.
SHORT DURATION FUND
Short Duration Fund is not a money market fund, does not seek to maintain a stable net asset value and may not be able to return dollar-for- dollar the money invested. It is designed for investors who seek the tax benefits associated with investing in municipal securities and who are able to accept greater risk with the possibility of higher returns than investors in municipal money market funds. While municipal money market funds almost always maintain a constant net asset value, they must meet stringent high quality credit standards, their portfolios must be broadly diversified and their portfolio securities must have remaining maturities of 397 days or less. An example of an "eligible" investment for the Short Duration Fund is auction rate municipal securities, which generally have higher yields than money market
municipal securities, but which typically are not eligible investments for municipal money market funds.
In addition, unlike a municipal money market fund, the Short Duration Fund's increased investment flexibility permits its portfolio to be more easily adjusted to reflect the shape of the current yield curve as well as to respond to anticipated developments that might affect the shape of the yield curve.
Investors who wish to invest in municipal securities may find that a mutual fund structure offers some important advantages when compared to investing in individual municipal securities, including:
. The ratings given to municipal securities by the rating organizations are difficult to evaluate. For example, some municipal securities with relatively low credit ratings have yields comparable to municipal securities with much higher ratings. The credit research professionals at Goldman Sachs closely follow market events and are well positioned to judge current and expected credit conditions of municipal issuers;
. Because of the relative inefficiency of the secondary market in municipal securities, the value of an individual municipal security is often difficult to determine. As such, investors may obtain a wide range of different prices when asking for quotes from different dealers. In addition, a dealer may have a large inventory of a particular issue that it wants to reduce. Obtaining the best overall prices can require extensive negotiation, which is a function performed by the portfolio manager; and
. Industry and geographical diversification are important considerations for municipal investors. Short Duration Fund is designed to provide this diversification.
CORE FUND
Core Fund is designed for investors seeking a total return consisting of both income and capital appreciation that exceeds the total return of the Lehman Brothers Aggregate Bond Index, without incurring the administrative and accounting burdens involved in direct investment. Such investors also prefer liquidity, experienced professional management and administration, a sophisticated investment process, and the convenience of a mutual fund structure. Core Fund may be appropriate as part of a balanced investment strategy consisting of stocks, bonds and cash or as a complement to positions in other types of fixed income investments.
Core Fund's overall returns are generally likely to move in the opposite direction from interest rates. Therefore, when interest rates decline, Core Fund's return is likely to increase. Conversely, when interest rates increase, Core Fund's return is likely to decline. However, the Adviser believes that, given the flexibility of managers to invest in a diversified portfolio of securities, Core Fund's return is not likely to decline as quickly as that of other fixed income funds with a comparable average portfolio duration. In exchange for accepting a higher degree of potential share price fluctuation, investors have the opportunity to achieve a higher return from Core Fund than from shorter term investments.
GLOBAL FUND
Global Fund is designed for investors seeking a combination of high income, capital appreciation, stability of principal, experienced professional management, flexibility and liquidity. However, investing in the Fund involves certain risks and there is no assurance that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
ADJUSTABLE RATE FUND
The investment objective of Adjustable Rate Fund is a high level of current income, consistent with low volatility of principal. Adjustable Rate Fund will seek to achieve its objective through investment in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of Adjustable Rate Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by such U.S. Government entities. The primary issuers or guarantors of such securities currently include the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Government National Mortgage Association ("Ginnie Mae"), although Adjustable Rate Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. Adjustable Rate Fund may also invest in other mortgage-backed securities, and other obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as repurchase agreements collateralized by such securities. Adjustable Rate Fund may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. Adjustable Rate Fund may employ certain active management techniques, including the use of futures (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. Adjustable Rate Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable and fixed-rate mortgage loans ("Mortgage-Backed Securities") entail certain risks.
SHORT-TERM FUND
The investment objective of Short-Term Fund is to achieve a high level of current income. Secondarily, Short-Term Fund may, in seeking current income, also consider the potential for capital gains. Short-Term Fund pursues its objectives through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements pertaining thereto. These securities may include Mortgage-Backed Securities.
SHORT DURATION FUND
Short Duration Fund's investment objective is to provide investors with a high level of current income, consistent with relatively low volatility of principal, that is exempt from regular federal income tax. Short Duration Fund will seek to achieve its objective primarily through investments in fixed income securities ("Tax Free 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 and instrumentalities, the interest on which is exempt from regular federal income tax and is not a tax preference item under the federal alternative minimum tax. In addition, Tax- Free Securities
include participation interests in such securities the interest on which is, in the opinion of counsel, exempt from such taxes.
Under normal market conditions, Short Duration Fund will invest at least 80% of its net assets in Tax-Free Securities. Although it does not expect to do so, Short Duration Fund may invest up to 20% of its net assets in private activity bonds. Interest on certain private activity bonds may, when distributed by Short Duration Fund, increase the liability, if any, of certain investors for the federal alternative minimum tax. Private activity bonds and Tax-Free Securities are referred to herein as "Municipal Securities."
Short Duration Fund's investments in Municipal Securities will at the time of investment be rated at least A by Standard & Poor's Ratings Group ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's") or their equivalent ratings or, if unrated by such rating organizations, determined by the Adviser to be of comparable credit quality. The credit rating assigned to Municipal Securities by these rating agencies or by the Adviser may reflect the existence of guarantees, letters of credit or other credit enhancement features available to the issuers or holders of such Municipal Securities.
Although Short Duration Fund is not expected to do so, Short Duration Fund may invest as much as 20% of its net assets in taxable investments which are obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities and repurchase agreements collateralized by U.S. Government securities ("Taxable Investments"). Short Duration Fund may invest more than 20% of its net assets in Taxable Investments for temporary defensive purposes when, in the judgment of the Adviser, market conditions warrant. Except for such temporary investments, at no time will Short Duration Fund's investments in private activity bonds and Taxable Investments exceed, in the aggregate, 20% of Short Duration Fund's net assets.
Short Duration Fund will maintain an average weighted portfolio duration of two to three years. The individual Municipal Securities in which the Short Duration Fund investments will have effective maturities of five years or less. The terms "duration" and "effective maturity" are defined in Short Duration Fund's Prospectus under "Investment Objective and Policies."
CORE FUND
Core Fund's investment objective is to provide investors with a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index"). There can be no assurance that Core Fund will achieve its investment objective.
Core Fund will seek to achieve its objective by investing, under normal market conditions, primarily in fixed income securities, including securities issued or guaranteed by the U.S. Government or its agencies, authorities, instrumentalities or sponsored enterprises, corporate securities, Mortgage-Backed Securities, and asset-backed securities. The Adviser will determine periodically the weighting of such securities based upon the Adviser's expectation for changes in interest rates, market conditions, the credit quality of individual issuers and other factors it deems relevant. The Adviser will have access to the research of, and proprietary technical models developed by, Goldman Sachs and will apply quantitative and qualitative analysis in determining the appropriate allocations among issuers and types of securities.
The fixed income securities in which Core Fund invests will, at the time of investment, be rated at least BBB by Standard & Poor's, Baa by Moody's or BBB by Fitch Investors Service, Inc. ("Fitch") or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Adviser to be of comparable credit quality. A security will be deemed to have met this requirement if it receives the minimum required rating from at least one of such rating organizations even though it has been rated below the minimum rating by one or more other rating organizations.
Core Fund will maintain, under normal market conditions, an average portfolio duration within a range equal to the duration of the Index plus or minus one year. The Adviser may, however, decrease Core Fund's average portfolio duration without limit if the Adviser believes that a shorter duration is warranted by the outlook for interest rates or market conditions. There is no limitation as to Core Fund's maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities. During the past ten years, the average duration of the Index has generally varied between 4.2 and 5.4 years.
The fixed income securities in which Core Fund may invest include obligations of foreign issuers and obligations denominated in U.S. dollars or foreign currencies. The non-dollar denominated fixed income securities in which Core Fund may invest will, at the time of investment, be rated at least AA by Standard & Poor's, Aa by Moody's or AA by Fitch or, if unrated by such rating organizations, determined by the Adviser to be of comparable credit quality. Core Fund's investments in fixed income securities may also include Short-Term Investments (as defined below), convertible securities, custody receipts and municipal securities.
It is expected that Core Fund will employ certain interest rate management techniques. These techniques will be used both to hedge the interest rate risks associated with Core Fund's portfolio securities and to seek to increase total return. Such techniques
include options on securities, futures contracts, options on futures contracts, interest rate and mortgage swaps, interest rate caps, floors and collars, forward commitments, lending portfolio securities, repurchase agreements and mortgage dollar rolls. Core Fund may also engage in certain currency management techniques, including futures and options on currencies, forward foreign currency exchange contracts and currency swaps, but only for hedging purposes.
The Adviser will utilize a variety of investment strategies to seek to achieve Core Fund's investment objective, while complying with Core Fund's duration and credit quality requirements. Three of these strategies are described below.
yield. Selecting securities from the second type of issuers --those with low and intermediate but improving credit quality --enhances total returns in two stages. Initially, these securities provide incremental yield. Eventually, price appreciation occurs relative to alternative securities as credit quality improves, the nationally recognized statistical rating organizations upgrade credit ratings, and credit spreads narrow. Securities from the third type of issuers -- issuers with deteriorating credit quality -- will be avoided, since total returns are enhanced by avoiding the widening of credit spreads and the consequent relative price depreciation. Finally, total returns can be enhanced by focusing on securities that are rated differently by different rating organizations. If the securities are trading in line with the higher published quality rating while the Adviser concurs with the lower published quality rating, the securities would generally be sold and any potential price deterioration avoided. On the other hand, if the securities are trading in line with the lower published quality rating while the higher published quality rating is considered more realistic, the securities may be purchased in anticipation of the expected market reevaluation and relative price appreciation.
GLOBAL FUND
The investment objective of the Global Fund is a high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.
OTHER INVESTMENTS AND PRACTICES
OBLIGATIONS OF THE UNITED STATES, ITS AGENCIES AND INSTRUMENTALITIES
Each Fund may invest in U.S. Government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. 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, authorities or instrumentalities, are supported either by (a) the full faith and credit of the U.S. Government (such as securities of the Small Business Administration), (b) the right of the issuer to borrow from the Treasury (such as securities of Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government to purchase the agency's obligations (such as securities of Fannie Mae) or (d) only the credit of the issuer (such as securities of the Financing
Corporation). The U.S. Government is under no legal obligation, in general, to purchase the obligations of its agencies, authorities and instrumentalities. No assurance can be given that the U.S. Government will provide financial support to the U.S. Government agencies, authorities or instrumentalities in the future.
Securities guaranteed as to principal and interest by the U.S. Government and its agencies, authorities or instrumentalities are deemed to include (a) securities for which the payment of principal and interest is backed by a guaranty of the U.S. Government or 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.
The Funds may also invest in 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").
CUSTODIAL RECEIPTS
Each Fund may acquire custodial receipts in respect of U.S. Government securities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds. 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.
MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES
Adjustable Rate Fund, Short-Term Fund, Core Fund and Global Fund may each invest in mortgage loans and Mortgage-Backed Securities.
Mortgage 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 the Funds invest in Mortgage-Backed Securities, the Advisers will seek to manage these potential risks by investing in a variety of Mortgage-Backed Securities and by using certain hedging techniques.
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.
There are two main categories of indices which provide the basis for rate adjustments on ARMs: those based on U.S. Treasury securities and those derived from a calculated measure, such as a cost of funds index or a moving average of mortgage rates. Commonly utilized indices include the one-year, three-year and five-year constant maturity Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month or one year London Interbank Offered Rate, the prime rate of a specific bank or commercial paper rates. Some indices, such as the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels. Others, such as the 11th District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of each Fund's portfolio and therefore in the net asset value of the Adjustable Rate Fund and Short-Term 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.
other collateralized mortgage obligations and stripped Mortgage-Backed Securities. Adjustable Rate Fund, Short-Term Fund and Core Fund are permitted to invest in other types of Mortgage-Backed Securities that may be available in the future to the extent consistent with their respective investment policies and objectives.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES
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.
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 participations in mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate the timely payment of interest at the rate provided for by such Freddie Mac Certificate (whether or not received on the underlying loans). Freddie Mac also guarantees to each registered Certificate holder ultimate collection of all principal of the related mortgage loans, without any offset or deduction, but does not, generally, guarantee the timely payment of scheduled principal. The obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates consist of adjustable rate or fixed rate mortgage loans with original terms to maturity of between five and thirty years. Substantially all of these mortgage loans are secured by first liens on one- to four-family residential properties or multi-family projects. Each mortgage loans 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.
The following discussion describes only a few of the wide variety of structures of Mortgage Pass-Throughs that are available or may be issued.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES
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 does not address the remote possibility that, in the event of the insolvency of the issuer of certificates where a subordinated interest was retained, the issuance and sale of the senior certificates may be recharacterized as a financing and, as a result of such recharacterization, payments on such certificates may be affected.
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.
determines such voluntary advances will be recoverable from future payments and collections on the mortgage loans or otherwise.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by Fannie Mae. In addition, Fannie Mae will be obligated to distribute the principal balance of each class of REMIC Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC Certificates and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates ("PCs"). PCs represent undivided interests in specified level payment, residential mortgages or participations therein purchased by Freddie Mac and placed in a PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate collection of all principal of the related mortgage loans without offset or deduction. Freddie Mac also guarantees timely payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac are types of multiple class mortgage-backed securities. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests or "residual" interests. The Funds do not intend to purchase residual interests in REMICs. The REMIC Certificates represent beneficial ownership interests in
a REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under their respective guaranty of the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. Principal prepayments on the Mortgage Loans or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or REMIC Certificates to be retired substantially earlier than their final scheduled 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 certificates ("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 of REMIC 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.
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.
and interest may be affected.
ASSET-BACKED SECURITIES
Core Fund and Global Fund may invest in asset-backed securities. Such 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, each 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.
Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
ZERO COUPON, DEFERRED INTEREST AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon bonds and Short Duration, Core Fund and Global Fund may invest in deferred interest and capital appreciation bonds. Zero coupon, 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 zero coupon, deferred
interest and capital appreciation bonds 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.
Zero coupon, deferred interest and capital appreciation securities involve the additional risk that, unlike securities that periodically pay interest to maturity, a Fund will realize no cash until a specified future payment date unless a portion of such securities is sold and, if the issuer of such securities defaults, a Fund may obtain no return at all on its investment. In addition, even though such securities do not provide for the payment of current interest in cash, the Funds are nonetheless required to accrue income on such investments and may be required to distribute such amounts at least annually. Because no cash is received at the time of the accrual, a Fund may be required to liquidate other portfolio securities to satisfy federal tax distribution requirements applicable to the Fund. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
The interest rates payable on certain securities in which the Funds 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.
CORPORATE DEBT OBLIGATIONS
Core Fund and Global Fund may invest in corporate debt obligations, including obligations of industrial, utility and financial issuers. 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.
BANK OBLIGATIONS
To the extent permitted by their respective investment policies, Adjustable Rate Fund, Short-Term Fund, Global Fund and Core Fund may each invest in obligations issued or guaranteed by United States, and in the case of Global Fund, 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 obligations only of the issuing branch pursuant to the terms of the specific obligations or 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. Foreign banks are subject to different regulations and are permitted to engage in different activities than U.S. banks. 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.
MUNICIPAL SECURITIES
Core Fund and Short Duration Fund may invest in Municipal Securities. Municipal Securities consist of 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, the interest on which is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax or from the income taxes of any state or local government). In addition, Municipal Securities include participation interests in such securities the interest on which is, in the opinion of bond counsel for the issuers or counsel selected by the Adviser, excluded from gross income for federal income tax purposes. The definition of Municipal Securities includes other types of securities that currently exist or may be developed in the future and that pay, or will pay, in the opinion of such counsel, interest that is excluded from gross income for federal income tax purposes, provided that investing in such securities is consistent with each of the Fund's investment objective and policies. Each Fund will reflect any such changes in its definition of Municipal Securities in its Prospectus. 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 obtain funds for privately operated facilities, such as airports and waste disposal facilities, and in some cases commercial and industrial facilities.
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.
For the purpose of applying a Fund's investment restrictions, the identification of the issuer of a Municipal Security which is not a general obligation is made by the Adviser based on the characteristics of the Municipal Security, the most important of which is the source of funds for the payment of principal and interest on such securities.
An entire issue of Municipal Securities may be purchased by one or a small number of institutional investors such as Short Duration Fund and Core Fund. 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 can be readily marketable.
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.
The yields and market values of Municipal Securities are determined primarily by the general level of interest rates, the creditworthiness of the issuers of Municipal Securities and economic and political conditions affecting such issuers. Due to their tax exempt status, the yields and market prices of Municipal Securities may be adversely affected by changes in tax rates and policies, which may have less effect on the market for taxable fixed income securities. Moreover, certain types of Municipal Securities, such as housing revenue bonds, involve prepayment risks which could affect the yield on such securities.
Investments in Municipal Securities are subject to the risk that the issuer could default on its obligations. Such a default could result from the inadequacy of the sources or revenues from which interest and principal payments are to be made or the assets collateralizing such obligations. Revenue bonds, including private activity bonds, are backed only by specific assets or revenue sources and not by the full faith and credit of the governmental issuer.
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 the Municipal Income Fund's original investment.
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 the Short Duration Fund's limitation on investments in illiquid securities. Other municipal lease obligations and certificates of participation acquired by Short Duration Fund may be determined by the 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 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 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 Short Duration Fund.
Short Duration Fund may purchase participations in Municipal Securities held by a commercial bank or other financial institution. Such participations provide Short Duration Fund with the right to a pro rata undivided interest in the underlying Municipal Securities. In addition, such participations generally
provide Short Duration 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. Short Duration 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 Adviser, the interest from such participations is exempt from regular federal income tax.
Short Duration Fund may utilize new issue or secondary market insurance. A new issue insurance policy is purchased by a bond issuer who wishes to increase the credit rating of a security. By paying a premium and meeting the insurer's underwriting standards, the bond issuer is able to obtain a high credit rating (usually, Aaa from Moody's or AAA from Standard & Poor's) for the issued security. Such insurance is likely to increase the purchase price and resale value of the security. New issue insurance policies are non-cancelable and continue in force as long as the bonds are outstanding.
A secondary market insurance policy is purchased by an investor (such as Short Duration Fund) subsequent to a bond's original issuance and generally insures a particular bond for the remainder of its term. Short Duration Fund may purchase bonds which have already been insured under a secondary market insurance policy by a prior investor, or Short Duration Fund may itself purchase such a policy from insurers for bonds which are currently uninsured.
An insured Municipal Security acquired by Short Duration Fund will typically be covered by only one of the above types of policies. All of the insurance policies used by Short Duration Fund will be obtained only from insurance companies rated, at the time of purchase, Aaa by Moody's or AAA by Standard & Poor's.
Dividends on auction rate preferred securities issued by a closed-end fund may be designated as exempt from federal income tax to the extent they are attributable to exempt income earned by the fund on the securities in its portfolio and distributed to holders of the preferred securities, provided that the preferred securities are treated as equity securities for federal income tax purposes and the closed-end fund complies with certain tests under the Code. For purposes of complying with the 20% limitation on Short Duration Fund's investments in Taxable Investments, auction rate preferred securities will be treated as Taxable Investments unless substantially all of the dividends on such securities are expected to be exempt from regular federal income taxes.
Short Duration Fund's investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the Investment Company Act of 1940, as amended (the "Act"), and certain state securities regulations. These limitations include a prohibition against acquiring more than 3% of the voting securities of any other investment company, and investing more than 5% of the Fund's assets in securities of any one investment company or more than 10% of its assets in securities of all investment companies. The 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 Fund.
Such a right to resell may be referred to as a "standby commitment" or liquidity put, depending on its characteristics. The aggregate price which the Fund 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 Short Duration Fund. 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 Short Duration Fund. In considering whether a security meets Short Duration Fund's quality standards, the Fund will look to the creditworthiness of the party providing the Fund with the right to sell as well as the quality of the security itself.
Short Duration Fund values Municipal Securities which are subject to standby commitments at amortized cost. The exercise price of the standby commitments is expected to approximate such amortized cost. No value is assigned to the standby commitments for purposes of determining Short Duration Fund's net asset value. The cost of a standby commitment is carried as unrealized depreciation from the time of purchase until it is exercised or expires. Since the value of a standby commitment is dependent on the ability of the standby commitment writer to meet its obligation to repurchase, Short Duration Fund's policy is to enter into standby commitment transactions only with banks, brokers or dealers which present a minimal risk of default.
Management of the Trust understands that the Internal Revenue Service (the "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. The 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. Short Duration Fund intends to take the position that it is the owner of any Municipal Securities acquired subject to a standby commitment or acquired or held with certain other types of put rights and that tax-exempt interest earned with respect to such Municipal Securities will be tax-exempt in its hands. There is no assurance that standby commitments will be available to Short Duration Fund nor has the Fund assumed that such commitments would continue to be available under all market conditions.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CURRENCY SWAPS AND INTEREST RATE CAPS, FLOORS AND COLLARS
Each Fund may enter into interest rate swaps, caps, floors and collars. In addition, Core Fund, Adjustable Rate Fund and Short-Term Fund may enter into mortgage swaps and Core Fund and Global Fund may also enter into currency swaps. Each Fund may enter into swap transactions for hedging purposes, or to adjust the effective duration of its portfolio securities. Core Fund and Global Fund may also enter into swap transactions to seek to increase total return and in the case of Global Fund for hedging purposes. 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. 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. 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 positions.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to an interest rate 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. 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. The net amount of the excess, if any, of the Global Fund's obligations over its
entitlements with respect to each interest rate or currency swap will be accrued on a daily basis and an amount of cash or liquid, high grade debt securities having an aggregate net asset value at least equal to such accrued excess will be maintained in a segregated account by a Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by cash or liquid, high grade debt securities maintained in a segregated account the Funds and the Advisers 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 restriction.
The Funds will not enter into any swap transactions unless the unsecured commercial paper, senior debt or claims paying ability of the other party is rated either AA or A-1 or better by Standard & Poor's or Aa or P-1 or better by Moody's or their equivalent ratings or, in the case of Global Fund, rated investment grade, or if unrated by such rating organizations, determined to be of comparable quality by the applicable Adviser. If there is a default by the other party to such a transaction, a Fund will have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments which are traded in the interbank market. The staff of the Securities and Exchange Commission (the "SEC") currently takes the position that swaps, caps, floors and collars are illiquid for purposes of a Fund's limitation on illiquid investments.
OPTIONS ON SECURITIES AND SECURITIES INDICES
A put option written by a Fund obligates 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. The purpose of writing such options is to generate additional income. However, in return for the option premium, the Fund accepts the risk that it will be required to purchase the underlying securities at a price in excess of the securities' market value at the time of purchase.
All put options written by a Fund are covered. A written call option or
put option may be covered by (i) maintaining cash or liquid, high-grade debt
securities, either of which, in the case of Global Fund, may be quoted or
denominated in any currency, in a segregated account maintained by the Fund's
custodian with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position.
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."
Short Duration Fund, Core Fund and Global Fund may also write (sell) covered call and put options on any securities index composed of securities in which they 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.
The Funds may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index or by having an absolute and immediate right to acquire such securities without additional cash consideration (or for additional cash consideration held in a segregated account by their respective custodian) upon conversion or exchange of other securities in its portfolio. The Funds may also cover call and put options on a securities index by maintaining cash or liquid, high-grade debt securities with a value equal to the exercise price in a segregated account with their custodian or by using the other methods described above.
A Fund would normally purchase call options in anticipation of an increase, or put options in anticipation of a decrease ("Protective Puts") in the market value of securities of the type in which it may invest. The purchase of a call option would entitle a Fund, in return for the premium paid, to purchase specified securities at a specified price during the option period. A Fund would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option. The purchase of a put option would entitle a Fund, in exchange for the premium paid, to sell specified securities at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of a Fund's securities. Put options may also be purchased by a Fund for the purpose of affirmatively benefiting from a decline in the price of securities which it does not own. A Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to 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 put options may be offset by countervailing changes in the value of the underlying portfolio securities.
A Fund may purchase put and call options on securities indices for the same purposes as it may purchase options on securities. 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.
Transactions by a Fund in options on securities and securities indices will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded 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, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers.
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 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.
A call option written by Core Fund and Global Fund obligates the Fund to sell specified currency to the holder of the option at a specified price if the option is exercised at any time before the expiration date. A put option written by a Fund obligates the Fund to purchase 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.
A Fund may terminate its obligations under a written call or put option by purchasing an option identical to the one written. Such purchases are referred to as "closing purchase transactions." A Fund would also be able to enter into closing sale transactions in order to realize gains or minimize losses on purchased options.
Core Fund and Global Fund would normally purchase call options in anticipation of an increase in the dollar value of currency in which securities to be acquired by the Fund are denominated or quoted. The purchase of a call option would entitle a Fund, in return for the premium paid, to purchase specified currency at a specified price during the option period. A Fund would ordinarily realize a gain if, during the option period, the value of such currency exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option.
Core Fund or Global Fund would normally purchase put options in anticipation of a decline in the dollar value of currency in which securities in its portfolio are denominated or quoted ("protective puts"). The purchase of a put option would entitle Core Fund and Global 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.
In addition to using options for the hedging purposes described above, Global Fund may use options on currency to seek to increase total return. Global Fund 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, Global Fund may forego the opportunity to profit from an increase in the market value of the underlying currency. Also, when writing put options, Global 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.
Global Fund would normally purchase call options to seek to increase total return in anticipation of an increase in the market value of a currency. Global 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 Global Fund would realize either no gain or a loss on the purchase of the call option. Put options may be purchased by the Global Fund for the purpose of benefiting from a decline in the value of currencies which it does not own. Global 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 Global Fund would realize either no gain or a loss on the purchase of the put option.
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.
Core Fund and Global Fund may purchase or write yield curve options for the same purposes as other options on securities. For example, a 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. A Fund may also purchase or write yield curve options for other than hedging purpose (i.e., in an effort to increase its current income) if, in the judgment of the 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 a risk of loss even if the yield of one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated.
Yield curve options written by a 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 maintains in a segregated account with its custodian cash or liquid, high-grade debt securities sufficient to cover the Fund's net liability under the two options. Therefore, a Fund's liability for such a covered option is generally limited to the difference between the amount of the Fund's liability under the option written by the Fund less the value of the option held by the Fund. Yield curve options may also be covered in such other manner as may be in accordance with the requirements of the counterparty with which the option is traded and applicable laws and regulations. Yield curve options are traded over-the-counter, and because they have been only recently introduced, established trading markets for these options have not yet developed.
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 transactions 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 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. Until such time as the staff of the SEC changes its position, the Funds will treat purchased over-the-counter options and all assets used to cover written over- the-counter options as illiquid securities, except that with respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to a formula approved by the staff of the SEC.
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 successful use of options for hedging purposes depends in part on the applicable Adviser's ability to predict future price fluctuations and the degree of correlation between the options and securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency exchange rates or, except in the case of currency futures by Core Fund, to seek to increase total return, each Fund may purchase and sell various kinds of futures contracts, and purchase and write call and put options on any of such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any of such contracts and options. The Futures contracts may be based on various securities (such as U.S. Government securities), securities indices, foreign currencies in the case of Global Fund and Core Fund, and any other financial instruments and indices. A Fund will engage in futures and related options transaction 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 CFTC. All futures contracts entered into by a Fund are trade on U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or on foreign exchanges.
When interest rates are rising or securities prices are falling, a 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 securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. Core Fund or Global Fund can seek to offset anticipated changes in the value of a currency in which its portfolio securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies.
Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities or currency will usually be liquidated in this manner, a Fund may instead make, or take, delivery of the underlying securities or currency whenever it appears economically advantageous 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.
denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies. If, in the opinion of the 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, the 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 Advisers 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 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 would be done, for example, when a Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency exchange rates then available in the applicable market to be less favorable than prices that are currently available.
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,(upon exercise of the option) 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, 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 a Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. Funds 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 series. 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.
As an alternative to compliance with the bona fide hedging definition, a CFTC regulation permits the Funds to elect to comply with a different test under which the aggregate initial margin and premiums required to establish positions to seek to increase total return in futures contracts and options on futures will not exceed 5% of the net asset value of a 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 Funds will engage in transactions in futures contracts and related options only to the extent such transactions are consistent with the requirements of the Code for maintaining
their qualifications as regulated investment companies for federal income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, require the Fund to establish with the custodian a segregated account consisting of cash or liquid, high-grade debt securities 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,while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates or securities prices or currency exchange rates may result in a poorer overall performance for a Fund than if it had not entered into any futures contracts or options transactions. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and a Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio positions will be impossible to achieve. There are no futures contracts based upon individual securities, except certain U.S. Government Securities. The only futures contracts available to hedge the Fund's portfolio are various futures on U.S. Government securities, securities indices and foreign currencies. In addition, is not possible 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.
FOREIGN INVESTMENTS
Core Fund may invest in securities of foreign issuers and up to 25% of the Fund's assets may be invested in fixed income securities quoted or denominated in a currency other than U.S. dollars. Global Fund is expected to invest in securities of foreign issuers. Investing in the securities of foreign issuers involves certain special considerations, including those set forth below, which are not typically associated with investing in U.S. issuers. Since investments in the securities of foreign issuers may involve currencies of foreign countries, and since Core Fund and Global Fund may temporarily hold funds in bank deposits in foreign currencies during completion of investment programs, Core Fund and Global Fund 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.
Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Volume and liquidity in most foreign bond markets are less than in the United States markets and securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges are often fixed and generally are 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 securities exchanges, brokers, dealers and listed companies than 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 a portion of the assets of Core Fund or Global Fund is uninvested and no return is earned thereon. The inability of Core Fund or Global 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 Core Fund or Global Fund due to subsequent declines in value of the portfolio securities, or, if Core Fund or Global 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 adversely affect Core Fund's or Global 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, resources self-sufficiency and balance of payments position.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Core Fund may enter into forward foreign currency exchange contracts for hedging purposes, and Global Fund may enter into forward foreign currency exchange contracts for hedging purposes and to seek to increase total return. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded in the interbank
market conducted directly 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, Global Fund and Core 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 usually effected with the currency trader who is a party to the original forward contract.
Global Fund or Core Fund may enter into forward foreign currency exchange contracts in several circumstances. First, when Global Fund or Core Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when Global Fund or Core Fund anticipates the receipt in a foreign currency of a dividend or interest payments on such a security which it holds, Global Fund or Core 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, Global Fund or Core 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 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 dollars, the amount of foreign currency approximating the value of some or all of a 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 dollar value of only a portion of a Fund's foreign assets.
Global Fund and Core Fund may engage in cross-hedging by using forward contracts in one currency to hedge against fluctuations in the value of securities denominated in a different currency if the Adviser determines that there is a pattern of correlation between the two currencies. The Global Fund may also purchase and sell forward contracts to seek to increase total return when the Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities quoted or denominated in that currency do not present attractive investment opportunities and are not held in the Global Fund's portfolio.
Global Fund's and Core Fund's custodian will place cash or liquid, high- grade debt securities (i.e., securities rated in one of the top three rating categories by Moody's Investors Service, Inc ("Moody's") or Standard & Poor's Rating Group ("S&P") or, if unrated by such rating organizations, deemed by the Adviser to be of comparable credit quality) into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies or in the case of Global Fund, forward contracts entered into to increase total return. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. The segregated account will be marked -to-market on a daily basis. Although the contracts are not presently regulated by the CFTC, the CFTC may in the future assert authority to regulate these contracts. In such event, a Fund's ability to utilize forward foreign currency exchange contracts may be restricted. The Global Fund and Core Fund will not enter into a forward contract with a term of greater than one year.
While Global Fund and Core Fund will enter into forward contracts to reduce currency exchange rate risks, transactions in such contracts involve certain other risks. Thus, while Global Fund and Core Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for a 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 Global Fund and Core Fund. Such imperfect correlation may cause the Fund to sustain losses which will prevent the Fund from achieving a complete hedge or expose the Fund to risk of foreign exchange loss.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as brokers or dealers and would be required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. A Fund has 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 continues to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives 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 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 are made only to firms deemed by the applicable Adviser to be of good standing, and when, in the judgment of the applicable Adviser, the consideration which can be earned currently from securities loans of this type justifies the attendant risk. If an Adviser determines to make securities loans, the value of the securities loaned will not exceed one-third of the value of the total assets of each Fund.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may purchase securities that are not registered or offered in an exempt non-public offering ("Restricted Securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale to "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act. However, a Fund will not invest more than 15% of its assets in illiquid investments, which includes repurchase agreements maturing in more than seven days, interest rate, currency and mortgage swaps, interest rate caps, floors and collars, certain SMBS, municipal leases, certain over-the-counter options, securities that are not readily marketable and Restricted Securities, unless the Board of Trustees determines, based upon a continuing review of the trading markets for the specific restricted securities, that such restricted securities are liquid. The Trustees have adopted guidelines and delegated to the Advisers the daily function of determining and monitoring the liquidity of Restricted Securities. The Board of Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how this market for Restricted Securities sold and offered under Rule 144A will develop, the Trustees will carefully monitor the Funds' 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 Fund 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 securities normally reflect a discount from the price at which such securities trade when they are not restricted, since the restriction makes 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.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
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. The Funds 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, the Funds may dispose of or negotiate a commitment after entering into it. A Fund also may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. The Funds may realize a capital gain or loss in connection with these transactions. For purposes of determining each Fund's average duration, the maturity of when-issued or forward commitment securities will be calculated from the commitment date. Each Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected broker- dealers, banks or other financial institutions. 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 will be maintained by each Fund's custodian. The repurchase price may be higher than the purchase price, the difference being income to a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a Fund together with the repurchase price on repurchase. In either case, the income to a Fund is unrelated to the interest rate on the security subject to the repurchase agreement.
For purposes of the Act and, generally for tax purposes, a repurchase agreement is deemed to be a loan from a Fund to the seller of the security. For other purposes, it is not clear whether a court would consider the security purchased by a 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, 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, 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, a Fund would be at risk of losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for each Fund, the applicable 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), each 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 Funds, together with other registered investment companies having advisory agreements with the Advisers or their affiliates, may transfer uninvested cash balances into a single joint account, the daily aggregate balance of which will be invested in one or more repurchase agreements.
INVESTMENT IN UNSEASONED COMPANIES
Global Fund may invest up to 5% of its total assets, calculated at the time of purchase, in companies (including predecessors) which have operated less than three years, excluding issuers whose debt securities have been rated, at the time of investment, investment grade or better by at least one nationally
recognized statistical rating organization. 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.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions on behalf of the Funds, none of which may be changed without the approval of the holders of a majority of the outstanding voting securities of the applicable Fund. The investment objective of each Fund and all other investment policies or practices of the Funds, except for Short Duration Fund's policy to invest under normal market conditions 80% of its net assets in Tax-Free Securities, are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. See "INVESTMENT OBJECTIVE AND POLICIES" in the Prospectuses. As defined in the Act, "a majority of the outstanding voting securities" of a Fund means the vote (a) of 67% or more of the shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy or (b) more than 50% of the outstanding shares of the Fund, whichever is less.
For the purposes of the limitations (except for the 300% asset coverage requirement with respect to borrowings), 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.
ADJUSTABLE RATE FUND MAY NOT:
(1) Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, if immediately after such purchase more than 5% of the Fund's total assets would be invested in such issuer, except that (a) up to 25% of the value of the Fund's total assets may be invested without regard to such 5% limitation, and (b) such 5% limitation shall not apply to repurchase agreements collateralized by obligations of the U.S. Government, its agencies or instrumentalities.
(2) Borrow money, except as a temporary measure for extraordinary or emergency purposes, provided that the Fund is required to maintain asset coverage of at least 300% for all borrowings. For purposes of this investment restriction, short sales, swap transactions, options, futures contracts and options on
futures contracts, and forward commitment transactions shall not constitute borrowings.
(3) Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies or instrumentalities.
(4) Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the segregation of assets in connection with the writing of covered put and call options, swap transactions, the purchase of securities on a forward commitment or delayed delivery basis and collateral and initial or variation margin arrangements with respect to options, futures contracts and options on futures contracts.
(5) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures.
(6) Make short sales of securities, except short sales against-the-box, or maintain a short position.
(7) Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
(8) Purchase, hold or deal in real estate, including limited partnership interests, or oil and gas interests, although the Fund may purchase and sell securities that are secured by real estate or interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
(9) Invest in commodities or commodity futures contracts, except that the Fund may (a) purchase and sell futures contracts, including those relating to securities and indices, and options on any such futures contracts, and (b) purchase and sell securities on a forward commitment or delayed delivery basis.
(10) Lend any funds or other assets except through repurchase agreements or the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend portfolio securities in an amount not to exceed one third of the value of its total assets.
(11) Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act) except as permitted in Investment Restriction Nos. (2), (5), (6) and (10).
In addition to the investment restrictions mentioned above, the Trustees of the Trust have voluntarily adopted the following policies and restrictions on behalf of Adjustable Rate Fund which are observed in the conduct of its affairs. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment restrictions in that they may be changed or amended by action of the Trustees of the Trust without prior notice to or approval of shareholders. Accordingly, Adjustable Rate Fund may not:
(a) invest more than 10% of its assets in securities of other investment companies;
(b) purchase warrants of any issuer, except on a limited basis, if, as a result, more than 2% of the value of its total assets would be invested in warrants which are not listed on the New York Stock Exchange and more than 5% of the value of its total assets would be invested in warrants, whether or not so listed, such warrants in each case to be valued at the lesser of cost or market, but assigning no value to warrants acquired by the Fund in shares or attached to debt securities;
(c) purchase (i) securities of any issuer with a record of less than three years' continuous operation, including predecessors, except U.S. Government securities and securities guaranteed by any foreign government or its agencies or instrumentalities, or (ii) common or preferred stocks that are not readily marketable, if such purchase would cause the investment of the Fund in all such securities to exceed 5% of the value of the total assets of the Fund; or
(d) purchase puts, calls, straddles, spreads and any combination thereof if the value of the Fund's aggregate investment in such securities exceeds 5% of its total assets.
SHORT-TERM FUND MAY NOT:
(1) Purchase the securities of issuers conducting their principal business activity in the same industry if immediately after such purchase the value of the Fund's investments in such industry would exceed 25% of the value of its total assets, provided that (a), as to utility companies, the gas, electric, water and telephone businesses will be considered separate industries, (b) all finance companies as a group will not be considered a single industry, (c) industry determinations with respect to Securitized Assets will be based on the type of assets backing the security, and (d) there is no limitation with respect to or arising out of investments in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, repurchase agreements or loans by the Fund of securities collateralized by such obligations or by cash. With respect to both clauses (c) and (d), Securitized Assets which are
issued or guaranteed by the U.S. Government, its agencies or instrumentalities or backed directly or indirectly by obligations so issued or guaranteed will be treated as being within clause (d).
(2) Purchase the securities of any one issuer if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in such issuer, except that (a) up to 25% of the value of its total assets may be invested without regard to such 5% limitation, and (b) such 5% limitation shall not apply to securities which are issued or guaranteed by the U.S. Government, its agencies or instrumentalities or backed directly or indirectly by obligations so issued or guaranteed (including repurchase agreements collateralized by obligations so issued or guaranteed).
(3) Make loans, except through (a) the purchase of debt obligations or pass-through instruments in accordance with the Fund's investment objective and policies, (b) repurchase agreements with banks, brokers, dealers and other financial institutions; and (c) loans of securities.
(4) Borrow money, except (a) as a temporary measure, and then only in amounts not exceeding 5% of the value of the Fund's net assets or (b) from banks, provided that immediately after any such borrowing all borrowings of the Fund do not exceed one-third of its net assets (excluding borrowings). The exceptions to this restriction are not for investment leverage purposes but are solely for extraordinary or emergency purposes or to facilitate management of the Fund by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments is deemed to be disadvantageous or not possible. While the Fund has borrowings outstanding in excess of 5% of the value of its net assets, it will not make any purchases of portfolio instruments. If, due to market fluctuations or other reasons, the net assets of the Fund fall below 300% of its borrowings, the Fund will promptly reduce its borrowings in accordance with the Act. To do this, the Fund may have to sell a portion of its investments at a time when it may be disadvantageous to do so. For purposes of this restriction, neither the arrangements referred to in restriction (5) below nor the purchase or sale of futures or related options shall be regarded as involving the borrowing of money.
(5) Mortgage, pledge or hypothecate any assets except to secure permitted borrowings. For purposes of this restriction, collateral arrangements with respect to the writing of options, interest rate futures contracts, options on futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a mortgage, pledge or hypothecation of assets.
(6) Purchase or sell real estate, but this restriction shall not prevent the Fund from investing directly or indirectly in portfolio instruments secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts, except that the Fund may purchase and sell interest rate futures contracts and related options, or purchase or sell interests in oil, gas or other mineral exploration or development programs.
(8) Purchase any voting securities or invest in companies for the purpose of exercising control or management.
(9) Act as an underwriter of securities.
(10) Purchase any security on margin (except for delayed delivery or when- issued transactions or such short-term credits as are necessary for the clearance of transactions). The payment or deposit by the Fund of initial or variation margin in connection with interest rate futures contracts or related option transactions is not considered the purchase of a security on margin.
(11) Make short sales of securities or maintain a short position unless (a) at all times when a short position is open the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short or (b) for the purpose of hedging the Fund's exposure to an actual or anticipated market decline in the value of its investments.
(12) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may purchase puts and write, purchase and sell call options with respect to portfolio securities and with respect to interest rate futures contracts.
For purposes of Short-Term Fund's investment restriction no. 1 above, "Securitized Assets" denotes securities representing interests in pools of assets.
Although it has the authority to do so, Short-Term Fund does not currently intend to purchase or sell options with respect to portfolio securities, purchase or sell interest rate futures contracts and related options, or purchase or sell interests in oil, gas or other mineral exploration or development programs.
SHORT DURATION FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government or any of its agencies, authorities or instrumentalities, if immediately after such purchase, more than 5% of the Fund's total assets would be invested in such issuer or the Fund would hold more than 10% of any class of the outstanding voting securities of such issuer,
except that (a) up to 25% of the Fund's total assets may be invested without regard to such limitations and (b) such limitations shall not apply to repurchase agreements collateralized by obligations of the U.S. Government or any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. (For the purposes of this restriction, state and municipal governments and their agencies 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 limitation does not apply to investments or obligations of, or to 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) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding one-third
of the Fund's total assets, not including the amount borrowed; (b) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets; and
(c) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets, but only
if after each such borrowing there is asset coverage of at least 300% as defined
in the Act. For purposes of this investment restriction, short sales, futures
contracts, options on futures contracts, securities or indices and forward
commitment transactions shall not constitute borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a forward commitment or delayed- delivery basis and collateral and initial or variation margin arrangements with respect to futures contracts and options on futures contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures.
6. Make short sales of securities, except short sales against-the-box, or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
8. Purchase, hold or deal in real estate (including real estate limited partnerships) or oil, gas or mineral leases, although the Fund may purchase and sell securities that are secured by real estate or interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell futures contracts, including those relating to securities or indices, and options on futures contracts and purchase and sell securities on a forward commitment or delayed-delivery basis.
10. Lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend its portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets. Any loans of portfolio securities will be made in accordance with guidelines established by the SEC and the Trust's Board of Trustees.
11. Issue any senior security (as such term is defined in Section 18(f) of the Act) except as permitted in Investment Restriction Nos. 3, 4, 9 and 10 and except for any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees of the Trust have voluntarily adopted the following policies and restrictions on behalf of short Duration Fund which are observed in the conduct of its affairs. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment restrictions in that they may be changed or amended by action of the Trustees of the Trust without prior notice to or approval of shareholders. Accordingly, Short Duration Fund may not:
(a) Purchase or retain the securities of any issuers if the officers, directors, partners or Trustees of the Trust, its investment adviser or manager owning beneficially more than one-half of 1% of the securities of such issuer, together own beneficially more than 5% of such securities.
(b) Invest more than 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the voting securities of any other investment company; or purchase the securities of closed-end investment companies, except in the
open market where no commission or profit to a sponsor or dealer results from the purchase, other than customary brokerage fees.
(c) Write covered calls or put options with respect to more than 25% of the value of its total assets or invest more than 5% of its total assets in puts, calls, spreads or straddles, other than protective put options. The aggregate value of premiums paid on all options, other than protective puts, held by the Fund at any time will not exceed 5% of its total assets.
(d) Invest (a) more than 15% of the Fund's net assets in illiquid investments, including repurchase agreements maturing in more than seven days, securities that are not readily marketable and restricted securities not eligible for resale pursuant to Rule 144A under the 1933 Act; or (b) more than 15% of its net assets in restricted securities (including those eligible for resale under Rule 144A).
(e) Purchase additional securities while the Fund's borrowings exceed 5% of its total assets.
(f) Invest more than 5% of the Fund's total assets in the securities of issuers which, together with predecessors, have a record of less than three years of continuous operation.
Short Duration Fund may invest 25% or more of the value of its total assets in Municipal Securities which are related in such a way that an economic, business or political development or change affecting one Municipal Security would also affect the other Municipal Securities. Short Duration Fund may so invest in (a) Municipal Securities the interest on which is paid solely from revenues of 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 Securities whose issuers are in the same state, or (c) industrial development obligations.
For the purpose of applying Short Duration Fund's investment restrictions, the identification of the issuer of a Municipal Security that is not a general obligation is made by the Adviser based on the characteristics of the Municipal Security, the most important of which is the source of funds for the payment of principal and interest on such securities.
CORE FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government or any of its agencies, authorities or instrumentalities, if immediately after such purchase, more than 5% of the Fund's total assets would be invested in such issuer or the Fund would hold more than 10% of any class of the outstanding voting securities of such issuer,
except that (a) up to 25% of the Fund's total assets may be invested without regard to such limitations and (b) such limitations shall not apply to repurchase agreements collateralized by obligations of the U.S. Government or any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments or obligations of the U.S. Government or any of its agencies or instrumentalities.
3. Borrow money, except: (a) from banks for temporary or short-term purposes or for the clearance of transactions in amounts not exceeding one-third of the Fund's total assets, not including the amount borrowed; (b) in connection with the redemption of Fund shares or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets; (c) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets, and (d) transactions in mortgage dollar rolls which are accounted for as financings, but only if after each such borrowing there is asset coverage of at least 300% as defined in the Act. For purposes of this investment restriction, short sales, mortgage dollar rolls that are not accounted for as financings, options, transactions in currencies, forward contracts, currency, mortgage and interest rate swaps (to the extent a segregated account has been established collateralizing the Fund's swap obligations), interest rate caps and floors, futures contracts, options on futures contracts and forward commitment transactions shall not constitute borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a forward commitment or delayed- delivery basis and collateral and initial or variation margin arrangements with respect to forward currency contracts, futures contracts and options on futures contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures contracts and options on futures contracts.
6. Make short sales of securities, except short sales against-the-box, or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
8. Purchase, hold or deal in real estate (including real estate limited partnerships) or oil, gas or mineral leases, although the Fund may purchase and sell securities that are secured by real estate or interests therein, may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell futures contracts, including those relating to securities, currencies or indices, and options on futures contracts or currencies and purchase and sell securities or currencies on a forward commitment or delayed-delivery basis.
10. Lend any funds or other assets except through repurchase agreements or the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend its portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets.
11. Issue any senior security (as such term is defined in Section 18(f) of the Act) except as permitted in Investment Restriction No. 3 and except for any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees of the Trust have voluntarily adopted the following policies and restrictions on behalf of Core Fund which are observed in the conduct of its affairs. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment restrictions in that they may be changed or amended by action of the Trustees of the Trust without prior notice to or approval of shareholders. Accordingly, Core Fund may not:
(a) Purchase or retain the securities of any issuers if the officers, directors, partners or Trustees of the Trust, its investment adviser or manager owning beneficially more than one-half of 1% of the securities of such issuer, together own beneficially more than 5% of such securities.
(b) Write covered calls or put options with respect to more than 25% of the value of its total assets or invest more than 5% of its total assets in puts, calls, spreads or straddles, other than protective put options. The aggregate value of premiums paid on all options, other than protective puts, held by the Fund at any time will not exceed 5% of the Fund's total assets.
(c) Invest (a) more than 15% of the Fund's net assets in illiquid investments, including repurchase agreements maturing in 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; or (b) more than 15% of its net assets in
restricted securities (including those eligible for resale pursuant to Rule 144A that the Trustees have determined to be liquid).
(d) Purchase additional securities while the Fund's borrowings exceed (excluding covered mortgage dollar rolls) 5% of its total assets.
(e) Invest more than 5% of the Fund's total assets in the securities of issuers which, together with predecessors, have a record of less than three years of continuous operation.
Global Fund may not:
(1) Borrow money, except from banks on a temporary basis, provided that the Fund is required to maintain asset coverage of at least 300% for all borrowings. For purposes of this investment restriction, short sales, transactions in currency, forward contracts, options, futures contracts and options on futures contracts, and forward commitment transactions shall not constitute borrowing.
(2) Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies or instrumentalities.
(3) Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the segregation of assets in connection with the writing of covered put and call options and the purchase of securities or currencies on a forward commitment or delayed-delivery basis and collateral and initial or variation margin arrangements with respect to forward contracts, options, futures contracts and options on futures contracts.
(4) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in currencies, options, futures and options on futures.
(5) Make short sales of securities, except short sales against-the-box, or maintain a short position. (The Fund does not currently intend to make short sales against-the-box.)
(6) Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
(7) Purchase, hold or deal in real estate, including limited partnership interests, or oil and gas interests, although the Fund may purchase and sell securities that are secured by real estate or
interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
(8) Invest in commodities, except that the Fund may (a) purchase and sell futures contracts, including those relating to securities, currencies and indices, and options on any such futures contracts or currencies, and (b) purchase and sell currencies or securities on a forward commitment or delayed- delivery basis.
(9) Lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f) of the Act), except as permitted in Investment Restriction Nos. (1), (4), (5) and (9).
In addition, as non-fundamental policies, Global Fund may not:
(1) Invest more than 10% of its total assets in securities of other investment companies or more than 5% of its total assets in the securities of any one investment company, in each case calculated at the time of purchase, or acquire more than 3% of the voting securities of any other investment company.
(2) Purchase warrants of any issuer, except on a limited basis, if, as a result, more than 2% of the value of its total assets would be invested in warrants which are not listed on the New York Stock Exchange and more than 5% of the value of its total assets would be invested in warrants, whether or not so listed, such warrants in each case to be valued at the lesser of cost or market, but assigning no value to warrants acquired by the Fund in shares or attached to debt securities.
(3) Invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or
(b) more than 10% of its total assets in restricted securities (including those
eligible for resale under Rule 144A).
(4) Invest in the securities of other investment companies, except by purchase in the open market where no commission or profit to a sponsor or dealer results from the purchase other than the customary broker's commission, or except when the purchase is part of a plan or merger, consolidation, reorganization or acquisition.
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth below together with their respective positions and a brief statement of their principal occupations during the past five years. Trustees deemed to be "interested persons" of the Trust for purposes of the Act are indicated by an asterisk.
telecommunications holding company) February 1987 to retirement in 1992 and Vice Chairman, Chief Financial and Administrative Officer of Ameritech prior thereto; Director, Walgreen Co. (a retail drugstore business); and Baker, Fentress & Co. (a closed-ended non-diversified management investment company).
since June 1994. Formerly Blue Sky Legal Assistant at Smith Barney Shearson.
The Trustees and officers of the Trust hold comparable positions with certain other investment companies of which Goldman Sachs, GSAM or FMLP is the investment adviser, administrator and/or distributor. As of November 30, 1995, the Trustees and officers as a group owned less than 1% of the outstanding shares of beneficial interest of each Fund.
The following table sets forth certain information with respect to the compensation of each Trustee of the Trust for the one-year period ended October 31, 1995:
Total
Pension or Compensation
Aggregate Retirement from Goldman
Compensation Benefits Accrued Sachs Mutual
from the as of Part of Funds (including
Name of Trustees Trust Trust's Expenses the Trust)*
- --------------------- ------------ ---------------- ----------------
Paul C. Nagel, Jr. $ $ $
Ashok N. Bakhru $ $ $
Marcia L. Beck $ $ $
David B. Ford $ $ $
Alan Shuch $ $ $
Jackson W. Smart $ $ $
William H. Springer $ $ $
Richard P. Strubel $ $ $
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* The Goldman Sachs Mutual Funds consisted of mutual funds, including the eleven series of the Trust, on October 31, 1995.
FMLP, One New York Plaza, New York, New York 10004, serves as the investment adviser to Adjustable Rate Fund and Short-Term Fund pursuant to separate investment advisory agreements. FMLP, a Delaware limited partnership, is an affiliate of Goldman Sachs, 85 Broad Street, New York, New York 10004. GSAM, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to Short Duration Fund and Core Fund pursuant to separate investment advisory agreements. GSAM also serves as investment adviser and administrator to Global Fund. GSAM International, 140 Fleet Street, London EC4A 2BJ, England, acts as the Global Fund's subadviser. As a company with unlimited liability under the laws of England, GSAM International is regulated by the Investment Management Regulatory Organization Limited, a United Kingdom self-regulatory organization in the conduct of its investment advisory business. See "MANAGEMENT" in each Fund's Prospectus for a description of the applicable Adviser's duties as investment adviser and subadviser.
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 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, Milan, Montreal, Osaka, Paris, 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.
The 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. With an annual equity research budget approaching $120 million, Goldman Sachs' Investment Research Department covers approximately 1,700 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 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 U.S. and abroad. Goldman Sachs is also among the leading investment firms using quantitative analytics (now used by a growing number of investors) to structure and evaluate portfolios. For example, Goldman Sachs' options evaluation model analyzes each security's term, coupon and call option, providing an overall analysis of the security's value relative to its interest risk.
In planning Short Duration Fund's strategies, Short Duration Fund's portfolio managers also evaluate and monitor individual issues by using analytical techniques that have traditionally been applied to corporate bonds and mortgage-backed securities. In particular, the Adviser's embedded option valuation model provides a picture of an individual security's relative value and the portfolio's overall interest rate risk. By constantly reviewing the positions of securities with the portfolio, the Adviser looks for opportunities to enhance Short Duration Fund's yields by fine-tuning the portfolio, using quantitative tools designed for municipal portfolio management. The Adviser, which managed approximately $__ billion in tax-free securities on _______, 1995, has assembled an experienced team of professionals for selection of Short Duration Fund's portfolio securities. The Adviser manages money for some of the world's largest institutional investors.
In structuring Adjustable Rate Fund's and Short-Term Fund's respective securities portfolio, the Adviser will review the existing overall economic and mortgage market trends. The Adviser will then study yield spreads, the implied volatility and the shape of the yield curve. The Adviser will then apply this analysis to a list of eligible securities that meet the respective Fund's investment guidelines. With respect to Adjustable Rate Fund, this analysis is used to plan a two-part portfolio, which will consist of a "core" portfolio of ARMs and a "relative value" portfolio of other mortgage assets that can enhance portfolio returns and lower risk (such as investments in CMO floating rate tranches and interest only stripped Mortgage-Backed Securities). The Mortgage- backed securities team managed approximately $5.2 billion in assets at ________, 1995.
With respect to Adjustable Rate Fund, Short-Term Fund and Core Fund, the applicable Adviser expects to utilize Goldman Sachs' sophisticated option- adjusted analytics to help make strategic asset allocations within the markets for U.S. Government, Mortgage-Backed and other securities and to employ this technology periodically to re-evaluate 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 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 applicable 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 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 Advisers will first evaluate the absolute level of a security's OAS considering its liquidity and its interest rate, volatility and prepayment sensitivity. The Advisers will then analyze its value relative to alternative investments and to its own investments. The Advisers will also measure a security's interest rate risk by computing an option adjusted duration (OAD). The Advisers believe a security's OAD is a better measurement of its price sensitivity than cash flow duration, which systematically misstates portfolio duration. The Advisers also evaluate returns for different mortgage market sectors and evaluate the credit risk of individual securities. This sophisticated technical analysis allows the 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 Fund's duration targets and cash flow pattern requirements.
Because the OAS is adjusted for the differing characteristics of the underlying securities, the OAS of different Mortgage-Backed Securities can be compared directly as an indication of their relative value in the market. The 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 Advisers will use OAS analytics to choose what they believe is an appropriate portfolio of investments for Adjustable Rate Fund, Short-Term Fund and Core 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 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 Advisers also expect to use OAS analytics to evaluate the mortgage market on an ongoing basis. Changes in the relative value of various Mortgage- Backed Securities could suggest tactical trading opportunities for the Funds. The 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 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 Advisers
with respect to a Fund does not preclude Goldman Sachs from providing these
services to third parties or using such services as a basis for trading for its
own account or the account of others. Provision of services to the Advisers
will in no way impinge on the ability of Goldman Sachs to trade for its own
account or to execute trades for the account of others, nor will Goldman Sachs
be obligated to provide the Advisers with all information regarding investment
opportunities or trading strategies that may come to Goldman Sachs' attention.
Furthermore, the Advisers will use the services of other banking and brokerage
firms in addition to Goldman Sachs. The involvement of Goldman Sachs, its
affiliates (including the Advisers), partners and officers, in the investment
activities and business operations of each Fund may present certain potential
conflicts of interest, as described in each Fund's Prospectus under "MANAGEMENT
- -- Investment Adviser" and "Activities of Goldman Sachs and its Affiliates and
Other Accounts Managed by Goldman Sachs" in this Additional Statement.
The fixed income research capabilities of Goldman Sachs are available to the Advisers include the Goldman Sachs Fixed Income Research Department and the Credit Department. The Fixed Income Research Department monitors developments in U.S. and foreign fixed income markets, assesses the outlooks for various sectors of the markets and provides relative value comparisons, as well as analyzes trading opportunities within and across market sectors. The Fixed Income Research Department is at the forefront in developing and using computer- based tools for analyzing fixed income securities and markets, developing new fixed income products and structuring portfolio strategies for investment policy and tactical asset allocation decisions. The Credit Department tracks specific governments, regions and industries and from time to time may review the credit quality of a Fund's investments.
In addition to fixed income research and credit research, the Advisers in managing Global Fund are supported by Goldman Sachs' economics research. The Economics Research Department, based in London, conducts economic, financial and currency markets research which analyzes economic trends and interest and exchange rate movements worldwide. The Economics Research Department tracks factors such as inflation and money supply figures, balance of trade figures, economic growth, commodity prices, monetary and fiscal policies, and political events that can influence interest rates and currency trends. The success of Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the annual "Extel Financial Survey" of U.K. investment managers in the following categories: U.K. Economy 1989-1994; International Economies 1986, 1988-1994; and Currency Movements 1986- 1993.
In allocating assets in the Global Fund's portfolio among currencies, the 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 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 Goldman Sachs' research professionals' expectations to produce an optimal currency and asset allocation for the level of risk suitable for the Fund's investment objective and criteria.
Each Fund's advisory agreement and Global Fund's Subadvisory Agreement
(the "Advisory Agreements") was most recently approved by the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not parties to
such agreements or "interested persons" (as such term is defined in the Act) of
any party thereto (the "non-interested Trustees"), on April 26, 1995. The
applicable Fund's Advisory Agreement including Global Fund's Subadvisory
Agreement was approved by the shareholders of Adjustable Rate Fund on October
30, 1991, the shareholders of Short-Term Fund on March 27, 1989, the
shareholders of Global Fund on December 5, 1991, the sole initial shareholder of
Short Duration Fund on September 25, 1992 and the sole initial shareholder of
Core Fund on October 29, 1993. Each Advisory Agreement will remain in effect
until June 30, 1995 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 the outstanding
voting securities of such 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.
Each Advisory Agreement will terminate automatically if assigned (as defined in the Act). Each Advisory 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 a Fund on 60 days written notice to the applicable Adviser or by the Adviser in 60 days written notice of the Trust.
The Advisory Agreements provide that GSAM, FMLP and GSAM International, in their capacity as Advisers and Subadviser, respectively, may each render similar services to others so long as the services under the Advisory Agreements are not impaired
thereby. Pursuant to the Advisory Agreements with Adjustable Rate Fund and Short-Term Fund, respectively, FMLP is entitled to receive a fee payable monthly by Adjustable Rate Fund equal on an annual basis to .40 of 1% and by Short-Term Fund equal on an annual basis to .50 of 1% of such Funds' respective average daily net assets. FMLP has voluntarily agreed to reduce such fee by an amount equal to 0.10% annually of such net assets. Pursuant to the Advisory Agreements with Core Fund and Short Duration Fund, respectively, GSAM receives a monthly fee payable by each of Short Duration Fund and Core Fund equal on an annual basis to .40 of 1% of each such Fund's average daily net assets. Pursuant to the Advisory Agreement, GSAM is entitled to receive a monthly advisory fee from the Global Fund equal on an annual basis to 0.25% of the Global Fund's average daily net assets. Pursuant to a separate Subadvisory Agreement with GSAM International and GSAM, GSAM International is entitled to receive a monthly subadvisory fee from the Global Fund equal on an annual basis to 0.50% of its average daily net assets. GSAM and GSAM International voluntarily have agreed to limit such fees to an annual rate equal to 0.10% and 0.30%, respectively, of the Global Fund's average daily net assets. Although GSAM and GSAM International have no current intention to do so, they may modify or discontinue such limitation in the future at their discretion. The fee paid to GSAM International is in addition to the fee paid to GSAM. The applicable Adviser has agreed voluntarily to reduce or otherwise limit for the current fiscal year certain other expenses of Core Fund, Adjustable Rate Fund, Short-Term Fund and Short Duration Fund to the extent that such other expenses (excluding advisory fees, fees paid to Service Organizations (as defined below), taxes, interest, brokerage, and litigation, indemnification and other extraordinary expenses) would exceed 0.05% per annum of each such Fund's average daily net assets. Such reduction or limits, if any, are calculated monthly on a cumulative basis and may be discontinued or modified by the applicable Adviser at its discretion at any time.
For the fiscal years ended October 31, 1994, 1993 and 1992, the amounts of the investment advisory fees incurred by each Fund then in existence were as follows:
1995 1994 1993
---- ---- ----
Adjustable Rate Fund* $ $6,798,185 $9,498,008
Short-Term Fund ** 1,063,867 1,311,347
Short Duration Fund*** 468,868 243,069
Core Fund**** 56,255 NA
Global Fund***** 1,518,814 1,553,394
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For the same periods, Global Fund paid GSAM International Subadvisory fees of $__________, $3,037,627 and $3,106,787, respectively.
* Had expense limitations not been in effect, Adjustable Rate Fund would have paid advisory fees of $________, $6,798,185 and $9,498,008, respectively, for such periods. In addition, the expenses of Adjustable Rate Fund were reduced or otherwise limited in the amounts of $_________, $442,880 and $731,102, respectively, by the Adviser for such periods.
** Had expense limitations not been in effect, Short-Term Fund would have paid advisory fees of $_______, $1,329,834 and $1,639,184, respectively, for such periods. In addition, the expenses of Short-Term Fund were reduced or otherwise limited in the amounts of $________, $115,389 and $139,186, respectively, by the Adviser for such periods.
*** Short Duration Fund commenced operations October 1, 1992. Had expense limitations not been in effect, Short Duration Fund would have paid advisory fees of $_______, $468,868 and $272,283, respectively, for such periods. In addition, the expenses of Short Duration Fund were reduced or otherwise limited in the amount of $________, $192,696 and $412,548, respectively, by the Adviser for such periods.
**** Core Fund commenced operations January 5, 1994. If expense limitation had not been in effect, Core Fund would have paid an advisory fee of $__________ and $56,255 for such periods. In addition, the expenses of Core Fund were reduced or otherwise limited in the amount of $________ and $141,815, respectively, for such period.
***** Prior to [July 1995], the fee and expense limitations discussed above were not in effect.
Each Adviser performs administrative services for the applicable Funds under the Advisory Agreements, except in the case of Global Fund where GSAM performs administrative services for Global Fund under a separate Administration Agreement. Such administrative services include, subject to the general supervision of the Trustees of the Trust, (a) providing supervision of all aspects of the Funds' non-investment operations (other than certain operations performed by others pursuant to agreements with the Funds), (b) providing the Funds, to the extent not provided pursuant to such agreements, the agreement with the Trust's custodian, transfer and dividend disbursing agent or agreements with other institutions, with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Funds, (c) arranging, to the extent not provided pursuant to such agreements, for the preparation, at the Funds' expense, of each Fund's tax returns, reports to shareholders, periodic updating of the Funds' prospectuses and statements of additional information, and reports filed with the SEC and other regulatory authorities, (d) providing the Funds, to the extent not provided pursuant to such agreements, with adequate office space and certain related office equipment and services, and (e) maintaining all of the Funds' records other than those maintained pursuant to such agreements. For its services under its Administration Agreement, the Global Fund pays GSAM a monthly fee equal to 0.15% of its average daily net assets on an annual basis. For the fiscal years ended October 31, 1993, October 31, 1994, and October 31, 1995 the Global Fund paid GSAM administration fees of $932,036, $911,288, and $__________, respectively.
Goldman Sachs and its affiliates, including, without limitation, the Advisers and their advisory affiliates, Goldman Sachs International ("GSI") and J. Aron a & Co. ("ARON") 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 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. Such activities could affect the prices and availability of the securities, currencies, and instruments in
which the Funds will 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 Advisers' and their advisory affiliates' asset management activities, will be executed independently of the Funds' transactions and thus at prices or rates that may be more or less favorable. When the Advisers and their advisory affiliates seek to purchase or sell the same assets for their managed accounts, including the Funds, the assets actually purchased or sold may be allocated among the accounts on a basis determined in its good faith discretion of such entitles 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 Advisers will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which the Advisers and/or their affiliates are performing services or when position limits have been reached.
In connection with their management of applicable Funds, the Advisers may have access to certain fundamental analysis and proprietary technical models developed by Goldman Sachs, ARON and other affiliates. The Advisers will not be under any obligation, however, to effect transactions on behalf of the Funds in accordance with such analysis and models. In addition, neither Goldman Sachs nor any of its affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Funds and it is not anticipated that the Advisers and Subadvisers 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 Advisers and Subadvisers in managing the Funds.
The results of each Fund's investment activities may differ significantly from the results achieved by the Advisers and their affiliates for their proprietary accounts or accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that Goldman Sachs and its affiliates and such other accounts will achieve investment results which are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which Goldman Sachs and its affiliates achieve significant profits on their trading for
proprietary or other accounts. The opposite result is also possible.
An investment policy committee which may include partners of Goldman Sachs and its affiliates may develop general policies regarding a Fund's activities, but will not be involved in the day-to-day management of such Fund. In such instances, those individuals may, as a result, obtain information regarding the Fund's proposed investment activities which is not generally available to the public. In addition, by virtue of their affiliation with Goldman Sachs, any such member of an investment policy committee will have direct or indirect interests in the activities of Goldman Sachs and its affiliates in securities, currencies and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the Advisers are also principals or employees of Goldman Sachs, ARON and/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 Advisers may enter into transactions and invest in currencies or other instruments on behalf of the applicable Funds 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 Funds, 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 currencies or instruments of which may be those in which the Funds invest 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 into transactions with other clients of Goldman Sachs or its affiliates where such other clients have interests adverse to those of the Funds. The Funds will deal with Goldman Sachs and its affiliates on an arm's-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.
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. Goldman Sachs will consider the effect of redemptions on a Fund and other shareholders in deciding whether to redeem its shares.
Goldman Sachs 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 dated February 1, 1993. Pursuant to the distribution agreement, after the Funds' 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 serves as the Trust's transfer and dividend disbursing agent.
Under its transfer agency agreement with the Trust, Goldman Sachs has undertaken
with the Trust with respect to each Fund to (i) record the issuance, transfer
and redemption of shares, (ii) provide confirmations of purchases and
redemptions, 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.
As compensation for the services rendered to the Trust 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 a fee with respect to each Fund equal to (i) .04% (on an annualized basis) of the average daily net assets of the Fund attributable to Institutional, Service and Administration shares and (ii) $12,000 plus $3.50 per cent per annum with respect to the Class A and Class B Shares of each Fund offering such shares.
For the fiscal years ended October 31, 1995, 1994 and 1993 the amounts of transfer agency fees incurred by each Fund then in existence were as follows:
1995 1994 1993
---- ---- ----
Adjustable Rate Fund $679,819 $949,645
Short-Term Fund 0 0
Short Duration Fund 46,887 27,248
Core Fund* 5,637 N/A
Global Fund
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* Core Fund commenced operations on January 5, 1994.
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 Funds are not impaired thereby. Each such agreement also provides that the Trust will indemnify Goldman Sachs against certain liabilities.
Except as set forth in the prospectuses under "MANAGEMENT" the Trust, on behalf of each Fund, is responsible for the payment of each Fund's respective expenses. The expenses borne by each Fund include, without limitation, the fees payable to the Advisers and Goldman Sachs, the fees and expenses of the Trust's custodian, 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, tax and auditing fees and expenses (including the cost of legal and certain accounting services rendered by employees of Goldman Sachs, or its affiliates, with respect to the Trust), expenses of preparing and setting in type Prospectuses, Additional Statements, proxy material, reports and notices and the printing and distributing of the same to the Trust's shareholders and regulatory authorities, fees under any distribution, authorized dealer service, administration or service plan applicable to a particular class any compensation and expenses of its "non-interested" Trustees and extraordinary expenses, if any, incurred by the Trust. Except for fees under any distribution, authorized dealer service, administration or service plan applicable to a particular class
and transfer agency fees all Fund expenses are borne on a non-class specific basis.
Fees and expenses of legal counsel, registering shares of each 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 costs incurred by GSAM or FMLP, as the case may be, in performing certain accounting services not being provided by the Trust's custodian.
With respect to Global Fund, GSAM and GSAM International voluntarily have agreed to reduce or otherwise limit certain Other Expenses of the Fund (excluding transfer agency fees advisory, subadvisory and administration fees, fees payable under administration, distribution and authorized dealer service plans, taxes, interest, brokerage and litigation, indemnification and other extraordinary expenses) to 0.06% of the Fund's average daily net assets. Such reductions or limits are calculated monthly on a cumulative basis. Although the Adviser and Subadviser have no current intention of modifying or discontinuing such expense limitation or the limitations on the advisory or subadvisory fees, described above under "Advisory and Administrative Services --Investment Advisers and Administrator," each may do so in the future at its discretion.
As stated in the Prospectuses, each Fund is responsible for the payment of all expenses other than those assumed by its Adviser or in the case of Global Fund, its Adviser, Subadviser and Administrator. However, each Adviser has agreed that if, in any fiscal year, the sum of a Fund's expenses otherwise payable (including the fee payable to the Adviser, but excluding taxes, interest, brokerage and, where permitted, extraordinary expenses such as for litigation) would exceed the expense limitations applicable to a Fund imposed by state securities administrators, as such limitations may be lowered or raised from time to time, it will reduce its fee or make other arrangements to limit Fund expenses to the extent required by such expense limitations. The most restrictive expense limitation imposed by state securities administrators provides that annual expenses (as defined) may not exceed 2 1/2% of the first $30 million of the average value of each Fund's net assets, plus 2% of the next $70 million of such assets, plus 1 1/2% of such assets in excess of $100 million.
State Street Bank and Trust Company ("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 sub-custodians from time to time to hold certain securities purchased by the Trust in foreign countries and to hold cash and currencies
for the Trust.
Arthur Andersen LLP, independent public accountants, One International Place, 100 Oliver Street, Boston, Massachusetts 02110, have been selected as auditors of the Trust. In addition to audit services, Arthur Andersen LLP prepares the Trust's federal and state tax returns, and provides consultation and assistance on accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Funds are generally effected at a net price without a broker's commission (i.e., a dealer is dealing with a Fund as principal and receives compensation equal to the spread between the dealer's cost for a given security and the resale price of such security). In certain foreign countries, debt securities in which the Global Fund and Core Fund may invest are traded on exchanges at fixed commission rates. In connection with portfolio transactions, the Advisory and Subadvisory Agreements provide that the Advisers shall attempt to obtain the best net price and the most favorable execution. The Advisory Agreements provide that, on occasions when the Advisers deem the purchase or sale of a security to be in the best interests of a Fund as well as its other customers (including any other fund or other investment company or advisory account for which the Advisers or an affiliate act as investment adviser), a Fund, 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. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to the applicable Fund and such other customers. In some instances, this procedure may adversely affect the size and price of the position obtainable for a Fund. To the extent that the execution and price offered by more than one dealer are comparable, the Advisory and Subadvisory Agreements permit each Adviser, in its discretion, to purchase and sell portfolio securities to and from dealers who provide the Trust with brokerage or research services. The fees received under the Advisory and Subadvisory Agreement are not reduced by reason of the Advisor or Subadviser receiving such brokerage and research services.
For the fiscal years ended October 31, 1995, 1994 and 1993, the Funds then in existence paid no brokerage commissions.
During the fiscal year ended October 31, 1995, the Funds acquired and sold securities of their regular broker-dealers: [to be inserted]
SHARES OF THE TRUST
The Trust's Agreement and Declaration of Trust dated September 24, 1987, as amended (the "Trust Agreement"), permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of one or more separate series, provided each share has a par value of $.001 per share, represents an equal proportionate interest in that series with each other share of the same class and is entitled to such dividends out of the income belonging to such series as are declared by the Trustees.
The Trustees have authority under the Trust Agreement to create and
classify shares of beneficial interest in separate series of the Trust without
further action by shareholders. As of the date of this Additional Statement,
the Trustees have authorized shares of the Funds and two other series. The
Trust Agreement further authorizes the Trustees of the Trust to classify or
reclassify any series or portfolio of shares into one or more classes. Pursuant
thereto, the Board of Trustees has authorized the issuance of three classes of
shares of Short-Term Fund, Short Duration Fund and Core Fund: Institutional
Shares, Administration Shares and Service Shares. The Board of Trustees has
authorized the issuance of four classes of shares of Adjustable Rate Fund:
Institutional Shares, Administration Shares, Service Shares and Class A Shares.
The Board of Trustees has authorized the issuance of four classes of share of
Global Fund: Institutional Shares, Service Shares, Class A Shares and Class B
Shares. As of October 31, 1995, no Service Shares of the Adjustable Rate Fund
and Short-Term Fund were outstanding; no Administration or Service Shares of
Core Fund were outstanding; and no Service Shares or Class B Shares of Global
Fund were outstanding.
Each Institutional Share, Administration Share, Service Share, Class A Share (Adjustable Rate Fund and Global Fund only) and Class B Share (Global Fund only) of a Fund represents an equal proportionate interest in the assets belonging to the Fund. All Fund expenses are allocated among classes based on a percentage of a Fund's aggregate average net assets, except that transfer agency fees and fees under distribution, authorized dealer service, administration and service plans relating to a particular class will be borne exclusively by that class.
It is contemplated that most Administration Shares and Service 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. Administration Shares and Service Shares will each be marketed only to such investors, at net asset value with no sales load. Institutional Shares may be purchased for accounts in the name of an investor or institution that is not compensated by a Fund for services provided to the institution's customers.
Administration Shares may be purchased for accounts held in the name of an institution that provides certain account administration services to its customers, including maintenance of account records and processing orders to purchase, redeem and exchange Administration Shares. Administration Shares bear the cost of account administration fees at the annual rate of up to 0.25% of the average daily net assets of such Administration Shares. 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 and processing orders to purchase, redeem or exchange Service Shares, responding to customer inquiries and assisting customers with investment procedures. Service Shares bear the cost of service fees at the annual rate of up to 0.50 of 1% of the average daily net assets of such Service Shares. (Institutions that provide services to holders of Administration Shares or Service Shares are referred to in this Additional Statement as "Service Organizations").
Class A Shares of Adjustable Rate Fund and Global Fund are sold, with an initial sales charge of up to 1.50%, in the case of Adjustable Rate Fund, and 4.5%, in the case of Global Fund; through brokers and dealers who are members of the National Association of Securities Dealers, Inc. and certain other financial service firms that have sales agreements with Goldman Sachs. Class A Shares of ARGA Fund and Global Fund bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.50% of the average daily net assets of such Class A Shares. Currently, Goldman Sachs has voluntarily agreed to waive its entire fee with respect to Adjustable Rate Fund. Goldman Sachs may discontinue or modify such as waive at any time. Class A Shares with Adjustable Rate Fund and Global Fund also bear the cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of average daily net assets attributable to Class A Shares.
Class B Shares of Global Fund are sold subject to a contingent deferred sales charge of up to 5.0% 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. Class B shares of Global Fund 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 of Global Fund also bear the cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of the average daily net assets of Global Fund attributable to Class A shares.
It is possible that an institution or its affiliate may offer different classes of shares (i.e., Institutional, Administration, Service and, for Adjustable Rate Fund and Global Fund, Class A Shares) to its customers and thus receive different compensation with respect to different classes of shares of each Fund.
Administration Shares, Service Shares and, for Adjustable Rate Fund, Class A Shares may 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 fund and certain money market funds sponsored by Goldman Sachs. 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 in the same amount, except for differences caused by the fact that the respective account administration, service and distribution (Class A Shares of Adjustable Rate Fund and Global Fund only) fees relating to a particular class will be borne exclusively by that class. 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, each Fund's shares are fully paid and non-assessable by the Trust. In the event of liquidation of a Fund, shareholders of that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of November 30, 1995, the following entities and persons
beneficially owned 5% or more of the outstanding shares of the following Funds:
Adjustable Rate Fund - First Security Bank of Idaho, FBO: Idaho Housing Agency,
P.O. Box 30007, Salt Lake City, UT 84130 (5.83%); St. Treasurer/Nebr. Invest.
Council, (5.12%); Fundex Corporation, Attn: Mitsuru Hashimoto, 1875 South Grant
Street, Suite 740, San Mateo, CA 94402-2670 (5.01%); Banco Bileao Vizcaya,
(7.67%); BankAmerica National Trust Co. ((8.92%); Meadows Foundation, Inc.
(5.27%); Short-Term - West Virginia University Foundation, Attn: Marie Amoyt,
3168 Collins Ferry Road, P.O. Box 4533, Morgantown, WV 26504-4533 (7.39%);
Central Carolina Bank & Trust Co., Attn: Norwood Thomas, Jr., P.O. Box 931,
Durham, NC 27702 (9.09%); Richfield Bank & Trust Co., Attn: Judith Ferguson,
6625 Lyndale Ave., South Richfield, MN 55423 (14.86%); State Street Bank & Trust
Co., (30.64%); Short Duration Fund - G-K-G Inc., Attn: Bernard Gassin, 166 Oak
Knoll Terrace, Highland Park, IL 60035 (5.65%); Westport Bank & Trust, Attn:
Arnold Levine, P.O. Box 5177, Westport, CT 06881 (5.32%); Donald R. Grant, 85
Broad Street, New York, NY 10004 (9.57%); MGIC, Attn: James McGinnis, P.O. Box
297, Milwaukee, WI 53201 (27.16%); Indiana Trust & Investment (5.09%); Global
Fund - State Street Bank & Trust Trustee, Goldman Sachs Profit Sharing Master
Trust, Attn: Box 1992, Boston, MA 02105-1992 (99%).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, there is a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Trust Agreement provides for indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. The Trust Agreement also provides that the Trust shall, upon proper and timely request, assume the defense of any charge made against any shareholder as such for any obligation or liability of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations.
Rule 18f-2 under the Act provides that any matter required to be submitted by the provisions of the Act, 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.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining in good faith the fair value of securities of the Funds. In accordance with procedures adopted by the Trustees of the Trust, 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 (assets, including securities at value, minus liabilities)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 4:00 p.m. New York time) on each Business Day (as defined in each Fund's prospectus).
For the purpose of calculating the net asset value of the Funds, portfolio securities, other than money market instruments, for which accurate market quotation are readily available are valued on the basis of dealer- supplied quotations or by a pricing service approved by the Board of Trustees. The prices derived by a pricing agent reflect broker/dealer-supplied valuations and electronic data processing techniques. Options and futures contracts are valued at the last sale price on the market where any such option or futures contract is principally traded. Forward foreign currency exchange contracts are valued at the mean between the last bid and asked quotations supplied by a dealer in such contracts. Portfolio securities for which accurate market quotation are not readily available and other assets are valued at fair value as determined in good faith pursuant to procedures established by the Board of Trustees and may include yield equivalents or a price matrix. Money market instruments held by a Fund with a remaining maturity of sixty days or less will be valued by the amortized cost method, which the Trustees have determined approximates market value.
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 foreign securities is substantially completed each day at various times prior to the time the Global Fund and Core Fund calculates their net asset value. Occasionally, events affecting the values of such securities may occur between the times at which they are determined and the calculation of net asset value which will not be reflected in the computation of the Fund's net asset value unless the Trustees deem that such event would materially affect the net asset value, in which case an adjustment would be made.
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 Funds. 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 Funds. This summary is based on the laws in effect on the date of this Additional Statement, which are subject to change.
Each series of the Trust, including each Fund, is a separate taxable entity. Each Fund has qualified and elected to be treated and intends to continue to qualify for each taxable year as a regulated investment company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its annual
gross income (including tax-exempt interest) 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"); (b) a Fund derive less than 30% of its annual
gross income from the sale or other disposition of any of the following which
was held for less than three months: (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies) and (iii) foreign currencies and foreign currency
options, futures and forward contracts that are not directly related to the
Fund's principal business of investing in stocks or securities or options and
futures with respect to such stocks or securities (the "short-short test"); and
(c) a 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 its total (gross) assets
is comprised of cash, cash items, United States 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
United States 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. Gains from the sale or
other
disposition of foreign currencies (or options, futures or forward contracts on foreign currencies) that are not directly related to Core Fund's or Global Fund's principal business of investing in stock or securities or options and futures with respect to stock or securities will be treated as gains from the sale of investments held for less than three months under the short-short test (even though characterized as ordinary income for some purposes) if such currencies or instruments were held for less than three months. 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 Core Fund's or Global 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 contracts for purposes other than hedging currency risk with respect to securities in Core Fund's or Global Fund's portfolio or anticipated to be acquired may not qualify as "directly related" under these tests.
As a regulated investment company, a Fund will not be subject to U.S. federal income tax on the portion of its income and capital gains that it distributes to its shareholders in any taxable year for which it distributes, in compliance with the Code's timing requirements, at least 90% of its "investment company taxable income" (which includes dividends, taxable interest, taxable original issue discount income, market discount income, income from securities lending, net short-term capital gain in excess of net long-term capital loss, 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 over certain disallowed deductions ("net tax-exempt interest"). A Fund may retain for investment its "net capital gain" (which consists of the excess of its net long-term capital gain over its net short-term capital loss). However, if a Fund retains any investment company taxable income or net capital gain, it will be subject to tax at regular corporate rates on the amount retained. If a Fund retains any net capital gain, the Fund may designate the retained amount as undistributed net capital gain 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 at least annually to its shareholders all or substantially all of its investment company
taxable income (if any), 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 Global Fund and may therefore make it more difficult for Global Fund to satisfy the distribution requirements described above, as well as the excise tax distribution requirements described below. However, Global 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, its net tax-exempt interest 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.
For federal income tax purposes, each Fund is permitted to carry forward a net capital loss in any year to offset its own net capital gains, if any, during the eight years following the year of the loss. At October 31, 1995, the Adjustable Rate Fund had approximately $_________ of capital loss carry forwards, which expires as follows: $_________ in ____ and $_________ in ____. At October 31, 1995, the Core Fund had approximately $_______ of capital loss carry forwards, which expires in ____. At October 31, 1995, the Short-Term Fund and Short Duration Fund had no capital loss carry forwards. At October 31, 1995, the Global Fund had $__________ of capital loss carry forwards for U.S. federal tax purposes. This amount is available to be carried forward to offset future capital gains to the extent permitted by applicable laws or regulations. This capital loss carryforward expires in ____.
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 realized capital gains over its realized capital losses (generally computed on the basis of the one-year period ending on October 31 of such year) and 100% of any taxable ordinary income and the excess of realized capital gains over realized capital losses for the prior year that was not distributed during such year and on which the Fund did not pay federal income tax. The Funds anticipate that they will generally make timely distributions of income and capital gains in compliance with these requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, dividends declared by a Fund in October, November or December as of a record date in such a month which are actually paid in January of the following year will be treated as if they were paid by the Fund and received by shareholders on December 31 of the year declared.
Short Duration Fund may purchase Municipal Securities together with the right to resell the securities to the seller at an agreed upon price or yield within a specified period prior to the maturity date of the securities. Such a right to resell is commonly known as a "put" and is also referred to as a "standby commitment." Short Duration Fund may pay for a standby commitment either separately, in cash, or in the form of a higher price for the securities which are acquired subject to the standby commitment, thus increasing the cost of securities and reducing the yield otherwise available. Additionally, the Short Duration Fund may purchase beneficial interests in Municipal Securities held by trusts, custodial arrangements or partnerships and/or combined with third-party puts and other types of features such as interest rate swaps; those investments may require the Fund to pay "tender fees" or other fees for the various features provided.
The Internal Revenue Service (the "Service") has issued a 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. The Service has also issued private letter rulings to certain taxpayers (which do not serve as precedent for other taxpayers) to the effect that tax-exempt interest received by a regulated investment company with respect to such obligations will be tax-exempt in the hands of the company and may be distributed to its shareholders as exempt- interest dividends. The 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. Short Duration Fund intends to take the position that it is the owner of any municipal obligations acquired subject to a standby commitment or other third party put and that tax-exempt interest earned with respect to such municipal obligations will be tax-exempt in its hands. There is no assurance that the Service will agree with such position in any particular case. Additionally, the federal income tax treatment of certain other aspects of these investments, including the treatment of tender fees paid by the Short Duration Fund, in relation to various regulated investment company tax provisions is unclear. However, the Adviser intends to manage the Short Duration Fund's portfolio in a manner designed to minimize any adverse impact from the tax rules applicable to these investments.
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 gain 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. Any gain or loss recognized on actual or deemed sales of these futures 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 or 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 short-short test described above may limit each Fund's ability to use options, futures and forward transactions as well as its ability to engage in short sales. 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. Certain tax elections may be available to the Funds 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 that may affect the amount, timing and character of income, gain or loss recognized by Core Fund and Global Fund. Under these rules, foreign exchange gain or loss realized by Core Fund or Global Fund 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 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 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 Core Fund's or Global 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.
Core Fund and Global Fund may be subject to foreign taxes on 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. Because more than 50% of Global Fund's total assets at the close of any taxable year will generally consist of stock or securities of foreign corporations, Global Fund will generally qualify to file an election with the Internal Revenue Service pursuant to which shareholders of Global 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 Global 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, and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Global Fund may or may not make this election for any particular taxable year. Core Fund will not satisfy the 50% requirement described above and therefore will not make this election. Core Fund and, if it does not make the election, Global Fund will, however, be entitled to deduct such taxes in computing investment company taxable income.
If Global 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 qualified foreign taxes paid by Global Fund, although such shareholders will be required to include their shares of such taxes in gross income if Global Fund makes the election referred to above.
If a shareholder chooses to take a credit for the foreign taxes deemed paid by such shareholder as a result of any such election by Global Fund, the amount of the credit that may be claimed in any year may not exceed the same proportion of the U.S. tax against which such credit is taken which the shareholder's taxable income from foreign sources (but not in excess of the shareholder's entire taxable income) ( bears to his entire taxable income. For this purpose, distributions from long-term and short-term capital gains or foreign currency gains by Global Fund will generally not be treated as income from foreign sources. This foreign tax credit limitation may also be applied separately to certain specific categories of foreign-source income and the related foreign taxes. As a result of these rules, which have different effects depending upon each shareholder's particular tax situation, certain shareholders of Global Fund not be able to claim a credit for the full amount of their proportionate shares of the foreign taxes paid by such Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-exempt shareholders, will ordinarily not benefit from this election. Each year, if any, that Global Fund files the election described above, its shareholders will be notified of the amount of (i) each shareholder's pro rata share of qualified foreign income taxes paid by Global Fund and (ii) the portion of Fund dividends which represents income from each foreign country.
If Core Fund or Global Fund acquires stock in certain non-U.S. 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") Core Fund or Global 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 such stock in such companies, even if all income or gain actually received by Core Fund or Global Fund is timely distributed to its shareholders. Core Fund or Global Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election would require Core Fund or Global Fund to recognize taxable income or gain without the concurrent receipt of cash. Core Fund or Global 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.
A Fund's investment in zero coupon securities, deferred interest securities, capital appreciation bonds 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 distribute this income or gain, maintain its qualification as a regulated investment company and avoid federal income or excise taxes, a Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold.
The federal income tax rules applicable to mortgage dollar rolls and interest rate and currency swaps, floors, caps and collars are unclear in certain respects, and a Fund may also be required to account for these instruments under tax rules in a manner that, under certain circumstances, may limit its transactions in these instruments.
TAXABLE U.S. SHAREHOLDERS -- DISTRIBUTIONS
SHORT DURATION FUND. Short Duration Fund expects to qualify to pay "exempt-interest dividends," as defined in the Code. To qualify to pay exempt- interest dividends, Short Duration Fund must, at the close of each quarter of its taxable year, have at least 50% of the value of its total assets invested in Municipal Securities whose interest is excluded from gross income under Section 103(a) of the Code. In purchasing Municipal Securities, Short Duration Fund intends to rely on opinions of nationally recognized bond counsel for each issue as to the excludability of interest on such obligations from gross income for federal income tax purposes.
Short Duration Fund will not undertake independent investigations concerning the
tax-exempt status of such obligations, nor does it 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 enacted during
the last decade not only had the effect of limiting the purposes for which tax-
exempt bonds could be issued and reducing the supply of such bonds, but also
increased the number and complexity of 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 the Short
Duration Fund's distributions attributable to interest the Short Duration Fund
received on such bond for the current year and for prior years could be
characterized or recharacterized as taxable income. The availability of tax-
exempt obligations and the value of Short Duration Fund's portfolio may be
affected by restrictive federal income tax legislation enacted in recent years
or by similar, future legislation. If Short Duration Fund satisfies the
applicable requirements, dividends paid by the Fund which are attributable to
tax exempt interest on Municipal Securities and designated by Short Duration
Fund as exempt-interest dividends in a written notice mailed to its
shareholders within sixty days after the close of its taxable year may be
treated by shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code. Exempt-interest dividends Short Duration Fund
receives from other regulated investment companies, including exempt-interest
dividends on auction rate preferred securities of such companies held by Short
Duration Fund, are treated as interest on Municipal Securities and may be
distributed by Short Duration Fund as exempt-interest dividends. The recipient
of tax-exempt income is required to report such income on his federal income tax
return. However, a shareholder is advised to consult his tax adviser with
respect to whether exempt-interest dividends retain the exclusion under Section
103(a) if such shareholder would be treated as a "substantial user" under
Section 147(a)(1) with respect to some or all of the tax-exempt obligations held
by Short Duration Fund. The Code provides that interest on indebtedness
incurred or continued to purchase or carry shares of Short Duration Fund is not
deductible to the extent attributable to exempt-interest dividends.
Although all or a substantial portion of the dividends paid by Short Duration Fund may be excluded by shareholders of Short Duration Fund from their gross income for federal income tax purposes, Short Duration Fund may purchase specified private activity bonds, the interest from which (including the Fund's distributions attributable to such interest) may be a preference item for purposes of the federal alternative minimum tax (both
individual and corporate). All exempt-interest dividends from Short Duration Fund, whether or not attributable to private activity bond interest, may increase the "adjusted current earnings" preference item for purposes of the corporate alternative minimum tax, to the extent not already included in alternative minimum taxable income as income attributable to private activity bonds, and will be taken into account in determining the extent to which a shareholder's Social Security or certain railroad retirement benefits are taxable.
ALL FUNDS. Distributions of investment company taxable income, as defined above, are taxable to shareholders who are subject to tax as ordinary income whether paid in cash or reinvested in additional shares. Taxable distributions include distributions from any Fund, including Short Duration Fund, that are attributable to (i) taxable income, including but not limited to dividends, taxable bond interest, recognized market discount income, original issue discount income accrued with respect to taxable bonds, income from repurchase agreements, income from securities lending, income from dollar rolls, income from interest rate or currency swaps, caps, floors and collars, and a portion of the discount from certain stripped tax-exempt obligations or their coupons or (ii) capital gains from the sale of securities or other investments (including from the disposition of rights to when-issued securities prior to issuance) or from options, futures or certain forward contracts. Any portion of such taxable distributions that is attributable to a Fund's net capital gain, as defined above, may be designated by the Fund as a "capital gain dividend," taxable to shareholders as long-term capital gain whether received in cash or additional shares and regardless of the length of time their shares of a Fund have been held.
It is expected that distributions made by the Funds will ordinarily not qualify for the dividends-received deduction for corporations because qualifying distributions may be made only from a Fund's dividend income that it receives from stock in U.S. domestic corporations. The Funds do not intend to purchase stock of domestic corporations other than limited investments in investment companies, distributions from which may in rare cases qualify as dividends for this purpose. 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 the 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. Receipt of certain distributions qualifying for the deduction may result in reduction of the tax basis of the corporate shareholder's shares and may give rise to or increase its liability for federal corporate alternative minimum tax.
Distributions in excess of a Fund's current and accumulated earnings and profits, as computed for federal income tax purposes, will first reduce a shareholder's basis in his shares and, after
the shareholder's basis is reduced to zero, will generally constitute capital gains to a shareholder who holds his shares as capital assets. Amounts that are not allowable as a deduction in computing taxable income, including expenses associated with earning tax-exempt interest income, do not reduce a Fund's current earnings and profits for these purposes. Consequently, the portion, if any, of Short Duration Fund's distributions from gross tax-exempt interest income that exceeds its net tax-exempt interest would be taxable as ordinary income to the extent of such disallowed deductions even though such excess portion may represent an economic return of capital.
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 that they would have received had they elected to receive cash and will have a cost basis in the shares received equal to such amount.
TAXABLE U.S. SHAREHOLDERS -- SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of, 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. Assuming the shareholder holds the shares as a capital asset at the time of such sale or other disposition, 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. All or a portion of a sales charge paid in purchasing Class A shares of Adjustable Rate Fund or Global Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of that Fund or another fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. Any disregarded portion of such charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. If a shareholder received 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 the sale or redemption, 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. Also, any losses realized by shareholders who dispose of shares of Short Duration Fund with a tax holding period of six months or less are disallowed to the extent of any exempt-interest dividends received with respect to such 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 the Fund. If disallowed, the loss will be reflected in an adjustment to the basis of the shares acquired.
After the close of each calendar year, Short Duration Fund will inform shareholders of the federal income tax status of its dividends and distributions for such year, including the portion of such dividends that qualifies as tax- exempt and the portion, if any, that should be treated as a tax preference item for purposes of the federal alternative minimum tax. Shareholders who have not held shares of Short Duration Fund for its full taxable year may have designated as tax-exempt or as a tax preference item a percentage of distributions which is not equal to the actual amount of tax-exempt income or tax preference item income earned by Short Duration Fund during the period of their investment in Short Duration Fund.
All distributions, whether received in shares or in cash, as well as redemptions and exchanges, must be reported by each shareholder who is required to file a U.S. Federal income tax return.
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.
BACKUP WITHHOLDING
Each Fund will be required to report to the Service all taxable distributions, as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of Code Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax at the rate of 31% in the case of non-exempt shareholders who fail to furnish the Funds with their correct taxpayer identification number and with certain required certifications or if the Service or a broker notifies the Funds that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. However, any taxable distributions from Short Duration Fund will not be subject to backup withholding if such Fund reasonably estimates that at least 95% of its distributions will be exempt-interest dividends. A Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the
backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in 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. Investors should consult their tax advisers about the applicability of the backup withholding provisions.
NON-U.S. 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. Dividends of investment company taxable income distributed by a Fund to a shareholder who is not a U.S. person will be subject to U.S. withholding tax at the rate of 30% (or a lower rate provided by an applicable tax treaty) unless the dividends are effectively connected with a U.S. trade or business of the shareholder, in which 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 shareholder who is not a U.S. person will not be subject to U.S. 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. Non-U.S. shareholders may also be subject to U.S. withholding tax on deemed income resulting from any election by Global Fund to treat qualified foreign taxes it pays as passed through to shareholders (as described above), but they may not be able to claim a U.S. tax credit or deduction with respect to such taxes.
Any gain realized by a shareholder who is not a U.S. person 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 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.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or acceptable substitute may be subject to backup withholding at the rate of 31% on capital gain dividends and the proceeds of redemptions and exchanges. 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 a Fund.
STATE AND LOCAL TAXES
A Fund may be subject to state or local taxes in certain 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 a Fund and its shareholders under such laws may differ from their treatment under federal income tax laws, and investment in a Fund may have tax 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.
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. Thirty-day yield and average annual total return values are computed pursuant to formulas specified by the SEC. Each Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature.
Thirty-day yield is derived by dividing net investment income per share earned during the period by the maximum public offering price (i.e., net asset value) per share on the last day of such period. Yield is then annualized by assuming that yield is realized each month for twelve months and is reinvested every six months. 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, Short Duration Fund's tax-free yield. Tax equivalent yield is calculated by dividing Short Duration Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
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 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 (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 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 net asset value per share 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 following table presents thirty-day yield, tax equivalent yield (Short Duration Fund only), distribution rate and average annual total return (capital plus reinvestment of all distributions)for Class A Shares for the periods indicated.
Thirty-day yield, tax equivalent yield (Short Duration Fund only), distribution rate and average annual total return are calculated separately for each class of shares in existence of each Fund. Each class of shares of each Fund is subject to different fees and expenses and may have different returns for the same period. There were no Service Shares of the Adjustable Rate Fund, Short-Term Fund and Core Fund, no Service Shares of Global Fund and no Administration Shares of Core Fund outstanding during the periods presented below.
YIELD
Investment Pro-Forma
Fund Period Yield Yield/1/
- ---- ---------- --------- -----
30-Days
ended
10/31/95
Adjustable Rate Fund
Institutional Shares
Administration Shares
Service Shares/2/
Class A Shares/2/
- Assumes 1.5% sales charge
Class B Shares
Short-Term Fund
Institutional Shares
Administration Shares
Service Shares/3/
Short Duration Fund
Institutional Shares
Administration Shares
Service Shares/4/
Core Fund
Institutional Shares
Administration Shares/5/
Service Shares/5/
Global Fund
Institutional Fund
Class A Shares
(Assumes 4.5% sales charge)
Service Shares/7/
Class B Shares
|
DISTRIBUTION RATE
Pro-Forma
Investment Distribution Distribution
Fund Period Rate Rate/1/
- ---- ------ ------------ ----
30-Days
ended
10/31/95
Adjustable Rate Fund
Institutional Shares
Administration Shares
|
Service Shares/2/
Class A Shares/2/
- Assumes 1.5% sales charge
- Assumes no sales charge
Short-Term Fund
Institutional Shares
Administration Shares
Service Shares/3/
Short Duration Fund
Institutional Shares
Administration Shares
Service Shares/4/
Core Fund Institutional Shares Administration Shares/5/ N/A N/A Service Shares/5/ N/A N/A |
Global Fund
Institutional Fund
Service Shares/7/
Class A Shares
- Assumes 4.5% sales charge
- Assumes no sales charge
Class B Shares
TAX-EQUIVALENT YIELD/6/
Pro-Forma
Investment Tax-Equivalent Tax-Equivalent
Fund Period Rate Yield
------ -------------- --------------
30-Days
ended
10/31/95
Short Duration
Institutional Shares
Administration Shares
Service Shares/4/
|
1 Yield, tax equivalent yield and distribution rate if the applicable Adviser
had not voluntarily agreed to limit its advisory fees and to maintain
expenses at a specified level.
2 There were no Service Shares of Adjustable Rate Fund outstanding during the
periods indicated.
3 There were no Service Shares of Short-Term Fund outstanding during the
periods indicated.
4 Service Share activity of Short Duration Fund commenced on September 20,
1994.
5 There were no Administration Shares or Service Shares of Core Fund
outstanding during the periods indicated.
6 The tax-equivalent rate of Short Duration Fund is computed based on the 39.6%
federal income tax rate.
7 There were no Service Shares or Class B Shares of Global Fund outstanding during the period indicated.
The above tables should not be considered a representation of future performance.
[to be updated]
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
Ending
Redeemable
Value of
Investment
Investment Investment Amount at
Fund Date Period Invested Period End Cumulative Average Annual
---- ---- ------ -------- ---------- ---------- --------------
With Fee Without Fee With Fee With Fee With Fee Without Fee
Reduction Reduction Reductions Reductions Reduction Reductions
and/or and/or and/or and/or and/or and/or
Expense Expense Expense Expense Expense Expense
Limitations Limitations Limitations Limitations Limitations Limitations
----------- ----------- ----------- ----------- ----------- -----------
Adjustable Rate Fund
Institutional Shares 7/17/91/1a/ ended $ 1,000 $_______ $_______ _____% _____% ____% ____%
10/31/95
11/1/94 one year
ended
10/31/95 $ 1,000 $_______ $_______ _____% _____% ____% ____%
Administration Shares
4/15/93/1b/ ended $ 1,000 $_______ $_______ _____% _____% ____% ____%
10/31/95
11/1/94 one year
ended
10/31/95 $ 1,000 $_______ $_______ _____% _____% ____% ____%
Service Shares/1c/ N/A N/A N/A N/A N/A N/A
Class A Shares
Assumes 1.5% Sales Charge $ 1,000 $_______ $_______ _____% _____% ____% ____%
Assumes No Sales Charge $_______ $_______ _____% _____% ____% ____%
1.5% Sales Charge and No Fee
or Expense limitations $_______ $_______ _____% _____% ____% ____%
No Sales Charge or Fee
or expense limitations $_______ $_______ _____% _____% ____% ____%
Short-Term Fund
Institutional Shares 8/15/88/2a/ ended $ 1,000 $_______ $_______ _____% _____% ____% ____%
10/31/95
11/1/94 one year
ended
10/31/95 $ 1,000 $_______ $_______ _____% _____% ____% ____%
11/1/89 five years
ended $ 1,000 $_______ $_______ _____% _____% ____% ____%
10/31/95
Administration Shares
4/15/93/b/ ended $ 1,000 $_______ $_______ _____% _____% ____% ____%
10/31/95
11/1/94 one year
ended
10/31/95 $ 1,000 $_______ $_______ _____% _____% ____% ____%
Service Shares/2a/ N/A N/A N/A N/A N/A N/A
|
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
Ending
Redeemable
Value of
Investment
Investment Investment Amount at
Fund Date Period Invested Period End Cumulative Average Annual
---- ---- ------ -------- ---------- ---------- --------------
With Fee Without Fee With Fee With Fee With Fee Without Fee
Reduction Reduction Reductions Reductions Reduction Reductions
and/or and/or and/or and/or and/or and/or
Expense Expense Expense Expense Expense Expense
Limitations Limitations Limitations Limitations Limitations Limitations
----------- ----------- ----------- ----------- ----------- -----------
Short Duration Fund
Institutional Shares 10/31/92/3a/ ended $1,000 $_______ $_______ ____% ____% ____% ____%
10/31/95
11/1/94 one
year
ended
10/31/95 $1,000 $_______ $_______ ____% ____% ____% ____%
Administration Shares 5/20/93/3b/ ended $1,000 $_______ $_______ ____% ____% ____% ____%
10/31/95
11/1/94 one
year
ended
10/31/95 $1,000 $_______ $_______ ____% ____% ____% ____%
Service Shares 9/20/94/3c/ ended $1,000 $_______ $_______ ____% ____% ____% ____%
10/31/95
Core Fund
Institutional Shares 1/15/94/4a/ ended
10/31/95 $1,000 $_______ $_______ _____% ____% ____% _____%
Administration Shares/4b/ N/A N/A N/A N/A N/A N/A
Service Shares/4b/ N/A N/A N/A N/A N/A N/A
|
VALUE OF $1,000 INVESTMENT IN CLASS A SHARES
(TOTAL RETURN)
Ending Redeem-
able Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Average Annual
- --------------------------------- ---------------- --------------- ---------- --------------- --------------- ---------------
Global Fund 8/2/91/5a/ ended 10/31/95 $ 1,000
Class A Shares
Assumes 4.5% Sales Charge $_____.__ __.__ .__%
Assumes No Sales
Charge _____.__ __.__% .__%
4.5% Sales Charge and No Fee
or expense limitation $1,111.60 _____.__% __.__% .__%
No Sales Charge or Fee
or expense limitation $_____.__ __.__% .__%
11/1/94 ended 10/31/95 $ 1,000.00
Assumes 4.5% Sales
Charge $_____.__ -.__% -.__%
Assumes No Sales
Charge $_____.__ -.__% -.__%
4.5% Sales Charge and No Fee or
expense limitation $_____.__ -.__% -.__%
No Sales Charge or Fee or
expense limitation $_____.__ -.__% -.__%
Institutional Shares/5b/ N/A N/A N/A
Service Shares/5b/ N/A N/A N/A
|
1a Institutional Shares of Adjustable Rate Fund commenced operations on July
17, 1991.
1b Administration Shares of Adjustable Rate Fund commenced operations on April
15, 1993.
1c No Service Shares of Adjustable Rate Fund were outstanding during the
periods indicated. Class A shares were initially issued on May 12, 1995.
2a Institutional Shares of Short-Term Fund commenced operations on August 15,
1988.
2b Administration Shares of Short-Term Fund commenced operations on April 15,
1993.
2c No Service Shares of Short-Term Fund were outstanding during the periods
indicated.
3a Institutional Shares of Short Duration commenced operations on October 1,
1992.
3b Administration Shares of Short Duration commenced operations on May 20,
1993.
3c Service Shares of Short Duration commenced operations on September 20, 1994.
4a Institutional Shares of Core Fund commenced operations on January 5, 1994.
4b No Administration Shares or Service Shares of Core Fund were outstanding
during periods indicated.
4c No Service Shares or Class B Shares of Global Fund were outstanding during
periods indicated.
5a Class A Shares of Global Fund commenced operations on ____________.
5b No Institutional Shares or Service Shares of Global Fund were outstanding
during the periods indicated.
5c On November 27, 1992, the maximum sales charge was changed from 3% to 4.5%
of the offering price. All performance figures in this table incorporate the
sales charge currently in effect.
The above table should not be considered a representation of future performance.
Occasionally statistics may be used to specify a Fund's 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.
In addition, Adjustable Rate Fund and Short-Term Fund may from time to time advertise their performance relative to certain indices and benchmark investments, including: (a) the Shearson Lehman Government/Corporate (Total) Index, (b) Shearson Lehman Government Index, (c) Merrill Lynch 1-3 Year Treasury Index, (d) Merrill Lynch 2-Year Treasury Curve Index, (e) the Salomon Brothers Treasury Yield Curve Rate of Return Index, (f) the Payden & Rygel 2 Year Treasury Note Index, (g) 1 through 3 year U.S. Treasury Notes, (h) constant maturity U.S. Treasury yield indices, (i) the Consumer Price Index, (j) the London Interbank Offered Rate, (k) other taxable investments such as certificates of deposit, money market deposit accounts, checking accounts, savings accounts, money market mutual funds, repurchase agreements, commercial paper and (l) historical data concerning the performance of adjustable and fixed-rate mortgage loans.
Short Duration Fund may from time to time advertise its performance relative
to certain indices, any components of such indices and benchmark investments,
including but not limited to: (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 Lehman Brothers Municipal Bond Indices;
(c) the Merrill Lynch Municipal Bond Institutional Total Rate of Return Indices;
(d) Bond Buyer Indices; (e) IBC/Donoghue's Money Fund Averages/Institutional
Only Tax Free; and constant maturity U.S. Treasury yield indices.
Core Fund and Global Fund may each from time to time advertise its performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index
or its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) historical investment data supplied by the research departments of Goldman
Sachs, Lehman Brothers Inc., First Boston Corporation, Morgan Stanley & Co.
Incorporated, Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Donaldson Lufkin and Jenrette Securities Corporation; and (k)
Donoghue'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).
The Global Fund may advertise information which has been provided to the National Association of Securities Dealers, Inc. for publication in regional and local newspapers. In addition, Global Income Fund may from time to time advertise its 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 Shearson Lehman Brothers Aggregate Bond Index or its component indices (the
Aggregate Bond Index measures the performance of Treasury, U.S. Government agency, corporate, mortgage and Yankee bonds); (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) historical investment data supplied by the research departments of Goldman Sachs, Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley, Salomon Brothers, Merrill Lynch and Donaldson Lufkin and Jenrette; and (k) Donoghues' Money Fund Report (which provides industry averages for 7-day annualized and compounded yields of taxable, tax-free and U.S. Government money funds).
The composition of the investments in the above referenced indices and the characteristics of a Fund's benchmark investments are not identical to, and in some cases may be very different from, those of a Fund's portfolio. These indices and averages, as well as the averages set forth in Appendix __, 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 a Fund to calculate its performance figures.
From time to time advertisements or communications to shareholders may summarize the substance of information contained in shareholder reports (including the investment composition of a Fund), as well as the views of Goldman Sachs as to current market, economic, trade and interest rate trends, legislative, regulatory and monetary developments, investment strategies and regulated matters believed to be of relevance to a Fund.
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 material which highlight or summarize the services provided in support of an asset allocation program.
In addition, 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 therein.
Performance data is based on historical results and is not intended to indicate future performance. Total return, thirty-day yield, tax equivalent yield and distribution rate will vary based on changes in 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.
OTHER INFORMATION
The Trust assumed its current name on March 22, 1991. Prior thereto, the Trust's name was "Goldman Sachs -- Short-Intermediate Government Fund." Short- Term Fund assumed its current name in May 1991. Prior thereto, Short-Term Fund's name was "GS Short-Intermediate Government Fund." Goldman Sachs licensed the name "Goldman Sachs" and derivatives thereof to the Trust (and Fund) on a royalty-free basis and Goldman Sachs has reserved to itself the right to grant the non-exclusive right to use the name "Goldman Sachs" to any other person. At such time as the Advisory Agreement for a Fund is no longer in effect, the Trust on behalf of that Fund has agreed that such Fund will (to the extent it lawfully can) cease using the name "Goldman Sachs."
A Fund will redeem shares solely in cash up to the lesser of $250,000 or 1% of its net asset value of each 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 each respective 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 each 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 a 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 a 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 a Fund.
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.
Although each Fund is offering only its own shares, since the Funds use a combined Additional Statement, it is possible that one Fund might become liable for a misstatement or omission in this Additional Statement regarding another Fund. The Trustees for each Fund have considered this factor in approving the use of a combined Additional Statement.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen LLP, independent public accounts, for each Fund contained in each Fund's 1995 Annual Report are hereby incorporated by reference and attached hereto. 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 inside cover of each Fund's Prospectus.
Dear Shareholders:
We are pleased to have the opportunity to review the performance and activity of the Goldman Sachs Fixed Income Portfolios for the 12-month period ended October 31, 1995. To help put the portfolios' performance in perspective, we are also providing a brief overview of the U.S. economy and bond market during the period.
Bonds Rallied Strongly as Rates Fell
The U.S. bond market began the period under review (November 1, 1994 through October 31, 1995) still feeling the impact of rising rates. By year-end 1994, however, the bond market showed signs of strength and gained further momentum in 1995, primarily due to the slowing economy and subdued inflation. For the 12 months ended October 31, bonds enjoyed one of their best years ever, with the 30-year Treasury recording a total return of approximately 29%, competitive with the soaring stock market.
The Economy Started Strong, Slowed in Spring, Then Recovered
The 12-month period began with the economy exhibiting robust growth and a wide range of indicators pointing to continued acceleration. The 1994 fourth- quarter real Gross Domestic Product (GDP) grew 5.1%, with employment, real disposable income, consumer spending and sales of new and existing homes all displaying impressive strength.
While 1995 began with real GDP increasing by 2.7% during the first quarter, the pace of growth had clearly moderated. That trend became more pronounced as a host of weak or declining indicators during the spring revealed that the economy abruptly slowed during the second quarter of 1995. Significantly, the growth of second-quarter real GDP was an anemic 1.3%.
By August, the economy appeared to revive. Employment, housing, construction spending and several other indicators showed signs of improvement that persisted into the fall. The flow of positive economic data appeared to indicate that the prior slowdown was largely due to a short-term inventory correction.
Third-quarter GDP growth was reported at an unexpectedly high 4.2%, which many interpreted as a result of one-time events. By the end of October, however, key economic reports were sending mixed signals regarding the health of the economy once again. Firmness in interest-rate-sensitive areas such as housing, motor vehicle sales and durable goods orders suggested steady growth, but retail sales and industrial output indicators were weak. Though the condition of the economy appeared uncertain, most observers agreed that inflation remained contained, with the Producer Price Index (PPI) and Consumer Price Index (CPI) up 2.6% and 2.8%, respectively, for the 12-month period ended October 31, 1995.
Fed Raised Rates Twice During the Period, Then Cut as Inflation Fears Eased
The U.S. Federal Reserve Board raised the federal funds rate (the rates banks charge one another for overnight borrowing) by 75 basis points in November 1994 and by 50 basis points in February 1995. Including those two hikes, the Fed raised rates a total of seven times in its tightening cycle (from February 1994 through February 1995) by a total of 300 basis points to 6.00%.
The Fed remained neutral until early July 1995, when receding inflationary pressures and a weakening economy prompted it to cut the federal funds rate 25 basis points to 5.75%.
- ------------------------------------------------------------------------------------- Table of Contents Market Overview 1 GS Core Fixed Income Fund 21 GS Adjustable Rate Government Agency Fund 3 Financial Statements 28 GS Short-Term Government Agency Fund 9 Notes to Financial Statements 32 GS Short Duration Tax-Free Fund 15 Financial Highlights 39 - ------------------------------------------------------------------------------------- |
During the period under review, the yield curve flattened dramatically. The yield on six-month Treasury bills declined only slightly, from 5.66% on October 31, 1994, to 5.55% on October 31, 1995. However, for the same time period the yield on the 30-year U.S. Treasury bond fell more dramatically, from 7.97% a year ago to 6.33%.
Historical Treasury Yield Curve
[CHART APPEARS HERE]
10/31/94 10/31/95
3-Month 5.14% 5.49%
6-Month 5.66% 5.55%
1 6.14% 5.55%
2 6.82% 5.61%
3 7.05% 5.68%
5 7.48% 5.81%
10 7.81% 6.02%
30 7.97% 6.33%
|
Source: Bloomberg, L.P.
The yield curve flattened considerably as the yields on longer-term Treasuries fell more than the yields on shorter-term Treasuries, which shifted the curve downward at the longer end. The yield difference between two-year Treasury notes and 30-year Treasury bonds narrowed significantly.
Economic Outlook: Signals Mixed as Economy Moderates and Budget Debate Continues
While the economy continues to show relative strength in some sectors such as housing, durable goods orders and employment, and the stock market remains strong, evidence of weakness has begun to emerge. Most notably, retail sales declined amid increasing levels of consumer debt, and industrial production was basically flat in October. With inflation under control, many expect the Fed to ease rates again in December if further weakening occurs. The favorable resolution of the federal budget debate, anticipated by year-end, is also a key factor in influencing further rate cuts. Near term, a healthy bond market is likely to persist. Longer term, economic growth is generally expected to pick up gradually by mid-1996.
We thank you for making the Goldman Sachs Fixed Income Portfolios part of your investment program and we look forward to continuing to serve your investment needs.
Sincerely,
/s/ David B. Ford David B. Ford Chief Executive Officer /s/ Sharmin Mossavar-Rahmani Sharmin Mossavar-Rahmani Chief Investment Officer - Fixed Income Investments Goldman Sachs Asset Management November 30, 1995 |
Investment Objective
The GS Adjustable Rate Government Agency Fund seeks a high level of current income consistent with low volatility of principal. The portfolio ordinarily invests substantially all of its assets in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, with primary emphasis on adjustable rate mortgage securities (ARMs). The target duration of the fund is between six months and one year.
Special Events
On April 28, 1995, the GS Government Agency Portfolio (for Financial Institutions) was reorganized into the GS Adjustable Rate Government Agency Fund. In addition, on May 15, 1995, the Goldman Sachs Adjustable Rate Mortgage Fund (ARM Fund) was reorganized into the GS Adjustable Rate Government Agency Fund. Shareholders of the ARM Fund were issued GS Adjustable Rate Government Agency Class A shares in exchange for their ARM Fund shares.
A Challenging ARM Market
Interest rate fluctuations during the period under review had a direct impact on the ARM market. As a result, ARMs experienced three distinct phases:
. At the start of the fund's fiscal year on November 1, 1994, spreads between ARMs and Treasuries were relatively wide, due to a fear that ARMs would reach their periodic caps (the maximum their coupons can be raised within a specified time period) in the rising interest rate environment.
. That situation generally persisted through January 1995, at which point the ARM market entered a second phase: interest rates stabilized, cap risk declined and the prospects for ARMs brightened. This favorable ARM environment continued through late spring, until interest rates began to decline.
. Starting approximately in June 1995, spreads between ARMs and Treasuries began widening again, this time as a result of increased prepayment risk based on the assumption homeowners would refinance their mortgages at lower rates. For the first time since 1989, it became possible for homeowners to switch from an ARM to a fixed-rate mortgage and lower their effective coupon payments. ARM spreads continued to be wide as of the end of the period, though there were indications of stabilization as winter's seasonably slower prepayment period approached.
Performance Review
For the 12-month period ended October 31, 1995, the fund's Institutional shares had a total return of 6.75% (6.39% in monthly distributions and 0.36% in share price appreciation) and its Administration shares had a total return of 6.48% (6.12% in monthly distributions and 0.36% in share price appreciation). Both share classes outperformed the 6.21% return of the six-month U.S. Treasury bill but underperformed the 6.98% return of the one-year U.S. Treasury bill. As of the end of the period, the fund maintained a duration of approximately 0.7 years, about midway between that of the six-month U.S. Treasury bill and the one-year U.S. Treasury bill. When the yield curve flattened during the period, the fund's performance benefited more from the rise in bond prices than the six- month U.S. Treasury bill, but not as much as the one-year U.S. Treasury bill.
From their inception on May 15, 1995, through October 31, 1995, the fund's
Class A shares returned 2.74% based on NAV (2.93% in monthly distributions and
- -0.19% in share price depreciation). For the same period, the six-month Treasury
bill returned 2.81% and the one-year Treasury bill returned 3.08%. The fund's
Class A shares underperformed the six-month and one-year Treasury bills during
the five and a half months they have been available because the ARM market
experienced a high level of volatility and prepayment risk during that brief
period.
NAV NAV Change 30-Day SEC
Share Class (10/31/95) (10/31/94-10/31/95) Yield (10/31/95)
- ----------- ---------- ------------------- ----------------
Institutional $9.77 +$0.03 6.12%
Administration $9.77 +$0.03 5.87%
Class A $9.77 -$0.02* 5.78%
|
* From Class A shares' inception on May 15, 1995 through October 31, 1995.
Portfolio Composition and Investment Strategies
Portfolio composition remained quite similar to a year ago, with the exception of a slight increase in the fund's repurchase agreement/cash equivalent position and a decrease in its CMO position.
Portfolio Composition as of October 31, 1995*
[PIE CHART APPEARS HERE]
ARMs 80.2% Agency Debentures 8.9% CMOs 7.7% Repos/Cash Equivalents 3.2% |
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. ARMs. As of October 31, 1995, the fund's primary investment continued to be in ARMs (80.2%), in approximately the same weighting as a year ago (78.6%). We continued to stress fully indexed, one-year Constant Maturity Treasury (CMT) ARMs. The rates on these CMT ARMs adjust annually, based on the yield of the one-year U.S. Treasury bill and, as a result, they provide greater income stability than ARMs linked to some other indexes.
We favored seasoned ARMs, which have lower prepayment risk than nonseasoned ARMs. Seasoned ARMs are adjustable rate mortgages that have been in existence for several years. They are preferred in a high-prepayment environment because it is assumed that homeowners who did not refinance their mortgages in prior periods of lower rates are less likely to refinance in the future.
. Agency Debentures. The fund's 8.9% position in agency debentures were short-duration Small Business Administration (SBA) securities, held because they offered attractive spreads relative to Treasuries.
. CMOs. The fund held a 7.7% position in collateralized mortgage obligations (CMOs). We reduced the fund's position in sequential-pay CMOs to 1.9%, when they became expensive relative to other sectors. The sequential-pay CMOs provided diversification and relatively predictable cash flows that helped contribute to the fund's principal stability.
The fund's CMO position also included CMO floaters (1.7% of the portfolio), which added an incremental return over Treasuries. The remaining CMOs were primarily super floaters and inverse floaters, as discussed below.
. Prudent Use of Derivatives. We used higher-risk derivatives very sparingly during the period. As of October 31, 1995, the fund held super floaters and inverse floaters representing 2.5% and 1.4% of the portfolio, respectively. Super floaters are floating-rate securities whose coupons reset higher and more quickly than regular ARMs. The super floaters performed well when rates were rising at the beginning of the period under review, but they did not work in our favor when rates declined. Inverse floaters were held for their potential incremental yield and benefited the fund when rates fell. We also held small positions in interest-only (IO) and inverse IOs.
. Duration. As of October 31, 1995, the duration of the fund was 0.7 years, approximately half its duration last year. Since January 13, 1995, the fund has been permitted to hold financial futures, which we used as a tool to shorten the fund's duration.
. Credit Quality. The fund invests solely in securities issued by the U.S. government and its agencies or instrumentalities.
ARM Outlook
We are currently cautiously optimistic regarding the ARM market, but we will continue to carefully monitor the sector's prepayment risk. Going forward, we expect the recent spate of bank mergers to increase supply and further widen yield spreads between ARMs and Treasuries. (Merging banks typically need to raise funds, so they tend to securitize more of their mortgages.) Conversely, because of the flattened yield curve, new ARM production is expected to be stable or to decline, as homeowners opt for fixed-rate mortgages. As always, we will use our proprietary models to identify individual ARM securities with attractive coupons, average lives and option-adjusted spreads that are expected to offer the most value for the fund.
Distribution Policy
The fund's Institutional and Administration shares distributed $0.60 per
share and $0.58 per share, respectively, for the 12-month period ended October
31. From their inception on May 15, 1995, through October 31, 1995, the fund's
Class A shares distributed $0.28 per share.
The fund distributes substantially all of its investment company taxable income. The dividend is set at the start of each month, based on the income the fund is expected to generate. However, because the fund invests primarily in mortgage securities that are subject to prepayments, we cannot precisely predict the amount of principal and interest that a portfolio will receive. Therefore, at times a portfolio may distribute amounts above or below current income levels. To date, however, our dividend policy has not affected the management of the fund or significantly affected its NAV per share.
Thank you for your support during the past year's challenging ARM market. Looking ahead, our team of experienced mortgage specialists will continue to do their best to seek out attractive fixed income investment opportunities. We look forward to serving your investment needs in the future.
Sincerely,
/s/ Jonathan A. Beinner Jonathan A. Beinner /s/ Theodore T. Sotir Theodore T. Sotir Portfolio Managers GS Adjustable Rate Government Agency Fund November 30, 1995 |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the GS Adjustable Rate Government Agency Fund based on each classes normal minimum initial investment, is compared to its benchmarks--the Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index ("Lehman 1-2 Index") and the six month and one year U.S. Treasury Bills ("6-Month T-Bill / 1- Year T-Bill). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL INVESTMENTS(a)
Institutional Shares
Institutional Shares Lehman 1-2 Index One Yr. T-Bill Six Mo. T-Bill
8/1/91 $50,000 $50,000 $50,000 $50,000
10/31/91 $51,041 $51,581 $51,179 $50,870
10/31/92 $54,171 $55,506 $54,161 $53,376
10/31/93 $56,408 $58,368 $56,198 $55,197
10/31/94 $57,468 $59,511 $57,744 $57,257
10/31/95 $61,347 $64,343 $61,766 $60,819
|
Administration Shares
Administration Shares Lehman 1-2 Index One Yr. T-Bill Six Mo. T-Bill
5/1/93 50,000 50,000 50,000 50,000
10/31/93 50,914 50,931 50,785 50,780
10/31/94 51,744 51,931 52,182 52,675
10/31/95 55,097 56,148 55,835 55,951
|
Class A Shares
Class A Shares (no sales charge) Class A Shares (w/sales charge) Lehman 1-2 Index One Year T-Bill Six Month T-Bill
6/1/95 $10,000 $ 9,850 $10,000 $10,000 $10,000
10/31/95 $10,222 $10,093 $10,277 $10,260 $10,246
|
-------------------------------
Average Annual Total Return
-------------------------------
One Year Since Inception (b)
- ------------------------------------------------------------
Institutional Shares 6.75% 4.91%
- ------------------------------------------------------------
Administration Shares 6.48% 3.96%
- ------------------------------------------------------------
Class A Shares(c)
excluding sales charge N/A 2.74%
- ------------------------------------------------------------
Class A Shares(c)
including sales charge N/A 1.17%
- ------------------------------------------------------------
|
(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations.
(b) The Institutional, Administration and Class A shares commenced operations
July 17, 1991, April 15, 1993 and May 15, 1995, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Class A shares have not completed a full
twelve months of operations. The maximum sales charge for Class A shares
is 1.5%.
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--96.5%
Adjustable Rate Federal Home Loan Mortgage Corp. (FHLMC)(a)--9.8%
================================================================================
$ 2,286,145 7.93% 01/01/19 $ 2,355,804
35,588,623 7.87 02/01/22 36,672,652
5,131,911 7.59 08/01/22 5,251,844
12,952,109 7.78 06/01/24 13,319,819
5,903,309 7.92 07/01/29 5,979,048
2,627,614 7.92 05/01/31 2,691,543
- --------------------------------------------------------------------------------
$ 66,270,710
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)(a)--63.4%
Principal Interest Maturity
Amount Rate Date Value
================================================================================
$7,600,334 7.07% 03/01/17 $ 7,673,601
4,287,117 7.53 03/01/17 4,396,139
5,080,289 6.82 03/01/18 5,100,103
8,001,888 7.84 04/01/18 8,230,262
1,196,631 8.12 05/01/18 1,227,887
6,091,151 7.63 07/01/18 6,265,845
8,464,646 8.11 07/01/18 8,723,749
7,825,996 7.72 08/01/18 8,022,507
4,348,196 7.88 08/01/18 4,500,774
4,642,121 7.75 10/01/18 4,775,443
8,203,755 7.61 11/01/18 8,395,231
1,179,065 7.36 12/01/18 1,207,434
15,102,048 7.58 12/01/18 (b) 15,607,060
2,048,926 7.39 02/01/19 2,045,726
4,073,221 7.43 06/01/19 4,169,472
2,244,571 7.48 07/01/19 2,300,192
5,416,257 7.68 07/01/19 5,575,116
5,484,231 7.66 09/01/19 5,634,992
3,357,086 7.69 01/01/20 3,439,268
3,583,590 7.83 03/01/20 3,705,647
10,824,349 7.72 07/01/20 11,063,675
6,085,401 7.79 02/25/21 6,269,302
6,387,980 7.41 04/01/21 6,541,356
81,692,876 7.71 09/01/21 84,086,477
5,601,363 7.89 11/01/21 5,751,760
26,823,840 8.03 02/01/22 27,726,462
17,754,998 7.80 06/01/22 18,328,662
8,302,252 7.96 08/01/22 8,561,199
47,443,395 7.87 09/01/22 48,930,745
2,497,584 7.66 02/01/23 2,554,104
$ 342,692 6.39% 12/01/23 $ 343,442
3,020,694 7.45 10/01/27 3,092,738
1,515,283 7.59 07/01/29 1,544,209
3,943,016 7.56 04/01/30 4,036,623
71,072,722 7.82 01/01/31 73,466,451
15,159,963 6.39 02/01/31 15,212,083
- --------------------------------------------------------------------------------
$428,505,736
- --------------------------------------------------------------------------------
Adjustable Rate Government National
Mortgage Association
(GNMA)(a)--4.8%
$31,667,582 6.50% 06/20/25 $ 32,170,147
- --------------------------------------------------------------------------------
Adjustable Rate Small Business
Administration(a)--8.8%
$ 1,641,659 7.25% 10/25/14 $ 1,679,622
2,630,491 7.25 02/25/15 2,691,321
3,945,429 7.25 03/25/15 4,036,667
3,020,766 7.25 04/25/15 3,090,621
3,024,506 7.25 05/25/15 3,094,448
2,003,530 7.25 08/25/15 2,051,114
2,887,210 7.25 09/25/15 2,955,781
2,120,643 7.25 10/25/15 2,171,008
1,512,192 6.87 09/25/16 1,532,039
5,114,360 6.87 07/25/17 5,184,682
11,831,402 6.87 08/25/17 11,980,008
4,926,385 6.87 09/25/17 4,994,123
4,065,626 6.87 10/25/17 4,112,912
9,922,169 6.87 02/25/18 10,064,801
- --------------------------------------------------------------------------------
$59,639,147
- --------------------------------------------------------------------------------
Fixed Rate GNMA--0.0%
$57,790 9.00% 04/15/20 $ 61,040
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations
(CMOs)--9.7%
Adjustable Rate CMOs(a)--2.0%
FNMA REMIC Trust 1990-145, Class A
$13,294,521 6.77% 12/25/20 $13,250,383
- --------------------------------------------------------------------------------
Inverse Floater CMOs(a)--1.5%
FHLMC Series 1134, Class H
$1,682,751 14.71% 09/15/96 $ 1,767,677
FHLMC Series 1727, Class O
11,000,000 3.56 05/15/24 5,993,999
FNMA REMIC Trust 1991-113, Class S
1,754,306 16.55 03/25/02 1,859,838
|
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations (continued)
Collateralized Mortgage Obligations (CMOs) (continued)
Inverse Floater CMOs(a) (continued)
FNMA REMIC Trust 1991-91, Class S
$ 218,226 15.96% 07/25/98 $ 243,970
- --------------------------------------------------------------------------------
$ 9,865,484
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(a)--0.0%
FNMA REMIC Trust 1992-157, Class SA
$ 3,636,650(c) 11.38% 03/25/04 $ 325,902
- --------------------------------------------------------------------------------
Inverse IOette--0.1%
FHLMC Series 1164, Class O
$ 45,215(c) 612.25% 11/15/06 $ 501,671
- --------------------------------------------------------------------------------
IOette--0.1%
FNMA REMIC Trust 1990-145, Class B
$ 32,669(c) 1005.00% 12/25/20 $ 841,215
- --------------------------------------------------------------------------------
Regular Floater CMOs(a)--1.7%
FHLMC Series 1011, Class F
$11,485,217 6.84% 11/15/20 $ 11,566,865
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--1.8%
FHLMC Series 1056, Class G
$ 41,612 8.00% 12/15/18 $ 41,747
FHLMC Series 1316, Class D
155,830 8.00 09/15/17 155,541
FHLMC Series 1098, Class F
1,319,769 8.00 03/15/05 1,322,725
FNMA REMIC Trust 1990-143, Class H
1,000,000 9.25 10/25/19 1,019,160
FNMA REMIC Trust 1990-65, Class U
1,850,249 9.50 11/25/06 1,878,688
FNMA REMIC Trust 1991-140, Class C
1,179,822 8.50 05/25/20 1,183,126
FNMA REMIC Trust 1991-37, Class E
3,936,872 8.50 04/25/05 3,982,461
FNMA REMIC Trust 1991-82, Class PH
2,916,118 8.00 11/25/18 2,906,116
- --------------------------------------------------------------------------------
$ 12,489,564
- --------------------------------------------------------------------------------
Super Floater CMOs(a)--2.5%
FNMA REMIC Trust 1992-157, Class FA
$17,903,510 2.72% 03/25/04 $ 17,032,448
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 65,873,532
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $660,175,134) $652,520,312
- --------------------------------------------------------------------------------
Repurchase Agreement--2.4%
Joint Repurchase Agreement Account
$16,000,000 5.93% 11/01/95 $ 16,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,000,000) $ 16,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $676,175,134(d)) $668,520,312
================================================================================
|
Futures contracts open at October 31, 1995 are as follows:
Contracts Settlement Month Unrealized
Type Long (Short)(e) Gain (Loss)
- --------------------------- ----------------- --------------------------------
Euro Dollars 807 December 1995 $(200,200)
Euro Dollars 350 March 1996 105,250
Euro Dollars 136 June 1996 28,050
Euro Dollars 90 September 1996 13,500
Euro Dollars (50) December 1996 (41,250)
Euro Dollars (50) March 1997 (41,250)
2-Year U.S. Treasury Notes 80 December 1995 80,000
5-Year U.S. Treasury Notes (183) December 1995 (194,516)
10-Year U.S. Treasury Notes (15) December 1995 (23,438)
U.S. Treasury Bond (122) December 1995 (400,312)
- --------------------------------------------------------------------------------
$(674,166)
================================================================================
|
Federal Income Tax Information: Gross unrealized gain for investments in which value exceeds cost $ 1,648,951 Gross unrealized loss for investments in which cost exceeds value (9,507,811) - -------------------------------------------------------------------------------- Net unrealized loss $(7,858,860) ================================================================================ |
(a) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1995.
(b) Portions of these securities are being segregated for futures margin requirements.
(c) Represents security with notional or nominal principal amount. The actual effective yields of these securities are different from the stated rates due to the amortization of related premiums.
(d) The aggregate cost for federal income tax purposes is $676,379,172.
(e) Each 2-Year U.S. Treasury Note contract represents $200,000, in notional par value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note and U.S. Treasury Bond contract represents $100,000 in notional par value. Each Euro Dollar contract represents $1,000,000 in notional par value. The total net notional amount and net market value at risk are $1,267,000,000 and $283,579,706, respectively. The determination of notional amounts does not consider market risk factors and therefore notional amounts as presented here are indicative only of volume of activity and not a measure of market risk.
The accompanying notes are an integral part of these financial statements.
The GS Short-Term Government Agency Fund's primary objective is to provide a high level of current income by investing in a portfolio that consists of securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, including mortgage-backed securities as well as repurchase agreements collateralized by such instruments. To enhance principal stability, the fund has a two-year target duration and a maximum duration of three years.
Performance Review
For the 12 months ended October 31, the fund's Institutional shares had a total return of 8.97% (7.00% in distributions and 1.97% from share price appreciation) compared with 9.02% for the fund's benchmark, the two-year U.S. Treasury security. During the period, the fund's net asset value (NAV) rose $0.18 per share to $9.82 as the bond market rallied.
The fund's slight underperformance versus the benchmark was primarily due to its large position in mortgage-backed securities (an allocation not reflected in the benchmark), which felt the impact of rising prepayment risk during the second half of the period.
The fund's term structure helped offset some of the decline. During the period, the fund held mortgage-backed securities with a range of maturities that provided cash flows along the yield curve. As the yield curve flattened, the mortgage-backed securities at the longer end of the curve performed better than Treasury securities concentrated in the two-year maturity range, thus benefiting the fund.
Portfolio Composition and Investment Strategies
While the fund continued to emphasize mortgage-backed securities, which accounted for 58.2% of the portfolio on October 31, its combined holdings in Treasuries and repurchase agreements/cash equivalents approximately doubled during the period to 41.8%.
Portfolio Composition as of October 31, 1995*
Fixed Rate Mortgage Pass Throughs 9.1% Repos/Cash Equivalents 4.7% U.S. Treasuries 37.1% CMOs 25.4% ARMs 23.7% |
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. We used these positions to manage the portfolio's duration, weighting one relative to the other according to our need to shorten or lengthen the portfolio's duration relative to that of the benchmark, which were both 1.9 years as of October 31, 1995. At the end of the period, 37.1% of the portfolio was invested in U.S. Treasuries and 4.7% was in repurchase agreements/cash equivalents, as compared with no position in Treasuries and 20.9% in repurchase agreements/cash equivalents last October.
. ARMs. During the past 12 months, we added to the fund's position in adjustable rate mortgage securities (ARMs), particularly during May and June, when they traded at attractive option-adjusted spreads relative to Treasuries and appeared cheap. As of October 31, 1995, ARMs accounted for 23.7% of the portfolio, compared with 13.1% a year ago. We focused on ARMs that are indexed to the one-year Constant Maturity Treasury (CMT) Index and adjust faster to changing interest rates than ARMs based on other indexes. Following our purchases, however, ARM spreads continued to widen, making ARMs even cheaper. We view this as a short-term decline resulting from prepayment fears (mortgage prepayments tend to rise as interest rates fall) and expect ARMs to perform well when prepayments slow. In the interim, ARMs added incremental yield over Treasuries.
. Fixed Rate Mortgage Pass-Throughs. The fixed rate pass-through sector accounted for 9.1% of the portfolio as of October 31, 1995, a slight increase from last year's 7.3% allocation. We focused on seasoned mortgages, which are attractive because they typically experience fewer prepayments relative to newly issued mortgages.
. Issuer Composition. The portfolio's mortgage-backed securities composition by issuer was: 27.0% in Federal National Mortgage Association (FNMA) issues, 22.8% in Federal Home Loan Mortgage Corporation (FHLMC) issues and 8.4% in Government National Mortgage Association (GNMA) issues.
. Credit Quality. The fund invests exclusively in securities issued by the U.S. government and its agencies or instrumentalities.
. Prudent Use of Derivatives. The fund held selected lower-risk derivatives, including sequential-pay CMOs (10.4%), floaters (6.3%) and PAC CMOs (1.9%). In addition, the fund also took small positions in higher-risk securities, including inverse floaters (4.1%) and PAC IOs (2.5%), which the fund held for their incremental yield and potential incremental return. We used higher-risk derivatives sparingly in an effort to enhance returns without taking undue risk. During the declining rate environment of the second half of the period, the inverse floaters performed well, while the PAC IOs were basically unchanged. We have also occasionally used mortgage dollar rolls to take advantage of short- term supply and demand imbalances in the mortgage settlement process. (Mortgage dollar rolls refer to transactions that involve selling mortgage securities owned by the fund and simultaneously contracting to buy back similar mortgage securities with the same coupon on a specified future date.) At all times, we "cover" the mortgage dollar rolls by keeping cash or high-grade liquid debt securities equal to the dollar amount of the forward commitment in a segregated account with the fund's custodian. In addition, since September 29, 1995, the fund has been permitted to hold futures, which we used in conjunction with Treasuries and repurchase agreements/cash equivalents to manage the portfolio's duration.
Fund Outlook
We expect to continue to emphasize mortgage-backed securities, because they offer favorable performance potential, but we will carefully monitor potential risks. These include rising prepayments, which we believe are largely reflected in current prices, as well as an increased ARM supply resulting from bank mergers. (Merging banks typically need to raise funds, so they tend to securitize more of their mortgages.) Conversely, because of the flatter yield curve, new ARM issuance is expected to stabilize or decline, which should help offset other negative technical events. We are currently cautious regarding the CMO sector, which has performed well in recent months and now appears fully priced.
During the period under review, the fund distributed $0.65 per share to Institutional shareholders. Dividends are declared daily and paid on a monthly basis. The fund intends to distribute substantially all of its investment company taxable income, as required by tax law.
We value your continued confidence in the GS Short-Term Government Agency Fund and look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Jonathan A. Beinner Jonathan A. Beinner /s/ Theodore T. Sotir Theodore T. Sotir Portfolio Managers GS Short-Term Government Agency Fund November 30, 1995 |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the GS Short-Term Government Agency Fund based on the Fund's normal minimum initial investment of $50,000, is compared to its benchmarks, the U.S. 2-Year Treasury Bill ("2-Year T-Bill") and the Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index ("Lehman Short (1-3) Gov't Index"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT(a)
GS STGA Fund Lehman Short (1-3) 2 Year T-Bil
- --------------------------------------------------------------------------------
9/1/88 50000 50000 50000
10/31/88 51286 51091 51057
10/31/89 55943 55919 55412
10/31/90 60547 60861 59876
10/31/91 67165 67699 66615
10/31/92 71356 73208 72161
- --------------------------------------------------------------------------------
|
Statement of Investments
- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund
October 31, 1995
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--57.7%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a)--12.8%
$2,479,915 7.51% 12/01/18 $ 2,534,200
10,467,242 7.87 02/01/22 10,786,074
- --------------------------------------------------------------------------------
$13,320,274
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage
Association (FNMA)(a)--10.8%
$3,255,463 7.93% 11/01/14 $ 3,361,265
2,320,167 7.93 07/01/19 2,381,280
5,309,603 7.91 08/01/22 (b) 5,429,494
- --------------------------------------------------------------------------------
$11,172,039
- --------------------------------------------------------------------------------
Fixed Rate
FNMA--0.7%
$688,776 9.00% 12/01/97 $ 704,919
- --------------------------------------------------------------------------------
Fixed Rate Government National Mortgage Association--8.3%
$2,845,341 10.00% 12/15/17 $ 3,113,870
5,108,882 9.50 05/15/25 5,530,364
- --------------------------------------------------------------------------------
$ 8,644,234
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations (CMOs)--25.1%
Inverse Floater CMOs(a)--4.2%
FHLMC Series 1134, Class H
$631,031 14.71% 09/15/96 $ 662,879
FHLMC Series 1134, Class I
2,404,687 14.71 09/15/96 2,552,443
FHLMC Series 1325, Class C
1,028,325 6.39 07/15/97 1,034,752
FNMA REMIC Trust 1991-127, Class S
67,973 11.38 09/25/98 71,340
- --------------------------------------------------------------------------------
$ 4,321,414
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only--0.1%
FNMA REMIC Trust 1993-110, Class SC
$4,046,398(c) 3.17% 04/25/19 $ 161,366
- --------------------------------------------------------------------------------
Planned Amortization Class (PAC)
CMOs--1.9%
FNMA REMIC Trust 1992-138, Class A
$1,990,971 6.00% 08/25/13 $ 1,980,519
- --------------------------------------------------------------------------------
Planned Amortization Class Interest-
Only (PAC IO) CMOs--1.4%
FHLMC Series 1552, Class JE
$16,170,393 (c) 7.00% 02/15/14 $ 1,422,348
- --------------------------------------------------------------------------------
Planned Amortization Class IOette
CMOs--0.9%
FNMA REMIC Trust 1992-198, Class K
$61,237(c) 1008.00% 12/25/15 $ 895,808
- --------------------------------------------------------------------------------
Regular Floater CMOs(a)--6.2%
FHLMC Series 1325, Class B
$2,416,565 6.56% 07/15/97 $ 2,427,137
FNMA REMIC Trust 1993-110, Class FC
4,046,398 5.83 04/25/19 4,030,593
- --------------------------------------------------------------------------------
$ 6,457,730
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--10.4%
FHLMC Series 1033, Class G
$2,000,000 8.00% 01/15/06 $ 2,081,360
FNMA REMIC Trust 1988-12, Class A
2,635,634 10.00 02/25/18 2,834,783
FNMA REMIC Trust 1988-12, Class B
2,635,634 4.86 02/25/18 2,445,684
FNMA REMIC Trust 1992-44, Class CA
3,000,000 12.00 08/25/20 3,394,920
- --------------------------------------------------------------------------------
$10,756,747
- --------------------------------------------------------------------------------
|
Futures contracts open at October 31, 1995 are as follows:
Number of
Contracts Settlement Month
Long (Short) Unrealized
Type (e) Gain (Loss)
- ---------------------------- ------------ ----------------- ------------
Euro Dollars 10 March 1997 $750
Euro Dollars 10 June 1997 250
2-Year U.S. Treasury Notes 284 December 1995 126,859
5-Year U.S. Treasury Notes (70) December 1995 (53,593)
- --------------------------------------------------------------------------------
$ 74,266
================================================================================
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 416,484
Gross unrealized loss for investments in which
cost exceeds value (450,291)
- --------------------------------------------------------------------------------
Net unrealized loss ($33,807)
================================================================================
|
(a) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1995.
(b) Portions of these securities are being segregated for futures margin requirements.
(c) Represents security with notional or nominal principal amount. The actual effective yields of these securities are different from the stated rates due to the amortization of related premiums.
(d) The amount stated also represents aggregate cost for federal income tax purposes.
(e) Each 2-Year U.S. Treasury Note, 5-Year U.S. Treasury Note and Euro Dollar contract represents $200,000, $100,000 and $1,000,000, respectively, in notional par value. The total net notional amount and net market value at risk for the futures contracts shown above are $69,800,000 and $56,296,812, respectively. The determination of notional amounts does not consider market risk factors and therefore notional amounts as presented here are indicative only of volume of activity and not a measure of market risk.
The percentages shown for each investment category reflect the value of investments in that category as a percentage of total net assets.
The GS Short Duration Tax-Free Fund seeks to provide a high level of current income exempt from regular federal income tax, consistent with relatively low principal volatility, through investments in municipal securities rated single-A or better or deemed to be of comparable quality. The portfolio seeks to maintain an average duration of two to three years and invests in securities with remaining effective maturities of five years or less.
Municipal Bonds Rally Amid Uncertainty
The municipal bond market performed well during the period under review (November 1, 1994 through October 31, 1995), with the average price of a three- year municipal bond (as calculated from data provided by Municipal Market Data, an independent municipal market information provider) rising approximately 2%, while yields fell from 4.85% on November 1, 1994, to 4.10% on October 31, 1995. During the past 12 months the yield curve for municipal bonds became quite steep compared with Treasuries, and three-year municipal bonds outperformed similar- duration Treasuries.
The first month of the fund's fiscal year coincided with the bottom of the 1994 bear market, as 30-year U.S. Treasury yields rose to 8.13% and long-term municipal bond yields rose to over 7%. In December 1994, however, the bond market stabilized. Fueled by strong municipal bond demand and a significant decrease in supply, municipal bonds surged from January through early April. Though municipals continued to record positive performance, the rally's momentum slowed from mid-April onward, reflecting investors' concern surrounding various tax reform proposals (e.g., the flat tax and a reduction in capital gains taxes) and the growing allure of the strong equity rally.
By midyear, short-term municipal bonds became more expensive as investors favored defensive maturities that provided greater liquidity, while demand for long-term bonds stagnated. At the end of October, however, growing bullish sentiment in the municipal bond market and a flattening municipal bond yield curve made longer-term bonds increasingly attractive in terms of price.
Performance Review
For the 12 months ended October 31, 1995, the fund's Institutional shares achieved a total return of 5.98% (4.42% from monthly distributions and 1.56% from share price appreciation) compared with a return of 7.80% for the Lehman Brothers Three-Year Municipal Bond Index (the "Index"), the fund's benchmark. For the same period, the fund's Administration shares realized a total return of 5.76% (4.16% from monthly distributions and 1.60% from share price appreciation) and its Service shares recorded a total return of 5.59% (3.90% from monthly distributions and 1.69% from share price appreciation).
Though the fund performed well in the bond rally, it underperformed the Index, primarily because it was more defensively positioned early in the period in response to last year's volatility. We favored premium (higher coupon, callable) bonds that offered greater liquidity and were less likely to suffer from adverse tax consequences associated with short-term discount securities, which can have a significant impact in the short-term market. Though premium bonds typically retain principal better than discount bonds when interest rates rise as they did in 1994, they tend to lag when rates fall, as was the case during 1995. In contrast, the benchmark's allocation included a higher percentage of discount bonds, which typically outperform as interest rates fall. In general, higher coupon bonds were less desirable in the declining rate environment because they tended to be called, shortening the portfolio's duration at a time when it would have been more advantageous to extend it.
Another aspect of our defensive strategy was that we stressed higher credit quality securities (triple- and double-A-rated) over lower quality. The Index, however, held a greater percentage of lower-rated securities, which added to its performance when credit spreads tightened during the year and lower-quality bonds appreciated more than those of higher quality.
Portfolio Composition as of October 31, 1995*
[PIE CHART APPEARS HERE]
Pre-refunded Bonds 9.8%
General Obligations 34.8%
Insured Revenue Bonds 18.2%
Insured General Obligations 16.2%
Revenue Bonds 11.0%
Variable Rate Demand Notes 10.0%
|
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. Insured Revenue and General Obligation Bonds. Insured municipal bonds continued to be attractive because of their liquidity and availability. Insured bonds allow the portfolio to capitalize on a security's other features such as coupon and callability, while removing the credit quality variable. Also, there was a larger supply of insured bonds in states with high taxes and high savings rates. In general, we emphasized securities from California, New York and Michigan that we determined to be undervalued due to a temporary lack of demand. We anticipate that these securities will appreciate as demand improves and yield spreads tighten. As of October 31, we had overweighted the fund's holdings in insured bonds relative to the Index (34.4% versus 22.2%).
. General Obligation (GO) Bonds. GOs, which are typically higher credit quality and lower yielding than revenue bonds, are backed by the general taxing power of a municipality. When credit spreads tightened during the period, the additional income from lower-quality bonds did not warrant taking additional risk. As a result, we significantly increased the fund's investment in GOs to 34.8%, approximately four times the level of last year's allocation. Also, the short-duration municipal bond market has a larger percentage of uninsured GOs than uninsured revenue bonds, due to the nature of the issuers.
. Revenue Bonds. Noninsured revenue bonds, generally single-A- and double-A- rated debt, accounted for 11.0% of the portfolio, half of the benchmark's weighting in the sector. (Revenue bonds pay interest and principal out of a specific revenue stream, which includes sales taxes, hospital charges, tolls, electric rates and airport fees.) Revenue bond allocations reflect security- specific opportunities, which are more closely tied to credit quality than sector preference.
. Variable Rate Demand Notes (VRDNs). VRDNs, a 10.0% portfolio position, are high-quality cash equivalents. We used VRDNs to manage the portfolio's duration to be neutral to the Index.
. Pre-refunded Bonds. The portfolio was 9.8% invested in pre-refunded bonds as of October 31, 1995 (versus just over 50% last year), slightly overweighted versus the Index's 8.2%. We sold the majority of the fund's large position in pre-refunded bonds during the past year as spreads of pre-refunded bonds over other higher-grade debt tightened significantly and they provided little relative value.
. Forward Contracts. During April, the fund bought a forward contract (a commitment to take possession of a financial instrument at a specified date and price), which functioned as a long-dated settlement of a purchase. Because of its unconventional structure, the forward was available at a more attractive price than a conventional bond.
. Duration. As of October 31, the fund's duration was 2.86 years, slightly longer than the Index's duration of 2.77 years. During the course of the year, the fund's duration was neutral to the Index. In general, we manage the fund's duration to approximate the Index's, rather than attempting to make interest rate predictions. Instead, we look for opportunities to outperform the Index through coupon, state, security and sector allocations.
. Credit Quality. The portfolio's overall credit quality was not significantly changed during the period. As of October 31, the portfolio was 77.1% invested in triple-A-rated bonds, 16.1% in double-A's and 6.8% in single- A's.
Market Outlook: Improved Technicals Expected
Going forward, the municipal bond market appears to be entering a period of potential technical strength. We estimate that over $80 billion in coupon and principal payments will be distributed to municipal investors between November 1995 and February 1996, a significant percentage of which may be reinvested into municipal bonds. In contrast, we expect just over $37 billion in new municipal debt securities to be issued over the same four-month period, creating a potential supply and demand imbalance that could increase municipal bond prices. That scenario, coupled with the likelihood of an even flatter yield curve near term, should benefit our longer term bonds. In addition, yields on long-term municipals are relatively high in relation to Treasury securities and short-term municipals. Regarding security selection, we anticipate concentrating on bonds issued by states that have high taxes, high wealth concentration and large populations (e.g., New York, California and Michigan).
Distribution Policy
The fund's Institutional, Administration and Service shares distributed monthly distributions totaling approximately $0.42, $0.40 and $0.37 per share, respectively, during the 12-month period ended October 31, 1995. Dividends are declared daily and paid on a monthly basis. The fund intends to distribute substantially all of its investment company tax-exempt income, as required by tax law.
Your investment in the GS Short Duration Tax-Free Fund means a great deal to us and we look forward to continuing our relationship.
Sincerely,
/s/ Benjamin S. Thompson Benjamin S. Thompson /s/ Theodore T. Sotir Theodore T. Sotir Portfolio Managers GS Short Duration Tax-Free Fund November 30, 1995 |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the GS Short Duration Tax-Free Fund based on the Fund's normal minimum initial investment of $50,000, is compared to its benchmark, the Lehman Brothers 3-Year Municipal Bond Index ("3-Year Bond Index"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT/(a)/
Institutional Shares
Institutional Shares 3-Year Bond Index
10/1/92 50,000 50,000
10/31/92 49,831 49,805
10/31/93 53,335 53,102
10/31/93 53,425 53,825
10/31/95 56,620 58,023
|
Administration Share
Administrative Shares 3-Year Bond Index
6/1/93 50,000 50,000
10/31/93 51,092 51,144
10/31/94 51,036 51,840
10/31/95 53,976 55,884
|
Service Shares
Service Shares 3-Year Bond Index
10/1/94 50,000 50,000
10/31/94 49,696 49,880
10/31/95 52,474 53,771
|
Average Annual Total Return
------------------------------
One Year Since Inception (b)
- ----------------------------------------------------------------
Institutional Shares 5.98% 4.12%
- ----------------------------------------------------------------
Administration Shares 5.76% 3.21%
- ----------------------------------------------------------------
Service Shares 5.59% 4.70%
- ----------------------------------------------------------------
|
(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations of the
Administration and Service share classes.
(b) The Institutional, Administration and Service shares commenced operations
October 1, 1992, May 20, 1993 and September 20, 1994, respectively.
Statement of Investments
- -------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1995
- ----------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
============================================================================
Debt Obligations-- 104.9%
Alabama--3.6%
Alabama State GO/(a)/ (AA/Aa)
$2,000,000 5.90% 03/01/99 $2,094,940
- ----------------------------------------------------------------------------
California--13.4%
California State Revenue Anticipation
Warrants (Sp1/MIG1)
$1,500,000 5.75% 04/25/96 $1,514,280
Sacramento County, CA Tax and Revenue
Anticipation Notes(a) (Sp1+/MIG1)
3,000,000 4.75 10/04/96 3,024,270
San Francisco, CA City and County GO
Series 1995 A and B (FGIC) (AAA/Aaa)
1,450,000 7.25 06/15/99 1,607,644
1,570,000 7.25 06/15/00 1,771,211
- ----------------------------------------------------------------------------
$7,917,405
- ----------------------------------------------------------------------------
Connecticut--5.2%
Connecticut State Series A GO/(a)/
(AA-/Aa)
$3,000,000 5.00% 03/15/00 $3,077,520
- ----------------------------------------------------------------------------
Florida--15.9%
Florida State Certificates of
Participation Equipment Financing
Program (A+/A)
$1,115,000 5.90% 11/15/96 $1,132,929
Lakeland, FL Electric and Water RB
(FGIC)/(b)/ (AAA/Aaa)
2,640,000 5.25 10/01/97 2,679,626
5,415,000 5.25 10/01/98 5,521,460
- ----------------------------------------------------------------------------
$9,334,015
- ----------------------------------------------------------------------------
Illinois--3.8%
Illinois Health Facilities Authority
Revenue- Lutheran Healthcare System
Prerefunded/(c)/ (AAA/NR)
$2,000,000 7.50% 04/01/99 $2,232,140
- ----------------------------------------------------------------------------
Kansas--4.5%
Kansas City, KS GO Series A (MBIA)
(AAA/Aaa)
$1,000,000 5.25% 09/01/99 $1,037,780
Topeka, KS GO Notes (NR/MIG1)
1,620,000 4.25 07/15/96 1,624,082
- ----------------------------------------------------------------------------
$2,661,862
- ----------------------------------------------------------------------------
Louisiana--3.8%
Lafayette Parish, LA School Board Sales
Tax GO (FGIC) (AAA/Aaa)
$2,130,000 6.00% 04/01/99 $2,242,272
- ----------------------------------------------------------------------------
Massachusetts--5.4%
Boston, MA GO (A/A)
$ 595,000 9.50% 03/01/96 $ 604,199
Boston, MA GO (MBIA) (AAA/Aaa)
2,500,000 5.25 10/01/99 2,586,375
- ----------------------------------------------------------------------------
$3,190,574
- ----------------------------------------------------------------------------
Michigan--5.1%
Michigan Municipal Bond Authority
Revenue Notes (Sp1+/NR)
$3,000,000 5.00% 05/03/96 $3,018,570
- ----------------------------------------------------------------------------
Nevada--2.2%
Nevada State GO/(b)/ (AA/Aa)
$1,170,000 8.00% 11/01/99 $1,321,375
- ----------------------------------------------------------------------------
New Jersey--9.9%
New Jersey Healthcare Facilities
Financing Authority Prerefunded/(c)/
(AAA/Aaa)
$2,380,000 8.38% 02/01/98 $2,637,611
New Jersey State Turnpike Authority
Series A RB (A/A)
3,000,000 6.20 01/01/00 3,187,590
- ----------------------------------------------------------------------------
$5,825,201
- ----------------------------------------------------------------------------
New Mexico--2.1%
Albuquerque City, New Mexico GO Series
C (AA/Aa)
$1,200,000 5.10% 07/01/00 $1,231,980
- ----------------------------------------------------------------------------
New York--3.5%
Erie County, New York GO Series A
(MBIA)/(a)/ (AAA/Aaa)
$2,000,000 5.50% 06/01/99 $2,080,060
- ----------------------------------------------------------------------------
Ohio--2.6%
Ohio State Building Authorities Series
A Escrowed-To-Maturity/(c)/ (NR/Aaa)
$1,400,000 7.15% 08/01/99 $1,536,500
- ----------------------------------------------------------------------------
Oklahoma--6.7%
Enid, OK Hospital Authority RB (Societe
General LOC)/(a)/ (NR/Aa1)
$2,800,000 7.20%/(d)/ 10/01/15 $2,880,640
Oklahoma County, OK Independent School
District GO (A+/Aa)
1,000,000 5.40 02/01/99 1,034,440
- ----------------------------------------------------------------------------
$3,915,080
- ----------------------------------------------------------------------------
Pennsylvania--1.9%
Philadelphia, PA Water and Sewer RB
(MBIA) (AAA/Aaa)
$1,000,000 6.85% 10/01/99 $1,094,610
- ----------------------------------------------------------------------------
|
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------
South Carolina--7.2%
Chester County, South Carolina School
District GO (AMBAC) (AAA/Aaa)
$1,275,000 6.50% 02/01/00 $ 1,384,102
South Carolina State GO (AA+/Aaa)
2,700,000 6.50 03/01/98 2,841,642
- -------------------------------------------------------------------------------
$ 4,225,744
- -------------------------------------------------------------------------------
Virginia--3.8%
Arlington County, Virginia GO (AAA/Aaa)
$2,160,000 5.00% 06/01/00 $ 2,216,743
- -------------------------------------------------------------------------------
Washington--4.3%
Clark County, Washington Public Utility
District (FGIC) (AAA/Aaa)
$2,500,000 5.00% 01/01/99 $ 2,545,875
- -------------------------------------------------------------------------------
Total Debt Obligations
(Cost $61,163,971) $61,762,466
===============================================================================
Short-Term Obligations-- 18.0%
Gulf Coast Waste Disposal Authority TX
VRDN/(e)/ (A-1+/VMIG-1)
$3,000,000 3.90% 11/01/95 $ 3,000,000
Harris County Health Facility, TX Healthcare
System VRDN/(e)/ (A-1+/NR)
1,800,000 4.00 11/01/95 1,800,000
Monroe County, GA Pollution Control VRDN/(e)/
(A-1/VMIG-1)
1,200,000 3.90 11/07/95 1,200,000
1,000,000 3.90 11/01/95 1,000,000
Nassau County, New York Industrial
Development VRDN/(e)/ (A-1+/NR)
300,000 3.95 11/01/95 300,000
New York , NY Series C VRDN/(e)/ (A-1+/VMIG-1)
3,300,000 4.05 11/01/95 3,300,000
- -------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $10,600,000) $10,600,000
===============================================================================
Total Investments
(Cost $71,763,971/(f)/) $72,362,466
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $611,530
Gross unrealized loss for investments in
which cost exceeds value (13,035)
- -------------------------------------------------------------------------------
Net unrealized gain $598,495
===============================================================================
|
/(a)/Portions of these securities are being segregated for when-issued
securities.
/(b)/When-issued security.
/(c)/Pre-refunded and escrowed-to-maturity bonds have been collateralized by
U.S. Treasury securities which are held in escrow and used to pay principal
and interest on the tax-exempt issue and to redeem the bonds in full upon
the refunding date. The maturity date shown for these securities is the
refunding date.
/(d)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1995.
/(e)/Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next reset interest dates.
/(f)/The amount stated also represents aggregate cost for federal income tax
purposes.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets.
Investment Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corp. FGIC -Insured by Financial Guaranty Insurance Co. GO -General Obligation LOC -Letter of Credit MBIA -Insured by Municipal Bond Investors Assurance NR -Not Rated RB -Revenue Bond VRDN -Variable Rate Demand Note |
The accompanying notes are an integral part of these financial statements.
Investment Objective
The GS Core Fixed Income Fund seeks to achieve a total return that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the "Index") through a diversified portfolio of fixed income securities. The fund may invest in U.S. Treasury, agency, corporate, mortgage-backed and asset-backed securities, as well as in a limited amount of nondollar-denominated fixed income securities. While the fund's performance will be measured against the Index, the portfolio is not required to hold the same securities or match the sector weightings of the Index. Every security in the portfolio must be rated at least investment grade by an independent rating agency or be considered to be of equivalent quality by Goldman Sachs Asset Management at the time it is purchased.
Performance Review
For the 12 months ended October 31, 1995, the fund's total return was 15.72%
(7.20% from monthly distributions and 8.52% from share price appreciation)
compared with a return of 15.65% for the Lehman Brothers Aggregate Bond Index,
the fund's benchmark. The fund's NAV as of October 31 was $10.00 per share, up
$0.76 from last year.
The fund outperformed the Index by seven basis points during the period, primarily due to its sector allocations. The fund was significantly overweighted versus the benchmark in corporate bonds, which added incremental yield and return as spreads tightened. The fund also held a small position in emerging market debt that performed well, a sector not included in the benchmark. In addition, the fund benefited from being significantly overweighted in asset- backed securities, which also performed well during the period.
Portfolio Composition and Investment Strategies
Portfolio Composition as of October 31, 1995*
[PIE CHART APPEARS HERE]
Fixed Rate Mortgage Pass-Throughs 30.2% Corporate Bonds 28.1% U.S. Treasuries 24.7% Asset-Backed Securities 9.9% Emerging Market Debt 2.6% Agency Debentures 2.1% CMOs 2.0% Repos/Cash Equivalents 0.4% |
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. Fixed Rate Mortgage Pass-Throughs. As of October 31, the portfolio's largest sector holding was 30.2% in fixed rate mortgage pass-throughs, slightly overweighting the Index allocation of 28.2%. We increased the fund's position in fixed-rate mortgages when they became relatively inexpensive during the summer. Subsequently, mortgages have continued to get even cheaper based on prepayment fears. However, we still believe they represent good value that may be realized when the rate of prepayments begins to slow. In our opinion, they continue to offer attractive spreads relative to Treasuries.
Our security selection within the sector continued to be significantly different from that of the Index. During the early part of the period under review, the fund underweighted 15-year mortgage-backed securities and consequently didn't fully participate when the 15-year sector outperformed. We also emphasized seasoned mortgages, which tended to help the portfolio, particularly during the latter part of the period, because they are less prone to prepayments than newly issued mortgages.
As anticipated in the April semiannual report, we shifted the fund's emphasis to favor securities issued by the Government National Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) over the Federal National Mortgage Association (FNMA), as the former were more attractively priced.
. Corporate Bonds. We continued to emphasize corporate bonds during the period because they offered incremental yield. Corporates represented 28.1% of the portfolio on October 31 compared with 17.1% for the Index.
. Asset-Backed Securities (ABSs). We found the ABS sector attractive due to its high credit quality debt and incremental yield over Treasuries. As a result, we overweighted the sector relative to the Index, 9.9% versus 1.3%. Our ABS holdings included credit card receivables (5.8%) and automobile loan receivables (4.1%).
. Emerging Market Debt. During the period, we added a 2.6% allocation in emerging market debt. We intend to keep the position relatively small and to carefully manage risk by emphasizing higher-credit, short-duration bonds (typically with average maturities of under five years). Thus far we have focused primarily on Latin American corporate debentures. In particular, we stressed Colombian bonds that were inexpensive relative to comparably rated U.S. credits. In our view, some Latin American debt had been unfairly penalized and therefore offered attractively priced bonds that the fund continued to own as of the end of the period. The fund also briefly held a Republic of Poland bond that was subsequently sold at a profit.
. Agency Debentures. We established a small position in agency debentures (2.1%) in April, because we believed that they represented better relative value than Treasuries. During most of the period, the fund's underweighting in agency debentures versus the Index worked in its favor, because this sector underperformed Treasuries as spreads widened.
. PAC CMOs and ARMs. The fund's position in planned amortization class collateralized mortgage obligations (PAC CMOs) declined from 1.7% of the portfolio a year ago to 0.9% on October 31, 1995. The percentage of PAC securities fell relative to total portfolio assets as the fund attracted new investments. During the period, we liquidated the portfolio's 1.9% position in adjustable rate mortgage securities (ARMs) in favor of other sectors that appeared to offer greater yield and return potential.
. Duration. We have targeted the fund's duration to approximate that of the Index. Both were 4.8 years as of October 31.
. Credit Quality. As of October 31, 58.9% of the portfolio was invested in government and agency securities, 9.9% in AAA securities and 0.4% in cash equivalents. To add incremental yield potential, 30.8% of the portfolio was invested in A and BBB securities, a significant overweighting versus the Index.
. Prudent Use of Derivatives. As noted previously, the fund held a 9.9% position in asset-backed securities and a 0.9% position in PAC CMOs, both considered to be lower risk derivatives. During the period, we added very small positions in higher risk interest only (IO) and principal only (PO) CMOs (0.3% and 0.8% of the portfolio, respectively) for their potential incremental return. The fund also used covered mortgage dollar rolls (where
mortgage securities owned by the fund are sold and the fund simultaneously contracts to buy back similar mortgage securities with the same coupon on a specified future date) to provide incremental yield. At all times, we "cover" the mortgage dollar rolls by keeping cash or high-grade liquid debt securities equal to the dollar amount of the forward commitment in a segregated account with the fund's custodian.
Portfolio Outlook
Looking forward, we are still cautiously optimistic regarding the corporate debt sector, based on the continuation of relatively strong corporate earnings despite the softening economy. Within the sector, we continue to favor industrial and financial issues over Yankees (dollar-denominated bonds issued in the U.S. by foreign banks and corporations) and utility bonds. We are also cautiously optimistic about the mortgage-backed securities market. Yield spreads of mortgage pass-throughs relative to Treasuries are currently very wide, but we remain concerned about prepayment risk. Additionally, we have a neutral outlook for the ABS sector over the next quarter. Though strong investor demand is likely to continue longer term, we believe the ABS sector may be affected by increases in consumer debt delinquencies and by year-end selling.
We will continue to look for attractive investment opportunities in emerging markets. For the near term, we tend to favor Latin American debt over investment-grade bonds in Asia and eastern Europe, which we currently consider too expensive.
Distribution Policy
During the 12-month period under review, the fund distributed $0.64 per share. Dividends are declared daily and paid on a monthly basis. The fund intends to distribute substantially all of its investment company taxable income, as required by tax law.
We value your continued confidence in the GS Core Fixed Income Fund and look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Jonathan A. Beinner Jonathan A. Beinner /s/ Richard H. Buckholz Richard H. Buckholz /s/ C. Richard Lucy C. Richard Lucy /s/ Theodore T. Sotir Theodore T. Sotir |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the GS Core Fixed Income Fund based on the Fund's normal minimum initial investment of $50,000, is compared to its benchmark, the Lehman Brothers Aggregate Bond Index ("Lehman Aggregate Index"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT/(a)/
[LINE GRAPH APPEARS HERE]
GS Core Lehman
Fixed Income Fund Aggregate Index
1/5/94 50,000 50,000
10/31/94 48,498 46,980
10/31/95 56,122 54,332
|
Average Annual Total Return -------------------------------- One Year Since Inception/(a)/ -------------------------------- 15.72% 6.54% |
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------
Corporate Bonds--28.2%
Finance Bonds--19.1%
Bancponce Financial Corp.
$ 500,000 5.17% 07/15/96 $ 496,150
BankAmerica Corp.
200,000 4.99 05/17/99 199,118
Capital One Bank
600,000 8.63 01/15/97 616,830
500,000 8.13 02/27/98 518,910
Chrysler Financial Corp.
50,000 6.22 10/27/97 50,136
500,000 6.10 11/02/97 500,000
Comdisco Inc.
600,000 9.75 01/15/97 624,798
200,000 7.33 03/06/97 202,722
Continental Bank N.A.
525,000 11.25 07/01/01 586,924
Corp. Andina de Fomento
280,000 7.25 04/30/98 279,370
60,000 7.38 07/21/00 60,167
Countrywide Funding Corp.
125,000 6.08 07/14/99 123,881
250,000 8.43 11/16/99 267,858
Financiera Energy Nacional
530,000 6.63 12/13/96 526,025
First USA
200,000 5.05 12/27/95 199,674
400,000 5.05 12/29/95 399,324
400,000 6.88 09/12/96 402,804
Ford Capital Corp.
200,000 9.38 01/01/98 213,388
600,000 9.50 07/01/01 686,688
General Motors Acceptance Corp.
400,000 7.50 11/04/97 410,344
275,000 7.63 03/09/98 283,740
200,000 7.13 05/10/00 205,652
Golden West Financial Corp.
600,000 8.62 08/30/98 635,418
Maybank, New York
975,000 7.13 09/15/05 991,030
Security Pacific Corp.
695,000 11.50 11/15/00 843,070
Corporate Bonds (continued)
Finance Bonds (continued)
Signet Banking Corp.
$ 240,000 9.63% 06/01/99 $ 262,387
- -------------------------------------------------------------------------------
$10,586,408
- -------------------------------------------------------------------------------
Industrial Bonds--8.5%
Auburn Hills Trust
$ 360,000 12.00% 05/01/20 $ 539,770
Empresa Col Petroleos
250,000 7.25 07/08/98 245,000
News America Holdings Inc.
350,000 9.13 10/15/99 382,659
500,000 7.50 03/01/00 517,620
RJR Nabisco Inc.
175,000 8.00 07/15/01 176,444
350,000 8.62 12/01/02 359,594
Tele-Communications Inc.
400,000 6.10 05/15/96 399,532
Tenneco Inc.
575,000 10.00 08/01/98 628,320
Time Warner Inc.
1,225,000 7.95 02/01/00 1,273,473
175,000 7.98 08/15/04 179,776
- -------------------------------------------------------------------------------
$ 4,702,188
- -------------------------------------------------------------------------------
Utility Bonds--0.6%
Central Maine Power Co.
$ 330,000 7.45% 08/30/99 $ 335,521
- -------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $15,375,809) $15,624,117
- -------------------------------------------------------------------------------
Asset-Backed Securities--9.7%
Discover Card Trust Series 1991-C, Class A
$1,035,000 7.20% 04/16/98 $ 1,035,135
Ford Credit Auto Loan Master Trust Series
1995-1, Class A
650,000 6.50 08/15/02 657,378
General Motors Acceptance Corp. Series 1994,
Class A(a)
831,244 6.30 06/15/99 833,239
General Motors Acceptance Corp. Series 1995,
Class A
185,548 7.15 03/15/00 187,487
Premier Auto Trust Series 1994-1, Class A3
120,000 4.75 02/02/00 118,625
Premier Auto Trust Series 1995-1, Class A4
360,000 7.85 02/04/98 368,132
|
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------
Asset-Backed Securities (continued)
Premier Auto Trust Series 1995-1, Class A5
$80,000 7.90% 05/04/99 $ 82,566
Sears Credit Card Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/04 589,914
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/04 309,900
Standard Credit Card Trust, Series 1990-3, Class A
1,120,000 9.50 07/10/98 1,176,370
- -------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $5,346,628) $ 5,358,746
- -------------------------------------------------------------------------------
Government Bonds--1.2%
Province of Quebec
$ 520,000 13.25% 09/15/14 $ 656,250
- -------------------------------------------------------------------------------
Total Government Bonds
(Cost $656,517) $ 656,250
- -------------------------------------------------------------------------------
Mortgage Backed Obligations--32.0%
Federal Home Loan Mortgage Corp. (FHLMC)
$2,000,000 7.50% TBA-30 year(b) $ 2,050,624
3,000,002 7.00 09/01/25 2,975,627
500,000 7.50 10/01/25 505,625
1,000,000 8.00 10/15/25 1,025,313
2,000,000 8.00 TBA-30 year(b) 2,022,500
Federal National Mortgage Association (FNMA)
831,998 9.00 08/01/06 872,558
578,679 7.00 11/01/24 573,616
FNMA Remic Trust Series 1993-58, Class G
500,000 5.50 12/25/20 476,100
FNMA Remic Trust Series 189, Class 1 Principal Only Strips
519,544 4.55(c) 11/25/19 414,843
FNMA Remic Trust Series 189, Class 2 Principal Only Strips
660,175 9.50(c) 11/01/19 151,698
Government National Mortgage Association
1,000,000 7.50 TBA-30 year(b) 1,012,812
1,005,000 9.50 06/15/17 1,081,318
879,262 9.00 07/15/17 932,292
525,920 9.00 02/15/21 555,503
2,998,514 8.00 08/15/24 3,087,534
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $17,570,371) $17,737,963
- --------------------------------------------------------------------------------
Sovereign Debt--0.5%
Republic of Colombia
$ 260,000 9.25% 02/15/00 $ 261,542
- --------------------------------------------------------------------------------
Total Sovereign Debt
(Cost $260,400) $ 261,542
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations--2.1%
FHLMC
$ 300,000 8.20% 01/16/98 $ 308,337
250,000 6.83 09/18/02 252,455
FNMA Medium Term Notes
170,000 8.79 01/30/02 172,946
Resolution Funding Corp. Principal Only Strips(c)
1,160,000 6.78 10/15/20 219,194
1,140,000 6.78 01/15/21 212,359
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $1,116,619) $ 1,165,291
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--24.7%
United States Treasury Bonds
$ 100,000 6.40% 08/15/20 $ 128,125
100,000 8.75 08/15/20 128,125
120,000 7.88 02/15/21 141,263
60,000 8.00 11/15/21(d) 71,719
United States Treasury Interest Only Stripped Securities(c)
2,250,000 6.43 08/15/09 943,313
350,000 6.48 11/15/10 134,537
United States Treasury Notes
750,000 7.25 11/15/96 762,188
2,790,000 7.38 11/15/97 2,881,121
830,000 7.75 01/31/00 889,528
2,080,000 6.25 02/15/03 2,116,733
United States Treasury Principal Only Stripped Securities(c)
40,000 5.65 11/15/97 35,706
400,000 6.15 11/15/04 231,060
6,320,000 6.17 11/15/04 3,650,748
1,010,000 6.63 05/15/20 203,576
6,940,000 6.63 08/15/20 1,376,203
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $13,147,205) $13,693,945
- --------------------------------------------------------------------------------
|
GS Core Fixed Income Fund (continued)
October 31, 1995
- ------------------------------------------------------------------------------- Principal Interest Maturity Amount Rate Date Value - ------------------------------------------------------------------------------- Repurchase Agreement--10.1% Joint Repurchase Agreement Account(a) $5,600,000 5.93% 11/01/95 $ 5,600,000 - ------------------------------------------------------------------------------- Total Repurchase Agreement (Cost $5,600,000) $ 5,600,000 - ------------------------------------------------------------------------------- Total Investments (Cost $59,073,549(e)) $60,097,854 =============================================================================== |
Futures contracts open at October 31, 1995 are as follows:
Number of
Contracts
Long (Short) Settlement Month Unrealized
Type (f) Gain (Loss)
- ------------------------------ ------------- ------------------ -------------
Euro Dollars 3 September 1997 ($150)
Euro Dollars 3 December 1997 (225)
2-Year U.S. Treasury Notes 3 December 1995 188
5-Year U.S. Treasury Notes 6 December 1995 5,281
10-Year U.S. Treasury Notes 12 December 1995 10,875
U..S. Treasury Bond (5) December 1995 (35,313)
- --------------------------------------------------------------------------------
($19,344)
================================================================================
|
Federal Income Tax Information: ================================================================================ Gross unrealized gain for investments in which value exceeds cost $1,035,697 Gross unrealized loss for investments in which cost exceeds value (15,571) - -------------------------------------------------------------------------------- Net unrealized gain $1,020,126 ================================================================================ |
(a) Portions of these securities are being segregated for open TBA purchases and
mortgage dollar rolls.
(b) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + / -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(c) The interest rate disclosed for these securitites represents effective
yields to maturity.
(d) Portions of these securities are being segregated for futures margin
requirements.
(e) The aggregate cost for federal income tax purposes is $59,077,728.
(f) Each 2-Year U.S. Treasury Note contract represents $200,000, in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note and U.S.
Treasury Bond contract represents $100,000 in notional par value. Each Euro
Dollar contract represents $1,000,000 in notional par value. The total net
notional amount and net market value at risk for the futures contracts shown
above are $7,900,000 and $3,447,201, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of activity
and not a measure of market risk.
The percentages shown for each investment category reflect the value of investments in that category as a percentage of total net assets.
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
=======================================================
Assets:
Investments in securities, at value (cost $676,175,134, $97,819,981,
$71,763,971 and $59,073,549, respectively) $668,520,312 $ 97,786,174 $72,362,466 $60,097,854
Receivables:
Investment securities sold 2,522,537 7,389,364 7,084,752 501,611
Interest 4,758,629 1,877,430 810,907 693,394
Fund shares sold 1,816,089 -- -- --
Cash 834,124 24,111 58,457 46,820
Deferred organization expenses, net 20,848 -- 43,483 77,914
Other assets 363,405 227,642 116,718 76,278
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 678,835,944 107,304,721 80,476,783 61,493,871
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Dividends 1,964,420 262,952 80,916 --
Investment securities purchased -- 3,077,455 21,417,313 5,942,377
Fund shares repurchased 350,373 139,117 1,099 --
Investment adviser fees 230,618 35,221 20,005 18,684
Transfer agent fees 79,466 -- 2,000 1,868
Authorized dealer service fees 3,162 -- -- --
Accrued expenses and other liabilities 74,887 29,946 66,141 28,664
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,702,926 3,544,691 21,587,474 5,991,593
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid in capital 733,171,454 116,985,113 62,694,923 53,994,311
Accumulated undistributed (distributions in excess of) net
investment income (2,129,902) 708,450 67,398 40,202
Accumulated net realized gain (loss) on investment and futures
transactions (46,579,546) (13,973,992) (4,471,507) 462,804
Net unrealized gain (loss) on investments and futures (8,328,988) 40,459 598,495 1,004,961
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets $676,133,018 $103,760,030 $58,889,309 $55,502,278
==================================================================================================================================
Net asset value, offering and redemption price per share
Institutional shares $9.77 $9.82 $9.94 $10.00
Administration shares $9.77 -- $9.94 --
Service shares -- -- $9.95 --
Class A shares(a) $9.77 -- -- --
==================================================================================================================================
Shares Outstanding:
Institutional shares 67,312,163 10,567,526 5,871,894 5,549,690
Administration shares 365,725 -- 4,614 --
Service shares -- -- 45,968 --
Class A shares 1,556,301 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total shares of beneficial interest outstanding, $.001 par value
(unlimited number of shares authorized) 69,234,189 10,567,526 5,922,476 5,549,690
==================================================================================================================================
|
(a) Maximum public offering price per share (NAV per share *1.0152) for Class A shares of GS Adjustable Rate Government Agency Fund is $9.92.
Statements of Operations
For the Year Ended October 31, 1995
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
=======================================================
Investment income:
Interest $45,991,431 $ 9,467,818 $3,112,135 $2,402,498
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 45,991,431 9,467,818 3,112,135 2,402,498
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment adviser fees 2,947,492 646,364 260,970 137,158
Distribution fees 17,967 -- -- --
Authorized dealer service fees 17,967 -- -- --
Administration share fees 12,632 425 1,244 --
Service share fees -- -- 2,847 --
Transfer agent fees 306,662 -- 26,098 13,716
Custodian fees 202,330 53,175 40,586 46,412
Professional fees 73,276 79,913 37,300 49,918
Printing fees 84,609 30,942 42,972 37,167
Registration fees 7,192 71,103 42,630 12,708
Amortization of deferred organization expenses 29,381 -- 22,673 25,947
Trustees' fees 53,525 6,783 1,989 690
Other 221,317 42,713 31,511 7,056
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,974,350 931,418 510,820 330,772
Less--expenses reimbursable and fees waived by Goldman Sachs (569,372) (349,267) (213,139) (176,469)
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,404,978 582,151 297,681 154,303
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 42,586,453 8,885,667 2,814,454 2,248,195
- ---------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and
futures transactions:
Net realized gain (loss) from:
Investment transactions (6,834,903) (4,027,343) (472,312) 908,346
Futures transactions (5,165,576) (2,831) -- 12,784
Net change in unrealized gain (loss) on:
Investments 16,816,889 5,661,425 1,270,197 1,682,520
Futures (678,522) 74,266 -- (19,344)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investment and futures
transactions 4,137,888 1,705,517 797,885 2,584,306
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $46,724,341 $10,591,184 $3,612,339 $4,832,501
=================================================================================================================================
|
The accompanying notes are an integral part of these financial statements.
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
===========================================================
From Operations:
Net investment income $ 42,586,453 $ 8,885,667 $ 2,814,454 $ 2,248,195
Net realized gain (loss) from investment and futures transactions (12,000,479) (4,030,174) (472,312) 921,130
Net change in unrealized gain on investments and futures 16,138,367 5,735,691 1,270,197 1,663,176
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 46,724,341 10,591,184 3,612,339 4,832,501
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (42,629,917) (8,684,213) (2,771,793) (2,253,625)
Administration shares (278,448) (11,164) (20,584) --
Service shares -- -- (22,077) --
Class A shares (425,863) -- -- --
In excess of net investment income
Institutional shares (2,124,188) -- -- --
Administration shares (13,875) -- -- --
Class A shares (21,220) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (45,493,511) (8,695,377) (2,814,454) (2,253,625)
- ----------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 456,762,969 49,034,023 36,468,900 30,256,879
Proceeds from reorganizations 37,593,780 -- -- --
Reinvestment of dividends and distributions 21,273,685 4,993,443 1,873,154 2,232,160
Cost of shares repurchased (790,211,526) (145,988,674) (67,865,169) (4,073,379)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
shares transactions (274,581,092) (91,961,208) (29,523,115) 28,415,660
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (273,350,262) (90,065,401) (28,725,230) 30,994,536
Net Assets:
Beginning of year 949,483,280 193,825,431 87,614,539 24,507,742
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 676,133,018 $ 103,760,030 $ 58,889,309 $55,502,278
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment
income $ (2,129,902) $ 708,450 $ 67,398 $ 40,202
==================================================================================================================================
Summary of Share Transactions:
Shares sold 46,809,171 5,072,030 3,733,382 3,077,397
Shares exchanged in reorganizations 3,843,169 -- -- --
Reinvestment of dividends and distributions 2,181,117 516,178 190,942 230,595
Shares repurchased (81,125,615) (15,135,663) (6,950,294) (411,156)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (28,292,158) (9,547,455) (3,025,970) 2,896,836
==================================================================================================================================
|
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund(a)
- -----------------------------------------------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 74,486,356 $ 15,104,529 $ 4,367,575 $ 912,083
Net realized loss from
investment and futures
transactions (21,946,744) (9,489,099) (3,998,966) (458,326)
Net change in unrealized
loss on investments (23,081,906) (3,394,603) (773,951) (658,215)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 29,457,706 2,220,827 (405,342) (204,458)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to
Shareholders from:
Net investment income
Institutional shares (73,960,549) (14,220,333) (4,170,854) (912,083)
Administration shares (304,939) (674,883) (193,928) --
Service shares -- -- (2,793) --
Net realized gain on
investment and futures
transactions
Institutional shares -- (1,416,326) (931,790) --
Administration shares -- (66,034) (784) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (74,265,488) (16,377,576) (5,300,149) (912,083)
- ----------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Proceeds from sales of
shares 1,013,097,417 97,865,803 117,286,528 24,765,017
Reinvestment of dividends
and distributions 30,771,600 10,376,478 4,009,244 911,363
Cost of shares repurchased (2,815,775,329) (276,458,244) (144,689,428) (52,097)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
share transactions (1,771,906,312) (168,215,963) (23,393,656) 25,624,283
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (1,816,714,094) (182,372,712) (29,099,147) 24,507,742
Net Assets:
Beginning of period 2,766,197,374 376,198,143 116,713,686 --
- ----------------------------------------------------------------------------------------------------------------------------------
End of period $ 949,483,280 $ 193,825,431 $ 87,614,539 $24,507,742
==================================================================================================================================
Accumulated undistributed
net investment income $ 747,775 $ 481,675 $ 44,725 $ 20,085
==================================================================================================================================
Summary of Share
Transactions:
Shares sold 102,107,323 9,829,690 11,568,942 2,561,774
Reinvestment of dividends
and distributions 3,113,434 1,051,206 400,203 96,676
Shares repurchased (284,303,787) (27,853,643) (14,425,718) (5,596)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding (179,083,030) (16,972,747) (2,456,573) 2,652,854
- ----------------------------------------------------------------------------------------------------------------------------------
|
(a)For the period from January 5, 1994 (Commencement of Operations) to October 31, 1994.
The accompanying notes are an integral part of these financial statements.
1. Organization
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940 (as amended) as an open-end, management investment company. Included in this report are the financial statements for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund, collectively, ("the Funds"). The Funds are diversified portfolios of the Trust offering three classes of shares - Institutional shares, Administration shares and Service shares. In addition, the GS Adjustable Rate Government Agency Fund offers Class A shares.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the Funds which are in conformity with those generally accepted in the investment company industry:
tax reporting 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.
Upon entering into a futures contract, a Fund is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Fund each day, dependent on the daily fluctuations in the value of the contract, and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize, for book purposes, a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price, unless such price does not reflect the fair market value of the contract, in which case the position will be valued using methods as approved by the Board of Trustees.
Certain risks may arise upon entering into futures contracts. The predominant risk is that the 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 Funds' hedging strategies and may also result in a loss to the Funds.
Shareholders of Administration shares and Service shares bear all expenses and fees paid to service organizations for their services with respect to such shares as well as other expenses (subject to expense limitations) which are directly attributable to such shares. For the GS Adjustable Rate Government Agency Fund, shareholders of Class A shares bear all expenses and fees relating to the distribution and authorized dealer service plans as well as other expenses which are directly attributable to such shares.
At October 31, 1995, the Funds had approximately the following amounts of capital loss carryforward for U.S. Federal tax purposes:
Years of
Fund Amount Expiration
- ------------------------------ ----------- -----------
GS Adjustable Rate
Government Agency Fund $38,311,000 2000-2002
GS Short-Term Government
Agency Fund $11,136,000 2002
GS Short Duration Tax-Free
Fund $ 3,999,000 2002
|
These amounts are available to be carried forward to offset future capital gains to the extent permitted by applicable laws or regulations.
3. Agreements
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for the GS Adjustable Rate Government Agency and GS Short-Term Government Agency Funds pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman Sachs, serves as the investment adviser for the GS Short Duration Tax-Free and GS Core Fixed Income Funds pursuant to Investment Advisory Agreements. Under the Investment Advisory Agreements, the adviser, subject to the general supervision of the Trust's Board of Trustees, manages the Funds' portfolios and provides for the administration of the Funds' other affairs. As compensation for the services rendered under the Investment Advisory Agreements and the assumption of the expenses related thereto, the adviser is entitled to a fee, computed daily and payable monthly at an annual rate equal to .40% of average daily net assets of GS Adjustable Rate Government Agency, GS Short Duration Tax-Free and GS Core Fixed Income Funds and .50% of average daily net assets of GS Short-Term Government Agency Fund. Until further notice, GSFM has voluntarily agreed not to impose .10% of its investment advisory fee for the GS Short-Term Government Agency Fund. For the period ended October 31, 1995, investment advisory fees of $129,273 were waived for the GS Short-Term Government Agency Fund.
The adviser has voluntarily agreed to limit certain of the Funds' expenses (excluding investment advisory fees, taxes, interest, brokerage, litigation, administrative and service fees, indemnification and other extraordinary expenses and with respect to GS Adjustable Rate Government Agency Class A shares, distribution and authorized dealer service fees) to the extent that such expenses exceed .05% per annum of each Fund's average daily net assets. For the year ended October 31, 1995, the amount of reimbursed expenses for the GS Adjustable Rate Government Agency, GS Short-Term Government Agency, GS Short Duration Tax-Free and GS Core Fixed Income Funds were $551,405, $219,994, $213,139 and $176,469, respectively. The amounts reimbursable to the GS Adjustable Rate Government Agency, GS Short-Term Government Agency, GS Short Duration Tax-Free and the GS Core Fixed Income Funds at October 31, 1995 were approximately $178,000, $79,000, $18,000 and $41,000, respectively, and are included in "Other assets" in the accompanying Statements of Assets and Liabilities.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to a Distribution Agreement and receives no compensation in this capacity with the exception of GS Adjustable Rate Government Agency Fund Class A shares. At October 31, 1995, Goldman Sachs retained approximately $40,000 of sales load related to Class A shares. Goldman Sachs also serves as Transfer Agent of the Funds.
The Trust, on behalf of the GS Adjustable Rate Government Agency Fund, has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 for the Class A shares. Under the Plan, Goldman Sachs is entitled to receive a quarterly distribution fee equal, on an annual basis, to .25% of the average daily net assets of Class A shares. Currently, Goldman Sachs has agreed to voluntarily waive this distribution fee. Distribution fees waived for the period amounted to $17,967.
The Trust, on behalf of the GS Adjustable Rate Government Agency Fund, has adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers are compensated for providing personal and account maintenance services. GS Adjustable Rate Government Agency Fund pays a fee under the Service Plan equal, on an annual basis, to .25% of its average daily net assets attributable to Class A shares.
For the period ended October 31, 1995, GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund and GS Core Fixed Income Fund incurred commissions expense of approximately $91,000, $2,800, and $900, respectively, in connection with futures contracts entered into with Goldman Sachs.
4. Line of Credit Facility
The Funds participate in a $100,000,000 uncommitted, unsecured revolving line of credit facility to be used solely for temporary or emergency purposes. Under the most restrictive arrangement, each fund must own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on the borrowings is based on the Federal Funds rate. During fiscal year 1995, the Funds did not have any borrowings under this facility.
5. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for the year ended October 31, 1995, were as follows:
- ----------------------------------------------------------------------------------------------
GS Adjustable GS GS
Rate Short-Term Short GS
Government Government Duration Core Fixed
Agency Agency Tax-Free Income
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------
Purchases of U.S.
Government and
agency obligations $ 168,570,797 $363,854,703 $ -- $132,227,192
- ----------------------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) -- -- 160,557,538 26,393,743
- ----------------------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 496,940,962 420,674,507 -- 114,081,532
- ----------------------------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) -- -- 185,231,508 16,705,497
- ----------------------------------------------------------------------------------------------
|
6. Summary of Share Transactions
Share activity for the period ended October 31, 1995 is as follows:
Fund Dollars Shares
- --------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
Institutional Shares:
Shares sold $ 445,293,934 45,635,666
Shares exchanged in reorganization 18,823,725 1,926,438
Reinvestment of dividends and distributions 20,730,137 2,125,494
Shares repurchased (771,265,543) (79,186,935)
----------------------------
(286,417,747) (29,499,337)
----------------------------
Administration Shares:
Shares sold 648,042 66,628
Shares exchanged in reorganization 1,561,584 159,814
Reinvestment of dividends and distributions 124,368 12,743
Shares repurchased (5,731,937) (588,307)
----------------------------
(3,397,943) (349,122)
----------------------------
Class A Shares:
Shares sold 10,820,993 1,106,877
Shares exchanged in reorganization 17,208,471 1,756,917
Reinvestment of dividends and distributions 419,180 42,880
Shares repurchased (13,214,046) (1,350,373)
----------------------------
15,234,598 1,556,301
----------------------------
$(274,581,092) (28,292,158)
============================
GS Short-Term Government Agency Fund
Institutional Shares:
Shares sold $ 49,032,419 5,071,865
Reinvestment of dividends and distributions 4,993,225 516,155
Shares repurchased (145,260,300) (15,059,774)
----------------------------
(91,234,656) (9,471,754)
----------------------------
Administration Shares:
Shares sold 1,604 165
Reinvestment of dividends and distributions 218 23
Shares repurchased (728,374) (75,889)
----------------------------
(726,552) (75,701)
----------------------------
$ (91,961,208) (9,547,455)
============================
|
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 18,780,011 1,920,432
Reinvestment of dividends and distributions 1,860,104 189,624
Shares repurchased (46,762,899) (4,787,105)
------------------------------
(26,122,784) (2,677,049)
------------------------------
Administration Shares:
Shares sold -- --
Reinvestment of dividends and distributions 2,483 246
Shares repurchased (3,800,930) (390,639)
------------------------------
(3,798,447) (390,393)
------------------------------
Service Shares:
Shares sold 17,688,889 1,812,950
Reinvestment of dividends and distributions 10,567 1,072
Shares repurchased (17,301,340) (1,772,550)
------------------------------
398,116 41,472
------------------------------
$ (29,523,115) (3,025,970)
==============================
|
Fund Dollars Shares
- -------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
Institutional Shares:
Shares sold $ 1,004,949,426 101,283,294
Reinvestment of dividends and distributions 30,671,269 3,103,267
Shares repurchased (2,809,311,423) (283,651,840)
------------------------------
(1,773,690,728) (179,265,279)
------------------------------
Administration Shares:
Shares sold 8,147,991 824,029
Reinvestment of dividends and distributions 100,331 10,167
Shares repurchased (6,463,906) (651,947)
------------------------------
1,784,416 182,249
------------------------------
$(1,771,906,312) (179,083,030)
==============================
GS Short-Term Government Agency Fund
Institutional Shares:
Shares sold $ 97,738,708 9,816,887
Reinvestment of dividends and distributions 10,373,791 1,050,930
Shares repurchased (261,183,718) (26,290,525)
------------------------------
$ (153,071,219) (15,422,708)
------------------------------
Administration Shares:
Shares sold $ 127,095 12,803
Reinvestment of dividends and distributions 2,687 276
Shares repurchased (15,274,526) (1,563,118)
------------------------------
(15,144,744) (1,550,039)
------------------------------
$ (168,215,963) (16,972,747)
==============================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 100,275,689 9,879,219
Reinvestment of dividends and distributions 4,003,867 399,664
Shares repurchased (130,867,805) (13,045,936)
------------------------------
(26,588,249) (2,767,053)
------------------------------
Administration Shares:
Shares sold 12,399,454 1,221,381
Reinvestment of dividends and distributions 5,160 517
Shares repurchased (9,256,757) (915,914)
------------------------------
3,147,857 305,984
------------------------------
Service Shares:
Shares sold 4,611,385 468,342
Reinvestment of dividends and distributions 217 22
Shares repurchased (4,564,866) (463,868)
------------------------------
46,736 4,496
------------------------------
$ (23,393,656) (2,456,573)
==============================
|
7. Repurchase Agreements
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 in the customer-only account of State Street Bank & Trust Co., the Fund's custodian, or at subcustodians. GSFM and GSAM monitor the market value of the underlying securities by pricing them daily.
8. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having advisory agreements with GSFM and
GSAM or their affiliates, transfer uninvested cash balances into a joint account, the daily aggregate balance of which is invested in one or more repurchase agreements. The underlying securities for the repurchase agreements are U.S. Treasury obligations and mortgage-related securities issued by the U.S. Government, its agencies or instrumentalities. As of October 31, 1995, the GS Adjustable Rate Government Agency, GS Short-Term Government Agency and GS Core Fixed Income Funds had an 0.89%, 0.03% and 0.31%, respectively, undivided interest in the repurchase agreements in the following joint account which equaled $16,000,000, $500,000 and $5,600,000, respectively, in principal amount.
As of October 31, 1995, the repurchase agreements in the joint account along with the corresponding underlying securities (including the type of security, market value, interest rate and maturity date) were as follows:
Principal Interest Maturity Amortized Amount Rate Date Cost - -------------------------------------------------------------------------------- |
Lehman Brothers, Inc. dated 10/31/95, repurchase price $965,159,225 (U.S. Treasury Notes: $955,186,569, 4.25%-9.50%, 11/15/95-08/15/02; U.S. Treasury Interest-Only Strips:$19,548,855, 11/15/00-08/15/02; U.S. Treasury Principal- Only Strips:$6,376,719, 6.38%-8.50%, 11/15/00-08/15/02))
$965,000,000 5.94% 11/01/95 $ 965,000,000
Salomon Brothers, Inc. dated 10/31/95, repurchase price $830,136,489 (U.S. Treasury Notes: $383,210,541, 4.25%-8.87%, 11/15/95-08/31/00; U.S. Treasury Interest-Only Strips: $356,333,527, 11/15/95-08/15/02; U.S. Treasury Principal- Only Strips: $107,445,042, 6.38%-9.50%, 11/15/95-08/15/02)
9. Administration and Service Plans
The Fund has adopted Administration and Service Plans. These plans allow for Administration shares and 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 Administration and Service Plans provide for compensation to the service organizations in an amount up to .25% and .50% (on an annualized basis), respectively, of the average daily net asset value of the respective shares.
10. Other Matters
On April 28, 1995, the GS Adjustable Rate Government Agency Fund acquired the assets of GS Government Agency Portfolio (For Financial Institutions) in exchange solely for (i) the issuance of Institutional shares and Administration shares of beneficial interest of the GS Adjustable Rate Government Agency Fund and (ii) the assumption by GS Adjustable Rate Government Agency Fund of the liabilities of GS Government Agency Portfolio (For Financial Institutions). Following this transfer, GS Government Agency Portfolio (For Financial Institutions) was liquidated and GS Adjustable Rate Government Agency Fund's Institutional and Administration shares were distributed to the former shareholders of GS Government Agency Portfolio (For Financial Institutions).
The Reorganization was accomplished by a tax-free transfer of assets whereby each shareholder of GS Government Agency Portfolio (For Financial Institutions) received a number of full and fractional shares of GS Adjustable Rate Government Agency Fund having a total net asset value of their shares of GS Government Agency Portfolio (For Financial Institutions) held on April 28, 1995. The net assets, including $370,489 of unrealized depreciation for the GS Government Agency Portfolio (For Financial Institutions), net asset values per share and shares outstanding as of April 28, 1995 were:
- -------------------------------------------------------------------------------
GS Government
Agency
Portfolio GS Adjustable GS Adjustable
(For Financial Rate Government Rate Government
Institutions) Agency Fund Agency Fund
(Pre- (Pre- (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
Net Assets $20,385,309 $673,292,455 $693,677,764
Shares Outstanding
Institutional Shares 1,912,506 68,506,367 70,432,805
Administration Shares 158,661 401,122 560,936
Net Asset Value Per Share
Institutional Shares 9.84 9.77 9.77
Administration Shares 9.84 9.77 9.77
- -------------------------------------------------------------------------------
|
The Reorganization was accomplished by a tax-free transfer of assets whereby each shareholder of GS Adjustable Rate Mortgage Fund received a number of Class A full and fractional shares of GS Adjustable Rate Government Agency Fund having a total net asset value of their shares of GS Adjustable Rate Mortgage Fund held as of May 12, 1995. The net assets, including $45,684 of net unrealized depreciation for the GS Adjustable Rate Mortgage Fund, net asset values per share and shares outstanding as of May 12, 1995 were:
- -------------------------------------------------------------------------------
GS Adjustable GS Adjustable GS Adjustable
Rate Mortgage Rate Government Rate Government
Fund Agency Fund Agency Fund
(Pre- (Pre- (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
Net Assets $17,208,471 $727,300,372 $744,508,843
Shares Outstanding
Institutional Shares -- 73,743,084 73,743,084
Administration Shares -- 561,352 561,352
Class A Shares 3,552,167 -- 1,756,917
Net Asset Value Per Share
Institutional Shares -- 9.79 9.79
Administration Shares -- 9.79 9.79
Class A Shares 4.84 -- 9.79
- -------------------------------------------------------------------------------
|
The total amount of capital loss carryforward brought on to the books of the GS Adjustable Rate Government Agency Fund due to these reorganizations was approximately $3,154,000.
For the period ended October 31, 1994, $15.9 million of the GS Core Fixed Income Fund shareholder subscriptions were made through in-kind contributions of securities.
As of October 31, 1995, the Goldman, Sachs & Co. Employees Profit Sharing and Retirement Income Plan and the Goldman Sachs Asset Management Retirement Plan were the beneficial owners of approximately 31% of the outstanding shares of the GS Short-Term Government Agency Fund.
11. Certain Reclassifications
In accordance with Statement of Position 93-2, the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund have reclassified $29,381, $36,485, $22,673 and $25,547, respectively, from paid-in capital to accumulated undistributed net investment income. These reclassifications have no impact on the net asset value of the Fund and are designed to present the Funds' capital accounts on a tax basis.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
|
The accompanying notes are an integral part of these financial statements.
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS SHORT-TERM GOVERNMENT AGENCY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.64 $0.6652/(c)/ $ 0.1666/(c)/ $ -- $0.8318/(c)/ $(0.6518) $-- $--
1995-Administration
Shares........... 9.64 0.2384/(c)/ (0.0433)/(c)/ -- 0.1951/(c)/ (0.2051) -- --
1994-Institutional
Shares........... 10.14 0.5628/(c)/ (0.4592)/(c)/ -- 0.1036/(c)/ (0.5598) (0.0438) --
1994-Administration
Shares........... 10.14 0.5329/(c)/ (0.4539)/(c)/ -- 0.0790/(c)/ (0.5352) (0.0438) --
1993-Institutional
Shares........... 10.16 0.5627 (0.0135)/(a)/ -- 0.5492 (0.5627) -- (0.0065)
1993-Administration
Shares/(f)/...... 10.23 0.2725 (0.0900)/(a)/ -- 0.1825 (0.2725) -- --
1992-Institutional
Shares........... 10.22 0.6703 (0.0600)/(a)/ -- 0.6103 (0.6703) -- --
1991-Institutional
Shares........... 10.00 0.8020 0.2200/(a)/ -- 1.0220 (0.8020) -- --
1990-Institutional
Shares........... 10.07 0.8300 (0.0700)/(a)/ -- 0.7600 (0.8300) -- --
1989-Institutional
Shares........... 10.10 0.8800 -- -- 0.8800 (0.8800) -- --
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 10.00 0.1800 0.1000/(a)/ -- 0.2800 (0.1800) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $-- $(0.6518) $ 0.1800 $ 9.82 8.97% 0.45% 6.87%
1995-Administration
Shares........... -- -- (0.2051) (0.0100) 9.63/(h)/ 2.10 0.70/(e)/ 7.91/(e)/
1994-Institutional
Shares........... -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-Administration
Shares........... -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-Institutional
Shares........... -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-Administration
Shares/(f)/...... -- -- (0.2725) (0.0900) 10.14 1.74 0.70/(e)/ 4.84/(e)/
1992-Institutional
Shares........... -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-Institutional
Shares........... -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-Institutional
Shares........... -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-Institutional
Shares........... -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... -- -- (0.1800) 0.1000 10.10 3.30 0.55/(e)/ 8.55/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 292.56% $103,760 0.72% 6.60%
1995-Administration
Shares........... 292.56 -- 0.90/(e)/ 7.71/(e)/
1994-Institutional
Shares........... 289.79 193,095 0.59 5.55
1994-Administration
Shares........... 289.79 730 0.84 5.24
1993-Institutional
Shares........... 411.66 359,708 0.64 5.31
1993-Administration
Shares/(f)/...... 411.66 16,490 0.80/(e)/ 4.74/(e)/
1992-Institutional
Shares........... 216.07 277,927 0.69 6.36
1991-Institutional
Shares........... 155.44 158,848 0.79 7.91
1990-Institutional
Shares........... 173.21 68,995 0.95 8.12
1989-Institutional
Shares........... 137.37 31,015 1.39 7.78
For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 167.00(e) 39,052 1.42/(e)/ 7.68/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.79 $0.4235/(c)/ $0.1500/(c)/ $ -- $0.5735/(c)/ $(0.4235) $-- $ --
1995-Administration
Shares........... 9.79 0.3989/(c)/ 0.1500/(c)/ -- 0.5489/(c)/ (0.3989) -- --
1995-Service Shares.. 9.79 0.3744/(c)/ 0.1600/(c)/ -- 0.5344/(c)/ (0.3744) -- --
1994-Institutional
Shares........... 10.23 0.3787/(c)/ (0.3575)/(c)/ -- 0.0212/(c)/ (0.3787) (0.0825) --
1994-Administration
Shares........... 10.23 0.3537/(c)/ (0.3575)/(c)/ -- (0.0038)/(c)/ (0.3537) (0.0825) --
1994-Service
Shares/(i)/...... 9.86 0.0475/(c)/ (0.0700)/(c)/ -- (0.0225)/(c)/ (0.0475) -- --
1993-Institutional
Shares........... 9.93 0.3834 0.3000/(a)/ -- 0.6834 (0.3834) -- --
1993-Administration
Shares/(i)/...... 10.16 0.1555 0.0720/(a)/ -- 0.2275 (0.1555) -- --
For the Period October 1, 1992/(g)/through October 31,
- ------------------------------------------------------
1992-Institutional
Shares........... 10.00 0.0341 (0.0700)/(a)/ -- (0.0359) (0.0341) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.4235) $ 0.1500 $ 9.94 5.98% 0.45% 4.31%
1995-Administration
Shares........... -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service Shares.. -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-Institutional
Shares........... -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-Administration
Shares........... -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares/(i)/...... -- -- (0.0475) (0.0700) 9.79 (0.32)/(k)/ 0.95/(e)/ 4.30/(e)/
1993-Institutional
Shares........... -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-Administration
Shares/(i)/...... -- -- (0.1555) 0.0720 10.23 2.28/(k)/ 0.70/(e)/ 3.32/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... -- -- (0.0341) (0.0700) 9.93 (0.34)/(k)/ 0.05/(e)/ 4.58/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 259.52% $ 58,389 0.77% 3.99%
1995-Administration
Shares........... 259.52 46 1.02 3.82
1995-Service Shares.. 259.52 454 1.27 3.55
1994-Institutional
Shares........... 354.00 83,704 0.61 3.58
1994-Administration
Shares........... 354.00 3,866 0.86 3.35
1994-Service
Shares/(i)/...... 354.00 44 1.11/(e)/ 4.14/(e)/
1993-Institutional
Shares........... 404.60 115,803 1.06 3.05
1993-Administration
Shares/(i)/...... 404.60 911 1.07/(e)/ 2.95/(e)/
For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... 31.19/(k)/ 14,601 2.68/(e)/ 1.95/(e)/
|
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Core Fixed Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ 9.24 $0.6423 $ 0.7610 $ -- $ 1.4033 $(0.6433) $ -- $ --
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) -- --
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6433) $ 0.7600 $10.00 15.72% 0.45% 6.56%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45/(e)/ 6.48/(e)/
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
For the Year Ended October 31,
- ------------------------------
1995-Institutional
Shares........... 383.26% $55,502 0.96% 6.05%
For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 288.25 24,508 1.46/(e)/ 5.47/(e)/
|
To the Shareholders and Board of Trustees of the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund:
We have audited the accompanying statements of assets and liabilities of the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund (portfolios of Goldman Sachs Trust, a Massachusetts Business Trust) including the statements of investments, as of October 31, 1995, and the related statements of operations, the statements of changes in net assets and the financial highlights for each of the periods presented. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements. Our procedures included confirmation of securities owned as of October 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund as of October 31, 1995, the results of their operations and the changes in their net assets and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 8, 1995
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The Goldman Sachs
Fixed Income
Portfolios
Annual Report
October 31, 1995
[ ]
GS Adjustable Rate Government Agency Fund
GS Short-Term Government Agency Fund
GS Short Duration Tax-Free Fund
GS Core Fixed Income Fund
Goldman Sachs
1 New York Plaza
New York, NY 10004
Trustees
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
Officers
Marcia L. Beck, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Goldman Sachs
Investment Adviser, Administrator,
Distributor and Transfer Agent
ADJUSTABLE RATE FUND
APPENDIX A
This Appendix provides certain information concerning the performance of various types of securities over specified periods of time. However, the characteristics of these securities are not identical to, and may be very different from, those of the Fund's portfolio. The items included in these performance figures may not be identical to those in the formulas used by the Fund to calculate its performance figures. This information does not reflect the Fund's actual portfolio composition or the fees or expenses associated with an investment in the Fund. Past performance is not an indication of future performance.
AVERAGE MONTHLY YIELDS
OF MONEY MARKET FUNDS IN IBC/DONOGHUE'S
MONEY FUND AVERAGE/TM//ALL TAXABLE INDEX
This table provides certain information concerning the average performance of money market funds (other than tax-free money funds) tracked by Donoghue's Money Fund Report for the periods indicated.
DONOGHUE'S
YEAR AND ALL TAXABLE INDEX*
MONTH AVERAGE MONTHLY YIELD(%)
-------- ------------------------
YEAR 1988
---------
JAN 6.50
FEB 6.17
MAR 6.05
APR 6.10
MAY 6.26
JUN 6.54
JUL 6.81
AUG 7.14
SEP 7.42
OCT 7.51
NOV 7.66
DEC 8.08
AVERAGE FOR 1988 6.86
YEAR 1989
---------
JAN 8.36
FEB 8.49
MAR 8.92
APR 9.16
MAY 9.14
JUN 8.93
JUL 8.65
|
1-A
AUG 8.32 SEP 8.26 OCT 8.19 NOV 8.00 DEC 7.93 AVERAGE FOR 1989 8.53 YEAR 1990 --------- JAN 7.75 FEB 7.65 MAR 7.66 APR 7.68 MAY 7.68 JUN 7.67 JUL 7.62 AUG 7.50 SEP 7.47 OCT 7.45 NOV 7.33 DEC 7.23 AVERAGE FOR 1990 7.56 YEAR 1991 --------- JAN 6.89 FEB 6.41 MAR 6.09 APR 5.84 MAY 5.58 JUNE 5.49 JULY 5.47 AUG 5.36 SEP 5.21 OCT 5.03 NOV 4.78 DEC 4.58 AVERAGE FOR 1991 5.56 YEAR 1992 --------- JAN 4.13 FEB 3.81 MAR 3.73 APR 3.65 MAY 3.51 JUNE 3.44 JULY 3.24 AUG 3.06 SEP 2.92 OCT 2.79 NOV 2.75 DEC 2.84 AVERAGE FOR 1992 3.32 |
2-A
YEAR 1993 --------- JAN 2.81 FEB 2.72 MAR 2.68 APR 2.65 MAY 2.60 JUNE 2.63 JULY 2.64 AUG 2.65 SEP 2.66 OCT 2.65 NOV 2.67 DEC 2.72 AVERAGE FOR 1993 2.67 YEAR 1994 --------- JAN 2.92 FEB 2.99 MAR 3.09 APR 3.28 MAY 3.59 JUN 3.83 JUL 3.99 AUG 4.18 SEP 4.48 OCT 4.54 NOV 4.84 DEC 5.24 AVERAGE FOR 1994 3.91 |
*IBC/Donoghue's Money Fund Average/TM// All Taxable Index, as reported in the IBC/Donoghue's Money Fund Report(R). The IBC/Donoghue's Money Fund Average/TM/ data is computed net of fees.
3-A
PRICES AND YIELDS OF
CERTAIN U.S. TREASURY SECURITIES
AND
A FEDERAL HOME LOAN MORTGAGE CORPORATION
ONE-YEAR CONSTANT MATURITY TREASURY
ADJUSTABLE RATE MORTGAGE CERTIFICATE
The following table compares the Prices of a one-year and Yields of a six-month on-the-run U.S. Treasury security and, a Federal Home Loan Mortgage Corporation one-year constant maturity Treasury adjustable rate mortgage certificate during the periods indicated. An "on-the-run" U.S. Treasury security is a recently issued current coupon security quoted as representing the most current and liquid security in its maturity category. A Federal Home Loan Mortgage Corporation adjustable rate mortgage certificate is a type of mortgage security eligible for investment by the Fund. Other securities in which the Fund may invest may not have the same yield or volatility characteristics as these securities. This data is based on the end of period values and for the yield column, does not include any fees./1/
ONE-YEAR ONE-YEAR ONE-YEAR ONE-YEAR
ON-THE-RUN ON-THE-RUN CMT ADJUSTABLE CMT ADJUSTABLE
U.S. TREASURY U.S. TREASURY RATE MORTGAGE RATE MORTGAGE
DATE SECURITY SECURITY CERTIFICATE CERTIFICATE
- --------------- ------------- ------------- -------------- --------------
YIELD PRICE PRICE PRICE
31 JAN 89 9.114 100.00 100.00 10.564
28 FEB 89 9.336 99.784 99.795 10.826
31 MAR 89 9.656 99.474 99.363 11.376
30 APR 89 9.441 99.682 99.370 11.361
31 MAY 89 9.044 100.065 99.796 10.814
3O JUN 89 8.491 100.605 100.298 10.171
31 JUL 89 7.948 101.139 100.684 9.678
31 AUG 89 8.227 100.864 100.441 9.987
30 SEP 89 8.255 100.836 100.474 9.945
31 OCT 89 8.034 101.054 100.705 9.654
30 NOV 89 7.793 101.292 101.007 9.273
31 DEC 89 7.749 101.334 101.098 9.159
31 JAN 90 7.951 101.135 100.906 9.401
28 FEB 90 8.155 100.933 100.785 9.555
31 MAR 90 8.395 100.696 100.645 9.735
30 APR 90 8.437 100.654 100.546 9.857
31 MAY 90 8.347 100.742 100.769 9.577
30 JUN 90 8.114 100.944 100.963 9.334
31 JUL 90 7.972 101.114 101.083 9.182
31 AUG 90 7.809 101.275 101.115 9.139
30 SEP 90 7.8 101.283 101.137 9.11
31 OCT 90 7.583 101.498 101.229 8.993
30 NOV 90 7.33 101.750 101.348 8.84
31 DEC 90 7.066 102.013 101.606 8.516
31 JAN 91 6.646 102.434 102.015 8.006
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4-A
28 FEB 91 6.268 102.815 102.302 7.684 31 MAR 91 6.375 102.706 102.265 7.695 30 APR 91 6.21 102.873 102.406 7.52 31 MAY 91 6.098 102.986 102.554 7.338 30 JUN 91 6.332 102.750 102.414 7.512 31 JUL 91 6.285 102.798 102.535 7.365 31 AUG 91 5.754 103.337 102.940 6.864 30 SEP 91 5.554 103.540 103.152 6.604 31 OCT 91 5.305 103.795 103.289 6.435 30 NOV 91 4.863 104.248 103.617 6.033 31 DEC 91 4.341 104.789 104.221 5.301 31 JAN 92 4.111 105.028 104.461 5.011 28 FEB 92 4.246 104.888 104.357 5.136 31 MAR 92 4.603 104.515 104.044 5.513 30 APR 92 4.263 104.869 104.392 5.093 31 MAY 92 4.161 104.976 104.619 4.821 30 JUN 92 4.141 104.995 104.669 4.761 31 JUL 92 3.572 105.591 105.135 4.202 31 AUG 92 3.445 105.753 105.256 4.085 30 SEP 92 3.154 106.053 105.419 3.884 31 OCT 92 3.267 105.933 105.231 4.107 30 NOV 92 3.643 105.278 105.818 4.553 31 DEC 92 3.678 105.428 106.008 4.548 31 JAN 93 3.462 105.618 105.988 4.542 28 FEB 93 3.36 105.768 106.378 4.2 31 MAR 93 3.3 106.213 106.893 4.07 30 APR 93 3.212 105.836 106.416 4.082 31 MAY 93 3.344 105.573 106.223 4.114 30 JUN 93 3.507 105.638 106.008 4.227 31 JUL 93 3.439 105.548 106.198 4.239 31 AUG 93 3.415 105.468 106.468 4.195 30 SEP 93 3.327 105.863 106.503 4.137 31 OCT 93 3.362 105.648 106.288 4.182 30 NOV 93 3.541 105.548 106.208 4.381 31 DEC 93 3.575 105.448 106.148 4.325 31 JAN 94 3.38 96.883 103.20 4.54 28 FEB 94 3.83 96.484 102.30 5.11 31 MAR 94 4.30 96.021 102.07 5.60 30 APR 94 4.83 95.076 101.07 6.46 31 MAY 94 5.08 94.849 100.30 6.77 30 JUN 94 5.20 94.757 100.21 6.97 31 JUL 94 5.04 95.352 100.21 6.90 31 AUG 94 5.25 94.794 100.25 7.00 30 SEP 94 5.62 94.494 100.01 7.60 31 OCT 94 5.81 94.324 99.25 7.81 30 NOV 94 6.47 93.71 98.30 8.59 31 DEC 94 6.73 93.55 98.30 8.80 |
5-A
APPENDIX B
GLOSSARY
MORTGAGE-BACKED SECURITIES
GUARANTEED MORTGAGE PASS-THROUGHS:
Securities which represent participation interests in pools of residential mortgage loans originated by United States governmental or private lenders and guaranteed by the United States government or one of its agencies or instrumentalities.
* Ginnie Mae Certificates are guaranteed by the full
faith and credit of the United States government
for timely payment of principal and interest on
the certificates.
* Fannie Mae Certificates are guaranteed by FNMA, a
federally chartered and privately-owned
corporation for full and timely payment of
principal and interest on the certificates.
* Freddie Mac Certificates are guaranteed by FHLMC,
a corporate instrumentality of the United States
government, for timely payment of interest and the
ultimate collection of all principal of the
related mortgage loans.
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ALL GUARANTEED MORTGAGE PASS-THROUGHS ARE CONSIDERED TO BE OF THE SAME OR HIGHER CREDIT QUALITY AS PRIVATELY-ISSUED SECURITIES RATED AAA.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"):
Multiclass securities that are issued by the United States government and are collateralized by mortgage loans or mortgage pass-throughs. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-throughs.
* Payments of principal and interest on collateral
of mortgage assets and any reinvestment income
thereon, provide the funds to pay debt service on
the CMOs.
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ALL CMOS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
6-A
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"):
Securities which are usually structured with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In the most extreme case, one class will receive all of the interest (the interest only class) while the other class will receive all of the principal (the principal only class).
ALL SMBS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
CMO RESIDUALS:
CMO Residuals, other than REMIC Residuals, are essentially (i) the spread between the higher interest rates on the mortgage collateral (e.g., Freddie Mac Certificates) and the lower interest rates on the CMO classes and to a lesser extent, (ii) the reinvestment income earned by investing the monthly mortgage cash flows between CMO payment dates.
ALL CMO RESIDUALS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
7-A
SHORT DURATION FUND
APPENDIX C
This Appendix provides certain information concerning the performance of various types of securities over specified periods of time. However, the characteristics of these securities are not identical to, and may be very different from, those of the Fund's portfolio. The items included in these performance figures may not be identical to those in the formulas used by the Fund to calculate its performance figures. This information does not reflect the Fund's actual portfolio composition or the fees or expenses associated with an investment in the Fund. Past performance is not an indication of future performance.
This table provides certain information concerning the monthly average
yield of certain tax-exempt money market funds, net of fees, compared to the
month-end yield of a 3-year constant maturity general obligation municipal bond,
exclusive of fees.
IBC/Donoghue Municipal
Money Market Fund
Obligation Yields (Tax-Exempt/ 3-year General
Month/Year Institution Only) Municipal Bond (%)**
- ------------------------ -------------------- --------------------
Dec. 1984 5.67 6.52
Jan. 1985 5.58 6.34
Feb. 1985 5.03 6.48
Mar. 1985 4.84 6.54
Apr. 1985 4.84 6.26
May 1985 4.96 6.06
June 1985 4.72 5.90
July 1985 4.32 5.88
Aug. 1985 4.54 6.19
Sep. 1985 4.72 6.30
Oct. 1985 4.63 6.10
Nov. 1985 4.57 5.74
Dec. 1985 5.39 5.98
Jan. 1986 5.78 6.00
Feb. 1986 5.19 5.54
Mar. 1986 4.65 5.39
Apr. 1986 4.52 5.20
May 1986 4.32 5.26
Jun. 1986 3.99 5.40
Jul. 1986 3.89 5.32
Aug. 1986 4.27 5.22
Sep. 1986 4.04 5.06
Oct. 1986 3.59 4.87
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1-C
Nov. 1986 3.50 4.42 Dec. 1986 3.87 4.49 Jan. 1987 4.02 4.37 Feb. 1987 3.76 4.26 Mar. 1987 3.68 4.27 Apr. 1987 4.35 5.02 May 1987 4.63 5.52 Jun. 1987 3.94 5.23 Jul. 1987 3.81 5.15 Aug. 1987 3.95 5.16 Sep. 1987 4.25 5.75 Oct. 1987 4.67 6.32 Nov. 1987 4.67 5.74 Dec. 1987 4.85 5.72 Jan. 1988 4.67 5.63 Feb. 1988 4.37 5.33 Mar. 1988 4.31 5.35 Apr. 1988 4.30 5.45 May 1988 4.55 5.66 Jun. 1988 4.60 5.76 Jul. 1988 4.78 5.80 Aug. 1988 5.17 5.96 Sep. 1988 5.16 6.02 Oct. 1988 5.29 5.99 Nov. 1988 5.31 6.09 Dec. 1988 5.82 6.31 Jan. 1989 5.65 6.35 Feb. 1989 5.79 6.45 Mar. 1989 6.37 6.83 Apr. 1989 6.48 6.83 May 1989 6.55 6.56 Jun. 1989 6.12 6.32 Jul. 1989 5.81 6.08 Aug. 1989 5.72 6.02 Sep. 1989 5.73 6.14 Oct. 1989 5.75 6.11 Nov. 1989 5.68 6.06 Dec. 1989 5.88 5.94 Jan. 1990 5.48 6.01 Feb. 1990 5.26 6.03 Mar. 1990 5.46 6.16 Apr. 1990 5.76 6.38 May 1990 5.70 6.34 Jun. 1990 5.49 6.18 Jul. 1990 5.31 6.10 Aug. 1990 5.35 6.20 Sep. 1990 5.72 6.27 Oct. 1990 5.62 6.15 Nov. 1990 5.35 5.82 Dec. 1990 5.94 6.62 Jan. 1991 4.96 5.63 Feb. 1991 4.35 5.28 |
2-C
Mar. 1991 4.46 5.48 Apr. 1991 4.40 5.42 May 1991 4.24 5.29 Jun. 1991 3.93 5.47 Jul. 1991 3.91 5.43 Aug. 1991 4.26 5.17 Sep. 1991 4.51 5.15 Oct. 1991 4.13 5.04 Nov. 1991 3.94 4.94 Dec. 1991 4.17 4.51 Jan. 1992 3.17 4.12 Feb. 1992 2.88 4.44 Mar. 1992 2.91 4.77 Apr. 1992 3.17 4.73 May 1992 3.25 4.66 Jun. 1992 2.70 4.46 Jul. 1992 2.34 4.09 Aug. 1992 2.44 4.00 Sep. 1992 2.77 4.01 Oct. 1992 2.51 3.89 Nov. 1992 2.41 4.10 Dec. 1992 2.60 4.05 Jan. 1993 2.23 4.05 Feb. 1993 2.11 3.50 Mar. 1993 2.08 3.75 Apr. 1993 2.17 3.70 May 1993 2.27 3.75 Jun. 1993 2.05 3.70 Jul. 1993 2.00 3.80 Aug. 1993 2.23 3.85 Sep. 1993 2.27 3.35 Oct. 1993 2.27 3.35 Nov. 1993 2.19 3.52 Dec. 1993 2.16 3.35 Jan. 1994 2.00 3.45 Feb. 1994 2.12 3.90 Mar. 1994 2.06 4.31 Apr. 1994 2.04 4.42 May 1994 2.55 4.37 Jun. 1994 2.39 4.46 Jul. 1994 2.38 4.32 Aug. 1994 2.60 4.34 Sep. 1994 2.27 4.55 Oct. 1994 2.68 4.73 Nov. 1994 2.96 5.25 Dec. 1994 3.42 5.34 |
3-C
/*/IBC/Donoghue's Money Fund Average Tax-Exempt/Institutional Only Index, as reported in the IBC/Donoghue's Money Market Fund Report(R).
/**/Goldman, Sachs & Co.
4-C
The following chart depicts the price volatility (100 base) of a 3-year constant maturity municipal security compared to the price volatility of a 30- year constant maturity municipal security.*
3-Year 30-Year Month/Year Municipal Security Municipal Security - ------------ ------------------ ------------------ Dec. 1984 100.00 100.00 Jan. 1985 100.45 106.94 Feb. 1985 100.08 106.10 Mar. 1985 99.91 105.50 Apr. 1985 100.63 107.55 May 1985 101.16 112.61 Jun. 1985 101.59 114.61 Jul. 1985 101.64 113.93 Aug. 1985 100.79 110.83 Sep. 1985 100.49 107.68 Oct. 1985 101.04 109.67 Nov. 1985 101.98 118.25 Dec. 1985 101.32 119.43 Jan. 1986 101.28 124.47 Feb. 1986 102.92 134.63 Mar. 1986 102.92 141.45 Apr. 1986 103.42 137.64 May 1986 103.26 129.91 Jun. 1986 102.87 125.90 Jul. 1986 103.08 131.12 Aug. 1986 103.34 136.70 Sep. 1986 103.80 137.52 Oct. 1986 104.30 138.24 Nov. 1986 105.57 142.87 Dec. 1986 105.37 141.07 Jan. 1987 105.71 148.26 Feb. 1987 106.01 147.44 Mar. 1987 105.99 146.91 Apr. 1987 103.85 130.75 May 1987 102.48 123.76 Jun. 1987 103.25 127.52 Jul. 1987 103.47 127.45 Aug. 1987 103.44 126.28 Sep. 1987 101.83 118.02 Oct. 1987 100.29 113.29 Nov. 1987 101.83 123.37 Dec. 1987 101.88 124.02 Jan. 1988 102.11 127.61 Feb. 1988 102.93 129.47 Mar. 1988 102.87 126.28 Apr. 1988 102.57 124.57 |
5-C
May 1988 102.00 124.30 Jun. 1988 101.72 125.17 Jul. 1988 101.61 125.76 Aug. 1988 101.17 124.95 Sep. 1988 101.01 126.79 Oct. 1988 101.09 130.26 Nov. 1988 100.80 130.64 Dec. 1988 100.21 128.10 Jan. 1989 100.12 132.05 Feb. 1989 99.83 130.38 Mar. 1989 98.83 127.80 Apr. 1989 98.84 129.71 May 1989 99.52 133.54 Jun. 1989 100.15 137.69 Jul. 1989 100.76 139.34 Aug. 1989 100.92 136.40 Sep. 1989 100.59 133.75 Oct. 1989 100.66 134.23 Nov. 1989 100.78 135.47 Dec. 1989 101.10 137.86 Jan. 1990 100.91 136.19 Feb. 1990 100.85 133.98 Mar. 1990 100.49 132.31 Apr. 1990 99.90 131.02 May 1990 100.00 132.12 Jun. 1990 100.43 134.25 Jul. 1990 100.63 134.39 Aug. 1990 100.37 132.01 Sep. 1990 100.18 130.67 Oct. 1990 100.46 130.00 Nov. 1990 101.33 135.10 Dec. 1990 101.88 137.33 Jan. 1991 101.84 136.99 Feb. 1991 102.80 140.82 Mar. 1991 102.23 136.96 Apr. 1991 102.39 138.11 May 1991 102.75 138.52 Jun. 1991 102.25 136.14 Jul. 1991 102.35 136.64 Aug. 1991 103.07 139.57 Sep. 1991 103.10 142.02 Oct. 1991 103.41 144.98 Nov. 1991 103.69 144.50 Dec. 1991 104.87 143.92 Jan. 1992 105.99 146.62 Feb. 1992 105.06 142.20 Mar. 1992 104.13 142.15 Apr. 1992 104.23 143.22 May 1992 104.44 144.56 Jun. 1992 105.00 146.61 Jul. 1992 106.04 153.93 Aug. 1992 106.03 153.77 |
6-C
Sep. 1992 106.27 152.28 Oct. 1992 106.61 149.43 Nov. 1992 106.00 149.91 Dec. 1992 106.14 151.95 Jan. 1993 106.14 151.95 Feb. 1993 107.74 166.43 Mar. 1993 107.00 159.33 Apr. 1993 107.15 161.61 May. 1993 107.00 162.77 Jun. 1993 107.14 163.34 Jul. 1993 106.84 163.92 Aug. 1993 106.69 171.29 Sep. 1993 108.16 175.20 Oct. 1993 108.16 175.20 Nov. 1993 107.65 170.22 Dec. 1993 108.16 172.52 Jan. 1994 107.62 149.26 Feb. 1994 106.80 146.58 Mar. 1994 105.30 136.25 Apr. 1994 104.52 130.68 May. 1994 104.24 130.71 Jun. 1994 104.81 132.08 Jul. 1994 104.38 129.67 Aug. 1994 104.54 130.93 Sep. 1994 104.30 129.12 Oct. 1994 103.89 125.38 Nov. 1994 102.39 118.32 Dec. 1994 102.14 121.81 Jan. 1995 102.30 124.65 - -------------------- |
/*/Goldman, Sachs & Co.
7-C
Appendix D
CORE FUND
GLOBAL FUND
DESCRIPTION OF BOND RATINGS/1/
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." 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 which are rated Aa 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 risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A 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 which are rated Baa 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.
The rating systems described herein are believed to be the most recent ratings systems available from Moody's Investors Service, Inc. and Standard & Poor's Ratings Group at the date of this Additional Statement for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated no not necessarily represent ratings which will be given to these securities on the date of the Fund's fiscal year end.
1-D
Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Moody's also provides credit ratings for commercial paper. These are promissory obligations (1) not having an original maturity in excess of nine months, and (2) backed by commercial banks. Notes bearing the designation P-1 have a superior capacity for repayment. Notes bearing the designation P-2 have a strong capacity for repayment.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories.
S&P's top ratings for notes issued after July 29, 1984 are SP-1 and SP-2. The designation SP-1 indicates a very strong capacity to pay principal and interest. A "+" is added for those issues determined to possess overwhelming safety characteristics. An "SP-2" designation indicates a satisfactory capacity to pay principal and interest.
Commercial paper rated A by S&P is regarded as having the greatest capacity for timely payment. Commercial Paper rated A-1 is described as having an overwhelming or very strong degree of safety regarding timely payment. Commercial Paper rated A-2 by Standard & Poor's is described as having a strong degree of safety regarding timely payment.
FITCH INVESTORS SERVICE, CORP.
The ratings represent Fitch's assessment of the issuer's
2-D
ability to meet the obligations of a specific debt issue or class of debt. The ratings take into consideration special features of the issue, its relationship to other obligations of the issuer, the current financial condition and operative performance of the issuer and of any guarantor, as well as the political and economic environment that might affect the issuer's future financial strength and credit quality.
AAA: Bonds rated AAA are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds rated AA are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have an adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA Category covering 12-36 months.
3-D
Investment Grade Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+".
Commercial Paper/Certificates of Deposits Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection
factors. Risk factors are minor.
4-D
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Notes: Bonds which are unrated may expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated bonds. The Fund is dependent on the Investment Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuer's ability to make interest and principal payments.
APPENDIX E
Description of Municipal Securities Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings Group represent their opinions as to the quality of various Municipal Securities. It should be emphasized, however, that ratings are not absolute standards of quality. Consequently, Municipal Securities with the same maturity, coupon and rating may have different yields while Municipal Securities of the same maturity and coupon with different ratings may have the same yield.
Description of Ratings of State and Municipal Bonds
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." 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 which are rated Aa 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.
5-D
A: Bonds which are rated A 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 which are rated Baa are considerd 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 lenght of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a manner of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgement to be formed; if a bond is called for redemption; or for other reasons.
NOTE: Those bonds in the Aa and A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa 1, A 1 and Baa 1.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
6-D
A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarding as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
Plus (+) or minus (-) for ratings from AA to CCC may be used to show relative standing within the major rating categories.
Description of Ratings of State and Municipal Notes
MOODY'S INVESTORS SERVICE, INC.
Moody's ratings for state and municipal short-term obligations will be designated Moody's Investment Grade ("MIG"). Such ratings recognize the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower and short-term cyclical elements are critical in short-term ratings, while other factors of major importance in bond risk, long-term secular trends for example, may be less important over the short run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other maturities the more likely it will be
7-D
treated as a note).
- Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Description of Ratings of State and Municipal Commercial Paper
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are opinions of the ability of
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issuers to repay punctually senior debt obligations which have an original maturity in excess of nine months. Moody's two highest commercial paper rating categories are as follows:
"PRIME-1" - Issuers rated Prime-1 (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 structures with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
- Well established access to a range of financial markets and assured sources of alternate liquidity.
"PRIME-2" - Issuers rated Prime-2 (or supporting institutions) have
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a strong ability for repayment of 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.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Standard & Poor's two highest commercial paper rating categories are as follows:
A-1 - This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1".
Description of Ratings of Preferred Stock
MOODY'S INVESTORS SERVICE, INC.
Moody's utilizes a variation of its bond rating symbols in the quality ranking of preferred stocks because of the fundamental differences between preferred stock and bonds. Preferred stock occupies a junior position to bonds within a particular capital structure and such securities are rated within the universe of preferred stocks.
aaa: An issue which is rated "aaa" is considered to be a top- quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well maintained in the foreseeable future.
a: An issue rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification,
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earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt of the same issuer.
The preferred stock ratings are based on the following considerations:
- - Likelihood of payment - capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation;
- - Nature of, and provisions of, the issue; and
- - Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
AAA: This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates and extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high- quality fixed income security. The capacity to pay preferred Stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stick obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
10-D
This Appendix provides certain information concerning the performance of various types of securities over specified periods of time. However, the characteristics of these securities are not identical to, and may be very different from, those of the Fund's portfolio. The items included in these performance figures may not be identical to those in the formulas used by the Fund to calculate its performance figures. This information does not reflect the Fund's actual portfolio composition or the fees or expenses associated with an investment in the Fund. Past performance is not an indication of future performance.
Source: Lehman Brothers and Stocks, Bonds, Bills and Inflation 1992 Yearbook (and 1993 updates), Ibbotson Associates, Inc. The indices and securities in this chart reflect neither the fund's actual portfolio composition nor the fees and expenses associated with investing in the fund. The S&P 500 is an unmanaged index of 500 of the largest U.S. companies. Unlike the S&P 500 and Lehman Index, Treasury bills are backed by the full faith and credit of the U.S. government and are less volatile than equity or fixed income investments. Because the fund can hold securities other than those in the Lehman Index, its returns may be more volatile. Past performance is no guarantee of future performance. Market and economic conditions, such as rapidly rising or falling interest rates, may affect fixed income securities differently from Treasury bills. Relative to Treasury bills, the market value of fixed income securities may be adversely affected by sharp increases in market interest rates.
1-E
S&P 500 LEHMAN AGGR. 6-MO. T. BILL
YEAR TOTAL RETURN INDEX TOTAL RETURN
- ---- ------------ ------------ -------------
1983 3.48 0.17 0.602
2.6 2.87 0.787
3.65 0.26 0.397
7.58 2.79 1.021
-0.52 -1.31 0.445
3.82 0.11 0.682
-3.13 -2.36 0.604
1.7 0.7 0.862
1.36 3.3 1.169
-1.34 0.36 0.826
2.33 1.14 0.664
-0.61 0.19 0.816
1984 -0.65 2.06 0.879
-3.28 -0.51 0.623
1.71 -1.12 0.641
0.69 -0.2 0.813
-5.34 -3.11 0.718
2.21 1.28 1.046
-1.43 4.5 0.933
11.25 1.69 0.996
0.02 2.37 1.048
0.26 4.24 1.438
-1.01 1.79 1.148
2.53 1.46 0.697
1985 7.68 2.28 0.746
1.37 -2.04 0.478
0.18 2.04 0.902
-0.32 2.07 1.01
6.15 5.23 1.127
1.59 1.06 0.692
-0.26 -0.35 0.499
-0.61 1.88 0.755
-3.21 0.6 0.637
4.47 2.1 0.579
7.160005 2.4 0.665
4.670001 3.06 0.713
1986 0.44 0.56 0.69
7.61 3.94 0.568
5.54 3.1 0.868
-1.24 0.53 0.628
5.49 -1.91 0.474
1.66 2.62 0.667
-5.69 0.89 0.635
7.48 2.48 0.794
-8.22 -0.99 0.396
5.56 1.44 0.569
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|
2.56 1.4 0.396
-2.64 0.37 0.387
1987 13.43 1.41 0.547
4.13 0.69 0.49
2.72 -0.45 0.374
-0.88 -2.74 0.484
1.03 -0.39 0.517
4.99 1.38 0.64
4.98 -0.08 0.42
3.85 -0.53 0.476
2.2 -2.13 0.306
-21.52 3.56 1.09
-8.19 0.8 0.507
7.38 1.36 0.582
1988 4.27 3.52 0.673
4.7 1.19 0.658
-3.02 -0.94 0.484
1.08 -0.54 0.421
0.78 -0.67 0.442
4.64 2.41 0.633
-0.4 -0.53 0.447
-3.31 0.26 0.55
4.24 2.27 0.684
2.73 1.88 0.689
-1.42 -1.22 0.455
1.81 0.11 0.583
1989 7.23 1.44 0.729
-2.49 -0.72 0.563
2.36 0.43 0.695
5.16 2.09 0.923
4.02 2.63 0.858
-0.54 3.04 0.954
8.98 2.13 0.832
1.93 -1.48 0.522
-0.39 0.51 0.616
-2.33 2.46 0.889
2.08 0.95 0.722
2.36 0.27 0.617
1990 -6.71 -1.19 0.659
1.29 0.32 0.596
2.63 0.07 0.632
-2.47 -0.92 0.651
9.75 2.96 0.805
-0.7 1.61 0.71
-0.32 1.38 0.805
-9.03 -1.34 0.626
-4.92 0.83 0.659
-0.37 1.27 0.744
6.44 2.15 0.627
2.74 1.56 0.861
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|
1991 4.42 1.24 0.7
7.16 0.85 0.538
2.38 0.69 0.586
0.28 1.08 0.645
4.28 0.58 0.483
-4.57 -0.05 0.447
4.68 1.39 0.587
2.35 2.16 0.603
-1.64 2.03 0.57
1.34 1.11 0.564
-4.04 0.92 0.593
11.43 2.97 0.638
1992 -1.86 -1.36 0.34
1.28 0.65 0.292
-1.96 -0.56 0.306
2.909998 0.72 0.509
0.540067 1.89 0.38
-1.45397 1.38 0.399
4.030009 2.04 0.494
-2.02 1.01 0.316
1.149647 1.19 0.445
0.360365 -1.33 0.097
3.369855 0.02 0.212
1.310072 1.59 0.404
1993 0.730015 1.92 0.372
1.349953 1.75 0.257
2.149928 0.42 0.299
-2.45 0.7 0.266
2.7 0.13 0.161
0.33 1.81 0.302
1994 3.35 1.35 0.330
-2.70 -1.74 0.092
-4.35 -2.47 0.243
1.30 -0.80 0.161
1.63 -0.01 0.274
-2.47 -0.22 0.444
3.31 1.99 0.423
4.07 0.12 0.389
-2.44 -1.47 0.282
2.25 -0.09 0.452
-3.64 -0.22 0.297
1.48 0.69 0.430
4-E
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APPENDIX G
This Appendix provides certain information concerning the average performance of various types of bonds over specified periods of time. However, the composition of these bond averages and the characteristics of these bonds are not identical to, and may be very different from, those of the Fund's portfolio. These averages are unmanaged and the items included in these averages may not be identical to those in the formulas used by the Fund to calculate its performance figures. Past performance is not an indication of future performance.
The following table shows the credit rating assigned by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group to the government bonds of various countries.
Country Moody's S & P ------- ------- ----- USA Aaa AAA Japan Aaa AAA Germany Aaa AAA Italy A1 AA France Aaa AAA UK Aaa AAA Canada Aa1 AA+ Belgium Aa1 AA+ Denmark Aa1 AA+ Sweden Aa1 AA+ Switzerland Aaa AAA Netherlands Aaa AAA Spain Aa2 AA Australia Aa2 AA |
Certain governments listed above carry an implied rating by Moody's and/or S&P. Information is as of February, 1995 for Moody's and as of February, 1995 for S&P.
5-E
APPENDIX G
This Appendix provides certain information concerning the average performance of various types of bonds over specified periods of time. However, the composition of these bond averages and the characteristics of these bonds are not identical to, and may be very different from, those of the Fund's portfolio. These averages are unmanaged and the items included in these averages may not be identical to those in the formulas used by the Fund to calculate its performance figures. Past performance is not an indication of future performance.
The following table shows the credit rating assigned by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group to the government bonds of various countries.
Country Moody's S & P ------- ------- ----- USA Aaa AAA Japan Aaa AAA Germany Aaa AAA Italy A1 AA France Aaa AAA UK Aaa AAA Canada Aa1 AA+ Belgium Aa1 AA+ Denmark Aa1 AA+ Sweden Aa1 AA+ Switzerland Aaa AAA Netherlands Aaa AAA Spain Aa2 AA Australia Aa2 AA |
Certain governments listed above carry an implied rating by Moody's and/or S&P. Information is as of February, 1995 for Moody's and as of February, 1995 for S&P.
6-E
APPENDIX G (CONTINUED)
BEST AND WORST PERFORMING MARKETS 1975-1994*
ANNUAL RETURNS ON 10-YEAR GOVERNMENT BONDS--US DOLLAR TERMS
The following table indicates that, during the period from 1975 to 1994, investing in 10 year U.S. Government bonds produced the best U.S. dollar returns, relative to the performance of the 10-year government bonds of seven major foreign countries, in only three out of nineteen years. Returns in U.S. dollar terms were derived by calculating the market value in U.S. dollars of appropriate 10-year government bonds, using bond price and foreign exchange rate data.
Worst Performance Best Performance USA Performance
--------------------- ------------------ ----------------
1975 Canada 2.8% France 17.4% 9.3%
1976 UK -6.4% Germany 33.0% 14.8%
1977 Canada -1.2% UK 59.9% 2.4%
1978 Canada -4.6% France 33.9% 1.7%
1979 Japan -25.2% UK 16.9% 1.9%
1980 Germany -10.8% UK 29.0% 0.1%
1981 UK -17.4% USA 5.5% 5.5%
1982 France 2.2% USA 33.9% 33.9%
1983 Netherlands -11.6% Japan 12.6% 2.8%
1984 UK -12.6% USA 14.3% 14.3%
1985 Australia -11.8% France 56.5% 27.8%
1986 UK 14.3% Netherlands 41.7% 19.6%
1987 USA -3.3% UK 48.2% -3.3%
1988 Germany -7.0% Australia 33.4% 6.4%
1989 Japan -13.9% Canada 16.8% 16.3%
1990 Japan 4.7% UK 35.2% 6.8%
1991 Netherlands 10.4% Australia 24.2% 17.0%
1992 Italy -3.2% Japan 11.8% 6.6%
1993 Netherlands 9.3% Japan 27.9% 12.3%
1994 Canada -12.9% Japan 7.5% 7.12%
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* Based on data for the United States and seven major countries.
Source: Salomon Brothers
7-E
APPENDIX G (CONTINUED)
YIELD OF 5-YEAR GOVERNMENT BONDS AS OF SEPTEMBER 30, 1994
Country Yield ------- ------ Italy 11.70% Spain 11.02 Australia 9.67 United Kingdom 8.64 Canada 8.35 France 7.68 United States 7.28 Germany 7.12 Japan 3.89 |
Source: Bloomberg L.P., September 30, 1994. Yields are quoted in the currency of the country of origin. The chart is not intended to represent the future performance of any of the listed securities or the Goldman Sachs Global Income Fund. This chart is for illustrative purposes only and does not represent either the Fund's portfolio composition, the types of securities in the Fund or the Fund's performance. Please note that the Fund may invest in government securities as well as other high-quality, fixed-income securities.
COMPOSITION OF GLOBAL GOVERNMENT BOND MARKET BY COUNTRY
Country Percentage ------- ----------- United States 41.8% Japan 17.0 Germany 10.2 Italy 6.5 France 5.7 United Kingdom 4.7 Canada 2.9 Netherlands 2.8 Belgium 2.8 Spain 1.9 Denmark 1.6 Sweden 1.2 |
Source: J.P. Morgan Government Bond Index monitor, September 1994. Data includes government bonds from countries indicated, excluding index-lined and tax rebate bonds for Australia, provincial for Canada, index-linked perpetuals, FELINs, FRNs and ORTs for France; Schuldscheine for Germany; CCTs and CTE for Italy; private placements and five year discounts for Japan; perpetuals and private placements for the Netherlands; irredeemables and index-linked for the U.K. and flower bonds, STRIPS, and foreign targeted issues for the U.S. Past
8-E
performance is not indicative of future results. This chart is for illustrative purposes only, and is not meant to represent the allocation of investments in the Goldman Sachs Global Income Fund.
9-E
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is not a prospectus. This Additional Statement should be read in conjunction with the prospectus for the Class A Shares and Class B Shares of Goldman Sachs Adjustable Rate Government Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund, and Goldman Sachs Global Income Fund dated March 1, 1996, as amended and/or supplemented from time to time, which may be obtained without charge from Goldman, Sachs & Co. by calling the telephone number, or writing to one of the addresses, listed below. Goldman Sachs Adjustable Rate Government Agency Fund currently does not offer Class B Shares.
TABLE OF CONTENTS
Introduction...................................... B-3
Investment Objective and Policies................. B-7
Other Investments and Practices................... B-11
Investment Restrictions........................... B-47
Management........................................ B-57
Portfolio Transactions............................ B-71
Shares of the Trust............................... B-72
Net Asset Value................................... B-76
Taxation.......................................... B-76
Performance Information........................... B-87
Other Information................................. B-95
Financial Statements.............................. B-96
Distribution and Authorized Dealer Service Plans.. B-97
Appendix A........................................ 1-A
Appendix B........................................ 1-B
Appendix C........................................ 1-C
Appendix D........................................ 1-D
Appendix E........................................ 1-E
Appendix F........................................ 1-F
Appendix G........................................ 1-G
Appendix H........................................ 1-H
The date of this Additional Statement is March 1, 1996.
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GOLDMAN SACHS TRUST GOLDMAN, SACHS & CO.
4900 SEARS TOWER DISTRIBUTOR
CHICAGO, ILLINOIS 60606 85 BROAD STREET
NEW YORK, NY 10004
GOLDMAN SACHS ASSET MANAGEMENT
ADVISER TO GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GOLDMAN SACHS ADJUSTABLE 4900 SEARS TOWER
RATE GOVERNMENT AGENCY FUND CHICAGO, ILLINOIS 60606
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
|
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ ENGLAND
TOLL FREE .......800-526-7384
INTRODUCTION
Goldman Sachs Trust (the "Trust") was organized under the laws of The Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business trust. 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, among other series, Goldman Sachs Adjustable Rate Government Agency Fund ("Adjustable Rate Fund"), Goldman Sachs Municipal Income Fund (Municipal Income Fund"), Goldman Sachs Government Income Fund ("Government Income Fund")and Goldman Sachs Global Income Fund (Global Income Fund"),which are each sometimes referred to herein as a "Fund" and collectively as the "Funds." Municipal Income Fund and Government Income Fund are each authorized to issue two classes of shares. These classes are: Class A Shares and Class B Shares. Adjustable Rate Fund is authorized to issue four classes of shares. These shares are Class A Shares, Institutional Shares, Administration Shares and Service Shares. Global Income Fund is authorized to issue four classes of shares. These classes are: Class A Shares, Class B Shares, Institutional Shares and Service Shares. This Additional Statement relates only to Class A Shares and Class B Shares of the Funds.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to Municipal Income Fund, Global Income Fund and Government Income Fund. Goldman Sachs Asset Management International ("GSAMI" or the "Subadviser"), an affiliate of Goldman Sachs serves as subadviser to Global Income Fund. Goldman Sachs Funds Management, L.P. ("FMLP"), an affiliate of Goldman Sachs, serves as the investment adviser to Adjustable Rate Fund. GSAM, FMLP and GSAMI are each sometimes referred to herein as the "Adviser" and collectively herein as the "Advisers." In addition, GSAM serves as Global Income Fund's administrator and Goldman Sachs serves as each Fund's distributor and transfer agent. Each Fund's custodian is State Street Bank and Trust Company.
Because each Fund's shares may be redeemed upon request of a shareholder on any business day at net asset value, the Funds offer greater liquidity than many competing investments, such as certificates of deposit and direct investments in certain securities in which the respective Fund may invest. However, unlike certificates of deposits, shares of the Funds are not insured by the Federal Deposit Insurance Corporation.
The following information relates to and supplements the description of each Fund's investment policies contained in the Prospectus. See the Prospectus for a fuller description of each Fund's investment objective and policies. Investing in the Funds entails certain risks and there is no assurance that a Fund will achieve its objective.
ADJUSTABLE RATE FUND
Adjustable Rate Fund is designed for investors who seek a high level of high current income, relative stability of principal and the high credit quality of securities issued or guaranteed by the U.S. Government or its agencies, instrumentalities or sponsored enterprises, without incurring the administrative and accounting burdens involved in direct investment. Such investors also prefer experienced professional management and administration, and liquidity.
Market and economic conditions may affect the investments of Adjustable Rate Fund differently than the investments normally purchased by such investors. Relative to U.S. Treasury and non-fluctuating money market instruments, the market value of adjustable rate mortgage securities in which Adjustable Rate Fund may invest may be adversely affected by sharp increases in market interest rates. Conversely, sharp decreases in market interest rates may result in less capital appreciation for adjustable rate mortgage securities in relation to U.S. Treasury and money market investments.
There is no assurance that these strategies for Adjustable Rate Fund will always be successful. Adjustable Rate Fund's net asset value per share will fluctuate more than that of a money market fund.
GOVERNMENT INCOME FUND
Government Income Fund is designed for investors who seek the relatively high current income, relative safety of principal and the high credit quality of securities issued by the U.S. Government or its agencies, instrumentalities or sponsored enterprises, without incurring the administrative and account burdens involved in direct investment. Such investors also prefer liquidity, experienced professional management and administration, a sophisticated investment process, and the convenience of a fund structure.
Government Income Fund's overall returns are generally likely to move in the same direction as interest rates. Therefore, when interest rates decline, Government Income Fund's return is also likely to decline. However, the Adviser believes that, given the flexibility of managers to invest in diversified portfolio of securities, including inverse floating rate instruments, Government Income Fund's return is not likely to decline as quickly as that of other U.S. government funds with comparable dollar weighted average portfolio lives. In exchange for accepting a higher degree of share price fluctuation, investors have the potential to achieve a higher return from the Government Income Fund's than from shorter term investments.
investments in shares of Government Income Fund are not insured or guaranteed by any government agency. Government Income Fund seeks to provide high current income without, however, sacrificing credit quality.
MUNICIPAL INCOME FUND
Municipal Income Fund is not a money market fund. It is designed for investors who seek the tax benefits associated with investing in municipal securities and who are able to accept greater risk with the possibility of higher returns than investors in municipal money market funds. While municipal money market
funds almost always maintain a constant net asset value, they must meet stringent high quality credit standards, their portfolios must be broadly diversified and their portfolio securities must have remaining maturities of 397 days or less. An example of an "eligible" investment for the Municipal Income Fund is auction rate municipal securities, which generally have higher yields than money market municipal securities, but which typically are not eligible investments for municipal money market funds.
In addition, unlike a municipal money market fund, Municipal Income Fund's increased investment flexibility permits its portfolio to be more easily adjusted to reflect the shape of the current yield curve as well as to respond to anticipated developments that might affect the shape of the yield curve.
Investors who wish to invest in municipal securities may find that a mutual fund structure offers some important advantages when compared to investing in individual municipal securities, including:
. The ratings given to municipal securities by the rating organizations are difficult to evaluate. For example, some municipal securities with relatively low credit ratings have yields comparable to municipal securities with much higher ratings. The credit research professionals at Goldman Sachs closely follow market events and are well positioned to judge current and expected credit conditions of municipal issuers;
. Because of the relative inefficiency of the secondary market in municipal securities, the value of an individual municipal security is often difficult to determine. As such, investors may obtain a wide range of different prices when asking for quotes from different dealers. In addition, a dealer may have a large inventory of a particular issue that it wants to reduce. Obtaining the best overall prices can require extensive negotiation, which is a function performed by the portfolio manager;
. Market expertise is also an important consideration for municipal investors, and because the Municipal Income Fund takes relatively large positions in different securities, the Municipal Income Fund may be able to obtain more favorable prices in the municipal securities market than investors with relatively small positions.
. Industry and geographical diversification are important considerations for municipal investors. Municipal Income Fund is designed to provide this diversification.
GLOBAL INCOME FUND
Global Income Fund is designed for investors seeking a combination of high income, capital appreciation, stability of principal, experienced professional management, flexibility and liquidity. However, investing in the Global Income Fund involves certain risks and there is no assurance that Global Income Fund will achieve its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
The information contained herein relates to or supplements the description of each Fund's investment policies contained in the Prospectus. There is no assurance that a Fund will achieve its objective.
ADJUSTABLE RATE FUND
The investment objective of Adjustable Rate Fund is a high level of current income, consistent with low volatility of principal. Adjustable Rate Fund will seek to achieve its objective through investment in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Under normal circumstances, at least 65% of Adjustable Rate Fund's total assets will consist of adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets, which are issued or guaranteed by such U.S. Government entities. The primary issuers or guarantors of such securities currently include the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Government National Mortgage Association ("Ginnie Mae"), although Adjustable Rate Fund may invest in securities issued or guaranteed by other agencies or instrumentalities in the future. Adjustable Rate Fund may also invest in other mortgage-backed securities, and other obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as repurchase agreements collateralized by such securities.
Adjustable Rate Fund may, for temporary defensive purposes, hold or invest more than 35% of its total assets in cash, U.S. Treasury securities or high quality money market instruments, including commercial paper, bankers' acceptances, repurchase agreements or other debt obligations with a remaining maturity of one year or less. Adjustable Rate Fund may employ certain active management techniques, including the use of futures (including options on futures), mortgage and interest rate swaps and interest rate floors, caps and collars. Adjustable Rate Fund's investments in mortgage pass-through securities and other securities representing an interest in or collateralized by adjustable and fixed-rate mortgage loans ("Mortgage-Backed Securities") entail certain risks.
MUNICIPAL INCOME FUND
Municipal Income Fund's investment objective is to provide investors with a high level of current income that is exempt from regular federal income tax, consistent with preservation of capital. Municipal Income Fund will seek to achieve its objective primarily through investments in municipal securities, the interest on which is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax or from the income taxes of any state or local government). The municipal securities in which the Fund invests, at the time of investment, will be rated at least A by Standard & Poor's Ratings Group ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"), or their respective equivalent ratings or, if unrated by such rating organizations, determined by the Adviser to be of comparable credit quality. It is expected that, under normal market conditions, the weighted average credit quality of the Municipal Income Fund's portfolio will be approximately equivalent to that of securities rated AA by Standard & Poor's or Aa by Moody's. The Municipal Income Fund will maintain, under normal market conditions, an average portfolio maturity approximately equal to the average maturity of the Lehman Brothers 15 Year Municipal Bond Index.
GOVERNMENT INCOME FUND
Government Income Fund's investment objective is to achieve a high level of current income, consistent with safety of principal. Government Income Fund will seek to achieve its investment objective by investing primarily in securities, including mortgage-backed securities, issued or guaranteed as to principal and interest by the U.S. Government or its agencies, instrumentalities or sponsored enterprises ("Government Securities"). Government Income Fund will normally maintain a dollar weighted average life of between five and ten years. Under normal circumstances, at least 65% Government Income Fund's total assets will be invested in Government Securities and in repurchase agreements collateralized by Government Securities. The Fund may also invest in mortgage- backed securities of non-governmental issuers, asset-backed securities or corporate debt obligations that are, at the time of investment, rated AAA by Standard & Poor's or Aaa by Moody's or equivalent short-term credit quality ratings or, if unrated by such rating organization, determined by the Adviser to be of comparable quality.
GLOBAL INCOME FUND
The investment objective of Global Income Fund is to achieve a high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation, primarily through investment in a portfolio of high quality fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.
OTHER INVESTMENT AND PRACTICES
OBLIGATIONS OF THE UNITED STATES, ITS AGENCIES AND
INSTRUMENTALITIES
Adjustable Rate Fund, Government Income Fund and Global Income Fund may invest in U.S. Government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. 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, authorities or instrumentalities, are supported either by (a) the full faith and credit of the U.S. Government (such as securities of the Small Business Administration), (b) the right of the issuer to borrow from the Treasury (such as securities of Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government to purchase the agency's obligations (such as securities of Fannie Mae) or (d) only the credit of the issuer (such as securities of the Financing Corporation). The U.S. Government is under no legal obligation, in general, to purchase the obligations of its agencies, authorities and instrumentalities. No assurance can be given that the U.S. Government will provide financial support to the U.S. Government agencies, authorities or instrumentalities in the future.
Securities guaranteed as to principal and interest by the U.S. Government and its agencies, authorities or instrumentalities are deemed to include (a) securities for which the payment of principal and interest is backed by a guaranty of the U.S. Government or 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.
Adjustable Rate Fund, Government Income Fund and Global Income Fund may also invest in 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").
CUSTODIAL RECEIPTS
Adjustable Rate Fund and Global Income Fund may each acquire custodial receipts in respect of U.S. Government securities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds. 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.
MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES
Adjustable Rate Fund, Government Income Fund and Global Income Fund may invest in mortgage loans and Mortgage-Backed Securities.
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 the Funds invest in Mortgage-
Backed Securities, the Advisers will seek to manage these potential risks by investing in a variety of Mortgage-Backed Securities and by using certain hedging techniques.
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.
There are two main categories of indices which provide the basis for rate adjustments on ARMs: those based on U.S. Treasury securities and those derived from a calculated measure, such as a
cost of funds index or a moving average of mortgage rates. Commonly utilized indices include the one-year, three-year and five-year constant maturity Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month or one year London Interbank Offered Rate, the prime rate of a specific bank or commercial paper rates. Some indices, such as the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels. Others, such as the 11th District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of each Fund's portfolio and therefore in the net asset value of Adjustable Rate Fund and Short-Term 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.
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.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES
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 guarantees to each registered holder of a Freddie Mac Certificate the timely payment of interest at the rate provided for by such Freddie Mac Certificate (whether or not received on the underlying loans). Freddie Mac also guarantees to each registered Certificate holder ultimate collection of all principal of the related mortgage loans, without any offset or deduction, but does not, generally, guarantee the timely payment of scheduled principal. The obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates consist of adjustable rate or fixed rate mortgage loans with original terms to maturity of between five and thirty years. Substantially all of these mortgage loans are secured by first liens on one- to four-family residential properties or multi-family projects. Each mortgage loans 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.
loans, undivided interests in whole loans and participations comprising another Freddie Mac Certificate group.
The following discussion describes only a few of the wide variety of structures of Mortgage Pass-Throughs that are available or may be issued.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES
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.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by Fannie Mae. In addition, Fannie Mae will be obligated to distribute the principal balance of each class of REMIC Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC Certificates and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates ("PCs"). PCs represent
undivided interests in specified level payment, residential mortgages or participations therein purchased by Freddie Mac and placed in a PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate collection of all principal of the related mortgage loans without offset or deduction. Freddie Mac also guarantees timely payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac are types of multiple class mortgage-backed securities. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests or "residual" interests. Adjustable Rate Fund, Government Income Fund and Global Income Fund 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 scheduled 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 certificates (the "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 of REMIC 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.
ASSET-BACKED SECURITIES
Government Income Fund and Global Income Fund may invest in asset-backed securities. Such 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, each 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.
Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.
ZERO COUPON, DEFERRED INTEREST AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon bonds and in deferred interest and capital appreciation bonds. Zero coupon, 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 zero coupon, deferred interest and capital appreciation bonds 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.
Zero coupon, deferred interest and capital appreciation securities involve the additional risk that, unlike securities that periodically pay interest to maturity, a Fund will realize no cash until a specified future payment date unless a portion of such securities is sold and, if the issuer of such
securities defaults, a Fund may obtain no return at all on its investment. In addition, even though such securities do not provide for the payment of current interest in cash, the Funds are nonetheless required to accrue income on such investments and may be required to distribute such amounts at least annually. Because no cash is received at the time of the accrual, a Fund may be required to liquidate other portfolio securities to satisfy federal tax distribution requirements applicable to the Fund. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
The interest rates payable on certain securities in which each Fund may invest are not fixed and may fluctuate based upon changes in market rates. A variable rate obligation has an interest rate which is adjusted at predesignated periods in response to changes in the market rate of interest on which the interest rate is based. Variable and floating rate obligations are less effective than fixed rate instruments at locking in a particular yield. Nevertheless, such obligations may fluctuate in value in response to interest rate changes if there is a delay between changes in market interest rates and the interest reset date for the obligation. The absence of an unconditional demand feature on variable and floating rate municipal securities exercisable within seven days would, and the failure of the issuer or a third party to honor its obligations under a demand or put feature might, require a variable or floating rate obligation to be treated as illiquid for purposes of Municipal Income Fund's 15% limitation on illiquid investments.
Global Income Fund may invest in corporate debt obligations, including obligations of industrial, utility and financial issuers. Corporate debt obligations are subject to the risk of an issuer's inability to meeting 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.
BANK OBLIGATIONS
To the extent permitted by their respective investment policies, each Fund may each invest in obligations issued or guaranteed by United States, and in the case of Global Income Fund, foreign banks. In addition, Global Income Fund may invest in non-U.S. dollar denominated obligations issued or guaranteed by foreign banks. Global Income Fund may only invest in obligations of banks having total assets of more than $1 Billion. Bank obligations, including without limitation time deposits, bankers' acceptances and certificates of deposit, may be general obligations of the parent bank or may be obligations only of the issuing branch
pursuant to the terms of the specific obligations or 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. Foreign banks are subject to different regulations and are permitted to engage in different activities than U.S. banks 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.
MUNICIPAL SECURITIES
Municipal Income Fund may invest in Municipal Securities. Municipal Securities consist of 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, the interest on which is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax or from the income taxes of any state or local government). In addition, Municipal Securities include participation interests in such securities the interest on which is, in the opinion of bond counsel for the issuers or counsel selected by the Adviser, excluded from gross income for federal income tax purposes. The Municipal Income Fund may revise its definition of Municipal Securities in the future to include other types of securities that currently exist, the interest on which is or will be,in the opinion of such counsel, excluded from gross income for federal income tax purposes, provided that investing in such securities is consistent with the Fund's investment objective and policies.
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.
For the purpose of applying the Municipal Income Fund's investment restrictions, the identification of the issuer of a Municipal Security which is not a general obligation is made by the Adviser based on the characteristics of the Municipal Security, the most important of which is the source of funds for the payment of principal and interest on such securities.
An entire issue of Municipal Securities may be purchased by one or a small number of institutional investors such as the Municipal Income Fund. 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 can be readily marketable.
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.
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 the Municipal Income Fund's original investment.
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 the Municipal Income Fund's limitation on investments in illiquid securities. Other municipal lease obligations and certificates of participation acquired by Municipal Income Fund may be determined by the 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 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 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 Municipal Income Fund.
Municipal Income Fund may purchase participations in Municipal Securities held by a commercial bank or other financial institution. Such participations provide Municipal Income Fund with the right to a pro rata undivided interest in the underlying Municipal Securities. In addition, such participations generally provide Municipal Income 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. Municipal Income 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 Adviser, the interest from such participations is exempt from regular federal income tax.
municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long-term debt. In most cases, tax-exempt commercial paper is backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or other institutions.
institution, which grants the security holders the option, at periodic intervals, to tender their 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 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. However, an institution will not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrade in the credit rating assigned to the issuer of the bond. 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. Tender option bonds are deemed to be liquid unless, in the opinion of the Adviser, the credit quality of the bond issuer and the financial institution is deemed, in light of the Fund's credit quality requirements, to be inadequate. The Municipal Income Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by the Adviser, be exempt from regular federal income tax. However, because there can be no assurance that the Internal Revenue Service (the "Service") will agree with such counsel's opinion in any particular case, there is a risk that the Municipal Income Fund 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. Additionally, the federal income tax treatment of certain other aspects of these investments, including the proper tax treatment of tender option bonds and the associated fees in relation to various regulated investment company tax provisions is unclear. The Municipal Income Fund intends to manage its portfolio in a manner designed to eliminate or minimize any adverse impact from the tax rules applicable to these investments.
at par value, there is some risk that an auction will fail due to insufficient demand for the securities.
Dividends on auction rate preferred securities issued by a closed-end fund may be designated as exempt from federal income tax to the extent they are attributable to exempt income earned by the fund on the securities in its portfolio and distributed to holders of the preferred securities, provided that the preferred securities are treated as equity securities for federal income tax purposes and the closed-end fund complies with certain tests under the Code.
Municipal Income Fund's investments in auction rate securities of closed- end funds are subject to the limitations prescribed by the Act, and certain state securities regulations. These limitations include a prohibition against acquiring more than 3% of the voting securities of any other investment company, and investing more than 5% of Municipal Income Fund's assets in securities of any one investment company or more than 10% of its assets in securities of all investment companies. Municipal Income 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 Municipal Income Fund.
Municipal Income Fund may utilize new issue or secondary market insurance. A new issue insurance policy is purchased by a bond issuer who wishes to increase the credit rating of a security. By paying a premium and meeting the insurer's underwriting standards, the bond issuer is able to obtain a high credit rating (usually, AAA from Moody's or AAA from Standard & Poor's) for the issued security. Such insurance is likely to increase the purchase price and resale value of the security. New issue insurance policies are non-cancelable and continue in force as long as the bonds are outstanding.
A secondary market insurance policy is purchased by an investor (such as Municipal Income Fund) subsequent to a bond's original issuance and generally insures a particular bond for the remainder of its term. Municipal Income Fund may purchase bonds which have already been insured under a secondary market insurance policy by a prior investor, or the Municipal Income Fund may itself purchase such a policy from insurers for bonds which are currently uninsured.
An insured Municipal Security acquired by the Municipal Income Fund will typically be covered by only one of the above types of policies. All of the insurance policies used by the Fund will be obtained only from insurance companies rated, at the time of purchase, Aaa by Moody's or AAA by Standard & Poor's.
Standby commitments may involve letters of credit issued by domestic or foreign banks supporting the other party's ability to purchase the security from Municipal Income Fund. 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 Municipal Income Fund. In considering whether a security meets Municipal Income Fund's quality standards, Municipal Income Fund will look to the creditworthiness of the party providing the Fund with the right to sell as well as the quality of the security itself.
Municipal Income Fund values Municipal Securities which are subject to standby commitments at amortized cost. The exercise price of the standby commitments is expected to approximate such amortized cost. No value is assigned to the standby commitments for purposes of determining the Municipal Income Fund's net asset value. The cost of a standby commitment is carried as unrealized depreciation from the time of purchase until it is exercised or expires. Since the value of a standby commitment is dependent on the ability of the standby commitment writer to meet its obligation to repurchase, the Municipal Income Fund's policy is to enter into standby commitment transactions only with banks, brokers or dealers which present a minimal risk of default.
The Adviser understands that the 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. The 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. Municipal Income Fund intends to take the position that it is the owner of any Municipal Securities acquired subject to a standby commitment or acquired or held with certain other types of put rights and that tax-exempt interest earned with respect to such Municipal Securities will be tax-exempt in its hands. There is no assurance that standby commitments will be available to the Municipal Income Fund nor has the Municipal Income Fund assumed that such commitments would continue to be available under all market conditions.
FOREIGN INVESTMENTS
Global Income Fund is expected to invest in securities of foreign issuers. Investing in the securities of foreign issuers involves certain special considerations, including those set forth below, which are not typically associated with investing in U.S. issuers. Since investments in the securities of foreign issuers may involve currencies of foreign countries, and since Global Income Fund may temporarily hold funds in bank deposits in foreign currencies during completion of investment programs, Global Income Fund 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.
Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Volume and liquidity in most foreign bond markets are less than in U.S. Markets and securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges are often fixed and are generally higher than negotiated commissions on U.S. exchanges, although Global Income Fund endeavors to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers, dealers and listed companies than 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 settlements 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 a portion of the assets of Global Income Fund is uninvested and no return is earned thereon. The inability of Global Income 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 Global Income Fund due to subsequent declines in value of the portfolio securities, or, if Global Income 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 Global Income 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Global Income Fund may enter into forward foreign currency exchange contracts. 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 conducted directly 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 Global Income 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 usually effected with the currency trader who is a party to the original forward contract.
Global Income Fund may enter into forward foreign currency exchange contracts in several circumstances. First, when Global Income Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when Global Income Fund anticipates the receipt in a foreign currency of dividend or interest payments on such a security which it holds, Global Income 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, Global Income 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 Adviser believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, Global Income Fund may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of Global Income 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 Global Income 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 Global Income 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 dollar value of only a portion of the Fund's foreign assets.
Global Income Fund may engage in cross-hedging by using forward contracts in one currency to hedge against fluctuations in the value of securities denominated in a different currency if the Adviser determines that there is a pattern of correlation between the two currencies. Global Income Fund may also purchase and sell forward contracts to seek to increase total return when the Adviser anticipates that the foreign currency will appreciate or depreciate in value, but securities quoted or denominated in that currency do not present attractive investment opportunities and are not held in Global Income Fund's portfolio.
Global Income Fund's custodian will place cash or liquid, high grade debt securities (i.e., securities rated in one of the top three rating categories by Moody's or Standard & Poor's or, if unrated by such rating organizations, deemed by the Adviser to be of comparable credit quality) into a segregated account of Global Income Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies or forward contracts entered into to increase total return. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. The segregated account will be marked-to-market on a daily basis. Although the contracts are not presently regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may in the future assert authority to regulate these contracts. In such event, Global Income Fund's ability to utilize forward foreign currency exchange contracts may be restricted. Global Income Fund generally will not enter into a forward contract with a term of greater than one year.
While Global Income Fund will enter into forward contracts to reduce currency exchange rate risks, transactions in such contracts involve certain other risks. Thus, while Global Income Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for Global Income Fund than if it had not engaged in any such transactions. Moreover, there may be imperfect correlation between Global Income Fund's portfolio holdings of securities quoted or denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation may cause Global Income Fund to sustain losses which will prevent Global Income Fund from achieving a complete hedge or expose the Fund to risk of foreign exchange loss.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CURRENCY SWAPS AND INTEREST RATE CAPS, FLOORS AND COLLARS
Each Fund may enter into interest rate swaps, caps, floors and collars. In addition, the Government Income Fund and Adjustable Rate Fund may enter into mortgage swaps and Global Income Fund may also enter into currency swaps. Each fund may enter into Swap transactions for hedging purposes or to adjust the effective duration of its portfolio securities. Government Income and Global Income Funds may also enter into swap transactions to seek to increase total return. 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. 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. 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 positions.
A Fund will enter into interest rate and mortgage swaps only on a net basis, which means that the two payment streams are netted out, with the Fund and receiving or paying, as the case may be, only the net amount of the two payments. Interest rate and mortgage swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate and mortgage swaps is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to an interest rate 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. 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. The net amount of the excess, if any, of each Fund's obligations over its entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid, high grade debt securities rated in one of the top three rating categories by Moody's or Standard & Poor's, or if unrated by such rating organizations, deemed by the Adviser or to be of comparable quality, equal to such accrued excess, is maintained in a segregated account by each Fund's custodian. Inasmuch as these transactions are entered into for hedging purposes, are offset by cash or liquid, high grade debt securities maintained in a segregated account, the Funds and the Advisers believe that such obligations do not constitute senior securities under the Investment Company Act of 1940, as amended (the "Act") and, accordingly, will not treat them as being subject to a Fund's borrowing restriction.
The Funds will not enter into any swap transactions unless the unsecured commercial paper, senior debt or claims paying ability of the other party is rated either AA or A-1 or better by Standard & Poor's or Aa or P-1 or better by Moody's or their equivalent ratings, in the case of Adjustable Rate Fund, Municipal Income Fund and Government Income Fund, and investment grade in the case of Global Income Fund, or if unrated by such rating organizations, determined to be of comparable quality by the applicable Adviser. If there is a default by the other party to such a transaction, a Fund will have contractual remedies pursuant to the agreements related to the transactions. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets
for other similar instruments which are traded in the Interbank market. The staff of the Securities and Exchange Commission (the "SEC") currently takes the position that swaps, caps, floors and collars are illiquid for purposes of a Fund's limitation on illiquid investments.
OPTIONS ON SECURITIES AND SECURITIES INDICES
A put option written by a Fund obligates 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. The purpose of writing such options is to generate additional income. However, in return for the option premium, the Fund accepts the risk that it will be required to purchase the underlying securities at a price in excess of the securities' market value at the time of purchase.
All call and put options written by a Fund are covered. A written call option or put option may be covered by (i) maintaining cash or liquid, high- grade debt securities (in the case of Global Income Fund, either of which may be quoted or denominated in any currency) in a segregated account maintained by the Fund's custodian with a value at least equal to the Fund's obligation under the option, (ii) entering into an offsetting forward commitment and/or (iii) purchasing an offsetting option or any other option which, by virtue of its exercise price or otherwise, reduces the Fund's net exposure on its written option position.
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."
Government Income Fund, Global Income Fund and Municipal Income Fund may also write (sell) covered call and put options on any securities index composed of securities in which they 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.
The Funds may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index or by having an absolute and immediate right to acquire such securities without additional cash consideration (or for additional cash consideration held in a segregated account by their respective custodian) upon conversion or exchange of other portfolio securities. The Funds may also cover call and put options on a securities index by maintaining cash or liquid, high-grade debt securities with a value equal to the exercise price in a segregated account with their custodian or by using the other methods described above.
A Fund would normally purchase call options in anticipation of an increase, or put options in anticipation of a decrease ("protective puts"), in the market value of securities of the type in which it may invest. The purchase of a call option would entitle a Fund, in return for the premium paid, to purchase specified securities at a specified price during the option period. Each Fund would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize a loss on the purchase of the call option. The purchase of protective puts is designed to offset or hedge against a decline in the market value of a Fund's portfolio 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. 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. 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 cover the premium and transaction costs; otherwise the Fund would realize a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the underlying portfolio securities.
A Fund may purchase put and call options on securities indices for the same purposes as it may purchase options on securities. 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.
Transactions by a Fund in options on securities and securities indices will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded 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, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. 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 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.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Global Income Fund may write covered put and call options and purchase put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. The Fund may use options on currency to cross-hedge, 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. In addition Global Income Fund may purchase call options on currency to seek to increase total return when the Adviser anticipates that the currency will appreciate in value, but 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 Global Income Fund obligates the Fund
to sell 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 Global Income Fund would obligate the Fund to purchase 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 the 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.
Global Income 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." The Fund would also be able to enter into closing sale transactions in order to realize gains or minimize losses on options purchased by the Fund.
Global Income Fund would normally purchase call options in anticipation of an increase in the dollar value of currency in which securities to be acquired by the Fund are quoted or denominated. The purchase of a call option would entitle Global Interest Fund, in return for the premium paid, to purchase specified currency at a specified price during the option period. The 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.
Global Income Fund would normally purchase put options in anticipation of a decline in the dollar value of currency in which securities in its portfolio are quoted or denominated ("protective puts"). The purchase of a put option would entitle Global Income 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 the Fund's portfolio securities due to currency exchange rate fluctuations. The 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.
In addition to using options for the hedging purposes described above, Global Income Fund may use options on currency to seek to increase total return. Global Income Fund may write (sell) covered put and call options on any currency in order to realize
greater income than would be realized on portfolio securities transactions alone. However, in writing covered call options for additional income, the Fund may forego the opportunity to profit from an increase in the market value of the underlying currency. Also, when writing put options, Global Income 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.
Global Income Fund would normally purchase call options to seek to increase total return in anticipation of an increase in the market value of a currency. The 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. Put options may be purchased by the Fund for the purpose of benefiting from a decline in the value of currencies which it does not own. The 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.
Yield curve options may be used for the same purposes as other options on securities. For example, a 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. A Fund may also purchase or write yield curve options in an effort to increase its current income if, in the judgment of the 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 a risk of loss even if the yield of one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated.
Yield curve options written by a Fund must be "covered." A call (or put) option is covered if a Fund holds another call (or put) option on the spread between the same two securities and maintains in a segregated account with its custodian cash or liquid, high-grade debt securities sufficient to cover the Fund's net liability under the two options. Therefore, a Fund's liability for such a covered option is generally limited to the difference between a Fund's liability under the option written by each 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.
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 transactions 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.
A Fund's 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. Until such time as the staff of the SEC changes its position, the Funds will treat purchased over-the-counter options and all assets used to cover written over-the-counter options as illiquid securities, except that with respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to a formula approved by the SEC.
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 successful use of options for hedging purposes depends in part on the applicable Adviser's ability to predict future price fluctuations and the degree of correlation between the options and securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency exchanges rates or to seek to increase total return, each Fund may purchase and sell various kinds of futures contracts, and purchase and write call and par options on any such futures contracts. Each Fund may also enter into closing purchase and sale transactions with respect to any of such contracts and options. The futures contracts may be based on various securities (such as U.S. Government securities), securities indices, foreign currencies in the case of Global Income Fund, and any other financial instruments and indices. A Fund will engage in futures and related options transaction only for bonafide hedging purposes as defined below or for purposes of seeking to increase total return to the extent permitted by regulations of the CFTC. All 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.
When interest rates are rising or securities prices are falling, a 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 securities prices are rising, a Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. Global Income Fund can seek to offset anticipated changes in the value of its
portfolio securities, or securities that it intends to purchase, are quoted or denominated by purchasing and selling futures contracts on such currencies. Global Income Fund may also sell futures contracts on a specified currency to protect against a decline in the value of such currency.
Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities will usually be liquidated in this manner, a Fund may instead make, or take, delivery of the underlying securities, or in the case of Global Income Fund currencies, whenever it appears economically advantageous to do so. A clearing corporation associated with the exchange on which futures on securities, and in the case of Global Income Fund, currencies are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date.
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 would be done, for example, when a Fund anticipates the subsequent purchase of particular securities when it has the necessary cash, but expects the prices or currency exchange rates then available in the applicable market to be less favorable than prices that are currently available.
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, (upon exercise of the option) 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, 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 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 series. 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.
for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. Except as stated below, each Fund's futures transactions will be entered into for traditional hedging purposes -- i.e., futures contracts will be sold to protect against a decline in the price of securities (or in the case of Global Income Fund, the currency in which they are quoted or denominated)that a Fund owns or futures contracts will be purchased to protect a Fund against an increase in the price of securities (or in the case of Global Income Fund, the currency in which they are quoted or denominated) that it intends to purchase. As evidence of this hedging intent, each Fund expects that on 75% or more of the occasions on which it takes a long futures (or option) position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities (or, in the case of Global Income Fund, the assets quoted or denominated in the related currency) in the cash market at the time when the futures (or option) position is closed out. However, in particular cases, when it is economically advantageous for a Fund to do so, a long futures position may be terminated (or an option may expire) without the corresponding purchase of securities or other assets.
As an alternative to compliance with the bona fide hedging definition, a CFTC regulation permits the Funds to elect to comply with a different test under which the aggregate initial margin and premiums required to establish positions to seek to increase total return in futures contracts and options on futures will not exceed 5% of the net asset value of a 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 Funds will engage in transactions in futures contracts and related options only to the extent such transactions are consistent with the requirements of the Code for maintaining their qualifications as regulated investment companies for federal income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating a Fund to purchase securities or currencies, may require the Fund to establish with the custodian a segregated account consisting of cash or liquid, high-grade debt securities 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 while a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates or 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 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. In addition, it is not possible to hedge fully or protect 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 futures not related to currency fluctuations.
Perfect correlation between a Fund's futures positions and portfolio position will be impossible to achieve because there are no futures contracts based on individual securities, except certain U.S. Government securities. The only futures currently available are on certain U.S. Government securities, securities indices and foreign currencies.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities. Under present regulatory policies, such loans may be made to institutions, such as brokers or dealers and would be required to be secured continuously by collateral in cash, cash equivalents or U.S. Government securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. A Fund has 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 continues to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned and also receives 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 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 are made only to firms deemed by the applicable Adviser to be of good standing, and when, in the judgment of the applicable Adviser, the consideration which can be earned currently from securities loans of this type justifies the attendant risk. If an Adviser determines to make securities loans, the value of the securities loaned will not exceed one-third of the value of the total assets of each Fund.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may purchase securities that are not registered or offered in an exempt non-public offering ("Restricted Securities") under the Securities Act of 1933, as amended ("1933 Act"), including securities eligible for resale to "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act.
However, a Fund will not invest more than 15% of its net assets in illiquid investments, which includes repurchase agreements maturing in more than seven days, interest rate, currency and mortgage swaps, interest rate caps, floors and collars, certain SMBS, municipal leases, certain over-the-counter options, securities that are not readily marketable and Restricted Securities, unless the Board of Trustees determines, based upon a continuing review of the trading markets for the specific restricted securities, that such Restricted Securities are liquid. The Trustees have adopted guidelines and delegated to the Advisers the daily function of determining and monitoring the liquidity of Restricted Securities. The Board of Trustees, however, will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how this market for Restricted Securities sold and offered under Rule 144A will develop, the Trustees will carefully monitor the Funds' 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 Fund 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 Securities normally reflect a discount from the price at which such securities trade when they are not restricted, since the restriction makes 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.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
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. The Funds 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, the Funds may dispose of or negotiate a commitment after entering into it. A Fund also may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. The Funds may realize a capital gain or loss in connection with these
transactions. For purposes of determining each Fund's average duration, the maturity of when-issued or forward commitment securities will be calculated from the commitment date. Each Fund is required to hold and maintain in a segregated account with the Fund's custodian until the settlement date, cash or liquid, high grade debt securities in an amount sufficient to meet the purchase price. 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected broker- dealers, banks or other financial institutions. 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 will be maintained by each Fund's custodian. The repurchase price may be higher than the purchase price, the difference being income to a Fund, or the purchase and repurchase prices may be the same, with interest at a stated rate due to a Fund together with the repurchase price on repurchase. In either case, the income to a Fund is unrelated to the interest rate on the security subject to the repurchase agreement.
For purposes of the Act and, generally, for tax purposes, a repurchase agreement is deemed to be a loan from a Fund to the seller of the security. For other purposes, it is not clear whether a court would consider the security purchased by a 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, 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, 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, a Fund would be at risk of losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for each Fund, the applicable 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), each 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 Funds, together with other registered investment companies having advisory agreements with the Advisers or their affiliates, may transfer uninvested cash balances into a single joint account, the daily aggregate balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions on behalf of the Funds, none of which may be changed without the approval of the holders of a majority of the outstanding voting securities of the applicable Fund. The investment objective of each Fund and all other investment policies or practices of the Funds, except as provided in the Prospectus, are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. See "INVESTMENT OBJECTIVE AND POLICIES" in the Prospectus. As defined in the Act, "a majority of the outstanding voting securities" of a Fund means the vote (a) of 67% or more of the shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy or (b) more than 50% of the outstanding shares of the Fund, whichever is less.
For the purposes of the limitations (except for the 300% asset coverage requirement with respect to borrowings), 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 Municipal Income Fund, the identification of the issuer of a Municipal Security that is not a general obligation is made by the Adviser based on the characteristics of the Municipal Security, the most important of which is the source of funds for the payment of principal and interest on such securities.
INVESTMENT IN UNSEASONED COMPANIES
The Government Income Fund and Global Income Fund may invest up to 5% of its total assets, calculated at the time of purchase, in companies (including predecessors) which have operated less than three years, excluding issuers whose debt securities have been
rated, at the time of investment, investment grade or better by at least one nationally recognized statistical rating organization. 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.
ADJUSTABLE RATE FUND MAY NOT:
(1) Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, if immediately after such purchase more than 5% of the Fund's total assets would be invested in such issuer, except that (a) up to 25% of the value of the Fund's total assets may be invested without regard to such 5% limitation, and (b) such 5% limitation shall not apply to repurchase agreements collateralized by obligations of the U.S. Government, its agencies or instrumentalities.
(2) Borrow money, except as a temporary measure for extraordinary or emergency purposes, provided that the Fund is required to maintain asset coverage of at least 300% for all borrowings. For purposes of this investment restriction, short sales, swap transactions, options, futures contracts and options on futures contracts, and forward commitment transactions shall not constitute borrowings.
(3) Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies or instrumentalities.
(4) Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the segregation of assets in connection with the writing of covered put and call options, swap transactions, the purchase of securities on a forward commitment or delayed delivery basis and collateral and initial or variation margin arrangements with respect to options, futures contracts and options on futures contracts.
(5) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures.
(6) Make short sales of securities, except short sales against-the-box, or maintain a short position.
(7) Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
(8) Purchase, hold or deal in real estate, including limited partnership interests, or oil and gas interests, although the Fund may purchase and sell securities that are secured by real estate or interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
(9) Invest in commodities or commodity futures contracts, except that the Fund may (a) purchase and sell futures contracts, including those relating to securities and indices, and options on any such futures contracts, and (b) purchase and sell securities on a forward commitment or delayed delivery basis.
(10) Lend any funds or other assets except through repurchase agreements or the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend portfolio securities in an amount not to exceed one third of the value of its total assets.
(11) Issue any senior security (as such term is defined in Section 18(f) of the Act) except as permitted in Investment Restriction Nos. (2), (5), (6) and (10).
In addition to the investment restrictions mentioned above, the Trustees of the Trust have voluntarily adopted the following policies and restrictions on behalf of Adjustable Rate Fund which are observed in the conduct of its affairs. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment restrictions in that they may be changed or amended by action of the Trustees of the Trust without prior notice to or approval of shareholders. Accordingly, Adjustable Rate Fund may not:
(a) invest more than 10% of its assets in securities of other investment companies;
(b) purchase warrants of any issuer, except on a limited basis, if, as a result, more than 2% of the value of its total assets would be invested in warrants which are not listed on the New York Stock Exchange and more than 5% of the value of its total assets would be invested in warrants, whether or not so listed, such warrants in each case to be valued at the lesser of cost or market, but assigning no value to warrants acquired by the Fund in shares or attached to debt securities;
(c) purchase (i) securities of any issuer with a record of less than three years' continuous operation, including predecessors, except U.S. Government securities and securities
guaranteed by any foreign government or its agencies or instrumentalities, or
(ii) common or preferred stocks that are not readily marketable, if such
purchase would cause the investment of the Fund in all such securities to exceed
5% of the value of the total assets of the Fund; or
(d) purchase puts, calls, straddles, spreads and any combination thereof if the value of the Fund's aggregate investment in such securities exceeds 5% of its total assets.
GOVERNMENT INCOME FUND MAY NOT:
(1) Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises, if immediately after such purchase more than 5% of the Fund's total assets would be invested in such issuer, except that (a) up to 25% of the value of the Fund's total assets may be invested without regard to such 5% limitation, and (b) such 5% limitation shall not apply to repurchase agreements collateralized by obligations of the U.S. government or by its agencies, instrumentalities or sponsored enterprises.
(2) Borrow money, except (a) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding one-third
of the Fund's total assets, including the amount borrowed; (b) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets; and
(c) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (d)
transactions in mortgage dollar rolls, but only if after each such borrowing
there is asset coverage of at least 300% as defined in the Act. For purposes of
this investment restriction, short sales, swap transactions, options, futures
contracts and options on futures contracts, and forward commitment transactions
shall not constitute borrowings.
(3) Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies, instrumentalities or sponsored enterprises.
(4) Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the segregation of assets in connection with the writing of covered put and call options, swap transactions, the purchase of securities on a forward commitment or delayed
delivery basis and collateral and initial or variation margin arrangements with respect to options, futures contracts and options on futures contracts.
(5) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures.
(6) Make short sales of securities, except short sales against-the-box, or maintain a short position.
(7) Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
(8) Purchase, hold or deal in real estate, including limited partnership interests, or in oil, gas or mineral interests, although the Fund may purchase and sell securities that are secured by real estate or interests therein, securities of real estate investment trusts and Mortgage-Backed Securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
(9) Invest in commodities or commodity futures contracts, except that the Fund may (a) purchase and sell futures contracts, including those relating to securities and indices, and options on any such futures contracts, and (b) purchase and sell securities on a forward commitment or delayed delivery basis.
(10) Lend any funds or other assets except through repurchase agreements or the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend portfolio securities in an amount not to exceed one-third of the value of its total assets.
(11) Issue any senior security (as such term is defined in Section 18(f) of the Act except as permitted in Investment Restriction No. (2).
In addition, as non-fundamental policies, the Government Income Fund may not:
(a) invest more than 10% of its assets in securities of other investment companies;
(b) purchase warrants of any issuer, except on a limited basis, if, as a result, more than 2% of the value of its total assets would be invested in warrants which are not listed on the New York Stock Exchange and more than 5% of the value of its total assets would be invested in warrants, whether or not so listed, such warrants in each case to be valued at the lesser of cost or
market, but assigning no value to warrants acquired by the Fund in shares or attached to debt securities;
(c) invest more than 5% of the Fund's total assets in (i) securities of any issuer with a record of less than three years' continuous operation, including predecessors, except Government Securities and securities guaranteed by any foreign government or its agencies or instrumentalities;
(d) purchase puts, calls, straddles, spreads and any combination thereof if the value of the Fund's aggregate investment in such securities exceeds 5% of its total assets;
(e) purchase additional securities while the amount of the Fund's borrowings exceeds 5% of the Fund's total assets; or
(f) invest (a) more than 15% of the Fund's net assets in illiquid investments, including repurchase agreements maturing in more than seven days, securities that are not readily marketable and restricted securities not eligible for resale pursuant to Rule 144A under the 1933 Act; (b) more than 5% of the Fund's total assets in restricted securities excluding securities eligible for resale pursuant to Rule 144; or (c) more than 15% of its net assets in restricted securities (including those eligible for resale under Rule 144A).
MUNICIPAL FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government or any of its agencies, authorities or instrumentalities, if immediately after such purchase, more than 5% of the Fund's total assets would be invested in such issuer or the Fund would hold more than 10% of any class of the outstanding voting securities of such issuer, except that (a) up to 25% of the Fund's total assets may be invested without regard to such limitations and (b) such limitations shall not apply to repurchase agreements collateralized by obligations of the U.S. Government or any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. (This restriction is not applicable to investments in tax-exempt securities issued by state and municipal governments and their agencies and instrumentalities; 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 limitation does not apply to investments or obligations of, or to municipal securities which have been pre-refunded by the use of obligations of, the U.S. Government or any of its agencies or instrumentalities. The Fund may invest 25% or more of the value of its total assets in Municipal Securities which are related in such a way that an economic, business or political development or change affecting one Municipal Security would also affect the other Municipal Securities. The Fund may so invest in (a) Municipal Securities the interest on which is paid solely from revenues of 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 Securities whose issuers are in the same state, or (c) industrial development obligations.
3. Borrow money, except: (a) from banks for temporary or short-term purposes or for the clearance of transactions in amounts not exceeding one-third of the Fund's total assets, not including the amount borrowed; (b) in connection with the redemption of shares of the Fund or to finance failed settlements of portfolio trades without immediately liquidating portfolio securities or other assets; and (c) in order to fulfill commitments or plans to purchase additional securities pending the anticipated sale of other portfolio securities or assets, but only if after each such borrowing there is asset coverage of at least 300% as defined in the Act. For purposes of this investment restriction, short sales, futures contracts, options on futures contracts, securities or indices and forward commitment transactions shall not constitute borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the deposit of assets in escrow in connection with the writing of covered put and call options and the purchase of securities on a forward commitment or delayed- delivery basis and collateral and initial or variation margin arrangements with respect to futures contracts and options on futures contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures.
6. Make short sales of securities, except short sales against-the-box, or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
8. Purchase, hold or deal in real estate (including real estate limited partnerships) or oil, gas or mineral leases,
although the Fund may purchase and sell securities that are secured by real estate or interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell futures contracts, including those relating to securities or indices, and options on futures contracts and purchase and sell securities on a forward commitment or delayed-delivery basis.
10. Lend any funds or other assets except through repurchase agreements or the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend its portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets. Any loans of portfolio securities will be made in accordance with guidelines established by the SEC and the Trust's Board of Trustees.
11. Issue any senior security (as such term is defined in Section 18(f) of the Act) except as permitted in Investment Restriction No. 3 and except for any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees of the Trust have voluntarily adopted the following policies and restrictions which are observed in the conduct of its affairs. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment restrictions in that they may be changed or amended by action of the Trustees of the Trust without prior notice to or approval of shareholders. Accordingly, the Municipal Income Fund may not:
1. Purchase or retain the securities of any issuers if the officers, directors, partners or Trustees of the Trust, its investment adviser or manager owning beneficially more than one-half of 1% of the securities of such issuer, together own beneficially more than 5% of such securities.
2. Write covered calls or put options with respect to more than 25% of the value of its total assets or invest more than 5% of its total assets in puts, calls, spreads or straddles, other than protective put options. The aggregate value of premiums paid on all options, other than protective puts, held by the Fund at any time will not exceed 5% of the Fund's total assets.
3. Invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or
(b) more than 15% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).
4. Purchase additional securities while the Fund's borrowings exceed 5% of its total assets.
5. Invest more than 5% of the Fund's total assets in the securities of issuers which, together with predecessors, have a record of less than three years of continuous operation, other than Municipal Securities that have been rated A or better by Moody's or Standard & Poor's.
For the purpose of applying the Fund's investment restrictions, the identification of the issuer of a Municipal Security that is not a general obligation made by the Adviser based on the characteristics of the Municipal Security, the most important of which is the source of funds for the payment of principal and interest on such securities. For purposes of the foregoing 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 fundamental investment restriction No. 3, the Fund must maintain asset coverage of at least 300% (as defined in the Act), inclusive of any amounts borrowed.
GLOBAL INCOME FUND MAY NOT:
(1) Borrow money, except from banks on a temporary basis, provided that the Fund is required to maintain asset coverage of at least 300% for all borrowings. For purposes of this investment restriction, short sales, transactions in currency, forward contracts, options, futures contracts and options on futures contracts, and forward commitment transactions shall not constitute borrowing.
(2) Invest more than 25% of the value of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry. This limitation does not apply to investments in obligations of the U.S. Government or any of its agencies or instrumentalities.
(3) Pledge, mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the extent related to the segregation of assets in connection with the writing of covered put and call options and the purchase of securities or currencies on a forward commitment or delayed-delivery basis and collateral and initial or variation margin arrangements with respect to forward contracts, options, futures contracts and options on futures contracts.
(4) Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in
currencies, options, futures and options on futures.
(5) Make short sales of securities, except short sales against-the-box, or maintain a short position. (The Fund does not currently intend to make short sales against-the-box.)
(6) Underwrite any issue of securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be underwriting.
(7) Purchase, hold or deal in real estate, including limited partnership interests, or oil and gas interests, although the Fund may purchase and sell securities that are secured by real estate or interests therein and may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities.
(8) Invest in commodities, except that the Fund may (a) purchase and sell futures contracts, including those relating to securities, currencies and indices, and options on any such futures contracts or currencies, and (b) purchase and sell currencies or securities on a forward commitment or delayed- delivery basis.
(9) Lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it may invest; however, the Fund may lend portfolio securities in an amount not to exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f) of the Act), except as permitted in Investment Restriction Nos. (1), (4), (5) and (9).
In addition, as non-fundamental policies, the Global Income Fund may not:
(1) Invest more than 10% of its total assets in securities of other investment companies or more than 5% of its total assets in the securities of any one investment company, in each case calculated at the time of purchase, or acquire more than 3% of the voting securities of any other investment company.
(2) Purchase warrants of any issuer, except on a limited basis, if, as a result, more than 2% of the value of its total assets would be invested in warrants which are not listed on the New York Stock Exchange and more than 5% of the value of its total assets would be invested in warrants, whether or not so listed, such warrants in each case to be valued at the lesser of cost or market, but assigning no value to warrants acquired by the Fund in shares or attached to debt securities.
(3) Invest (a) more than 15% of the Fund's net assets in illiquid investments, including repurchase agreements maturing in
more than seven days, securities that are not readily marketable and restricted securities not eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or (b) more than 5% of its total assets in restricted securities (including those eligible for resale under Rule 144A).
(4) Invest in the securities of other investment companies, except by purchase in the open market where no commission or profit to a sponsor or dealer results from the purchase other than the customary broker's commission, or except when the purchase is part of a plan or merger, consolidation, reorganization or acquisition.
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth below together with their respective positions and a brief statement of their principal occupations during the past five years. Trustees deemed to be "interested persons" of the Trust for purposes of the Act are indicated by an asterisk.
William H. Springer, Age 65, 701 Morningside Drive, Lake Forest, Illinois 60045.
Scott M. Gilman,* Age 35, One New York Plaza, New York, New York 10004.
Sachs since November 1993 and May 1994, respectively; Counsel to the Funds Group, GSAM since November 1993; formerly Associate of Shereff, Friedman, Hoffman & Goodman.
The Trustees and officers of the Trust hold comparable positions with certain other investment companies of which Goldman Sachs, GSAM or FMLP is the investment adviser, administrator and/or distributor. As of December 30, 1995, the Trustees and officers as a group owned less than 1% of the outstanding shares of beneficial interest of each Fund.
The following table sets forth certain information with respect to the compensation of each Trustee of the Trust for the one-year period ended October 31, 1995:
Total
Pension or Compensation
Aggregate Retirement from Goldman
Compensation Benefits Accrued Sachs Mutual
from the as of Part of Funds (including
Name of Trustees Trust Trust's Expenses the Trust)*
- --------------------------- -------------------------- ---------------- ----------------
Paul C. Nagel, Jr. $ - $0 $ -
Ashok N. Bakhru $ - $0 $ -
Marcia L. Beck $ - $0 $ -
David B. Ford $ - $0 $ -
Alan A. Shuch $ - $0 $ -
Jackson W. Smart $ - $0 $ -
William H. Springer $ - $0 $ -
Richard P. Strubel $ - $0 $ -
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* The Goldman Sachs Mutual Funds consisted of 70 mutual funds, including the seven series of the Trust, on October 31, 1995.
GSAM, One New York Plaza, New York, New York 10004, a separate operating division of Goldman Sachs, serves as the investment adviser to Municipal Income Fund, Global Income Fund and Government Income Fund pursuant to separate investment advisory agreements. FMLP, One New York Plaza, New York, New York 10004, serves as the investment adviser to Adjustable Rate Fund pursuant to an investment advisory agreement. FMLP, a Delaware limited partnership, is an affiliate of Goldman Sachs, 85 Broad Street, New York, New York 10004. GSAMI, 140 Fleet Street, London EC4A 2BJ, England, serves as subadviser to Global Income Fund pursuant to an investment advisory agreement. As a company with limited liability under the laws of England, GSAMI is regulated by the Investment Management Regulatory Organization Limited, a United Kingdom self-regulatory organization of its investment advisory business. See "MANAGEMENT" in the Fund Prospectus for a description of the applicable Adviser's duties as investment adviser or subadviser.
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 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, Milan, Montreal, Osaka, Paris, 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.
The 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. With an annual equity research budget approaching $120 million, Goldman Sachs' Investment Research Department covers approximately 1,700 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 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 U.S. and abroad. Goldman Sachs is also among the leading investment firms using quantitative analytics (now used by a growing number of investors) to structure and evaluate portfolios. For example, Goldman Sachs' options evaluation model analyzes each security's term, coupon and call option, providing an overall analysis of the security's value relative to its interest risk.
In planning Municipal Income Fund's strategies, Municipal Income Fund's portfolio managers also evaluate and monitor individual issues by using analytical techniques that have traditionally been applied to corporate bonds and mortgage-backed securities. In particular, the Adviser's embedded option valuation model provides a picture of an individual security's relative value and the portfolio's overall interest rate risk. By constantly reviewing the positions of securities with the portfolio, the Adviser looks for opportunities to enhance Municipal Income Fund's yields by fine-tuning the portfolio, using quantitative tools designed for municipal portfolio management. The Adviser, which managed approximately $3 billion in tax-free securities on 1995, has assembled an experienced team of professionals for selection of Municipal Income Fund's portfolio securities.
In structuring Adjustable Rate Fund's securities portfolio, the Adviser will review the existing overall economic and mortgage market trends. The Adviser will then study yield spreads, the implied volatility and the shape of the yield curve. The Adviser will then apply this analysis to a list of eligible securities that meet the Adjustable Rate Fund's investment guidelines. This analysis is used to plan a two-part portfolio, which will consist of a "core" portfolio of ARMs and a "relative value" portfolio of other mortgage assets that can enhance portfolio returns and lower risk (such as investments CMO floating rate tranches and interest only stripped Mortgage-Backed Securities). The Adviser's Mortgage-Backed Securities team managed approximately $5.2 billion in assets at ___, 1995.
With respect to Adjustable Rate Fund and Government Income Fund, the 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 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 applicable 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 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 Advisers will first evaluate the absolute level of a security's OAS considering its liquidity and its interest rate, volatility and prepayment sensitivity. The Advisers will then analyze its value relative to alternative investments and to its own investments. The Advisers will also measure a security's interest rate risk by computing an option adjusted duration (OAD). The Advisers believe a security's OAD is a better measurement of its price sensitivity than cash flow duration, which systematically misstates portfolio duration. The Advisers also evaluate returns for different mortgage market sectors and evaluate the credit risk of individual securities. This sophisticated technical analysis allows the 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 Fund's duration targets and cash flow pattern requirements.
Because the OAS is adjusted for the differing characteristics of the underlying securities, the OAS of different Mortgage-Backed Securities can be compared directly as an indication of their relative value in the market. The 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 Advisers will use OAS analytics to choose what they believe is an appropriate portfolio of investments for Adjustable Rate Fund and Government Income 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 of Adjustable Rate and Government Income Fund's particular composition and performance targets, the 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 Advisers also expect to use OAS analytics to evaluate the mortgage market on an ongoing basis. Changes in the relative value of various Mortgage- Backed Securities could suggest tactical trading opportunities for the Funds. The 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 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 Advisers with respect to a Fund does not preclude Goldman Sachs from providing these services to third parties or using such services as a basis for trading for its own account or the account of others.
The fixed income research capabilities of Goldman Sachs available to the Advisers include the Goldman Sachs Fixed Income Research Department and the Credit Department. The Fixed Income Research Department monitors developments in U.S. and foreign fixed income markets, assesses the outlooks for various sectors of the markets and provides relative value comparisons, as well as analyzes trading opportunities within and across market sectors. The Fixed Income Research Department is at the forefront in developing and using computer- based tools for analyzing fixed income securities and markets, developing new fixed income products and structuring portfolio strategies for investment policy and tactical asset allocation decisions. The Credit Department tracks specific governments, regions and industries and from time to time may review the credit quality of a Fund's investments.
In addition to fixed income research and credit research, the Advisers in managing Global Income Fund are supported by Goldman Sachs' economics research. The Economics Research Department, based in London, conducts economic, financial and currency markets research which analyzes economic trends and interest and exchange rate movements worldwide. The Economics Research Department tracks factors such as inflation and money supply figures, balance of trade figures, economic growth, commodity prices, monetary and fiscal policies, and political events that can influence interest rates and currency trends. The success of Goldman Sachs' international research team has brought wide recognition to its members. The team has earned top rankings in the annual "Extel Financial Survey" of U.K. investment managers in the following categories: U.K. Economy 1989-1994; International Economies 1986, 1988-1994; and Currency Movements 1986-1993.
In allocating assets in the Global Income Fund's portfolio among currencies, the 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 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 Goldman Sachs' research professionals' expectations to produce an optimal currency and asset allocation for the level of risk suitable for the Global Income Fund's investment objective and criteria.
Each Fund's advisory agreement, and in the case of Global Income Fund, the Subadvisory agreement(the "Advisory Agreements") was most recently approved by the Trustees of the Trust, including a majority of the Trustees of the Trust who are not parties to such agreements or "interested persons" (as such term is defined in the Act) of any party thereto (the "non-interested Trustees"), on April 26, 1995. The applicable Advisory Agreement was approved by the shareholders of Adjustable Rate Fund on October 30, 1991, the sole initial shareholder of Municipal Income Fund on July 26, 1993, the sole initial shareholder of the Government Income Fund on January 30, 1993 and the shareholders of Global Income Fund on December 1, 1991. Each Advisory Agreement will remain in effect until June 30, 1996 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 the outstanding voting securities of such 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.
Each Advisory Agreement will terminate automatically if assigned (as defined in the Act). Each 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 a Fund on 60 days, written notice to the applicable Adviser or by the Adviser on 60 days written notice to the Trust.
The Advisory Agreements provide that GSAM, FMLP, and GSAMI in their capacity as advisers and subadviser, may each render similar services to others so long as the services under the Advisory Agreements are not impaired thereby. Pursuant to the Advisory Agreement with Adjustable Rate Fund, FMLP is entitled to receive a fee payable monthly by Adjustable Rate Fund equal on an annual basis to .40 of 1% of the Adjustable Rate Fund average daily net assets. FMLP has voluntarily agreed to reduce such fee by an amount equal to 0.10% annually of such net assets. Pursuant to the Advisory Agreements with Municipal Income Fund, Government Income Fund and Global Income Fund, respectively, GSAM receives a monthly fee payable by each of Municipal Income Fund, Government Income Fund, and Global Income Fund equal on an annual basis to .40 of 1%, .50 of 1% and .25 of 1% of each such Fund's average daily net assets respectively. GSAM, in the case of Global Income Fund, voluntarily agreed to limit such fee to annual rate equal to .10 of 1% of the Global Income Fund's average daily net assets. Pursuant to a separate Subadvisory Agreement with GSAMI, in the case of Global Income Fund, GSAMI is entitled to receive a monthly subadvisory fee from the Global Income Fund equal on an annual basis to .50 of 1% of such Fund's average daily net assets. GSAMI voluntarily agreed to limit such fee to an annual rate equal to .30 of 1% of the Global Income Fund's average daily net assets. FMLP has agreed voluntarily to reduce or otherwise certain limit other expenses of Adjustable Rate Fund, to the extent that such
other expenses (excluding advisory fees, fees paid under distribution, Authorized dealer, service or administration plans, taxes, interest, brokerage, and litigation, indemnification and other extraordinary expenses) would exceed 0.05% per annum of such Fund's average daily net assets. Such reductions or limits, if any, are calculated monthly on a cumulative basis. The voluntary fee limitations and expense limitations or reductions referred to above may be discontinued or modified by the Advisers at their discretion at any time.
For the fiscal years ended October 31, 1995, 1994 and 1993, the amounts of the investment advisory fees incurred by each Fund then in existence were as follows:
1995 1994 1993
----- ---------- ----------
Adjustable Rate Fund* $ $6,798,185 $9,498,008
Municipal Income Fund** 35,494 0
Government Income Fund*** 0 0
Global Income Fund**** 1,518,814 1,553,394
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* Had expense limitations not been in effect, Adjustable Rate Fund would have paid advisory fees of $___________ $________ and $__________ respectively, for such periods. In addition, the expenses of Adjustable Rate Fund were reduced or otherwise limited in the amounts of $_________, $442,880, and $731,102, respectively, by the Adviser for such periods.
** For the period from July 20,1993 (commencement of operations) to October 31, 1993, the Adviser voluntarily agreed not to impose its advisory fee amounting to $23,115 for such period. For the fiscal year ended October 31, 1995 and October 31, 1994, the Adviser voluntarily agreed not to impose a portion of advisory fee, amounting to $_______________ and $138,667, respectively, for such periods.
*** For the fiscal year ended October 31, 1995, October 31, 1994 and for the period from February 10, 1993 (commencement of operations)through October 31, 1993, the Adviser voluntarily agreed not to impose its investment advisory fees amounting to $__________, $65,604 and $28,306, respectively, for such periods.
*** In addition, to the advisory fees shown above from GSAM, for the fiscal years ended October 31, 1995, October 31, 1994 and October 31, 1993, the Global Income Fund paid GSAMI subadvisory fees of $_____, $3,037,627 and $3,106,787, respectively. Prior to July 1995, the fee and expense limitations discussed above were not in effect.
Each Adviser performs administrative services for the applicable Funds under its Advisory Agreement or a separate administration agreement. Such administrative services include, subject to the general supervision of the Trustees of the Trust, (a) providing supervision of all aspects of the Funds' non-investment operations (other than certain operations performed by others pursuant to agreements with the Funds), (b) providing the Funds, to the extent not provided pursuant to such agreements, the agreement with the Trust's custodian, transfer and dividend disbursing agent or agreements with other institutions, with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Funds, (c) arranging, to the extent not provided pursuant to such agreements, for the preparation, at the Funds' expense, of each Fund's tax returns, reports to shareholders, periodic updating of the Funds' prospectuses and statements of additional information, and reports filed with the SEC and other regulatory authorities, (d) providing the Funds, to the extent not provided pursuant to such agreements, with adequate office space and certain related office equipment and services, and (e) maintaining all of the Funds' records other than those maintained pursuant to such agreements.
For the service provided to each Fund under their respective administration agreement, each Fund (other than Adjustable Rate Fund) pays GSAM a monthly fee equal to .15% of such funds average daily net assets on an annual basis.
For the fiscal years ended October 31, 1995, 1994 and 1993, the amounts of the administration fees incurred by each Fund (other than Adjustable Rate Fund) then in existence were as follows:
1995 1994 1993
---- ---- ----
Municipal Income Fund* 55,277 0
Government Income Fund** 0 0
Global Income Fund*** 911,288 932,036
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* For the fiscal year ended October 31, 1995 and October 31, 1994, GSAM voluntarily agreed not to impose a portion of its administration fee amounting to $__________ and $10,229. For the period for July 20, 1993, (commencement of operations) through October 31, 1993, GSAM voluntarily agreed not to impose its administration fee, which would have amounted to $8,668 for such period.
** For the fiscal years ended October 31, 1995, October 31, 1994 and for the period February 10, 1993 (commencement of
operations) through October 31, 1993, GSAM voluntarily agreed not to impose its administration fees, which would have amounted to $__________, $19,681 and $8,492, respectively, for such periods.
Goldman Sachs and its affiliates, including, without limitation, the Advisers and their advisory affiliates, Goldman Sachs International ("GSI") and J. ARON & Co. ("ARON") 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 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. Such activities could affect the prices and availability of the securities, currencies and instruments in which the Funds will 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 Advisers' and their advisory affiliates' asset management activities, will be executed independently of the Funds' transactions and thus at prices or rates that may be more or less favorable. When the Advisers and their advisory affiliates seek to purchase or sell the same assets for their managed accounts, including the Funds, the assets actually purchased or sold may be allocated among the accounts on a basis determined in 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 Advisers, and/or their affiliates will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which, or in securities of issuers for which, the Advisers and/or their affiliates are performing services or when position limits have been reached.
In connection with their management of applicable Funds, the Advisers may have access to certain fundamental analysis and
proprietary technical models developed by Goldman Sachs, J. ARON and other affiliates. The Advisers will not be under any obligation, however, to effect transactions on behalf of the Funds in accordance with such analysis and models. In addition, neither Goldman Sachs nor any of its affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Funds and it is not anticipated that the Advisers will have access to such information for the purpose of managing the Funds. The proprietary activities or portfolio strategies of Goldman Sachs and its affiliates or the activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly from the results achieved by the Advisers and their affiliates for their proprietary accounts or accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that Goldman Sachs and its affiliates and such other accounts will achieve investment results which are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which Goldman Sachs and its affiliates achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible.
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 a 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 Funds invest.
In addition, certain principals and certain of the employees of the Advisers are also principals or employees of Goldman Sachs, J. ARON 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 Advisers may enter into transactions and invest in instruments and, in the case of Global Income Fund, currencies on behalf of the applicable Funds 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 Funds, 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, currencies or instruments of which may be those in which the Funds invest 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 into transactions with other clients of Goldman Sachs or its affiliates where such other clients have interests adverse to those of the Funds. To the extent affiliated transactions are permitted, the Funds will deal with Goldman Sachs and its affiliates on an arm's-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.
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. Goldman Sachs will consider the effect of redemptions on a Fund and other shareholders in deciding whether to redeem its shares.
Goldman Sachs 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 dated February 1, 1993. Pursuant to the distribution agreement, after the Funds' 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 has entered into sales agreements with certain investment dealers and financial service firms (the "Authorized Dealers") to solicit subscriptions for Class A and Class B Shares of each of the Funds (except Adjustable Rate Fund is not currently offering Class B Shares). Goldman Sachs received 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 Shares, of such Fund shares. No Class B Shares were outstanding during the fiscal years ended October 31, 1993, 1994 and 1995. Goldman Sachs retained the following commissions on sales of Class A shares during the following periods:
1995 1994 1993
-------- -------- -------
Adjustable Rate Fund*** $ $ $
Municipal Income Fund* 76,000 12,000
Government Income Fund** 5,000 7,000
Global Income Fund 350,000 922,000
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* For the period July 20, 1993 (commencement of operations) through October 31, 1993
** For the period February 10, 1993 (commencement of operations) through October 31, 1993.
*** Prior to ___, 1995 Adjustable Rate Fund did not offer Class A Shares.
Goldman Sachs serves as the Trust's transfer and dividend disbursing agent.
Under its transfer agency agreement with the Trust, Goldman Sachs has undertaken
with the Trust with respect to each Fund to (i) record the issuance, transfer
and redemption of shares, (ii) provide confirmations of purchases and
redemptions, 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.
As compensation for the services rendered to the Trust by Goldman Sachs as transfer and dividend disbursing agent with respect to the Class A and Class B Shares of the Funds and the assumption by Goldman Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a fee with respect to the Class A and Class B shares of each Fund equal to $12,000 plus $7.00 per account per year, together with out-of-pocket and transaction-related expenses (including those out-of-pocket expenses payable to servicing agents.)
For the fiscal years ended October 31, 1995, 1994 and 1993, the amounts of transfer agency fees incurred with respect to the Class A Shares of each Fund then in existence were as follows:
1995 1994 1993
---- ---- ----
Adjustable Rate Fund*** $ $ $
Municipal Income Fund 70,811 17,500**
Government Income Fund 57,960 44,012
Global Income Fund 132,123 127,834
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* Municipal Income Fund commenced operations on July 20, 1993.
** Government Income Fund commenced operations on February 10, 1993.
*** Prior to ___, 1995 Adjustable Rate Fund did not offer Class A Shares.
During the fiscal year ended October 31, 1994, Goldman Sachs incurred the following expenses in connection with distribution and personal and account maintenance services under the Plan on behalf of the Fund.
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 Funds are not impaired thereby. Each such agreement also provides that the Trust will indemnify Goldman Sachs against certain liabilities.
EXPENSES
Except as set forth in the prospectus under "MANAGEMENT --Investment Advisers and Subadviser," the Trust, on behalf of each Fund, is responsible for the payment of each Fund's respective expenses. The expenses borne by the outstanding classes of Adjustable Rate Fund, Municipal Income Fund, Government Income Fund and Global Income Fund include, without limitation, the fees payable to GSAM, FMLP, GSAMI as the case may be, and Goldman Sachs, the fees and expenses of the Trust's custodian, 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, tax and auditing fees and expenses (including the cost of legal and certain accounting services rendered by employees of Goldman Sachs, or its affiliates, with respect to the Trust), expenses of preparing and setting in type Prospectuses, Additional Statements, proxy material, reports and notices and the printing and distributing of the same to the Trust's shareholders and regulatory authorities, fees under any distribution, authorized dealer service, administration or service plan applicable to a particular class any compensation and expenses of its "non-interested" Trustees and extraordinary expenses, if any, incurred by the Trust. Except for transfer agency fees, and any fees paid under distribution, Authorized dealer service, administration or service plans, all Fund expenses are borne on a non-class specific basis.
The Advisers voluntarily have agreed to reduce or otherwise limit certain Other Expenses of the respective Funds (excluding transfer agency fees, advisory, subadvisory and administration fees, fees payable under service, administration, distribution and authorized dealer service plans, taxes, interest, brokerage and litigation, indemnification and other extraordinary expenses) to ___% of the Adjustable Rate Fund, 0.30% of the Municipal Income Fund and Government Income Fund and 0.06% of the Global Income Fund's average daily net assets. Such reductions or limits are calculated monthly on a cumulative basis. Although the Advisers and Subadviser have no current intention of modifying or discontinuing such expense limitation or the limitations on the advisory or subadvisory fees, described above under "MANAGEMENT Investment Advisers," each may do so in the future at its discretion. For the fiscal years ended October 31, 1995, October 31, 1994 and October 31, 1993, Other Expenses of each Fund reduced by the Advisers in the following amounts were:
1995 1994 1993
---- ---- ----
Adjustable Rate Fund
Municipal Income Fund* $224,285 $161,754
Government Income Fund**
Global Income Fund
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* Municipal Income Fund commenced operations on February 10, 1993.
** Government Income Fund commenced operation on July 20, 1993.
The Advisers have also each agreed that if, in any fiscal year, the sum of a Fund's expenses (including the fee payable to the Advisers, but excluding taxes, interest, brokerage commissions, and, where permitted, extraordinary expenses such as for litigation) exceeds the expense limitations applicable to the Fund imposed by state securities administrators, as such limitations may be lowered or raised from time to time, it will reduce its fee (to the extent of its fees) or make other arrangements to limit Fund expenses to the extent required by such expense limitations. Currently, the most restrictive expense limitation imposed by state securities administrators provides that annual expenses (as defined) may not exceed 2-1/2% of the first $30 million of the average value of the Fund's net assets, plus 2% of the next $70 million, plus 1- 1/2% of such assets in excess of $100 million.
Fees and expenses of legal counsel, registering shares of each 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 costs incurred by GSAM, FMLP or GSAMI, as the case may be, in performing certain accounting services not being provided by the Trust's custodian.
State Street Bank and Trust Company ("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 sub-custodians from time to time to hold certain securities purchased by the Trust in foreign countries and to hold cash and currencies for the Trust.
Arthur Andersen LLP, independent public accountants, One International Place, Boston, Massachusetts 02110, have been selected as auditors of the Trust. In addition to audit services, Arthur Andersen LLP prepares the Trust's federal and state tax returns, and provides consultation and assistance on accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Funds are generally effected at a net price without a broker's commission (i.e., a dealer is dealing with a Fund as principal and receives compensation equal to the spread between the dealer's cost for a given security and the resale price of such security). In certain foreign countries, debt securities in which Global Fund may invest are traded on exchanges at fixed commission rates. In connection with portfolio transactions, the Advisory and Subadvisory
Agreements provide that the Advisers shall attempt to obtain the best net price and the most favorable execution. The Advisory Agreements provide that, on occasions when the Advisers deem the purchase or sale of a security to be in the best interests of a Fund as well as its other customers (including any other fund or other investment company or advisory account for which the Advisers or an affiliate act as investment adviser), a Fund, 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. 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 Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to the applicable Fund and such other customers. In some instances, this procedure may adversely affect the size and price of the position obtainable for a Fund. To the extent that the execution and price offered by more than one dealer are comparable, the Advisory Agreements permit each Adviser, in its discretion, to purchase and sell portfolio securities to and from dealers who provide the Trust with brokerage or research services. The fees received under the Advisory Agreements are not reduced by reason of the Adviser receiving such brokerage and research service.
For the fiscal years ended October 31, 1995, 1994 and 1993, the Funds then in existence paid no brokerage commissions.
During the fiscal year ended October 31, 1995, the Funds acquired and sold securities of their regular broker-dealers: [Nomura Securities International, Chemical Securities, J.P. Morgan & Co., Inc., UBS Philips Securities, Inc., Lehman Brothers, Inc., Nikko Securities, Inc., Morgan Stanley & Co., Smith Barney, Shearson, Bankers Trust Company and Salomon Brothers, Inc.] At October 31, 1995, held no securities of their regular broker-dealers.
SHARES OF THE TRUST
The Trust's Agreement and Declaration of Trust dated September 24, 1987, as amended (the "Trust Agreement"), permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest of one or more separate series, provided each share has a par value of $.001 per share, represents an equal proportionate interest in that series with each other share of the same class and is entitled to such dividends out of the income belonging to such series as are declared by the Trustees.
The Trustees have authority under the Trust Agreement to create and classify shares of beneficial interest in separate series of the Trust without further action by shareholders. As of the date of this Additional Statement, the Trustees have authorized
shares of the Funds and three other series. The Trust Agreement further authorizes the Trustees of the Trust to classify or reclassify any series or portfolio of shares into one or more classes. Pursuant thereto, the Board of Trustees has authorized the issuance of the following classes of shares of each Fund: Adjustable Rate Fund - Class A Shares, Institutional Shares, Administration Shares and Service Shares; Municipal Income Fund and Government Income Fund - Class A Shares and Class B Shares; and Global Income Fund - Class A Shares, Class B Shares, Institutional Shares and Service Shares. As of October 31, 1995, no Service Shares of Adjustable Rate Fund or Global Income Fund were outstanding and ; no Class B Shares of Municipal Income Fund, Government Income Fund or Global Income Fund were outstanding.
Each Class A Share, Class B Share, Institutional Share, Administration Share and Service Share of a Fund represents an equal proportionate interest in the assets belonging to the Fund. All Fund expenses are allocated among classes based on a percentage of a Fund's aggregate average net assets attributable to each class, except that transfer agency fees and fees under distribution, authorized dealer service, administration and service Plans relating to a particular class will be borne exclusively by that class.
Class A Shares of Adjustable Rate Fund, Municipal Income Fund, Government Income Fund and Global Income Fund are sold, with an initial sales charge of up to 1.50% in the case of Adjustable Rate Fund, and 4.5% in the case of the other Funds through brokers and dealers who are members of the National Association of Securities Dealers, Inc. and certain other financial service firms that have sales agreements with Goldman Sachs. Class A Shares of Adjustable Rate Fund, Municipal Income Fund, Government Income Fund, and Global Income Fund bear the cost of distribution and service (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net assets of such Class A Shares. Currently, Goldman Sachs has voluntarily agreed to waive its entire distribution fee with respect to Adjustable Rate Fund. Goldman Sachs may discontinue or modify such waiver at any time. Class A Shares of Adjustable Rate Fund, Municipal Income Fund, Government Income Fund, and Global Income Fund also bear the cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of average daily net assets attributable to Class A Shares.
Class B Shares of a Fund are sold subject to a contingent deferred sales charge of up to 5.0% 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. Class B Shares of a Fund 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 of a Fund also bear the cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of
the average daily net assets of a Fund attributable to Class B Shares.
It is contemplated that most Administration Shares and Service 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. Administration Shares and Service Shares will each be marketed only to such investors, at net asset value with no sales load. Institutional Shares may be purchased for accounts in the name of an investor or institution that is not compensated by a Fund for services provided to the institution's customers. Administration Shares may be purchased for accounts held in the name of an institution that provides certain account administration services to its customers, including maintenance of account records and processing orders to purchase, redeem and exchange Administration Shares. Administration Shares bear the cost of account administration fees at the annual rate of up to 0.25% of the average daily net assets of such Administration Shares. 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 and processing orders to purchase, redeem or exchange Service Shares, responding to customer inquiries and assisting customers with investment procedures. Service Shares bear the cost of service fees at the annual rate of up to 0.50 of 1% of the average daily net assets of such Service Shares. (Institutions that provide services to holders of Administration Shares or Service Shares are referred to in this Additional Statement as "Service Organizations").
It is possible that an institution or its affiliate may offer different classes of shares (i.e., Class A, Class B, Institutional, Administration and Service Shares) to its customers and thus receive different compensation with respect to different classes of shares of each Fund. Class A Shares, Class B Shares, Administration Shares and Service Shares may 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 fund and certain money market funds sponsored by Goldman Sachs. 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 in the same amount, except for differences caused by the fact that certain expenses are allocated to specific classes. 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, each Fund's shares are fully paid and non-assessable by the Trust. In the event of liquidation of a Fund, shareholders of that Fund are entitled to share pro rata in the net assets of that Fund available for distribution to such shareholders. All shares entitle their holders to one vote per share, are freely transferable and have no preemptive, subscription or conversion rights.
As of November 30, 1996, the following entities and persons
beneficially owned 5% or more of the outstanding shares of the following Funds:
Adjustable Rate Fund Class A Shares - James Scott, P.O. Box 8048,
Charlottsville, VA 22906 (35%), John R. Phillips, 3120 Woodland Drive NW,
Washington, D.C. 20008-3512 (6%) and Fairmont General Hospital Attn: Funded
Depreciation c/o Controller, 1325 Locust Avenue, Fairmont, WV 26554-1482 (6%);
Global Income Fund - First National Bank of North Dakota, Attn: Josie Wahl, P.O.
Box 6001, Grand Forks, ND 58206 (5%) and State Street Bank & Trust Co. TTEE
Goldman Sachs Employees Pension Plan Tr-ILA Fund Attn: Louis Pereira P.O. Box
1992, Boston, MA 02105-1992 (6%); Government Income Fund - Charles Machine Works
Inc ESOP TR Mike Stodola Trustee PO Box 66, 1959 W. First, Perry, OK 73077-5803
(7%) and Bob Smith Foundation, 3811 Turtle Creek Centre #2150, Dallas, TX 75219-
4454 (20%).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, there is a remote possibility that shareholders of a business trust could, under certain circumstances, be held personally liable as partners for the obligations of such trust. The Trust Agreement contains an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Trust Agreement provides for indemnification out of Trust property of any shareholder charged or held personally liable for obligations or liabilities of the Trust solely by reason of being or having been a shareholder of the Trust and not because of such shareholder's acts or omissions or for some other reason. The Trust Agreement also provides that the Trust shall, upon proper and timely request, assume the defense of any charge made against any shareholder as such for any obligation or liability of the Trust and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
Rule 18f-2 under the Act provides that any matter required to be submitted by the provisions of the Act, 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.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining in good faith the fair value of securities of the Funds. In accordance with procedures adopted by the Trustees of the Trust, 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 4:00 p.m. New York time) on each Business Day (as defined in the prospectus).
For the purpose of calculating the net asset value of the Funds, portfolio securities, other than money market instruments, for which accurate market quotations are readily available, are valued on the basis of dealer- supplied quotations or by a pricing service approved by the Board of Trustees. The prices derived by a pricing agent reflect broker/dealer-supplied valuations and electronic data processing techniques. Options and futures contracts are valued at the last sale price on the market where any such option or futures contract is principally traded. In the case of the Global Income Fund forward foreign currency exchange contracts are valued at the mean between the last bid and asked quotations supplied by a dealer in such contracts. Portfolio securities for which accurate market quotations are not available and other assets are valued at fair value as determined in good faith pursuant to procedures established by the Board of Trustees and may include yield equivalents or a price matrix. Money market instruments held by each Fund with a remaining maturity of sixty days or less will be valued by the amortized cost method, which approximates market value.
In the case of the Global Income Fund, 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 foreign securities is substantially completed each day at various times prior to the time the Global Income Fund calculates its net asset value. Occasionally, events affecting the values of such securities may occur between the times at which they are determined and the calculation of net asset value which will not be reflected in the computation of the Global Income Fund's net asset value unless the Trustees deem that such event would materially affect the net asset value, in which case an adjustment would be made.
OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
The following information supplements the information in the
Prospectus under the captions "How to Invest," "How to Sell Shares of the Funds" 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
A shareholder qualifies for cumulative quantity discounts if the current purchase price of the new investment plus the shareholder's current holdings of existing shares (acquired by purchase or exchange) of the Funds and shares of any other Goldman Sachs Portfolio (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 $35,000 and purchases additional shares of any Fund with a purchase price of $25,000, the sales charge for the $25,000 purchase would be 4.75% (the rate applicable to a single purchase of more than $60,000). Shares purchased without the imposition of a sales charge may not be aggregated with shares purchased subject to a sales charge. Shares of the Funds and any other Goldman Sachs Portfolio purchased (i) by an individual, his spouse and his minor 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, shares of the Funds and any other Goldman Sachs Portfolio purchased by an existing client of the Private Client Services Division of Goldman Sachs will be combined with shares held by any other account over which such client or the client's spouse exercises investment or voting power. In addition, shares of the Funds and shares of any other Goldman Sachs Portfolio purchased by partners, directors, officers or employees of the same business organization or by groups of individuals represented by and investing on the recommendation of the same accounting firm or other similar organization (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 or firm's agreement to cooperate in the offering of the Funds' shares to eligible persons; and (ii) notification to the Funds at the time of purchase that the investor is eligible for this right of accumulation.
STATEMENT OF INTENTION
If a shareholder anticipates purchasing at least $50,000 of shares of a Fund alone or in combination with shares of any other Goldman Sachs Portfolio 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 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 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.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A Fund shareholder should obtain and read the prospectus relating to any other Fund, Goldman Sachs Portfolio or ILA Portfolio (as defined in the Prospectus) and its shares or units 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 Portfolios or in units of ILA Portfolios is available only in states where such reinvestment may legally be made.
AUTOMATIC EXCHANGE PROGRAM
A Fund shareholder may elect cross-reinvestment 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 Portfolio and its shares and consider its investment objective, policies and applicable fees and expenses before electing an automatic exchange into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is available to shareholders of a Fund whose shares are worth at least $10,000. 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. Furthermore, 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.
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 Funds. 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 Funds. This summary is based on the laws in effect on the date of this Additional Statement, which are subject
to change.
Each series of the Trust, including each Fund, is a separate taxable entity. Each Fund has qualified and elected to be treated and intends to continue to qualify for each taxable year as a regulated investment company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derive at least 90% of its annual gross
income (including tax-exempt interest) 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"); (b) a Fund derive less than 30% of its annual
gross income from the sale or other disposition of any of the following which
was held for less than three months: (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies) and (iii) foreign currencies and foreign currency
options, futures and forward contracts that are not directly related to the
Fund's principal business of investing in stocks or securities or options and
futures with respect to such stocks or securities (the "short-short test"); and
(c) a 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 its total (gross) assets
is comprised of cash, cash items, United States 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
United States 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. Gains from the sale or
other disposition of foreign currencies (or options, futures or forward
contracts on foreign currencies) that are not directly related to Global Income
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities will be treated as gains from the
sale of investments held for less than three months under the short-short test
(even though characterized as ordinary income for some purposes) if such
currencies or instruments were held for less than three months. 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 Global Income 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 contracts for purposes other than hedging currency risk with respect to securities in Global Income Fund's portfolio or anticipated to be acquired may not qualify as "directly related" under these tests.
As a regulated investment company, a Fund will not be subject to U.S. federal income tax on the portion of its income and capital gains that it distributes to its shareholders in any taxable year for which it distributes, in compliance with the Code's timing requirements, at least 90% of its "investment company taxable income" (which includes dividends, taxable interest, taxable original issue discount income, market discount income, income from securities lending, net short-term capital gain in excess of net long-term capital loss, 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 over certain disallowed deductions ("net tax-exempt interest"). A Fund may retain for investment its "net capital gain" (which consists of the excess of its net long-term capital gain over its net short-term capital loss). However, if a Fund retains any investment company taxable income or net capital gain, it will be subject to tax at regular corporate rates on the amount retained. If a Fund retains any net capital gain, the Fund may designate the retained amount as undistributed net capital gain 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 at least annually to its shareholders all or substantially all of its investment company taxable income (if any), 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 Global Income Fund and may therefore make it more difficult for Global Income Fund to satisfy the distribution requirements described above, as well as the excise tax distribution requirements described below. However, Global Income 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, its net tax-exempt interest 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.
For federal income tax purposes, each Fund is permitted to carry forward a net capital loss in any year to offset its own net capital gains, if any, during the eight years following the year of the loss. At October 31, 1995, the Adjustable Rate Fund had approximately $____ of capital loss carryforwards, which expires as follows: [insert years] At October 31, 1995, the Municipal Income Fund had approximately $____ of capital loss carryforwards, which expires in ____. At October 31, 1995, the Government Income Fund and Global Income Fund had no capital loss carryforwards.
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 realized capital gains over its realized capital losses (generally computed on the basis of the one-year period ending on October 31 of such year) and 100% of any taxable ordinary income and the excess of realized capital gains over realized capital losses for the prior year that was not distributed during such year and on which the Fund did not pay federal income tax. The Funds anticipate that they will generally make timely distributions of income and capital gains in compliance with these requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, dividends declared by a Fund in October, November or December as of a record date in such a month which are actually paid in January of the following year will be treated as if they were paid by the Fund and received by shareholders on December 31 of the year declared.
Municipal Income Fund may purchase Municipal Securities together with the right to resell the securities to the seller at an agreed upon price or yield within a specified period prior to the maturity date of the securities. Such a right to resell is commonly known as a "put" and is also referred to as a "standby commitment." Municipal Income Fund may pay for a standby commitment either separately, in cash, or in the form of a higher price for the securities which are acquired subject to the standby commitment, thus increasing the cost of securities and reducing the yield otherwise available. Additionally, Municipal Income Fund may purchase beneficial interests in Municipal Securities held by trusts, custodial arrangements or partnerships and/or combined with third-party puts and other types of features such as interest rate swaps; those investments may require the Fund to pay "tender fees" or other fees for the various features provided.
The Internal Revenue Service (the "Service") has issued a 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. The Service has also issued private letter rulings to certain taxpayers (which do not serve as precedent for other taxpayers) to the effect that tax-exempt interest received by a regulated investment company with respect to such obligations will be tax- exempt in the hands of the company and may be distributed to its shareholders as exempt-interest dividends. The 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. Municipal Income Fund intends to take the position that it is the owner of any municipal obligations acquired subject to a standby commitment or other third party put and that tax-exempt interest earned with respect to such municipal obligations will be tax-exempt in its hands. There is no assurance that the Service will agree with such position in any particular case. Additionally, the federal income tax treatment of certain other aspects of these investments, including the treatment of tender fees paid by the Municipal Income Fund, in relation to various regulated investment company tax provisions is unclear. However, the Adviser intends to manage the Municipal Income Fund's portfolio in a manner designed to minimize any adverse impact from the tax rules applicable to these investments.
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 gain 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. Any gain or loss recognized on actual or deemed sales of these futures 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 or 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 short-short test described above may limit each Fund's ability to use options, futures and forward transactions as well as its ability to engage in short sales. 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. Certain tax elections may be available to the Funds 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 that may affect the amount, timing and character of income, gain or loss recognized by Global Income Fund. Under these rules, foreign exchange gain or loss realized by Global Income Fund 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 Global Income Fund's investment company taxable income (computed without regard to such loss) for a taxable year, the resulting loss would not be deductible by Global Income 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 Global Income 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.
Global Income Fund may 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. Because more than 50% of Global Income Fund's total assets at the close of any taxable year will generally consist of stock or securities of foreign corporations, Global Income Fund will generally qualify to file an election with the Internal Revenue Service pursuant to which shareholders of Global Income 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 Global Income 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, and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Global Income Fund may or may not make this election for any particular taxable year. If it does not make the election, Global Income Fund will, however, be entitled to deduct such taxes in computing its investment company taxable income.
If Global Income 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 qualified foreign taxes paid by Global Income Fund, although such shareholders will be
required to include their shares of such taxes in gross income if Global Income Fund makes the election referred to above.
If a shareholder chooses to take a credit for the foreign taxes deemed paid by such shareholders as a result of any such election by Global Income Fund, the amount of the credit that may be claimed in any year may not exceed the same proportion of the U.S. tax against which such credit is taken which the shareholder's taxable income from foreign sources (but not in excess of the shareholder's entire taxable income) bears to his entire taxable income. For this purpose, distributions from long-term and short-term capital gains or foreign currency gains by Global Income Fund will generally not be treated as income from foreign sources. This foreign tax credit limitation may also be applied separately to certain specific categories of foreign-source income and the related foreign taxes. As a result of these rules, which have different effect depending upon each shareholders's particular tax situation, certain shareholders of Global Income Fund not be able to claim a credit for the full amount of their proportionate shares of the foreign taxes paid by such Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-exempt shareholders, will ordinarily not benefit from this election. Each year, if any, that Global Income Fund files the election described above, its shareholders will be notified of the amount of (i) each shareholder's pro rata share of qualified foreign income taxes paid by Global Income Fund and (ii) the portion of Fund dividends which represents income from each foreign country.
If Global Income Fund acquires stock in certain non-U.S. 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") Global Income 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 such stock in such companies, even if all income or gain actually received by Global Income Fund is timely distributed to its shareholders. Global Income Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election would require Global Income Fund to recognize taxable income or gain without the concurrent receipt of cash. Global Income 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.
A Fund's investment in zero coupon securities, deferred interest securities, capital appreciation bonds 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 distribute this income or gain, maintain its qualification as a regulated investment company and avoid federal income or excise taxes, a Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold.
The federal income tax rules applicable to mortgage dollar rolls and interest rate and currency swaps, floors, caps and collars are unclear in certain respects, and a Fund may also be required to account for these instruments under tax rules in a manner that, under certain circumstances, may limit its transactions in these instruments.
TAXABLE U.S. SHAREHOLDERS -- DISTRIBUTIONS
MUNICIPAL INCOME FUND. Municipal Income Fund expects to qualify to pay
"exempt-interest dividends," as defined in the Code. To qualify to pay exempt-
interest dividends, Municipal Income Fund must, at the close of each quarter of
its taxable year, have at least 50% of the value of its total assets invested in
Municipal Securities whose interest is excluded from gross income under Section
103 (a) of the Code. In purchasing Municipal Securities, Municipal Income Fund
intends to rely on opinions of nationally recognized bond counsel for each issue
as to the excludability of interest on such obligations from gross income for
federal income tax purposes. Municipal Income Fund will not undertake
independent investigations concerning the tax-exempt status of such obligations,
nor does it 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 enacted during the last decade not only had the effect
of limiting the purposes for which tax-exempt bonds could be issued and reducing
the supply of such bonds, but also increased the number and complexity of
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 the Municipal Income Fund's distributions attributable
to interest the Municipal Income Fund received on such bond for the current year
and for prior years could be characterized or recharacterized as taxable income.
The availability of tax-exempt obligations and the value of Municipal Income
Fund's portfolio may be affected by restrictive federal income tax legislation
enacted in recent years or by similar, future legislation. If Municipal Income
Fund satisfies the applicable requirements, dividends paid by the Fund which are
attributable to tax exempt interest on Municipal
Securities and designated by Municipal Income Fund as exempt-interest dividends in a written notice mailed to its shareholders within sixty days after the close of its taxable year may be treated by shareholders as items of interest excludable from their gross income under Section 103(a) of the Code. Exempt- interest dividends Municipal Income Fund receives from other regulated investment companies, including exempt-interest dividends on auction rate preferred securities of such companies held by Municipal Income Fund, are treated as interest on Municipal Securities and may be distributed by Municipal Income Fund as exempt-interest dividends. The recipient of tax-exempt income is required to report such income on his federal income tax return. However, a shareholder is advised to consult his tax adviser with respect to whether exempt-interest dividends retain the exclusion under Section 103(a) if such shareholder would be treated as a "substantial user" under Section 147(a)(1) with respect to some or all of the tax-exempt obligations held by Municipal Income Fund. The Code provides that interest on indebtedness incurred or continued to purchase or carry shares of Municipal Income Fund is not deductible to the extent attributable to exempt-interest dividends.
Although all or a substantial portion of the dividends paid by Municipal Income Fund may be excluded by shareholders of Municipal Income Fund from their gross income for federal income tax purposes, Municipal Income Fund may purchase specified private activity bonds, the interest from which (including the Fund distributions attributable to such interest) may be a preference item for purposes of the federal alternative minimum tax (both individual and corporate). All exempt-interest dividends from Municipal Income Fund, whether or not attributable to private activity bond interest, may increase the "adjusted current earnings" preference item for purposes of the corporate alternative minimum tax, to the extent not already included in alternative minimum taxable income as income attributable to private activity bonds, and will be taken into account in determining the extent to which a shareholder's Social Security or certain railroad retirement benefits are taxable.
ALL FUNDS. Distributions of investment company taxable income, as defined
above, are taxable to shareholders who are subject to tax as ordinary income
whether paid in cash or reinvested in additional shares. Taxable distributions
include distributions from any Fund, including Municipal Income Fund, that are
attributable to (i) taxable income, including but not limited to dividends,
taxable bond interest, recognized market discount income, original issue
discount income accrued with respect to taxable bonds, income from repurchase
agreements, income from securities lending, income from dollar rolls, income
from interest rate or currency swaps, caps, floors and collars, and a portion of
the discount from certain stripped tax-exempt obligations or their coupons or
(ii) capital gains from the sale of securities or other investments (including
from the disposition of
rights to when-issued securities prior to issuance) or from options, futures or certain forward contracts. Any portion of such taxable distributions that is attributable to a Fund's net capital gain, as defined above, may be designated by the Fund as a "capital gain dividend," taxable to shareholders as long-term capital gain whether received in cash or additional shares and regardless of the length of time their shares of a Fund have been held.
It is expected that distributions made by the Funds will ordinarily not qualify for the dividends-received deduction for corporations because qualifying distributions may be made only from a Fund's dividend income that it receives from stock in U.S. domestic corporations. The Funds do not intend to purchase stock of domestic corporations other than limited investments in investment companies, distributions from which may in rare cases qualify as dividends for this purpose. 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 the 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. Receipt of certain distributions qualifying for the deduction may result in reduction of the tax basis of the corporate shareholder's shares and may give rise to or increase its liability for federal corporate alternative minimum tax.
Distributions in excess of a Fund's current and accumulated earnings and profits, as computed for federal income tax purposes, will first reduce a shareholder's basis in his shares and, after the shareholder's basis is reduced to zero, will generally constitute capital gains to a shareholder who holds his shares as capital assets. Amounts that are not allowable as a deduction in computing taxable income, including expenses associated with earning tax-exempt interest income, do not reduce a Fund's current earnings and profits for these purposes. Consequently, the portion, if any, of Municipal Income Fund's distributions from gross tax-exempt interest income that exceeds its net tax- exempt interest would be taxable as ordinary income to the extent of such disallowed deductions even though such excess portion may represent an economic return of capital.
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 that they would have received had they elected to receive cash and will have a cost basis in the shares received equal to such amount.
TAXABLE U.S. SHAREHOLDERS -- SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of, 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. Assuming the shareholder holds the shares as a capital asset at the time of such sale or other disposition, 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. All or a portion of a sales charge paid in purchasing Class A shares of a Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of that Fund or another fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. Any disregarded portion of such charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. If a shareholder received 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 the sale or redemption, 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. Also, any losses realized by shareholders who dispose of shares of Municipal Income Fund with a tax holding period of six months or less are disallowed to the extent of any exempt-interest dividends received with respect to such 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 the Fund. If disallowed, the loss will be reflected in an adjustment to the basis of the shares acquired.
After the close of each calendar year, Municipal Income Fund will inform shareholders of the federal income tax status of its dividends and distributions for such year, including the portion of such dividends that qualifies as tax- exempt and the portion, if any, that should be treated as a tax preference item for purposes of the federal alternative minimum tax. Shareholders who have not held shares of Municipal Income Fund for its full taxable year may have designated as tax-exempt or as a tax preference item a percentage of distributions which is not equal to the actual amount of tax-exempt income or tax preference item income earned by Municipal Income Fund during the period of their investment in Municipal Income Fund.
All distributions, whether received in shares or in cash, as well as redemptions and exchanges, must be reported by each shareholder who is required to file a U.S. Federal income tax return.
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.
BACKUP WITHHOLDING
Each Fund will be required to report to the Service all taxable distributions,as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt recipients, i.e., corporations and certain other investors distributions to which are exempt from the information reporting provisions of the Code. Under the backup withholding provisions of Code Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds may be subject to backup withholding of federal income tax at the rate of 31% in the case of non-exempt shareholders who fail to furnish the Funds with their correct taxpayer identification number and with certain required certifications or if the Service or a broker notifies the Funds that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. However, any taxable distributions from Municipal Income Fund will not be subject to backup withholding if such Fund reasonably estimates that at least 95% of its distributions will be exempt-interest dividends. A Fund may refuse to accept an application that does not contain any required taxpayer identification number or certification that the number provided is correct. If the backup withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in 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. Investors should consult their tax advisers about the applicability of the backup withholding provisions.
NON-U.S. 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. Dividends of investment company taxable income distributed by a Fund to a shareholder who is not a U.S. person will be subject to U.S. withholding tax at the rate of 30% (or a lower rate provided by an applicable tax treaty) unless the dividends are effectively connected with a U.S. trade or business of the shareholder, in which 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 shareholder who is not a U.S. person will not be subject to U.S. income or withholding tax unless the distributions are 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. shareholders may also be subject to U.S. withholding tax on deemed income resulting from any election by Global Income Fund to treat qualified foreign taxed t pays as passed through to shareholders (as described above), but they may not be able to claim a U.S. tax credit or deduction with respect to such taxes.
Any gain realized by a shareholder who is not a U.S. person 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 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.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or acceptable substitute may be subject to backup withholding at the rate of 31% on capital gain dividends and the proceeds of redemptions and exchanges. 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 a Fund.
STATE AND LOCAL TAXES
A Fund may be subject to state or local taxes in certain 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 a Fund and its shareholders under such laws may differ from their treatment under federal income tax laws, and investment in a Fund may have tax 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.
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. Thirty-day yield and average annual total return values are computed pursuant to formulas specified by the SEC. Each Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature.
Thirty-day yield is derived by dividing net investment income per share earned during the period by the maximum public offering price per share on the last day of such period. Yield is then annualized by assuming that yield is realized each month for twelve months and is reinvested every six months. 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.
Tax equivalent yield represents the yield an investor would have to earn to equal, after taxes, Municipal Income Fund's tax-free yield. Tax equivalent yield is calculated by dividing Municipal Income Fund's tax-exempt yield by one minus a stated federal and/or state tax rate.
Distribution rate for a specified period is calculated by analyzing distributions of net investment income for such period and dividing this amount by the net asset value per share 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 (and in the case of Class B shares 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. Any performance data for Class A Shares or Class B which is based upon a Fund's net asset value per share would be reduced if a sales charge were taken into account.
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 per share 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 following table presents thirty-day yield, tax equivalent yield (Municipal Income Fund only), distribution rate and average annual total return (capital plus reinvestment of all distributions) for the periods indicated.
Thirty-day yield, tax equivalent yield (Municipal Income Fund only), distribution rate and average annual total return are calculated separately for each class of shares in existence of each Fund. Each class of shares of each Fund is subject to different fees and expenses and may have different returns for the same period. There were no Service Shares of Adjustable Rate Fund and Global Income Fund and no Class B Shares of Municipal Income Fund, Government Income Fund and Global Income Fund outstanding during the periods presented below.
YIELD
Investment Pro-Forma
Fund Period Yield Yield/1/
- ---- ---------- ------ --------
30-Days
ended
10/31/95
Adjustable Rate Fund
Institutional Shares ___% ___%
Administration Shares ___% ___%
Class A Shares ___% ___%
Service Shares/2/ N/A N/A
Municipal Income Fund
Class A Shares ___% ___%
Class B Shares/3/ N/A N/A
Government Income Fund
Class A Shares ___% ___%
Class B Shares/4/ N/A N/A
Global Income Fund
Institutional Shares ___% ___%
Class A Shares ___% ___%
Class B Shares/5/ N/A N/A
Service Shares/5/ N/A N/A
|
DISTRIBUTION RATE
Pro-Forma
Investment Distribution Distribution
Fund Period Rate Rate
- ---- ------------- ------------- -----------------
30 - Days
Ended
10/31/95
Adjustable Rate Fund
Institutional Shares ____% ____%
Administration Shares ____% ____%
Class A Shares/2/ ____% ____%
Service Shares/2/ N/A N/A
Municipal Income Fund
Class A Shares ____% ____%
Class B Shares/3/ N/A N/A
Government Income Fund
Class A Shares/4/ ____% ____%
Class B Shares/4/ N/A N/A
Global Income Fund
Institutional Shares ____% ____%
Class A Shares ____% ____%
Class B Shares/5/ N/A N/A
Service Shares/5/ N/A N/A
|
TAX-EQUIVALENT YIELD/6/
Pro-Forma
Investment Tax-Equivalent Tax-Equivalent
Fund Period Rate Yield
- ----------------------- ---------- --------------- ---------------
30-Days
ended
10/31/95
Municipal Income Fund
Class A Shares ____% ____%
Class B Shares N/A N/A
|
1 Yield, tax equivalent yield (Municipal Income Fund only)and distribution rate
if the applicable Adviser had not voluntarily agreed limit its advisors fees
and to maintain expenses at a specified level.
2 There were no Service Shares of Adjustable Rate Fund outstanding during the
period indicated.
3 There were no Class B Shares of Municipal Income Fund outstanding during the
period indicated.
4 There were no Class B Shares of Government Income Fund outstanding during the
period indicated.
5 There were no Class B Shares or Service Shares of Global Income Fund
outstanding during the periods indicated.
6 The tax-equivalent rate of Municipal Income Fund is computed based on the
39.6% federal income tax rate.
The above tables should not be considered a representation of future performance.
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
Ending Redeemable
Investment Investment Amount Value of Investment
Fund Date Period Invested at Period End Cumulative Average Annual
- ---- ----------- ---------- -------- ----------------------- ------------------------ -----------------------
With Fee Without Fee With Fee Without Fee With Fee Without Fee
Reductions Reductions Reductions Reductions Reductions Reductions
and/or and/or and/or and/or and/or and/or
Expense Expense Expense Expense Expense Expense
Limitations Limitations Limitations Limitations Limitations Limitations
----------- ----------- ----------- ----------- ----------- -----------
Adjustable Rate Fund
Institutional Shares 7/17/91 /1a/ ended $1,000 $ $ % % % %
10/31/95
11/1/94 one year
ended
10/31/95 $1,000 $ $ % % % %
Administration Shares 4/15/93 /1b/ ended $1,000 $ $ % % % %
10/31/95
11/1/94 one year
ended
10/31/95 $1,000 $ $ % * % %
Service Shares/1c/ N/A N/A N/A N/A N/A N/A
Global Income Fund
Institutional Shares 7/31/95/2/ ended $1,000 $ $ % % % %
10/31/95
11/1/94 one year
ended
10/31/95 $1,000 $ $ % % % %
Service Shares/2/ N/A N/A N/A N/A N/A N/A
|
The above table should not be considered a representation of future performance.
Class A Shares
Class B Shares
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
Ending
Redeemable
Value of
Investment Investment Amount Investment at Average
Date Period Invested Period End Cumulative Annual
----------- --------------- --------- -------------- ----------- --------
ADJUSTABLE RATE FUND
Class A Shares 5/12/95* ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No Fee or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations $_____ _____% _____%
Class B Shares** 11/1/93 ended 10/31/94 $1,000 N/A N/A N/A
MUNICIPAL INCOME FUND
Class A Shares 7/20/93* ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No Fee or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations $_____ _____% _____%
11/1/94 ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No Fee or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations $_____ _____% _____%
Class B Shares** N/A N/A N/A
GOVERNMENT INCOME FUND
Class A Shares 2/10/93* ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No Fee or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations $_____ _____% _____%
11/1/94 ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations $_____ _____% _____%
N/A N/A N/A
Class B Shares**
GLOBAL INCOME FUND***
Class A Shares 8/2/91* ended 10/31/95 $1,000
$_____ _____% _____%
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No or Expense Limitations $_____ _____% _____%
No Sales Charge or Fee or Expense Limitations
11/1/94 ended 10/31/95 $1,000
Assumes 4.5% Sales Charge $_____ _____% _____%
Assumes No Sales Charge $_____ _____% _____%
4.5% Sales Charge and No Fee or Expense Limitations $_____ _____% _____%
No Sales Charge of Fee or Expense Limitations $_____ _____% _____%
N/A N/A N/A
Class B Shares**
|
*Commencement of investment operations, or in the case of Adjustable Rate Fund,
date of initial issuance of Class A Shares.
**No Class B Shares were outstanding
***On November 27, 1992, the maximum sales charge was changed from 3% to 4.5% of
the offering price.
The above table should not be considered a representation of future performance.
All performance figures in this table incorporate the sales charge currently in
effect.
Occasionally statistics may be used to specify a Fund's 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.
In addition, Adjustable Rate Fund and Government Income Fund may from time to time advertise performance relative to certain indices and benchmark investments, including: (a) the Shearson Lehman Government/Corporate (Total) Index, (b) Shearson Lehman Government Index, (c) Merrill Lynch 1-3 Year Treasury Index, (d) Merrill Lynch 2-Year Treasury Curve Index, (e) the Salomon Brothers Treasury Yield Curve Rate of Return Index, (f) the Payden & Rygel 2 Year Treasury Note Index, (g) 1 through 3 year U.S. Treasury Notes, (h) constant maturity U.S. Treasury yield indices, (i) the Consumer Price Index, (j) the London Interbank Offered Rate, (k) other taxable investments such as certificates of deposit, money market deposit accounts, checking accounts, savings accounts, money market mutual funds, repurchase agreements, commercial paper and (l) historical data concerning the performance of adjustable and fixed-rate mortgage loans.
Municipal Income Fund may from time to time advertise its performance relative to certain indices, any components of such indices and benchmark investments, including but not limited to: (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 Lehman Brothers Municipal Bond Indices; (c) the Merrill Lynch Municipal Bond Institutional Total Rate of Return Indices; (d) Bond Buyer Indices; (e) IBC/Donoghue's Money Fund Averages/Institutional Only Tax Free; and (f)constant maturity U.S. Treasury yield indices.
Global Income Fund may advertise information which has been provided to the National Association of Securities Dealers, Inc. for publication in regional and local newspapers. In addition, Global Income Fund may from time to time advertise its 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 Shearson Lehman Brothers Aggregate Bond Index or its component indices (the Aggregate Bond Index measures the performance of Treasury, U.S. Government agency, corporate, mortgage and Yankee bonds); (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) historical investment data supplied by the research departments of Goldman Sachs, Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley, Salomon Brothers, Merrill Lynch and Donaldson Lufkin and Jenrette; and (k) Donoghues' Money Fund Report (which provides industry averages for 7-day annualized and compounded yields of taxable, tax-free and U.S. Government money funds).
The composition of the investments in the above-referenced indices and the characteristics of a Fund's benchmark investments are not identical to, and in some cases may be very different from, those of a Fund's portfolio. These indices and averages, as well as the averages set forth in Appendices, 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.
From time to time advertisements or communications to shareholders may summarize the substance of information contained in shareholder reports (including the investment composition of a Fund), as well as the views of Goldman Sachs as to current market, economic, trade and interest rate trends, legislative, regulatory and monetary developments, investment strategies and regulatory matters believed to be of relevance to a Fund.
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.
In addition, 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 therein.
Performance data is based on historical results and is not intended to indicate future performance. Total return, thirty-day yield, tax equivalent yield and distribution rate will vary based on changes in 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.
OTHER INFORMATION
The Trust assumed its current name on March 22, 1991. Prior thereto, the Trust's name was "Goldman Sachs -- Short-Intermediate Government Fund." Short-Term Fund assumed its current name in May 1991. Prior thereto, Short-Term Fund's name was "GS Short-Intermediate Government Fund." Goldman Sachs licensed the name "Goldman Sachs" and derivatives thereof to the Trust (and Fund) on a royalty-free basis and Goldman Sachs has reserved to itself the right to grant the non-exclusive right to use the name "Goldman Sachs" to any other person. At such time as the Advisory Agreement for a Fund is no longer in effect, the Trust on behalf of that Fund has agreed that such Fund will (to the extent it lawfully
can) cease using the name "Goldman Sachs."
Class A Shares of each Fund are sold at a maximum sales charge of 4.5%. Using the offering price as of October 31, 1995, the maximum offering price of the class A shares of each Fund's shares would be as follows:
Net Maximum Offering
Asset Sales Charge Price
Value to Public
Adjustable Rate Fund $ $ $
Municipal Income Fund $ $ $
Government Income Fund $ $ $
Global Income Fund $ $ $
|
A Fund will redeem shares solely in cash up to the lesser of $250,000 or 1% of its net asset value of each 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 each respective 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 each 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 a 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 a 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 a Fund.
The Prospectus and this Additional Statement do not contain all the information included in the Registration Statement filed with the SEC under the 1933 Act with respect to the securities offered by the 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.
Although each Fund is offering only its own shares, since the Funds use a combined Additional Statement, it is possible that one Fund might become liable for a misstatement or omission in this Additional Statement regarding another Fund. The Trustees for each Fund have considered this factor in approving the use of a combined Additional Statement.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen LLP, independent public accounts, for each Fund contained in each Fund's 1995 Annual Report are hereby incorporated by reference and attached hereto. 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 inside cover of the Fund's Prospectus.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
CLASS A DISTRIBUTION PLAN. As described in the Prospectus, the Trust with respect to the Class A Shares of each Fund has adopted a distribution plan (the "Class A Plan") pursuant to Rule 12b-1 under the Act. See "Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class A Plan was most recently approved on April 26, 1995 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 Class A Plan, cast in person at a meeting called for the purpose of approving the Plan. The Plan was approved by the sole initial shareholder of Class A Shares of Adjustable Rate Fund on May 12, 1995 and Municipal Income Fund, Government Income Fund and Global Income Fund on January 30, 1995.
The compensation payable under the Class A Plan may not exceed 0.25% per annum of each Fund's average daily net assets attributable to its Class A Shares. Goldman Sachs has voluntarily agreed with each Fund not to impose any distribution fee. Currently, Goldman Sachs is waiving its entire fee under the Class A Plans, while Goldman Sachs has no current intention of modifying or discontinuing such agreement, but may do so in the future at its discretion.
Effective [June 30], 1995, each Class A Plan was amended to reduce the fee payable under the plan from 0.50% to 0.25% of a Fund's average daily net assets attributable to Class A Shares. At the same time, each Fund adopted an Authorized Dealer Service Plan. See "Authorized Dealer Service Plans". For the fiscal years ended October 31, 1995, 1994 and 1993, each Fund paid Goldman Sachs the following amounts under the Class A plans:
1995 1994 1993
----- ---------- -----
Adjustable Rate Fund(a) $ N/A N/A
Municipal Income Fund(b) $ 85,242 $ 0
Government Income Fund(c) 14,350
Global Income Fund(d) 1,518,814
___________________
|
(a) For the period May 12, 1995 (date of initial issues of Class A Shares) through October 31, 1995. Had Goldman Sachs' voluntary limitation not been in effect, the Adjustable Rate Fund would have paid Goldman Sachs $_____ under the Class A Plan.
(b) Had Goldman Sachs' voluntary limitation not been in effect, the Municipal Income Fund would have paid Goldman Sachs a total of $____ and $212,701, respectively under the Class A Plan. For the period July 20, 1993 (commencement of operations) through October 31, 1993, Goldman Sachs voluntarily agreed not to impose its distribution fee for the Municipal Income Fund amounting to $28,893 for such period.
(c)For the period February 10, 1993 (commencement of operations) to October 31, 1993. Had Goldman Sachs' voluntary limitation not been in effect, the Government Income Fund would have paid a total of $____ and $65,604, respectively for such periods under the Class A Plan.
(d)Had Goldman Sachs' voluntary limitation not been in effect, the Global Income Fund would have paid Goldman Sachs $____ and $3,037,628 for such periods under the Class A Plan.
Goldman Sachs may pay up to the entire amount of such fee under the Plan to Authorized Dealers for providing services in connection with the sale of each Fund's shares. To the extent such fee is not paid to such dealers, Goldman Sachs may retain such fee as compensation for its services and expenses incurred in accordance with the Plan of distributing a Fund's shares. If such fee exceeds its expenses, Goldman Sachs may realize a profit from these arrangements.
The 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 a Plan were terminated by the Trustees of the Trust and no successor plan were adopted, the Fund would cease to make payments under the Plan to Goldman Sachs and Goldman Sachs would be unable to recover the amount of any of its unreimbursed expenditures. However, Goldman Sachs does not intend to make expenditures for which it may be compensated under the Plan at a rate that materially exceeds the rate of compensation received under the Plan.
During the fiscal year ended October 31, 1995, Goldman Sachs incurred the following expenses in connection with distribution under the Plan on behalf of each Fund.
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution of
October 31, of the Telephone Prospectuses Sales Literature
1995 Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
- --------------------------------------------------------------------------------------------
Adjustable
Rate Fund
Municipal
Income Fund
Government
Income Fund
Global
Income Fund
|
During the fiscal year ended October 31, 1995, Goldman Sachs incurred the following expenses in connection with Personal and account maintenance services under the Plan on behalf of each Fund.
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution of
October 31, of the Telephone Prospectuses Sales Literature
1995 Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
- --------------------------------------------------------------------------------------------
Adjustable
Rate Fund
Municipal
Income Fund
Government
Income Fund
Global
Income Fund
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Under the Class A Plan, Goldman Sachs, as distributor of each Fund's Class A 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 Plan and the purposes for which such services were performed and expenditures were made.
The Class A Plan will remain in effect until June 1, 1996 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 of the Trust who have no direct or indirect financial interest in the Class A Plan. A Class A Plan may not be amended to increase materially the amount to be spent for the services described therein without approval of a majority of the outstanding Class A Shares of the applicable Fund. All material amendments of the Class A Plan must also be approved by the Trustees of the Trust in the manner described above. The Class 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 Shares of each Fund. So long as the Class A Plan is in effect, the selection and nomination of non-interested Trustees of the Trust shall 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 Plan will benefit each Fund and its Class A Shareholders.
AUTHORIZED DEALER SERVICE PLAN. As described in the Prospectus, the Trust with respect to each Fund has adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan"). See "Distribution and Authorized Dealer Service Plans" in the Prospectus.
The compensation under the Service Plan may not exceed 0.25% per annum of the average daily net assets attributable to the Class A and Class B Shares of each Fund. Up to the entire amount of the fee under the Service Plan may be paid to Authorized Dealers for providing personal and account maintenance services in connection with each Fund's Shares. Under the Service Plan, Goldman Sachs will provide to the Trustees for their review at least quarterly a written report of the services provided and amount expended under the Service Plan.
For the fiscal year ended October 31, 1995 each Fund paid Goldman Sachs the following amounts under the Service Plan:
The Service Plan as applicable to Class A Shares was
approved on April 26, 1995 and are applicable to the Class B Share on January 30, 1996 by a majority of the Board of Trustees of the Trust. The Service Plan will remain in effect until June 1, 1996 and from year to year thereafter, provided that such continuance is approved annually by a majority vote of the Trustees, including a majority of the non-interested Trustees who have no direct or indirect financial interest in the Service Plan.
CLASS B DISTRIBUTION PLAN
As described in the Prospectus, the Trust has adopted on behalf of Municipal Income Fund, Government Income Fund and Global Income Fund, a distribution plan (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act with respect to Class B shares. See "Class B Distribution Plan" in the Prospectus.
The Class B Plan was approved on January 30, 1996 on behalf of the Trust 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 Class B Plan (the "non-interested Trustees"), cast in person at a meeting called for the purpose of approving the Class B Plan. The Class B Plan was approved by the sole initial shareholder of the Class B shares of the Municipal Income Fund, Government Income Fund and Global Income Fund on January 30, 1996.
With respect to each Fund, the compensation payable under the Class B Plan is equal to 0.75% per annum of the average daily net assets attributable to Class B shares of that Fund. The fees received by Goldman Sachs under Class B Plan and contingent deferred sales charge on 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 Class B shares. To the extent such fee is not paid to such dealers, Goldman Sachs may retain such fee as compensation for its services and expenses of distributing the Funds' Class B shares. If such fee exceeds its expenses, Goldman Sachs may realize a profit from these arrangements.
The Class B Plan is a compensation plan which provides for the payment of a specified distribution fee without regard to the distribution expenses actually incurred by Goldman Sachs. If the Class B Plan were terminated by the Trust's Board of Trustees and no successor plan were adopted, the Funds 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.
Under the Class B Plan, Goldman Sachs, as distributor of the Funds' shares, will provide to the Board of Trustees for its
review, and the Board will review at least quarterly, a written report of the services provided and amounts expended by Goldman Sachs under the Class B Plan and the purposes for which such services were performed and expenditures were made.
The Class B Plan will remain in effect with respect to each Fund from year to year, provided such continuance is approved annually by a majority vote of the Board of Trustees, including a majority of the non-interested Trustees. The Class B Plan may not be amended to increase materially the amount to be spent for the services described therein as to any Fund without approval of a majority of the outstanding Class B shares of that Fund. All material amendments of the Class B Plan must also be approved by the Board of Trustees of the Trust in the manner described above. With respect to any Fund, the Class B 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 outstanding voting securities of the Class B shares of that Fund. So long as the Class B Plan is in effect, the selection and nomination of non-interested Trustees shall 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 Class B Plan will benefit each Fund and its Class B shareholders.
DEAR SHAREHOLDERS:
We are pleased to have the opportunity to review the performance and activity of the Goldman Sachs Fixed Income Portfolios for the 12-month period ended October 31, 1995. To help put the portfolios' performance in perspective, we are also providing a brief overview of the U.S. economy and bond market during the period.
BONDS RALLIED STRONGLY AS RATES FELL
The U.S. bond market began the period under review (November 1, 1994, through October 31, 1995) still feeling the impact of rising rates. By year-end 1994, however, the bond market showed signs of strength and gained further momentum in 1995, primarily due to the slowing economy and subdued inflation. For the 12 months ended October 31, bonds enjoyed one of their best years ever, with the 30-year Treasury recording a total return of approximately 29%, competitive with the soaring stock market.
THE ECONOMY STARTED STRONG, SLOWED IN SPRING, THEN RECOVERED
The 12-month period began with the economy exhibiting robust growth and a wide range of indicators pointing to continued acceleration. The 1994 fourth-quarter real Gross Domestic Product (GDP) grew 5.1%, with employment, real disposable income, consumer spending and sales of new and existing homes all displaying impressive strength.
While 1995 began with real GDP increasing by 2.7% during the first quarter, the pace of growth had clearly moderated. That trend became more pronounced as a host of weak or declining indicators during the spring revealed that the economy abruptly slowed during the second quarter of 1995. Significantly, the growth of second-quarter real GDP was an anemic 1.3%.
By August, the economy appeared to revive. Employment, housing, construction spending and several other indicators showed signs of improvement that persisted into the fall. The flow of positive economic data appeared to indicate that the prior slowdown was largely due to a short-term inventory correction.
Third-quarter GDP growth was reported at an unexpectedly high 4.2%, which many interpreted as a result of one-time events. By the end of October, however, key economic reports were sending mixed signals regarding the health of the economy once again. Firmness in interest-rate-sensitive areas such as housing, motor vehicle sales and durable goods orders suggested steady growth, but retail sales and industrial output indicators were weak. Though the condition of the economy appeared uncertain, most observers agreed that inflation remained contained, with the Producer Price Index (PPI) and Consumer Price Index (CPI) up 2.6% and 2.8%, respectively, for the 12-month period ended October 31, 1995.
FED RAISED RATES TWICE DURING THE PERIOD, THEN CUT AS INFLATION FEARS EASED
The U.S. Federal Reserve Board raised the federal funds rate (the rates banks charge one another for overnight borrowing) by 75 basis points in November 1994 and by 50 basis points in February 1995. Including those two hikes, the Fed raised rates a total of seven times in its tightening cycle (from February 1994 through February 1995) by a total of 300 basis points to 6.00%.
The Fed remained neutral until early July 1995, when receding inflationary pressures and a weakening economy prompted it to cut the federal funds rate 25 basis points to 5.75%.
TABLE OF CONTENTS Market Overview 1 Financial Statements 22 Goldman Sachs Government Income Fund 3 Notes to Financial Statements 26 Goldman Sachs Global Income Fund 9 Financial Highlights 33 Goldman Sachs Municipal Income Fund 15 |
During the period under review, the yield curve flattened dramatically. The yield on six-month Treasury bills declined only slightly, from 5.66% on October 31, 1994, to 5.55% on October 31, 1995. However, for the same time period the yield on the 30-year U.S. Treasury bond fell more dramatically, from 7.97% a year ago to 6.33%.
HISTORICAL TREASURY YIELD CURVE
[CHART]
Years to Maturity 10/31/94 10/31/95
----------------- -------- --------
3-Month 5.14% 5.49%
6-Month 5.66% 5.55%
1 6.14% 5.55%
2 6.82% 5.61%
3 7.05% 5.68%
5 7.48% 5.81%
10 7.81% 6.02%
30 7.97% 6.33%
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Source: Bloomberg, L.P.
The yield curve flattened considerably as the yields on longer-term Treasuries fell more than the yields on shorter-term Treasuries, which shifted the curve downward at the longer end. The yield difference between two-year Treasury notes and 30-year Treasury bonds narrowed significantly.
DOLLAR REBOUNDED AFTER FALLING TO POST-WORLD WAR II LOWS
The U.S. dollar remained relatively strong from November 1994 through year-end 1994, due in large part to the Federal Reserve's tightening, then weakened signifi-cantly starting in January 1995. The U.S.-Japan trade imbalance, the Mexican peso devaluation and weakness in the U.S. economy (which led to reduced expectations of rising rates) contributed to the precipitous drop. By April, the dollar had declined to new postwar lows against the Deutsche mark and Japanese yen.
The dollar rallied against the yen and the Deutsche mark during the summer and early fall. Among the factors contributing to the dollar's rebound were the resolution of the U.S.-Japan trade dispute, the Japanese Ministry of Finance's package of measures to encourage foreign investment, the intervention of U.S. and foreign central banks in support of the dollar and Japan's discount rate cut. The dollar rallied from its April levels by approx-imately 26% against the yen and by approximately 4% against the Deutsche mark through the end of October.
ECONOMIC OUTLOOK: SIGNALS MIXED AS ECONOMY MODERATES AND BUDGET DEBATE CONTINUES
While the economy continues to show relative strength in some sectors such as housing, durable goods orders and employment, and the stock market remains strong, evidence of weakness has begun to emerge. Most notably, retail sales declined amid increasing levels of consumer debt, and industrial production was basically flat in October. With inflation under control, many expect the Fed to ease rates again in December if further weakening occurs. The favorable resolution of the federal budget debate, anticipated by year-end, is also a key factor in influencing further rate cuts. Near term, a healthy bond market is likely to persist. Longer term, economic growth is generally expected to pick up gradually by mid-1996.
We thank you for making the Goldman Sachs Fixed Income Portfolios part of your investment program and we look forward to continuing to serve your investment needs.
Sincerely,
/s/ David B. Ford David B. Ford Chief Executive Officer /s/ Sharmin Mossavar-Rahmani Sharmin Mossavar-Rahmani Chief Investment Officer - Fixed Income Investments Goldman Sachs Asset Management November 30, 1995 |
INVESTMENT OBJECTIVE
The Goldman Sachs Government Income Fund seeks to provide shareholders with a high level of current income consistent with safety of principal. Under normal conditions, at least 65% of the portfolio's total assets will be invested in U.S. government securities and in repurchase agreements collateralized by U.S. government securities. The fund may also invest in securities of nongovernmental issuers, including asset-backed securities, privately issued mortgage-backed securities and corporate debt obligations. Such securities will be rated triple- A at the time of investment or, if unrated, deemed to be of comparable quality by Goldman Sachs Asset Management, the fund's investment adviser.
PERFORMANCE REVIEW
For the 12-month period ended October 31, the fund had a total return of 14.90% based on net asset value (NAV) (7.23% in monthly distributions and 7.67% in share price appreciation) as compared with a return of 15.12% for the fund's benchmark, the Lehman Brothers Government/Mortgage Index (the "Index"). The fund's NAV rose $1.00 during the past 12 months as interest rates declined.
The fund underperformed the benchmark primarily due to its overweighting in mortgage-backed securities (MBS) (47.5% versus 34.5% for the benchmark). MBSs came under pressure as interest rates fell and homeowners opted to prepay their mortgages, which in turn depressed mortgage-backed security prices. We believe much of the prepayment risk has been factored into the market at this point and the fund is well positioned for a rebound in this sector.
During the period, the fund performed well versus its peers. Based on total return, the fund ranked 16th out of 93 (in the top 20%) intermediate U.S. government income funds tracked by Lipper Analytical Services, Inc., for the 12 months ended October 31 and significantly outperform-ed the category average of 12.92%. (Please note that Lipper rankings do not take sales charges into account and that past performance is not a guarantee of future results.)
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
As noted, the fund's sector weightings differed significantly from that of the Index as of October 31, 1995. The greatest differences were the fund's overweighting in mortgage-backed securities and underweighting in U.S. Treasuries. In addition, the fund also held a position in asset-backed securities, which are not included as part of the benchmark.
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*
[GRAPHIC]
Fixed Rate Mortgage Pass-Throughs ...... 39.8%
U.S. Treasuries ........................ 31.5%
Asset-Backed Securities ................ 14.3%
CMOs ................................... 7.7%
Agency Debentures ...................... 4.1%
Repos/Cash Equivalents ................. 2.6%
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* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. Fixed Rate Mortgage Pass-Throughs. The fund was overweighted in this sector as compared with the Index (39.8% versus 34.5%) in order to benefit from the potentially higher return of mortgage-backed securities relative to similar- duration securities. However, as mortgage-backed securities came under pressure in the declining interest rate environment and prepayment risk increased, this sector's performance was somewhat disappointing.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. As was the case last year, the fund's sector weighting in U.S. Treasuries on October 31, 1995 was significantly less than the Index (31.5% as compared with 57.0%). We used U.S. Treasuries and repurchase agreements/cash equivalents (2.6%) to manage the portfolio's duration, weighting one relative to the other according to our need to shorten or lengthen the portfolio's duration to target the benchmark. Using this strategy, the fund matched the benchmark's duration of 4.6 years at the end of the period.
. Asset-Backed Securities (ABSs). The portfolio's 14.3% position in triple-A- rated ABSs (including those backed by credit card debt and automobile and home equity loans) reflected their attractive yields compared with equal-duration Treasuries. The fund's ABS allocation, approximately the same as last year's, was not included in the benchmark.
. Agency Debentures. During the year, we increased the fund's holdings in agency debentures, because they represented attractive relative value versus Treasuries. Despite increasing the allocation, the fund was still underweighted relative to the benchmark (4.1% compared with 8.5%).
. Portfolio Composition by Issuer. The portfolio composition of the fund's mortgage-backed security holdings by issuer was: the Federal Home Loan Mortgage Corporation (26.6%), the Government National Mortgage Association (13.0%), the Federal National Mortgage Association (4.9%) and non-agency (3.0%).
. Credit Quality. As of October 31, the fund was primarily invested in U.S. government and agency securities (80.1%), with the remainder in triple-A-rated securities (17.3%) and repurchase agreements/cash equivalents (2.6%).
. Prudent Use of Derivatives. As of October 31, the fund held a 6.3% position in planned amortization class (PAC) CMOs that contributed incremental return relative to Treasuries and pass-through mortgages. We also added a position in inverse floaters (1.4%), whose yields move in the opposite direction from an index, for their potential to add incremental yield to the fund. These securities performed well as interest rates declined.
The fund has occasionally used mortgage dollar rolls to take advantage of short-term supply and demand imbalances in the mortgage settlement process. (Mortgage dollar rolls refer to transactions that involve selling mortgage securities owned by the fund and simul-taneously contracting to buy back similar mortgage securities with the same coupon on a specified future date - usually one month forward.) At all times, we "cover" the mortgage dollar rolls by keeping cash or high-grade liquid debt securities equal to the dollar amount of the forward commitment in a segregated account with the fund's custodian.
FUND OUTLOOK
We will continue to utilize Goldman Sachs' extensive economic, fixed income and mortgage research to help manage the fund and identify attractive opportunities as they occur. In the near term, we are cautiously optimistic about the mortgage pass-through sector. Though mortgage prepayments may potentially rise at year-end, widening yield spreads of mortgage pass-throughs relative to Treasuries may create attractive investment opportunities. When the pace of prepayments slows, we expect to use our proprietary analytical models to help us identify securities with the best potential for future gains.
Additionally, we have a neutral outlook for the ABS sector over the next quarter. Near term, the sector may experience an increase in consumer debt delinquencies and year-end selling. Strong investor demand, however, is likely to support prices over the longer term.
DISTRIBUTION POLICY
The fund paid out monthly distributions of approximately $0.94 per share during the 12-month period ended October 31, 1995. Dividends are declared daily and paid on a monthly basis. The fund intends to distribute substantially all of its investment company taxable income, as is required by tax law.
We value your continued confidence in the Goldman Sachs Government Income Fund and look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Jonathan A. Beinner Jonathan A. Beinner /s/ Theodore T. Sotir Theodore T. Sotir Portfolio Managers Goldman Sachs Government Income Fund November 30, 1995 |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the Goldman Sachs Government Income Fund ("Goldman Sachs Government Income") (assuming both the maximum sales charge of 4.5% and no sales charge), is compared with its benchmarks--the Lehman Brothers Mutual Fund Government/Mortgage Index ("Lehman Gov't/MBS Index") and the Lehman Brothers Mutual Fund General U.S. Government Index ("Lehman U.S. Gov't Index"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT/(a)/
[CHART]
Goldman Sachs Goldman Sachs Lehman Lehman
Government Income Government Income Gov't/MBS U.S. Gov't
(no sales charge) (w/sales charge) Index Index
----------------- ----------------- --------- ----------
3/1/93 10,000 9,550 10,000 10,000
10/31/93 10,506 10,033 10,584 10,699
10/31/94 10,192 9,734 10,267 10,220
10/31/95 11,710 11,183 11,819 11,792
Average Annual Total Return
---------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Government Income, 14.90% 7.06%
excluding sales charge
GS Government Income, 9.76% 5.27%
including sales charge
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/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of
operations.
/(b) Commenced operations February 10, 1993.
October 31, 1995
Principal Interest Maturity
Amount Rate Date Value
- ---------- -------- -------- -----------
MORTGAGE BACKED OBLIGATIONS--47.3%
FEDERAL HOME LOAN MORTGAGE CORP.--27.0%
$ 110,000 8.20% 01/16/98 $ 113,057
2,000,000 8.00 TBA-30 year/(a)/ 2,050,624
745,844 9.00 04/01/04 781,504
951,570 9.00 02/01/25 994,985
2,000,000 7.50 08/01/25 2,022,501
2,000,000 7.00 09/01/25 1,983,751
- -------------------------------------------------------------------------
$ 7,946,422
- -------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--12.7%
$ 654,909 9.00% 10/15/19 - 07/15/21 $ 691,748
928,887 9.50 05/15/25 1,005,521
1,998,192 8.00 09/15/25 2,057,515
- -------------------------------------------------------------------------
$ 3,754,784
- -------------------------------------------------------------------------
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Class A3 640,000 4.75 02/02/00 632,665 Principal Interest Maturity Amount Rate Date Value - ---------- -------- -------- ----------- |
100,000 7.25 11/15/96 101,625 880,000 7.38 11/15/97 908,743 2,570,000 7.50 10/31/99 2,723,403 1,490,000 6.25 02/15/03 1,516,313 |
The accompanying notes are an integral part of these financial statements.
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $ 456,535 Gross unrealized loss for investments in which cost exceeds value (54,364) - ------------------------------------------------------------------------- Net unrealized gain $ 402,171 ========================================================================= |
/(a)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally + / -2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(b)/ The interest rate disclosed for these securities represents effective
yields to maturity.
/(c)/ Portions of these securities are being segregated for mortgage dollar
rolls and/or open TBA purchases.
/(d)/ The aggregate cost for federal income tax purposes is $30,938,051.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
INVESTMENT OBJECTIVE
The Goldman Sachs Global Income Fund seeks high total return, composed of both current income and capital appreciation. The fund is permitted to invest in govern-ment and other high-quality (double-A or better) fixed income securities issued in the United States and in foreign markets. Since June 1, 1995, the fund has had the additional flexibility to invest in sovereign (government) debt rated single-A or better or deemed to be of comp-arable quality. In addition, the maximum duration the fund can target has been increased to 7.5 years from five years. Under normal market conditions, the fund's neutral position is to be fully hedged into U.S. dollars to best serve the needs of U.S. shareholders. However, the fund may engage in currency transactions, both to hedge exchange rate risk and enhance returns. The fund added an Institutional share class on August 1, 1995.
GLOBAL BOND MARKETS RALLIED
Foreign bond markets recorded impressive gains during the past 12 months, following the lead of the U.S. bond market. Bond markets in dollar bloc countries, including New Zealand and Canada, continued to perform well. In Europe, the "core" and "near core" bond markets (e.g., Germany, Holland, Belgium, France and Denmark) rallied, due to a supportive bond environment characterized by slowing economic activity, relatively low inflation and declining interest rates. In contrast, the European higher-yielding markets (Italy, Spain and Sweden) were affected by political uncertainties and inflation fears sparked by large budget deficits. The economic concerns of these and other European countries triggered a flight to quality as investors sought the perceived safety of the Deutsche mark and the Swiss franc. Currency weakness raised doubts about the readiness of some countries, particularly Italy, to participate in the European monetary union.
The Japanese economy remained weak during the period under review and appeared in danger of falling into a deflationary spiral. The Japanese government responded with a monetary and fiscal stimulus package, which included a discount rate cut on September 8, 1995. The government's continuing efforts to introduce liquidity into the Japanese economy triggered a market rally and resulted in the yen's decline relative to the U.S. dollar.
PERFORMANCE REVIEW
For the 12 months ended October 31, 1995, the fund's Class A shares had a total return of 15.08% based on net asset value (NAV) (7.23% from monthly distributions and 7.85% from share price appreciation) compared with a return of 15.37% for the fund's benchmark, the J. P. Morgan Global Government Bond Index (hedged into U.S. dollars) (the "Index").
From their inception on August 1, 1995, through October 31, 1995, the fund's Institutional shares returned 4.42% (1.85% from monthly distributions and 2.57% from share price appreciation) compared with 3.51% for the Index. The Index covers 14 major bond markets and reflects their currency exposures.
NAV NAV Change 30-Day SEC
Share Class (10/31/95) (10/31/94-10/31/95) Yield (10/31/95)
- ----------- ---------- ------------------- ----------------
Class A $14.45 +$1.02 4.81%
Institutional $14.45 +$0.36* 5.54%
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* From Institutional shares' inception on August 1, 1995 through October 31, 1995.
The fund performed well relative to its peers. According to Lipper Analytical Services, Inc., the fund's Class A shares ranked 31st out of 131 general world income funds, based on total return for the 12 months ended October 31, 1995. The fund's Class A shares far outperformed the Lipper general world income fund average of 11.52% for the period. (Please note that Lipper rankings do not take sales charges into account and that past performance is not a guarantee of future results. Institutional shares are not ranked by Lipper for this period because they were not available for the full year.)
The fund's Class A shares slightly underperformed the Index, due to the portfolio's underweighting in the higher-yielding bond markets of Europe. Though the portfolio is typically fully hedged into dollars, we
employed several currency strategies during the period that contributed to the fund's positive performance. In August, when the dollar appreciated against the yen, the fund took a short position in the yen and a long position in the U.S. dollar, successfully positioning the portfolio. Earlier in the period, we correctly anticipated that the dollar would decline and unhedged part of the fund's yen and Deutsche mark exposure.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*
[GRAPH]
U.S. ...................... 27.5% Cash Equivalents .......... 16.4% U.K. ...................... 13.2% Japan ..................... 12.2% France .................... 8.1% Canada .................... 7.7% Germany ................... 6.4% Spain ..................... 5.0% Belgium ................... 3.5% |
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. U.S. As was the case a year ago, the fund's single largest country position continued to be in U.S. Treasury notes, which represented 27.5% of the portfolio as of October 31, 1995. The fund is still significantly under-weighted versus the Index, which allocates 39.2% to the United States, because we believe that U.S. bond yields do not adequately compensate the fund for the inflationary risk given the pickup in commodity prices and the growth in the U.S. economy.
. Other Dollar Bloc Countries. In general, during the period we favored dollar bloc countries, with a preference for Canada and New Zealand based on the yield advantage they offered over U.S. Treasuries. As of October 31, the fund had a 7.7% position in Canada, significantly overweighting the Index (2.7%) but lower than its 12% position six months ago. At the time of the Quebec referendum in late October, the fund sold its Canadian holdings, because we determined that the Canadian bond risk/return trade-off had become unattractive during the Quebec election period. Following the Quebec vote, we reestablished the fund's position in the belief that the Canadian bond environment appeared favorable. Due in part to our concern about Australia's large current account deficit, we sold the fund's position in that country in March. In contrast, although the fund is not currently invested in New Zealand, it has held New Zealand bonds at various times during the past 12 months and we view its bond market favorably.
. Europe. Bond markets throughout Europe were affected by a number of uncertainties, ranging from perceived government instability to potential inflationary pressures. As a result of the unfavorable risk/return trade-off, we reduced last year's overweighting in Europe to 36.2% of the fund (as of October 31) compared with 41.4% for the benchmark.
[RIGHT ARROW] Germany. We view Germany, the leading "core" European market, as attractive, due to its relatively low inflation and weak monetary growth. The fund was underweighted in Germany relative to the Index (6.4% compared with 9.7%), however, because we favored the "near core" European markets of France and Belgium. We believe these countries offer better value than Germany and will behave as proxies in the event of a German bond rally.
[RIGHT ARROW] U.K. In October, the fund had a 13.2% position in the U.K., overweighted versus the Index position of 5.9%. During the period, the U.K. was attractive due to its slowing economic growth and subdued inflation, which created a supportive environment for bonds.
[RIGHT ARROW] France. France's political instability caused us to cut the fund's position approximately in half during the past six months. The fund is still slightly overweighted in France with an 8.1% position, compared with 7.4% for the Index. Going forward, we are somewhat encouraged by President Chirac's apparent commitment to reduce France's budget deficit and reform its Social Security system.
[RIGHT ARROW] Belgium. We expect Belgium (3.5%) to emerge as one of the key members of the European monetary union and therefore added a small position in June.
[RIGHT ARROW] Italy and Spain. We remain cautious about European higher-yielding bonds in general. However, we added a 5.0% position in Spain in October, because we believe Spain's economic and political risks are fully reflected in its bond prices. We sold the fund's position in Italy, due to that country's political and economic uncertainty.
- - Japan. We increased the fund's position in Japan during the past year, because its weak economy and low inflation appeared favorable for Japanese bonds. As of October 31, the fund had a 12.2% position in Japanese bonds, slightly underweighted versus the Index allocation of 15.5%. We have recently been reducing the fund's Japanese holdings, however, due to the government's aggressive monetary easing and expansionist fiscal policy. In addition, we are concerned by the extent to which the Bank of Japan has become the dominant buyer of Japanese bonds, creating artificial support for the market that may be unsustainable.
. Cash Equivalents. During the period, we raised the fund's cash equivalent position to 16.4%, up from 3.5% a year earlier, as a defensive move which also helped reduce the fund's duration. Going forward, we expect to reduce this position as attractive opportunities arise.
. Credit Quality. The portfolio was 100% invested in triple-A-rated securities as of October 31, and we will continue to stress high-quality bonds.
. Duration. As of October 31, the fund's duration was shorter than that of the Index (4.33 years compared with 4.94 years), largely due to its underweighting in Japan and its cash equivalent position. (Duration is a measurement of the fund's sensitivity to interest rate movements; the shorter the duration, the less the fund's NAV will move in relation to interest rate fluctuations.)
DISTRIBUTION POLICY
The fund declares and pays dividends on a monthly basis. During the period under review, the fund's Class A shares paid out distributions of $0.94 per share. From its inception on August 1, 1995, through October 31, 1995, the fund's Institutional shares paid out distributions of $0.26 per share. The fund intends to distribute substantially all of its investment company taxable income, as is required by tax law.
FUND OUTLOOK
Due to uncertainty concerning U.S. bond yield levels, for the near term we intend to keep the fund underweighted in U.S. Treasuries. Within the dollar bloc, we continue to prefer Canada and New Zealand, because of their wide yield spreads over U.S. Treasuries. In our opinion, New Zealand is particularly attractive and therefore we anticipate reestablishing the fund's position there. After three years of strong growth, that economy is showing signs of slowing and it has a credible central bank. In general, Europe appears poised for a rally as
economic growth slows. We intend to keep a neutral weighting in Europe compared with the benchmark, and we currently favor Belgium and France. In the U.K., financial markets may be affected by political instability stemming from the unpopularity of the Conservative government and the possibility of increased wage-based inflation. Consequently, we expect to reduce the fund's U.K. position to be approximately in line with the benchmark. We also anticipate continuing to reduce the fund's exposure in Japan, based on our concern that the government's economic stimulus may lead to economic growth and higher interest rates, which would further erode bond prices.
We will continue to utilize the resources of Goldman, Sachs & Co.'s London-based Economics Research Group for economic and market trend analysis, as well as the Goldman Sachs Asset Allocation Model to allocate the portfolio's assets and manage risk. We value your investment in the Goldman Sachs Global Income Fund and look forward to continuing our relationship in the future.
Sincerely,
/s/ Stephen C. Fitzgerald Stephen C. Fitzgerald Portfolio Manager, Fixed Income Investments /s/ Gareth I. Evans Gareth I. Evans Portfolio Manager, Currency |
Goldman Sachs Global Income Fund
London, November 30, 1995
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the Goldman Sachs Global Income Fund (assuming both the maximum sales charge of 4.5% and no sales charge for the Class A shares and at net asset value for the Institutional shares), is compared with its benchmark--the J.P. Morgan Global Government Bond Index hedged to U.S. Dollars ("J.P. Morgan GGB Index-$ Hedged"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT/(a)/ HYPOTHETICAL $10,000 INVESTMENT
Class A Shares Institutional Shares
[CHART] [CHART]
J.P. Morgan J.P. Morgan
Class A Shares Class A Shares GGB Index- Institutional GGB Index-
(no sales charge) (w/sales charge) $ Hedged Shares $ Hedged
----------------- ---------------- ----------- ------------- -----------
9/1/91 10,000 9,550 10,000 8/1/95 10,000 10,000
10/31/91 10,144 9,688 10,263 10/31/95 10,442 10,351
10/31/92 11,094 10,594 11,156
10/31/93 12,286 11,733 12,509
10/31/94 11,734 11,206 12,051
10/31/95 13,503 12,895 13,903
|
Average Annual Total Return
--------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Global Income-Class A,
excluding sales charge 15.08% 7.32%
GS Global Income-Class A,
including sales charge 9.92% 6.16%
GS Global Income,
Institutional Class N/A 4.42%/(c)/
|
/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of operations
of the Class A shares.
/(b)/ The Class A shares commenced operations August 2, 1991 and the
Institutional shares commenced operations on August 1, 1995.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since the Institutional Class has not completed a full
twelve months of operations.
October 31, 1995 Principal Interest Maturity Amount/(a)/ Rate Date Value - ----------- -------- -------- ------------ |
FRF 58,000,000 8.50% 03/28/00 $ 12,741,948
39,500,000 8.25 02/27/04 8,614,701
- -------------------------------------------------------------------------
$ 21,356,649
- -------------------------------------------------------------------------
JAPANESE YEN--12.1%
Japanese Development Bank
JPY 1,820,000,000 6.60% 06/20/01 $ 21,924,730
1,100,000,000 4.10 12/22/03 11,705,218
- -------------------------------------------------------------------------
$ 33,629,948
- -------------------------------------------------------------------------
|
USD 10,000,000 6.88% 07/31/99 $ 10,360,900
16,700,000 6.25 05/31/00 16,984,401
22,000,000 6.13 09/30/00 22,271,478
14,200,000 6.25 02/15/03 14,450,772
10,000,000 7.88 11/15/04 11,270,300
- -------------------------------------------------------------------------
$ 75,337,851
- -------------------------------------------------------------------------
|
Principal Interest Maturity Amount/(a)/ Rate Date Value - ----------- -------- -------- ------------ |
(Cost $273,501,082/(b)/) $272,945,552 ========================================================================= ========================================================================= FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for investments in which value exceeds cost $ 5,186,935 Gross unrealized loss for investments in which cost exceeds value (5,893,905) - ------------------------------------------------------------------------- Net unrealized loss $ (706,970) ========================================================================= |
/(a)/ The principal amount of each security is stated in the currency in which the bond is denominated. See below.
BEF = Belgian Franc FRF = French Franc BPS = British Pound Sterling JPY = Japanese Yen CAD = Canadian Dollar ESP = Spanish Peseta DEM = Deutsche mark USD = United States Dollar |
/(b)/ The aggregate cost for federal income tax purposes is $273,652,522.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
INVESTMENT OBJECTIVE
The Goldman Sachs Municipal Income Fund seeks to provide a high level of current income that is exempt from regular federal income tax, consistent with the preser-vation of capital. In pursuit of its objective, the fund invests in a diversified portfolio of municipal securities with an average credit quality of double-A or better. Under normal market conditions the fund will maintain an average portfolio maturity approximately equal to the average maturity of the Lehman Brothers 15-Year Municipal Bond Index.
MUNICIPAL BONDS RALLY AMID UNCERTAINTY
The municipal bond market performed well during the period under review (November 1, 1994, through October 31, 1995), with the average price of a 15- year municipal bond (as calculated from data provided by Municipal Market Data, an independent municipal market information provider) rising 9% while yields fell from 6.30% on November 1, 1994, to 5.35% on October 31, 1995. However, during the past 12 months the yield curve for municipal bonds became quite steep compared with Treasuries, and 15-year municipal bonds underperformed similar- duration Treasuries.
The first month of the fund's fiscal year coincided with the bottom of the 1994 bear market, as 30-year U.S. Treasury yields rose to 8.13% and long-term municipal bond yields rose to over 7%. In December 1994, however, the bond market stabilized. Fueled by strong municipal bond demand and a significant decrease in supply, municipal bonds surged from January through early April. Though municipals continued to record positive performance, the rally's momentum slowed from mid-April onward, reflecting investors' concern surrounding various tax reform proposals (e.g., the flat tax and a reduction in capital gains taxes) and the growing allure of the rallying equity market.
By midyear, short-term municipal bonds became more expensive as investors favored defensive maturities that provided greater liquidity, while demand for long-term bonds stagnated. By the end of October, however, growing bullish sentiment in the municipal bond market and a flattening municipal bond yield curve made longer term bonds increasingly attractive.
PERFORMANCE REVIEW
For the 12-month period ended October 31, 1995, the fund had a total return of 13.79%, based on net asset value (NAV) (5.26% from income distributions and 8.53% from share price appreciation) compared with a return of 15.76% for the Lehman Brothers 15-Year Municipal Bond Index (the "Index"), the fund's benchmark. The fund's NAV rose $1.09 during the period to $14.17 as of October 31, 1995, benefiting from the rallying bond market.
The portfolio underperformed the Index, primarily because it was defensively positioned early in the period in response to last year's volatility. The portfolio held a higher percentage of premium coupon bonds, which tend to perform well in a declining bond market. These premiums, which typically have optional call features, performed like shorter-maturity bonds when interest rates fell this year, because of the increased likelihood of their calls being exercised prior to maturity. As this occurred, the durations of the callable bonds shortened, which was undesirable because longer duration bonds appreciated faster than those with shorter durations. In contrast, the Index held a higher percentage of deeper discount bonds, which outperformed premium bonds as interest rates fell.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*
[GRAPHIC]
Insured Revenue Bonds ......... 40.1%
Revenue Bonds ................. 23.4%
General Obligations............ 16.6%
Insured General Obligations.... 12.6%
Variable Rate Demand Notes..... 7.3%
|
* The percentages shown are of total portfolio investments that have settled and include an offset to cash equivalents relating to unsettled trades. These percentages may differ from those in the accompanying Statement of Investments, which reflect portfolio holdings as a percentage of net assets.
. Insured Revenue and General Obligation Bonds. During the period, we continued to emphasize insured bonds because of their liquidity and availability. Insured bonds allow the portfolio to capitalize on a security's other features such as coupon and callability, while removing the credit quality variable. We stressed securities from Texas and New York that we determined to be undervalued due to a temporary lack of demand. We anticipate that these securities will appreciate as supplies tighten and flat tax issues are resolved. As of October 31, we overweighted the fund's holdings in insured bonds relative to the Index (52.7% as compared with 32.0%), approximately the same allocation as a year ago.
. Revenue Bonds. Noninsured revenue bonds, generally single-A- and double-A-rated debt, accounted for 23.4% of the portfolio, underweighted compared with the benchmark allocation of 31.0%. (Revenue bonds pay interest and principal out of a specific revenue stream, which includes sales taxes, hospital charges, tolls, electric rates and airport fees.) The allocation to sectors with high credit sensitivity fluctuates over time, based on specific securities and overall credit spreads. We currently view overall credit spreads as rich, and beyond unique situations we are not emphasizing credit-sensitive sectors.
. General Obligation (GO) Bonds. When credit quality spreads tightened during the period, we dramatically increased the fund's investment in the GO sector to 16.6%, tripling last year's position. Uninsured GOs are generally of higher credit quality than uninsured revenue bonds, because they are backed by the general taxing power of the municipality.
. Variable Rate Demand Notes (VRDNs). VRDNs are high-quality cash equivalents and were used to manage the portfolio's duration to approximate that of the Index at 8.76 years.
. Credit Quality. During the period, we emphasized higher credit quality debt over lower quality. As of October 31, 69.6% of the portfolio was invested in triple-A-rated bonds, up from approximately 59% a year ago, while the positions in double-A-rated securities (18.0%) and single-A-rated securities (12.4%) were reduced since last year. The bias toward triple-A-rated securities is the direct result of the emphasis on insured bonds.
. Term Structure. The portfolio's term structure contributed to its performance in the declining interest rate environment. The portfolio was "barbelled," emphasizing bonds with maturities of 20 years on the long end and bonds with maturities of five years or less on the short end. Approximately one-third of the portfolio was invested in maturities of 18 years or longer, a segment which performed well when the yield curve flattened during the period.
. We added a very small position in a call option in March (less than 1% of the portfolio) for its potential incremental return. This position contributed to the portfolio's positive performance during the period and the fund continues to hold it.
MARKET OUTLOOK: IMPROVED TECHNICALS EXPECTED
Going forward, the municipal bond market appears to be entering a period of potential technical strength. We estimate that over $80 billion in coupon and principal payments will be distributed to municipal investors between November 1995 and February 1996, a significant percentage of which may be reinvested into municipal bonds. In contrast, we expect just over $37 billion in new municipal debt to be issued over the same four-month period, creating a potential supply and demand imbalance that could increase municipal bond prices. That scenario, coupled with the likelihood of an even flatter yield curve near term, should benefit the fund's longer-term bonds. In addition, yields on long-term municipals are relatively high in relation to Treasury securities and short-term municipals. Regarding security selection, we anticipate concentrating on bonds issued by states that have high taxes, high wealth concentration and large populations (e.g., New York, California and Michigan).
Distribution Policy
The fund paid out distributions of $0.67 per share during the period under review. Dividends are declared daily and paid on a monthly basis. The fund intends to distribute substantially all of its investment company tax-exempt and taxable income, as required by tax law.
Your investment in the Goldman Sachs Municipal Income Fund means a great deal to us and we look forward to continuing our relationship.
Sincerely,
/s/ Benjamin S. Thompson Benjamin S. Thompson /s/ Theodore T. Sotir Theodore T. Sotir Portfolio Managers Goldman Sachs Municipal Income Fund November 30, 1995 |
In accordance with the requirements of the Securities and Exchange Commission, the following data is supplied for the periods ended October 31, 1995. The performance for the Goldman Sachs Municipal Income Fund ("Goldman Sachs Municipal Income") (assuming both the maximum sales charge of 4.5% and no sales charge), is compared with its benchmark--the Lehman Brothers 15-Year Municipal Bond Index ("Lehman 15-Year Muni Index"). All performance data shown represents past performance and should not be considered indicative of future performance which will fluctuate as market conditions change. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor's shares, when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT/(a)/
[CHART]
GOLDMAN SACHS GOLD SACHS
MUNICIPAL INCOME MUNICIPAL INCOME LEHMAN 15-YEAR
(NO SALES CHARGE) (W/SALES CHARGE) MUNI INDEX
----------------- ---------------- ---------------
8/1/93 10,000 9,550 10,000
10/31/93 10,454 9,984 10,385
10/31/94 9,879 9,434 9,860
10/31/95 11,241 10,735 11,414
Average Annual Total Return
--------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Muni Income,
excluding sales charge 13.79% 4.89%
GS Muni Income,
including sales charge 8.64% 2.80%
|
/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of
operations.
/(b)/ Commenced operations July 20, 1993.
October 31, 1995 Principal Interest Maturity Amount Rate Date Value - ------------------------------------------------------------------------- |
Principal Interest Maturity Amount Rate Date Value - ------------------------------------------------------------------------- |
$ 800,000 6.60% 11/15/11 $ 879,408 New York State GO (A-/A) 2,000,000 5.63 03/01/13 1,983,440 |
October 31, 1995 Principal Interest Maturity Amount Rate Date Value - ------------------------------------------------------------------------- |
Principal Interest Maturity Amount Rate Date Value - ------------------------------------------------------------------------- |
$5,000,000 Intermountain Power Agency, Utah
Certificates of Beneficial Interest @
90.306 expiring 05/07/96/(e)/ $ 500,000
- -------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $343,750) $ 500,000
- -------------------------------------------------------------------------
Total Investments
(Cost $60,395,131/(f)/) $61,899,345
=========================================================================
=========================================================================
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 1,544,592
Gross unrealized loss for investments in which cost exceeds
value (40,378)
- -------------------------------------------------------------------------
Net unrealized gain $ 1,504,214
=========================================================================
|
The accompanying notes are an integral part of these financial statements.
/(a)/ When issued security.
/(b)/ The interest rate disclosed for this security represents effective yield
to maturity.
/(c)/ Portions of these securities are being segregated for when-issued
securities.
/(d)/ Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1995.
/(e)/ Non-income producing security.
/(f)/ The amount stated also represents aggregate cost for federal income tax
purposes.
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets.
INVESTMENT ABBREVIATIONS:
AMBAC - Insured by American Municipal Bond Assurance Corp. AMT - Alternative Minimum Tax CAPGTY - Capital Guaranty Insurance Co. FGIC - Insured by Financial Guaranty Insurance Co. FNMA - Federal National Mortgage Association FSA - Financial Security Assurance Co. GNMA - Government National Mortgage Association GO - General Obligation IDA - Industrial Development Authority MBIA - Insured by Municipal Bond Investors Assurance NR - Not rated PSF - Permanent School Fund RB - Revenue Bond VRDN - Variable Rate Demand Note |
The accompanying notes are an integral part of these financial statements.
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
ASSETS:
Investments in securities, at value
(cost $30,931,415, $273,501,082 and $60,395,131) $ 31,340,222 $272,945,552 $61,899,345
Receivables:
Investment securities sold -- 20,579,927 5,791,250
Interest 210,018 5,814,585 851,486
Forward foreign currency exchange contracts -- 2,950,813 --
Foreign tax withheld -- 675,843 --
Fund shares sold 59,203 51,644 71,355
Cash 4,974 1,232 42,845
Deferred organization expenses, net 42,846 46,256 47,683
Other assets 79,092 111,218 56,881
------------ ------------ -----------
Total assets 31,736,355 303,177,070 68,760,845
------------ ------------ -----------
LIABILITIES:
Payables:
Investment securities purchased 2,144,668 21,461,760 14,753,768
Forward foreign currency exchange contracts -- 3,825,677 --
Fund shares repurchased 11,371 50,000 44,777
Investment adviser fees 6,127 93,769 18,167
Administration fees -- 35,163 6,813
Authorized dealer service fees 6,127 51,936 11,354
Distribution fees -- 51,936 --
Transfer agent fees 13,928 26,305 13,779
Accrued expenses and other liabilities 51,535 126,175 114,953
------------ ------------ -----------
Total liabilities 2,233,756 25,722,721 14,963,611
------------ ------------ -----------
NET ASSETS:
Paid in capital 29,150,881 272,761,135 54,514,862
Accumulated undistributed net investment income 36,251 16,641,827 42,738
Accumulated net realized loss on investment
transactions (93,340) (13,043,346) (2,264,580)
Accumulated net realized foreign currency gain -- 2,443,547 --
Net unrealized gain on investments 408,807 4,810,713 1,504,214
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies -- (6,159,527) --
----------- ------------ -----------
Net assets $29,502,599 $277,454,349 $53,797,234
=========== ============ ===========
|
CLASS A INSTITUTIONAL
------- -------------
Net asset value and redemption price per share
(net assets/shares outstanding) $14.47 $14.45 $14.45 $14.17
========= ========== ========= =========
Maximum public offering price per share
(NAV per share x 1.0471)/(a)/ $15.15 $15.13 $14.45 $14.84
========= ========== ========= =========
Shares outstanding, $.001 par value
(unlimited number of shares authorized) 2,038,356 17,008,968 2,188,371 3,796,312
========= ========== ========= =========
|
/(a)/ The Goldman Sachs Global Income Fund's Institutional shares maximum public offering price per share is equivalent to the net asset value per share.
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Year Ended October 31, 1995
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
INVESTMENT INCOME:
Interest/(a)/ $1,452,092 $ 23,662,535 $2,846,866
---------- ------------ ----------
Total income 1,452,092 23,662,535 2,846,866
---------- ------------ ----------
EXPENSES:
Investment adviser fees 101,737 2,367,381 200,207
Administration fees 30,521 473,476 75,077
Authorized dealer service fees 25,239 281,949 55,106
Distribution fees 76,499 1,257,211 195,152
Custodian fees 36,551 179,346 25,915
Transfer agent fees 94,095 106,764 63,695
Professional fees 39,836 70,511 53,407
Registration fees 37,256 75,289 21,406
Amortization of deferred organization expenses 18,796 61,394 17,545
Trustee fees 597 11,034 1,258
Other 14,808 49,443 38,062
---------- ------------ ----------
TOTAL EXPENSES 475,935 4,933,798 746,830
Less--expenses reimbursable and fees waived
by Goldman Sachs (381,105) (930,147) (366,894)
---------- ------------ ----------
NET EXPENSES 94,830 4,003,651 379,936
---------- ------------ ----------
NET INVESTMENT INCOME 1,357,262 19,658,884 2,466,930
---------- ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT,
OPTIONS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Investment transactions 603,048 5,556,002 938,332
Foreign currency related transactions -- 18,804,029 --
Net change in unrealized gain (loss) on:
Investments 902,391 14,759,004 3,055,111
Translation of assets and liabilities denominated
in foreign currencies -- (15,288,240) --
---------- ------------ ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT,
OPTIONS AND FOREIGN CURRENCY TRANSACTIONS 1,505,439 23,830,795 3,993,443
---------- ------------ ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,862,701 $ 43,489,679 $6,460,373
========== ============ ==========
|
/(a)/ Net of $101,514 in foreign withholding tax for the Global Income Fund.
The accompanying notes are an integral part of these financial statements.
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
FROM OPERATIONS:
Net investment income $ 1,357,262 $ 19,658,884 $ 2,466,930
Net realized gain from investment transactions 603,048 5,556,002 938,332
Net realized gain from foreign currency
related transactions -- 18,804,029 --
Net change in unrealized gain on investments 902,391 14,759,004 3,055,111
Net change in unrealized loss on translation of
assets and liabilities denominated
in foreign currencies -- (15,288,240) --
----------- ------------ -----------
Net increase in net assets resulting
from operations 2,862,701 43,489,679 6,460,373
----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,361,620) (20,883,123)/(a)/ (2,466,930)
----------- ------------ -----------
Total distributions to shareholders (1,361,620) (20,883,123) (2,466,930)
----------- ------------ -----------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 15,973,014 53,349,100 11,879,853
Reinvestment of dividends and distributions 1,123,498 13,008,610 1,551,121
Cost of shares repurchased (3,546,816) (208,094,050) (11,000,210)
----------- ------------ -----------
Net increase (decrease) in net assets
resulting from share transactions 13,549,696 (141,736,340) 2,430,764
----------- ------------ -----------
Total increase (decrease) 15,050,777 (119,129,784) 6,424,207
----------- ------------ -----------
NET ASSETS:
Beginning of year 14,451,822 396,584,133 47,373,027
----------- ------------ -----------
End of year $29,502,599 $277,454,349 $53,797,234
=========== ============ ===========
Accumulated undistributed net investment income $ 36,251 $ 16,641,827 $ 42,738
=========== ============ ===========
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 1,139,008 3,822,903 876,447
Reinvestment of dividends and distributions 80,152 935,191 113,767
Shares repurchased (253,583 ) (15,079,626) (816,569)
----------- ------------ -----------
Net increase (decrease) in shares outstanding 965,577 (10,321,532) 173,645
=========== ============ ===========
|
/(a)/ The Global Income Fund distributed $20,322,640 and $560,483 from net investment income for the Class A and Institutional class of shares, respectively.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (continued)
For the Year Ended October 31, 1994
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND/(a)/ FUND
------------ ------------ -----------
FROM OPERATIONS:
Net investment income $ 794,938 $ 34,832,452 $ 2,300,535
Net realized loss from investment,
option and futures transactions (693,341) (29,399,159) (3,202,912)
Net realized loss from foreign currency
related transactions -- (12,649,508) --
Net change in unrealized loss on
investments and options (502,522) (31,154,593) (1,799,359)
Net change in unrealized gain on translation
of assets and liabilities denominated in
foreign currencies -- 7,363,987 --
----------- ------------- ------------
Net decrease in net assets resulting
from operations (400,925) (31,006,821) (2,701,736)
----------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (794,938) (8,807,313) (2,300,535)
In excess of net investment income (17,584) -- --
Net realized gain on investment,
option and futures transactions (106,548) (7,198,898) (108,139)
In excess of net realized gain on investment,
option and futures transactions (3,047) -- --
Paid-in capital -- (25,765,213) --
----------- ------------- ------------
Total distributions to shareholders (922,117) (41,771,424) (2,408,674)
----------- ------------- ------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 8,616,512 133,966,890 40,579,374
Reinvestment of dividends and distributions 762,895 26,726,504 1,557,330
Cost of shares repurchased (6,464,527) (366,992,820) (19,819,419)
----------- ------------- ------------
Net increase (decrease) in net assets
resulting from share transactions 2,914,880 (206,299,426) 22,317,285
----------- ------------- ------------
Total increase (decrease) 1,591,838 (279,077,671) 17,206,875
NET ASSETS:
Beginning of year 12,859,984 675,661,804 30,166,152
----------- ------------- ------------
End of year $14,451,822 $ 396,584,133 $ 47,373,027
=========== ============= ============
Accumulated undistributed net investment income $ 22,212 $ 1,318,755 $ 25,593
=========== ============= ============
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 615,568 9,067,823 2,852,822
Reinvestment of dividends and distributions 54,242 1,870,918 112,990
Shares repurchased (460,162) (26,266,551) (1,404,132)
----------- ------------- ------------
Net increase (decrease) in shares outstanding 209,648 (15,327,810) 1,561,680
=========== ============= ============
|
/(a)/ For the year ended October 31, 1994 only Class A shares were outstanding.
The accompanying notes are an integral part of these financial statements.
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940 (as amended) as an open-end, management investment company. Included in this report are the financial statements for the Goldman Sachs Government Income Fund (Government Income), the Goldman Sachs Global Income Fund (Global Income) and the Goldman Sachs Municipal Income Fund (Municipal Income), collectively, "the Funds" or individually a "Fund". Government Income and Municipal Income are diversified portfolios whereas Global Income is a separate non-diversified portfolio. The Global Income Fund currently offers two classes of shares - Class A and Institutional shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Funds which are in conformity with those generally accepted in the investment company industry:
Investments in debt securities, other than money market instruments, held by Global Income are valued on the basis of dealer-supplied quotations or by a pricing service approved by the Board of Trustees if such prices are believed by the investment adviser to accurately represent market value. The prices derived by a pricing agent reflect broker/dealer-supplied valuations and electronic data processing techniques. If those prices are not deemed by the Fund's Investment Adviser to be representative of the market values at the time the net asset value is calculated, then such securities will be valued at fair value as described below. Options and futures contracts are valued at the last sale price on the market where any such option or futures contract is principally traded. Forward foreign currency exchange contracts are valued at the mean between the last bid and asked quotations supplied by a dealer in such contracts. All other securities and other assets, including debt securities, for which prices are supplied by a pricing agent but are not deemed by the Fund's Investment Adviser to be representative of market values, restricted securities and securities for which no market quotation is available, but excluding money market instruments with a remaining maturity of sixty days or less, are valued at fair value as determined in good faith pursuant to procedures established by the Board of Trustees. Money market instruments held by the Fund with a remaining maturity of sixty days or less will be valued by the amortized cost method, which approximates market value.
Investments in portfolio securities held by the Government Income and Municipal Income Funds for which accurate market quotations are readily available are valued on the basis of quotations furnished by a pricing service or provided by dealers in such securities. Portfolio securities held by the Government Income and Municipal Income Funds, for which accurate market quotations are not readily available are valued at fair value using methods determined in good faith under procedures established by the Trust's Board of Trustees and may include yield equivalents or a pricing matrix. Exchange traded options and futures contracts will be valued by the investment adviser at the last sale price on the exchange where such contracts and options are principally traded. Short-term debt obligations maturing in sixty days or less are valued at amortized cost.
Security transactions are recorded on the trade date. Realized gains and losses on sales of portfolio securities are calculated on the identified cost basis. Interest income is recorded on the basis of interest accrued. Premiums on interest-only securities and on collateralized mortgage obligations with nominal principal amounts are amortized, on an effective yield basis, over the expected lives of the respective securities, taking into account principal prepayment experience and estimates of future principal prepayments. Certain mortgage security paydown gains and losses are taxable as ordinary income. Such paydown gains and losses increase or decrease taxable ordinary income available
for distribution and are classified as interest income in the accompanying Statements of Operations. Original issue discounts on debt securities are amortized to interest income over the life of the security with a corresponding increase in the cost basis of that security. For the Municipal Income Fund, market premiums on other long-term debt securities are amortized to interest income while for the Global Income Fund, market discounts on other long-term debt securities are accreted to interest income.
Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investment valuations, other assets and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates; (ii) purchases and sales of foreign investments, income and expenses are converted into U.S. dollars based upon 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 and investments; (ii) 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 interest recorded and the amounts actually received.
The Global Income Fund may enter into forward foreign exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either specific transactions or portfolio positions. The Global Income Fund may also purchase and sell forward contracts to seek to increase total return. The aggregate principal amounts of the contracts for which delivery is anticipated are reflected in the Fund's accounts, while the aggregate principal amounts are reflected net in the accompanying Statements of Assets and Liabilities if the Fund intends to settle the contract prior to delivery. All commitments are "marked-to-market" daily at the applicable translation rates and any resulting unrealized gains or losses are recorded in the Fund's financial statements. The Fund records realized gains or losses at the time the forward contract is offset by entry into a closing transaction or extinguished by delivery of the currency. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
The Government Income Fund may enter into mortgage "dollar rolls" in which the Fund sells securities in the current month for delivery and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Fund loses the right to receive principal and interest paid on the securities sold but benefits to the extent of any 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. The Fund will hold and maintain in a segregated account, until the settlement date, cash or liquid, high grade debt securities in an amount equal to the forward purchase price. For financial reporting and tax reporting 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.
When call or put options are written, 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 a closing
purchase transaction has been entered into, a gain or loss is realized 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, a gain or loss is realized 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 purchased upon exercise.
Upon the purchase of a call option or a protective put option, 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 has been purchased expires on the stipulated expiration date, a loss is realized in the amount of the cost of the option. If a closing sale transaction has been entered into, a gain or loss is realized, depending on whether the sale proceeds from the closing sale transaction are greater or less than the cost of the option. If a purchased put option is exercised, a gain or loss from the sale of the underlying security is realized, and the proceeds from such sale will be decreased by the premium originally paid. If a purchased call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid. In the case of index options, there is a risk of loss from a change in value of such options which may exceed the related premiums received.
Upon entering into a futures contract, the Funds are required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the futures exchange on which the contract is traded. Subsequent payments ("variation margin") are made or received by the Funds each day, dependent on the daily fluctuations in the value of the contract, and are recorded for financial reporting purposes, as unrealized gains or losses. When entering into a closing transaction, the Funds will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price, unless such price does not reflect the fair market value of the contract, in which case the position will be valued using methods as approved by the Funds' Board of Trustees. Certain risks may arise upon entering into futures contracts. These risks may include changes in the value of the futures contract that may not directly correlate with changes in the value of the underlying securities, or that the counterparty to a contract may default on its obligations to perform.
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 investment company tax-exempt and taxable income to its shareholders. Accordingly, no federal tax provisions are required.
The characterization of distributions to shareholders for financial reporting 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, depending on the type of book/tax differences that may exist.
At October 31, 1995, the Funds had approximately the following amounts of capital loss carryforward for U.S. Federal tax purposes:
Fund Amount Year of Expiration
- ---- ----------- ------------------
Government Income Fund $ 735,561 2002
Global Income Fund $10,295,502 2002
Municipal Income Fund $ 3,202,911 2002
28
|
I. Deferred Organization Expenses - ---------------------------------- |
Organization-related costs are being amortized on a straight-line basis over a period of five years.
Expenses incurred by the Trust that do not specifically relate to an individual portfolio of the Trust are allocated to the portfolios based on each portfolio's relative average net assets for the period.
Class A shareholders of the Global Income Fund bear all expenses and fees relating to the distribution and authorized dealer service plans as well as other expenses which are directly attributable to such shares. The Class A and Institutional shareholders separately bear transfer agency fees.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment adviser pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management International ("GSAM International"), an affiliate of Goldman Sachs, acts as subadviser under a Subadvisory Agreement for the Global Income Fund. Under the Investment Advisory and Subadvisory Agreements, GSAM and GSAM International, subject to the general supervision of the Trust's Board of Trustees, manage the Funds' portfolios. As compensation for the services rendered pursuant to the Investment Advisory Agreements and the assumption of the expenses related thereto, GSAM is entitled to a fee, computed daily and payable monthly at an annual rate equal to .50%, .25% and .40% of average daily net assets of the Government Income, Global Income and Municipal Income Funds, respectively. As compensation for the services rendered pursuant to the Subadvisory Agreement, GSAM International is entitled to a subadvisory fee from the Global Income Fund of .50% of the average daily net assets. For the year ended October 31, 1995, GSAM voluntarily agreed to waive a portion of its investment advisory fees amounting to approximately $57,700, $248,000 and $45,500 for the Government Income, Global Income and Municipal Income Funds, respectively.
GSAM serves as each Fund's administrator pursuant to an Administration Agreement. Under the Administration Agreement, GSAM administers the Funds' business affairs, including providing facilities. As compensation for the services rendered pursuant to the Administration Agreement, GSAM is entitled to a fee, computed daily and payable monthly at an annual rate equal to .15% of each Fund's average daily net assets. For the year ended October 31, 1995, GSAM voluntarily agreed to waive a portion of its administration fee amounting to approximately $30,500 for the Government Income Fund.
GSAM has voluntarily agreed to limit certain of the Funds'expenses (excluding advisory, administration, distribution and authorized dealer service fees, taxes, interest, brokerage, litigation, indemnification and other extraordinary expenses and with respect to the Global Income Fund, transfer agent fees) to the extent such expenses exceed .30%, .06% and .05% per annum of the Government Income, Global Income and Municipal Income Funds, respectively. For the year ended October 31, 1995, GSAM voluntarily agreed to reimburse all such expenses for the Government Income Fund. For the year ended October 31, 1995 the amount of reimbursed expenses for the Government Income, Global Income and Municipal Income Funds were approximately $242,000, $70,000 and $196,000, respectively. The amounts reimbursable to the Government Income, Global Income and Municipal Income Funds at October 31, 1995 are approximately $49,000, $40,000 and $54,000, respectively, and are included in "Other Assets" on the accompanying Statements of Assets and Liabilities.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to a Distribution Agreement and as such may receive a portion of the sales load imposed on the sale of Fund shares. During the year ended October 31, 1995,
Goldman Sachs retained approximately $22,000, $15,000 and $48,000 of sales loads related to the Government Income, Global Income and Municipal Income Funds, respectively.
The Trust, on behalf of each Fund, has adopted a Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from each Fund for distribution services equal, on an annual basis, to .25% of each Fund's average daily net assets (or, in the case of Global Income Fund, the average daily net assets attributable to the Class A shares). Currently, Goldman Sachs has voluntarily agreed to waive the entire amount of such fee for the Government Income and Municipal Income Funds. Effective June 1, 1995, each Fund's Distribution Plan was amended to reduce the contractual fee from .50% to .25% of average daily net assets and to eliminate the provision of certain services under the Distribution Plan which are currently provided under the Authorized Dealer Service Plan. Distribution fees waived for the period amounted to $50,869, $611,952 and $125,129 for the Government Income, Global Income and Municipal Income Funds, respectively.
Effective June 1, 1995, the Company on behalf of each Fund adopted an Authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers are compensated for providing personal and account maintenance services. Each Fund pays a fee under its Service Plan equal, to on an annual basis, to .25% of each Fund's average daily net assets (or, in the case of Global Income Fund, the average daily net assets attributable solely to the Class A shares). Goldman Sachs also serves as the Transfer Agent of the Funds for a fee.
4. LINE OF CREDIT FACILITY
The Funds participate in a $100,000,000 uncommitted, unsecured revolving line of credit facility. In addition, the Global Income Fund has an $8,000,000 committed, unsecured revolving line of credit facility available. Both 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 based on the amount of the commitment which has not been utilized. For the year ended October 31, 1995, the Funds did not have any borrowings under these facilities.
5. INVESTMENT TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the year ended October 31, 1995, were as follows:
GOVERNMENT GLOBAL MUNICIPAL
FUND INCOME INCOME INCOME
- ----------------------------------------------------------------------------
Purchases of U.S.
Government and
agency obligations $100,296,354 $ 83,722,782 $ --
- ----------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) 3,011,921 656,349,335 174,160,831
- ----------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 87,845,570 196,872,555 --
- ----------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) 1,887,472 704,661,927 166,318,514
- ----------------------------------------------------------------------------
|
For the year ended October 31, 1995, option transactions in the Global Income Fund were as follows:
PREMIUMS
OPTIONS WRITTEN RECEIVED
- ----------------------------------------------------------------------------
Balance outstanding, beginning of year $ --
Options written 130,440
Options exercised (130,440)
- ----------------------------------------------------------------------------
Balance outstanding, end of year $ --
- ----------------------------------------------------------------------------
30
|
OPTIONS PURCHASED COST
- ----------------------------------------------------------------------------
Balance outstanding, beginning of year $ --
Options purchased 84,446
Options exercised (84,446)
- ----------------------------------------------------------------------------
Balance outstanding, end of year $ --
============================================================================
|
Certain risks related to written call or put options arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency values and interest rates.
At October 31, 1995, the Global Income Fund had outstanding forward foreign currency exchange contracts, both to purchase and sell foreign currencies as follows:
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/(LOSS)
- ----------------------------------------------------------------------------
DEUTSCHE MARK
Expiring 11/16/95 $ 268,323 $ 281,721 $ 13,398
Expiring 9/9/96/(a)/ 14,435,171 15,391,612 956,441
- ----------------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $ 14,703,494 $ 15,673,333 $ 969,839
============================================================================
============================================================================
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/(LOSS)
- ----------------------------------------------------------------------------
BELGIAN FRANC
Expiring 2/28/96 $ 9,255,202 $ 9,165,116 $ 90,086
Expiring 9/9/96/(a)/ 14,435,171 15,409,951 (974,780)
BRITISH POUND STERLING
Expiring 12/11/95 35,559,013 36,300,525 (741,512)
DEUTSCHE MARK
Expiring 1/24/96 18,148,618 18,165,060 (16,442)
Expiring 1/31/96 144,844 144,844 --
FRENCH FRANC
Expiring 11/30/95 21,550,856 22,041,337 (490,481)
JAPANESE YEN
Expiring 12/18/95 13,687,026 13,561,625 125,401
Expiring 1/17/96 34,125,931 33,541,512 584,419
SPANISH PESETA
Expiring 11/27/95 13,646,350 13,953,670 (307,320)
- ----------------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $160,553,011 $162,283,640 $(1,730,629)
============================================================================
|
/(a)/ Represents a cross-currency forward foreign exchange contract.
The contractual amounts of forward foreign currency exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered.
At October 31,1995, the Global Income Fund had sufficient cash and/or securities to cover any commitments under these contracts.
The Global Income Fund has recorded a "Receivable for forward foreign currency exchange contracts" and "Payable for forward foreign currency exchange contracts" resulting from open and closed but not settled forward foreign currency exchange contracts of $2,950,813 and $3,825,677, respectively, in the accompanying Statement of Assets and Liabilities. Included in the "Receivable and payable for forward foreign currency exchange contracts" are $1,181,068 and $1,295,142, respectively, related to forward contracts closed but not settled as of October 31, 1995.
6. SUMMARY OF SHARE TRANSACTIONS
GLOBAL INCOME FUND DOLLARS SHARES
- -----------------------------------------------------------------------------
Class A Shares:
Shares sold $ 22,864,336 1,659,380
Reinvestment of dividends and distributions 12,448,128 895,996
Shares repurchased (207,889,246) (15,065,279)
------------- -----------
(172,576,782) (12,509,903)
------------- -----------
Institutional Shares:
Shares sold 30,484,764 2,163,523
Reinvestment of dividends and distributions 560,482 39,195
Shares repurchased (204,804) (14,347)
------------- -----------
30,840,442 2,188,371
------------- -----------
Total $(141,736,340) (10,321,532)
============= ===========
|
7. REPURCHASE AGREEMENTS
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 in the customer-only account of State Street Bank & Trust Co., the Funds' custodian, or at subcustodians. GSAM monitors the market value of the underlying securities by pricing them daily.
8. JOINT REPURCHASE AGREEMENT ACCOUNT
The Government Income Fund, together with other registered investment companies having advisory agreements with GSAM or its affiliates, transfers uninvested cash balances into a joint account, the daily aggregate balance of which is invested in one or more repurchase agreements. The underlying securities for the repurchase agreements are U.S. Treasury obligations and mortgage-related securities issued by the U.S. Government, its agencies or instrumentalities. As of October 31, 1995, the Government Income Fund had a 0.16% undivided interest in the repurchase agreement in the joint account which equaled $2,900,000, in principal amount. As of October 31, 1995, the repurchase agreement in the joint account along with the corresponding underlying securities (including the type of security, market value, interest rate and maturity date) were as follows:
PRINCIPAL INTEREST MATURITY AMORTIZED AMOUNT RATE DATE COST - -------------------------------------------------------------------------------- |
Lehman Brothers, Inc. dated 10/31/95, repurchase price $965,159,225 (U.S.
Treasury Notes: $955,186,569, 4.25%-9.50%, 11/15/95-08/15/02; U.S. Treasury
Interest-Only Strips:$19,548,855, 11/15/00-08/15/02; U.S. Treasury Principal-
Only Strips:$6,376,719, 6.38%-8.50%, 11/15/00-08/15/02))
$965,000,000 5.94% 11/01/95 $ 965,000,000
Salomon Brothers, Inc. dated 10/31/95, repurchase price $830,136,489 (U.S.
Treasury Notes: $383,210,541, 4.25%-8.87%, 11/15/95-08/31/00; U.S. Treasury
Interest-Only Strips: $356,333,527, 11/15/95-08/15/02; U.S. Treasury
Principal-Only Strips: $107,445,042, 6.38%-9.50%, 11/15/95-08/15/02)
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Government Income, Global Income and Municipal Income Funds have reclassified $18,397, $61,394 and $17,145, respectively, from paid-in capital to accumulated undistributed net investment income. Additionally, the Global Income Fund has reclassified $16,485,917 from accumulated net realized foreign currency gain to accumulated undistributed net investment income. These reclassifications have no impact on the net asset values of the Funds and are designed to present the Funds' capital accounts on a tax basis.
10. OTHER
As of October 31, 1995, Goldman, Sachs & Co. Employees Profit Sharing and Retirement Income Plan was the beneficial owner of approximately 9% of the outstanding shares of the Goldman Sachs Global Income Fund.
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS/(a)/ TRANSACTIONS/(a)/ OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... $13.47 $ 0.94 $ 1.00 $ -- $ 1.94
1994...................... 14.90 0.85 (1.28) -- (0.43)
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.56 0.58 -- 1.14
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 13.43 0.89 0.92 0.15 1.96
1995 - Institutional
shares/(f)/ 14.09 0.22 0.34 0.06 0.62
1994 - Class A shares 15.07 0.84 (1.37) (0.12) (0.65)
1993 - Class A shares 14.69 0.85 1.07 (0.42) 1.50
1992 - Class A shares 14.60 1.14 0.45 (0.36) 1.23
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 14.55 0.25 0.23 (0.19) 0.29
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... 13.08 0.67 1.09 -- 1.76
1994...................... 14.64 0.73 (1.51) -- (0.78)
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.22 0.32 -- 0.54
- ------------------------------------------------------------------------------------------------------------------------------------
|
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... $(0.94) $ -- $ -- $ -- $ -- $(0.94)
1994...................... (0.85) (0.12) (0.02) (0.01) -- (1.00)
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.56) -- -- -- -- (0.56)
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares (0.94) -- -- -- -- (0.94)
1995 - Institutional
shares/(f)/ (0.26) -- -- -- -- (0.26)
1994 - Class A shares (0.22) (0.16) -- -- (0.61) (0.99)
1993 - Class A shares (0.85) (0.27) -- -- -- (1.12)
1992 - Class A shares (1.14) -- -- -- -- (1.14)
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares (0.24) -- -- -- -- (0.24)
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... (0.67) -- -- -- -- (0.67)
1994...................... (0.73) (0.05) -- -- -- (0.78)
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.22) -- -- -- -- (0.22)
|
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN/(b)/ NET ASSETS NET ASSETS RATE/(d)/ (IN 000S) NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995...................... $ 1.00 $14.47 14.90% 0.47% 6.67% 449.53% $ 29,503 2.34% 4.80%
1994...................... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.58 14.90 8.03 0.00/(c)/ 4.87/(c)/ 725.41 12,860 4.00/(c)/ 0.87/(c)/
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995 - Institutional
shares/(f)/ 0.36 14.45 4.42 0.65/(c)/ 6.01/(c)/ 265.86 31,619 1.08/(c)/ 5.58/(c)/
1994 - Class A shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993 - Class A shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992 - Class A shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
For the Period August 2,
1991/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 0.05 14.60 2.00 0.38/(g)/ 1.72/(g)/ 34.22 388,744 0.44/(g)/ 1.66/(g)/
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended
October 31,
1995...................... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994...................... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.32 14.64 3.73 0.00/(c)/ 5.15/(c)/ 99.99 30,166 2.42/(c)/ 2.73/(c)/
|
/(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 charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
/(c)/ Annualized.
/(d)/ Includes effect of mortgage dollar roll transactions for the Government
Income Fund.
/(e)/ Commencement of operations.
/(f)/ Institutional shares commenced operations on August 1, 1995.
/(g)/ Not annualized.
The accompanying notes are an integral part of these financial statements.
To the Shareholders and Board of Trustees of the Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and Goldman Sachs Municipal Income Fund:
We have audited the accompanying statements of assets and liabilities of the Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and Goldman Sachs Municipal Income Fund, (portfolios of Goldman Sachs Trust, a Massachusetts Business Trust) including the statements of investments, as of October 31, 1995, and the related statements of operations, the statements of changes in net assets and the financial highlights for each of the periods presented. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements. Our procedures included confirmation of securities owned as of October 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and Goldman Sachs Municipal Income Fund as of October 31, 1995, the results of their operations and the changes in their net assets and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 8, 1995
Goldman Sachs
1 New York Plaza
New York, NY 10004
TRUSTEES
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Marcia L. Beck, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent
GST/AR/1095(RET)
The Goldman Sachs
Fixed Income
Portfolios
Annual Report
October 31, 1995
Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund
Goldman
Sachs
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
APPENDIX A
This Appendix provides certain information concerning the performance of various types of securities over specified periods of time. However, the characteristics of these securities are not identical to, and may be very different from, those of the Fund's portfolio. The items included in these performance figures may not be identical to those in the formulas used by the Fund to calculate its performance figures. This information does not reflect the Fund's actual portfolio composition or the fees or expenses associated with an investment in the Fund. Past performance is not an indication of future performance.
AVERAGE MONTHLY YIELDS
OF MONEY MARKET FUNDS IN IBC/DONOGHUE'S
MONEY FUND AVERAGE/TM//ALL TAXABLE INDEX
This table provides certain information concerning the average performance of money market funds (other than tax-free money funds) tracked by Donoghue's Money Fund Report for the periods indicated.
DONOGHUE'S
YEAR AND ALL TAXABLE INDEX*
MONTH AVERAGE MONTHLY YIELD(%)
-------- ------------------------
YEAR 1988
- ------------------------------------
JAN 6.50
FEB 6.17
MAR 6.05
APR 6.10
MAY 6.26
JUN 6.54
JUL 6.81
AUG 7.14
SEP 7.42
OCT 7.51
NOV 7.66
DEC 8.08
AVERAGE FOR 1988 6.86
YEAR 1989
- ------------------
JAN 8.36
FEB 8.49
MAR 8.92
APR 9.16
MAY 9.14
JUN 8.93
JUL 8.65
AUG 8.32
SEP 8.26
|
1-A
OCT 8.19
NOV 8.00
DEC 7.93
AVERAGE FOR 1989 8.53
YEAR 1990
- ------------------
JAN 7.75
FEB 7.65
MAR 7.66
APR 7.68
MAY 7.68
JUN 7.67
JUL 7.62
AUG 7.50
SEP 7.47
OCT 7.45
NOV 7.33
DEC 7.23
AVERAGE FOR 1990 7.56
YEAR 1991
- ------------------
JAN 6.89
FEB 6.41
MAR 6.09
APR 5.84
MAY 5.58
JUNE 5.49
JULY 5.47
AUG 5.36
SEP 5.21
OCT 5.03
NOV 4.78
DEC 4.58
AVERAGE FOR 1991 5.56
YEAR 1992
- -------------------
JAN 4.13
FEB 3.81
MAR 3.73
APR 3.65
MAY 3.51
JUNE 3.44
JULY 3.24
AUG 3.06
SEP 2.92
OCT 2.79
NOV 2.75
DEC 2.84
2-A
|
AVERAGE FOR 1992 3.32
YEAR 1993
- -------------------------
JAN 2.81
FEB 2.72
MAR 2.68
APR 2.65
MAY 2.60
JUNE 2.63
JULY 2.64
AUG 2.65
SEP 2.66
OCT 2.65
NOV 2.67
DEC 2.72
AVERAGE FOR 1993 2.67
YEAR 1994
- -------------------------
JAN 2.92
FEB 2.99
MAR 3.09
APR 3.28
MAY 3.59
JUN 3.83
JUL 3.99
AUG 4.18
SEP 4.48
OCT 4.54
NOV 4.84
DEC 5.24
AVERAGE FOR 1994 3.91
|
*IBC/Donoghue's Money Fund Average(TM)/ All Taxable Index, as reported in the IBC/Donoghue's Money Fund Report(R). The IBC/Donoghue's Money Fund Average(TM) data is computed net of fees.
3-A
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
APPENDIX B
This Appendix provides certain information concerning the performance of various types of securities over specified periods of time. However, the characteristics of these securities are not identical to, and may be very different from, those of the Fund's portfolio. The items included in these performance figures may not be identical to those in the formulas used by the Fund to calculate its performance figures. This information does not reflect the Fund's actual portfolio composition or the fees or expenses associated with an investment in the Fund. Past performance is not an indication of future performance.
PRICES AND YIELDS OF
CERTAIN U.S. TREASURY SECURITIES
AND
A FEDERAL HOME LOAN MORTGAGE CORPORATION
ONE-YEAR CONSTANT MATURITY TREASURY
ADJUSTABLE RATE MORTGAGE CERTIFICATE
The following table compares the Prices of a one-year and Yields of a six-month on-the-run U.S. Treasury security and, a Federal Home Loan Mortgage Corporation one-year constant maturity Treasury adjustable rate mortgage certificate during the periods indicated. An "on-the-run" U.S. Treasury security is a recently issued current coupon security quoted as representing the most current and liquid security in its maturity category. A Federal Home Loan Mortgage Corporation adjustable rate mortgage certificate is a type of mortgage security eligible for investment by the Fund. Other securities in which the Fund may invest may not have the same yield or volatility characteristics as these securities. This data is based on the end of period values and for the yield column, does not include any fees./1/
ONE-YEAR ONE-YEAR ONE-YEAR ONE-YEAR
ON-THE-RUN ON-THE-RUN CMT ADJUSTABLE CMT ADJUSTABLE
U.S. TREASURY U.S. TREASURY RATE MORTGAGE RATE MORTGAGE
DATE SECURITY SECURITY CERTIFICATE CERTIFICATE
- --------------- ------------- ----------- ------------ --------------
YIELD PRICE PRICE PRICE
31 JAN 89 9.114 100.00 100.00 10.564
28 FEB 89 9.336 99.784 99.795 10.826
31 MAR 89 9.656 99.474 99.363 11.376
30 APR 89 9.441 99.682 99.370 11.361
|
/1/ Historically, ARMs and PACs have offered yields that are higher than those available from U.S. Treasury securities with comparable maturities.
1-B
31 MAY 89 9.044 100.065 99.796 10.814 3O JUN 89 8.491 100.605 100.298 10.171 31 JUL 89 7.948 101.139 100.684 9.678 31 AUG 89 8.227 100.864 100.441 9.987 30 SEP 89 8.255 100.836 100.474 9.945 31 OCT 89 8.034 101.054 100.705 9.654 30 NOV 89 7.793 101.292 101.007 9.273 31 DEC 89 7.749 101.334 101.098 9.159 31 JAN 90 7.951 101.135 100.906 9.401 28 FEB 90 8.155 100.933 100.785 9.555 31 MAR 90 8.395 100.696 100.645 9.735 30 APR 90 8.437 100.654 100.546 9.857 31 MAY 90 8.347 100.742 100.769 9.577 30 JUN 90 8.114 100.944 100.963 9.334 31 JUL 90 7.972 101.114 101.083 9.182 31 AUG 90 7.809 101.275 101.115 9.139 30 SEP 90 7.8 101.283 101.137 9.11 31 OCT 90 7.583 101.498 101.229 8.993 30 NOV 90 7.33 101.750 101.348 8.84 31 DEC 90 7.066 102.013 101.606 8.516 31 JAN 91 6.646 102.434 102.015 8.006 28 FEB 91 6.268 102.815 102.302 7.684 31 MAR 91 6.375 102.706 102.265 7.695 30 APR 91 6.21 102.873 102.406 7.52 31 MAY 91 6.098 102.986 102.554 7.338 30 JUN 91 6.332 102.750 102.414 7.512 31 JUL 91 6.285 102.798 102.535 7.365 31 AUG 91 5.754 103.337 102.940 6.864 30 SEP 91 5.554 103.540 103.152 6.604 31 OCT 91 5.305 103.795 103.289 6.435 30 NOV 91 4.863 104.248 103.617 6.033 31 DEC 91 4.341 104.789 104.221 5.301 31 JAN 92 4.111 105.028 104.461 5.011 28 FEB 92 4.246 104.888 104.357 5.136 31 MAR 92 4.603 104.515 104.044 5.513 30 APR 92 4.263 104.869 104.392 5.093 31 MAY 92 4.161 104.976 104.619 4.821 30 JUN 92 4.141 104.995 104.669 4.761 31 JUL 92 3.572 105.591 105.135 4.202 31 AUG 92 3.445 105.753 105.256 4.085 30 SEP 92 3.154 106.053 105.419 3.884 31 OCT 92 3.267 105.933 105.231 4.107 30 NOV 92 3.643 105.278 105.818 4.553 31 DEC 92 3.678 105.428 106.008 4.548 31 JAN 93 3.462 105.618 105.988 4.542 28 FEB 93 3.36 105.768 106.378 4.2 31 MAR 93 3.3 106.213 106.893 4.07 30 APR 93 3.212 105.836 106.416 4.082 31 MAY 93 3.344 105.573 106.223 4.114 30 JUN 93 3.507 105.638 106.008 4.227 31 JUL 93 3.439 105.548 106.198 4.239 31 AUG 93 3.415 105.468 106.468 4.195 30 SEP 93 3.327 105.863 106.503 4.137 31 OCT 93 3.362 105.648 106.288 4.182 30 NOV 93 3.541 105.548 106.208 4.381 31 DEC 93 3.575 105.448 106.148 4.325 31 JAN 94 3.38 96.883 103.20 4.54 28 FEB 94 3.83 96.484 102.30 5.11 31 MAR 94 4.30 96.021 102.07 5.60 30 APR 94 4.83 95.076 101.07 6.46 31 MAY 94 5.08 94.849 100.30 6.77 30 JUN 94 5.20 94.757 100.21 6.97 |
2-B
31 JUL 94 5.04 95.352 100.21 6.90 31 AUG 94 5.25 94.794 100.25 7.00 30 SEP 94 5.62 94.494 100.01 7.60 31 OCT 94 5.81 94.324 99.25 7.81 30 NOV 94 6.47 93.71 98.30 8.59 31 DEC 94 6.73 93.55 98.30 8.80 |
3-B
ADJUSTABLE RATE GOVERNMENT AGENCY FUND
APPENDIX C
GLOSSARY
MORTGAGE-BACKED SECURITIES
GUARANTEED MORTGAGE PASS-THROUGHS:
Securities which represent participation interests in pools of residential mortgage loans originated by United States governmental or private lenders and guaranteed by the United States government or one of its agencies or instrumentalities.
* Ginnie Mae Certificates are guaranteed by the full
faith and credit of the United States government
for timely payment of principal and interest on
the certificates.
* Fannie Mae Certificates are guaranteed by FNMA, a
federally chartered and privately-owned
corporation for full and timely payment of
principal and interest on the certificates.
* Freddie Mac Certificates are guaranteed by FHLMC,
a corporate instrumentality of the United States
government, for timely payment of interest and the
ultimate collection of all principal of the
related mortgage loans.
|
ALL GUARANTEED MORTGAGE PASS-THROUGHS ARE CONSIDERED TO BE OF THE SAME OR HIGHER CREDIT QUALITY AS PRIVATELY-ISSUED SECURITIES RATED AAA.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"):
Multiclass securities that are issued by the United States government and are collateralized by mortgage loans or mortgage pass-throughs. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-throughs.
* Payments of principal and interest on collateral
of mortgage assets and any reinvestment income
thereon, provide the funds to pay debt service on
the CMOs.
|
ALL CMOS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
1-C
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"):
Securities which are usually structured with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In the most extreme case, one class will receive all of the interest (the interest only class) while the other class will receive all of the principal (the principal only class).
ALL SMBS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
CMO RESIDUALS:
CMO Residuals, other than REMIC Residuals, are essentially (i) the spread between the higher interest rates on the mortgage collateral (e.g., Freddie Mac Certificates) and the lower interest rates on the CMO classes and to a lesser extent, (ii) the reinvestment income earned by investing the monthly mortgage cash flows between CMO payment dates.
ALL CMO RESIDUALS INCLUDED AS ASSETS OF THE FUND WILL BE ISSUED BY FANNIE MAE OR FREDDIE MAC.
2-C
MUNICIPAL INCOME FUND
APPENDIX D
APPENDIX D GOVERNMENT INCOME FUND
APPENDIX E
YIELDS OF MONEY MARKET FUNDS
AND THE LEHMAN BROTHERS GOVERNMENT BOND INDEX
The following table compares average monthly yields of money market
funds (other than tax-free money funds) tracked by Donoghue's Money Fund Report
with monthly yields from the Lehman Brothers Government Bond Index for the
periods indicated. The Lehman Brothers Government Bond Index is a market value
index of fixed rate U.S. Treasury and agency securities with more than one year
remaining to maturity. As of December 31, 1994, the effective duration of the
index was 4. years.
DONOGHUE'S
ALL TAXABLE INDEX* GOVERNMENT SECURITIES
DATE AVERAGE MONTHLY YIELD (%) INDEX MONTHLY YIELD (%)
- -------------------- ------------------------- -----------------------
01/31/84 8.80 11.00
02/29/84 8.72 11.37
03/31/84 8.91 11.95
04/30/84 9.29 12.21
05/31/84 9.52 13.32
06/30/84 9.92 13.39
07/31/84 10.30 12.69
08/31/84 10.58 12.59
09/30/84 10.62 12.27
10/31/84 10.16 11.39
11/30/84 9.34 11.02
12/31/84 8.55 10.78
01/31/85 8.00 10.53
02/28/85 7.80 11.25
03/31/85 7.97 11.01
04/30/85 7.97 10.63
05/31/85 7.71 9.62
06/30/85 7.21 9.53
07/31/85 7.03 9.85
08/31/85 7.08 9.65
09/30/85 7.10 9.70
10/31/85 7.15 9.47
11/30/85 7.21 9.14
12/31/85 7.23 8.65
01/31/86 7.15 8.67
02/28/86 7.11 8.11
03/31/86 6.96 7.41
04/30/86 6.58 7.39
05/31/86 6.22 8.00
06/30/86 6.18 7.45
07/31/86 6.02 7.31
|
1-E
08/31/86 5.74 6.74 09/30/86 5.34 7.21 10/31/86 5.22 7.01 11/30/86 5.21 6.90 12/31/86 5.45 7.05 |
2-E
DONOGHUE'S
ALL TAXABLE INDEX* GOVERNMENT SECURITIES
DATE AVERAGE MONTHLY YIELD (%) INDEX MONTHLY YIELD (%)
------------------ -------------------------------------------------
01/31/87 5.50 6.94
02/28/87 5.32 6.94
03/31/87 5.39 7.20
04/30/87 5.49 7.94
05/31/87 5.79 8.21
06/30/87 6.01 8.07
07/31/87 6.02 8.20
08/31/87 6.00 8.52
09/30/87 6.22 9.18
10/31/87 6.57 8.42
11/30/87 6.45 8.47
12/31/87 6.59 8.41
01/31/88 6.50 7.83
02/29/88 6.17 7.72
03/31/88 6.05 8.08
04/30/88 6.10 8.35
05/31/88 6.26 8.75
06/30/88 6.54 8.48
07/31/88 6.81 8.81
08/31/88 7.14 9.05
09/30/88 7.42 8.73
10/31/88 7.51 8.52
11/30/88 7.66 9.02
12/31/88 8.08 9.22
01/31/89 8.36 9.14
02/28/89 8.49 9.52
03/31/89 8.92 9.63
04/30/89 9.16 9.23
05/31/89 9.14 8.84
06/30/89 8.93 8.23
07/31/89 8.65 7.83
08/31/89 8.32 8.45
09/30/89 8.26 8.51
10/31/89 8.19 8.05
11/30/89 8.00 7.95
12/31/89 7.93 8.07
01/31/90 7.75 8.49
02/28/90 7.65 8.58
03/31/90 7.66 8.78
04/30/90 7.68 9.11
05/31/90 7.68 8.66
06/30/90 7.67 8.46
07/31/90 7.62 8.25
08/31/90 7.50 8.60
09/30/90 7.47 8.55
10/31/90 7.45 8.32
11/30/90 7.33 8.04
12/31/90 7.23 7.81
|
3-E
DONOGHUE'S
ALL TAXABLE INDEX* GOVERNMENT SECURITIES
DATE AVERAGE MONTHLY YIELD (%) INDEX MONTHLY YIELD (%)
------------------
--------------------------------------------------
01/31/91 6.89 7.68
02/28/91 6.41 7.68
03/31/91 6.09 7.71
04/30/91 5.84 7.57
05/31/91 5.58 7.62
06/30/91 5.49 7.78
07/31/91 5.47 7.64
08/31/91 5.36 7.26
09/30/91 5.21 6.93
10/31/91 5.03 6.76
11/30/91 4.78 6.60
12/31/91 4.58 6.02
01/31/92 4.13 6.44
02/29/92 3.81 6.54
03/31/92 3.73 6.81
04/30/92 3.65 6.71
05/31/92 3.51 6.47
06/30/92 3.44 6.20
07/31/92 3.22 5.79
08/31/92 3.05 5.66
09/30/92 2.91 5.41
10/31/92 2.77 5.90
11/30/92 2.75 6.16
12/31/92 2.83 5.93
01/31/93 2.81 5.57
02/28/93 2.72 5.28
03/31/93 2.68 5.29
04/30/93 2.65 5.20
05/31/93 2.60 5.44
06/30/93 2.63 5.15
07/31/93 2.64 5.19
08/31/93 2.65 4.88
09/30/93 2.66 4.88
10/31/93 2.65 4.93
11/30/93 2.67 5.21
12/31/93 2.72 5.22
1/31/94 2.70 5.04
2/28/94 2.75 5.60
3/31/94 2.87 6.15
4/30/94 3.06 6.53
5/31/94 3.36 6.71
6/30/94 3.62 6.87
7/31/94 3.77 6.64
8/31/94 3.96 6.75
9/30/94 4.17 7.19
|
4-E
10/31/94 4.33 7.37 11/30/94 4.63 7.73 12/31/94 5.04 7.84 |
5-E
GLOBAL INCOME FUND
APPENDIX F
DESCRIPTION OF BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." 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 which are rated Aa 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 fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's also provides credit ratings for commercial paper. These are promissory obligations (1) not having an original maturity in excess of nine months, and (2) backed by commercial banks. Notes bearing the designation P-1 have a superior capacity for repayment. Notes bearing the designation P-2 have a strong capacity for repayment.
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree.
S&P's top ratings for notes issued after July 29, 1984 are SP-1 and SP-2. The designation SP-1 indicates a very strong capacity to pay principal and interest. A "+" is added for those issues determined to possess overwhelming safety characteristics. An "SP-2" designation indicates a satisfactory capacity to pay principal and interest.
Commercial paper rated A by S&P is regarded as having the greatest capacity for timely payment. Commercial Paper rated A-1 is described as having an overwhelming or very strong degree of safety regarding timely payment. Commercial Paper
1-F
rated A-2 by Standard & Poor's is described as having a strong degree of safety regarding timely payment.
Investment Grade Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+".
|
Commercial Paper/Certificates of Deposits Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors
|
are excellent and supported by strong fundamental protection factors. Risk factors are minor.
Notes: Bonds which are unrated may expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated bonds. The Fund is dependent on the Investment Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuer's ability to make interest and principal payments.
2-F
GLOBAL INCOME FUND
APPENDIX G
This Appendix provides certain information concerning the average performance of various types of bonds over specified periods of time. However, the composition of these bond averages and the characteristics of these bonds are not identical to, and may be very different from, those of the Fund's portfolio. These averages are unmanaged and the items included in these averages may not be identical to those in the formulas used by the Fund to calculate its performance figures. Past performance is not an indication of future performance.
The following table shows the credit rating assigned by Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group to the government
bonds of various countries.
Country Moody's S & P
- ------------------------ ------- -----
USA Aaa AAA
Japan Aaa AAA
Germany Aaa AAA
Italy A1 AA
France Aaa AAA
UK Aaa AAA
Canada Aa1 AA+
Belgium Aa1 AA+
Denmark Aa1 AA+
Sweden Aa1 AA+
Switzerland Aaa AAA
Netherlands Aaa AAA
Spain Aa2 AA
Australia Aa2 AA
|
Certain governments listed above carry an implied rating by Moody's and/or S&P. Information is as of February, 1995 for Moody's and as of February, 1995 for S&P.
1-G
APPENDIX G (CONTINUED)
BEST AND WORST PERFORMING MARKETS 1975-1994*
ANNUAL RETURNS ON 10-YEAR GOVERNMENT BONDS--US DOLLAR TERMS
The following table indicates that, during the period from 1975 to 1994, investing in 10 year U.S. Government bonds produced the best U.S. dollar returns, relative to the performance of the 10-year government bonds of seven major foreign countries, in only three out of nineteen years. Returns in U.S. dollar terms were derived by calculating the market value in U.S. dollars of appropriate 10-year government bonds, using bond price and foreign exchange rate data.
Worst Performance Best Performance USA Performance
- ----------------- ------------------ ----------------
1975 Canada 2.8% France 17.4% 9.3%
1976 UK -6.4% Germany 33.0% 14.8%
1977 Canada -1.2% UK 59.9% 2.4%
1978 Canada -4.6% France 33.9% 1.7%
1979 Japan -25.2% UK 16.9% 1.9%
1980 Germany -10.8% UK 29.0% 0.1%
1981 UK -17.4% USA 5.5% 5.5%
1982 France 2.2% USA 33.9% 33.9%
1983 Netherlands -11.6% Japan 12.6% 2.8%
1984 UK -12.6% USA 14.3% 14.3%
1985 Australia -11.8% France 56.5% 27.8%
1986 UK 14.3% Netherlands 41.7% 19.6%
1987 USA -3.3% UK 48.2% -3.3%
1988 Germany -7.0% Australia 33.4% 6.4%
1989 Japan -13.9% Canada 16.8% 16.3%
1990 Japan 4.7% UK 35.2% 6.8%
1991 Netherlands 10.4% Australia 24.2% 17.0%
1992 Italy -3.2% Japan 11.8% 6.6%
1993 Netherlands 9.3% Japan 27.9% 12.3%
1994 Canada -12.9% Japan 7.5% -7.12%
- ---------------------
|
* Based on data for the United States and seven major countries.
Source: Salomon Brothers
2-G
APPENDIX G (CONTINUED)
YIELD OF 5-YEAR GOVERNMENT BONDS AS OF SEPTEMBER 30, 1994
Country Yield
- -------------------------- ------
Italy 11.70%
Spain 11.02
Australia 9.67
United Kingdom 8.64
Canada 8.35
France 7.68
United States 7.28
Germany 7.12
Japan 3.89
|
Source: Bloomberg L.P., September 30, 1994. Yields are quoted in the currency of the country of origin. The chart is not intended to represent the future performance of any of the listed securities or the Goldman Sachs Global Income Fund. This chart is for illustrative purposes only and does not represent either the Fund's portfolio composition, the types of securities in the Fund or the Fund's performance. Please note that the Fund may invest in government securities as well as other high-quality, fixed-income securities.
COMPOSITION OF GLOBAL GOVERNMENT BOND MARKET BY COUNTRY
Country Percentage
- -------------------------- -----------
United States 41.8%
Japan 17.0
Germany 10.2
Italy 6.5
France 5.7
United Kingdom 4.7
Canada 2.9
Netherlands 2.8
Belgium 2.8
Spain 1.9
Denmark 1.6
Sweden 1.2
Australia 0.9
|
Source: J.P. Morgan Government Bond Index monitor, September 1994. Data includes government bonds from countries indicated, excluding index-lined and tax rebate bonds for Australia, provincial for Canada, index-linked perpetuals, FELINs, FRNs and ORTs for France; Schuldscheine for Germany; CCTs and CTE for Italy; private placements and five year discounts for Japan; perpetuals and private placements for the Netherlands; irredeemables and index-linked for the U.K. and flower
3-G
bonds, STRIPS, and foreign targeted issues for the U.S. Past performance is not indicative of future results. This chart is for illustrative purposes only, and is not meant to represent the allocation of investments in the Goldman Sachs Global Income Fund.
4-G
APPENDIX H
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 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.
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.
1-H
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms, with assets exceeding $54 billion and partners capital and subordinated liabilities of over $4.5 billion as of November 25, 1994.
. Thirty-one offices worldwide where professionals focus on identifying financial opportunities (includes a staff of 1,100 in London, 650 in Tokyo, 150 in Hong Kong and 4,000 in 11 offices throughout the U.S.).
. An equity research budget of $120 million for 1995.
. Premier lead manager of negotiated municipal bond offerings over the past five years (1989-1994), aggregating $114 billion.
. The number one lead manager of U.S. common stock offerings for the past six years (1989-1994), with 18% of the total dollar volume.*
2-H
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War 1869 Marcus Goldman opens Goldman Sachs for business 1890 Dow Jones Industrial Average first published 1896 Goldman Sachs joins New York Stock Exchange |
1906 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest
to date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Goldman Sachs provides advisory services for the largest
privatization in the region of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, the
largest equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
|
3-H
PART C
OTHER INFORMATION
(a) Financial Statements
Included in the Prospectus:
Financial Highlights for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund for the periods ended October 31, 1995 (audited).
Financial Highlights for the GS Adjustable Rate Government Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund for the periods ended October 31, 1995 (audited).
Incorporated by Reference in the Statement of Additional Infor- mation:
Report of Independent Public Accountants.
Statement of Investments for the GS Adjustable Rate Govern ment Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund as of October 31, 1995 Statement of Investments for the GS Adjustable Rate Govern ment Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund as of October 31, 1995 (audited).
Statement of Assets and Liabilities for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund as of October 31, 1995 (audited).
Statement of Assets and Liabilities for the GS Adjustable Rate Government Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund as of October 31, 1995 (audited).
Statement of Operations for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income Fund and
Goldman Sachs Global Income Fund for the fiscal year ended October 31, 1995 (audited).
Statement of Operations for the GS Adjustable Rate Govern ment Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund for the fiscal year ended October 31, 1995 (audited).
Statements of Changes in Net Assets for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Fund and Goldman Sachs Global Income Fund for the fiscal year ended October 31, 1995 (audited).
Statements of Changes in Net Assets for the GS Adjustable Rate Government Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund for the fiscal year ended October 31, 1995 (audited).
Financial Highlights for the GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund for the periods ended October 31, 1995 (audited).
Financial Highlights for the GS Adjustable Rate Government Agency Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and Goldman Sachs Global Income Fund for the periods ended October 31, 1995 (audited).
Notes to Financial Statements.
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on form N-1A as initially filed (Reference A), to Post-
Effective Amendment No. 1 to such Registration Statement (Reference C), or to
Post-Effective Amendment No. 2 to such Registration Statement (Reference D), or
to Post-Effective Amendment No. 4 to such Registration Statement (Reference F),
or to Post-Effective Amendment No. 12 to such Registration Statement (Reference
M),
or to Post-Effective Amendment No. 16 to such Registration Statement (Reference
Q) or to Post-Effective Amendment No. 17 to such Registration Statement
(Reference R), or to Post-Effective Amendment No. 19 to such Registration
Statement (Reference T), or to Post-Effective Amendment No. 20 to such
Registration Statement (Reference U), or to Post-Effective Amendment No. 21 to
such Registration Statement (Reference V), or to Post-Effective Amendment No. 24
to such Registration Statement (Reference Y), or to Post-Effective Amendment No.
25 to such Registration Statement (Reference Z).
1(a). Amendment No. 2 to the Agreement and Declaration of Trust of the Registrant. (Reference B) Government Agency Fund and Goldman, Sachs & Co. (Reference P)
8(b). Form of Wiring Agreement among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern Trust Company.
(Reference B)
8(c). Fee schedule relating to the Custodian Agreement between Registrant and State Street Bank and Trust Company. (Reference C)
8(d). Form of Letter Agreement between Registrant and State Street Bank and Trust pertaining to the latter's designation of Security Pacific National Bank as its sub-custodian and certain other matters. (Reference C)
8(g). Form of Amendment dated August, 1989 to the Wiring Agreement among State Street Bank and Trust Company, Goldman, Sachs & Co. and The Northern Trust Company relating to the indemnification of The Northern Trust Company. (Reference D)
10. Opinion of Counsel (filed with 24f-2)
13. Subscription Agreement with Goldman, Sachs & Co. (Reference B)
15(f). Distribution Plan Pursuant to Rule 12b-1 for GS Adjustable Rate Government Agency Fund-Class A Shares. (Reference Y)
17(b). Fee schedule relating to the Transfer Agency Agreement between Registrant and Goldman, Sachs & Co. (Reference B)
18. Form of Plan entered into by Registrant pursuant to Rule 18f-3 (Reference Z).
The following exhibits are filed herewith electronically pursuant to EDGAR rules:
1(b). Amendment to the Agreement and Declaration of Trust of the Registrant. (Reference G)
1(c). Amended and Restated Agreement and Declaration of Trust. (Reference I).
1(d). Amendment to the Amended and Restated Declaration of Trust of the Registrant dated August 19, 1992. (Reference K)
1(e). Amendment to Amended and Restated Agreement and Declaration of Trust. (Reference L)
1(f). Amendment to the Amended and Restated Agreement and Declaration of Trust (Reference S)
2. By-law of the Registrant. (Reference B)
5(a). Advisory Agreement between Registrant on behalf of GS Short-Term Government Agency Fund and Goldman, Sachs & Co. (Reference P)
5(b). Advisory Agreement between Registrant on behalf of Goldman Sachs
Global Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(c). Subadvisory Agreement between Registrant on behalf of Goldman Sachs Global Income Fund and Goldman Sachs Asset Management International Limited. (Reference P)
5(d). Advisory Agreement between Registrant on behalf of GS Adjustable
Rate Government Agency Fund and Goldman Sachs Asset Management.
(Reference P)
5(e). Advisory Agreement between Registrant on behalf of GS Short Duration Tax-Free Fund and Goldman, Sachs & Co. (Reference P)
5(g). Advisory Agreement between Registrant on behalf of Goldman Sachs
Government Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(i). Advisory Agreement between Registrant on behalf of Goldman Sachs
Municipal Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(h). Administration Agreement between the Registrant on behalf of Goldman Sachs Municipal Income Fund and Goldman Sachs Asset Management. (Reference P)
5(k). Administration Agreement between Registrant on behalf of Goldman
Sachs Global Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(m). Administration Agreement between Registrant on behalf of Goldman
Sachs Government Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(n). Advisory Agreement between Registrant on behalf of GS Core Fixed Income Fund and Goldman Sachs Asset Management. (Reference T)
6(a). Distribution Agreement between Registrant and Goldman, Sachs & Co.
(Reference P)
8(a). Custodian Agreement between Registrant and State Street Bank and Trust Company. (Reference P)
10(a). Opinion of Counsel (Filed with 24e-2)
11. Consent of Arthur Andersen
15(a). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Municipal Income Fund. (Reference P)
15(c). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Government Income Fund (Reference O)
15(d). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Global Income Fund. (Reference O)
15(h). Administration Plan and Service Plan of the Trust. (Reference X)
17(a). Transfer Agency Agreement between Registrant and Goldman, Sachs & Co. (Reference P)
17(c). Power of Attorney of Ms. Beck. (Reference N)
17(d). Powers of Attorney of Messrs. Armellino, Bakhru, Mayo, Nagel, Shuch, Smart, Springer, Strubel, Gilman, Hopkins, Mosior, Richman, Mmes. Mucker and Taylor. (Reference O)
17(e). Power of Attorney Messr. Ford. (Reference W)
27 Financial Data Schedule
Not Applicable.
Number of
Title of Class Record Holders
- --------------------------- --------------
GS Short-Term Government Agency Fund 216
Institutional Shares
GS Short-Term Government Agency Fund 0
Administration Shares
GS Short-Term Government Agency Fund 0
Service Shares
GS Adjustable Rate Government Agency Fund 554
Institutional Shares
GS Adjustable Rate Government Agency Fund 14
Administration Shares
GS Adjustable Rate Government Agency Fund 0
Service Shares
GS Adjustable Rate Government Agency Fund 317
Class A Shares
GS Short Duration Tax-Free Fund 176
Institutional Shares
GS Short Duration Tax-Free Fund 1
Administration Shares
GS Short Duration Tax-Free Fund 54
Service Shares
GS Core Fixed Income Fund 27
Institutional Shares
GS Core Fixed Income Fund 0
Administration Shares
GS Core Fixed Income Fund 0
Service Shares
Goldman Sachs Global Income Fund 3
Institutional Shares
|
Goldman Sachs Global Income Fund 0 Service Shares Goldman Sachs Global Income Fund 2,697 Class A Shares Class B Shares 0 Goldman Sachs Government Income Fund 675 Class A Shares Class B Shares 0 Goldman Sachs Municipal Income Fund 1,703 Class A Shares Class B Shares 0 |
(Information supplied as of December 21, 1995)
Paragraph 7 of the Advisory Agreement dated March 28, 1988 between the Registrant on behalf of GS Short-Term Government Agency Fund and Goldman, Sachs & Co., paragraph 7 of the Advisory Agreement dated as of July 15, 1991 between the Registrant on behalf of Goldman Sachs Global Income Fund and Goldman Sachs Asset Management, paragraph 7 of the Advisory Agreement dated as of July 15, 1991 between GS Adjustable Rate Government Agency Fund and Goldman Sachs Asset Management, and paragraph 7 of the Advisory Agreement dated September 25, 1992 between the Registrant on behalf of GS Short Duration Tax-Free Fund and Goldman Sachs & Co., paragraph 7 of the Advisory Agreement dated November 23, 1993 between the Registrant on behalf of GS Government Agency Portfolio and Goldman, Sachs & Co., paragraph 7 of the Advisory Agreement dated February 1, 1993 between the Registrant on behalf of each of GS Adjustable Rate Mortgage Fund and Goldman Sachs Government Income Fund and Goldman Sachs Asset Management, and paragraph 7 of the Advisory Agreement dated July 16, 1993 between the Registrant on behalf of Goldman Sachs Municipal Income Fund and Goldman Sachs Asset Management and paragraph 7 of the Advisory Agreement between the Registrant on behalf of GS Core Fixed Income Fund and Goldman Sachs Asset Management and paragraph 7 of the Advisory Agreement dated October 27, 1993 between the registrant on behalf of each of Goldman Sachs California Municipal
Income Fund and Goldman Sachs New York Municipal Income Fund and Goldman Sachs
Asset Management, provide for indemnification of Goldman, Sachs & Co., Goldman
Sachs Asset Management or, in lieu thereof, contribution by the Registrant under
certain circumstances. Copies of such Agreements were filed as Exhibits 5(a),
(b), (d), (e), (f), (g), (h), (i), (n), (o), and (p), respectively, to
Registrant's Registration Statement.
Section XI of the Distribution Agreement and Section 7 of the Transfer Agency
Agreement between the Registrant and Goldman, Sachs & Co. dated July 15, 1991
each provides that the Registrant will indemnify Goldman, Sachs & Co. against
certain liabilities. A copy of such Agreements were filed as Exhibits 6(a) and
17(a), respectively, to the Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity Portfolios, Inc., Paragon Portfolio, Trust for Credit Unions, The Benchmark Funds and the Pilot Funds and Goldman, Sachs & Co. 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.
The business and other connections of the officers and partners of Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs Asset Management International are listed on their respective Forms ADV as currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-38157, respectively) the text of which are hereby incorporated by reference.
(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently serves as investment adviser and distributor of the units of Goldman Money Market Trust, Trust for Credit Unions and for shares of Paragon Treasury Money Market Fund, Goldman Sachs Trust and Goldman Sachs Equity Portfolios, Inc. Goldman, Sachs & Co., or a division thereof currently serves as administrator and distributor of the units or shares of The Benchmark Funds, Paragon Portfolio and The Commerce Funds.
(b). Set forth below is certain information pertaining to the general partners of Goldman, Sachs & Co., Registrant's principal underwriter. Each of the following persons is a general partner of Goldman, Sachs & Co. and, except for Messr. Shuch, does not hold a position with Registrant. Messrs. Shuch and Ford are Trustees of Registrant.
GOLDMAN SACHS GENERAL PARTNERS
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Jon Corzine, Chairman (1)(2)
Roy J. Zuckerberg (1)(2) Hideo Ishihara (10)
David M. Silfen (1)(2) Oki Matsumoto Inc. (2)
Richard M. Hayden (2)
Robert J. Hurst (2) Armen A. Avanessians (2)
Paul M. Achleitner (7) Howard C. Katz (2)
Joel S. Beckman (2) Peter K. Barker (9)
Eric S. Dobkin (2) David W. Blood (7)
Willard J. Overlock, Jr. (2) Henry M. Paulson, Jr.(1)(2)
Jonathan L. Cohen (2) Zachariah Cobrinik (7)
Frederic B. Garonzik (7) Kevin W. Kennedy (2)
William C. Landreth (11) Daniel M. Neidich (2)
Gary D. Cohn (7) Edward Spiegel (2)
Fischer Black (5) Christopher A. Cole (2)
Robert F. Cummings, Jr. (2) Henry Cornell (13)
Angelo De Caro (7) Robert V. Delaney (2)
Steven G. Einhorn (2) Joseph DellaRosa (2)
J. Michael Evans (7) David B. Ford (2)
David M. Leuschen (2) Lawton W. Fitt (2)
Michael R. Lynch (2) Michael D. McCarthy (2)
Donald C. Opatrny, Jr. (7) Joseph D. Gatto (2)
Peter C. Gerhard (2) Thomas E. Tuft (2)
Robert J. Katz (2) Michael P. Mortara (2)
Nomi P. Ghez (2) Lloyd C. Blankfein (2)
David T. Hamamoto (2) John P. Curtin, Jr. (2)
Gavyn Davies (7) Dexter D. Earle (2)
John Ehara (10) Christopher Flowers (2)
Gary Gensler (2) Walter H. Haydock (15)
Charles T. Harris, III (2) Thomas J. Healey (2)
Stephen Hendel (2) Robert E. Higgins (2)
Ernest S. Liu (2) David L. Henle (2)
Eff W. Martin (11) Charles B. Mayer, Jr. (2)
Michael J. O'Brien (7) Mark Schwartz (2)
Stephen M. Semlitz (2) Robert K. Steel (7)
Francis J. Ingrassia (2) John A. Thain (1)(2)
John L. Thornton (7) Scott B. Kapnick (7)
Bracebridge H. Young, Jr. (10) Joseph R. Zimmel (2)
Barry L. Zubrow (2) Gary L. Zwerling (2)
Jon R. Aisbitt (7) Andrew M. Alper (2)
William J. Buckley (2) Frank L. Coulson, Jr. (2)
|
Connie Duckworth (8) Richard A. Friedman (2) Alan R. Gillespie (7) John H. Gleberman (2) Jacob D. Goldfield (2) Steven M. Heller (2) Ann F. Kaplan (2) Robert S. Kaplan (10) Peter D. Kiernan, III (2) Kevin M. Kelly (2) T. Willem Mesdag (7) Gaetano J. Muzio (2) Robin Neustein (2) Timothy J. O'Neill (2) Scott M. Pinkus (2) John J. Powers (2) Stephen D. Quinn (2) Arthur J. Reimers,III (7) James P. Riley, Jr. (2) Richard A. Sapp (7) John C. Keinert (2) Donald F. Textor (2) Thomas B. Walker, III (2) Patrick J. Ward (10) Jeffrey M. Weingarten (7) Jon Winkelried (2) Richard E. Witten (2) Gregory K. Palm (7) Carlos A. Cordeiro (7) John O. Downing (7) W. Mark Evans (7) Michael D. Fascitelli (2) Sylvain M. Hefes (7) Reuben Jeffrey, III (2) Lawrence H. Linden (2) Jun Makihara (9) Masanori Mochida (10) Robert B. Morris,III (11) Philip D. Murphy (14) Suzanne M. Johnson (9) Terence M. O'Toole (2) Carl G.E. Palmstierna (7) Michael G. Rantz (2) J. David Rogers (10) Joseph Sassoon (7) Peter Savitz (10) Charles B. Seelig, Jr. (2) Ralph F. Severson (11) Gene T. Sykes (9) Gary A. Syman (10) Leslie C. Tortora (2) John L. Townsend, III (2) Lee G. Vance (7) David A. Viniar (2) John S. Weinberg (2) Peter A. Weinberg (2) Laurence M. Weiss (2) George W. Wellde, Jr. (2) Jaime E. Yordan (2) Sharmin Mossavar- Jonathan L. Kolatch (2) Rahmani (5) Peter S. Kraus (2) Robert Litterman (2) Jonathan M. Lopatin (2) Thomas J. Macirowski (2) Peter G. Mallinson (13) Oki Matsumoto (10) E. Scott Mead (7) Eric M. Mindich (2) Steven T. Mnuchin (2) Thomas K. Montag (2) Edward A. Mule (2) Kipp M. Nelson (7) Christopher K. Norton (14) Robert J. O'Shea (2) Wiet H. Pot (7) Jack L. Salzman (2) Eric S. Schwartz (2) Michael F. Schwerin (2) Richard S. Sharp (7) Richard G. Sherlund (2) Michael S. Sherwood (7) Cody J. Smith (2) Daniel W. Stanton (2) Esta E. Stecher (2) Frederic E. Steck (11) Byron D. Trott (8) Barry S. Volpert (2) Peter S. Wheeler (13) Anthony G. Williams (7) Gary W. Williams (2) Tracy R. Wolstencroft (4) Danny O. Yee (13) |
Michael J. Zamkow (2) Mark A. Zurack (2)
(1) Executive Committee
(2) 85 Broad Street, New York, NY 10004
(3) Mellon Bank Center, 1735 Market Street, 26th Floor,
Philadelphia, PA 19103
(4) 100 Crescent Court, Suite 1000, Dallas, TX 75201
(5) One New York Plaza, New York, NY 10004
(6) 1000 Louisiana Street, Suite 550, Houston, TX 77002
(7) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(8) 4900 Sears Tower, Chicago, IL 60606
(9) 333 South Grand Avenue, Suite 1900, Los Angeles, CA 90071
(10) ARK Mori Bldg.,10th Floor, 12-32 Akasaka, 1-chome, Minato-
ku, Tokyo 107, Japan
(11) 555 California Street, 31st Floor, San Francisco, CA 94104
(12) Exchange Place, 53 State Street, 13th Floor, Boston, MA
02109
(13) Asia Pacific Finance Tower, 35th Floor, Citibank Plaza, 3
Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main 1, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(c) Not Applicable.
The Amended and Restated Agreement and Declaration of Trust, By-laws and minute books of the Registrant are in the physical possession of Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004. All other accounts, books and other documents required to be maintained under Section 31(a) of the Investment Company Act of 1940 and the Rule promulgated thereunder are in the physical possession of State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105 except for certain transfer agency records which are maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
The Custodian Agreement between State Street Bank and Trust Company and Registrant provides for State Street Bank and Trust Company to act as custodian and to maintain certain accounting records for Registrant. Remuneration is based on a minimum fixed dollar charge per annum and the Funds' average daily net assets (such remuneration being subject to adjustment on the basis of the amount of the Funds' uninvested cash) and on the number of portfolio transactions. Such Agreement together with the related letter and other agreements and amendments pertaining thereto, referred to under Item 24(b) are hereby incorporated by reference.
ITEM 32.
(c) The Funds Annual Reports contain performance information and are available to any recipient of the Prospectuses upon request and without charge by writing to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 26 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City and State of New York on the 28th day of December, 1995.
GOLDMAN SACHS TRUST
Michael J. Richman Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 26 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
NAME TITLE DATE
---- ----- ----
* President and Trustee December 28, 1995
- ------------------------
Marcia L. Beck
* Principal Accounting December 28, 1995
- ------------------------ Officer And Principal
Scott M. Gilman Financial Officer
* Trustee December 28, 1995
- ------------------------
David B. Ford
* Trustee December 28, 1995
- ------------------------
Ashok N. Bakhru
* Trustee December 28, 1995
- ------------------------
Paul C. Nagel, Jr.
* Trustee December 28, 1995
- ------------------------
Alan A. Shuch
* Trustee December 28, 1995
- ------------------------
Jackson W. Smart, Jr.
* Trustee December 28, 1995
- ------------------------
William H. Springer
|
* Pursuant to a power of attorney previously filed.
1(b). Amendment to the Agreement and Declaration of Trust of the Registrant. (Reference G)
1(c). Amended and Restated Agreement and Declaration of Trust. (Reference I).
1(d). Amendment to the Amended and Restated Declaration of Trust of the Registrant dated August 19, 1992. (Reference K)
1(e). Amendment to Amended and Restated Agreement and Declaration of Trust. (Reference L)
1(f). Amendment to the Amended and Restated Agreement and Declaration of Trust (Reference S)
2. By-law of the Registrant. (Reference B)
5(a). Advisory Agreement between Registrant on behalf of GS Short-Term Government Agency Fund and Goldman, Sachs & Co. (Reference P)
5(b). Advisory Agreement between Registrant on behalf of Goldman Sachs
Global Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(c). Subadvisory Agreement between Registrant on behalf of Goldman Sachs Global Income Fund and Goldman Sachs Asset Management International Limited. (Reference P)
5(d). Advisory Agreement between Registrant on behalf of GS Adjustable
Rate Government Agency Fund and Goldman Sachs Asset Management.
(Reference P)
5(e). Advisory Agreement between Registrant on behalf of GS Short Duration Tax-Free Fund and Goldman, Sachs & Co. (Reference P)
5(g). Advisory Agreement between Registrant on behalf of Goldman Sachs
Government Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(i). Advisory Agreement between Registrant on behalf of Goldman Sachs
Municipal Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(h). Administration Agreement between the Registrant on behalf of Goldman
Sachs Municipal Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(k). Administration Agreement between Registrant on behalf of Goldman
Sachs Global Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(m). Administration Agreement between Registrant on behalf of Goldman
Sachs Government Income Fund and Goldman Sachs Asset Management.
(Reference P)
5(n). Advisory Agreement between Registrant on behalf of GS Core Fixed Income Fund and Goldman Sachs Asset Management. (Reference T)
6(a). Distribution Agreement between Registrant and Goldman, Sachs & Co.
(Reference P)
8(a). Custodian Agreement between Registrant and State Street Bank and Trust Company. (Reference P)
10(a). Opinion of Counsel (filed with 24e-2)
11. Consent of Arthur Andersen
15(a). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Municipal Income Fund. (Reference P)
15(c). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Government Income Fund (Reference O)
15(d). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Global Income Fund. (Reference O)
15(h). Administration Plan and Service Plan of the Trust. (Reference X)
17(a). Transfer Agency Agreement between Registrant and Goldman, Sachs & Co. (Reference P)
17(c). Power of Attorney of Ms. Beck. (Reference N)
17(d). Powers of Attorney of Messrs. Armellino, Bakhru, Mayo, Nagel, Shuch, Smart, Springer, Strubel, Gilman, Hopkins, Mosior, Richman, Mmes. Mucker and Taylor. (Reference O)
17(e). Power of Attorney Messr. Ford. (Reference W)
27 Financial Data Schedule
EXHIBIT 1(b)
GOLDMAN SACHS TRUST
WHEREAS, Section 7.3 of the Agreement and Declaration of Trust of Goldman Sachs Trust (the "Trust") dated September 24, 1987, as amended, (the "Declaration") provides that the Declaration may be amended from time to time by an instrument in writing signed by a majority of the then Trustees (or by an officer of the Trust pursuant to a vote of a majority of the then Trustees);
WHEREAS, Section 7.3 also provides that any such amendment having the purpose of changing the name of the Trust or the name of any Series of Units theretofore established and designated, or establishing and designating new Series of Units of the Trust, shall not require authorization by Unitholder vote;
RESOLVED, that the Agreement and Declaration of Trust of Goldman Sachs Trust dated September 24, 1987, as amended (the "Declaration") be further amended as contemplated in Section 7.3 thereof (1) by changing the name of the existing Series of Units of the Trust known as "GS Short-Intermediate Government Fund" to "GS Short-Term Government Agency Fund", and (2) by changing the name of the existing Series of Units of the Trust known as "GS Global Bond Fund" to "GS Global Income Fund"; and
FURTHER RESOLVED, that the president, any Vice President, the Secretary, the Assistant Secretary, the Treasurer and the Assistant Treasurer of the Trust be, and they each hereby are, severally authorized to execute an instrument in writing effecting the aforesaid amendment and to cause the same to be filed wherever in the discretion of such officer such filing is appropriate.
NOW, THEREFORE, the undersigned, Michelle S. Lenzmeier, being the duly elected, appointed and serving Secretary of the Trust, hereby amends the Declaration by changing the name of the existing Series of Units of the Trust known as "GS Short-Intermediate Government Fund" to "GS Short-Term Government Agency Fund" and by changing the name of the existing Series of Units of the Trust known as "GS Global Bond Fund" to "GS Global Income Fund", and certifies that such amendment has been duly adopted.
WITNESS my hand this 23rd day of April, 1991.
GOLDMAN SACHS TRUST
Michelle S. Lenzmeier
----------------------------
Michelle S. Lenzmeier
Secretary of the Trust
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
|
Then personally appeared the above-named Michelle S. Lenzmeier and acknowledged this instrument to be her free act and deed this 23rd day of April, 1991.
Commission Expires April 13, 1993
EXHIBIT 1(c)
GOLDMAN SACHS TRUST
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
WHEREAS, pursuant to an Agreement and Declaration of Trust dated September 24, 1987, the Trustees established a trust for the investment and reinvestment of funds contributed thereto;
WHEREAS, the Trust is authorized to issue its Shares of beneficial interest in separate Series, all as hereinafter provided;
WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts business trust in accordance with the provisions hereinafter set forth;
WHEREAS, the Trustees hereby declare that they will hold all cash, securities and other assets which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the benefit of the holders from time to time of Shares of beneficial interest in this Trust as hereinafter set forth; and
WHEREAS, the Trustees desire this 5th day of December, 1991 to amend and restate said Agreement and Declaration of Trust in its entirety, as hereinafter provided.
NOW, THEREFORE, the undersigned, being authorized to do so, hereby amends and restates the Agreement and Declaration of Trust in its entirety, as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as Goldman Sachs Trust and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine.
Section 1.2 Definitions. Whenever used herein, unless otherwise required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time.
(b) "Class" means any division of Shares within a Series, which Class is or
has been established within such Series in accordance with the provisions of
Article IV. The five initial Classes of Shares established and designated in
Section 4.2 hereof are: the "Retail Class;" the "CDSC Class;" the "Institutional
Class;" the "Administration Class;" and the "Service Class";
(c) The terms "Commission" and "Principal Underwriter" shall have the meanings given them in the 1940 Act;
(d) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time. Reference in this Declaration of Trust to "Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer to this Declaration and any amendments or restatements rather than exclusively to the Article or Section in which the words appear;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time;
(f) "Series," individually or collectively, means the separate Series of the Trust as have been and may be established and designated from time to time by the Trustees in accordance with Article IV. Unless the context otherwise requires, the term "Series" shall include Classes into which Shares of the Trust, or of a Series, may be divided from time to time;
(g) "Shares" refer to the transferable shares of interest into which the beneficial interest in the Trust or any Series or Class thereof of the Trust (as the context may require) shall be divided from time to time and includes fractions of Shares as well as whole Shares. "Outstanding" Shares means those Shares shown from time to time on the books of the Trust or its transfer agent as then issued and outstanding, but shall not include Shares which have been redeemed or repurchased by the Trust and which are at the time held in the treasury of the Trust;
(h) "Shareholder" means a record owner of Shares;
(i) The "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time, inclusive of each and every Series and Class thereof established hereunder; and
(j) "Trustees" refers to the Trustees of the Trust now serving or elected in accordance with Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company and to offer Shareholders of the Trust one or more investment programs.
ARTICLE III
THE TRUSTEES
Section 3.1 Number, Designation, Election, Term, etc.
(a) Number. The Trustees serving as such, whether now serving or hereafter becoming a Trustee, may increase or decrease (to a number not less than three) the number of Trustees to a number other than the number theretofore determined. No decrease in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his term, but the number of Trustees may be decreased in conjunction with the removal of a Trustee pursuant to subsection (d) of this Section 3.1.
(b) Term. Each Trustee, whether now serving or hereafter becoming a Trustee, shall serve as a Trustee of the Trust during the lifetime of this Trust and until its termination as hereinafter provided or until the next meeting of Shareholders, if any, called for the purpose of considering the election or re- election of such Trustee or of a successor to such Trustee, and until the election and qualification of his successor, if any, elected at such meeting, or until such Trustee sooner dies, resigns, retires or is removed.
(c) Resignation and Retirement. Any Trustee may resign his trust or retire as a Trustee, by written instrument signed by him and delivered to the other Trustees or to any officer of the Trust, and such resignation or retirement shall take effect upon such delivery or upon such later date as is specified in such instrument.
(d) Removal. Any Trustee may be removed with or without cause at any time:
(i) by written instrument, signed by at least two-thirds of the number of
Trustees in office immediately prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by vote of the Shareholders
holding not less than two-thirds of the Shares then outstanding, cast in person
or by proxy at any meeting called for the purpose. In connection with clause
(ii), the Trustees shall promptly call a meeting of Shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees when
requested in writing to do so by the holders of record of not less than ten (10)
percent of the Outstanding Shares entitled to vote.
(e) Vacancies. Except as provided in the 1940 Act (including particularly
Section 16(a) thereof), any vacancy or anticipated vacancy resulting from any
reason including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
three remaining Trustees, need not unless required by the 1940 Act) be filled
either (i) by a majority of the remaining Trustees through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine or (ii) by election by the Shareholders, at a meeting called for
the purpose, of a person to fill such vacancy. Such appointment or election
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions of
this Declaration of Trust, except that any such appointment or election in
anticipation of a vacancy to occur by reason of retirement, resignation, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation,
or increase in number of Trustees. As soon as any Trustee so appointed or
elected shall have accepted such appointment or election and shall have agreed
in writing to be bound by this Declaration of Trust and the appointment or
election is effective, the Trust estate shall vest in the new Trustee, together
with the continuing Trustees, without any further act or conveyance.
(f) Mandatory Election by Shareholders. Notwithstanding the foregoing provisions of this Section 3.1, the Trustees shall call a meeting of the Shareholders for the election of one or more Trustees at such time or times as may be required in order that the provisions of the 1940 Act (including Section 16(a) thereof) may be complied with, and the authority hereinabove provided for the Trustees to appoint any successor Trustee or Trustees shall be restricted if such appointment would result in failure of the Trust to comply with any provision of the 1940 Act.
(g) Effect of Death, Resignation, etc. The death, resignation, retirement, removal, or incapacity of the Trustees, or any one of them, shall not operate to annul or terminate the Trust or to revoke or terminate any existing agency or contract created or entered into pursuant to the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or under circumstances which would justify his removal for cause, no person ceasing to be a Trustee as a result of his death, resignation, retirement, removal or incapacity (nor the estate of any such person) shall be required to make an accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility and the purpose of the Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business and affairs of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the Shareholders; they may from time to time in accordance with the provisions of Section 4.1 hereof establish separate Series (each such series to operate as a separate and distinct investment medium and with separately defined investment objectives and policies and distinct investment purposes) or separate classes thereof; they may as they consider appropriate elect and remove officers and appoint and terminate agents and consultants
and hire and terminate employees, any one or more of the foregoing of whom may be a Trustee, and may provide for the compensation of all of the foregoing; they may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including without implied limitation an executive committee, which may, when the Trustees are not in session and subject to the 1940 Act, exercise some or all of the power and authority of the Trustees as the Trustees may determine; in accordance with Section 3.4 they may employ one or more Advisers, Administrators, Depositories and Custodians and may authorize any Depository or Custodian to employ subcustodians or agents and to deposit all or any part of such assets in a system or systems for the central handling of securities and debt instruments or the recording of ownership of securities in book entry form, retain transfer, dividend, accounting or Shareholder servicing agents or any of the foregoing, provide for the distribution of Shares by the Trust, through one or more distributors, principal underwriters or otherwise, set record dates or times for the determination of Shareholders or various of them with respect to various matters; they may compensate or provide for the compensation of the Trustees, officers, advisers, administrators, custodians, other agents, consultants and employees of the Trust or the Trustees on such terms as they deem appropriate; and in general they may delegate to any officer of the Trust, to any committee of the Trustees and to any employee, adviser, administrator, distributor, depository, custodian, transfer and dividend disbursing agent, or any other agent or consultant of the Trust such authority, powers, functions and duties as they consider desirable or appropriate for the conduct of the business and affairs of the Trust, including without implied limitation the power and authority to act in the name of the Trust and of the Trustees, to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the 1940 Act or other applicable law, the Trustees shall have power and authority for and on behalf of the Trust and each Series established hereunder:
(a) Investments. To invest and reinvest cash and other property, and to hold cash or other property uninvested without in any event being bound or limited by any present or future law or custom in regard to investments by Trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities, debt instruments or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities, debt instruments or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or otherwise which in any manner, arise out of ownership of securities or debt instruments;
(e) Form of Holding. To hold any security, debt instrument or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or of any Series in the name of a custodian, subcustodian or other depositary or a nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security or debt instrument of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any securities or debt instruments in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security or debt instrument with, or transfer any security or debt instrument to any such committee, depositary or Trustee, and to delegate to them such power and authority with relation to any security or debt instrument (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depository or Trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any Series or any matter in controversy, including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and pledge the assets of the Trust or any part thereof to secure obligations arising in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, consultants, investment advisers, managers, administrators, distributors, principal underwriters, or independent contractors, or any thereof (or any person connected therewith), of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person in any such capacity, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability;
(m) Pensions, etc. To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trust and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust;
(n) Distribution Plans. To adopt on behalf of the Trust, a Series or a Class thereof a Plan of Distribution and related agreements thereto pursuant to the terms of Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan") and to make payments from Trust assets pursuant to said Rule 12b-1 Plan; and
(o) Administration and Service Plans. To adopt on behalf of the Trust, any Series or Class thereof (i) a plan to assist Shareholders of record in the administration of the accounts of their customers who are beneficial owners of such Shares (an "Administration Plan") and related agreements, and to make payments pursuant to said Administration Plan and/or (ii) a plan to assist Shareholders of record in providing support services to their customers who are beneficial owners of such Shares (a "Service Plan") and related agreements, and to make payments pursuant to said Service Plan. Any Administration Plan or Service Plan and agreements related thereto ("Service Agreements") may be so adopted pursuant to the terms of Rule 12b-1 or any other applicable rule under the 1940 Act.
Section 3.3 Manner of Acting. Except as otherwise provided by the 1940 Act or other applicable law, this Declaration of Trust or the By-Laws, any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of Trustees (a quorum, consisting of at least a majority of the Trustees then in office, being present), within or without Massachusetts, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting, or by written consents of a majority of the Trustees then in office.
Section 3.4 Certain Contracts. Subject to compliance with the provisions of the 1940 Act, but notwithstanding any limitation of present and future law or custom in regard to delegation of powers by Trustees generally, the Trustees may, at any time and from time to time and without limiting the generality of their powers and authority otherwise set forth herein, enter into one or more contracts with any one or more corporations, trusts, associations, partnerships, limited partnerships, other type of organizations, or individuals, ("Contracting Party") to provide for the performance and assumption of some or all of the following services, duties and responsibilities to, for or of the Trust, any one or more Series and/or the Trustees, and to provide for the performance and assumption of such other services, duties and responsibilities in addition to those set forth below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and in conformity with the stated policy of the Trustees with respect to the investments of the Trust or of the assets belonging to any Series of the Trust (as that phrase is used in subsection (a) of Section 4.2), to manage such investments and assets, make investment decisions with respect thereto, and to place purchase and sale orders for portfolio transactions relating to such investments and assets;
(b) Administration. Subject to the general supervision of the Trustees and in their sole discretion, to enter into an administration contract or, if the Trustees establish multiple Series, separate administration contracts with respect to each Series, whereby the other party to such contract shall undertake to manage the business affairs of the Trust or of a Series of the Trust and furnish the Trust or a Series thereof office facilities, and shall be responsible for the ordinary clerical, bookkeeping and recordkeeping services at such office facilities, and other facilities and services, if any, and all upon such terms and conditions as the Trustees may in their discretion determine;
(c) Service. The Trustees may in their discretion from time to time enter into Service Agreements with respect to one or more Series or Classes of Shares whereby the other parties to such Service Agreements will provide administration and/or support services pursuant to Administration Plans and Service Plans, and all upon such terms and conditions as the Trustees in their discretion may determine;
(d) Distribution. To distribute the Shares of the Trust or of any Series or Class thereof, to be Principal Underwriter of such Shares, and/or to act as agent of the Trust, each Series and Classes thereof in the sale of Shares and the acceptance or rejection of orders for the purchase of Shares, and to provide distribution services and support services pursuant to any Rule 12b-1 Plans, Administration Plans and Service Plans, respectively;
(e) Custodian and Depository. To act as depository for and to maintain custody of the property of the Trust and each Series and accounting records in connection therewith;
(f) Transfer and Dividend Disbursing Agency. To maintain records of the ownership of Outstanding Shares, the issuance and redemption and the transfer thereof, and to disburse any dividends declared by the Trustees and in accordance with the policies of the Trustees and/or the instructions of any particular Shareholder to reinvest any such dividends;
(g) Shareholder Servicing. To provide service with respect to the relationship of the Trust and its Shareholders, records with respect to Shareholders and their Shares, and similar matters; and
(h) Accounting. To handle all or any part of the accounting responsibilities, whether with respect to the Trust's properties, Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the services, duties and responsibilities to, for and of the Trust and/or the Trustees, and the contracts with respect thereto may contain such terms interpretive of or in addition to the delineation of the services, duties and responsibilities provided for, including provisions that are not inconsistent with the 1940 Act relating to the standard of duty of and the rights to indemnification of the Contracting Party and others, as the Trustees may determine. Nothing herein shall preclude, prevent or limit the Trust or a Contracting Party from entering into sub-contractual arrangements relating to any of the matters referred to in Sections 3.4(a) through (h) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter or distributor or agent of or for any Contracting Party, or of or for any parent or affiliate of any Contracting Party or that the Contracting Party or any parent or affiliate thereof is a Shareholder or has an interest in the Trust or any Series, or that
(ii) any Contracting Party may have a contract providing for the rendering of any similar services to one or more other corporations, trusts, associations, partnerships, limited partnerships or other organizations, or has other business or interests,
shall not affect the validity of any contract for the performance and assumption of services, duties and responsibilities to, for or of the Trust, any Series or Class and/or the Trustees or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust, any Series or Class or its Shareholders, provided that in the case of any relationship or interest referred to in the preceding clause (i) on the part of any Trustee or officer of the Trust either (x) the material facts as to such relationship or interest have been disclosed to or are known by the Trustees not having any such relationship or interest and the contract involved is approved in good faith by a majority of such Trustees not having any such relationship or interest (even though such unrelated or disinterested Trustees are less than a quorum of all of the Trustees), (y) the material facts as to such relationship or interest and as to the contract have been disclosed to or are known by the Shareholders entitled to vote thereon and the contract involved is specifically approved in good faith by vote of the Shareholders or (z) the specific contract involved is fair to the Trust as of the time it is authorized, approved or ratified by the Trustees or by the Shareholders.
Section 3.5 Payment of Trust Expenses and Compensation of Trustees. The Trustees are authorized to pay or to cause to be paid out of the principal or income of the Trust or any Series or Class thereof, or partly out of principal and partly out of income, and to charge or allocate the same to, between or among with one or more of the Series or Classes thereof that may be established and designated pursuant to Article IV, as the Trustees deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust or any Series or Class thereof, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser, administrator, distributor, principal underwriter, auditor, counsel, depository, custodian, transfer agent, dividend disbursing agent, accounting agent, Shareholder servicing agent, and such other agents, consultants, and independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur. Allocation of expenses among separate Series or among separate Classes within any Series shall be made in an equitable and nondiscriminatory manner, with each Class bearing only expenses relating to its Shares and an allocable share of Series expenses in accordance with such policies
as may be established by the Trustees from time to time and as are not inconsistent with the provisions of this Declaration of Trust or of any applicable document filed by the Trust with the Commission under the 1940 Act or with the Internal Revenue Service under the Internal Revenue Code of 1986, as amended. Without limiting the generality of any other provision hereof, the Trustees shall be entitled to reasonable compensation from the Trust for their services as Trustees and may fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 Description of Shares. The beneficial interest in the Trust shall be divided into transferable Shares, all with $.001 par value, and the Trustees shall have the authority from time to time to establish and designate one or more Series of Shares and one or more Classes thereof as they deem necessary or desirable. The Trustees shall have exclusive power without the requirement of Shareholder approval to establish and designate such Series and Classes thereof, and to fix and determine the relative rights and preferences as between the different Series or Classes of Shares as to right of redemption and the price, terms and manner of redemption, special and relative rights as to dividends and other distributions and on liquidation, sinking or purchase fund provisions, conversion rights, and conditions under which the several Series or Classes thereof shall have separate voting rights or no voting rights. Except as aforesaid, as otherwise provided herein, or as provided in an instrument of the Trustees properly establishing and designating a Series or Classes, all Shares of the different Series or Classes thereof shall be identical.
The number of authorized Shares and the number of Shares of each Series or Class thereof that may be issued is unlimited, and the Trustees may issue Shares of any Series or Class for such consideration and on such terms as they may determine (or for no consideration if pursuant to a Share dividend or split-up), all without action or approval of the Shareholders. All Shares when so issued on the terms determined by the Trustees shall be fully paid and nonassessable (but may be subject to mandatory contribution back to the Trust as provided in subsection (h) of Section 4.2). The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any Series or Class into one or more Series or Classes that may be established and designated from time to time. The Trustees may hold as treasury Shares (of the same or some other Series or Class), reissue for such consideration and on such terms as they may determine, or cancel, at their discretion from time to time, any Shares of any Series or Classes reacquired by the Trust.
The Trustees may from time to time close the transfer books or establish record dates and times for the purposes of determining the holders of Shares entitled to be treated as such, to the extent provided or referred to in Section 5.3.
The establishment and designation of any Series or Classes of Shares in addition to the Series and Classes established and designated in Section 4.2 shall be effective (i) upon the execution by a majority of the then Trustees of an instrument setting forth such establishment and designation and the relative rights, if any, and preferences of such Series or Class, (ii) upon the execution of such an instrument in writing by an officer of the Trust pursuant to the vote of a majority of the Trustees, or (iii) as otherwise provided in such instrument. At any time that there are no Outstanding Shares of any particular Series or Class previously established and designated, the Trustees may by an instrument executed by a majority of their number abolish or amend that Series or Class and the establishment and designation thereof. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization in which any such person is interested may acquire, own, hold and dispose of Shares of any Series or Class of the Trust to the same extent as if such person were not a Trustee, officer or other agent of the Trust; and the Trust may issue and sell or cause to be issued and sold and may purchase Shares of any Series or Class from any such person or any such organization subject only to the general limitations, restrictions or other provisions applicable to the sale or purchase of Shares of such Series or Classes generally.
Section 4.2 Series or Class Designation. Without limiting the authority of the Trustees set forth in Section 4.1 to establish and designate any further Series, the Trustees hereby confirm that the Trustees have heretofore established and designated, and there are presently outstanding, Shares of the following three Series: "GS Adjustable Rate Government Agency Fund;" "GS Global Income Fund;" and "GS Short-Term Government Agency Fund" (collectively herein the "Existing Series"). Without limiting the authority of the Trustees set forth in Section 4.1 to establish and designate any further Classes, there are hereby established and designated five distinct Classes of Shares of each of the Existing Series: the "Retail Class;" the "CDSC Class;" the "Institutional Class;" the "Administration Class;" and the "Service Class." Each Outstanding Share of GS Adjustable Rate Government Agency Fund and GS Short-Term Government Agency Fund shall be of the Institutional Class and each Outstanding Share of GS Global Income Fund shall be of the Retail Class, unless the Trustees, with the consent of the Shareholder (which consent shall be evidenced by the Shareholder's subscription for Shares of a specified Class or by any other action prescribed by the Trustees), determines that such Share is or shall be of some other Class. The Shares of the aforesaid Series or Classes and of any further Series and Classes that may from time to time be established and designated by the Trustees shall (unless the Trustees otherwise determine with respect to some further Series or Class at the time of establishing and designating the same) have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall be held by the Trustees in trust for the benefit of the holders of Shares of that Series and shall irrevocably belong to that Series for all purposes, subject only to the rights of creditors of that Series, and shall be so recorded upon the books of account of the Trust. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to that Series as provided in the following sentence, are herein referred to as "assets belonging to" that Series in the event that there are any assets, income, earnings, profits, and proceeds thereof, funds or payments which are not readily identifiable as belonging to any particular Series (collectively "General Items"), the Trustees shall allocate such General Items to and among any one or more of the Series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable; and any General Items so allocated to a particular Series shall belong to that Series, each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series and Classes. Except as set forth below with regard to any Class of any Series, the assets belonging to each particular Series shall be charged with the liabilities of the Trust in respect of that Series and all expenses, costs, charges and reserves attributable to that Series and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Series shall be allocated and charged by the Trustees to and among any one or more of the Series established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable.
Notwithstanding the provisions of the preceding paragraph, Shares of any particular Class shall bear (i) any expenses of payments under any agreements entered into on behalf of such Shares of such Class and (ii) any other expenses that the Trustees in their sole discretion may allocate to such Class. Expenses described in the preceding sentence are sometimes referred to herein as "Special Class Expenses."
The liabilities, expenses, costs, charges and reserves allocated and so charged to a Series or Class are herein referred to as "liabilities belonging to" that Series or Class. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all Series and of all Classes.
Any creditor of any Series may look only to the assets belonging to that Series to satisfy such creditor's claim.
The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a particular Series may be paid with such frequency as the Trustees may determine, which may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Trustees may determine, to the holders of Shares of that Series or the Classes thereof, from such of the income and capital gains, accrued or realized, (which shall be allocated among Shares of all Classes of the Series on a pro rata basis) from the assets belonging to that Series as the Trustees may determine after providing for actual and accrued liabilities belonging to that Series and/or to any Class thereof (including without limitation the allocation to a Class of Special Class Expenses relating to that Class). All dividends and distributions on Shares of a particular Class of a Series shall be distributed pro rata to the holders of that Class of that Series in proportion to the number of Shares of that Class of that Series held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure the Trustees may determine that no dividend or distribution shall be payable on Shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Trustees under such program or procedure. Such dividends and distributions may be made in cash or Shares of the same Class or a combination thereof as determined by the Trustees or pursuant to any program that the Trustees may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in Shares will be paid at the net asset value thereof as determined in accordance with subsection (h) of Section 4.2.
Subject to the authority of the Trustees otherwise to determine if they believe that it is in the interest of the Trust at any time or times, it is expected that each Series will qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for Federal income tax purposes may vary from the computation thereof on the books of the Trust, the Trustees shall have the power, in their sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Trustees, to enable the Trust and each particular Series to qualify as a regulated investment company and to avoid liability of the Trust and of that Series for Federal income or excise tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Trustees to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Trust or of any Series for such taxes.
(d) Liquidation. In the event of the liquidation or termination of the Trust or of any Series or Class thereof as provided in Section 7.1, the Shareholders of each affected Series and each Class thereof shall be entitled to receive, when and as declared by the Trustees, the excess of the assets belonging to that Series over the liabilities belonging to that Series or Class thereof (including without limitation liability for any Special Class Expenses, which shall be allocated as provided in Subsection (b) above). The assets so distributable to the Shareholders of any particular Class of a particular Series shall be distributed among such Shareholders in proportion to the number of Shares of that Class of that Series held by them and recorded on the books of the Trust. The liquidation of any particular Class or Series may be authorized in the manner set forth in Section 7.1.
(e) Voting. On each matter submitted to a vote of the Shareholders, each Shareholder shall be entitled to one vote for each such Share standing in his name on the books of the Trust irrespective of the Series or Class thereof and all Shares of all Series and Classes shall vote as a single class ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of any Series or Class is required by the 1940 Act or is required by the Rule 12b-1 Plan or Service Plan applicable to such Class, such requirements as to a separate vote by that Series or Class shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more Series or Class, then, subject to (c) below, the Shares of all other Series or Classes shall vote as a single class; and (c) as to any matter which does not affect the interest of a particular Series or Class only
the holders of Shares of the one or more affected Series or Classes shall be entitled to vote; and (d) the provisions of the following paragraph shall apply.
On any matter that pertains to any particular Class of a particular Series or to any Special Class Expenses with respect to any Series which matter may be submitted to a vote of Shareholders, only Shares of the affected Class, as the case may be, of that Series shall be entitled to vote except that: (i) to the extent said matter affects Shares of another Class or Series, such other Shares shall also be entitled to vote, and in such cases Shares of the affected Class, as the case may be, of such Series shall be voted in the aggregate together with such other Shares; and (ii) to the extent that said matter does not affect Shares of a particular Class of such Series, said Shares shall not be entitled to vote (except where otherwise required by law or permitted by the Trustees acting in their sole discretion) even though the matter is submitted to a vote of the Shareholders of any other Class or Series.
(f) Redemption by Shareholder. Each Shareholder of a particular Class of a particular Series shall have the right, at such times as may be permitted by the Trustees, but no less frequently than once each week, to require the Trust to redeem all or any part of his Shares of that Class of that Series at a redemption price equal to the net asset value per Share of that Class of that Series next determined in accordance with subsection (h) of this Section 4.2 after the Shares are properly tendered for redemption. Payment of the redemption price shall be in cash; provided, however that if the Trustees determine, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Trust may, subject to the requirements of the 1940 Act, make payment wholly or partly in securities or other assets belonging to the Series of which Shares being redeemed are part at the value of such securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trustees may withhold from such redemption proceeds any amount arising (i) from a liability of the redeeming Shareholder to the Trust or (ii) in connection with any Federal or state tax withholding requirements. The Trust may postpone payment of the redemption price and may suspend the right of the holders of Shares of any Series to require the Trust to redeem Shares of that Series during any period or at any time when and to the extent permissible under the 1940 Act.
(g) Redemption by Trust. Each Share of each Class of each Series that has been established and designated is subject to redemption by the Trust at the redemption price which would be applicable if such Share was then being redeemed by the Shareholder pursuant to subsection (f) of this Section 4.2 at any time if the Trustees determine in their sole discretion and by majority vote that failure to so redeem may have material adverse consequences to the Shareholders of that Class or that Series, and upon such redemption the holders of the Shares so redeemed shall have no further right with respect thereto other than to receive payment of such redemption price. In addition, the Trustees, in their sole discretion, may cause the Trust to redeem all of the Shares of one or more Series held by any Shareholder if the value of such Shares held by such Shareholder is less than the minimum amount established from time to time by the Trustees.
(h) Net Asset Value. The net asset value per Share of any Series (or Class thereof) shall be the quotient obtained by dividing the value of the net assets of that Series (being the value of the assets belonging to that Series less the liabilities belonging to that Series, including without limitation in the case of any Share of a Class, any Special Class Expenses allocable to that Share), by the total number of Shares of that Series or Class outstanding, all determined in accordance with the methods and procedures, including without limitation those with respect to rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any Series or Class at a designated constant amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that Series or Class as dividends payable in additional Shares of that Series or Class at the designated constant amount and for the handling of any losses attributable to that Series or Class. Such procedures may provide that in the event of any loss each Shareholder shall be deemed to have contributed to the capital of the Trust attributable to that Series his pro rata portion of the total number of Shares required to be cancelled in order to permit the net asset value per Share of that Series or Class to be maintained, after reflecting such loss, at the designated constant amount.
Each Shareholder of the Trust shall be deemed to have agreed, by his investment in the Trust, to make the contribution referred to in the preceding sentence in the event of any such loss.
(i) Transfer. Unless the Trustees otherwise provide, all Shares of each particular Series shall be transferable, but transfers of Shares of a particular Series will be recorded on the Share transfer records of the Trust applicable to that Series only at such times as Shareholders shall have the right to require the Trust to redeem Shares of that Series and at such other times as may be permitted by the Trustees.
(j) Equality. All Shares of each particular Class of each particular Series that has been established and designated shall represent an equal proportionate interest in the assets belonging to that Series (subject to the liabilities belonging to that particular Class of that particular Series), and each Share of any particular Class of a particular Series shall be equal to each other Share of that particular Class of that particular Series; but the provisions of this sentence shall not restrict any distinctions permissible under subsection (c) of this Section 4.2 that may exist with respect to dividends and distributions on Shares of the same Series or Class thereof. The Trustees may from time to time divide or combine the Shares of any particular Series into a greater or lesser number of Shares of that Series without thereby changing the proportionate beneficial interest in the assets belonging to that Series or in any way affecting the rights of Shares of other Series.
(k) Fractions. Any fractional Share of any Class of any Series, if any such fractional Share is outstanding, shall carry proportionately all the rights and obligations of a whole Share of that Class of that Series, including with respect to voting, receipt of dividends and distributions, redemption of Shares, and liquidation of the Trust or of that Series.
(l) Conversion Rights. Subject to compliance with the requirements of the 1940 Act, the Trustees shall have the authority to provide that Shareholders of any Series or Class shall have the right to convert such Shares into Shares of one or more other Series or Classes, respectively, in accordance with such requirements, procedures and conditions (including as to the transfer of assets equivalent to the net asset value of the Shares so converted among the applicable Series) as may be established by the Trustees.
Section 4.3 Ownership of Shares. The ownership of Shares shall be recorded on the books of the Trust or of a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series and each separate Class thereof that has been established and designated. No certificates certifying the ownership of Shares need be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the use of facsimile signatures, the transfer of Shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders and as to the number of Shares of each Series held from time to time by each such Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept investments in the Trust and each Series from such persons and on such terms and for such consideration, not inconsistent with the provisions of the 1940 Act, as they from time to time authorize. The Trustees may authorize any distributor, principal underwriter, custodian, transfer agent or other person to accept orders for the purchase of Shares that conform to such authorized terms and to reject any purchase orders for Shares whether or not conforming to such authorized terms.
Section 4.5 No Preemptive Rights. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the Trust or any Series nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust, any Series thereof or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right to demand payment for their Shares or to any other rights of dissenting Shareholders in the event the Trust participates in any transaction of a type which would give rise to appraisal or dissenters' rights by a stockholder of a corporation organized under Chapter 156B of the General Laws of The Commonwealth of Massachusetts.
ARTICLE V
SHAREHOLDERS' POWERS AND MEETINGS
Section 5.1 Voting Powers. The Shareholders shall have power to vote only
(i) for the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in Section 3.4
as to which Shareholder approval is required by the 1940 Act, (iii) with respect
to any termination or reorganization of the Trust or any Series to the extent
and as provided in Sections 7.1 and 7.2, (iv) with respect to any amendment of
this Declaration of Trust to the extent and as provided in Section 7.3, (v) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust,
or any Series or Class thereof or the Shareholders (provided, however, that a
Shareholder
of a particular Series or Class thereof shall not be entitled to a derivative or class action on behalf of any other Series or Class (or Shareholder of any other Series or Class) of the Trust) and (vi) with respect to such additional matters relating to the Trust or any Series as may be required by the 1940 Act, this Declaration of Trust, the By-Laws, a Service Plan, a Rule 12b-1 Plan or any registration statement of the Trust filed with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. There shall be no cumulative voting in the election of any Trustee or Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by Shareholders.
Section 5.2 Meetings. No annual or regular meeting of Shareholders is required. Special meetings of the Shareholders (including meetings involving only the holders of Shares of one or more but less than all Series or Classes thereof) may be called by the Trustees from time to time to be held at such place within or without The Commonwealth of Massachusetts, and on such date, as may be designated in the call thereof for the purpose of taking action upon any matter permitting or requiring the vote or authority of the Shareholders as provided in Section 5.1. Written notice of any such meeting shall be given or caused to be given by the Trustees by mailing such notice at least seven days before such meeting, postage prepaid, stating the time, place and purpose of the meeting, to each Shareholder entitled to vote at such meeting at the Shareholder's address as it appears on the records of the Trust. If the Trustees shall fail to call or give notice of any meeting of Shareholders (including a meeting involving only the holders of Shares of one or more but less than all Series or Classes thereof) for a period of 75 days after written request by Shareholders holding at least a majority of the Shares then outstanding of any Series or Class entitled to vote upon any matter requiring action by the Shareholders as provided herein that a meeting be called to consider such matter, then Shareholders holding at least a majority of the Shares then outstanding of such Series or Class may call and give notice of such meeting, and thereupon the meeting shall be held in the manner provided for herein in case of call thereof by the Trustees.
Section 5.3 Record Dates for Meetings (and other Purposes). For the
purpose of determining the Shareholders who are entitled to vote or act at any
meeting or any adjournment thereof, or who are entitled to participate in any
dividend or distribution, or for the purpose of any other action, the Trustees
may from time to time close the transfer books for such period, not exceeding 30
days (except at or in connection with the termination of the Trust), as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date and time not more than 60 days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or (subject to any provisions permissible under subsection (c) of
Section 4.2 with respect to dividends or distributions on Shares that have not
been ordered and/or paid for by the time or times established by the Trustees
under the applicable dividend or distribution program or procedure then in
effect) to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
Section 5.4 Quorum and Required Vote. A majority of the Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, but any lesser number shall be sufficient for adjournments. Any adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. A majority of the Shares voted, at a meeting at which a quorum is present, shall decide any questions and a plurality shall elect a Trustee, except when a different vote is required or permitted by any provision of the 1940 Act or other applicable law or by this Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the provisions of the 1940 Act and other applicable law, any action taken by Shareholders may be taken without a meeting if the holders of a majority of Shares
entitled to vote on the matter (or such larger proportion thereof as shall be required by the 1940 Act or by any express provision of this Declaration of Trust or the By-Laws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be open to inspection by Shareholders to the same extent as is permitted stockholders of a Massachusetts business corporation.
Section 5.7 Additional Provisions. The By-Laws may include further provisions for Shareholders' votes and meetings and related matters not inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more Shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either Shares having a net asset value of at least $25,000 or at least 1% of the outstanding Shares, whichever is less, shall apply to the Trustees in writing, stating that they wish to communicate with other Shareholders with a view to obtaining signatures to a request for a Shareholder meeting and accompanied by a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either (1) afford to such applicants access to a list of the names and addresses of all Shareholders as recorded on the books of the Trust or Series as applicable or (2) inform such applicants as to the approximate number of Shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2) above, the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all Shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the Trustees shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. The Trustees shall thereafter comply with any order entered by the Commission and the requirements of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice. All persons extending credit to, contracting with or having any claim against the Trust shall look only to the assets belonging to the Series with which such person dealt for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, nor the assets belonging to any other Series shall be personally liable therefor. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust, any Series or the Trustees or any of them in connection with the Trust or any Series shall be conclusively deemed to have been executed or done only by or for the Trust or such Series or the Trustees and not personally. Nothing in this Declaration of Trust shall protect any Trustee or officer against any liability to the Trust or the Shareholders to which such Trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officers or officer shall give notice that this Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts and shall recite to the effect that the same was executed or made by or on behalf of the Trust or by them as Trustees or Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, or the Series in question, but the omission thereof shall not operate to bind any Trustees or Trustee or officers or officer or Shareholders or Shareholder individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his own wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. Subject to the foregoing, (a) the Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, consultant, adviser, administrator, distributor or principal underwriter, custodian or transfer, dividend disbursing, Shareholder servicing or accounting agent of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee; (b) the Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust and their duties as Trustees, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice; and (c) in discharging their duties, the Trustees, when acting in good faith, shall be entitled to rely upon the books of account of the Trust and upon written reports made to the Trustees by any officer appointed by them, any independent public accountants, and (with respect to the subject matter of the contract involved) any officer, partner or responsible employee of a Contracting Party appointed by the Trustees pursuant to Section 3.4. The Trustees as such shall not be required to give any bond or surety or any other security for the performance of their duties.
Section 6.3 Indemnification of Shareholders. In case any Shareholder or former Shareholder of any Series or Class thereof shall be charged or held to be personally liable for any obligation or liability of the Trust solely by reason of being or having been a Shareholder and not because of such Shareholder's acts or omissions or for some other reason, the Trust (upon proper and timely request by the Shareholder) shall assume the defense against such charge and satisfy any judgment thereon, and the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets belonging to the Series of which such Shareholder is a holder to be held harmless from and indemnified against all loss and expense arising from such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall indemnify (from the assets belonging to the Series in question) each of its Trustees and officers and persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise, (hereinafter referred to as a "Covered Person") against all liabilities, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and expenses, including reasonable accountants' and counsel fees, incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Trustee or officer, director or trustee, except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office (such wilful misfeasance, bad faith, gross negligence or reckless disregard being referred to herein as "Disabling Conduct"). Expenses, including accountants' and counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), may be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of (a) an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article VI and either (b) such Covered Person provides security for such undertaking, (c) the Trust is insured against losses arising by reason of such payment, or (d) a majority of a quorum of disinterested, non-party Trustees, or independent legal counsel in a written opinion, determines, based on a review of readily available facts, that there is reason to believe that such Covered Person ultimately will be found entitled to indemnification.
Section 6.5 Indemnification Determinations. Indemnification of the Covered Person pursuant to Section 6.4 shall be made if (a) the court or body before whom the proceeding is brought determines, in a final decision on the merits, that such Covered Person was not liable by a reason of Disabling Conduct, or (b) in the absence of such a determination, a majority of a quorum of disinterested, non-party Trustees or independent legal counsel in a written opinion make a reasonable determination, based upon a review of the facts, that such Covered Person was not liable by reason of Disabling Conduct.
Section 6.6 Indemnification Not Exclusive, etc. The right of indemnification provided by this Article VI shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article VI, "Covered Person" shall include such person's heirs, executors and administrators, and a "disinterested, non-party Trustee" is a Trustee who is neither an interested person of the Trust (as defined in the 1940 Act) nor a party to the proceeding in question. Nothing contained in this Article VI shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Person Dealing with Trustees. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Duration and Termination of Trust. Unless terminated as provided herein, the Trust shall continue without limitation of time and, without limiting the generality of the foregoing, no change, alteration or modification with respect to any Series or Class thereof shall operate to terminate the Trust.
A Class of any Series of the Trust may be liquidated and/or terminated by means of an instrument in writing signed by a majority of the Trustees and notice to the Shareholders of such Class stating that a majority of the Trustees has determined that the continuation of the Class is not in the best interests of the Trust, the Series or such Class or their respective Shareholders. The Trust or any Series may be liquidated and/or terminated by (i) the affirmative vote of the holders of not less than a majority of the Shares outstanding and entitled to vote at any meeting of Shareholders of the Trust or the appropriate Series, (ii) by an instrument or instruments in writing without a meeting, consented to by the holders of a majority of the Shares of the Trust or a Series or (iii) notice to Shareholders by means of an instrument in writing signed by a majority of the Trustees stating that a majority of the Trustees has determined that the continuation of the Trust or a Series is not in the best interest of such Series, the Trust or their respective Shareholders as a result of such factors or events adversely affecting the ability of such Series or the Trust to conduct its business and operations in an economically viable manner. Such factors and events may include the inability of a Series or the Trust to maintain its assets at an appropriate size, changes in laws or regulations governing the Series or the Trust or affecting assets of the type in which such Series or the Trust invests or economic developments or trends having a significant adverse impact on the business or operations of such Series or the Trust.
Upon termination, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets to distributable form in cash, securities or other property, or any combination thereof, and distribute the proceeds to the Shareholders, in conformity with the provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trustees may sell, convey and transfer the assets of the Trust, or the assets belonging to any one or more Series, to another trust, partnership association or corporation organized under the laws of any state of the United States, or to the Trust to be held as assets belonging to another Series of the Trust, in exchange for cash, shares or other securities (including, in the case of a transfer to another Series of the Trust, Shares of such other Series) with such transfer being made subject to, or with the assumption by the transferee of, the liabilities belonging to each Series the assets of which are so transferred; provided, however, that no assets belonging to any particular Series shall be so transferred unless the terms of such transfer shall have first been approved at a meeting called for the purpose by the affirmative vote of the holders of a majority of the outstanding voting securities, as defined in the 1940 Act, (Shares) of that Series. Following such transfer, the Trustees shall distribute such cash, shares or other securities (giving due effect to the assets and liabilities belonging to and any other differences among the various Series the assets belonging to which have so been transferred) and if all of the assets of the Trust have been so transferred, the Trust shall be terminated.
Section 7.3 Amendments. All rights granted to the Shareholders under this
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time by an instrument in
writing signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees), when authorized so to do
by the vote in accordance with subsection (e) of Section 4.2 of Shareholders
holding a majority of the Shares entitled to vote, except that amendments (a)
establishing and designating any new Series or Classes thereof of Shares not
established and designated in Section 4.2, (b) terminating and/or liquidating
the Trust, a Series or Classes thereof to the extent provided by Section 7.1,
(c) having the purpose of changing the name of the Trust or the name of any
Series or Classes theretofore established and designated, (d) supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
provision hereof which is internally inconsistent with any other provision
hereof or which is defective or inconsistent with the 1940 Act or with the
requirements of the Internal Revenue Code and applicable regulations for the
Trust's obtaining the most favorable treatment thereunder available to regulated
investment companies or (e) making any other changes necessary or desirable
which do not adversely affect the rights of Shareholders, shall not require
authorization by Shareholder vote. Subject to the foregoing, any such amendment
shall be effective as provided in the instrument containing the terms of such
amendment or, if there is no provision therein with respect to effectiveness,
upon the execution of such instrument and of a certificate (which may be a part
of such instrument) executed by a Trustee or officer of the Trust to the effect
that such amendment has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of The Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required, but the failure to make any such filing shall not impair the effectiveness of this instrument or any such amendment. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made, as to the identities of the Trustees and officers, and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. The masculine gender shall include the feminine and neuter genders. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts each of which shall be deemed an original.
Section 7.5 Applicable Law. This Declaration of Trust is made in The Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type referred to in Section 1 of Chapter 182 of the Massachusetts General Laws and of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust.
IN WITNESS WHEREOF, the undersigned has hereunto set hand and seal in the State of Illinois, County of Cook as of the day and year first above written.
EXHIBIT 1(d)
WHEREAS, Section 7.3 of the Amended and Restated Agreement and Declaration of Trust of Goldman Sachs Trust (the "Trust") dated December 5, 1991, as amended, (the "Declaration") provides that the Declaration may be amended from time to time by an instrument in writing signed by a majority o fthe then Trustees (or by an officer of the Trust pursuant to a vote of a majority of the then Trustees);
WHEREAS, Section 7.3 also provides that any such amendment having the purpose of changing the name of the Trust or the name of any Series of Shares theretofore established and designated, or establishing and designating new Series of Shares of the Trust, shall not require authorization by Shareholder vote;
RESOLVED, that the Amended and Restated Agreement and Declaration of Trust of Goldman Sachs Trsut dated December 5, 1991, as amended (the "Declaration") be further amended as contemplated in Section 4.1 thereof by establishing and designating two additional Series of Shares of beneficial interest to be known respectively as "GS Short-Intermediate Tax Free Fund" and "GS Government Agency Fund", such Series to have the relative rights and preferences set forth in Subsections (a) through (i) of Section 4.2 of the Declaration; and
FURTHER RESOLVED, that the President, any Vice President, the Secretary, the ASsistant Secretary and the Treasurer of the Trust be, and they each hereby are, severally authorized to execute an instrument in writing effecting the aforesaid amendment and to cause the same to be filed wherever in the discretion of such officer such filing is appropriate.
NOW, THEREFORE, the undersigned, Michael J. Richman, being the duly elected, appointed and serving Secretary of the Trust, hereby amends the Declaration by establishing and designating two additional Series of Shares of beneficial interest to be known respectively as "GS Short-Intermediate Tax-Free Fund" and "GS Government Agency Fund", such Series to have the relative rights and preferences set forth in Subsections (a) through (i) of Section 4.2 of the Declaration, and certifies that such amendment has been duly adopted.
WITNESS my hand this 19th day of August, 1992.
GOLDMAN SACHS TRUST
Michael J. Richman
--------------------------------------
Michael J. Richman
Secretary of the Trust
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
|
Then personally appeared the above-named Michael J. Richman and acknowledged this instrument to be his free act and deed this 19th day of August, 1992.
Commission Expires April 13, 1993
EXHIBIT 1(e)
GOLDMAN SACHS TRUST
WHEREAS, Section 7.3 of the Restated and Amended Agreement and Declaration of Trust of Goldman Sachs Trust (the "Trust") dated December 5, 1991, as amended, (the "Declaration") provides that the Declaration may be amended from time to time by an instrument in writing signed by a majority of the then Trustees (or by an officer of the Trust pursuant to a vote of a majority of the then Trustees);
WHEREAS, Section 7.3 also provides that any such amendment having the purpose of changing the name of the Trust or the name of any Series of Shares theretofore established and designated, or establishing and designating new Series of Shares of the Trust, shall not require authorization by Shareholder vote;
RESOLVED, that the Restated and Amended Agreement and Declaration of Trust of Goldman Sachs Trust dated December 5, 1991, as amended (the "Declaration") be further amended as contemplated in Section 7.3 thereof (1) by changing the name of the existing Series of Shares of the Trust known as "GS Short-Intermediate Tax Free Fund" to "GS Short Duration Tax-Free Fund", and (2) by changing the name of the existing Series of Shares of the Trust known as "GS Government Agency Fund" to "GS Government Agency Portfolio"; and
FURTHER RESOLVED, that the President, any Vice President, the Treasurer, the Secretary and the Assistant Secretary of the Trust be, and they each hereby are, severally authorized to execute an instrument in writing effecting the aforesaid amendment and to cause the same to be filed wherever in the discretion of such officer such filing is appropriate.
NOW, THEREFORE, the undersigned, Michael J. Richman, being the duly elected, appointed and serving Secretary of the Trust, hereby amends the Declaration by changing the name of the existing Series of Shares of the Trust known as "GS Short-Intermediate Tax Free Fund" to "GS Short Duration Tax-Free Fund" and by changing the name of the existing Series of Shares of the Trust known as "GS Government Agency Fund" to "GS Government Agency Portfolio", and certifies that such amendment has been duly adopted.
WITNESS my hand this 28th day of October, 1992.
GOLDMAN SACHS TRUST
Michael J. Richman
------------------------------------
Michael J. Richman
Secretary of the Trust
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
|
Then personally appeared the above-named Michael J. Richman and acknowledged this instrument to be her free act and deed this 28th day of October, 1992.
My commission expires: Melissa Dolan
Notary Public State of NY
No. 01001843325
Commission Exp. Apr 13, 1993
EXHIBIT 1(f)
GOLDMAN SACHS TRUST
WHEREAS, Section 7.3 of the Restated and Amended Agreement and Declaration of Trust of Goldman Sachs Trust (the "Trust") dated December 5, 1991, as amended, (the "Declaration") provides that the Declaration may be amended from time to time by an instrument in writing signed by a majority of the then Trustees (or by an officer of the Trust pursuant to a vote of a majority of the then Trustees);
WHEREAS, Section 7.3 also provides that any such amendment having the purpose of changing the name of the Trust or the name of any Series of Shares theretofore established and designated, or establishing and designating new Series of Shares of the Trust, shall not require authorization by Shareholder vote;
RESOLVED, that the Amended and Restated Agreement and Declaration of Trust of Goldman Sachs Trust dated December 5, 1991, as amended (the "Declaration") be further amended as contemplated in Section 4.1 thereof by establishing and designating one additional Series of Shares of beneficial interest to be known as "GS Core Fixed Income Fund," "GS California Municipal Income Fund" and "GS New York Municipal Income Fund", such Series to have the relative rights and preferences set forth in Subsections (a) through (i) of Section 4.2 of the Declaration; and
FURTHER RESOLVED, that the President, any Vice President, the Treasurer and the Secretary of the Trust be, and they each hereby are, severally authorized to execute an instrument in writing effecting the aforesaid amendment and to cause the same to be filed wherever in the discretion of such officer such filing is appropriate.
NOW, THEREFORE, the undersigned, Michael J. Richman, being the duly
elected, appointed and serving Secretary of the Trust, hereby amends the
Declaration by establishing and designating one additional Series of Shares of
beneficial interest to be known as "GS Core Fixed Income Fund," "GS California
Municipal Income Fund" and "GS New York Municipal Income Fund," such Series to
have the relative rights and preferences set forth in Subsections (a) through
(i) of Section 4.2 of the Declaration, and certifies that such amendment has
been duly adopted.
WITNESS my hand this 22 day of December, 1993.
GOLDMAN SACHS TRUST
Michael J. Richman
-----------------------------------
Michael J. Richman
Secretary of the Trust
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
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Then personally appeared the above-named Michael J. Richman and acknowledged this instrument to be her free act and deed this 22 day of December, 1993.
Commission Expires November 9, 1995
EXHIBIT 2
BY-LAWS
OF
INSTITUTIONAL SECURITIZED ASSETS
ARTICLE 1
Agreement and Declaration of Trust
ARTICLE 2
Meetings of Trustees
attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
ARTICLE 3
Officers
shall, at the request of or in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties and have such other powers as may be designated from time to time by the Trustees or by the President.
ARTICLE 4
Committees
ARTICLE 5
Offices, Fiscal Year and Seal
shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE 6
Records, Reports and Execution of Papers
ARTICLE 7
Issuance of Certificates for Units (Shares)
The Trustees may at any time authorize the issuance of certificates representing Units of one or more Series. In that event, each Unitholder upon request shall be entitled to a certificate stating the number of Units of the applicable Series owned by him, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the President or a Vice President and by the Treasurer or Assistant Treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall cease to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he were such officer at the time of its issue.
and voting rights) of the Unitholder.
ARTICLE 8
Amendments to the By-Laws
Trustees, or by one or more writing signed by such a majority.
EXHIBIT 5(a)
ADVISORY AGREEMENT
Between
INSTITUTIONAL SECURITIZED ASSETS
and
GOLDMAN, SACHS & CO.
CONTENTS
Paragraph Page - ----------- ---- 1. Appointment of Adviser.......................... 1 2. Delivery of Documents........................... 2 3. Duties of Adviser............................... 3 4. Expenses........................................ 7 5. Compensation.................................... 8 6. Books and Records............................... 8 7. Indemnification................................. 9 8. Duration and Termination........................ 12 9. Status of Adviser as Independent Contractor..... 13 10. Amendment of Agreement.......................... 13 11. Unitholder Liability............................ 13 12. Miscellaneous................................... 13 |
ADVISORY AGREEMENT
AGREEMENT made this 28th day of March, 1988 between INSTITUTIONAL SECURITIZED ASSETS, a Massachusetts business trust (the "Fund"), and GOLDMAN, SACHS & CO., a New York limited partnership (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue units of beneficial interest ("Units") in separate series with each such series representing the interests in a separate portfolio of securities and other assets; and
WHEREAS, the Fund presently offers units of beneficial interest in the Securitized Assets Portfolio Series [such Portfolio (the "Current Portfolio") together with all other portfolios subsequently established by the Fund being herein collectively referred to as the "Portfolios"]; and
WHEREAS, the Fund desires to retain the Adviser to render investment advisory and administrative services to the Fund and each of its Portfolios as indicated below and the Adviser is willing to so render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth, the parties hereto agree as follows:
(a) Agreement and Declaration of Trust of the Fund dated as of September 24, 1987 together with Amendment Nos. 1 and 2 thereto (such Agreement and Declaration of Trust, as presently in effect and as amended from time to time, is herein called the "Trust Agreement"), copies of which are also on file with the Secretary of The Commonwealth of Massachusetts;
(b) By-Laws of the Fund (such By-Laws, as presently in effect and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the sole Unitholder and the Trustees of the Fund approving the terms of this Agreement;
(d) Custodian Agreement (including related fee schedule) dated March 28, 1988 between the Fund and State Street Bank and Trust Company (such Agreement, as presently in effect and as amended and/or superseded from time to time, is herein called the "Custodian Agreement");
(e) Transfer Agency Agreement dated March 28, 1988 between the Fund and the Adviser (such Agreement, as presently in effect and as amended and/or superseded from time to time, is herein called the "Transfer Agency Agreement");
(f) Prospectus and Statement of Additional Information of the Fund, each dated March 28, 1988 such Prospectus and Statement of Additional Information, as presently in effect and as amended, supplemented and/or superseded from time to time, are herein called the "Prospectus" and "Additional Statement", respectively);
(g) Registration Statement of the Fund under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act on Form N-1A as filed with the Securities and Exchange Commission (the "Commission") on October 2, 1987, together with Pre-Effective No. 1 thereto as filed with the Commission on March 10, 1988 (such Registration Statement, as presently in effect and as amended from time to time, is herein called the "Registration Statement").
The Fund agrees to promptly furnish the Adviser from time to time with copies of all amendments of or supplements to or otherwise current versions of any of the foregoing documents not heretofore furnished.
(i) shall provide supervision of the Portfolios' assets, furnish a continuous investment program for such Portfolios, determine from time to time what investments or securities will be purchased, retained or sold by the Portfolios, and what portion of the assets will be invested or held uninvested as cash;
(ii) shall place orders pursuant to its determinations either directly with the issuer or with any broker and/or dealer who deals in the securities in which the Portfolio in question is active. In placing orders with brokers or dealers the Adviser shall attempt to obtain the best net price and the most favorable execution of its orders. When the execution and price offered by two or more brokers or dealers are comparable, the Adviser may, in its discretion, purchase and sell Portfolio securities to and from brokers or dealers who provide the Fund with brokerage or research services;
(iii) may, on occasions when it deems the purchase or sale of a security to be in the best interests of a Portfolio as well as its other customers (including any other Portfolio or any other investment company or advisory account for which the Adviser acts as adviser), aggregate, to the extent permitted by applicable laws and regulations, the securities to be sold or purchased in order to obtain the best net price and the most favorable execution. 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 Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations to such Portfolio and to such other customers.
(b) In addition, the Adviser shall, subject to the general supervision of the Trustees of the Fund, provide for the administration of all other affairs of the Fund. In this regard, the Adviser
(i) giving due recognition to the fact that certain of such operations are performed by others pursuant to the Custodian Agreement (and the Transfer Agency Agreement to the extent that a person other than the Adviser is serving thereunder as the Fund's transfer agent), shall provide supervision of all aspects of the Fund's operations not referred to in paragraph 3(a) above;
(ii) shall, to the extent not provided pursuant to the Custodian Agreement or the Transfer Agency Agreement, provide the Fund with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund;
(iii) shall, to the extent not provided pursuant to the Custodian Agreement or the Transfer Agency Agreement, arrange for (A) the preparation for the Fund of all required tax returns, (B) the preparation and submission of reports to existing Unitholders, and (C) the periodic updating of the Prospectus and Additional Statement and the preparation of reports filed with the Commission and other regulatory authorities;
(iv) shall, to the extent not provided pursuant to the Custodian Agreement or the Transfer Agency Agreement, provide the Fund with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items, in Chicago, Illinois.
(c) The Adviser, in the performance of its duties hereunder
(i) shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters wold use in the conduct of an enterprise of a like character and with like aims;
(ii) shall act in conformity with the Trust Agreement, By-Laws, Prospectus, Additional Statement and Registration Statement and with the instructions and directions of the Trustees of the Fund, and will, subject to the standard set forth in paragraph 3(c)(i) above, comply with and conform to the requirements of the 1940 Act, the Investment Advisers Act of 1940 and all other applicable federal and state laws, regulations and rulings.
(d) The Adviser shall render to the Trustees of the Fund such periodic and special reports as the Trustees may reasonably request.
(e) The Adviser shall notify the Fund of any change in the membership of the Adviser within a reasonable time after such change.
(f) The services of the Adviser hereunder are not deemed exclusive and the Adviser shall be free to render similar services to others so long as its services under this Agreement are not impaired thereby.
(a) During the term of this Agreement, the Adviser will pay all costs incurred by it in connection with the performance of its duties under paragraph 3 hereof, other than the cost (including taxes and brokerage commissions, if any) of securities purchased for each of the Portfolios, the cost of the preparations, submissions, updatings and filings referred to in paragraph 3(b)(iii) and, at the option of the Adviser [the exercise of which and the extent of such exercise being subject to prior approval by the Trustees of the Fund and by a majority of the Trustees of the Fund who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party], telephone, personnel and other costs attributable to clerical, administrative, legal, accounting and other non-investment advisory services to the Fund.
(b) If, in any fiscal year, the sum of a Portfolio's expenses (including the fee payable pursuant to paragraph 5 hereof, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of Portfolio securities, and, where permitted, extraordinary expenses such as for litigation) exceeds the expense limitations applicable to such Portfolio imposed by state securities
administrators, as such limitations may be lowered or raised from time to time, the Adviser shall reimburse such Portfolio in the amount of such excess to the extent required by such expense limitations.
(c) In addition to the foregoing, the Adviser may from time to time at its option (but shall be under no obligation to) voluntarily assume or undertake to reimburse a Portfolio for all or a portion of its expenses not otherwise required to be borne or reimbursed by the Adviser. Any such voluntary assumption or undertaking may be discontinued or modified at any time by the Adviser.
(a) For the services provided and the expenses assumed by the Adviser pursuant to this Agreement, the Fund will pay to the Adviser as full compensation therefor a fee at an annual rate of .50 of 1% of each Portfolio's average net assets.
(b) The foregoing fee will be computed based no net assets on each day and will be paid to the Adviser monthly.
regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact required to be stated or necessary to make the statements made not misleading in (x) the Prospectus, Additional Statement or the Registration Statement, (y) any advertisement or sales literature authorized by the Fund for use in the offer and sale of Units of any Portfolio, or (z) any application or other document filed in connection with the qualification of the Fund or Units of any Portfolio under the Blue Sky or securities laws of any jurisdiction, except insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission either pertaining to a failure to disclose a breach of the Adviser's duties in connection with this Agreement, the Transfer Agency Agreement or the Distribution Agreement of even date herewith between the Fund and the Adviser (the "Distribution Agreement") or made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Adviser pertaining to or originating with the Adviser for use in connection with any document referred to in clauses (x), (y), or (z), or
(ii) subject in each case to clause (i) above, the Adviser acting hereunder or under the Distribution Agreement;
and the Fund will reimburse each Indemnified Party for any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such loss, claim, damages, liability or action.
(b) If the indemnification provided for in paragraph 7(a) is available in accordance with the terms of such paragraph but is for any reason held by a court to be unavailable from the Fund, then the Fund shall contribute to the aggregate amount paid or payable by the Fund and the Indemnified Parties as a result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the Fund and such Indemnified Parties in connection with the operations of the Fund, (ii) the relative fault of the Fund and such Indemnified Parties, and (iii) any other relevant equitable considerations. The Fund and the Adviser agree that it would not be just and equitable if contribution pursuant to this subparagraph (b) were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above in this subparagraph (b). The aggregate amount paid or payable as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subparagraph (b) shall be deemed to include any legal or other expenses incurred by the Fund and the Indemnified Parties in connection with investigating or defending any such loss, claim, damage, liability or action. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(c) It is understood, however, that nothing in this paragraph 7 shall protect any Indemnified Party against, or entitle any Indemnified Party to indemnification against or contribution with respect to, any liability to the Fund or its Unitholders to which such Indemnified Party is subject, by reason of its willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of any reckless disregard of its obligations and duties, under this Agreement or the Distribution Agreement, or otherwise to an extent or in a manner inconsistent with Section 17(i) of the 1940 Act.
annually (a) by the vote of a majority of the Trustees of the Fund who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Trustees of the Fund or by vote of a majority of the outstanding Units (as defined with respect to voting securities in the 1940 Act) representing the interests in such Portfolio; provided, however, that (y) the continuance of this Agreement insofar as the holders of Units representing the interests in the Current Portfolio are affected hereby until June 30, 1989 and the continuance of this Agreement insofar as the holders of Units representing the interests in each of the other Portfolios are affected hereby until June 30 of the year following the year in which such other Portfolio becomes a Portfolio hereunder is, in addition to the requirements set forth above, subject to the approval of this Agreement by a majority of the outstanding Units (as so defined) representing the interests in such Portfolio on or before the first anniversary of the date on which such Portfolio becomes a Portfolio hereunder, and (z) this Agreement may be terminated by the Fund at any time, without the payment of any penalty, by vote of a majority of the Trustees of the Fund or by vote of a majority of the outstanding Units (as so defined) representing the interests in each Portfolio affected thereby on 60 days' written notice to the Adviser, or by the Adviser at any time, without the payment of any penalty, on 60 days' written notice to the Fund. This Agreement will automatically and immediately terminate in the event of its assignment (as defined in the 1940 Act).
and (b) by vote of a majority of the outstanding Units (as defined with respect to voting securities in the 1940 Act) representing the interests in each Portfolio affected by such amendment.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written.
ATTEST: INSTITUTIONAL SECURITIZED ASSETS
Judith Belash By Paul Nagel, Jr.
---------------------------- --------------------------------
Chairman of the Trustees
ATTEST: GOLDMAN, SACHS & CO.
Judith Belash By Robert C. Fried
---------------------------- --------------------------------
General Partner
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EXHIBIT 5(b)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
July 15, 1991
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The units of beneficial interest of the Trust ("Units") are divided into multiple series ("Series"), including the GS Global Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Fund's custodian or transfer
agent) and preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act. You will also provide to the Trust's Board
of Trustees such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be deemed to be
an independent contractor and shall, except as otherwise expressly
provided or authorized, have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
distributing reports and notices to unitholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or disbursements of
custodians of the Trust's assets, including expenses incurred in the performance
of any obligations enumerated by the Agreement and Declaration of Trust or By-
Laws of the Trust insofar as they govern agreements with any such custodian; or
(xiv) litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Trust's business. You shall not be
required to pay expenses of activities which are primarily intended to result in
sales of Units of the Fund.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .25% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 1/4 of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
when you deem the purchase or sale of a security to be in the best interests of the Fund as well as your other customers (including any other Series or any other investment company or advisory account for which you act as an investment adviser), aggregate, to the extent permitted by applicable laws and regulations, the securities to be sold or purchased in order to obtain the best net price and the most favorable execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by you in the manner you consider to be the most equitable and consistent with your fiduciary obligations to the Fund and to such other customers.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Agreement and Declaration of Trust dated September 24, 1987, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or unitholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS GLOBAL INCOME FUND)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
--------------------------------- -------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Trust President of the Trust
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The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Alan A. Shuch
--------------------------------- ----------------------------
Michelle S. Lenzmeier Alan A. Shuch
Counsel to the Funds Group Partner
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EXHIBIT 5(c)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
July 15, 1991
Goldman Sachs Asset Management
International Limited,
an affiliate of Goldman, Sachs & Co.
5 Old Bailey
London, England EC4M 7AA
Dear Sirs:
Goldman Sachs Asset Management, a separate operating division of Goldman, Sachs & Co. (the "Adviser"), a New York partnership with its principal offices at 32 Old Slip, New York, New York 10005, is investment adviser to Goldman Sachs Trust (the "Trust") on behalf of GS Global Income Fund (the "Fund"). The Trust has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The units of beneficial interest of the Trust ("Units") are divided into multiple series ("Series"), including the Fund, as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Pursuant to authority granted the Adviser by the Trust's Trustees and pursuant to the provisions of the Investment Advisory Agreement dated July 15, 1991 between the Adviser and the Trust, the Adviser has selected you to act as an investment sub-adviser of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment sub-adviser and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Adviser and the Trust on behalf of the Fund agrees with you as follows:
(a) You will regularly provide the Fund with advice concerning the investment management of the Fund's portfolio, which advice shall be consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and
instructions as the Board of Trustees may from time to time establish. In accordance with paragraph 5, you or your agent shall arrange for the placing of all orders for the purchase and sale of portfolio securities for the Fund's account with brokers or dealers selected by you.
(b) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Fund's custodian or transfer
agent) and preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act. In the performance of your duties
hereunder, you are and shall be an independent contractor and unless
otherwise expressly provided herein or otherwise authorized in writing,
shall have no authority to act for or represent the Trust in any way or
otherwise be deemed to be an agent of the Trust or of the Adviser. You
will make your officers and employees available to meet with the
Trust's officers and Trustees at least quarterly on due notice to
review the investments and investment program of the Fund in the light
of current and prospective economic and market conditions.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(a) For all investment management services to be rendered hereunder, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .50% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 4, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 1/2 of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
You will advise the Trust's Custodian and the Adviser on a prompt basis of each purchase and sale of a portfolio security specifying the name of the issuer, the description and amount or number of units of the security purchased, the market price, commission and gross or net price, trade date, settlement date and identity of the effecting broker or dealer. From time to time as the Trustees of the Trust or the Adviser may reasonably request, you will furnish to the Trust's officers and to each of its Trustees reports on portfolio transactions and reports on issues of securities held in the portfolio, all in such detail as the Trust or the Adviser may reasonably request.
continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act and the rules and regulations thereunder. This Agreement may, on 60 days' written notice to the other party, be terminated at any time without the payment of any penalty, by the Board of Trustees of the Trust, by vote of a majority of the outstanding voting securities of the Fund, by the Adviser, or by you. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Agreement, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "interested person," "assignment" and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Agreement and Declaration of Trust dated September 24, 1987, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or unitholders assume any personal liability or obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF GS GLOBAL INCOME FUND)
Attest: Mary L. Wiersema By: Stephen Brent Wells
------------------------------ --------------------------
Stephen Brent Wells
President of the Trust
|
The foregoing Agreement is hereby accepted as of the date hereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Mary L. Wiersema By: Alan A. Shuch
----------------------------- ----------------------------
Alan A. Shuch
Partner
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The foregoing Agreement is hereby accepted as of the date hereof.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL LIMITED
AN AFFILIATE OF GOLDMAN, SACHS & CO.
EXHIBIT 5(d)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
July 15, 1991
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The units of beneficial interest of the Trust ("Units") are divided into multiple series ("Series"), including the GS Adjustable Rate Government Agency Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Units of each Series will represent interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser and administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Fund's operations not referred to in paragraph (a) above; (ii) provide the Fund with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund; (iii) arrange for, at the Trust's expense, (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing unitholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Fund's records; and (v) provide the Fund with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(c) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Fund's custodian or transfer
agent) and preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act. You will also provide to the Trust's Board
of Trustees such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be deemed to be
an independent contractor and shall, except as otherwise expressly
provided or authorized, have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(e) You will notify the Trust of any change in your membership within a reasonable time after such change.
imposed by law. You will not be required to pay any expenses of the Trust other
than those specifically allocated to you in this paragraph 4. In particular,
but without limiting the generality of the foregoing, you will not be required
to pay: (i) organization expenses of the Trust; (ii) fees and expenses incurred
by the Trust in connection with membership in investment company organizations;
(iii) brokers' commissions; (iv) payment for portfolio pricing services to a
pricing agent, if any; (v) legal, auditing or accounting expenses (including an
allocable portion of the cost of your employees rendering legal and accounting
services to the Trust); (vi) taxes or governmental fees; (vii) the fees and
expenses of the transfer agent of the Trust; (viii) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Units of the Trust; (ix) the expenses of and fees
for registering or qualifying Units for sale and of maintaining the registration
of the Trust and registering the Trust as a broker or a dealer; (x) the fees and
expenses of Trustees of the Trust who are not affiliated with you; (xi) the cost
of preparing and distributing reports and notices to unitholders, the Securities
and Exchange Commission and other regulatory authorities; (xii) the fees or
disbursements of custodians of the Trust's assets, including expenses incurred
in the performance of any obligations enumerated by the Agreement and
Declaration of Trust or By-laws of the Trust insofar as they govern agreements
with any such custodian; or (xiii) litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Trust's
business. You shall not be required to pay expenses of activities which are
primarily intended to result in sales of Units of the Fund.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .40% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay
or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "interested person," "assignment" and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Agreement and Declaration of Trust dated September 24, 1987, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or unitholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other Series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
-------------------------- ----------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Trust President of the Trust
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The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Alan A. Shuch
---------------------------- ---------------------------
Michelle S. Lenzmeier Alan A. Shuch
Counsel to the Funds Group Partner
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EXHIBIT 5(e)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
September 25, 1992
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Short-Duration Tax Free Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Shares of each Series will represent interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser and administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Fund's operations not referred to in paragraph (a) above; (ii) provide the Fund with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund; (iii) arrange for, at the Trust's expense, (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Fund's records; and (v) provide the Fund with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(c) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Fund's custodian or transfer
agent) and preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act. You will also provide to the Trust's Board
of Trustees such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be deemed to be
an independent contractor and shall, except as otherwise expressly
provided or authorized, have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(e) You will notify the Trust of any change in your membership within a reasonable time after such change.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .40% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay
or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "interested person," "assignment" and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Amended and Restated Agreement and Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other Series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS SHORT-DURATION TAX FREE FUND)
Attest: Michael J. Richman By: Nancy L. Mucker
---------------------- -----------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Trust Vice President of the Trust
|
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
---------------------- ------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
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EXHIBIT 5(g)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
February 1, 1993
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company.
The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Government Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than those
records being maintained by the Fund's custodian or transfer agent) and
preserve such records for the periods prescribed therefor by Rule 3la-2 of
the 1940 Act. You will also provide to the Trust's Board of Trustees such
periodic and special reports as the Board may reasonably request. You shall
for all purposes herein be deemed to be an independent contractor and
shall, except as otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be
deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to 0.50 % per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 50/65ths of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Restated and Amended Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS GOVERNMENT INCOME FUND)
Attest: Michael J. Richman By: Nancy L. Mucker
---------------------- ---------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Trust Vice President of the Trust
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The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
-------------------------- ----------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
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EXHIBIT 5(i)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
Dated: July 16, 1993
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company.
The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Municipal Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than those
records being maintained by the Fund's custodian or transfer agent) and
preserve such records for the periods prescribed therefor by Rule 3la-2 of
the 1940 Act. You will also provide to the Trust's Board of Trustees such
periodic and special reports as the Board may reasonably request. You shall
for all purposes herein be deemed to be an independent contractor and
shall, except as otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be
deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof,
the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to 0.40% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 0.73% (8/11th) of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Restated and Amended Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS MUNICIPAL INCOME FUND)
Attest: Michael J. Richman By: Nancy L. Mucker
------------------------ -------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Trust Vice President of the Trust
|
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
------------------------ --------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
|
EXHIBIT 5(j)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
Dated July 16, 1993
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Municipal Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Trust's operations not referred to in paragraph 3(a) of the current Investment Advisory Agreement between the Trust and you; (ii) provide the Trust with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Trust; (iii) arrange for, at the Trust's expense, (a) the preparation for the Trust of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Trust's records; and (v) provide the Trust with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Trust's Board of Trustees such periodic and special reports as the Board may reasonably request. You shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others so long as your services under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance of your duties under paragraph 1. You will pay the compensation and expenses of all personnel of yours and will make available, without expense to the Trust, the services of such of your partners, officers and employees as may duly be elected officers or Trustees of the Trust subject to their individual consent to serve and to any limitations imposed by law. You will not be required to pay any expenses of the Trust other than those specifically allocated to you in this paragraph 2. In particular, but without limiting the generality of the foregoing, you will not be required to pay: (i) fees and expenses of any investment adviser of the Trust; (ii) organization expenses of the Trust; (iii) fees and expenses incurred by the Trust in connection with membership in investment company organizations; (iv) brokers' commissions; (v) payment for portfolio pricing services to a pricing agent, if any; (vi) legal, auditing or accounting expenses (including an allocable portion of the cost of your employees rendering legal and accounting services to the Trust); (vii) taxes or governmental fees; (viii) the fees and expenses of the transfer agent of the Trust; (ix) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of Shares of the Trust; (x) the expenses of and fees for registering or qualifying Shares for sale and of maintaining the registration of the Trust and registering the Trust as a broker or a dealer; (xi) the fees and expenses of Trustees of the Trust who are not affiliated with you; (xii) the cost of preparing and distributing reports and notices to shareholders, the Securities and Exchange Commission and other regulatory authorities; (xiii) the fees or disbursements of custodians of the Trust's assets, including expenses incurred in the performance of any obligations enumerated by the Agreement and Declaration of Trust or By-Laws of the Trust insofar as they govern agreements with any such custodian; or (xiv) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business. You shall not be required to pay expenses of activities which are primarily intended to result in sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provide in paragraphs 1 and 2 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to 0.15% per annum of the average daily net assets of the Fund. The "average daily net ssets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the Investment Company Act of 1940, as amended (the "1940 Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 3, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 0.15% of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR
You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Trust or the Fund shall be deemed, when acting within the scope of his employment by the Trust, to be acting in such employment solely for the Trust and not as your employee or agent.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1994 and shall continue for periods of one year thereafter, but only so long as such continuance is specifically approved at least annually by the vote of a majority of the Board of Trustees. The Agreement may, on 60 days' written notice to the other party, be terminated at any time without the payment of any penalty by the Trust or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any
claims against the Trust and neither the Trustees, officers, agents nor shareholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
ON BEHALF OF GS MUNICIPAL INCOME FUND
Attest: Michael J. Richman By: Nancy L. Mucker
-------------------- ---------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Trust Vice President of the Trust
|
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
-------------------------- --------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
|
EXHIBIT 5(k)
July 15, 1991
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The units of beneficial interest of the Trust ("Units") are divided into multiple series ("Series"), including the GS Global Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Trust's operations not referred to in paragraph 3(a) of the current Investment Advisory Agreement between the Trust and you; (ii) provide the Trust with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Trust; (iii) arrange for, at the Trust's expense, (a) the preparation for the Trust of all required tax returns, (b) the preparation and submission of reports to existing unitholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Trust's records; and (v) provide the Trust with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Trust's Board of Trustees such periodic and special reports as the Board may reasonably request. You shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have
no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others so long as your services under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance of your duties under paragraph 1. You will pay the compensation and expenses of all personnel of yours and will make available, without expense to the Trust, the services of such of your partners, officers and employees as may duly be elected officers or Trustees of the Trust subject to their individual consent to serve and to any limitations imposed by law. You will not be required to pay any expenses of the Trust other than those specifically allocated to you in this paragraph 2. In particular, but without limiting the generality of the foregoing, you will not be required to pay: (i) fees and expenses of any investment adviser of the Trust; (ii) organization expenses of the Trust; (iii) fees and expenses incurred by the Trust in connection with membership in investment company organizations; (iv) brokers' commissions; (v) payment for portfolio pricing services to a pricing agent, if any; (vi) legal, auditing or accounting expenses (including an allocable portion of the cost of your employees rendering legal and accounting services to the Trust); (vii) taxes or governmental fees; (viii) the fees and expenses of the transfer agent of the Trust; (ix) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of Units of the Trust; (x) the expenses of and fees for registering or qualifying Units for sale and of maintaining the registration of the Trust and registering the Trust as a broker or a dealer; (xi) the fees and expenses of Trustees of the Trust who are not affiliated with you; (xii) the cost of preparing and distributing reports and notices to unitholders, the Securities and Exchange Commission and other regulatory authorities; (xiii) the fees or disbursements of custodians of the Trust's assets, including expenses incurred in the performance of any obligations enumerated by the Agreement and Declaration of Trust or By-Laws of the Trust insofar as they govern agreements with any such custodian; or (xiv) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business. You shall not be required to pay expenses of activities which are primarily intended to result in sales of Units of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in paragraphs 1 and 2 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .25% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the Investment Company Act of 1940, as amended (the "1940 Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 3, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of one-fourth (1/4) of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR
You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Trust or the Fund shall be deemed, when acting within the scope of his employment by the Trust, to be acting in such employment solely for the Trust and not as your employee or agent.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1992 and shall continue for periods of one year thereafter, but only so long as such continuance is specifically approved at least annually by the vote of a majority of the Board of Trustees. This Agreement may, on 60 days' written notice to the other party, be terminated at any time without the payment of any penalty by the Trust or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Agreement and Declaration of Trust dated September 24, 1987, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust and neither the Trustees, officers, agents or unitholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS GLOBAL INCOME FUND)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
--------------------- ----------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Trust President of the Trust
|
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: MIchelle S. Lenzmeier By: Alan A. Shuch
----------------------- -------------
Michelle S. Lenzmeier Alan A. Shuch
Counsel to the Funds Group Partner
|
EXHIBIT 5(m)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
February 1, 1993
Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Government Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Each Series will represent the interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Trust's operations not referred to in paragraph 3(a) of the current Investment Advisory Agreement between the Trust and you; (ii) provide the Trust with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Trust; (iii) arrange for, at the Trust's expense, (a) the preparation for the Trust of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Trust's records; and (v) provide the Trust with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Trust's Board of Trustees such periodic and special reports as the Board may reasonably request. You shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have
no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust.
(c) You will notify the Trust of any change in your membership within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others so long as your services under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance of your duties under paragraph 1. You will pay the compensation and expenses of all personnel of yours and will make available, without expense to the Trust, the services of such of your partners, officers and employees as may duly be elected officers or Trustees of the Trust subject to their individual consent to serve and to any limitations imposed by law. You will not be required to pay any expenses of the Trust other than those specifically allocated to you in this paragraph 2. In particular, but without limiting the generality of the foregoing, you will not be required to pay: (i) fees and expenses of any investment adviser of the Trust; (ii) organization expenses of the Trust; (iii) fees and expenses incurred by the Trust in connection with membership in investment company organizations; (iv) brokers' commissions; (v) payment for portfolio pricing services to a pricing agent, if any; (vi) legal, auditing or accounting expenses (including an allocable portion of the cost of your employees rendering legal and accounting services to the Trust); (vii) taxes or governmental fees; (viii) the fees and expenses of the transfer agent of the Trust; (ix) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of Shares of the Trust; (x) the expenses of and fees for registering or qualifying Shares for sale and of maintaining the registration of the Trust and registering the Trust as a broker or a dealer; (xi) the fees and expenses of Trustees of the Trust who are not affiliated with you; (xii) the cost of preparing and distributing reports and notices to shareholders, the Securities and Exchange Commission and other regulatory authorities; (xiii) the fees or disbursements of custodians of the Trust's assets, including expenses incurred in the performance of any obligations enumerated by the Agreement and Declaration of Trust or By-Laws of the Trust insofar as they govern agreements with any such custodian; or (xiv) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business. You shall not be required to pay expenses of activities which are primarily intended to result in sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provide in paragraphs 1 and 2 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .15% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the Investment Company Act of 1940, as amended (the "1940 Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 3, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribution expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of 15/65ths of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR
You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Trust or the Fund shall be deemed, when acting within the scope of his employment by the Trust, to be acting in such employment solely for the Trust and not as your employee or agent.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1994 and shall continue for periods of one year thereafter, but only so long as such continuance is specifically approved at least annually by the vote of a majority of the Board of Trustees. The Agreement may, on 60 days' written notice to the other party, be terminated at any time without the payment of any penalty by the Trust or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust and neither the Trustees, officers, agents nor shareholders assume any personal liability for obligations entered into on behalf of the Trust. The Fund shall not be liable for any claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
ON BEHALF OF GS GOVERNMENT INCOME FUND
Attest: Michael J. Richman By: Nancy L. Mucker
---------------------- ---------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Trust Vice President of the Trust
|
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
-------------------------- -------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
|
EXHIBIT 5(n)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
October 27, 1993
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
Dear Sirs:
Goldman Sachs Trust (the "Trust") has been organized as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts to engage in the business of an investment company. The shares of beneficial interest of the Trust ("Shares") are divided into multiple series ("Series"), including the GS Core Fixed Income Fund (the "Fund"), as established pursuant to a written instrument executed by the Trustees of the Trust. Shares of each Series will represent interests in a separate portfolio of securities and other assets. Series may be terminated, and additional Series established, from time to time by action of the Board of Trustees. The Trust on behalf of the Fund has selected you to act as the investment adviser and administrator of the Fund and to provide certain services, as more fully set forth below, and you are willing to act as such investment adviser and administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust agrees with you as follows:
(a) You will regularly provide the Fund with investment research, advice and supervision and will furnish continuously an investment program for the Fund consistent with the investment objectives and policies of the Fund. You will determine from time to time what securities shall be purchased for the Fund, what securities shall be held or sold by the Fund, and what portion of the Fund's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust and By-Laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and to the investment objectives, policies and restrictions of the Fund, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish.
(b) Subject to the general supervision of the Board of Trustees of the Trust, you will provide certain administrative services to the Fund. You will, to the extent such services are not required to be performed by others pursuant to the custodian agreement (or the transfer agency agreement to the extent that a person other than you is serving thereunder as the Trust's transfer agent), (i) provide supervision of all aspects of the Fund's operations not referred to in paragraph (a) above; (ii) provide the Fund with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund; (iii) arrange for, at the Trust's expense, (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the periodic updating of the Fund's prospectus and statement of additional information and the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Fund's records; and (v) provide the Fund with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(c) You will maintain all books and records with respect to the Fund's
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Fund's custodian or transfer
agent) and preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act. You will also provide to the Trust's Board
of Trustees such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be deemed to be
an independent contractor and shall, except as otherwise expressly
provided or authorized, have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust.
(d) Your services hereunder are not deemed exclusive and you shall be free to render similar services to others.
(e) You will notify the Trust of any change in your membership within a reasonable time after such change.
(a) For all services to be rendered and payments made as provided in paragraphs 3 and 4 hereof, the Trust on behalf of the Fund will pay you on the last day of each month a fee at an annual rate equal to .40% per annum of the average daily net assets of the Fund. The "average daily net assets" of the Fund shall be determined on the basis set forth in the Fund's prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including the fee payable pursuant to this paragraph 5, but excluding taxes, interest, brokerage commissions relating to the purchase or sale of portfolio securities, distribu-
tion expenses and extraordinary expenses such as for litigation) exceeds the expense limitations, if any, applicable to the Fund imposed by state securities administrators, as such limitations may be modified from time to time, you shall reimburse the Fund in the amount of such excess to the extent required by such expense limitations, provided that the amount of such reimbursement shall not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not to impose all or a portion of your fee otherwise payable hereunder (in advance of the time such fee or portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Fund for all or a portion of its expenses not otherwise required to be borne or reimbursed by you. Any such fee reduction or undertaking may be discontinued or modified by you at any time.
reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Trust or the Fund shall be deemed, when acting within the scope of his employment by the Trust, to be acting in such employment solely for the Trust and not as your employee or agent.
The name Goldman Sachs Trust is the designation of the Trustees for the time being under an Amended and Restated Agreement and Declaration of Trust dated December 5, 1991, as amended from time to time, and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered
into on behalf of the Trust. The Fund shall not be liable for any claims against any other Series of the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GS CORE FIXED INCOME FUND)
Attest: Michael J. Richman By: Stephen H. Hopkins
---------------------- ---------------------------
Michael J. Richman Stephen H. Hopkins
Secretary of the Trust Vice President of the Trust
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The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
----------------------- ----------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
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EXHIBIT 6(a)
GOLDMAN SACHS TRUST
DISTRIBUTION AGREEMENT
February 1, 1993, as amended July 26, 1994
Goldman, Sachs & Co.,
85 Broad Street
New York, New York 10004
Dear Sirs:
(b) The Trust's notification of registration on Form N-8A (as amended) complies with the applicable requirements of the Investment Company Act and the Rules and Regulations thereunder.
(d) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Securities Act and the Rules and Regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Trust by you (with respect to information relating solely to your role as the exclusive distributors of the Shares of the Funds) expressly for use
therein.
(e) The Trust has been duly created and is lawfully and validly existing as a business trust under the laws of the Commonwealth of Massachusetts, and has, on the date hereof, and will have, on and after the date hereof, full power and authority to own its properties and conduct its business as described in the Registration Statement and in each Prospectus and SAI, and is duly qualified to do business under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business.
(f) The Trust's authorized capitalization is as set forth in the Registration Statement. Issuance of the Shares of the Funds as contemplated by this Agreement and by each Prospectus and SAI has been duly and validly authorized, and the Shares of the Funds, when issued and paid for as contemplated hereby and thereby, will be fully-paid and nonassessable and will conform to the description thereof contained in the corresponding Prospectus and SAI. The holders of outstanding shares of each Fund are not entitled to preemptive or other rights to subscribe for the Shares of any Fund, other than as contemplated by the Prospectus and SAI relating to each Fund.
(g) This Agreement has been duly authorized, executed and delivered by the Trust.
(i) The Fund Agreements will constitute, on and after the Initial Acceptance Date, assuming due authorization, execution and delivery by the parties thereto other than the Trust, valid and legally binding instruments, enforceable in accordance with their respective terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.
(j) No consent, approval, authorization or order of any court or governmental agency or body is or shall be required, as the case may be, for the consummation from time to time of the transactions contemplated by this Agreement and the Fund Agreements, except such as may be required (i) under the Securities Act, the Securities Exchange Act of 1934, as amended (the
(k) The operations and activities of the Trust and each Fund as contemplated by the Prospectuses and the SAIs, the performance by the Trust and each Fund of this Agreement and the Fund Agreements, the making of the offer or the sale of Shares of each Fund and consummation from time to time of such sales, the redemption of Shares of each Fund, or any other transactions contemplated herein, in the Fund Agreements, in the Prospectuses or in the SAIs, will not conflict with, result in a breach of, or constitute a default under, the declaration of trust or the Trust's By-laws or, in any material respect, the terms of any other agreement or instrument to which the Trust is a party or by which it
is bound, or any order or regulation applicable to the Trust of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Trust.
(l) There is not pending, or to the best knowledge of the Trust, threatened, any action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator to which the Trust is (or, to the best knowledge of the Trust, is threatened to be) a party, of a character required to be described in the Registration Statement or in any Prospectus or SAI which is not described as required.
(m) There is no franchise, contract or other document of a character required to be described in the Registration Statement or in any Prospectus or SAI, or to be filed as an exhibit, which is not described or filed as required.
(n) Except as stated or contemplated in the Registration Statement,
Prospectuses and SAIs, (i) the Trust has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, whether
or not in the ordinary course of business, that are material to the Trust,
(ii) there has not been any material adverse change, or, any development
involving a prospective material adverse change, in the condition (financial
or other) of the Trust, (iii) there has been no dividend or distribution
paid or declared in respect of the Trust, and (iv) the Trust has not
incurred any indebtedness for borrowed money.
(o) Each Fund will elect or has elected to be treated as a regulated investment company as defined in Section 851(a) of the Internal Revenue Code of 1986 for its first taxable year and will operate so as to qualify as such in its current and all subsequent taxable years.
(p) Except as stated or contemplated in any Prospectus or SAI, the Trust owns all of its assets free and clear in all material respects of all liens, security interests, pledges, mortgages, charges and other encumbrances or defects.
(b) You acknowledge that the only information provided to you by the Trust is that contained in the Registration Statement and in each Prospectus and SAI. Neither you nor any Authorized Dealer nor any other person is authorized by the Trust to give any information or to make any representations, other than those contained in the Registration Statement or in the relevant Prospectus and SAI and any sales literature approved by appropriate representatives of the Trust. You may undertake or
(c) You agree to perform such services as are described in the Registration Statement and in each Prospectus and SAI as to be performed by the Distributors including, without limitation, distributing Account Information Forms.
(d) All of your activities as distributors of the Shares of the Funds shall comply, in all material respects, with all applicable laws, Rules and Regulations, including, without limitation, all rules and regulations made or adopted by the Commission or by any securities association registered under the Exchange Act, including the NASD, as in effect from time to time.
(a) You will act as agent for the Trust in the distribution of Shares of the Funds and you agree to use your best efforts to offer and sell Shares of the Funds to the public at the public offering price as set forth in the Prospectus, subject to any waivers or reductions of any applicable sales charges, dealer allowances and fees as you and each of the Authorized Dealers, if any, shall have agreed to in writing. You may also subscribe for Shares of a Fund as principals for resale to the public or for resale to Authorized Dealers. You shall devote reasonable time and effort to effect sales of Shares of the Funds, but you shall not be obligated to sell any specific number of Shares. Nothing contained herein shall prevent you from entering into like distribution arrangements with other investment companies.
(b) The Distributors are authorized to purchase Shares of any Fund presented to them by Authorized Dealers at the price determined in accordance with, and in the manner set forth in, the Prospectus for such Fund.
(c) Unless you are otherwise notified by the Trust, any right granted to you to accept orders for Shares of any Fund or to make sales on behalf of the Trust or to purchase Shares of any Fund for resale will not apply to (i) Shares issued in connection with the merger or consolidation of any other investment company with the Trust or its acquisition, by purchase or otherwise, of all or substantially all of the assets of any investment company or substantially all the outstanding securities of any such company, and (ii) Shares that may be offered by the Trust to shareholders by virtue of their being such shareholders.
(b) If, at any time when a Prospectus or SAI is required to be delivered under the Securities Act, any event occurs as a result of which such Prospectus or SAI would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or amend or supplement any Prospectus or SAI to comply with the Securities Act, the Investment Company Act or the Rules and Regulations thereunder, the Trust will notify you promptly of any such circumstance and promptly will prepare and file with the Commission, subject to the third sentence of Section 6(a), an amendment or supplement which will correct such statement or omission or effect such compliance.
(c) As soon as practicable (giving effect to the normal periodic reporting requirements under the Investment Company Act and the Rules and Regulations thereunder), the Trust will make generally available to its shareholders and, subject to Section 8 of this Agreement, to you (with sufficient copies for the Authorized Dealers), a report containing the financial statements required to be included in such reports under Section 30(d) of the Investment Company Act and Rule 30d-1 thereunder.
(d) Subject to Section 8 of this Agreement, the Trust will furnish to you as many conformed copies of the Registration Statement including exhibits thereto, on each Effective Date, as you may reasonably request for yourselves and for delivery to the Authorized Dealers and, so long as delivery of a Prospectus or SAI by you or any Authorized Dealer may be required by law, the number of copies of each Prospectus and each SAI as you may reasonably request for yourself and for delivery to the Authorized Dealers.
(e) The Trust will use its best efforts to arrange for the qualification of an appropriate number of the Shares of the Funds for sale under the laws of such of the 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Territory of Guam, and such other jurisdiction as you and the Trust may approve, and will maintain such qualifications in effect as long as may be reasonably requested by you, provided that the Trust shall not be required in connection herewith or as a condition hereto to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. You shall furnish such information and other material relating to your affairs and activities as may be required by the Trust in connection with such qualifications.
(f) The Trust shall keep you fully informed with respect to its affairs and, subject to Section 8 of this Agreement, the Trust, if so requested, will furnish to you, as soon as they are available (with sufficient copies for the Authorized Dealers), copies of all reports, communications and financial statements sent by the Trust to its shareholders or filed by, or on behalf of, the Trust with the Commission.
(g) The Trust agrees that on each date the Trust is required to file with the Commission a notice under paragraph (b)(1) of Rule 24f-2 under the Investment Company Act, the Trust, if so requested, shall furnish to you a copy of the opinion of counsel for the Trust required by such Rule to the effect that the Shares covered by the notice were legally issued, fully paid and nonassessable. The Trust further agrees that if, in connection with the filing of any post-effective amendment to the Registration Statement after the date of this Agreement:
Any opinion or statement furnished pursuant to this Section 6(g) shall be modified as necessary to relate to this Agreement and the Fund Agreements and the Rules and Regulations as then in effect and shall state that the Authorized Dealers may rely on it.
(h) The Trust, if so requested, shall furnish to you on each subsequent Effective Date with respect to an amendment of the Registration Statement which first includes certified financial statements for the preceding fiscal year, in respect of a Fund, a copy of the report of the Trust's independent public
accountants with respect to the financial statements and selected per share data and ratios relating to such Fund, addressed to you. The Trust further agrees that the Trust, if so requested, shall furnish to you (i) on each date on which the Trust, pursuant to the preceding sentence, furnishes to you a report of its independent public accountants, a certificate of its treasurer or assistant treasurer in a form reasonably satisfactory to you describing in reasonable detail how the figures included under the captions "Portfolio Transactions" and "Performance Information" (or similar captions) in the Prospectus or SAI of such Fund and the figures relating to the aggregate amounts of remuneration paid to officers, trustees and members of the advisory board and affiliated persons thereof (as required by Section 30(d)(5) of the Investment Company Act) were calculated and confirming that such calculations are in conformity with the Rules and Regulations under the Investment Company Act and (ii) on each date the Trust files with the Commission the Trust's required semi-annual financial statements, a certificate of its treasurer or assistant treasurer in a form reasonably satisfactory to you, describing the manner in which such financial statements were prepared and confirming that such financial statements have been prepared in conformity with the Rules and Regulations under the Investment Company Act.
(a) If filing of any Prospectus or SAI, or any amendment or supplement to any Prospectus or SAI, or any other document is required pursuant to any applicable provision of Rule 497, such Prospectus or SAI, or any such amendment or supplement and other document will be filed in the manner and within the time period required by the applicable provision of Rule 497; and no order suspending the effectiveness of the amendment shall have been issued and no proceedings for that purpose shall have been instituted or, to the best knowledge of the Trust, threatened and the Trust shall have complied with any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus, the SAI or as the Commission otherwise shall have requested).
(c) At the Initial Acceptance Date with respect to each Fund, you shall have received from counsel to the Distributors, if so requested, such opinion or opinions, dated the Initial Acceptance Date, with respect to the issuance and sale of the Shares, the Registration Statement, the Prospectus and SAI and other related matters as you may reasonably require, and the Trust shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters. Each such opinion shall state that the Authorized Dealers may rely on it.
(d) There shall not have been any change, or any development involving a prospective change, in or affecting the Trust the effect of which in any case is, in your good faith judgment, so material and adverse as to make it impractical or inadvisable to proceed with the offering of Shares of the Funds as contemplated by this Agreement.
(e) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities; (iii) the outbreak or escalation of hostilities involving the United States or the declaration of a national emergency or war if the effect of any such event specified in this Clause (iii) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares of a Fund on the terms and in the manner contemplated in any Prospectus.
(f) The Trust shall have furnished to you such further information, certificates and documents as you may have reasonably requested.
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions, certificates or letters mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to you, this Agreement and all your
obligations hereunder may be cancelled by you. In the event of such
cancellation, the Trust shall remain liable for the expenses set forth in
Section 8.
(a) The Trust will pay (or will enter into arrangements providing that parties other than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of the Registration Statement (including Prospectuses and SAIs) under the Securities Act or the Investment Company Act, or both, and any amendments or supplements thereto that may be made from time to time;
(2) in connection with the registration and qualification of Shares of the Funds for sale in the various jurisdictions in which it is determined to be advisable to qualify such Shares of the Funds for sale (including registering the Trust as a broker or dealer or any officer of the Trust or other person as agent or salesman of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy statement, report, Prospectus, SAI or other communication to shareholders in their capacity as such;
(4) of preparing, setting in type, printing and mailing Prospectuses annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares of the Funds resulting from the acceptance by you of orders to purchase Shares of the Funds placed with you by investors, including the expenses of printing and mailing confirmations of such purchase orders and the expenses of printing and mailing a Prospectus included with the confirmation of such orders and, if requested by the purchaser, an SAI;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion allocated to you in this Section 8;
(8) of wiring funds in payment of Share purchases or in satisfaction of redemption or repurchase
requests, unless such expenses are paid for by the investor or shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply envelopes sent to shareholders;
(10) of one of more CRT terminals connected with the computer facilities of
the Transfer Agent other than the portion allocated to you in this
Section 8;
(12) of the expense of setting in type, printing and postage of any periodic newsletter to shareholders other than the portion allocated to you in this Section 8; and
(13) of the salaries and overhead of persons employed by you as shareholder representatives other than the portion allocated to you in this Section 8.
(b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any Prospectuses or reports prepared for your use in connection with the offering of Shares of the Funds to the public;
(2) of preparing, setting in type, printing and mailing any other literature used by you in connection with the offering of Shares of the Funds to the public;
(3) of advertising in connection with the offering of Shares of the Funds to the public;
(4) incurred in connection with your registration as a broker or dealer or the registration or qualification of your officers, partners, directors, agents or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines allocated to you on the basis of use by investors (but not shareholders) who request information or Prospectuses;
(6) of that portion of the expense of setting in type, printing and postage of any periodic newsletter to shareholders attributable to promotional material included in such newsletter at your request concerning investment companies other than the Trust or concerning the Trust to the extent you are required to assume the expense thereof pursuant to this Section 8, except such material which is limited to information, such as listings of other investment companies and their investment objectives, given in connection with the exchange privilege as from time to time described in the Prospectuses;
(7) of that portion of the salaries and overhead of persons employed by you as shareholder representatives attributable to the time spent by such persons in responding to requests from investors, but not shareholders, for information about the Trust;
(8) of any activity which is primarily intended to result in the sale of Shares of the Funds, unless a 12b-1 Plan shall be in effect which provides that a Fund or Funds shall bear some or all of such expenses, in which case such Fund or Funds shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the computer facilities of the Transfer Agent attributable to your use of such terminal(s) to gain access to such of the Transfer Agent's records as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be allocated pursuant to reasonable procedures or formulae mutually agreed upon from time to time, which procedures or formulae shall to the extent practicable reflect studies of relevant empirical data.
(b) You will indemnify and hold harmless the Trust against any losses, claims, damages or liabilities to which the Trust may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof), arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, or any Prospectus or SAI, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, or any Prospectus or SAI in reliance upon and in conformity with written information furnished to the Trust by you expressly for use therein; and will reimburse the Trust for any legal or other expenses reasonably incurred by the Trust in connection with investigating or defending any such action or claim.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred
by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 9 is unavailable to, or
insufficient to hold harmless, an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Trust on the one hand and you on the other
from the offering of the Shares of the Fund or Funds in respect of which
such losses, claims, damages or liabilities (or actions in respect thereof)
arose. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Trust on the one
hand and you on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relative equitable considerations.
The relative benefits received by the Trust on the one hand and you on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares of the relevant Funds (before deducting
expenses) received by the Trust bear to the total compensation received by
you in selling Shares of such Funds under this Agreement, including any
sales charge as set forth in the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Trust on the one hand or you on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Trust and you agree that it would not be just
and equitable if the contributions pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), you shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Shares of the relevant Funds sold by you and
distributed to the public were offered to the public exceeds the amount of
any damages which you have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Trust under this Section 9 shall be in addition to any liability which the Trust may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls you within the meaning of the Securities Act; and your obligations under this Section 9 shall be in addition to any liability which you may otherwise have and shall extend, upon the same terms and conditions, to each trustee or officer of the Trust (including any person who, with his consent, is named in the Registration Statement as about to become a trustee of the Trust) and to each person, if any, who controls the Trust within the meaning of the Securities Act.
(b) The sale of Shares of the Funds in accordance with the terms of this Agreement shall be subject to termination or suspension in the absolute discretion of the Trust, by notice given to you as set forth in Section 12 hereof.
(c) This Agreement will terminate automatically in the event of its assignment (as defined in the Investment Company Act).
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between you and the Trust, and, to the extent set forth herein, shall be for the benefit of each Authorized Dealer.
Very truly yours,
GOLDMAN SACHS TRUST
By: Nancy L. Mucker
-----------------------------------
Name: Nancy L. Mucker
Title: Vice President of the Trust
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
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GS Adjustable Rate Government Agency Fund
Goldman Sachs Adjustable Rate Mortgage Fund
Goldman Sachs California Municipal Income Fund
GS Core Fixed Income Fund
Goldman Sachs Emerging Markets Income Fund
Goldman Sachs Global Income Fund
GS Government Agency Portfolio
Goldman Sachs Government Income Fund
Goldman Sachs Municipal Income Fund
Goldman Sachs New York Municipal Income Fund
GS Short Duration Tax-Free Fund
GS Short-Term Government Agency Fund
EXHIBIT 8(a)
CUSTODIAN CONTRACT
BETWEEN
GOLDMAN SACHS TRUST
AND
STATE STREET BANK AND TRUST COMPANY
This Contract between Goldman Sachs Trust, a Massachusetts business trust,, organized and existing under the laws of the Commonwealth of Massachusetts, having its principal place of business at 4900 Sears Tower, Chicago, Illinois 60606, hereinafter called the "Trust," and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian,"
W I T N E S S E T H:
WHEREAS, the Trust is authorized to issue units in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and
WHEREAS, the Trust presently offers units in three series, known as the GS Short-Term Government Agency Fund, GS Global Income Fund and GS Adjustable Rate Government Agency Fund (such series together with all other series subsequently established by the Trust and made subject to this Contract in accordance with paragraph 7, being herein referred to as the "Fund(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Trust hereby employs the Custodian as the custodian of the assets of the Funds of the Trust, including securities which the Trust, on behalf of the applicable Fund, desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities") pursuant to the provisions of the Trust's Declaration of Trust (the "Declaration of Trust") and By-laws. The Trust on behalf of the Fund(s) agrees to deliver to the Custodian all securities and cash of the Fund(s), and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund(s) from time to time, and the cash consideration received by it for such new or treasury units of beneficial interest of the Trust representing interests in the Fund(s), ("Units") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Fund held or received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 5), the Custodian shall on behalf of the applicable Fund(s) from time to time employ one or more subcustodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees of the Trust on behalf of the applicable Fund(s), and provided that the Custodian shall have no more or less responsibility or liability to the Trust on account of any actions or omissions of any subcustodian so employed than any such subcustodian has to the Custodian. The Custodian may employ as subcustodian for the Trust's
foreign securities on behalf of a Fund the foreign building institutions and foreign securities depositories designated in Schedule A hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE THE TRUST HELD BY THE CUSTODIAN IN THE UNITED STATES
(1) Upon sales of such securities for the account of the Fund and receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other similar offers for securities for the Fund;
(5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct;
(8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
(12) For delivery in accordance with the provisions of any agreement among the Trust on behalf of the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund;
(13) For delivery in accordance with the provisions of any agreement among the Trust on behalf of the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with the transactions by the Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Trust, for delivery to such Transfer Agent or to the holders of units in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Trust, related to the Fund ("Prospectus"), in satisfaction of requests by holders of Units for repurchase or redemption; and
(1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Fund but only:
(a) Against the delivery of such securities or evidence of title to such options, futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer;
(b) In the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof;
(c) In the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10A;
(d) In the case of repurchase agreements entered into between the Trust on behalf of the Fund and the Custodian, or another bank, or a broker- dealer which is a member of NASD:
(i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities; or
(ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; or
(e) For transfer to a time deposit account of the Trust in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Trust as defined in Section 5;
(2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof;
(3) For the redemption of repurchase of Units issued by the Fund as set forth in Section 4.2 hereof;
(4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Trust whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Units of the Fund declared pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of securities sold short;
(1) The Custodian may keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book- entry those securities belonging to the Fund;
(3) The Custodian shall pay for securities purchased for the account of the Fund upon:
(a) Receipt of advice from the Securities System that such securities have been transferred to the Account; and
(b) The making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of the Fund upon:
(a) Receipt of advice from the Securities System that payment for such securities has been transferred to the Account; and
(b) The making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Trust at its request. Upon request, the Custodian shall furnish the Trust on behalf of the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Trust on behalf of the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund.
(4) The Custodian shall provide the Trust for the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System.
(5) The Custodian shall have received from the Trust on behalf of the Fund the initial or annual certificate, as the case may be, required by Article 14 hereof.
(6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Trust for the benefit of the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Trust, it shall be entitled to by subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage.
(1) No transactions relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions from the Trust on behalf of the Fund.
(2) The Custodian may keep securities of the Fund in the Direct Paper System only if such securities are represented in an account ("Account") of the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers.
(3) The records of the Custodian with respect to securities of the Fund which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Fund.
(4) The Custodian shall pay for securities purchased for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Fund.
(5) The Custodian shall furnish the Trust on behalf of the Fund confirmation of each transfer to or from the account of the Fund, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Trust on behalf of the Fund copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Fund.
(6) The Custodian shall provide the Trust on behalf of the Fund with any report on its system of internal accounting control as the Trust may reasonably request from time to time.
is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE TRUST HELD OUTSIDE OF THE UNITED STATES
(b) Notwithstanding any provision of this Contract to the contrary, settlement and payment for securities received for the account of each applicable Fund and delivery of securities maintained for the account of each applicable Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign subcustodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract, and the Trust agrees to hold any such nominee harmless from any liability as a holder of record of such securities.
3.13 Branches of U.S. Banks.
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(a) Except as otherwise set forth in this Contract, the provisions of this
Article 3 shall not apply where the custody of Fund assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a subcustodian shall be governed by paragraph 1 of this
Contract.
(b) Cash held for each Fund of the Trust in the United Kingdom shall be
maintained in an interest bearing account established for the Trust with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
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4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF UNITS OF THE TRUST
Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming unitholders.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing signed or initialled by one or more person or persons as the Board of Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Trust shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Trust accompanied by a detailed description of procedures approved by the Board of Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three-party agreement which requires a segregated asset account in accordance with Section 2.11.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the Trust on behalf of each applicable Fund:
(2) Surrender securities in temporary form for securities in definitive form;
(3) Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and
(4) In general, attend to all non-discretional details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Trustees of the Trust.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Trust. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Trust as conclusive evidence: (i) of the authority of any person to act in accordance with such vote or (ii) of any determination or of any action by the Board of Trustees pursuant to the Trust's Declaration of Trust or By-laws as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Trustees of the Trust to keep the books of account of each Fund and/or compute the
net asset value per share of the outstanding Units of each Fund or, if directed in writing to do so by the Trust on behalf of the Fund, shall itself keep such books of account and/or compute such net asset value per share. If so desired, the Custodian shall also calculate daily the net income of the Fund as described in the Trust's currently effective prospectus related to such Fund and shall advise the Trust and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Trust to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of each Fund shall be made at the time or times described from time to time in the Trust's currently effective prospectus related to such Fund.
9. RECORDS
The Custodian shall with respect to each Fund create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Trust under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Trust and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Trust and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Trust's request, supply the Trust with a tabulation of securities owned by each Fund and held by the Custodian and shall, when requested to do so by the Trust and for such compensation as shall be agreed upon between the Trust and the Custodian, include certificate numbers in such tabulations.
10. OPINION OF TRUST'S INDEPENDENT ACCOUNTANTS
The Custodian shall take all reasonable action, as the Trust on behalf of each applicable Fund may from time to time request, to obtain from year to year favorable opinions from the Trust's independent accountants with respect to its activities hereunder in connection with the preparation of the Trust's Form N-1A and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission.
11. REPORTS TO TRUST BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Trust, on behalf of each Fund at such times as the Trust may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities system, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail as may reasonably be required by the Trust to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no inadequacies, the reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Trust on behalf of each applicable Fund and the Custodian.
13. RESPONSIBILITY OF THE CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commissions merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Trust for any action taken or omitted by it in good faith without negligence or misconduct; provided, however, that the Custodian uses reasonable care to provide prompt notice to the Trust of (i) the circumstances and all pertinent facts of which the Custodian has knowledge giving rise to the claim for indemnification or the reasonable likelihood that such a claim may be made, and (ii) the Custodian's claim for such indemnification. The Trust, using counsel of its choice, shall have the option to defend the Custodian against any claim which may be the subject of this indemnification and upon the exercise of such option the Custodian shall not be entitled to indemnification for further legal or other expenses in connection therewith. The Custodian shall in no case confess any claim or make any compromise or settlement in any case in which the Trust shall be asked to indemnify the Custodian, except with the prior written consent of the Trust. The Custodian shall be entitled to rely on and may act upon advice of reasonably selected counsel (who may be counsel for the Trust) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Trust.
The Custodian shall be liable for the acts or omissions of a foreign banking institution appointed pursuant to the provisions of Article 3 to the same extent as set forth in Article 1 hereof with respect to subcustodians located in the Untied States (except as specifically provided in Article 3.10) and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Trust to maintain custody of any securities or cash of the Trust in a foreign country including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism.
If the Trust on behalf of a Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Trust or the Fund being liable for the payment of money or incurring liability of some other form, the Trust on behalf of the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.
If the Trust requires the Custodian to advance cash or securities for any purpose for the benefit of a Fund including the purchase or sale of foreign exchange contracts or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Fund shall be security therefor and should the Trust fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Fund's assets to the extent necessary to obtain reimbursement.
No series or portfolio of the Trust shall be liable for any claims against any other Fund of the Trust.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
Upon termination of the Contract, the Trust on behalf of each applicable Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Trust, of one or more of the Funds shall be appointed by the Board of Trustees of the Trust, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Fund then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Trustees of the Trust, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Fund and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Fund and to transfer to an account of such successor custodian all of the securities of each such Fund held in any Securities system. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Trust to procure the certified copy of the vote referred to or of the Board of Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
17. ADDITIONAL FUNDS
In the event that the Trust establishes one or more series of Units in addition to GS Short-Term Government Agency Fund, GS Global Income Fund and GS Adjustable Rate Government Agency Fund, with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Units shall become a Fund hereunder.
18. MASSACHUSETTS LAW TO APPLY
THIS CONTRACT SHALL BE CONSTRUED AND THE PROVISIONS THEREOF INTERPRETED UNDER AND IN ACCORDANCE WITH LAWS OF MASSACHUSETTS.
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Trust on behalf of each of the Funds and the Custodian relating to the custody of the Trust's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 15th day of July , 1991.
GOLDMAN SACHS TRUST
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
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Michelle S. Lenzmeier Stephen Brent Wells
Assistant Secretary of the Trust President of the Trust
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STATE STREET BANK AND TRUST COMPANY
Attest: N. Stokes By: Maureen P. Corcoran
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Assistant Secretary Its: Vice President
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EXHIBIT 10(a)
HALE AND DORR
Counsellors At Law
60 State Street, Boston, Massachusetts 02109
617-526-6000.FAX 617-526-5000
December 28, 1995
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust created under a written Declaration of Trust dated, executed and delivered in Boston, Massachusetts on September 24, 1987, as amended on November 25, 1987, October 1, 1987, November 30, 1987, October 6, 1989, March 21, 1991, and April 23, 1991, as amended and restated on December 5, 1991, and as further amended on August 17, 1992, October 28, 1992, January 26, 1993, December 22, 1993, January 27, 1994, August 26, 1994, April 3, 1995, April 30, 1995 and May 9, 1995 (as so amended and restated, the "Trust Agreement"). The beneficial interests thereunder are represented by transferable shares of beneficial interest with $.001 par value.
The Trustees of the Trust have the powers set forth in the Declaration of Trust, subject to the terms, provisions and conditions therein provided. Under Article IV, Section 4.1 of the Trust Agreement, the number of shares of beneficial interest authorized to be issued under the Trust Agreement is unlimited and the Trustees are authorized to divide the shares into one or more series of shares and one or more classes thereof as they deem necessary or desirable. Under Article IV, Section 4.1, the Trustees may issue shares of any series or class for such consideration and on such terms as they may determine (or for no consideration if pursuant to a share dividend or split-up) without action or approval of shareholders.
Pursuant to Article IV, Section 4.2, the Trustees established seven separate series of shares designated "GS Short-Term Government Agency Fund", "Goldman Sachs Global Income Fund", "GS Adjustable Rate Government Agency Fund", "GS Short Duration
Tax-Free Fund", "Goldman Sachs Government Income Fund", "Goldman Sachs Municipal Income Fund", and "GS Core Fixed Income Fund".
By resolution adopted on April 28, 1993, the Trustees of the Trust authorized the President, any Vice President, the Secretary and the Treasurer from time to time to determine the appropriate number of shares to be registered, to register with the Securities and Exchange Commission, and to issue and sell to the public, such shares.
We understand that you are about to register under the Securities Act of 1933, as amended, 58,400,744 shares of beneficial interest by Post-Effective Amendment No. 26 to the Trust's Registration Statement.
We have examined the Trust Agreement, the By-Laws, the written actions of the Board of Trustees and the minutes of the meetings of the Board of Trustees relating to the authorization and issuance of shares of beneficial interest of the Trust. In our examination of the above documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies, the authenticity of the originals of such latter documents and the legal competence of each individual executing any documents.
For purposes of this opinion letter, we have not made an independent review of the laws of any state or jurisdiction other than The commonwealth of Massachusetts and express no opinion with respect to the laws of any jurisdiction other than the laws of The Commonwealth of Massachusetts. Further, we express no opinion as to compliance with any state or federal securities laws, including the securities laws of The Commonwealth of Massachusetts.
Our opinion below, as it relates to the nonassessability of the shares of the Trust, is qualified to the extent that under Massachusetts law, shareholders of a Massachusetts business Trust may be held personally liable for the obligations of the Trust. In this regard, however, please be advised that the Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each note, bond, contract, certificate or undertaking made or issued by the Trustees or officers of the Trust. Also, the Trust Agreement provides for indemnification out of Trust property for all loss and expense of any shareholder held personally liable for the obligations of the Trust.
We are of the opinion that all necessary Trust action precedent to the issue of the shares of beneficial interest of the Trust comprising of the shares covered by Post-Effective Amendment No. 26 to the Registration Statement has been duly taken, and that all such shares may legally and validly be issued
for cash, and when sold will be fully paid and non-assessable by the Trust upon receipt by the Trust or its agent of consideration thereof in accordance with terms described in the Trust's Trust Agreement and the Registration Statement, subject to compliance with the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and applicable state laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange Commission as an Exhibit to Post-Effective Amendment No. 26 to the Registration Statement.
Very truly yours,
HALE AND DORR
EXHIBIT 11
ARTHUR ANDERSEN LLP
Consent of Independent Public Accountants
To Goldman Sachs Trust:
As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated December 8, 1995 incorporated by reference in Post-Effective Amendment No. 26 and Amendment No. 28 to Registration Statement File Nos. 33-17619 and 811-5349, respectively.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Boston, Massachusetts
December 22, 1995
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EXHIBIT 15(a)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
Dated July 16, 1993
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open- end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust has a series, the GS Municipal Income Fund (the "Fund"), and additional series (together with the Fund, the "Series") may be created by the Trust's Board of Trustees from time to time;
WHEREAS, the Trust, on behalf of the Fund, desires to adopt a Plan of Distribution pursuant to Rule 12b-1 under the Act, and the Board of Trustees of the Trust has determined that there is a reasonable likelihood that adoption of this Plan of Distribution will benefit the Fund and its shareholders; and
WHEREAS, the Trust, on behalf of the Fund, employs Goldman, Sachs & Co. (the "Distributor") as distributor of the shares of beneficial interest of the Fund (the "Shares") pursuant to a Distribution Agreement dated February 1, 1993.
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts, and the Distributor hereby agrees to the terms of, this Plan of Distribution (the "Plan") in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. (a) The Trust, on behalf of the Fund, is authorized to compensate the
Distributor for (1) distribution services and (2) personal and account
maintenance services performed and expenses incurred by the Distributor
in connection with the Fund's Shares. The amount of such compensation
paid during any one year shall not exceed .50% of the average daily net
assets of the Fund attributable to such year; provided, however, that
the compensation paid for personal and account maintenance services and
expenses shall not exceed .25% of the average daily net assets of the
Fund attributable to such year. Such compensation shall be calculated
and accrued daily and paid quarterly or at such other intervals as the
Board of Trustees may determine.
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(b) Distribution services and expenses for which the Distributor may be
compensated pursuant to this Plan include, without limitation:
compensation to and expenses of brokers and dealers who are members of
the National Association of Securities Dealers, Inc. ("NASD") or their
officers, sales representatives and employees; compensation to and
expenses of the Distributor and any of its officers, sales
representatives and employees, including allocable overhead, travel and
telephone expenses, who engage in or support distribution of the Fund's
Shares; printing of reports and prospectuses for other than existing
shareholders; and preparation, printing and distribution of sales
literature and advertising materials.
(c) Personal and account maintenance services include, but are not limited to, payments made to or on account of the Distributor or other brokers and dealers, who are members of the NASD or their officers, sales representatives and employees who respond to inquiries of, and furnish assistance to, shareholders regarding their
ownership of Shares or their accounts or who provide similar services not otherwise provided by or on behalf of the Fund.
(d) Appropriate adjustments to payments made pursuant to clause (a) of this paragraph 1 shall be made whenever necessary to ensure that no payment is made by the Trust on behalf of the Fund in excess of the applicable maximum cap imposed on asset based, front-end and deferred sales charges by subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the NASD.
2. This Plan shall not take effect until it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund.
3. This Plan shall not take effect until the Plan, together with any related agreement, has been approved by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined by the Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related Agreements.
4. This Plan shall remain in effect until June 30, 1994 and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Board of Trustees of the Trust and the Board shall review, at least quarterly, a written report of (i) distribution services, expenses and the purposes for which such services were performed and expenses were incurred; and (ii) personal and account maintenance services and expenses.
6. This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting securities of the Fund.
7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust (on behalf of the Fund) and the Distributor have executed this Plan of Distribution as of the day and year first above written.
GOLDMAN SACHS TRUST
on behalf of GS Municipal Income Fund
GOLDMAN, SACHS & CO.
EXHIBIT 15(c)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
Dated February 1, 1993 as revised July 1, 1993
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open- end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust has a series, the GS Government Income Fund (the "Fund"), and additional series (together with the Fund, the "Series") may be created by the Trust's Board of Trustees from time to time;
WHEREAS, the Trust, on behalf of the Fund, desires to adopt a Plan of Distribution pursuant to Rule 12b-1 under the Act, and the Board of Trustees of the Trust has determined that there is a reasonable likelihood that adoption of this Plan of Distribution will benefit the Fund and its shareholders; and
WHEREAS, the Trust, on behalf of the Fund, employs Goldman, Sachs & Co. (the "Distributor") as distributor of the shares of beneficial interest of the Fund (the "Shares") pursuant to a Distribution Agreement dated February 1, 1993.
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts, and the Distributor hereby agrees to the terms of, this Plan of Distribution (the "Plan") in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. (a) The Trust, on behalf of the Fund, is authorized to compensate the
Distributor for (1) distribution services and (2) personal and account
maintenance services performed and expenses incurred by the Distributor
in connection with the Fund's Shares. The amount of such compensation
paid during any one year shall not exceed .50% of the average daily net
assets of the Fund attributable to such year; provided, however, that
the compensation paid for personal and account maintenance services and
expenses shall not exceed .25% of the average daily net assets of the
Fund attributable to such year. Such compensation shall be calculated
and accrued daily and paid quarterly or at such other intervals as the
Board of Trustees may determine.
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(b) Distribution services and expenses for which the Distributor may be
compensated pursuant to this Plan include, without limitation:
compensation to and expenses of brokers and dealers who are members of
the National Association of Securities Dealers, Inc. ("NASD") or their
officers, sales representatives and employees; compensation to and
expenses of the Distributor and any of its officers, sales
representatives and employees, including allocable overhead, travel and
telephone expenses, who engage in or support distribution of the Fund's
Shares; printing of reports and prospectuses for other than existing
shareholders; and preparation, printing and distribution of sales
literature and advertising materials.
(c) Personal and account maintenance services include, but are not limited to, payments made to or on account of the Distributor or other brokers and dealers, who are members of the NASD or their officers, sales representatives and employees who respond to inquiries of, and furnish assistance to, shareholders regarding their
ownership of Shares or their accounts or who provide similar services not otherwise provided by or on behalf of the Fund.
(d) Appropriate adjustments to payments made pursuant to clause (a) of this paragraph 1 shall be made whenever necessary to ensure that no payment is made by the Trust on behalf of the Fund in excess of the applicable maximum cap imposed on asset based, front-end and deferred sales charges by subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the NASD.
2. This Plan shall not take effect until it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund.
3. This Plan shall not take effect until the Plan, together with any related agreement, has been approved by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined by the Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related Agreements.
4. This Plan shall remain in effect until June 30, 1994 and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Board of Trustees of the Trust and the Board shall review, at least quarterly, a written report of (i) distribution services, expenses and the purposes for which such services were performed and expenses were incurred; and (ii) personal and account maintenance services and expenses.
6. This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting securities of the Fund.
7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the Trustees who are not interested persons (as defined in the Act) of the Trust shall be committed to the discretion of the Trustees who are not such interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust (on behalf of the Fund) and the Distributor have executed this Plan of Distribution as of the day and year first above written.
GOLDMAN SACHS TRUST
on behalf of GS Government Income Fund
GOLDMAN, SACHS & CO.
EXHIBIT 15(d)
GOLDMAN SACHS TRUST
GS GLOBAL INCOME FUND
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
Dated July 15, 1991 as revised July 1, 1993
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open- end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS the Trust has a series, the GS Global Income Fund (the "Fund"), and additional series (together with the Fund, the "Series") may be created by the Trust's Board of Trustees from time to time;
WHEREAS, the Trust, on behalf of the Fund, desires to adopt a Plan of Distribution pursuant to Rule 12b-1 under the Act, and the Board of Trustees of the Trust has determined that there is a reasonable likelihood that adoption of this Plan of Distribution will benefit the Fund and the shareholders; and
WHEREAS, the Trust, on behalf of the Fund, employs Goldman, Sachs & Co. (the "Distributor") as distributor of the shares of beneficial interest of the Fund (the "Shares") pursuant to a Distribution Agreement dated February 1, 1993.
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts, and the Distributor hereby agrees to the terms of, this Plan of Distribution (the "Plan") in accordance with Rule 12b-1 under the Act on the following terms and conditions:
1. (a) The Trust, on behalf of the Fund, is authorized to compensate the
Distributor for (1) distribution services and (2) personal and account
maintenance services performed and expenses incurred by the Distributor
in connection with the Fund's Shares. The amount of such compensation
paid during any one year shall not exceed .50% of the average daily net
assets of the Fund attributable to such year; provided, however, that
the compensation paid for personal and account maintenance services and
expenses shall not exceed .25% of the average daily net assets of the
Fund attributable for such year. Such compensation shall be calculated
and accrued daily and paid quarterly or at such other intervals as the
Board of Trustees may determine.
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(b) Distribution services and expenses for which the Distributor may be
compensated pursuant to this Plan include, without limitation:
compensation to and expenses of brokers and dealers who are members of
the National Association of Securities Dealers, Inc. ("NASD") or their
officers, sales representatives and employees; compensation to and
expenses of the Distributor and any of its officers, sales
representatives and employees, including allocable overhead, travel and
telephone expenses, who engage in or support distribution of the Fund's
Shares; printing of reports and prospectuses for other than existing
shareholders; and preparation, printing and distribution of sales
literature and advertising materials.
(c) Personal and account maintenance services include, but are not limited to, payments made to or on account of the Distributor or other brokers and dealers, who are members of the NASD or their officers, sales representatives and employees who respond to inquiries of, and furnish assistance to, shareholders regarding their ownership of Shares or their accounts or who provide similar services not otherwise provided by or on behalf of the Fund.
(d) Appropriate adjustments to payments made pursuant to clause (a) of this paragraph 1 shall be made whenever necessary to ensure that no payment is made by the Trust on behalf of the Fund in excess of the applicable maximum cap imposed on asset based, front-end and deferred sales charges by subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the NASD.
2. This Plan shall not take effect until it has been approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund.
3. This Plan shall not take effect until the Plan, together with any related agreement, has been approved by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust (as defined by the Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related Agreements.
4. This Plan shall remain in effect until June 30, 1994 and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Board of Trustees of the Trust and the Board shall review, at least quarterly, a written report of (i) distribution services, expenses and the purposes for which such services were performed and expenses were incurred; and (ii) personal and account maintenance services and expenses.
6. This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting securities of the Fund.
7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved by a vote of at least a majority (as defined in the Act) of the outstanding voting securities of the Fund. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the Trustees who are not interested persons (as defined in the Act) of the Fund shall be committed to the discretion of the Trustees who are not such interested persons.
9. The Fund shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust (on behalf of the Fund) and the Distributor have executed this Plan of Distribution as of the day and year first above written.
GOLDMAN SACHS TRUST GOLDMAN, SACHS & CO.
(ON BEHALF OF GS GLOBAL INCOME FUND)
By: Marcia L. Beck By: Michael R. Armellino
--------------------- -------------------------
Marcia L. Beck Michael R. Armellino
President of the Trust General Partner
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EXHIBIT 15(hs)
GOLDMAN SACHS TRUST
(ADMINISTRATION CLASS)
ADMINISTRATION PLAN
Dated: January 28, 1993
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open- end management investment company and is registered as such under the Investment Company Act of 1940, as amended;
WHEREAS, the Trust has eight series or Funds, each of which is a separate pool of assets with its own investment policies (the "Funds") and each Fund may be divided into four separate classes: Class A, the Institutional Class, the Administration Class and the Service Class;
WHEREAS, the Trust, on behalf of the Administration Class of each Fund, desires to adopt an Administration Plan and the Board of Trustees of the Trust has determined that there is a reasonable likelihood that adoption of this Administration Plan will benefit each Fund and its shareholders; and
WHEREAS, the Trust, on behalf of the Administration Class of each Fund, employs institutions (the "Service Organizations") to act as nominees and record holders of shares of beneficial interest of the Administration Class ("Administration Shares") for their respective customers who are or may become beneficial owners of such Administration Shares (the "Customers") and to perform certain account administration services with respect to the Customers pursuant to Administration Agreements between the Trust, on behalf of the Administration Class of each Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Administration Class of each Fund, hereby adopts this Administration Plan (the "Plan") on the following terms and conditions:
1. (a) The Trust, on behalf of the Administration Class of each Fund, is authorized to pay each Service Organization the monthly or quarterly administration fee specified in the Agreement with such Service Organization, which shall be equal on an annual basis to not more than .25 of 1% of the average daily net asset value of the Administration Shares of such Fund which are owned beneficially by the Customers of such Service Organization during such period.
(b) The types of administration services and expenses for which a Service Organization may be compensated under this Plan include, without limitation: (i) acting as record holder and nominee of all Administration Shares beneficially owned by Customers; (ii) establishing and maintaining individual accounts and records with respect to the Administration Shares owned by each Customer; (iii) providing facilities to answer inquiries and respond to correspondence with Customers about the status of their accounts or about other aspects of the Trust or the applicable Fund; (iv) processing and issuing confirmations concerning Customer orders to purchase, redeem and exchange Administration Shares; and (v) receiving and transmitting funds representing the purchase price or redemption proceeds of such Administration Shares. No Fund may compensate a Service Organization for services provided with respect to another Fund.
2. This Plan shall not take effect with respect to the Administration Class of any Fund until it has been approved by a vote of at least a majority of the outstanding voting securities of the Administration Class of such Fund.
3. This Plan shall not take effect as to any Fund until the Plan, together with any related agreements, has been approved for such Fund by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "non-interested Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements.
4. This Plan shall remain in effect until June 30, and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. The President, Vice President, Treasurer or any Assistant Treasurer of the Trust shall provide the Board of Trustees of the Trust and the Board shall review, at least quarterly, a written report of services performed by and fees paid to each Service Organization under the Agreements and this Plan.
6. This Plan may be terminated as to the Administration Class of any Fund at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of the Administration Class of such Fund.
7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved in the manner provided for initial approval in paragraph 2 hereof. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the non- interested Trustees of the Trust shall be committed to the discretion of the non-interested Trustees.
9. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust, on behalf of the Administration Class of each Fund, has executed this Administration Plan as of the day and year first written above.
GOLDMAN SACHS TRUST
[on behalf of the Administration Class of each Fund]
Vice President of the Trust
EXHIBIT 15(ha)
GOLDMAN SACHS TRUST
(SERVICE CLASS)
SERVICE PLAN
January 28, 1993 as amended July 1, 1993
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open- end management investment company and is registered as such under the Investment Company Act of 1940, as amended;
WHEREAS, the Trust has eight series or Funds, each of which is a separate pool of assets with its own investment policies (the "Funds") and each Fund may be divided into four separate classes: Class A, the Institutional Class, the Administration Class and the Service Class;
WHEREAS, the Trust, on behalf of the Service Class of each Fund, desires to adopt a Service Plan and the Board of Trustees of the Trust has determined that there is a reasonable likelihood that adoption of this Service Plan will benefit each Fund and its shareholders; and
WHEREAS, the Trust, on behalf of the Service Class of each Fund, employs institutions (the "Service Organizations") to act as nominees and record holders of shares of beneficial interest of the Service Class ("Service Shares") for their respective customers who are or may become beneficial owners of such Service Shares (the "Customers") and to perform certain account administration and shareholder liaison services with respect to the Customers pursuant to Service Agreements between the Trust, on behalf of the Service Class of each Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Service Class of each Fund, hereby adopts this Service Plan (the "Plan") on the following terms and conditions:
1. (a) The Trust, on behalf of each Service Class of each Fund, is authorized to pay each Service Organization the monthly or quarterly service fee specified in the Agreement with such Service Organization for (1) administration services and (2) personal and account maintenance services performed and expenses incurred by the Service Organization in connection with such Fund's Service Shares. The fee paid for such services during any one year shall not exceed .50% of the average daily net asset value of the Service Shares of such Fund which are owned beneficially by the Customers of such Service Organization during the period; provided, however, that the fee paid for personal and account maintenance services and expenses shall not exceed .25% of the average daily net asset value of the Service Shares of such Fund which are owned beneficially by the Customers of such Service Organization during such period.
(b) Administration services and expenses for which a Service Organization may be compensated under this Plan include, without limitation, (i) acting as record holder and nominee of all Service Shares beneficially owned by Customers; (ii) establishing and maintaining individual accounts and records with respect to Service Shares owned by each Customer; (iii) processing and issuing confirmations concerning 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) 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; (vi)
responding to investor requests for prospectuses; (vii) displaying and making prospectuses available on the Service Organization's premises and (viii) assisting Customers in completing application forms, selecting dividend and other account options and opening custody accounts with the Service Organization.
(c) Personal and account maintenance services and expenses for which a Service Organization may be compensated under this Plan include, without limitation, (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; and (ii) acting as liaison between Customers and the Trust, including obtaining information from the Trust and assisting the Trust in correcting errors and resolving problems.
(d) Appropriate adjustments to payments made pursuant to clause (a) of this paragraph 1 shall be made whenever necessary to ensure that no payment is made by the Trust on behalf of a Fund in excess of the applicable maximum cap imposed on asset based, front-end and deferred sales charges by subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the National Association of Securities Dealers, Inc.
2. This Plan shall not take effect with respect to the Service Class of any Fund until it has been approved by a vote of at least a majority of the outstanding voting securities of the Service Class of such Fund.
3. This Plan shall not take effect as to any Fund until the Plan, together with any related agreements, has been approved for such Fund by votes of a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "non-interested Trustees") cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements.
4. This Plan shall remain in effect until June 30 and shall continue in effect thereafter so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in paragraph 3.
5. The President, Vice President, Treasurer or any Assistant Treasurer of the Trust shall provide the Board of Trustees of the Trust and the Board shall review, at least quarterly, a written report of services performed by and fees paid to each Service Organization under the Agreements and this Plan.
6. This Plan may be terminated as to the Service Class of any Fund at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of the Service Class of such Fund.
7. This Plan may not be amended to increase materially the amount of compensation payable pursuant to paragraph 1 hereof unless such amendment is approved in the manner provided for initial approval in paragraph 2 hereof. No material amendment to the Plan shall be made unless approved in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the non- interested Trustees of the Trust shall be committed to the discretion of the non-interested Trustees.
9. The Trust shall preserve copies of this Plan and any related agreements and all reports made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the
Plan, any such agreement or any such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust, on behalf of the Service Class of each Fund, has executed this Service Plan as of the day and year first written above.
GOLDMAN SACHS TRUST
(on behalf of the Service Class of each Fund)
EXHIBIT 17(a)
GOLDMAN SACHS TRUST
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the 15th day of July, 1991 by and between Goldman Sachs Trust (the "Trust"), a Massachusetts business trust and Goldman, Sachs & Co. ("Goldman Sachs"), a New York limited partnership.
WHEREAS, the Trust is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is empowered to issue units of beneficial interest ("Units") in separate series (each a "Fund") with each such Fund representing the interests in a separate portfolio of securities and other assets;
WHEREAS, the Trust presently offers Units in three Funds, known as GS Short-Term Government Agency Fund, GS Global Income Fund and GS Adjustable Rate Government Agency Fund (such Funds together with all other Funds subsequently established by the Trust being collectively referred to as the "Funds");
WHEREAS, the Trust desires to appoint Goldman Sachs as Transfer Agent and Dividend Disbursing Agent and to perform the other services contemplated hereby with respect to the Trust and each Fund; and
WHEREAS, Goldman Sachs is a registered transfer agent and is authorized to enter into this agreement and desires to accept appointment as Transfer Agent and Dividend Disbursing Agent; and
NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT
1.01. Subject to the terms set forth in this Agreement, the Trust hereby appoints Goldman Sachs as Transfer Agent and Dividend Disbursing Agent and to perform the other services contemplated hereby with respect to the Trust and each Fund.
1.02. Goldman Sachs hereby accepts such appointment and agrees that it will act as Transfer Agent and Dividend Disbursing Agent and perform the other services described herein with respect to the Trust and each Fund.
1.03. Goldman Sachs agrees to provide the necessary facilities, equipment and executive, administrative and clerical personnel to perform its duties and obligations hereunder in accordance with the terms hereof.
1.04 Goldman Sachs may engage third parties to act as agents for the purpose of providing the Transfer Agency services described below all as shall be set forth in a written contract between Goldman Sachs and the agent; provided, however, that the appointment of any agent shall not relieve Goldman Sachs of its responsibilities or liabilities hereunder.
2. TRANSFER AGENT
2.01. Goldman Sachs shall, subject to any Instructions (as defined in
Section 5 hereof), record the issuance, transfer and redemptions of
Units in accordance with the following provisions of this Section 2.
2.02. Upon receipt of orders to purchase units in proper form Goldman Sachs shall compute in accordance with each Fund's Prospectus (the term "Prospectus," as used herein, shall be deemed to mean each Fund's then current Prospectus, all supplements thereto, the Trust's then current Statement of Additional Information and all supplements thereto unless the context otherwise requires) the number of Units to be purchased at the net asset value of such Units applicable to such order and shall (i) credit the account of the purchaser with the number of Units so purchased as of the time contemplated by each Fund's Prospectus and (ii) upon the settlement date, mail to the purchaser a confirmation of such purchase and notice of such credit.
2.03. Upon receipt of requests for transfer in proper form, Goldman Sachs shall make appropriate entries to reflect the transfer of Units on the records of the Trust maintained by it.
2.04. Goldman Sachs shall make an adequate and accurate record of the date and time of receipt of all requests for redemption of Units transmitted or delivered to it, and shall process such requests in accordance with the following provisions. If such redemption requests comply with the standards for redemption approved by the Trust (as evidenced by each Fund's Prospectus or by Instructions), Goldman Sachs shall compute in accordance with each Fund's Prospectus the amount of redemption proceeds payable to each Unitholder requesting redemption. If any such request for redemption does not comply with the standards for redemption approved by the Trust, Goldman Sachs shall take such actions as it reasonably deems appropriate under the circumstances and shall effect such redemption at the price applicable to the date and time of receipt of a redemption request (including any necessary documents) complying with such standards. At such times as may be agreed upon by Goldman Sachs and the Custodian so as to provide for the timely payment of redemptions in accordance with each Fund's Prospectus, Goldman Sachs shall advise the Custodian of aggregate redemption requests for which the Custodian is authorized to effect payment and shall advise the Custodian of the amount required to pay any portion of such redemptions which is payable by wire and the amount required to pay any portion of such redemptions which is payable by check. In accordance with the provisions of the resolutions of the Trust's Board of Trustees and each Fund's Prospectus and with the terms of this Agreement, Goldman Sachs shall prepare and mail checks for redemptions to holders of Units ("Unitholders") who requested that redemption proceeds be remitted by check. Goldman Sachs shall mail to the redeeming Unitholder a confirmation of the redemption.
2.05. In addition to mailing the confirmation and notice to purchasers as provided in paragraph 2.02 and the confirmation of redeeming Unitholders as provided in paragraph 2.04, Goldman Sachs will also provide a quarterly statement to Unitholders as described in each Fund's Prospectus.
3. DIVIDENDS AND DISTRIBUTIONS
3.01 With respect to those Unitholders which have elected reinvestment of dividends and distributions in additional Units, Goldman Sachs shall credit the account of such Unitholders with the requisite number of additional Units relative to each such dividend or distribution. With respect to those Unitholders which have elected to receive such dividends and distributions in cash, at such times as may be agreed upon by Goldman Sachs and the Custodian so as to provide for the timely payment of dividends or distributions to Unitholders in accordance with the provisions of each Fund's Prospectus, Goldman Sachs shall advise the Custodian orally of and confirm to it in writing, the aggregate amount of dividends or distributions payable to Unitholders and shall advise the Custodian orally of and confirm to it in writing, the amount required to pay any portion of any such dividend or distribution which is payable by wire and the amount required to pay any portion of any such dividend or distribution which is payable by check. In accordance with the provisions of the resolutions of the Trust's Board of Trustees and each Fund's Prospectus and with the terms of this Agreement, Goldman Sachs shall prepare and mail checks for dividends or distributions to Unitholders who requested payment thereof by check.
4. ADDITIONAL DUTIES
4.01. Goldman Sachs shall establish and maintain a separate account with
respect to each Unitholder. Goldman Sachs shall perform such
"master" and "subaccounting" services, if any, as described in each
Fund's Prospectus, provided that the Trust shall not change the
description of such services in each Fund's Prospectus without
obtaining the advance consent of Goldman Sachs. Goldman Sachs shall
maintain records showing for each Unitholder's account the
following: (a) name, address, tax identifying number and number of
Units held; (b) historical information regarding the account,
including dividends and distributions paid and date and price for
all transactions; (c) any stop or restraining order placed against
the account; (d) information with respect to withholdings; (e) any
dividend or distribution reinvestment order, dividend or
distribution address and correspondence relating to the current
maintenance of the account; and (f) any information required in
order for Goldman Sachs to perform the calculations and make the
determinations contemplated or required by this Agreement. Goldman
Sachs shall maintain all records relating to its activities and
obligations under this Agreement in such manner as will enable the
Trust and Goldman Sachs to meet their respective obligations under:
(i) each Fund's Prospectus; (ii) the required recordkeeping and
reporting provisions of the 1934 Act, particularly Section 17A
thereof, and of the 1940 Act, particularly Sections 30 and 31
thereof, and state securities or Blue Sky laws, and the rules and
regulations thereunder; and (iii) applicable Federal and State tax
laws and regulations thereunder. All records maintained by Goldman
Sachs in connection with the performance of its duties under this
Agreement will remain the property of the Trust, shall be returned
to the Trust promptly upon request and, in the event of termination
of this Agreement, will be promptly returned to or delivered as
directed by the Trust. Such records may be inspected by the Trust at
reasonable times. In the event such records are returned to or
delivered as directed by the Trust, Goldman Sachs may at its option
retain copies of such records.
4.02. Goldman Sachs shall furnish to the Trust: (a) information as to the Units distributed or to be distributed in each State for "Blue Sky" purposes at such times and in such degree of detail as is necessary for the Trust to verify the satisfaction of or to satisfy its obligations to register such Units under applicable "Blue Sky" laws, and (b) copies of Unitholder lists and such other information and statistical data as may reasonably be requested in Instructions.
4.03. Goldman Sachs shall prepare and file with the Internal Revenue Service and with the appropriate State agencies, and, if required, mail to Unitholders such returns for reporting:
(i) dividends and distributions paid, credited or withheld as are required by each Fund's Prospectus or applicable law or regulation to be so filed and mailed and
(ii) expenses incurred by the Trust as are required by applicable Federal law.
4.04. Goldman Sachs will provide each unitholder with a printed confirmation for each transaction and an individual statement as described in each Fund's Prospectus. Upon request from a Unitholder, Goldman Sachs shall prepare and mail a year-to-date statement showing all activity in such Unitholder's account on a year-to-date basis.
4.05. Goldman Sachs shall mail such Unitholder reports and such proxy material, proxy cards and other material supplied to it by the Trust in connection with Unitholder meetings of the Trust and shall receive, examine and tabulate returned proxies and certify the vote to the Trust, all as and to the extent requested by the Trust.
4.06. Goldman Sachs shall cooperate with the Trust and the Trust's
independent public accountants in connection with: (a) the
preparation of reports to Unitholders, to the Securities and
Exchange Commission (including all required periodic and other
reports), to State securities commissioners, and to others, (b)
annual and other audits of the books and records of the Trust, and
(c) other matters of a like nature.
4.07. Goldman Sachs shall maintain adequate procedures and systems to safeguard from loss or damage attributable to fire, theft, misuse or any other cause the Trust's records and other data and Goldman Sachs' records, data, equipment, facilities and other property used in the performance of its obligations hereunder.
4.08. Goldman Sachs shall comply with the provisions of Investment Company Act Release No. 6863 dated December 8, 1971 entitled "Guidelines Relating to Checking Accounts Established Pursuant to Section 17(f) of The Investment Company Act of 1940, as Amended, by Investment Companies Having Bank Custodians" (the "Release") with regard to the establishment and maintenance of any checking account for the Trust. At the end of each calendar month, Goldman Sachs shall represent in writing to the Board of Trustees of the Trust that it has complied with the terms of the Release during the month. Goldman Sachs shall establish and maintain procedures reasonably designed to assure the safekeeping of checks delivered to Goldman Sachs for signature by employees of Goldman Sachs and the security and integrity of the signing of such checks. Goldman Sachs' employees are not permitted to sign any such checks which are made payable to "Cash" or to the order of the Trust or to any named petty cashier of the Trust or which are not made payable to the order of a designated payee.
4.09. Goldman Sachs shall maintain expedited redemption and dividend instructions from Unitholders in the form of such records as are necessary to honor telephone, telegraph or other redemption requests from Unitholders without signature guarantee and to effect the payment of dividends and distributions in accordance with the provisions of each Fund's Prospectus. Goldman Sachs shall apply such instructions as necessary to effect dividends, distributions, redemptions and other transactions in accordance with the provisions of each Fund's Prospectus. Goldman Sachs shall establish and maintain procedures reasonably designed to assure the accuracy, safekeeping and proper application of records of expedited redemption and dividend instructions.
4.10. Goldman Sachs, in the performance of its duties hereunder:
(a) shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and
(b) shall act in conformity with the Trust's Agreement and Declaration of Trust dated as of September 24, 1987 (such Agreement and Declaration of Trust, as presently in effect and as amended from time to time, is herein called the "Declaration of Trust"), the Trust's By-Laws (such By-laws, as presently in effect and as amended from time to time, are herein called the "By-laws"), each Fund's Prospectus and any Instruction, and will, subject to the standard set forth in paragraph 4.10(a) above, comply with and conform to the requirements of the 1940 Act, the 1934 Act, particularly Section 17A thereof, and all other applicable federal and state laws, regulations and rulings; and
(c) shall not be liable for any damages, including those resulting from its failure to perform its obligations under the terms of this Agreement, provided such damages or failure are due to an act of God, equipment or transmission failure, strike or other cause reasonably beyond its control.
5. INSTRUCTIONS
5.01. Goldman Sachs shall be deemed to have received Instructions (as that term is used herein) upon receipt of written instructions (including receipt by telecopier, telegram, cable or Telex), which may be continuing instructions, signed by a majority of the Board of Trustees of the Trust or by a person that the Trustees shall have from time to time authorized to give the particular class of Instructions in question. Different persons may be authorized to give Instructions for different purposes, and Instructions may be general or specific in terms. A certified copy of a By-law, resolution or action of the Board of Trustees of the Trust may be received and accepted by Goldman Sachs as conclusive evidence of the authority of any such persons to act and may be considered to be in full force and effect until receipt by Goldman Sachs of written notice to the contrary.
5.02. The Trust may also authorize one or more designated persons to issue oral (such term as used herein including, without limitation, telephoned) instructions, specifying the type or types of instructions that may be so issued, in which case the Trust shall deliver to Goldman Sachs resolutions of the Board of Trustees to such effect. One or more of the persons designated by the Board of Trustees to give oral instructions shall promptly confirm such oral instructions in writing to Goldman Sachs. Such instructions when given in accordance with the provisions hereof and with such resolutions shall be deemed Instructions hereunder. In case of conflict between oral Instructions given by a person
designated in the resolution of the Board of Trustees referred to in the first sentence of this paragraph 5.02 and any written Instructions given by a person designated in the resolution of the Board of Trustees referred to in the first sentence of this paragraph 5.01, the Instructions most recently received by Goldman Sachs shall prevail, and in case of conflict between oral Instructions given by a person designated in such resolution and any written confirmation or purported confirmation of oral Instructions, such written confirmation shall prevail; provided that any transaction initiated by Goldman Sachs pursuant to such oral Instructions may, but need not, be completed by Goldman Sachs notwithstanding Goldman Sachs' receipt of conflicting written Instructions hereunder or written confirmation or purported confirmation of oral Instructions hereunder subsequent to Goldman Sachs' initiation of such transaction.
5.03 At any time Goldman Sachs may apply to any Trustee or officer of the Trust or any person authorized to give instructions, and may consult with legal counsel to the Trust with respect to any matter arising in connection with the services to be performed by Goldman Sachs under this Agreement, and Goldman Sachs and its agents or subcontractors shall not be liable and shall be indemnified by the Trust for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel.
6. COMPENSATION
6.01. For the services provided and the expenses assumed by Goldman Sachs pursuant to this Agreement, the Trust will pay to Goldman Sachs as full compensation therefor the compensation set forth in the schedule of even date herewith delivered by Goldman Sachs to the Trust until a different compensation schedule shall be agreed upon in writing between the parties which schedule shall be preceded by approval of a majority of the Trustees, including the Trustees who are not interested persons of the Trust or Goldman Sachs.
6.02. The Trust shall reimburse Goldman Sachs for the cost of any and all forms (excluding the cost of developing the format of such forms) prepared for use in connection with its actions hereunder, as well as the cost of postage, telephone and telegraph used in communicating with Unitholders of the Trust to the extent such communications are required under the terms of this Agreement. The Trust shall reimburse Goldman Sachs for the cost of any terminals and communications facilities required to conduct business. Goldman Sachs shall be entitled to all property rights to the format of all forms it has prepared for use in connection with its actions hereunder. The Trust shall also reimburse Goldman Sachs for all microfiche, microfilm and other mediums for the permanent storage of the Trust's records consumed by Goldman Sachs in the performance of its obligations hereunder. Except as provided in this paragraph 6.02, Goldman Sachs will pay all expenses incurred by it in connection with the performance of its duties under this Agreement.
7. INDEMNIFICATION
7.01. The Trust hereby agrees to indemnify and hold harmless Goldman Sachs, its officers, partners and employees and each person, if any, who controls Goldman Sachs (collectively, the "Indemnified Parties") against any and all losses, claims, damages or liabilities, joint or several, to which any such Indemnified Party may become subject under the 1934 Act, the 1940 Act or other Federal or State statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon Goldman Sachs' actions hereunder. The Trust will reimburse each Indemnified Party for any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such loss, claim, damages, liability or action.
7.02. It is understood, however, that nothing in this Section 7 shall protect any Indemnified Party, or entitle any Indemnified Party to indemnification against any liability to the Trust or its Unitholders to which such party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of his duties, or by reason of his reckless disregard of his obligations and duties under this Agreement.
8. TERM OF AGREEMENT
8.01. This Agreement shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto, which agreement shall be preceded by approval of the Trustees, including the Trustees who are not interested persons of the Trust or Goldman Sachs, and may be terminated (except as to the second and third sentences of paragraph 6.02 and as to paragraphs 7.01 and 7.02) by either party by an instrument in writing delivered or mailed, postage prepaid, to the other party, such termination to take effect no sooner than 120 days after the date of such delivery or mailing.
8.02. Goldman Sachs and the Trust may agree from time to time, by written instrument signed by both parties, on such provisions interpretative of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. No interpretative or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
9. MISCELLANEOUS
9.01. Without limiting the other provisions hereof, notice and other writings delivered or mailed postage prepaid to the Trust in care of Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606, Attention: Shareholder Services, or to such other address as the Trust or Goldman Sachs may hereafter specify by written notice to the most recent address specified by the party to whom such notice is addressed, shall be deemed to have been properly delivered or given hereunder to the respective addressee.
9.02. This Agreement shall be binding on and shall inure to the benefit of the Trust and Goldman Sachs and their respective successors, shall be construed according to the laws of Illinois and may be executed in two or more counterparts, each of which shall be deemed an original. This Agreement may not be assigned by Goldman Sachs nor may Goldman Sachs' duties hereunder be performed by any other person without the prior written consent of the Trust authorized and approved by a resolution of the Board of Trustees. The term "assigned" shall be construed consistently with the term "assignment" as defined in Section
2(a)(4) of the 1940 Act and Rule 2a-6 thereunder as if such Rule applied to transfer and dividend disbursing agents. The headings in this Agreement have been inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. Any provision in this Agreement requiring compliance with any statute or regulation shall mean such statute or regulation as amended and in effect from time to time. The Trust's Declaration of Trust, as amended, is on file with the Secretary of State of the Commonwealth of Massachusetts.
9.03. This Agreement is executed on behalf of the Trust and the obligations hereunder are not binding upon any of the Trustees, officers or Unitholders of the Trust individually but are binding only upon the Trust and its assets and property.
GOLDMAN SACHS TRUST
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells ---------------------- ----------------------- Michelle S. Lenzmeier Stephen Brent Wells Secretary to the Trust President of the Trust |
GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Alan A. Shuch -------------------------- --------------------- Michelle S. Lenzmeier Alan A. Shuch Counsel to the Funds Group Partner |
EXHIBIT 17(c)
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Marcia L. Beck, hereby constitutes and appoints Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, her attorneys-in-fact, each with power of substitution, for her in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
Marcia L. Beck
EXHIBIT 17(c)
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Michael R. Armellino hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Ashok N. Bakhru hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Paul C. Nagel, Jr., hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Jackson W. Smart, Jr., hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Richard P. Strubel, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, William H. Springer, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Alan A. Shuch, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Robert P. Mayo, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Stephen H. Hopkins, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Scott M. Gilman, hereby constitutes and appoints Marcia L. Beck, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Nancy L. Mucker hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Michael J. Richman and Pauline Taylor, jointly and severally, her attorneys-in-fact, each with power of substitution, for her in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Pauline Taylor, hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker and Michael J. Richman, jointly and severally, her attorneys-in-fact, each with power of substitution, for her in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, John W. Mosior hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, Nancy L. Mucker, Michael J. Richman and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
GOLDMAN SACHS TRUST
Know All Men By These Presents, that the undersigned, Michael J. Richman hereby constitutes and appoints Marcia L. Beck, Scott M. Gilman, Stephen H. Hopkins, John W. Mosior, Nancy L. Mucker and Pauline Taylor, jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities to sign the Registration Statement under the Securities Act of 1933 and the Investment Company Act of 1940 of Goldman Sachs Trust and any and all amendments to such Registration Statements, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.
DATED: April 28, 1993
Michael J. Richman
EXHIBIT 17(e)
The undersigned Trustee of Goldman Sachs Trust, a Massachusetts business trust (the "Trust"), does hereby severally constitute and appoint Marcia L. Beck, Scott M. Gilman, Howard B. Surloff and Michael J. Richman, and each of them acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each of them acting singly, to sign for me, in my name and in the capacities indicated below, any and all Registration Statements of the Trust on Form N-1A or Form N-14, and any and all amendments thereto, to be filed by the Trust under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacities indicated to enable the Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any and all said Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 31st day of January, 1995.
David B. Ford, Trustee
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 011 |
| NAME: GS SHORT TERM GOVERNMENT AGENCY FUND A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 97,819,981 |
| INVESTMENTS AT VALUE | 97,786,174 |
| RECEIVABLES | 9,266,794 |
| ASSETS OTHER | 251,753 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 107,304,721 |
| PAYABLE FOR SECURITIES | 3,077,455 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 467,236 |
| TOTAL LIABILITIES | 3,544,691 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 116,985,113 |
| SHARES COMMON STOCK | 10,567,526 |
| SHARES COMMON PRIOR | 20,039,280 |
| ACCUMULATED NII CURRENT | 708,450 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (13,973,992) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 40,459 |
| NET ASSETS | 103,760,030 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9,467,818 |
| OTHER INCOME | 0 |
| EXPENSES NET | (582,151) |
| NET INVESTMENT INCOME | 8,885,667 |
| REALIZED GAINS CURRENT | (4,030,174) |
| APPREC INCREASE CURRENT | 5,735,691 |
| NET CHANGE FROM OPS | 10,591,184 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (8,684,213) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 5,071,865 |
| NUMBER OF SHARES REDEEMED | (15,059,774) |
| SHARES REINVESTED | 516,155 |
| NET CHANGE IN ASSETS | (90,065,401) |
| ACCUMULATED NII PRIOR | 481,675 |
| ACCUMULATED GAINS PRIOR | (9,943,818) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 646,364 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 931,418 |
| AVERAGE NET ASSETS | 129,102,792 |
| PER SHARE NAV BEGIN | 9.64 |
| PER SHARE NII | .665 |
| PER SHARE GAIN APPREC | .167 |
| PER SHARE DIVIDEND | (.652) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.82 |
| EXPENSE RATIO | .45 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 012 |
| NAME: GS SHORT TERM GOVERNMENT AGENCY FUND B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 97,819,981 |
| INVESTMENTS AT VALUE | 97,786,174 |
| RECEIVABLES | 9,266,794 |
| ASSETS OTHER | 251,753 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 107,304,721 |
| PAYABLE FOR SECURITIES | 3,077,455 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 467,236 |
| TOTAL LIABILITIES | 3,544,691 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 116,985,113 |
| SHARES COMMON STOCK | 0 |
| SHARES COMMON PRIOR | 75,701 |
| ACCUMULATED NII CURRENT | 708,450 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (13,973,992) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 40,459 |
| NET ASSETS | 103,760,030 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9,467,818 |
| OTHER INCOME | 0 |
| EXPENSES NET | (582,151) |
| NET INVESTMENT INCOME | 8,885,667 |
| REALIZED GAINS CURRENT | (4,030,174) |
| APPREC INCREASE CURRENT | 5,735,691 |
| NET CHANGE FROM OPS | 10,591,184 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (11,164) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 165 |
| NUMBER OF SHARES REDEEMED | (75,889) |
| SHARES REINVESTED | 23 |
| NET CHANGE IN ASSETS | (90,065,401) |
| ACCUMULATED NII PRIOR | 481,675 |
| ACCUMULATED GAINS PRIOR | (9,943,818) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 646,364 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 931,418 |
| AVERAGE NET ASSETS | 524,058 |
| PER SHARE NAV BEGIN | 9.64 |
| PER SHARE NII | .238 |
| PER SHARE GAIN APPREC | (.043) |
| PER SHARE DIVIDEND | (.205) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.63 |
| EXPENSE RATIO | .70 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 021 |
| NAME: GOLDMAN SACHS GLOBAL INCOME FUND A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 273,501,082 |
| INVESTMENTS AT VALUE | 272,945,552 |
| RECEIVABLES | 30,072,812 |
| ASSETS OTHER | 158,706 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 303,177,070 |
| PAYABLE FOR SECURITIES | 21,461,760 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 4,260,961 |
| TOTAL LIABILITIES | 25,722,721 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 272,761,135 |
| SHARES COMMON STOCK | 17,008,968 |
| SHARES COMMON PRIOR | 29,518,871 |
| ACCUMULATED NII CURRENT | 16,641,827 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (10,599,799) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (1,348,814) |
| NET ASSETS | 277,454,349 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 23,662,535 |
| OTHER INCOME | 0 |
| EXPENSES NET | (4,003,651) |
| NET INVESTMENT INCOME | 19,658,884 |
| REALIZED GAINS CURRENT | 24,360,031 |
| APPREC INCREASE CURRENT | (529,236) |
| NET CHANGE FROM OPS | 43,489,679 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (20,322,640) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,659,380 |
| NUMBER OF SHARES REDEEMED | (15,065,279) |
| SHARES REINVESTED | 895,996 |
| NET CHANGE IN ASSETS | (119,129,784) |
| ACCUMULATED NII PRIOR | 1,318,755 |
| ACCUMULATED GAINS PRIOR | (18,473,913) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 2,367,381 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 4,933,798 |
| AVERAGE NET ASSETS | 307,831,984 |
| PER SHARE NAV BEGIN | 13.43 |
| PER SHARE NII | .89 |
| PER SHARE GAIN APPREC | 1.07 |
| PER SHARE DIVIDEND | (.94) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.45 |
| EXPENSE RATIO | 1.29 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 022 |
| NAME: GOLDMAN SACHS GLOBAL INCOME FUND B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 273,501,082 |
| INVESTMENTS AT VALUE | 272,945,552 |
| RECEIVABLES | 30,072,812 |
| ASSETS OTHER | 158,706 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 303,177,070 |
| PAYABLE FOR SECURITIES | 21,461,760 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 4,260,961 |
| TOTAL LIABILITIES | 25,722,721 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 272,761,135 |
| SHARES COMMON STOCK | 2,188,371 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 16,641,827 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (10,599,799) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (1,348,814) |
| NET ASSETS | 277,454,349 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 23,662,535 |
| OTHER INCOME | 0 |
| EXPENSES NET | (4,003,651) |
| NET INVESTMENT INCOME | 19,658,884 |
| REALIZED GAINS CURRENT | 24,360,031 |
| APPREC INCREASE CURRENT | (529,236) |
| NET CHANGE FROM OPS | 43,489,679 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (560,483) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 2,163,523 |
| NUMBER OF SHARES REDEEMED | (14,347) |
| SHARES REINVESTED | 39,195 |
| NET CHANGE IN ASSETS | (119,129,784) |
| ACCUMULATED NII PRIOR | 1,318,755 |
| ACCUMULATED GAINS PRIOR | (18,473,913) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 2,367,381 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 4,933,798 |
| AVERAGE NET ASSETS | 31,020,110 |
| PER SHARE NAV BEGIN | 14.09 |
| PER SHARE NII | .22 |
| PER SHARE GAIN APPREC | .40 |
| PER SHARE DIVIDEND | (.26) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.45 |
| EXPENSE RATIO | .65 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 031 |
| NAME: GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND A |
| PERIOD TYPE | OTHER |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | MAY 12 1995 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 676,175,134 |
| INVESTMENTS AT VALUE | 668,520,312 |
| RECEIVABLES | 9,097,255 |
| ASSETS OTHER | 1,218,377 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 678,835,944 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,702,926 |
| TOTAL LIABILITIES | 2,702,926 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 733,171,454 |
| SHARES COMMON STOCK | 67,312,163 |
| SHARES COMMON PRIOR | 96,811,500 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (2,129,902) |
| ACCUMULATED NET GAINS | (46,579,546) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (8,328,988) |
| NET ASSETS | 676,133,018 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,991,431 |
| OTHER INCOME | 0 |
| EXPENSES NET | (3,404,978) |
| NET INVESTMENT INCOME | 42,586,453 |
| REALIZED GAINS CURRENT | (12,000,479) |
| APPREC INCREASE CURRENT | 16,138,367 |
| NET CHANGE FROM OPS | 46,724,341 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (44,754,105) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 45,635,666 |
| NUMBER OF SHARES REDEEMED | (79,186,935) |
| SHARES REINVESTED | 2,125,494 |
| NET CHANGE IN ASSETS | (273,350,262) |
| ACCUMULATED NII PRIOR | 747,775 |
| ACCUMULATED GAINS PRIOR | (31,425,234) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 2,947,492 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 3,974,350 |
| AVERAGE NET ASSETS | 725,206,126 |
| PER SHARE NAV BEGIN | 9.74 |
| PER SHARE NII | .563 |
| PER SHARE GAIN APPREC | .072 |
| PER SHARE DIVIDEND | (.605) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.77 |
| EXPENSE RATIO | .46 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 032 |
| NAME: GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND B |
| PERIOD TYPE | OTHER |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | MAY 12 1995 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 676,175,134 |
| INVESTMENTS AT VALUE | 668,520,312 |
| RECEIVABLES | 9,097,255 |
| ASSETS OTHER | 1,218,377 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 678,835,944 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,702,926 |
| TOTAL LIABILITIES | 2,702,926 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 733,171,454 |
| SHARES COMMON STOCK | 365,725 |
| SHARES COMMON PRIOR | 714,847 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (2,129,902) |
| ACCUMULATED NET GAINS | (46,579,546) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (8,328,988) |
| NET ASSETS | 676,133,018 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,991,431 |
| OTHER INCOME | 0 |
| EXPENSES NET | (3,404,978) |
| NET INVESTMENT INCOME | 42,586,453 |
| REALIZED GAINS CURRENT | (12,000,479) |
| APPREC INCREASE CURRENT | 16,138,367 |
| NET CHANGE FROM OPS | 46,724,341 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (292,323) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 66,628 |
| NUMBER OF SHARES REDEEMED | (588,307) |
| SHARES REINVESTED | 12,743 |
| NET CHANGE IN ASSETS | (273,350,262) |
| ACCUMULATED NII PRIOR | 747,775 |
| ACCUMULATED GAINS PRIOR | (31,425,234) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 2,947,492 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 3,974,350 |
| AVERAGE NET ASSETS | 5,052,740 |
| PER SHARE NAV BEGIN | 9.74 |
| PER SHARE NII | .537 |
| PER SHARE GAIN APPREC | .074 |
| PER SHARE DIVIDEND | (.581) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.77 |
| EXPENSE RATIO | .71 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 033 |
| NAME: GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND C |
| PERIOD TYPE | OTHER |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | MAY 12 1995 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 676,175,134 |
| INVESTMENTS AT VALUE | 668,520,312 |
| RECEIVABLES | 9,097,255 |
| ASSETS OTHER | 1,218,377 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 678,835,944 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,702,926 |
| TOTAL LIABILITIES | 2,702,926 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 733,171,454 |
| SHARES COMMON STOCK | 1,556,301 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (2,129,902) |
| ACCUMULATED NET GAINS | (46,579,546) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (8,328,988) |
| NET ASSETS | 676,133,018 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,991,431 |
| OTHER INCOME | 0 |
| EXPENSES NET | (3,404,978) |
| NET INVESTMENT INCOME | 42,586,453 |
| REALIZED GAINS CURRENT | (12,000,479) |
| APPREC INCREASE CURRENT | 16,138,367 |
| NET CHANGE FROM OPS | 46,724,341 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (447,083) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,106,877 |
| NUMBER OF SHARES REDEEMED | (1,350,373) |
| SHARES REINVESTED | 42,880 |
| NET CHANGE IN ASSETS | (273,350,262) |
| ACCUMULATED NII PRIOR | 747,775 |
| ACCUMULATED GAINS PRIOR | (31,425,234) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 2,947,492 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 3,974,350 |
| AVERAGE NET ASSETS | 15,462,264 |
| PER SHARE NAV BEGIN | 9.79 |
| PER SHARE NII | .272 |
| PER SHARE GAIN APPREC | (.009) |
| PER SHARE DIVIDEND | (.283) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.77 |
| EXPENSE RATIO | .69 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 041 |
| NAME: GS SHORT DURATION TAX FREE FUND A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 71,763,971 |
| INVESTMENTS AT VALUE | 72,362,466 |
| RECEIVABLES | 7,895,659 |
| ASSETS OTHER | 218,658 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 80,476,783 |
| PAYABLE FOR SECURITIES | 21,417,313 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 170,161 |
| TOTAL LIABILITIES | 21,587,474 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 62,694,923 |
| SHARES COMMON STOCK | 5,871,894 |
| SHARES COMMON PRIOR | 8,548,943 |
| ACCUMULATED NII CURRENT | 67,398 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (4,471,507) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 598,495 |
| NET ASSETS | 58,889,309 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,112,135 |
| OTHER INCOME | 0 |
| EXPENSES NET | (297,681) |
| NET INVESTMENT INCOME | 2,814,454 |
| REALIZED GAINS CURRENT | (472,312) |
| APPREC INCREASE CURRENT | 1,270,197 |
| NET CHANGE FROM OPS | 3,612,339 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (2,771,793) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,920,432 |
| NUMBER OF SHARES REDEEMED | (4,787,105) |
| SHARES REINVESTED | 189,624 |
| NET CHANGE IN ASSETS | (28,725,230) |
| ACCUMULATED NII PRIOR | 44,725 |
| ACCUMULATED GAINS PRIOR | (3,999,195) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 260,970 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 510,820 |
| AVERAGE NET ASSETS | 64,348,000 |
| PER SHARE NAV BEGIN | 9.79 |
| PER SHARE NII | .424 |
| PER SHARE GAIN APPREC | .150 |
| PER SHARE DIVIDEND | (.424) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.94 |
| EXPENSE RATIO | .45 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 042 |
| NAME: GS SHORT DURATION TAX FREE FUND B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 71,763,971 |
| INVESTMENTS AT VALUE | 72,362,466 |
| RECEIVABLES | 7,895,659 |
| ASSETS OTHER | 218,658 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 80,476,783 |
| PAYABLE FOR SECURITIES | 21,417,313 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 170,161 |
| TOTAL LIABILITIES | 21,587,474 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 62,694,923 |
| SHARES COMMON STOCK | 4,614 |
| SHARES COMMON PRIOR | 395,007 |
| ACCUMULATED NII CURRENT | 67,398 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (4,471,507) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 598,495 |
| NET ASSETS | 58,889,309 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,112,135 |
| OTHER INCOME | 0 |
| EXPENSES NET | (297,681) |
| NET INVESTMENT INCOME | 2,814,454 |
| REALIZED GAINS CURRENT | (472,312) |
| APPREC INCREASE CURRENT | 1,270,197 |
| NET CHANGE FROM OPS | 3,612,339 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (20,584) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 0 |
| NUMBER OF SHARES REDEEMED | (390,639) |
| SHARES REINVESTED | 246 |
| NET CHANGE IN ASSETS | (28,725,230) |
| ACCUMULATED NII PRIOR | 44,725 |
| ACCUMULATED GAINS PRIOR | (3,999,195) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 260,970 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 510,820 |
| AVERAGE NET ASSETS | 497,741 |
| PER SHARE NAV BEGIN | 9.79 |
| PER SHARE NII | .399 |
| PER SHARE GAIN APPREC | .150 |
| PER SHARE DIVIDEND | (.399) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.94 |
| EXPENSE RATIO | .70 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 043 |
| NAME: GS SHORT DURATION TAX FREE FUND C |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 71,763,971 |
| INVESTMENTS AT VALUE | 72,362,466 |
| RECEIVABLES | 7,895,659 |
| ASSETS OTHER | 218,658 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 80,476,783 |
| PAYABLE FOR SECURITIES | 21,417,313 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 170,161 |
| TOTAL LIABILITIES | 21,587,474 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 62,694,923 |
| SHARES COMMON STOCK | 45,968 |
| SHARES COMMON PRIOR | 4,496 |
| ACCUMULATED NII CURRENT | 67,398 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (4,471,507) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 598,495 |
| NET ASSETS | 58,889,309 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,112,135 |
| OTHER INCOME | 0 |
| EXPENSES NET | (297,681) |
| NET INVESTMENT INCOME | 2,814,454 |
| REALIZED GAINS CURRENT | (472,312) |
| APPREC INCREASE CURRENT | 1,270,197 |
| NET CHANGE FROM OPS | 3,612,339 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (22,077) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,812,950 |
| NUMBER OF SHARES REDEEMED | (1,772,550) |
| SHARES REINVESTED | 1,072 |
| NET CHANGE IN ASSETS | (28,725,230) |
| ACCUMULATED NII PRIOR | 44,725 |
| ACCUMULATED GAINS PRIOR | (3,999,195) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 260,970 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 510,820 |
| AVERAGE NET ASSETS | 570,497 |
| PER SHARE NAV BEGIN | 9.79 |
| PER SHARE NII | .374 |
| PER SHARE GAIN APPREC | .160 |
| PER SHARE DIVIDEND | (.374) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.95 |
| EXPENSE RATIO | .95 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 071 |
| NAME: GOLDMAN SACHS GOVERNMENT INCOME FUND |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 30,931,415 |
| INVESTMENTS AT VALUE | 31,340,222 |
| RECEIVABLES | 269,221 |
| ASSETS OTHER | 126,912 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 31,736,355 |
| PAYABLE FOR SECURITIES | 2,144,668 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 89,088 |
| TOTAL LIABILITIES | 2,233,756 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 29,150,881 |
| SHARES COMMON STOCK | 2,038,356 |
| SHARES COMMON PRIOR | 1,072,779 |
| ACCUMULATED NII CURRENT | 36,251 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (93,340) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 408,807 |
| NET ASSETS | 29,502,599 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 1,452,092 |
| OTHER INCOME | 0 |
| EXPENSES NET | (94,830) |
| NET INVESTMENT INCOME | 1,357,262 |
| REALIZED GAINS CURRENT | 603,048 |
| APPREC INCREASE CURRENT | 902,391 |
| NET CHANGE FROM OPS | 2,862,701 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (1,361,620) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,139,008 |
| NUMBER OF SHARES REDEEMED | (253,583) |
| SHARES REINVESTED | 80,152 |
| NET CHANGE IN ASSETS | 15,050,777 |
| ACCUMULATED NII PRIOR | 22,212 |
| ACCUMULATED GAINS PRIOR | (696,388) |
| OVERDISTRIB NII PRIOR | (17,584) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 101,737 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 475,935 |
| AVERAGE NET ASSETS | 20,339,005 |
| PER SHARE NAV BEGIN | 13.47 |
| PER SHARE NII | .94 |
| PER SHARE GAIN APPREC | 1.00 |
| PER SHARE DIVIDEND | 0 |
| PER SHARE DISTRIBUTIONS | (.94) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.47 |
| EXPENSE RATIO | .47 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 081 |
| NAME: GOLDMAN SACHS MUNICIPAL INCOME FUND |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 60,395,131 |
| INVESTMENTS AT VALUE | 61,899,345 |
| RECEIVABLES | 6,714,091 |
| ASSETS OTHER | 147,409 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 68,760,845 |
| PAYABLE FOR SECURITIES | 14,753,768 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 209,843 |
| TOTAL LIABILITIES | 14,963,611 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 54,514,862 |
| SHARES COMMON STOCK | 3,796,312 |
| SHARES COMMON PRIOR | 3,622,667 |
| ACCUMULATED NII CURRENT | 42,738 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (2,264,580) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 1,504,214 |
| NET ASSETS | 53,797,234 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 2,846,866 |
| OTHER INCOME | 0 |
| EXPENSES NET | (366,894) |
| NET INVESTMENT INCOME | 2,466,930 |
| REALIZED GAINS CURRENT | 938,332 |
| APPREC INCREASE CURRENT | 3,055,111 |
| NET CHANGE FROM OPS | 6,460,373 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (2,466,930) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 876,447 |
| NUMBER OF SHARES REDEEMED | (816,569) |
| SHARES REINVESTED | 113,767 |
| NET CHANGE IN ASSETS | 6,424,207 |
| ACCUMULATED NII PRIOR | 25,593 |
| ACCUMULATED GAINS PRIOR | (3,202,912) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 200,207 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 746,830 |
| AVERAGE NET ASSETS | 50,051,645 |
| PER SHARE NAV BEGIN | 13.08 |
| PER SHARE NII | .67 |
| PER SHARE GAIN APPREC | 1.09 |
| PER SHARE DIVIDEND | (.67) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.17 |
| EXPENSE RATIO | .76 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN SACHS TRUST'S ANNUAL REPORT DATED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 091 |
| NAME: GS CORE FIXED INCOME FUND |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | OCT 31 1995 |
| PERIOD START | NOV 01 1994 |
| PERIOD END | OCT 31 1995 |
| INVESTMENTS AT COST | 59,073,549 |
| INVESTMENTS AT VALUE | 60,097,854 |
| RECEIVABLES | 1,195,005 |
| ASSETS OTHER | 201,012 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 61,493,871 |
| PAYABLE FOR SECURITIES | 5,942,377 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 49,216 |
| TOTAL LIABILITIES | 5,991,593 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 53,994,311 |
| SHARES COMMON STOCK | 5,549,690 |
| SHARES COMMON PRIOR | 2,652,854 |
| ACCUMULATED NII CURRENT | 40,202 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 462,804 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 1,004,961 |
| NET ASSETS | 55,502,278 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 2,402,498 |
| OTHER INCOME | 0 |
| EXPENSES NET | (154,303) |
| NET INVESTMENT INCOME | 2,248,195 |
| REALIZED GAINS CURRENT | 921,130 |
| APPREC INCREASE CURRENT | 1,663,176 |
| NET CHANGE FROM OPS | 4,832,501 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (2,253,625) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 3,077,397 |
| NUMBER OF SHARES REDEEMED | (411,156) |
| SHARES REINVESTED | 230,595 |
| NET CHANGE IN ASSETS | 30,994,536 |
| ACCUMULATED NII PRIOR | 20,085 |
| ACCUMULATED GAINS PRIOR | (458,326) |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 137,158 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 330,772 |
| AVERAGE NET ASSETS | 34,289,551 |
| PER SHARE NAV BEGIN | 9.24 |
| PER SHARE NII | .642 |
| PER SHARE GAIN APPREC | .761 |
| PER SHARE DIVIDEND | (.643) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 10.00 |
| EXPENSE RATIO | .45 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |